ACQUISITION AND DEVELOPMENT AGREEMENT BETWEEN SM ENERGY COMPANY and MITSUI E&P TEXAS LP DATED JUNE 29, 2011

Exhibit 2.2

ACQUISITION AND DEVELOPMENT AGREEMENT

BETWEEN

SM ENERGY COMPANY

and

MITSUI E&P TEXAS LP

DATED JUNE 29, 2011

TABLE OF CONTENTS

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TABLE OF CONTENTS
(continued)

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TABLE OF CONTENTS
(continued)

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APPENDICES; ANNEXES; EXHIBITS; AND SCHEDULES

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ACQUISITION AND DEVELOPMENT AGREEMENT

THIS ACQUISITION AND DEVELOPMENT AGREEMENT (this “Agreement”) is made as of June 29, 2011 (the “Execution Date”) between SM ENERGY COMPANY, a Delaware corporation (“SM”), and MITSUI E&P TEXAS LP, a Texas limited partnership (“Mitsui”).  SM and Mitsui shall sometimes be referred to herein together as the “Parties”, and each individually as a “Party”.

RECITALS

WHEREAS, SM and Mitsui desire to enter into an arrangement for the exploration, development and operation of certain oil and gas properties and related gathering facilities located in Dimmit, LaSalle, Maverick and ▇▇▇▇ Counties, Texas;

WHEREAS, in connection therewith, SM desires to transfer to Mitsui, and Mitsui desires to receive from SM, an undivided interest in and to such properties in accordance with this Agreement; and

WHEREAS, the Parties now desire to set forth their respective rights and obligations with respect to all such arrangements.

NOW THEREFORE, in consideration of the mutual agreements herein contained, the Parties hereby agree as follows:

ARTICLE I
DEFINITIONS; INTERPRETATION

1.1          Definitions.  Capitalized terms used in this Agreement shall have the meanings given such terms in Appendix I.

1.2          Interpretation.  All references in this Agreement to Exhibits, Appendices, Annexes, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Appendices, Annexes, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole (including, for the avoidance of doubt the Acquisition Annex and the Transfer Provisions) and not to any particular Article, Section, subsection or other subdivision unless expressly so limited.  The words “this Article,” “this Section” and “this subsection,” and words of similar import, refer only to Article, Section or subsection hereof in which such words occur.  The word “including” (in its various forms) means “including without limitation.”  All references to “$” or “dollars” shall be deemed references to United States Dollars.  Each accounting term not defined herein will have the meaning given to it under GAAP.  Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  Appendices, Annexes and Exhibits referred to herein are

attached to and made a part of this Agreement.  Unless expressly stated otherwise, references to any Law or Contract shall mean such Law or Contract as it may be amended from time to time.

ARTICLE II
ACQUISITION

2.1          Acquisition of Conveyed Interests.  Subject to the terms and conditions of this Agreement (including the Acquisition Annex), SM agrees to transfer, and Mitsui agrees to accept, the following assets and properties (less and except for the Excluded Assets, such interests in such assets and properties described in Section 2.1(a), Section 2.1(b) and Section 2.1(c) below, collectively, the “Conveyed Interests”):

(a)           an undivided 12.5% of 8/8ths interest in and to the Assets;

(b)           an undivided 50% of SM’s right, title and interest in and to the Springfield Gathering Assets; and

(c)           the following assets to the extent, and only to the extent, that such assets are associated with any of the Conveyed Interests described in Section 2.1(a) and Section 2.1(b) above:

(i)            to the extent assignable, all Applicable Contracts;

(ii)           copies of any files, records, information and data, whether written or electronically stored, including, without limitation:  (A) land and title records (including abstracts of title, title opinions and title curative documents); (B) contract files; (C) correspondence; (D) operations, environmental, production, and accounting records; and (E) facility and well records but excluding any of the foregoing items that are Excluded Assets (the “Records”);

(iii)          to the extent assignable, including without payment of fees or other penalties (unless Mitsui agrees to pay such fees or penalties), all geophysical and other seismic and related technical data and information listed on Schedule 2.1;

(iv)          all liens and security interests securing payment for the sale or other disposition of Hydrocarbons produced from or allocated to the Properties, including the security interests granted under Texas Uniform Commercial Code § 9.343, but only to the extent that such liens and security interests relate to the period from and after the Effective Time; and

(v)           to the extent assignable, all of SM’s right, title and interest in and to all rights, claims and causes of action to the extent, and only to the extent, that such rights, claims or causes of action are associated with the Conveyed Interests described in Section 2.1(a) or Section 2.1(b) above and (i) relate to the period from and after the Closing, (ii) relate to the Assumed Obligations and the period prior to the Closing, or (iii) relate to rights after the Effective Time to which Mitsui is entitled under Section 3.7(a), and in any case excluding Tax claims and loss carry forwards, provided that, at Mitsui’s request, SM shall use its

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commercially reasonable efforts to enforce, for the benefit of Mitsui, at Mitsui’s sole cost and expense, any right, claim or cause of action relating to the period prior to Closing that would otherwise be transferred hereunder but is not assignable.

2.2          Excluded Assets.  SM shall reserve and retain all of the Excluded Assets, except as provided herein with respect to (a) Mitsui’s Offered Interest in any Interim Period Acquired Interest and (b) the TXCO Interest, in each case, to the extent Mitsui elects to and does acquire any such interest under the terms of this Agreement.

2.3          Transfer of Conveyed Interests.  Subject to the terms and conditions of this Agreement (including the Acquisition Annex) (a) at Closing, but effective as of the Effective Time, SM shall transfer the Conveyed Interests to Mitsui pursuant to an Assignment delivered in accordance with Section 8.3(a) of the Acquisition Annex, and (b) from time to time after the Closing, each Development Party shall transfer to the other Development Parties such portions of the Acquired Interests that are acquired after the Effective Time and which the other Development Parties have elected to purchase under the terms of Article II of the Transfer Provisions.

ARTICLE III
CLOSING COST REIMBURSEMENT; CARRIED COSTS; ADJUSTMENTS; SETTLEMENT; PAYMENT

3.1          Closing Cost Reimbursement.  At Closing and for and in consideration of the transfer of those Conveyed Interests described in Section 2.1(b) and, with respect to the Springfield Gathering Assets, Section 2.1(c), Mitsui shall pay to SM the sum of $17,333,465.93 (the “Closing Cost Reimbursement”), as the Closing Cost Reimbursement may be adjusted pursuant to Section 3.9, less the amount of the Deposit.

3.2          Carry of Eligible Costs.

(a)           From and after the Closing Date and until the Carry Termination Event, and notwithstanding the terms of any Applicable Operating Agreement or any other Contract to the contrary, Mitsui shall pay (in accordance with Section 3.8) 90% of SM’s Participating Interest share (excluding any non-consent interest in any Development Operation that SM acquires from a Third Party or Mitsui) of all Eligible Costs incurred pursuant to Development Operations (the “Carried Costs”).

(b)           Subject to obtaining information regarding costs from any Third Party Operator, as applicable, SM shall maintain a record of the Carried Costs funded by Mitsui and each Month shall provide each Development Party with a statement showing the Month and inception to date funding of such Carried Costs by Mitsui.

3.3          Development Costs.  Except as set forth in Section 3.2 above, each Development Party shall bear and pay its Participating Interest share of all Development Costs incurred from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the Applicable Operating Agreements and/or Springfield Ownership Agreement.

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3.4          Deposit.

(a)           Concurrently with the execution of this Agreement, Mitsui shall deposit with the Escrow Agent by wire transfer in same day funds, to be held in escrow by the Escrow Agent pending Closing pursuant to the terms of the Deposit Escrow Agreement, the sum of $15,000,000 (such amount, together with any interest earned thereon, the “Deposit”).  At Closing, the Parties shall jointly issue a written instruction to the Escrow Agent to transfer the Deposit to SM as part of the Closing Cost Reimbursement.

(b)           In the event of any termination of this Agreement, the Parties shall, in each case, thereupon have the rights and obligations set forth in Section 9.2 of the Acquisition Annex and Section 9.3 of the Acquisition Annex.

3.5          Adjustments to Carried Cost Obligation.  The Carried Cost Obligation shall be adjusted as follows:

(a)           The Carried Cost Obligation shall be adjusted upward by the following amounts (without duplication):

(i)            an amount determined pursuant to Section 4.4(b)(i) of the Acquisition Annex, as applicable, for any Conveyed Interests (other than Springfield Gathering Assets) that were previously excluded from the transactions contemplated hereby but were later assigned to Mitsui pursuant to such Section;

(ii)           for each Acquired Interest acquired by SM within the AMI Area during the Interim Period where Mitsui elects to acquire the Offered Interest, the amount of the cash consideration or Cash Value attributable to the Offered Interest under Section 2.2(a) of the Transfer Provisions;

(iii)          for any TXCO Interest to be acquired by Mitsui under Section 2.4(a) of the Transfer Provisions, the TXCO Carry Amount determined under Section 2.4(a) of the Transfer Provisions; and

(iv)          any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties.

(b)           The Carried Cost Obligation shall be adjusted downward by the following amounts (without duplication):

(i)            if (A) an election under Section 4.2(d)(i) of the Acquisition Annex is made (or deemed made) with respect to a Title Defect, and (B) such Title Defect affects the Conveyed Interests other than Springfield Gathering Assets, subject to Section 4.2(i) of the Acquisition Annex, the Title Defect Amount with respect to such Title Defect insofar and only insofar as such Title Defect Amount relates to the Conveyed Interests other than Springfield Gathering Assets;

(ii)           if (A) an election under Section 5.1(c)(i) of the Acquisition Annex is made (or deemed made) with respect to an Environmental Defect, and (B) such

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Environmental Defect affects the Conveyed Interests other than Springfield Gathering Assets, subject to Section 5.1(e) of the Acquisition Annex, the Remediation Amount with respect to such Environmental Defect insofar and only insofar as such Remediation Amount relates to the Conveyed Interests other than Springfield Gathering Assets;

(iii)          an amount determined pursuant to Section 4.4(b)(i) of the Acquisition Annex for any Conveyed Interests that (A) are not part of the Springfield Gathering Assets and (B) are excluded from the transaction contemplated hereby pursuant to such Sections; and

(iv)          any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties.

(c)           The “Allocated Value” for any Conveyed Interest equals (i) with respect to the Conveyed Interests described in Section 2.1(b), $17,333,465.93, (ii) with respect to any Lease included in the Conveyed Interests, the applicable Net Acre Allocation with respect to the Conveyed Interest in such Lease, and (iii) with respect to any Well included in the Conveyed Interests, the amount allocated to the Conveyed Interest in such Well on Exhibit A-2.  In each case, such Allocated Values shall be used in calculating adjustments to the Closing Cost Reimbursement or the Carried Cost Obligation, as applicable, as provided herein.  For purposes of Tax filings and Title Defect, Title Benefit and Environmental Defect calculations (but not for purposes of notices of price to holders of preferential rights to purchase or similar rights, if any, or for determining any reduction in the Carried Cost Obligation for properties excluded from the transactions contemplated hereby), the Allocated Values of the Conveyed Interests shall be increased or decreased as follows:  (A) to the extent allocable to (1) a particular Well, the adjustments in Sections 3.9(c)(i), 3.9(c)(ii) and 3.9(c)(iv) shall be applied to the Allocated Value of such Well on a Well-by-Well basis (except that, with respect to any adjustments based on costs and expenses allocable to any Well that had not been drilled or was otherwise not in existence as of the Effective Time and is not listed on Exhibit A-2, the adjustment will be applied on a pro-rata basis to the Net Acres allocated to the spacing unit for such Well), and (2) the Springfield Gathering Assets, the adjustments in Sections 3.9(a)(i)(A) and 3.9(a)(ii)(A) shall be applied to the Allocated Value of the Springfield Gathering Assets, as applicable; and (B) to the extent that the adjustments provided in Sections 3.9(c)(i), 3.9(c)(ii) and 3.9(c)(iv) are not allocable to any particular Well (for example, general and administrative expenses), they shall be applied to the Allocated Value of all of the Leases on a pro-rata basis in proportion to the Net Acre Allocation for each Lease prior to such adjustment.

3.6          Settlement; Disputes.

(a)           Not less than five Business Days prior to the Closing, SM shall prepare and submit to Mitsui for review a draft settlement statement using the best information available to SM (the “Preliminary Settlement Statement”) that shall set forth the (i) adjusted Carried Cost Obligation, (ii) adjusted Closing Cost Reimbursement and (iii) Cash Reconciliation Amount, in each case, reflecting each adjustment made thereto in accordance with this Agreement as of the date of preparation of such Preliminary Settlement Statement.  Within three Business Days of receipt of the Preliminary Settlement Statement, Mitsui will deliver to SM a written report

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containing all changes with the explanation therefor that Mitsui proposes to be made to the Preliminary Settlement Statement.  The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to set the Cash Reconciliation Payment and adjust the Carried Cost Obligation and Closing Cost Reimbursement at Closing.  If the Parties cannot agree on the Preliminary Settlement Statement prior to the Closing, the Preliminary Settlement Statement as presented by SM will be used to (A) adjust the Carried Cost Obligation and Closing Cost Reimbursement at Closing and (B) set the Cash Reconciliation Payment at Closing.

(b)           On or before 180 days after the Closing, a final settlement statement (the “Final Settlement Statement”) will be prepared by SM, based on actual income and expenses during the Interim Period and which takes into account all final adjustments made to the Carried Cost Obligation, Closing Cost Reimbursement and Cash Reconciliation Amount for Title Defects, Title Benefits, Environmental Defects and other matters for which adjustments to the Carried Cost Obligation, Closing Cost Reimbursement and/or Cash Reconciliation Amount may be made under this Agreement, and shows the resulting final adjusted Carried Cost Obligation, Closing Cost Reimbursement and Cash Reconciliation Amount.  SM shall, at Mitsui’s request, supply reasonable documentation in its or its Affiliates’ possession available to support the actual revenue, expenses and other items for which adjustments are made (other than with respect to any Title Defects, Title Benefits or Environmental Defects, the resolution of which are governed by Article IV of the Acquisition Annex and Article V of the Acquisition Annex, respectively).  The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement.  As soon as practicable, and in any event within 60 days, after receipt of the Final Settlement Statement, Mitsui shall return a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such changes and the reasons therefor (the “Dispute Notice”).  Mitsui shall be deemed to have agreed to the Final Settlement Statement delivered by SM if no Dispute Notice is delivered to SM within such 60 day period.  If the final adjusted (i) Carried Cost Obligation set forth in the Final Settlement Statement is mutually agreed upon by SM and Mitsui, the Final Settlement Statement and such final adjusted Carried Cost Obligation shall be final and binding on the Parties, (ii) Closing Cost Reimbursement set forth in the Final Settlement Statement is mutually agreed upon by SM and Mitsui, the Final Settlement Statement and such final adjusted Closing Cost Reimbursement shall be final and binding on the Parties and (iii) Cash Reconciliation Amount set forth in the Final Settlement Statement is mutually agreed upon by SM and Mitsui, the Final Settlement Statement and such final adjusted Cash Reconciliation Amount shall be final and binding on the Parties.  Once the final adjusted (A) Carried Cost Obligation has been agreed upon by the Parties pursuant to this Section 3.6(b) or determined by the Accounting Arbitrator pursuant to Section 3.6(c), as applicable, the Parties shall execute a certificate setting forth such agreed or determined, as applicable, final adjusted Carried Cost Obligation which shall be binding on the Parties for all purposes of this Agreement, except for adjustments to the Carried Cost Obligation pursuant to Section 2.4 of the Transfer Provisions if not known by the date of such certificate; (B) Closing Cost Reimbursement has been agreed upon by the Parties pursuant to this Section 3.6(b) or determined by the Accounting Arbitrator pursuant to Section 3.6(c), as applicable (1) the Parties shall execute a certificate setting forth such agreed or determined, as applicable, final adjusted Closing Cost Reimbursement which shall be binding on the Parties for all purposes of this Agreement and (2) if such final adjusted Closing Cost Reimbursement is (x) greater than the adjusted Closing Cost Reimbursement used at Closing, Mitsui shall pay such difference to SM or (y) less than the adjusted Closing Cost Reimbursement used at Closing, SM

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shall pay such difference to Mitsui, in each case, within 10 Business Days after the final adjusted Closing Cost Reimbursement has been agreed upon by the Parties pursuant to this Section 3.6(b) or determined by the Accounting Arbitrator pursuant to Section 3.6(c), as applicable; and (C) Cash Reconciliation Amount has been agreed upon by the Parties pursuant to this Section 3.6(b) or determined by the Accounting Arbitrator pursuant to Section 3.6(c), as applicable (1) the Parties shall execute a certificate setting forth such agreed or determined, as applicable, final adjusted Cash Reconciliation Amount which shall be binding on the Parties for all purposes of this Agreement and (2) if such final adjusted Cash Reconciliation Amount is (x) greater than the Cash Reconciliation Amount used to set the Cash Reconciliation Payment at Closing, then Mitsui shall pay such difference to SM to the Cash Reconciliation Account, or (y) less than the Cash Reconciliation Amount used to set the Cash Reconciliation Payment at Closing, then SM shall pay such difference to Mitsui, in each case, within 10 Business Days after the final adjusted Cash Reconciliation Amount has been agreed upon by the Parties pursuant to this Section 3.6(b) or determined by the Accounting Arbitrator pursuant to Section 3.6(c), as applicable.

(c)           If the Parties are unable to resolve the matters addressed in the Dispute Notice, each of Mitsui and SM shall, within 14 Business Days following the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written document and submit such summaries to the Houston, Texas office of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or such other Person as the Parties may mutually select, and absent such agreement, by the Houston office of the AAA (the “Accounting Arbitrator”), together with the Dispute Notice, the Final Settlement Statement and any other documentation such Party may desire to submit.  Within 20 Business Days after receiving the Parties’ respective submissions, the Accounting Arbitrator shall render a decision choosing either SM’s position or Mitsui’s position with respect to each matter addressed in any Dispute Notice, based on the materials described above.  Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on the Parties and will be enforceable against any of the Parties in any court of competent jurisdiction.  The costs of such Accounting Arbitrator shall be borne one-half by Mitsui and one-half by SM.

3.7          Revenues and Expenses.

(a)           Except as expressly provided otherwise in this Agreement, SM shall remain entitled to the economic benefit of all of the rights of ownership (including the right to all production, proceeds of production and other proceeds) and shall remain responsible for the economic burden of all Operating Expenses (and entitled to any refunds with respect thereto), in each case attributable to the Conveyed Interests for the period of time prior to the Effective Time.  Except as expressly provided otherwise in this Agreement, and subject to the occurrence of the Closing, Mitsui shall be entitled to the economic benefit of all of the rights of ownership (including the right to all production, proceeds of production, and other proceeds), and shall be responsible for the economic burden of all Operating Expenses, in each case, attributable to the Conveyed Interests for the period of time from and after the Effective Time.  All Operating Expenses attributable to the Conveyed Interests, in each case that are:  (i) incurred with respect to operations conducted or production prior to the Effective Time shall be paid by or allocated to SM and (ii) incurred with respect to operations conducted or production from and after the Effective Time shall be paid by or allocated to Mitsui.  Such amounts which are received or paid prior to Closing (to the extent the same differ from the amounts used in the Preliminary Settlement Statement) will be accounted for in the Final Settlement Statement.  Notwithstanding

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anything to the contrary in this Section 3.7, the Parties’ only recourse to enforce the rights and obligations set forth in this Section 3.7 with respect to revenues and other amounts received or paid prior to Closing by either Party attributable to the rights of ownership of (A) the Conveyed Interests other than the Springfield Gathering Assets from and after the Effective Time up to Closing shall be through an adjustment to the calculation of the Cash Reconciliation Amount pursuant to Section 3.9(c), and (B) the Springfield Gathering Assets included in the Conveyed Interests from and after the Effective Time up to Closing shall be an adjustment to the Closing Cost Reimbursement pursuant to the provisions of Section 3.9(a).

(b)           Except as expressly provided otherwise in this Agreement, Mitsui will pay to SM any and all revenues and other proceeds attributable to the rights of ownership of the Conveyed Interests received after Closing by Mitsui that are attributable to the Conveyed Interests prior to the Effective Time.  Except as expressly provided otherwise in this Agreement, SM will pay to Mitsui any and all revenues and other proceeds attributable to the rights of ownership of the Conveyed Interests received after Closing by SM that are attributable to the Conveyed Interests on and after the Effective Time.  The Party responsible for the payment of amounts received shall reimburse the other Party within five Business Days after the end of the Month in which such amounts were received by the Party responsible for payment.  Such amounts shall not be taken into account for purposes of the Final Settlement Statement.

(c)           Except as expressly provided otherwise in this Agreement, SM will reimburse Mitsui for any and all Operating Expenses that are paid after Closing by Mitsui and that are attributable to the Conveyed Interests prior to the Effective Time.  Except as expressly provided otherwise in this Agreement, Mitsui will reimburse SM for any and all Operating Expenses that are paid after Closing by SM and that are attributable to the Conveyed Interests on and after the Effective Time.  The Party responsible for the payment of such costs and expenses shall reimburse the other Party within five Business Days after the end of the Month in which the applicable invoice and proof of payment of such invoice were received by the Party responsible for payment.  Such amounts shall not be taken into account for purposes of the Final Settlement Statement.

(d)           Each of SM and Mitsui shall be permitted to offset any Operating Expenses owed by such Party to the other Party pursuant to Section 3.7(c) against revenues owing by such Party to such other Party pursuant to Section 3.7(b); provided that the Party exercising its right to offset under this Section 3.7(d) provides the other Party with a reasonably detailed description of the Operating Expenses and revenues that it is offsetting under this Section 3.7(d) and the calculation of the net amount at the time of the applicable payment or statement.

3.8          Payment Procedure.  All payments of Development Costs and Carried Costs owed by the Parties pursuant to this Agreement shall be made pursuant to the following terms and conditions:

(a)           In response to each statement, invoice or request for advance issued by an Operator to the Participating Parties in a Development Operation under an Applicable Operating Agreement (i) Mitsui shall fund the Carried Costs associated with the conduct of such Development Operations in accordance with the provisions of the Exhibit D (the “Escrow

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Procedures”), (ii) Mitsui shall pay its share of expenditures (other than Carried Costs) for the conduct of such Development Operations in accordance with the terms of the Applicable Operating Agreements or the other provisions of this Agreement, as applicable, and (iii) SM shall (A) apply the Deposit Funds to the payment of its share of expenditures for the conduct of such Development Operations in accordance with the terms of the Applicable Operating Agreements or the other provisions of this Agreement, as applicable, but only to the extent such expenditures are Carried Costs hereunder, and (B) after applying the Deposit Funds as set forth in clause (A) above, pay its share of such expenditures that are not Carried Costs hereunder in accordance with the terms of the Applicable Operating Agreements or the other provisions of this Agreement, as applicable.

(b)           Each Participating Party (and Mitsui when funding any Carried Costs with respect to such Development Operation) shall also be entitled to exercise all rights available to the parties under each Applicable Operating Agreements to contest charges and audit the accounts of the Operator thereunder with respect to such payments.  Any reimbursements for any Carried Costs funded by Mitsui shall be paid by SM or the applicable reimbursing party to Mitsui promptly after the determination thereof (or, to the extent reimbursable by Person other than SM and paid to SM, promptly following receipt by SM of such amounts), provided that any amounts so reimbursed to Mitsui shall be deducted from the calculation of the Carried Costs funded by Mitsui for purposes of this Agreement, including the determination of the Carry Termination Event.  In the event SM receives a credit in respect of Carried Costs funded by Mitsui, at the request of Mitsui, SM shall request that such credit be paid directly to Mitsui (and any such credit actually paid to Mitsui shall be deducted from the calculation of Carried Costs funded by Mitsui pursuant to this Agreement).  Following the Carry Termination Event, any (i) Deposited Amounts remaining in the Operating Account at such time shall be transferred by SM to the Carried Costs Balance Account, and (ii) any Deposit Interest remaining in the Operating Account (or which is owed to the Operating Account) shall be paid to Mitsui, in each case (A) within five Business Days after the end of the month in which the Carry Termination Event occurs and (B) pursuant to a SM Termination Instruction or Mitsui Termination Instruction, as applicable.

(c)           Each Development Party shall pay its share of expenditures for the conduct of Development Operations pursuant to the Springfield Ownership Agreement in accordance with the provisions of the Springfield Ownership Agreement.

3.9          Closing Cash Adjustments.

(a)           The Closing Cost Reimbursement shall be adjusted as follows:

(i)            The Closing Cost Reimbursement shall be adjusted upward by the following amounts (without duplication):

(A)          an amount equal to all Operating Expenses and other costs and expenses paid by SM that are attributable to the Springfield Gathering Assets included in the Conveyed Interests and incurred during the Interim Period, whether paid before or after the Effective Time;

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(B)           an amount determined pursuant to Section 4.4(b)(i) of the Acquisition Annex, as applicable, for any Conveyed Interests that (1) are part of the Springfield Gathering Assets and (2) were previously excluded from the transactions contemplated hereby but were later assigned to Mitsui pursuant to such Section; and

(C)           any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties that relates to the Springfield Gathering Assets included in the Conveyed Interests.

(ii)           The Closing Cost Reimbursement shall be adjusted downward by the following amounts (without duplication):

(A)          an amount equal to all proceeds actually received by SM attributable to its ownership of the Springfield Gathering Assets included in the Conveyed Interests during the Interim Period;

(B)           if (1) an election under Section 4.2(d)(i) of the Acquisition Annex is made (or deemed made) with respect to a Title Defect and (2) such Title Defect affects the Springfield Gathering Assets included in the Conveyed Interests, subject to Section 4.2(i) of the Acquisition Annex, the Title Defect Amount with respect to such Title Defect insofar and only insofar as such Title Defect Amount relates to the Springfield Gathering Assets included in the Conveyed Interests;

(C)           if (1) an election under Section 5.1(c)(i) of the Acquisition Annex is made (or deemed made) with respect to an Environmental Defect and (2) such Environmental Defect affects the Springfield Gathering Assets included in the Conveyed Interests, subject to Section 5.1(e) of the Acquisition Annex, the Remediation Amount with respect to such Environmental Defect insofar and only insofar as such Remediation Amount relates to the Springfield Gathering Assets included in the Conveyed Interests;

(D)          an amount determined pursuant to Section 4.4(b)(i) of the Acquisition Annex for any Conveyed Interests that (1) are part of the Springfield Gathering Assets and (2) are excluded from the transaction contemplated hereby pursuant to such Section;

(E)           the amount of all Asset Taxes for the Springfield Gathering Assets included in the Conveyed Interests prorated to periods of time prior to the Interim Period in accordance with Section 9.2 to the extent such Asset Taxes were not paid or otherwise borne by SM; and

(F)           any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties that relates to the Springfield Gathering Assets included in the Conveyed Interests.

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(b)           The adjustments described in Section 3.9(a)(ii)(A) shall serve to satisfy, up to the amount of the adjustment, Mitsui’s entitlement to the economic benefit of revenues from the Springfield Gathering Assets included in the Conveyed Interests during the Interim Period pursuant to Section 3.7(a), and Mitsui shall not have a separate right to receive the revenues for which an adjustment has been made therefor pursuant to such Sections.  The adjustments described in Section 3.9(a)(i)(A) shall serve to satisfy, up to the amount of the adjustment, Mitsui’s obligation to bear the economic burden of Operating Expenses attributable to the Springfield Gathering Assets included in the Conveyed Interests during the Interim Period, and Mitsui shall not be separately obligated to pay any such Operating Expense for which an adjustment is made therefor pursuant to such Section.

(c)           Subject to the terms of this Section 3.9(c), a cash payment shall be made at Closing with respect to all (x) Operating Expenses attributable to the Conveyed Interests (other than Springfield Gathering Assets) that are incurred with respect to operations conducted or production from and after the Effective Time up to and including the Closing Date and (y) proceeds of production and other proceeds, in each case, attributable to the Conveyed Interests (other than the Springfield Gathering Assets) (the “Cash Reconciliation Amount”).  The Cash Reconciliation Amount shall be determined as follows:

(i)            an amount equal to the value of all Hydrocarbons attributable to the Conveyed Interests (other than Springfield Gathering Assets) in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time, the value to be based upon the contract price in effect as of the Effective Time (or (A) is there is no contract price, then the market price in effect as of the Effective Time in the field in which such Hydrocarbons were produced or (B) if actually sold prior to the date of determination, then the proceeds actually recovered by SM attributable to such sale), net of amounts payable as royalties, overriding royalties and other burdens upon, measured by or payable out of such production and severance Taxes; plus

(ii)           an amount equal to all Operating Expenses and other costs and expenses paid by SM that are attributable to the Conveyed Interests (other than Springfield Gathering Assets) and incurred during the Interim Period, whether paid before or after the Effective Time; minus

(iii)          the amount of all Asset Taxes for the Conveyed Interests (other than Springfield Gathering Assets) prorated to periods of time prior to the Interim Period in accordance with Section 9.2 to the extent such Asset Taxes were not paid or otherwise borne by SM; minus

(iv)          an amount equal to all proceeds actually received by SM attributable to the sale of Hydrocarbons (A) produced from or allocable to the Conveyed Interests (other than Springfield Gathering Assets) during the Interim Period or (B) contained in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time which are described in Section 3.9(c)(i); plus or minus, as applicable;

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(v)           any other amount provided for elsewhere in this Agreement or otherwise agreed upon by the Parties.

(d)           If the Cash Reconciliation Amount resulting from the formula set forth in Section 3.9(c) is a (i) positive number, then Mitsui shall pay the absolute value of the Cash Reconciliation Amount (the absolute value of the Cash Reconciliation Amount herein referred to as the “Cash Reconciliation Payment”) so determined in the manner hereafter described at Closing, and (ii) negative number, then SM shall pay the Cash Reconciliation Payment to Mitsui at Closing, in each case, as such Cash Reconciliation Payment is set forth on the Preliminary Settlement Statement agreed (or deemed agreed) by the Parties pursuant to Section 3.6(a).  If Mitsui is obligated to make the Cash Reconciliation Payment at Closing, the Cash Reconciliation Payment shall be made by wire transfer of immediately available funds to an account set forth in the Preliminary Settlement Statement (the “Cash Reconciliation Account”).  Notwithstanding anything in this Agreement to the contrary, any funds held in the Cash Reconciliation Account (other than any interest earned on such amounts) shall be used solely by SM to pay Eligible Costs of SM incurred pursuant to Development Operations.  Any interest earned on amounts held in the Cash Reconciliation Account shall be allocated and distributed 50% to SM and 50% to Mitsui.

(e)           The component of the Cash Reconciliation Amount specifically described in (i) Section 3.9(c)(i) shall serve to transfer to Mitsui the economic benefit of SM’s right to the Hydrocarbon production in inventory at the Effective Time; (ii) Section 3.9(c)(iv) shall serve to satisfy, up to the amount of the payment made pursuant to such Section, Mitsui’s entitlement to the economic benefit of production from the Conveyed Interests during the Interim Period pursuant to Section 3.7(a) and Mitsui’s rights to the economic benefit of the inventory described under Section 3.9(c)(i) and Mitsui shall not have a separate right to receive the production which is accounted for as a component of the Cash Reconciliation Amount pursuant to such Sections; and (iii) Section 3.9(c)(ii) shall serve to satisfy, up to the amount of the payment made pursuant to such Section, Mitsui’s obligation to bear the economic effect of Operating Expenses attributable to the Conveyed Interests (other than Springfield Gathering Assets) during the Interim Period, and Mitsui shall not be separately obligated to pay any such Operating Expense which are accounted for as a component of the Cash Reconciliation Amount pursuant to such Section.

3.10        Carried Costs Balance Payment.  If the Carry Termination Event has not occurred on or prior to the date that is 30 months after the Closing Date, then, at any time thereafter, Mitsui, upon five Business Days written notice to SM (the “Balance Election Notice”), shall have the right (but not the obligation) (the “Carried Costs Balance Right”) to elect to pay the Carried Costs Balance as a lump sum payment, as applicable (such payment, the “Carried Costs Balance Payment”).  Promptly following the delivery of the Balance Election Notice by Mitsui, but in any event within five Business Days following such delivery, Mitsui shall pay to SM the Carried Costs Balance Payment by wire transfer of immediately available funds to the account specified by SM in writing to Mitsui promptly following SM’s receipt of the Balance Election Notice (the “Carried Costs Balance Account”).  Upon SM’s receipt of the Carried Costs Balance Payment the Carry Termination Event shall be deemed to have occurred for all purposes hereunder.  Notwithstanding anything in this Agreement to the contrary, any funds held in the Carried Costs Balance Account (exclusive of interest, which shall be allocated

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and distributed 50% to SM and 50% to Mitsui) shall, prior to the termination of the Tax Partnership pursuant to Section 7.1 of the Tax Partnership Agreement, be used solely to pay Eligible Costs of SM incurred pursuant to Development Operations in the same amount and manner as the funds provided by Mitsui to pay Carried Costs would have been used pursuant to this Agreement had the Carried Costs Balance Payment not been made and the Carry Termination Event not occurred.

3.11        Mitsui Parent Guaranty; Legal Opinion.  Simultaneously with the execution and delivery of this Agreement (a) Mitsui Parent has executed and delivered the Mitsui Parent Guaranty and (b) Mitsui shall deliver to SM a legal opinion, from counsel reasonably acceptable to SM, opining as to the enforceability of the Mitsui Parent Guaranty in both the United States and Japan.

ARTICLE IV
ACQUISITION PROVISIONS

4.1          Acquisition Annex.  The Parties agree that the transfer of the Conveyed Interests contemplated in Section 2.1 will be governed by, and subject to, the terms and conditions set forth on Annex A (such Annex, including its terms and conditions, the “Acquisition Annex”).

4.2          Representations and Warranties of the Parties.

(a)           SM represents and warrants to Mitsui as set forth in Article I of the Acquisition Annex.

(b)           Mitsui represents and warrants to SM as set forth in Article II of the Acquisition Annex.

4.3          Pre-Closing Access to Conveyed Interests.  The Parties agree that certain rights and obligations with respect to ingress and egress from the Conveyed Interests, including confidentiality obligations with respect to the Conveyed Interests, are set forth in Article III of the Acquisition Annex.

4.4          Title Matters; Casualty; Transfer Restrictions.  The Parties agree that certain rights and obligations with respect to (a) SM’s title to the Conveyed Interests, including any Title Defects and Title Benefits, (b) any Casualty Losses affecting the Conveyed Interests, (c) Preferential Rights, and (d) Consents encumbering the Conveyed Interests, in each case, are set forth in Article IV of the Acquisition Annex, Section 3.5(a)(i), Section 3.5(b)(i), Section 3.5(b)(iii), Section 3.9(a)(i)(B), Section 3.9(a)(ii)(B), and Section 3.9(a)(ii)(D) and, as applicable, the special warranty of title contained in the Assignment.

4.5          Environmental Matters.  The Parties agree that certain rights and obligations with respect to any Environmental Conditions and Environmental Defects affecting the Conveyed Interests, including any Remediation thereof, are set forth in Article V of the Acquisition Annex, Section 3.5(b)(ii) and Section 3.9(a)(ii)(C).

4.6          Pre-Closing Covenants.  Each Party agrees to be bound and perform, as applicable, the covenants of such Party set forth in Article VI of the Acquisition Annex.

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4.7          Acquisition Closing Conditions.  The obligation of each Party to consummate the transactions provided for in Article II is subject, at the option of such Party, to the fulfillment on or prior to the Closing of the following conditions, as applicable:

(a)           with respect to SM, those conditions set forth in Section 7.2 of the Acquisition Annex; and

(b)           with respect to Mitsui, those conditions set forth in Section 7.1 of the Acquisition Annex.

4.8          Closing of Acquisition.  The Parties agree that the Closing of the transactions contemplated by Article II will take place in accordance with the provisions of Article VIII of the Acquisition Annex.

4.9          Pre-Closing Termination Provisions.  The Parties agree that their respective rights and obligations with respect to the termination of this Agreement prior to Closing are set forth in Article IX of the Acquisition Annex.

4.10        Indemnification Provisions.  Each Party agrees that, upon Closing, it shall have rights and obligations with respect to indemnification from the other Party as set forth in Article X of the Acquisition Annex.

4.11        Alternative Proposals.  Promptly following Closing, or such earlier time as SM and Mitsui may mutually agree, SM shall send notice to all other prospective purchasers of the Conveyed Interests pursuant to the confidentiality agreement signed by each such prospective purchaser requiring the return or destruction of all confidential information (as defined in those confidentiality agreements) provided by SM to those prospective purchasers with respect to the Conveyed Interests and all written work product which contains any portion of such confidential information and all copies and extracts thereof, except for such retention as is expressly allowed under the terms of each such confidentiality agreement.

ARTICLE V
DEVELOPMENT OPERATIONS

5.1          Scope.  This Agreement shall govern the respective rights and obligations of the Development Parties with respect to the funding, development and operation of the Subject Oil and Gas Assets and the Springfield Gathering Assets, to the extent provided herein.  Except as provided in Section 5.9, this Agreement does not govern:  (a) the funding, development or operation of any equipment, fixtures or other assets located downstream of the outlet flange of the Springfield Gathering Assets or the inlet flange of any other Third Party gathering assets to which the Subject Oil and Gas Assets are connected (or, in the case of Hydrocarbon liquids not transported by pipeline, downstream of the outlet flange in the tanks); or (b) the marketing or sale of oil and gas products from the Subject Oil and Gas Assets, all of which are outside the scope of this Agreement.

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5.2          Development Operations.

(a)           All Development Operations conducted by any Third Party Operator shall be conducted subject to the terms and conditions of the Applicable Operating Agreement or Springfield Ownership Agreement, as applicable.  SM shall not, without Mitsui’s prior written consent (which consent shall not be unreasonably withheld or delayed) amend or agree to amend the Anadarko Agreement, including the form of Joint Operating Agreement attached to the Anadarko Agreement as Exhibit C, or consent to the use of any form of joint operating agreement for an acquisition under the Anadarko AMI other than the form attached to the Anadarko Agreement as Exhibit C (except an operating agreement already in place for Leases and/or ▇▇▇▇▇ at the time SM agrees to acquire such Leases and/or ▇▇▇▇▇).

(b)           All Development Operations conducted by SM as Operator shall be conducted subject to the terms and conditions of the applicable SMJOA.

(c)           Pursuant to Section 3.2, Mitsui shall be responsible for funding all Carried Costs resulting from any Development Operation, as well as paying its own Development Costs with respect to any such Development Operation if it elects to participate in such Development Operation.  Except as provided in the preceding sentence, SM shall be responsible for its own Development Costs with respect to any such Development Operation.  Mitsui and SM shall make all required payments for Carried Costs and Development Costs, as applicable, for such Development Operation in accordance with the provisions of Section 3.8.

(d)           From and after the Closing Date until the Carry Termination Event, subject to the terms of the Applicable Operating Agreement and the Springfield Ownership Agreement, each Development Party shall have the right to non-consent any proposed Development Operation; provided, however, that if SM elects to participate in any Development Operation, Mitsui shall be required to fund all applicable Carried Costs with respect to such Development Operation, regardless of whether Mitsui also elects to participate in such Development Operation.

5.3          Operations by SM.

(a)           If, at any time during the Term, the Development Parties hold interests in a Lease, and such Lease (at the time of its acquisition) was not subject to a Third Party Operating Agreement and was not acquired by the Parties pursuant to the provisions of the Anadarko Agreement and Anadarko AMI, such Lease shall be deemed to be subject to and governed by a SMJOA.  At or prior to the termination of this Agreement, the Parties shall execute SMJOAs with respect to each drilling or production unit and each other Property with respect to which an SMJOA is deemed to be in effect under the terms of this Section 5.3.  Each SMJOA in which no Third Party participates and, as between the Parties only, each SMJOA in which a Third Party participates and each Third Party Operating Agreement, shall be subject to the Tax Partnership Agreement, unless and until the applicability of such provisions to the Subject Oil and Gas Assets subject to such operating agreement terminates in accordance with the terms of the Tax Partnership Agreement.

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(b)           SM (i) is hereby designated and agrees to serve as the Operator under each SMJOA and (ii) to the extent SM serves as Operator under any Third Party Operating Agreement, is hereby designated and agrees to serve as the Operator under each such Third Party Operating Agreement; provided that SM shall have the right to have an Affiliate of SM act as the Operator under any such agreement.

5.4          Overhead.  With respect to each Applicable Operating Agreement and the Springfield Ownership Agreement, each Development Party shall be responsible for and pay its Participating Interest share of the overhead rates specified in such Applicable Operating Agreement or the Springfield Ownership Agreement, as applicable, for such Development Operations conducted thereunder in accordance with Section 3.8.

5.5          Non-Solicitation of SM Employees.  During the Term and for a period of 12 Months thereafter, Mitsui, the Persons listed on Schedule 5.5 and any other Affiliates of Mitsui Parent that are actively engaged in the United States oil and gas exploration and production industry may not directly solicit any employee of SM or its Affiliates without first obtaining the prior written consent of SM, which consent may be withheld by SM at its sole discretion, for so long as such employee is employed by SM or its Affiliates; provided that this prohibition shall not apply to offers of employment made by Mitsui or its Affiliates pursuant to a general solicitation of employment to the public or the industry, and Mitsui and its Affiliates shall not be prohibited from employing any such person who contacts Mitsui or its Affiliates on his or her own initiative.

5.6          Certain Services.

(a)           Subject to the terms and conditions of this Agreement, in addition to those certain other duties and responsibilities expressly set forth herein, SM shall, to the extent (i) a Third Party Operator is at such time not performing such services with respect to the Subject Oil and Gas Assets and (ii) SM is at such time performing such services with respect to its own interest in any Subject Oil and Gas Assets (any such assets, “Service Eligible Assets”), and notwithstanding the terms of any Applicable Operating Agreement to the contrary, upon the written request of Mitsui with respect to any Service Eligible Assets, pay or cause to be paid Mitsui’s or its Affiliates’ share of:  (A) rentals, shut-in well payments and minimum royalties required to be paid to lessees under the Leases included in such Service Eligible Assets; (B) royalties, overriding royalties and other burdens required to be paid to lessees and holders of overriding royalties and other Burdens on the Leases included in such Service Eligible Assets; and (C) severance and other production Taxes attributable to such Service Eligible Assets, and prepare and file or submit to owners of Burdens, as applicable, or cause to be prepared, filed or submitted, reports required by applicable Law with respect thereto, provided that Mitsui’s or its Affiliates’ share of the payments described in clauses (A), (B) and (C) shall be billed to or advanced by Mitsui in accordance with Section 3.8.  For the avoidance of doubt, Mitsui acknowledges and agrees that SM shall not, at any time of determination, be responsible for providing any of the foregoing services (each, an “Administrative Service”) with respect to any Service Eligible Assets if SM does not, at such time, provide such Administrative Service with respect to its own interest in such Service Eligible Assets.

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(b)           Subject to the terms and conditions of this Agreement, in addition to those certain other duties and responsibilities expressly set forth herein, and notwithstanding the terms of any Applicable Operating Agreement to the contrary, if Mitsui is required by the Operator pursuant to any Applicable Operating Agreement or required by the terms of the Applicable Operating Agreement to secure or cause to be secured any title curative matters and pooling amendments or agreements under an Applicable Operating Agreement in connection with the Conveyed Interests, then SM shall, upon the written request of Mitsui, secure or cause to be secured such title curative matters and/or pooling amendments or agreements, and, subject to SM’s obligations under Article IV of the Acquisition Annex and the special warranty of title contained in the Assignment, Mitsui shall pay its Participating Interest share of the costs of such activities, provided that Mitsui’s or its Affiliates’ expenses for such requested actions shall be billed to or advanced by Mitsui in accordance with Section 3.8.

5.7          Springfield Ownership Agreement.

(a)           Neither Party shall vote for a determination under Section 4.8 of the Springfield Ownership Agreement that operation of any part of the Springfield Gathering Assets is uneconomic unless both Parties have agreed in writing to do so.

(b)           Either Party shall, at the request of the other, join in a call for a meeting under Section 8.6 of the Springfield Ownership Agreement.

5.8          Sharing of Information; Joint Venture Meetings; Disclaimers.

(a)           Subject to applicable confidentiality restrictions (provided that the Development Parties shall use their commercially reasonable efforts to obtain a waiver of any such confidentiality restriction, and provided further, that no Development Party shall have any obligation to incur any cost or pay any fee with respect to such efforts), upon the written request of any Development Party (i) the other Development Party shall provide to the requesting Development Party any written information in its possession that it has received from any Third Party Operator or Springfield Pipeline LLC, as applicable, and (ii) if Mitsui is the requesting Development Party, SM shall use its commercially reasonable efforts to obtain and provide to Mitsui information from any Third Party Operator or Springfield Pipeline LLC, to which SM is entitled under any Applicable Operating Agreement, the Springfield Ownership Agreement and/or the Anadarko Agreement, in each case, regarding the Development Operations under any Applicable Operating Agreement, the Springfield Ownership Agreement and/or the Anadarko Agreement; provided that neither Party shall have any obligation under this Section 5.8(a) to provide or obtain, as applicable, any information to or for the other Party if such information has already been otherwise received by, or is in the possession of, such the other Party.

(b)           SM shall use its commercially reasonable efforts to obtain the right for Mitsui to attend any meeting regarding Development Operations between SM and any Third Party Operator or Springfield Pipeline LLC, as applicable, including meetings held under any Applicable Operating Agreement, the Springfield Ownership Agreement or the Anadarko Agreement.

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(c)           SM and Mitsui shall meet as often as they may agree, but in no event less than quarterly.  In each Calendar Quarter following the Closing, on a date to be mutually agreed by the Parties, SM and Mitsui shall meet in Houston, Texas or Denver, Colorado or in another mutually agreeable location.  The Parties shall agree upon the date, location and time of each such meeting at least 15 days in advance of such meeting, unless otherwise agreed by the Parties.  Either Party may include any item on the agenda for the meeting by notice to the other at least five Business Days prior to the date of the meeting. Subject to confidentiality restrictions regarding any such data or information (provided that SM shall use its commercially reasonable efforts to obtain a waiver of any such confidentiality restriction), SM shall provide to, and discuss with, Mitsui the data and information set forth on Schedule 5.8(c) at each such meeting.  Notwithstanding anything herein to the contrary, in no event should SM be required under this Section to provide to Mitsui SM’s opinion regarding the results of past Development Operations or advisability of participation in future Development Operations, including opinions regarding the potential reserves, production rates or financial performance of the Subject Oil and Gas Assets.

(d)           SM MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED WITH RESPECT TO, AND SM EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR, ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO MITSUI OR ANY OF MITSUI’S REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY BE PROVIDED TO MITSUI BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SM OR ANY OF ITS AFFILIATES) IN CONNECTION WITH SM’S OBLIGATIONS UNDER THIS SECTION 5.8.

5.9          Marketing; Future Midstream and Downstream Rights.

(a)           If, following Closing, SM is marketing its production from the AMI Area, including providing necessary pipeline nominations and other required nominations and other necessary gas control, scheduling and balancing services (such services, collectively, “Marketing Services”), then SM shall, upon written request from Mitsui, market all of Mitsui’s production from the AMI Area on the same terms and conditions as SM is at such time marketing its own production from the AMI Area and providing itself other Marketing Services.

(b)           With regard to the gathering and transportation of Hydrocarbons from jointly owned ▇▇▇▇▇ within the AMI Area in pipelines and gathering systems owned by Third Parties, to the extent allowed under Laws and existing Contracts, each Development Party agrees to notify the other Development Party a reasonable time prior to contracting for additional or new firm transportation capacity so that such other Development Party has the opportunity to commit for its Participating Interest share of such firm transportation capacity.  In the event the other Development Party so requests, the notifying Development Party will use its reasonable efforts to cause the counterparty to also contract with the other Development Party for firm transportation capacities in order to satisfy both Development Parties’ aggregate requirements.  In the event such total capacity is unavailable, the Development Parties will share in the available contracted firm transportation capacity in accordance with their Participating Interest shares.  The Development Parties shall enter into separate transportation contracts regarding their

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respective Hydrocarbons unless the Development Parties and such Third Party agree to the contrary.

5.10        Anadarko Agreement.  SM shall use its commercially reasonable efforts to obtain, prior to Closing, Anadarko’s consent to the assignment to Mitsui of 50% of SM’s rights and obligations under the Anadarko Agreement (other than those rights described in clause (s) of the definition of “Excluded Assets”).  Mitsui will reasonably cooperate with SM’s efforts to obtain such consent; provided, however, that neither Party shall be required to incur any Liability or pay any money to obtain such consent.

5.11        Indemnity and Release.

(a)           In no event shall SM be liable to Mitsui for, and Mitsui, on behalf of itself and its Affiliates, hereby releases SM from, any and all Liabilities that arise out of, relate to or are otherwise attributable to, directly or indirectly, the provision by SM to Mitsui of the Administrative Services and/or Marketing Services described in Section 5.6 and Section 5.9, except, in each case, to the extent resulting from the gross negligence or willful misconduct of any SM Indemnified Party and excluding SM’s obligation to deliver to Mitsui proceeds actually received for Mitsui’s production from the AMI Area (less deductions attributable to payment of royalties and other burdens on production, severance taxes, amounts payable to third parties in respect of gathering, treating, processing and transporting production, and other similar third party expenses, and subject to the other terms of this Agreement).

(b)           SM DOES NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING THE ADMINISTRATIVE SERVICES AND/OR MARKETING SERVICES, AND HEREBY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.

(c)           Mitsui assumes sole responsibility for and shall defend, indemnify, release and hold the SM Indemnified Parties harmless from and against any and all Liabilities suffered by the SM Indemnified Parties to persons other than the SM Indemnified Parties arising out of or resulting from the performance of the Administrative Services and/or Marketing Services or otherwise related to any actions or inactions by the SM Indemnified Parties pursuant to Section 5.6 and Section 5.9, REGARDLESS OF WHETHER CAUSED BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT) OR FAULT, OR STRICT LIABILITY OR ABSOLUTE LIABILITY OF ANY MEMBER OF THE SM INDEMNIFIED PARTIES OR ANY OTHER PERSON, NATURAL OR OTHERWISE, ANY DEFECT IN ANY PREMISES WHETHER PRE-EXISTING THIS AGREEMENT OR NOT AND WHETHER SUCH DAMAGES, LOSSES, LIABILITIES, CLAIMS OR DEMANDS ARISE FROM TORT, CONTRACT, QUASI-CONTRACT OR OTHERWISE, BUT EXCLUDING IN EACH CASE LIABILITIES TO THE EXTENT AND ONLY TO THE EXTENT RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SM INDEMNIFIED PARTY.

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ARTICLE VI
DEFAULT

6.1          Default.  If Mitsui fails to fund any Carried Costs when due under the terms of this Agreement (a “Carried Cost Default”) and such failure is not cured within 15 days of Mitsui’s receipt of a Default Notice, Mitsui shall be in default under this Agreement, and shall be referred to herein as a “Defaulting Party”.  SM may give notice of such non-payment to Mitsui (a “Default Notice”), and if SM does deliver a Default Notice to Mitsui, it shall simultaneously therewith deliver such Default Notice to Mitsui Parent.  All amounts in default and not paid when due under this Agreement shall bear interest at the Default Interest Rate from the due date to the date of payment.

6.2          Certain Consequences of Default.

(a)           Notwithstanding any other provision in this Agreement or any Associated Agreement to the contrary, during the Default Period, the Defaulting Party shall be subject to all rights and remedies available to SM under the relevant Applicable Operating Agreements, and in addition, shall have no right to:

(i)            make or elect to participate any proposal under this Agreement or any Applicable Operating Agreement;

(ii)           vote on any matter with respect to which approval is required under the express terms of any Associated Agreement (excluding any amendment or waiver of the terms of any such agreement);

(iii)          access any data or information relating to any operation conducted under this Agreement or any Associated Agreement (except to the extent that the Defaulting Party is the Operator, in which case such Defaulting Party shall be entitled to such data and information as may be necessary to perform its responsibilities in such capacity);

(iv)          Transfer all or any part of its interests in any Subject Oil and Gas Asset, or Encumber all or any part of its interests in any Subject Oil and Gas Assets, except in a case of a Transfer of such interest to a Person or an Encumbrance in favor of a Person who simultaneously with such Transfer or Encumbrance satisfies in full the Total Amount in Default;

(v)           withhold consent to any Transfer of all or an undivided portion of the Joint Interest of SM pursuant to Article I of the Transfer Provisions; and

(vi)          elect to acquire any portion of an Acquired Interest pursuant to Article II of the Transfer Provisions.

(b)           In addition to the other remedies available to SM under this Agreement and any other rights available to SM to recover its share of the Total Amount in Default, from and after the time upon which the balance of the Deposited Amounts held in the Operating Account is equal to zero, the Defaulting Party shall have no right to receive its Entitlement from

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the Leases included in the Subject Oil and Gas Assets and SM shall have the right to collect such Entitlement until the Total Amount in Default has been recovered.

(c)           Furthermore, during the Default Period, the Defaulting Party shall be deemed to have approved, and shall join with SM in taking, any actions proposed by a Third Party Operator and approved by SM under the Applicable Operating Agreement during the Default Period.

(d)           Any Default Notice shall include a statement of the amount of money that the Defaulting Party has failed to pay.

(e)           SM shall be entitled to recover from the Defaulting Party all reasonable attorneys’ fees and other reasonable costs sustained in the collection of amounts owed by the Defaulting Party.

6.3          Cumulative and Additional Remedies.  The rights and remedies granted to SM in this Article VI shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to SM at Law, in equity or otherwise.  Each right and remedy available to SM may be exercised from time to time and so often and in such order as may be considered expedient by SM in its sole discretion.

6.4          Reassignment Obligation.  If Mitsui and/or Mitsui Parent, as applicable, fails to fund any Carried Costs generally identified in a Default Notice within 30 days of Mitsui’s receipt of that Default Notice, then SM (at any time prior to the cure of such Carried Cost Default and no earlier than 15 days after delivery of notice (which shall be separate and apart from the Default Notice and the Reassignment Notice) to Mitsui and Mitsui Parent during the Default Period that SM intends to exercise its rights under this Section 6.4) may, by delivering a notice to Mitsui (a “Reassignment Notice”), require Mitsui to reassign to SM, with special warranty of title against, and free and clear of all claims by, through or under Mitsui or its Affiliates, but not otherwise, an undivided percentage share of Mitsui’s and its Affiliates’ interests in the Conveyed Interests having a Cash Value equal to (a) the Carried Costs Balance on the date of such reassignment, plus (b) the interest portion of the Total Amount in Default through the date of such reassignment.  SM shall include a statement of its good faith estimate of the undivided percentage of the Conveyed Interests having such a Cash Value in its Reassignment Notice.  Mitsui shall have the right to dispute the proposed Cash Value by responsive notice within 30 days of the Reassignment Notice, if Mitsui acting in good faith believes that such proposed Cash Value is incorrect, in which case the procedures set forth in Section 2.2(g) of the Transfer Provisions shall be applied, mutatis mutandis, to resolve the Dispute.  For the avoidance of doubt, Mitsui will not be required under this Section 6.4 to assign to SM any Acquired Interests acquired by Mitsui under Article II of the Transfer Provisions.  If SM elects to exercise its reassignment rights pursuant to this Section 6.4, then following such reassignment:  (i) Mitsui shall be deemed to no longer be in default of its obligations to fund Carried Costs in accordance with the terms of Section 3.2 and Section 3.3 of this Agreement, (ii) such obligation to fund Carried Costs shall be deemed to be fully satisfied by Mitsui and (iii) this Agreement shall terminate.  SM shall be entitled to exercise any and all rights and remedies that may be available to SM to enforce its rights under this Section 6.4, whether set forth in this Agreement, the Applicable Operating Agreements, at Law, in equity (including specific performance of this

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Agreement) or otherwise; provided, however, that notwithstanding the foregoing, SM will not be entitled to duplication of remedies with respect to any Carried Cost Default.

6.5          Other Payment Defaults.  With respect to any payment defaults by any Development Party (other than a default in the funding of Carried Costs by Mitsui), the Development Parties’ rights and remedies with respect thereto shall be those rights and remedies that (a) are set forth in the Applicable Operating Agreement, the Springfield Ownership Agreement and/or the Associated Agreement under which such payment was due and (b) may be available at Law, in equity or otherwise.  For the avoidance of doubt, SM shall not be in default with respect to the payment of its Participating Interest share of Development Costs to the extent that Mitsui is responsible for such Development Costs pursuant to Section 3.2 and Mitsui fails to fund the share of such Development Costs consisting of Carried Costs when due in accordance with Section 3.8.

ARTICLE VII
[RESERVED]

ARTICLE VIII
[RESERVED]

ARTICLE IX
TAXES

9.1          Tax Partnership.  The Development Parties intend and expect that the transactions contemplated by this Agreement (including the Acquisition Annex) and the Associated Agreements, taken together, will be treated, for purposes of federal income taxation and for purposes of certain state income tax Laws that incorporate or follow federal income tax principles (“Tax Purposes”), as resulting in (a) a sale by SM of an undivided 12.5% interest in the Springfield Gathering Assets in exchange for the Closing Cost Reimbursement, as the same may be adjusted pursuant to Section 3.9(a) hereof, with the future activities of the Parties with respect thereto being conducted subject to the Springfield Gathering Agreement; (b) the creation of a partnership (the “Tax Partnership”) in which Mitsui and SM are treated as partners, with the Tax Partnership being treated for Tax Purposes as holding the Joint Upstream Interests (as such term is defined in the Tax Partnership Agreement) and engaging in all activities of the Development Parties with respect to the Joint Upstream Interests; (c) a contribution by SM of all of the Contributed Properties, any Cash Reconciliation Payment made by it pursuant to Section 3.9(d) and a commitment by SM to fund the costs and expenses allocable to it under this Agreement to the Tax Partnership in exchange for a 50% interest therein; (d) a contribution by Mitsui of any Cash Reconciliation Payment made by it pursuant to Section 3.9(d) and a commitment by Mitsui to fund to the Tax Partnership the costs and expenses allocable to it under this Agreement in exchange for a 50% interest therein, and (e) the realization by the Tax Partnership of all items of income or gain and the incurrence by the Tax Partnership of all items of costs or expenses attributable to the ownership, operation or disposition of the Joint Upstream Interests, notwithstanding that such items are realized, paid or incurred by the Development Parties individually.  The governing terms and conditions of the Tax Partnership are set forth in the Tax Partnership Agreement.

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9.2          Responsibility for Taxes.  Each Party shall be responsible for reporting and discharging its own Tax measured by the income of the Party and the satisfaction of such Party’s share of all contract obligations under this Agreement and the Associated Agreements.  Each Party shall protect, defend and indemnify each other Party from and against any and all losses, costs, and liabilities arising from the indemnifying Party’s failure or refusal to report and discharge such Taxes or satisfy such obligations.  SM shall indemnify Mitsui for all of SM’s Income Tax Liability and Franchise Tax Liability associated with the transactions contemplated by this Agreement.  For the purpose of determining the portion of Asset Taxes that constitute Operating Expenses properly allocable to the period of time prior to the Effective Time for the purpose of Section 3.7 and all other sections of this Agreement and properly allocable to the Interim Period for the purpose of Section 3.9 and all other sections of this Agreement, Asset Taxes for a taxable period that includes, but does not end on, the Closing Date shall (a) in the case of production, severance and similar Asset Taxes measured by the quantity of or value of production, be prorated based upon the number of units or value of production actually produced and sold, as applicable, before, and at and after, the Effective Time, and (b) in the case of all other Asset Taxes, be prorated on a daily basis over such entire taxable period.

ARTICLE X
TERM

This Agreement shall terminate on the earlier of the Termination Date and the date indicated in Section 9.1 of the Acquisition Annex; provided that (a) except as provided in Section 6.4 (in the event that this Agreement is terminated pursuant to such Section) or in Section 9.2 of the Acquisition Annex (in the event this Agreement is terminated pursuant to Section 9.1 of the Acquisition Annex), the termination of this Agreement or any provision thereof shall not relieve any Party from any expense, liability or other obligation or remedy therefor which has accrued or attached and remains in effect prior to the date of such termination, and (b) as among the Development Parties (but not as to any successor or assign of any such Person following the termination of this Agreement) (i) the provisions of each of (A) unless this Agreement is terminated prior to Closing, Section 5.5, this Article X and Article XI and (B) the Acquisition Annex, to the extent provided for in Section 9.2 of the Acquisition Annex if this Agreement is terminated prior to Closing, and otherwise subject to Section 10.8 of the Acquisition Annex, shall, in each case, survive such termination and remain in full force and effect, and (ii) unless this Agreement is terminated prior to Closing, the provisions of each of (A) Section 5.3, (B) Article IX and (C) Exhibit C shall survive such termination and remain in full force and effect with respect to each of those Leases included in the Subject Oil and Gas Assets until terminated in accordance with its terms.

ARTICLE XI
MISCELLANEOUS

11.1        Counterparts.  This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement.  Any signature hereto delivered by a Party by facsimile transmission shall be deemed an original signature hereto.

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11.2        Notices.  All notices and communications required or permitted to be given hereunder shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

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Any notice given in accordance herewith shall be deemed to have been given when (a) delivered to the addressee in person or by courier, (b) transmitted by facsimile transmission during normal business hours, or if transmitted after normal business hours, on the next Business Day, or (c) upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be.  The Parties may change the address and facsimile numbers to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 11.2.

11.3        Expenses.  Except as otherwise specifically provided, all fees, costs and expenses incurred by the Parties in negotiating this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

11.4        Waivers; Rights Cumulative.  Any of the terms, covenants or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance.  No course of dealing on the part of any Development Party or its respective officers, employees, agents or representatives, and no failure by a Development Party to exercise any of its rights under this Agreement shall, in either case, operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision.  No waiver by any Party of any condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term or covenant.  The rights of the Development Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

11.5        Relationship of the Parties.  The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective.  It is not the intention of the Parties to create, and this Agreement shall not be deemed or construed to create, a mining or other partnership (other than the Tax Partnership created pursuant to the Tax Partnership Agreement and Section 9.1), joint venture or association or a trust.  This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement.  In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries.

11.6        Entire Agreement; Conflicts.  THIS AGREEMENT, INCLUDING THE EXHIBITS, SCHEDULES AND APPENDICES HERETO AND THE ACQUISITION ANNEX, AND THE ASSOCIATED AGREEMENTS COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS,

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NEGOTIATIONS AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT.  THERE ARE NO WARRANTIES, REPRESENTATIONS OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, INCLUDING THE EXHIBITS, SCHEDULES AND APPENDICES HERETO AND THE ACQUISITION ANNEX, AND THE ASSOCIATED AGREEMENTS, AND NO PARTY SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT OR STATEMENTS OF INTENTION NOT SO SET FORTH.  IN THE EVENT OF A CONFLICT BETWEEN:  (A) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY EXHIBIT HERETO; (B) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF THE ACQUISITION ANNEX OR (C) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY ASSOCIATED AGREEMENT, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE EXHIBITS HERETO, THE ACQUISITION ANNEX OR ANY ASSOCIATED AGREEMENT OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT.

11.7        Governing Law.  THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION.  SUBJECT TO SECTION 3.6(c), SECTION 11.8, AND SECTION 11.9 AND SUBJECT TO SECTION 4.2(j) OF THE ACQUISITION ANNEX AND SECTION 5.1(f) OF THE ACQUISITION ANNEX, THE PARTIES CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE UNITED STATES DISTRICT COURT AND THE COURTS OF THE STATE OF TEXAS LOCATED IN ▇▇▇▇▇▇ COUNTY IN THE STATE OF TEXAS FOR ANY DISPUTE AND/OR THE ENFORCEMENT OF ANY ARBITRATION OR EXPERT AWARD.

11.8        Dispute Resolution.  Except for (1) determinations by the Accounting Arbitrator pursuant to Section 3.6(c), (2) determinations of Cash Value by an Expert pursuant to Section 11.9, (3) awards or determinations of Title Disputes pursuant to Section 4.2(j) of the Acquisition Annex, or (4) awards or determinations of Environmental Disputes pursuant to Section 5.1(f) of the Acquisition Annex, any Dispute shall be settled by arbitration administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules (the “AAA Rules”), as modified below:

(a)           The arbitration shall be conducted by three arbitrators.  The place of arbitration shall be Houston, Texas.  Within 30 days of any Party providing notice to the other Party of a Dispute, each Party to such Dispute shall appoint one arbitrator, and the two arbitrators so appointed shall select the third and presiding arbitrator within 30 days following appointment of the second Party-appointed arbitrator.  If either Party or group of Parties fails to appoint an arbitrator within the permitted time period, then the missing arbitrator(s) shall be selected by the AAA as appointing authority in accordance with the AAA Rules.  Any arbitrator nominated or

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appointed by the AAA shall be a member of the Large, Complex Commercial Case Panel of the AAA.  In addition to the rules of the AAA and applicable Law on arbitrator neutrality, no arbitrator shall have been an employee or consultant to any Party or any of its Affiliates within the five year period preceding the arbitration, or have any financial interest in the Dispute.

(b)           All awards of the arbitral tribunal shall be final and binding, subject only to grounds and procedures for vacating, modifying or correcting such under the Federal Arbitration Act (9 U.S.C. § 1 et seq.).  Judgment on the award may be entered and enforced by any court of competent jurisdiction hereunder.

(c)           Notwithstanding the agreement to arbitrate Disputes in this Section 11.8, any Party may apply to a court for interim measures pending appointment of the arbitration tribunal, including injunction, attachment and conservation orders.  The Parties agree that seeking and obtaining such court-ordered interim measures shall not waive any Party’s right to arbitration.  Additionally, the arbitrators (or in an emergency the chairperson acting alone in the event one or more of the other arbitrators is unable to be involved in a timely fashion) may grant interim measures including injunctions, attachments and conservation orders in appropriate circumstances, which measures may be immediately enforced by court order.  Hearings on requests for interim measures may be held in person, by telephone or video conference or by other means that permit the Parties to present evidence and arguments.  The arbitrators (or chairperson, as the case may be) may require any Party to provide appropriate security in connection with such measures.

(d)           The arbitral tribunal is authorized to award costs, attorneys’ fees and expert witness fees and to allocate such costs and fees among the Parties.  The award may include interest, at the Default Interest Rate, from the date of any default, breach or other accrual of a claim until the arbitral award is paid in full.  The arbitrators may not award indirect, consequential, special or punitive damages except to the extent allowed under the terms of Section 10.9 of the Acquisition Annex or Section 11.18.  Unless otherwise directed by the arbitral tribunal, each Party shall pay its own expenses in connection with the arbitration.  The cost of the arbitrators shall be split evenly between the Parties.

(e)           All negotiations, mediation, arbitration and expert determinations relating to a Dispute (including a settlement resulting from negotiation or mediation, an arbitral award, documents exchanged or produced during a mediation or arbitration proceeding, and memorials, briefs or other documents prepared for the arbitration) are confidential and may not be disclosed by the Parties, their respective Affiliates or any of their respective employees, officers, directors, counsel, consultants and expert witnesses, except to the extent necessary to enforce any settlement agreement, arbitration award or expert determination, to enforce other rights of a Party, as required by Law or for a bona fide business purpose, such as disclosure to accountants, shareholders or third-party purchasers; provided, however, that breach of this confidentiality provision shall not void any settlement, expert determination or award.

(f)            Any papers, notices or process necessary or proper for an arbitration hereunder, or any court action in connection with an arbitration or an award, may be served on a Party in the manner set forth in Section 11.2.

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11.9        Expert Proceedings.  Determination of the Cash Value pursuant to Section 6.4, or Section 2.2 of the Transfer Provisions, shall be referred to an expert (the “Expert”) pursuant to this Section 11.9.  The Expert is not an arbitrator and shall not be deemed to be acting in an arbitral capacity.  The Expert shall not (without the written consent of the Development Parties) be appointed to act as an arbitrator or as adviser to any Development Party in any Dispute arbitrated pursuant to Section 11.8; provided that nothing in this sentence shall preclude any Development Party from using the Expert as a witness regarding the proper conduct of the expert procedure.  The Development Party desiring an expert determination shall give the other Development Party written notice of the request for such determination.  If the Development Parties are unable to agree upon an Expert within 10 days after receipt of the notice of request for an expert determination, then, upon the request of any of the Development Parties, the Houston office of the AAA shall appoint the Expert.  Once appointed, the Expert shall have no ex parte communications with the Development Parties concerning the expert determination or the underlying Dispute.  All communications between any Development Party and the Expert shall be conducted in writing, with copies sent simultaneously to the other Development Party in the same manner, or at a meeting or conference call to which all Development Parties have been invited and of which such Development Parties have been provided at least five Business Days notice.  Within 30 days after the Expert’s acceptance of its appointment, the Development Parties shall each provide the Expert with its proposed Cash Value and the reasons therefor, accompanied by all relevant supporting information and data.  Within 60 days of receipt of the above-described materials and after receipt of additional information or data as the Expert may request, the Expert shall select the Cash Value proposed by one of the Parties that it finds more consistent with the terms of this Agreement.  The Expert may not propose alternate Cash Values or award damages, interest or penalties to any Party.  Any Party that fails or refuses to honor the determination of the Cash Value by the Expert shall be in default under this Agreement.

11.10      Filings, Notices and Certain Governmental Approvals.  Promptly after Closing, Mitsui shall (a) record the Assignments and all state/federal assignments executed at Closing in all applicable real property records and/or, if applicable, all state or federal agencies and (b) actively pursue all Customary Post-Closing Consents for the assignment of the Conveyed Interests to Mitsui, and SM shall reasonably cooperate with each of those efforts.  For a period of 90 days following Closing, SM shall continue to use its commercially reasonable efforts to pursue all other consents that may be required in connection with the (i) assignment of the Conveyed Interests to Mitsui and (ii) assumption of the Assumed Obligations by Mitsui hereunder, in each case, that shall not have been obtained prior to Closing, and Mitsui shall reasonably cooperate with such effort.

11.11      Amendment.  This Agreement may be amended only by an instrument in writing executed by all of the Parties and expressly identified as an amendment or modification hereof.

11.12      Parties in Interest.  Nothing in this Agreement shall entitle any Person other than the Parties to any claim, cause of action, remedy or right of any kind.

11.13      Successors and Permitted Assigns.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

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11.14      Publicity.

(a)           Without the prior written consent of the other Party, which consent shall not be unreasonably withheld, prior to Closing, no Party will issue, or permit any of its agents or Affiliates to issue, any press releases or otherwise make, or cause any of its agents or Affiliates to make, any public statements with respect to this Agreement, the Associated Agreements or the activities contemplated hereby or thereby, except where such release or statement is deemed in good faith by the releasing Party to be required by Law or under the rules and regulations of a recognized stock exchange on which shares of such Party or any of its Affiliates are listed, and in any such case, to the extent permitted by applicable Law, at least two Business Days prior to making any such press release or public statement, the releasing Party shall provide a copy of the press release or public statement to the other Parties for review and comment.

(b)           Notwithstanding anything to the contrary in Section 11.14(a), prior to Closing, any Party or Affiliate of a Party may disclose information regarding Development Operations and this Agreement in investor presentations, industry conference presentations or similar disclosures, but only to the extent that any such information disclosed in such presentations or disclosures is substantially similar to information already in the public domain.

11.15      Preparation of Agreement.  Both SM and Mitsui and their respective counsel participated in the preparation of this Agreement.  In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

11.16      Conduct of the Parties.  Each Party warrants that it and its Affiliates have not made, offered or authorized and agrees that it will not make, offer or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other Person, to or for the use or benefit of any public official (being any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate any applicable Law.

11.17      Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

11.18      Non-Compensatory Damages.  None of the Parties shall be entitled to recover from any other Party, or such Party’s respective Affiliates, any indirect, consequential, punitive or exemplary damages or damages for lost profits of any kind arising under or in connection with this Agreement, the Associated Agreements or the transactions contemplated hereby or thereby, except to the extent any such Party suffers such damages (including costs of defense and

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reasonable attorney’s fees incurred in connection with defending of such damages) to a Third Party, which damages (including costs of defense and reasonable attorney’s fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder.  Subject to the preceding sentence, each Development Party, on behalf of itself and each of its Affiliates, waive any right to recover punitive, special, exemplary and consequential damages, including damages for lost profits, arising in connection with or with respect to this Agreement, the Associated Agreements or the transactions contemplated hereby and thereby.  Section 10.9 of the Acquisition Annex shall apply to matters addressed in the Acquisition Annex in lieu of this Section 11.18.

11.19      Excluded Assets.  For the avoidance of doubt, no Excluded Asset shall be subject to the terms of this Agreement or any SMJOA.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives on and as of the Execution Date.

[Signature page to Acquisition and Development Agreement]

APPENDIX I
DEFINITIONS

“AAA” has the meaning set forth in Section 11.8.

“AAA Rules” has the meaning set forth in Section 11.8.

“Accounting Arbitrator” has the meaning set forth in Section 3.6(c).

“Acquired Interest” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“Acquiring Development Party” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“Acquisition Annex” has the meaning set forth in Section 4.1.

“Administrative Service” has the meaning set forth in Section 5.6(a).

“AFE” has the meaning set forth in Section 1.14 of the Acquisition Annex.

“Affiliate” means, with respect to any Party, a Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with, such Party.

“Aggregate Deductible” has the meaning set forth in Section 4.2(i) of the Acquisition Annex.

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Allocated Value” has the meaning set forth in Section 3.5(c).

“AMI Area” means the lands (and subsurface) included in the area outlined in bold and shown on the plat set forth on Exhibit A-3, but specifically excludes the Excluded Assets (including the TXCO Properties).

“AMI Share” means, with respect to (a) Mitsui, a 50% share, and (b) SM, a 50% share.

“Anadarko” means Anadarko E&P Company LP.

“Anadarko Access Agreement” means that certain Onshore Facilities Boarding Release and Indemnification Agreement, dated as of June 28, 2011, between SM and Anadarko Petroleum Corporation.

“Anadarko Agreement” means that certain Joint Exploration Agreement, dated as of March 1, 2008, between TXCO Energy Company LP (SM’s predecessor-in-interest) and Anadarko.

“Anadarko AMI” has the meaning set forth in Section 2.1 of the Transfer Provisions.

APPENDIX

1

“Applicable Contracts” means all Contracts to which SM is a party that primarily relate to the Contributed Properties and that will be binding on the Conveyed Interests or Mitsui after Closing, including, without limitation; farmin and farmout agreements; bottomhole agreements; crude oil, condensate and natural gas purchase and sale agreements; gathering, transportation and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements (including, for the avoidance of doubt, Applicable Operating Agreements); balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; crossing agreements and other similar contracts and agreements.

“Applicable Operating Agreements” means, collectively, the SMJOAs and all Third Party Operating Agreements, and “Applicable Operating Agreement” means any of them.

“Area M” means those Leases more particularly described on Exhibit A-4.

“Asset Taxes” means ad valorem, property, excise, severance, production or similar taxes (including any interest, fine, penalty or additions to tax imposed by Governmental Authorities in connection with such taxes) based upon operation or ownership of the Conveyed Interests or the production of Hydrocarbons therefrom, but excluding, for the avoidance of doubt, income, capital gains and franchise taxes.

“Assets” means all of the following assets (but specifically excluding the Excluded Assets) to the extent held (directly or indirectly through Affiliates) by SM:

(a)           all Leases located within the AMI Area, including those set forth on Exhibit A, and any pooled acreage, communitized acreage or units arising on account of such Leases being pooled, communitized or unitized into such units, including the units set forth on Exhibit A-1 (the “Units”);

(b)           all ▇▇▇▇▇ located within the AMI Area, including those set forth on Exhibit A-2, and all Hydrocarbons produced therefrom or allocated thereto, including inventory (together with the items described in clause (a) above, the “Properties”);

(c)           to the extent (i) not constituting part of the Springfield Gathering Assets and (ii) they are assignable, all surface fee interests, surface leases, easements, rights-of-way, permits, licenses, servitudes and other surface rights relating to the Properties;

(d)           all Personal Property primarily used or held for use in connection with the Properties;

(e)           all Pipeline Imbalances and Well Imbalances related to the Properties; and

(f)            to the extent assignable, the beneficial interest in all water withdrawal and disposal and other permits, licenses, orders, approvals, variances, waivers, franchises, rights and other authorizations issued by any Governmental Authority related to the Properties.

“Assignment” means the Assignment and ▇▇▇▇ of Sale from SM to Mitsui, pertaining to the Conveyed Interests, substantially in the form attached hereto as Exhibit E.

APPENDIX

2

“Associated Agreements” means, collectively, the Applicable Operating Agreements and any other material agreements entered into by all Development Parties from and after the Execution Date in furtherance of the conduct of Development Operations, and “Associated Agreement” means any of them.

“Assumed Obligations” has the meaning set forth in Section 10.1 of the Acquisition Annex.

“Balance Election Notice” has the meaning set forth in Section 3.10.

“Burdens” means, with respect to any Property, all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests and other burdens upon, measured by or payable out of, production therefrom.

“Business Day” means a day (other than a Saturday or Sunday) on which commercial banks in Texas are generally open for business; provided that if Business Days are used to calculate periods in which a Party must make a payment hereunder, “Business Day” means a day (other than a Saturday or Sunday) on which commercial banks generally open for business in Texas and New York.

“Calendar Quarter” means a period of three consecutive Months commencing on the first day of January, the first day of April, the first day of July and the first day of October in any Year.

“Carried Cost Default” has the meaning set forth in Section 6.1.

“Carried Cost Obligation” means $680,000,000.00, as such amount may be adjusted from time to time pursuant to Section 3.5 or Section 3.6.

“Carried Costs” has the meaning set forth in Section 3.2(a).

“Carried Costs Balance” means, as of any time, the difference between the Carried Cost Obligation and the aggregate Carried Costs funded by Mitsui (whether deposited into the Operating Account as Deposited Amounts pursuant to Section 3.8(a) or as otherwise provided for in this Agreement) as of such time.

“Carried Costs Balance Account” has the meaning set forth in Section 3.10.

“Carried Costs Balance Payment” has the meaning set forth in Section 3.10.

“Carried Costs Balance Right” has the meaning set forth in Section 3.10.

“Carry Termination Event” means the earlier of the time at which (a)(i) the aggregate amount of Carried Costs funded by Mitsui equals the Carried Cost Obligation, and (ii) all such funds have been used to pay SM’s Eligible Costs incurred pursuant to Development Operations or have been transferred to the Carried Costs Balance Account pursuant to Section 3.8(b) or (b) Mitsui exercises its Carried Costs Balance Right pursuant to Section 3.10 and pays the Carried Costs Balance Payment to SM as required in such Section.

APPENDIX

3

“Cash Reconciliation Account” has the meaning set forth in Section 3.9(d).

“Cash Reconciliation Amount” has the meaning set forth in Section 3.9(c).

“Cash Reconciliation Payment” has the meaning set forth in Section 3.9(d).

“Cash Transfer” means any Transfer of any interest in the Subject Oil and Gas Assets where the sole consideration (other than the assumption of drilling and other obligations relating to the Transferred interest in the Subject Oil and Gas Assets) takes the form of cash, cash equivalents, promissory notes or retained interests (such as production payments) in the interest in the Subject Oil and Gas Assets being Transferred.

“Cash Value” means the market value (expressed in U.S. Dollars) of all or a portion of the interest in the Subject Oil and Gas Assets or Acquired Interest, based upon the amount that a willing buyer would pay a willing seller in an arm’s length transaction.

“Casualty Loss” has the meaning set forth in Section 4.3(b) of the Acquisition Annex.

“Change in Control” means any direct or indirect change in Control of a Party (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees.

“Claim Notice” has the meaning set forth in Section 10.7(b) of the Acquisition Annex.

“Closing” has the meaning set forth in Section 8.1 of the Acquisition Annex.

“Closing Cost Reimbursement” has the meaning set forth in Section 3.1.

“Closing Date” has the meaning set forth in Section 8.1 of the Acquisition Annex.

“Closing Month” has the meaning set forth in Exhibit D.

“Code” means the Internal Revenue Code of 1986, as amended.

“Confidentiality Agreement” means that certain Data Secrecy Agreement between SM and Mitsui Parent, dated effective as of March 16, 2011, as extended by that certain Amendment to the Data Secrecy Agreement between SM and Mitsui Parent dated as of June 23, 2011.

“Consents” has the meaning set forth in Section 1.4 of the Acquisition Annex.

“Contract” means any written or oral contract, agreement, agreement regarding indebtedness, lease, mortgage, license agreement, purchase order, commitment, letter of credit or any other legally binding arrangement, excluding, however, any Lease, easement, right-of-way, permit or other instrument (other than acquisition or similar sales or purchase agreements) creating or evidencing an interest in real property (other than fixtures).

“Contributed Properties” means 100% of SM’s right, title and interest, immediately prior to Closing, in and to the Retained Interests and the Conveyed Interests; provided that the

APPENDIX

4

Contributed Properties shall not include (a) any of SM’s right, title or interest in the Springfield Gathering Assets, or (b) any right, title and interest in any Acquired Interests acquired by SM after the Effective Time (except Acquired Interests described in Section 2.2(k) of the Transfer Provisions and the TXCO Properties, which, in each case, shall be included in the definition of “Contributed Properties” if Mitsui elects to and does acquire its share of such interests in accordance with the terms of this Agreement).

“Control” and its derivatives mean, with respect to any Person, the possession, directly or indirectly, of the power to exercise or determine the voting of more than 50% of the voting rights in a corporation, and, in the case of any other type of entity, the right to exercise or determine the voting of more than 50% of the equity interests having voting rights, or otherwise to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

“Conveyed Interests” has the meaning set forth in Section 2.1.

“Cure Period” has the meaning set forth in Section 4.2(c) of the Acquisition Annex.

“Customary Post-Closing Consents” means those consents and approvals from Governmental Authorities for the assignment of the Conveyed Interests to Mitsui that are customarily obtained after the assignment of properties similar to the Conveyed Interests.

“Default Interest Rate” means the three month London Inter-Bank Offer Rate (as published in the “Money Rates” table of the Wall Street Journal, eastern edition) plus an additional two percentage points applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding Month (or, if such rate is contrary to any applicable usury Law, the maximum rate permitted by such applicable Law).

“Default Notice” has the meaning set forth in Section 6.1.

“Default Period” means the period beginning 15 days from the date of Mitsui’s receipt of a Default Notice if Mitsui remains in default under Section 6.1 and ending when all of the Defaulting Party’s defaults under Section 6.1 have been remedied in full.

“Defaulting Party” has the meaning set forth in Section 6.1.

“Defect Claim Date” means (a) with respect to Title Defects and Title Benefits, September 7, 2011, and (b) with respect to Environmental Defects, August 23, 2011.

“Defect Remedy Date” has the meaning set forth in Section 4.2(d) of the Acquisition Annex.

“Defensible Title” means such title of SM with respect to the Conveyed Interests that, subject to the Permitted Encumbrances:

(a)           with respect to each Well shown in Exhibit A-2 (but limited to any currently producing intervals), entitles SM, because of its ownership of the Conveyed Interests, to receive not less than the Net Revenue Interest shown in Exhibit A-2 for such Well throughout

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the duration of the productive life of such Well, except for (i) decreases in connection with those operations in which SM may, from and after the Execution Date, be a non-consenting co-owner (to the extent permitted pursuant to Section 6.1(b)(ii) of the Acquisition Annex), (ii) decreases resulting from the establishment or amendment from and after the Execution Date of pools or units, (iii) decreases required to allow other Working Interest owners to make up past underproduction or pipelines to make up past under deliveries, and (iv) as otherwise stated in Exhibit A-2;

(b)           with respect to each Well shown in Exhibit A-2 (but limited to any currently producing intervals), obligates SM, because of its ownership of the Conveyed Interests, to bear a Working Interest for such Well not greater than the Working Interest shown in Exhibit A-2 for such Well, without increase throughout the productive life of such Well, except (i) increases resulting from contribution requirements with respect to defaults by co-owners from and after the Execution Date under Applicable Operating Agreements, (ii) increases to the extent that they are accompanied by a proportionate increase in the Net Revenue Interest in the Conveyed Interests, and (iii) as otherwise stated in Exhibit A-2;

(c)           with respect to each Lease shown in Exhibit A, entitles SM to (a) the Net Acres set forth in Exhibit A with respect to such Lease and (b) at least the Net Revenue Interest with respect to the Net Acres set forth in Exhibit A for such Lease; and

(d)           is free and clear of all Encumbrances.

“Deposit” has the meaning set forth in Section 3.4(a).

“Deposit Escrow Agreement” means the Escrow Agreement entered into between the Parties and the Escrow Agent on or before the Execution Date.

“Deposit Funds” has the meaning set forth in Exhibit D.

“Deposit Interest” has the meaning set forth in Exhibit D.

“Deposited Amounts” has the meaning set forth in Exhibit D.

“Development Costs” means costs and expenses incurred in the conduct of Development Operations.

“Development Operation” means any operation conducted pursuant to any Applicable Operating Agreement or any operation conducted pursuant to the Springfield Ownership Agreement.

“Development Parties” means, collectively, the Parties to this Agreement in their capacities as (a) Working Interest owners in the Subject Oil and Gas Assets or (b) parties to the Springfield Ownership Agreement, as applicable, and “Development Party” means any of such Parties, in such capacity, individually.

“Dispute” means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation or otherwise) arising out of, relating to or

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connected with this Agreement or any Associated Agreement, or the transactions contemplated hereby or thereby, including but not limited to any dispute, controversy or claim concerning the existence, validity, interpretation, performance, breach or termination of this Agreement or any Associated Agreement, the relationship of the Parties arising out of this Agreement or the Associated Agreements or the transactions contemplated hereby or thereby.

“Dispute Notice” has the meaning set forth in Section 3.6(b).

“Eagle Ford Shale” means the stratigraphic equivalent of that formation found in the ▇▇▇▇▇▇▇ G 1H Well in ▇▇▇▇ County, Texas, with a top at 7394 ft TVD and base at 7703 ft TVD, as shown on the log display attached as Exhibit A-5, recognizing that the depth of such formation will vary across the AMI Area.

“Effective Time” means 7:00 a.m. (Central Time) on March 1, 2011.

“Eligible Costs” means all costs and expenses incurred in accordance with an Applicable Operating Agreement in conducting Development Operations for (a) the drilling, testing, completing, deepening, recompleting, sidetracking, reworking and plugging back of ▇▇▇▇▇ included in the Subject Oil and Gas Assets having as their objective the Eagle Ford Shale, (b) the plugging and abandoning of dry holes or ▇▇▇▇▇ included in the Subject Oil and Gas Assets targeting or completed in the Eagle Ford Shale that are no longer capable of producing in paying quantities, (c) the equipping of ▇▇▇▇▇ described in clause (a) for production through the tanks and through the outlet flange of any pipeline connecting to a Third Party gathering system, pipeline or other facility (including, for the avoidance of doubt, the Springfield Gathering Assets), including costs of mobilizing and demobilizing drilling and workover rigs to and from the Well-site if not charged to another Development Operation, and (d) the overhead charged under such Applicable Operating Agreement, but only with respect to the costs specifically described above and only to the extent billed as part of an approved AFE; provided that “Eligible Costs” shall not include (i) liabilities, losses, claims and damages (including any fines and penalties) associated with such activities or otherwise, and related costs of investigation, litigation, arbitration, administrative proceedings, judgment, award and settlement (including court and arbitration costs and reasonable attorneys’ fees), to the extent attributable to actual or claimed personal injury, illness or death, property damage (other than damage to structures, fences, irrigation systems and other fixtures, crops, livestock and other personal property in the ordinary course of business), environmental damage or contamination, other torts, breach of contract, violation of Law (or private rights of action under any Law), casualty or condemnation, including costs associated with any blowout or other well control, (ii) any costs or expenses incurred in conducting Development Operations with respect to Area M, whether or not in accordance with an Applicable Operating Agreement, (iii) any costs or expenses incurred in conducting Development Operations pursuant to the Springfield Ownership Agreement, (iv) any costs or expenses incurred in accordance with an Applicable Operating Agreement in conducting Development Operations to the extent and only to the extent such costs and expenses directly relate to (A) an Acquired Interest held by SM in which Mitsui did not elect to acquire its Offered Interest or (B) the TXCO Properties unless and until Mitsui acquires the TXCO Interest, or (v) Taxes, other than Asset Taxes applicable to the Subject Oil and Gas Interests.  SM and Mitsui acknowledge and agree that the foregoing restrictions contained in clauses (a) and (b) of this definition relating to the Eagle Ford Shale shall only be applicable for costs and expenses

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incurred in the first three years of the Term, and the language in clause (a) reading “having as their objective the Eagle Ford Shale” and the language in clause (b) reading “targeting or completed in the Eagle Ford Shale” shall be deemed to be deleted from this definition for costs and expenses incurred thereafter.

“Encumbrance” means a mortgage, lien, security interest, pledge, charge or other encumbrance, and “Encumber” and other similar derivatives shall be construed accordingly.

“Entitlement” means that quantity of oil and gas from the Subject Oil and Gas Assets for which a Development Party has the right to take delivery pursuant to the terms of any Applicable Operating Agreement, any other applicable agreement or applicable Law.

“Environmental Arbitrator” has the meaning set forth in Section 5.1(f) of the Acquisition Annex.

“Environmental Condition” means (a) a condition existing on or prior to (to the extent not cured) the Defect Claim Date with respect to the air, soil, subsurface, surface waters, ground waters and/or sediments that causes any Conveyed Interest (or SM with respect to any Conveyed Interest) not to be in compliance with any Environmental Law or (b) the existence as of the Execution Date of any environmental pollution, contamination, degradation, damage or injury caused by or related to the ownership, use or operation of such Conveyed Interest for which monitoring, investigation or remedial or corrective action is presently required (or, if known to the applicable Governmental Authorities, would be presently required) or for which there is liability for investigatory costs, remedial or corrective action costs, natural resources, property or personal injury damages, fines or penalties under Environmental Laws.

“Environmental Defect” means an Environmental Condition with respect to a Conveyed Interest that is not set forth in Schedule 1.15.

“Environmental Defect Notice” has the meaning set forth in Section 5.1(a) of the Acquisition Annex.

“Environmental Defect Property” has the meaning set forth in Section 5.1(a) of the Acquisition Annex.

“Environmental Disputes” has the meaning set forth in Section 5.1(f) of the Acquisition Annex.

“Environmental Laws” means all applicable federal, state and local Laws as of the Execution Date relating to the protection of the public health, welfare and the environment, including, without limitation, those Laws relating to the generation, storage, handling, use, processing, treatment, transportation, disposal or other management of chemicals and other Hazardous Substances, and any common Law doctrine, including without limitation, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, release or exposure to Hazardous Substances.  The term “Environmental Laws” does not include good or desirable operating practices or standards that may be employed or adopted by other oil and gas well operators or recommended (but not required) by any Governmental Authority.

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“Escrow Agent” means JPMorgan Chase Bank, National Association or another escrow agent mutually acceptable to the Parties.

“Escrow Procedures” has the meaning set forth in Section 3.8(a).

“Excluded Assets” means (a) all of SM’s corporate minute books and financial records and other business records that relate to SM’s business generally (including the ownership and operation of the Conveyed Interests); (b) all trade credits, all accounts, receivables and all other proceeds, income or revenues attributable to (i) the Conveyed Interests with respect to any period of time prior to the Effective Time and (ii) the Retained Interests; (c) all claims and causes of action of SM arising under or with respect to any Applicable Contracts that are attributable to (i) periods of time prior to the Effective Time (including claims for adjustments or refunds), to the extent not relating to any Assumed Obligation or (ii) the Retained Interests; (d) subject to Section 4.3 of the Acquisition Annex, all rights and interests relating to the Retained Interests and/or the Conveyed Interests (i) under any existing policy or agreement of insurance, (ii) under any bond or (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property; (e) all Hydrocarbons produced and sold from (i) the Conveyed Interests with respect to all periods prior to the Effective Time and (ii) the Retained Interests; (f) all claims of SM or its Affiliates for refunds of or loss carry forwards with respect to (i) production or any other Taxes paid by SM or its Affiliates attributable to any period prior to the Effective Time, (ii) income Taxes paid by SM or its Affiliates or (iii) any Taxes attributable to the other Excluded Assets; (g) all personal computers and associated peripherals and all radio and telephone equipment; (h) all of SM’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property (excluding, for the avoidance of doubt, geophysical data and other data related to the Conveyed Interests, except as provided in clause (l) below); (i) all documents and instruments of SM that are protected by an attorney-client privilege, except for title opinions and Contracts; (j) all data that cannot be disclosed to Mitsui as a result of confidentiality arrangements under agreements with Third Parties (provided that SM uses its commercially reasonable efforts to obtain a waiver of any such confidentiality agreement, and provided further, that SM shall have no obligation to incur any cost or pay any fee with respect to such efforts); (k) all audit rights arising under any of the (i) Applicable Contracts or otherwise with respect to any period prior to the Effective Time or (ii) other Excluded Assets, except for any Well Imbalances or Pipeline Imbalances; (l) all geophysical and other seismic and related technical data and information relating to the Conveyed Interests to the extent that such geophysical and other seismic and related technical data and information is not transferable without payment of a fee or other penalty to any Third Party under any Contract and which Mitsui has not separately agreed in writing to pay; (m) documents prepared or received by SM or its Affiliates with respect to (i) lists of prospective purchasers for the Conveyed Interests, (ii) bids submitted by other prospective purchasers of the Conveyed Interests, (iii) analyses by SM or its Affiliates of any bids submitted by any prospective purchaser, (iv) correspondence between or among SM, its representatives and any prospective purchaser other than Mitsui, (v) correspondence between SM or any of its representatives with respect to any of the bids, the prospective purchasers or the transactions contemplated by this Agreement and (vi) the Retained Interests; (n) any offices, office leases and any office furniture or office supplies located in or on such offices or office leases; (o) any assets described in Section 2.1(c)(i) and Section 2.1(c)(iii) (in each case) that are excluded pursuant to the provisions of Section 4.4(b)(i) of the Acquisition Annex, except to the

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extent that such assets are subsequently conveyed to Mitsui under Section 4.4(b)(i) of the Acquisition Annex; (p) any Contracts that constitute master services agreements or similar contracts with vendors used by SM for other operations in Texas; (q) Contracts which provide for an interest rate or commodity swap, cap, floor, collar or any combination thereof, or option with respect to these or similar transactions, or otherwise constitute a futures or derivative transaction; (r) if SM has not received Anadarko’s consent to assignment and assumption of 50% of SM’s rights and obligations under the Anadarko Agreement to Mitsui before Closing, subject to the terms of Section 2.4 of the Transfer Provisions, all rights and obligations of SM under the Anadarko Agreement; (s) notwithstanding anything to the contrary contained in clause (r) directly above, all rights of SM to (i) any interest in lands within the Anadarko AMI acquired by Anadarko from TXCO Energy Company LP pursuant to the proceedings regarding In re TXCO Resources Inc., et al., Case No. 09-51807, filed in the Western District of Texas, San Antonio Division (SM’s rights in such lands, the “TXCO Properties”) and (ii) any damages paid or delivered to SM pursuant to item #1 on Schedule 10.1; (t) any assets of the type described in the definition of “Assets” or in Section 2.1(c)(iii), together with, in each case, any related asset of the type described in Section 2.1(c) that are acquired therewith, that were acquired by SM after the Effective Time; and (u) those certain assets set forth on Exhibit J, except that the assets set forth on Exhibit J, Part III will not be Excluded Assets, and SM will assign 50% of its rights to those assets to Mitsui, if (i) SM has received Anadarko’s consent to assignment and assumption of 50% of SM’s rights and obligations under the Anadarko Agreement to Mitsui before Closing and (ii) no other Third Party consents are required to be obtained for assignment of rights to those assets that cannot be obtained without payment of fees or other penalties (unless Mitsui agrees to pay such fees or penalties).

“Execution Date” has the meaning set forth in the preamble to this Agreement.

“Expert” has the meaning set forth in Section 11.9.

“Final Settlement Statement” has the meaning set forth in Section 3.6(b).

“Franchise Tax Liability” means any Tax imposed by a state on SM’s or any of its Affiliates’ gross or net income, gross margin and/or capital for the privilege of engaging in business in that state that was or is attributable to SM’s or any of its Affiliates’ ownership of an interest in the Conveyed Interests.

“Fundamental Representations” has the meaning set forth in Section 10.8(a) of the Acquisition Annex.

“GAAP” means the generally accepted accounting principles in the United States of America.

“Governmental Authority” means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitle to exercise any administrative, executive, judicial, legislative, regulatory or taxing authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

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“Hazardous Substances” means any petroleum, petroleum hydrocarbons or petroleum products and petroleum by-products (but each only to the extent regulated under or otherwise subject to the provisions of Environmental Laws); radioactive materials; asbestos or asbestos-containing materials; pesticides; radon; urea formaldehyde; lead or lead-containing materials; polychlorinated biphenyls; and any other chemicals, materials, substances or wastes in any amount or concentration which are now or hereafter become defined as or included in the definition of “hazardous substances,” “hazardous materials,” “hazardous wastes,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “pollutants,” “regulated substances,” “solid wastes,” or “contaminants” or words of similar import, under any Environmental Laws, including NORM and other substances referenced in Section 5.2 of the Acquisition Annex.

“Hydrocarbons” means oil and gas and other hydrocarbons produced or processed in association therewith (whether or not any such item is in liquid or gaseous form), or any combination thereof, and any other minerals covered by the Leases produced in association therewith.

“Immaterial Interest” means, with respect to any Development Party, any overriding royalty interest, production payment, net profits interest or similar interest that is carved out of such Development Party’s interests in the Subject Oil and Gas Assets, the Transfer of which interest would not convey a material portion of the value of the Development Party’s interest in the Subject Oil and Gas Assets.

“Income Tax Liability” means any Liability of SM or any of its Affiliates attributable to any federal, state or local income Tax measured by or imposed on the net income of SM or any of its Affiliates that was or is attributable to SM’s or any of its Affiliates’ ownership of an interest in or the operation of the Conveyed Interests.

“Indemnified Party” has the meaning set forth in Section 10.7(a) of the Acquisition Annex.

“Indemnifying Party” has the meaning set forth in Section 10.7(a) of the Acquisition Annex.

“Individual Environmental Threshold” has the meaning set forth in Section 5.1(e) of the Acquisition Annex.

“Individual Title Benefit Threshold” means $25,000.

“Individual Title Defect Threshold” means $25,000.

“Interim Period” means that period of time from and after the Effective Time up to the Closing Date.

“Invasive Activities” has the meaning set forth in Section 3.1(b) of the Acquisition Annex.

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“Joint Interests” means (a) the Contributed Properties and (b) any other properties or other interests therein acquired by the Development Parties jointly pursuant to this Agreement or any Associated Agreement.

“Knowledge” means with respect to SM, the actual knowledge of the following Persons:  ▇▇▇▇▇ ▇▇▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇▇▇▇▇; ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇; ▇▇▇ ▇▇▇▇▇; ▇▇▇▇ ▇▇▇▇▇; and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.

“Laws” means any constitution, decree, resolution, law, statute, act, ordinance, rule, directive, order, treaty, code or regulation and any injunction or final non-appealable judgment or any interpretation of the foregoing, as enacted, issued or promulgated by any Governmental Authority.

“Lease” means any oil and gas lease, oil, gas and mineral lease or sublease, royalty, overriding royalty, production payment, net profits interest, mineral fee interest, carved interest and other rights to oil and gas in place.

“Liabilities” means any and all claims (whether in the nature of contract claims, torts or otherwise), causes of action, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines, costs and expenses, including any reasonable fees of attorneys, and legal or other expenses, incurred in connection therewith and including liabilities, costs, losses and damages for personal injury, illness or death or property damage.

“Material Adverse Effect” means any change, inaccuracy, effect, event, result, occurrence, condition or fact (for the purposes of this definition, each, an “event”) (whether foreseeable or not and whether covered by insurance or not) that has had or would be reasonably likely to have, individually or in the aggregate with any other event or events, a material adverse effect on the ownership, operation or financial condition of the Conveyed Interests, taken as a whole; provided, however, that “Material Adverse Effect” shall not include such material adverse effects resulting from (a) general changes in oil and gas prices; (b) general changes in industry, economic or political conditions or markets; (c) changes in conditions or developments generally applicable to the oil and gas industry; (d) acts of God, including hurricanes and storms; (e) changes in Laws; (f) civil unrest or similar disorder or terrorist acts; (g) effects or changes that are cured or no longer exist by the earlier of Closing and the termination of this Agreement pursuant to Section 9.1 of the Acquisition Annex, without cost to Mitsui; and (h) changes resulting from the announcement of the transactions contemplated hereby or the performance of the covenants set forth in Article VI of the Acquisition Annex; provided that, in each case, the changes and effects described in clauses (a), (b), (c), and (e) of this definition do not disproportionately affect the Contributed Properties of which the Conveyed Interests are a part, taken as a whole.

“Material Contracts” has the meaning set forth in Section 1.8(a) of the Acquisition Annex.

“Marketing Services” has the meaning set forth in Section 5.9(a).

“Mitsui” has the meaning set forth in the preamble to this Agreement.

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“Mitsui Entire Interest” has the meaning set forth in Section 2.3(c)(i)(C) of the Transfer Provisions.

“Mitsui Escrow Amount” has the meaning set forth in Exhibit D.

“Mitsui Indemnified Parties” has the meaning set forth in Section 10.2 of the Acquisition Annex.

“Mitsui Parent” means Mitsui & Co., Ltd., a corporation organized under Japanese Law.

“Mitsui Parent Guaranty” means the Parent Guaranty made by Mitsui Parent in favor of SM dated as of the date hereof.

“Mitsui Termination Instruction” has the meaning set forth in Exhibit D.

“Mitsui’s Representatives” has the meaning set forth in Section 3.1(a) of the Acquisition Annex.

“Month” means any of the months of the Gregorian calendar.

“Net Acre” means, as computed separately with respect to each Lease, (a) the number of gross acres in the lands covered by such Lease, multiplied by (b) the interest in oil, gas and other minerals covered by such Lease in such lands, multiplied by (c) the Working Interest to be transferred to Mitsui as part of the Conveyed Interests; provided that if items (b) and/or (c) vary as to different areas of such lands (including depths) covered by such Lease, a separate calculation shall be done for each such area.

“Net Acre Allocation” means the applicable amount per Net Acre for any Lease included in the Assets as set forth on Exhibit A for such Lease.

“Net Revenue Interest” means, with respect to any Well or Lease, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Lease, after giving effect to all Burdens thereon.

“Non-Acquiring Development Party” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“NORM” means naturally occurring radioactive material.

“Offer Notice” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“Offered Interest” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“Operating Expenses” means all operating expenses (including Asset Taxes) and capital expenditures incurred in the ownership and operation of the Conveyed Interests in the ordinary course of business and, where applicable, in accordance with the Applicable Operating Agreements and the Springfield Ownership Agreement, and overhead costs charged to the Conveyed Interests under the Applicable Operating Agreements and the Springfield Ownership

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Agreement, but excluding Liabilities attributable to (a) personal injury, illness or death, property damage, other torts, breach of contract (other than failure to make payments under the terms of a contract) or violation of any Law (or private rights of action under any Law), (b) obligations to plug ▇▇▇▇▇ and dismantle or decommission facilities, close pits and restore the surface around such ▇▇▇▇▇, facilities and pits, (c) environmental Liabilities, including obligations to Remediate any contamination of groundwater, surface water, soil, sediments or Personal Property, or the Remediation of any Environmental Condition under applicable Environmental Laws, (d) obligations with respect to Well Imbalances or Pipeline Imbalances, (e) obligations to pay Working Interests, royalties, overriding royalties or other interest owners revenues or proceeds attributable to sales of Hydrocarbons relating to the Conveyed Interests, including those held in suspense, (f) obligations with respect to Contracts which provide for an interest rate or commodity swap, cap, floor, collar, or any combination thereof, or option with respect to these or similar transactions, or otherwise constitute a futures or derivative transaction, (g) costs of restoring any Casualty Loss, and (h) claims for indemnification or reimbursement from any Third Party with respect to costs of the type described in preceding clauses (a) through (g), whether such claims are made pursuant to contract or otherwise.

“Operating Account” has the meaning set forth in Exhibit D.

“Operator” means the Person serving as operator under any Applicable Operating Agreement.

“Outside Termination Date” has the meaning set forth in Section 9.1(a) of the Acquisition Annex.

“Package Sale” means a Transfer together with other properties as part of a wider transaction.

“Parent Guaranty” means a Guaranty in substantially the form attached as Exhibit F, including, with respect to any Parent Guaranty except for the Mitsui Parent Guaranty, appropriate changes, including changes in the parties and the applicable limitations of liability, and changes to reflect the nature of the Joint Interest being Transferred.

“Participating Interest” means with respect to any Development Party and any Development Operation in which such Development Party is participating, such Development Party’s Working Interest or other cost bearing interest in such Development Operation.

“Participating Party” means with respect to any Development Operation, a Development Party that is participating in such Development Operation.

“Party” and “Parties” have the meanings set forth in the preamble to this Agreement.

“Permitted Encumbrances” means:

(a)           lessor’s royalties, non-participating royalties, overriding royalties, reversionary interests and similar burdens upon, measured by or payable out of production if the net cumulative effect of such burdens does not (i) operate to reduce the Net Revenue Interest of SM in any Well to an amount less than the Net Revenue Interest set forth on Exhibit A-2 for such

▇▇▇▇▇▇▇▇

▇▇

▇▇▇▇, (▇▇) obligate SM to bear a Working Interest for such Well in any amount greater than the Working Interest set forth on Exhibit A-2 for such Well (unless the Net Revenue Interest for such Conveyed Interest is greater than the Net Revenue Interest set forth on Exhibit A-2 in the same proportion as any increase in such Working Interest), (iii) increase the royalty and overriding royalty burdens for any Lease to an amount greater than that set forth in Exhibit A, or (iv) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease;

(b)           preferential rights to purchase and required Third Party consents to assignments and similar agreements;

(c)           liens for Taxes or assessments not yet due or delinquent;

(d)           Customary Post-Closing Consents;

(e)           other than such rights that have already been triggered, conventional rights of reassignment upon final intention to abandon or release the Assets, or any of them;

(f)            such Title Defects as Mitsui (i) may have expressly waived in writing or (ii) is deemed to have waived pursuant to the terms of Section 4.2(a) of the Acquisition Annex (except that the definition of “Permitted Encumbrances” applicable to the special warranty of title in the Assignment will be deemed not to include subclause (ii) of this clause (f));

(g)           all applicable Laws, and rights reserved to or vested in any Governmental Authority (i) to control or regulate any Conveyed Interest in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such right, power, franchise grant, license or permit or to purchase, condemn, expropriate or recapture, which rights have not been exercised; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated; and (iv) to enforce any obligations or duties affecting the Conveyed Interests to any Governmental Authority, with respect to any franchise, grant, license or permit;

(h)           rights of a common owner of any interest in rights-of-way or easements currently held by SM and such common owner as tenants in common or through common ownership to the extent that the same does not materially impair the use or operation of the Conveyed Interests as currently used and operated;

(i)            easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases and other rights in the Conveyed Interests for the purpose of surface operations, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines and removal of timber, grazing, logging operations, canals, ditches, reservoirs and other like purposes, or for the joint or common use of real estate, rights-of-way, facilities and equipment, (in each case) that do not (i) materially impair the use, ownership or operation of the Conveyed Interests (as currently owned and operated), (ii) reduce the Net Revenue Interest of SM in any Well to an amount less than the Net Revenue Interest set forth on Exhibit A-2 for such Well, (iii) obligate SM to bear a Working Interest for such Well in any amount greater than the Working Interest set forth on Exhibit A-2 for such Well (unless the Net Revenue Interest for such Conveyed Interest is greater than the Net Revenue

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Interest set forth on Exhibit A-2 in the same proportion as any increase in such Working Interest), (iv) increase the royalty and overriding royalty burdens for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (v) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease;

(j)            zoning and planning ordinances and municipal regulations;

(k)           vendors, carriers, warehousemen’s, repairmen’s, mechanics, workmen’s, materialmen’s, construction or other like Encumbrances arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due;

(l)            Encumbrances created under Leases and/or Applicable Operating Agreements or by operation of Law in respect of obligations that are not yet due;

(m)          any Encumbrance affecting the Conveyed Interests which is discharged by SM at or prior to Closing;

(n)           any Contracts, restrictions or exclusions set forth on Exhibit A and all litigation referenced in Schedule 1.7; and

(o)           the Leases and Contracts (including the Applicable Contracts), (and, solely for purposes of the definition of “Permitted Encumbrances” applicable to the special warranty of title in the Assignment, and not for purposes of the Title Defect adjustments or any other purposes hereunder, other Encumbrances and agreements, instruments, obligations, defects and irregularities affecting the Conveyed Interests) that (in each case) do not (i) materially impair the use, ownership or operation of the Conveyed Interests (as currently owned and operated), (ii) reduce the Net Revenue Interest of SM in any Well to an amount less than the Net Revenue Interest set forth on Exhibit A-2 for such Well, (iii) obligate SM to bear a Working Interest for such Well in any amount greater than the Working Interest set forth on Exhibit A-2 for such Well (unless the Net Revenue Interest for such Asset is greater than the Net Revenue Interest set forth on Exhibit A-2 in the same proportion as any increase in such Working Interest), (iv) increase the royalty and overriding royalty burdens for any Lease to an amount greater than that set forth in Exhibit A for such Lease, or (v) reduce the Net Acres for any Lease to an amount less than the Net Acres set forth in Exhibit A for such Lease.

“Person” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority or any other entity.

“Personal Property” means equipment, machinery, fixtures, and other personal and mixed property, including saltwater disposal ▇▇▇▇▇, water sourcing or disposal assets, well equipment, casing, rods, tanks, boilers, buildings, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines and separation facilities, structures, materials and other items used or held for use in the operation thereof and located upstream of the inlet flange of the Springfield Gathering Assets or other Third Party gathering assets to which the ▇▇▇▇▇ included in the Assets are connected (or, in the case of Hydrocarbon liquids not transported by pipeline, upstream of the outlet flange in the tanks).

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“Pipeline Imbalance” means any imbalance at the pipeline or plant flange between the amount of Hydrocarbons nominated by or allocated to SM and the Hydrocarbons actually delivered on behalf of SM at that point over the same period with respect to the Conveyed Interests.

“Preferential Rights” has the meaning set forth in Section 1.10 of the Acquisition Annex.

“Preliminary Settlement Statement” has the meaning set forth in Section 3.6(a).

“Properties” has the meaning set forth in clause (b) of the definition of “Assets”.

“Reassignment Notice” has the meaning set forth in Section 6.4.

“Records” has the meaning set forth in Section 2.1(c)(ii).

“Remediation” means, with respect to an Environmental Condition, the implementation and completion of any remedial, removal, response, construction, closure, disposal or other corrective actions required under Environmental Laws to correct or remove such Environmental Condition.

“Remediation Amount” means, with respect to an Environmental Condition (a) the cost (net to the Conveyed Interests) of the most cost effective Remediation of such Environmental Condition that is reasonably available, considering the use of the applicable property, plus (b) the amount of any Liabilities to Third Parties (net to the Conveyed Interests) in addition to Remediation as a consequence of the Environmental Condition.

“Retained Interests” means all of SM’s right, title and interest in and to the (a) Assets, (b) Springfield Gathering Assets, and (c) assets described in Section 2.1(c), in each case, other than the Conveyed Interests.

“Retained Obligations” has the meaning set forth in Section 10.1 of the Acquisition Annex.

“Selling Party” has the meaning set forth in Section 2.2(a) of the Transfer Provisions.

“Service Eligible Assets” has the meaning set forth in Section 5.6(a).

“Services” has the meaning set forth in Section 6.4(a) of the Acquisition Annex.

“SM” has the meaning set forth in the preamble to this Agreement.

“SM Indemnified Parties” has the meaning set forth in Section 10.3 of the Acquisition Annex.

“SM Termination Instruction” has the meaning set forth in Exhibit D.

“SMJOA” means an operating agreement in the form attached hereto as Exhibit B.

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“Springfield Gathering Assets” means all of SM’s interest in the Springfield Ownership Agreement and all of SM’s interest in the rights-of-way and other gathering assets held or acquired by SM and Springfield Pipeline, LLC under the Springfield Ownership Agreement.

“Springfield Ownership Agreement” means that certain Agreement for the Construction, Ownership, and Operation of Midstream Assets in Maverick, Dimmit, ▇▇▇▇ and La Salle Counties, Texas with Springfield Pipeline, LLC, a gathering subsidiary of Anadarko, effective as of January 1, 2006, and pertaining to the acquisition and construction of a gathering system relating to the Springfield Gathering Assets.

“Subject Oil and Gas Assets” means all right, title and interest of the Development Parties within the AMI Area in and to those Leases and/or ▇▇▇▇▇ in which both Development Parties hold an interest, whether held on, or acquired at or after, the Closing Date.

“Tax Partnership” has the meaning set forth in Section 9.1.

“Tax Partnership Agreement” means the Tax Partnership Agreement between SM and Mitsui, creating the Tax Partnership, substantially in the form attached hereto as Exhibit C.

“Tax Purposes” has the meaning set forth in Section 9.1.

“Taxes” shall mean any and all federal, state, local, foreign and other taxes or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, profit share, license, lease, service, service use, value added, withholding, payroll, employment, excise, estimated severance, stamp, occupation, premium, property, windfall profit or other taxes of any kind whatsoever, together with any interests, penalties, additions to tax, fines or other additional amounts imposed thereon or related thereto, and the term “Tax” means any one of the foregoing Taxes.

“Term” means the period from and after the Closing Date up to and including the Termination Date.

“Termination Date” means the date that is three months following the Carry Termination Event, unless earlier terminated pursuant to Section 6.4 or by the written agreement of all of the Parties.

“Third Party” shall mean any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.

“Third Party Claim” has the meaning set forth in Section 10.7(b) of the Acquisition Annex.

“Third Party Operating Agreements” means those operating agreements, other than the SMJOA, to which Persons other than the Development Parties and SM are parties and which burden the Subject Oil and Gas Assets within the AMI Area.

“Third Party Operator” means a Third Party serving as Operator under any Third Party Operating Agreement.

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“Title Arbitrator” has the meaning set forth in Section 4.2(j) of the Acquisition Annex.

“Title Benefit” means any right, circumstance or condition that operates to (a) increase the Net Revenue Interest being assigned to Mitsui in any Well above that shown for such Well in Exhibit A-2 to the extent the same does not cause a greater than proportionate increase in the Working Interest being assigned to Mitsui therein above that shown in Exhibit A-2, (b) increase the Net Acres being assigned to the Mitsui in any Lease to greater than that shown therefor in Exhibit A for such Lease (but only to the extent the increase is not the result of an increase in Working Interest in the Lease without at least a proportionate increase in Net Revenue Interest) or (c) increase the Net Revenue Interest of the interest being assigned to Mitsui in any Lease above that shown on Exhibit A for such Lease, to the extent the same does not cause a greater than proportionate increase in the Working Interest being assigned to Mitsui therein above that shown in Exhibit A for such Lease.

“Title Benefit Amount” has the meaning set forth in Section 4.2(e) of the Acquisition Annex.

“Title Benefit Notice” has the meaning set forth in Section 4.2(b) of the Acquisition Annex.

“Title Benefit Property” has the meaning set forth in Section 4.2(b) of the Acquisition Annex.

“Title Defect” means any Encumbrance, defect or other matter that causes SM not to have Defensible Title in and to any Conveyed Interest; provided that the following shall not be considered Title Defects:

(a)           defects in the chain of title consisting of the failure to recite marital status in a document or omissions of successions of heirship or estate proceedings, unless Mitsui provides affirmative evidence that such failure or omission could reasonably be expected to result in another Person’s superior claim of title to the relevant Conveyed Interest;

(b)           defects arising out of lack of survey, unless a survey is expressly required by applicable Laws;

(c)           defects arising out of lack of corporate or other entity authorization unless Mitsui provides affirmative evidence that causes Mitsui to reasonably believe such corporate or other entity action may not have been authorized and could reasonably be expected to result in another Person’s superior claim of title to the relevant Conveyed Interest;

(d)           defects based on a gap in SM’s chain of title in the state’s records as to state Leases, or in the county records as to other Leases, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or ▇▇▇▇▇▇▇’▇ title chain or runsheet, which documents shall be included in a Title Defect Notice;

(e)           defects that have been cured by applicable Laws of limitations or prescription; and

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(f)            any Encumbrance or loss of title resulting from (i) SM’s election to consent or non-consent to operations after the Execution Date to the extent that such election is not prohibited by Section 6.1(b)(ii) of the Acquisition Annex, (ii) SM’s execution or amendment of any Applicable Contract after the Execution Date not prohibited by Section 6.1(b)(iii), Section 6.1(b)(iv) or Section 6.1(b)(vi) of the Acquisition Annex, or (iii) any action after the Execution Date described in Section 6.1(x), Section 6.1(y) or Section 6.1(z) of the Acquisition Annex.

“Title Defect Amount” has the meaning set forth in Section 4.2(g) of the Acquisition Annex.

“Title Defect Notice” has the meaning set forth in Section 4.2(a) of the Acquisition Annex.

“Title Defect Property” has the meaning set forth in Section 4.2(a) of the Acquisition Annex.

“Title Disputes” has the meaning set forth in Section 4.2(j) of the Acquisition Annex.

“Total Amount in Default” means, as of any time, the following amounts:  (a) the amounts that the Defaulting Party has failed to pay under the terms of this Agreement and the Associated Agreements as of such time and (b) any interest at the Default Interest Rate accrued on the (i) amount described in clause (a) from the date such amount is due by the Defaulting Party until paid in full by the Defaulting Party and (ii) amount under clause (b)(i) from the time such amount is incurred by SM until paid in full by the Defaulting Party.

“Transfer” and its syntactical variants mean any sale, assignment or other disposition by a Development Party of all or any part of its interest in the Subject Oil and Gas Assets; provided, however, that “Transfer” excludes (a) any disposition resulting from a direct or indirect Change in Control of a Party, and (b) any Encumbrance.

“Transfer Provisions” means Exhibit H, including its terms and conditions.

“Transition Period” has the meaning set forth in Section 6.4(a) of the Acquisition Annex.

“Treasury Regulations” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Internal Revenue Code.  All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

“TXCO Carry Amount” has the meaning set forth in Section 2.4(a) of the Transfer Provisions.

“TXCO Cash Amount” has the meaning set forth in Section 2.4(a) of the Transfer Provisions.

“TXCO Interest” has the meaning set forth in Section 2.4(a) of the Transfer Provisions.

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“TXCO Notice” has the meaning set forth in Section 2.4(a) of the Transfer Provisions.

“TXCO Properties” has the meaning set forth in clause (s) of the definition of “Excluded Assets.”

“Ultimate Parent” means the ultimate parent company within a Party’s organization, which, as of the Execution Date, with respect to Mitsui, is Mitsui Parent, and with respect to SM, is SM.

“Unit” has the meaning set forth in clause (a) of the definition of “Assets.”

“Well” means all oil and gas ▇▇▇▇▇ and injection ▇▇▇▇▇.

“Well Imbalance” means any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well included in the Assets and allocated to the interests of or lifted by SM and the shares of production from such Well to which SM is entitled over the same period with respect to the Conveyed Interests.

“Working Interest” means, with respect to any Unit, Well or Lease, the interest in and to such Unit, Well or Lease that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Unit, Well or Lease, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests and other similar burdens upon, measured by, or payable out of production therefrom.

“Year” means a period of 12 consecutive Months commencing on the first day of January and ending on the following 31st day of December, according to the Gregorian calendar.

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ANNEX A

ACQUISITION PROVISIONS

TABLE OF CONTENTS

i

TABLE OF CONTENTS

(continued)

ii

TABLE OF CONTENTS

(continued)