10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 001-16179

Energy Partners, Ltd.

(Exact name of registrant as specified in its charter)

Delaware	72-1409562
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
201 St. Charles Avenue, Suite 3400 New Orleans, Louisiana	70170
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

504-569-1875

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Stock, Par Value $0.01 Per Share	None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the common stock held by non-affiliates of the registrant at June 30, 2009 (the registrant’s most recently completed second fiscal quarter) based on the closing stock price as quoted on the Pink Sheets on that date was $9,981,297. As of July 27, 2009, there were 32,286,310 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
	Cautionary Statement About Forward-Looking Statements	17
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities	31
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	104
Item 9A.	Controls and Procedures	104
Item 9B.	Other Information	105
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	106
Item 11.	Executive Compensation	109
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	131
Item 13.	Certain Relationships and Related Transactions, and Director Independence	133
Item 14.	Principal Accounting Fees and Services	133
PART IV
Item 15.	Exhibits, Financial Statement Schedules	135

Statements we make in this Annual Report on Form 10-K (“Annual Report”) which express a belief, expectation or intention, as well as those that are not historical fact, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to various risks, uncertainties and assumptions, including those to which we refer under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Items 1 and 1A of Part 1 of this Annual Report.

PART  I

Item 1. Business

Overview

Energy Partners, Ltd. (referred to herein as “we,” “our,” “us” or the “Company”) was incorporated as a Delaware corporation in January 1998 and operates in a single segment as an independent oil and natural gas exploration and production company. Our current operations are concentrated in the shallow to moderate-depth waters in the Gulf of Mexico focusing on the areas offshore Louisiana as well as the deepwater Gulf of Mexico at depths less than 5,000 feet. We concentrate on these areas because we believe they provide us with favorable geologic and economic conditions, including multiple reservoir formations, regional economies of scale, extensive infrastructure and comprehensive geologic databases. We believe that these regions offer a balanced and expansive array of existing and prospective exploration, exploitation and development opportunities in both established productive horizons and deeper geologic formations. As of December 31, 2008, we had estimated proved reserves of approximately 90.8 billion cubic feet (Bcf) of natural gas and 21.6 million barrels (Mmbbls) of oil, or an aggregate of approximately 36.8 million barrels of oil equivalent (Mmboe), with a standardized measure of discounted future net cash flows of $416.2 million (see “—Oil and Natural Gas Reserves” for more information about standardized measure of discounted future net cash flows).

Since inception, we had grown our productive property base through a combination of exploration, exploitation and development drilling and multi-year, multi-well drill-to-earn programs, as well as strategic acquisitions of oil and natural gas fields in the shallow to moderate-depth waters in the Gulf of Mexico and in the deepwater Gulf of Mexico and Gulf Coast onshore areas. As we grew our property base, we reduced geographic concentration from three primary producing properties and moved to a more balanced oil and natural gas reserve profile. We also expanded our technical knowledge base through the addition of personnel and geophysical and geological data. Since our highest production levels, which occurred in 2006, production has declined in our core areas and we sold substantially all of our onshore productive properties in 2007 and selected producing properties in the Western offshore area in March of 2008. Our geoscientists and management professionals have considerable Gulf of Mexico and Gulf Coast region-specific geological, geophysical, technical and operational experience. In 2006, we commenced participation in a deepwater exploration program, which resulted in our first deepwater production near the end of 2008.

Recent Events

Filing of Chapter 11 Cases and Preceding Events

On May 1, 2009, we and certain of our subsidiaries filed voluntary petitions (In re: Energy Partners, Ltd., et. al., Case No. 09-32957) for reorganization (the “Chapter 11 Cases”) under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). We continue to manage our properties and operate our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. The Chapter 11 filings were preceded by a number of negative influences and factors, including:

• hurricanes in August and September of 2008 damaged third-party production pipelines, causing us to shut-in a significant amount of our production from September 2008 into early 2009;

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• oil and natural gas prices declined in the fourth quarter of 2008 and have remained at relatively low levels during 2009 relative to the levels reached in 2008; and

• the worldwide credit and capital markets collapsed in 2008 and the availability of debt and equity financing became significantly more scarce, thus reducing financial flexibility for most companies, including us.

These factors negatively impacted our business, and led to several circumstances that significantly affected our liquidity and led to our filing the Chapter 11 Cases, including:

• in the third quarter of 2008, the Minerals Management Service (the “MMS”) rejected our request for a waiver of supplemental bonding requirements for the decommissioning of certain of our federal offshore properties, resulting in the requirement for us to provide cash or other financial support totaling $47.3 million, which ultimately led to the March 2009 Incident of Noncompliance and the MMS order to shut-in our production in the federal portion of our East Bay field in March 2009;

• in March 2009, we received a notice of redetermination from Bank of America, N.A., the Administrative Agent under our Credit Agreement dated as of April 23, 2007 (“Credit Agreement”), that our borrowing base under the Credit Agreement had been reduced from $150 million to $45 million, resulting in a borrowing base deficiency of $38 million which was required to be repaid by April 3, 2009 (which date was ultimately extended to May 1, 2009); and

• on April 15, 2009, we were required to make our scheduled interest payments of approximately $17 million on our 9.75% Senior Unsecured Notes due 2014 (the “Fixed Rate Notes”) and our Senior Floating Notes due 2013 (the “Floating Rate Notes” and collectively with the Fixed Rate Notes, the “Senior Unsecured Notes”).

Our inability to satisfy these obligations in a timely manner ultimately led to the filing of the Chapter 11 Cases.

Plan of Reorganization, Exit Facility and Expected Emergence from Bankruptcy

On June 11, 2009, as part of our Chapter 11 Cases, we filed with the Bankruptcy Court our Second Amended Joint Plan of Reorganization (the “Plan”), and a Second Amended Disclosure Statement (the “Disclosure Statement”), pursuant to which we solicited votes for the confirmation of the Plan. On July 31, 2009, we filed with the Bankruptcy Court the Plan, as modified as of July 31, 2009. The Plan was formulated after extensive negotiations with committees representing holders of the Senior Unsecured Notes and holders of our common stock interests. The primary purpose of the Plan is to effectuate a restructuring of our capital structure to strengthen our balance sheet by reducing our overall indebtedness and improve cash flow.

On July 23, 2009, we announced that the Plan had received the affirmative vote of the holders of our Senior Unsecured Notes and our 8.75% Senior Notes due 2010 and we consequently proceeded to request confirmation of the Plan from the Bankruptcy Court. On August 3, 2009, after a confirmation hearing in which the Bankruptcy Court considered the Plan and all objections thereto, it entered into a confirmation order (the “Confirmation Order”) and confirmed the Plan as of August 3, 2009. The effectiveness of the Plan and our emergence from bankruptcy is subject to several conditions, including the successful closing of one or more loans and/or credit facilities that together would provide liquidity to us upon our exit from bankruptcy (together, the “Exit Facility”). We are currently in negotiations with lenders on structuring the Exit Facility. Fore more information on the conditions to the effectiveness of the Plan see Item 1A“—Risk Factors.”

Delisting

Trading of our common stock was suspended by the New York Stock Exchange (the “NYSE”) prior to its opening on March 30, 2009 due to our failure to meet the NYSE’s continued listing standards regarding average

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global market capitalization. Subsequently, the NYSE delisted our common stock, effective April 27, 2009. Our common stock is currently being quoted for public trading on the Pink Sheets quotations system, an over-the-counter market, under the symbol ERPLQ.PK. Should we emerge from bankruptcy as planned, we anticipate that we will apply for listing for our new common stock on either the NYSE or Nasdaq Global Market (the “Nasdaq”).

Impact on Current Conduct of Our Business and Management Team

The operation of our business is significantly impacted by our current status as a debtor-in-possession. Our significant strategic activities are generally subject to the approval of the Bankruptcy Court. Our executive management team does not currently include a Chief Financial Officer or Chief Executive Officer. Our Chief Restructuring Officer has been engaged primarily to focus on our financial restructuring and the Chapter 11 Cases. We expect that our ownership and Board of Directors will change as a result of the financial restructuring. As part of the Plan, we have filed with the Bankruptcy Court the names of several persons who will be among our board members after we emerge from bankruptcy. We do not have any information, however, about any plans for the conduct of our business that our potential post-bankruptcy stockholders may have or that any future directors or executive management may implement, and we cannot predict what those plans might be. You can find more information on the Plan and the recent events that have impacted us under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Recent Events.”

Where You Can Find More Information

We maintain a website at www.eplweb.com that contains information about us, including links to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all related amendments as soon as reasonably practicable after providing such reports to the Securities and Exchange Commission (the “SEC”). In addition, our website contains our Corporate Governance Guidelines and the charters for our Audit, Compensation and Nominating and Governance Committees. Copies of this information are also available by writing to our Corporate Secretary at 201 St. Charles Avenue, Suite 3400, New Orleans, Louisiana 70170. Our website and the information contained in it and connected to it shall not be deemed incorporated by reference into this Annual Report or any other filing that we make with the SEC.

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any document we file with the SEC at www.sec.gov.

Capital Expenditures in 2009

Our exploration and development expenditures for 2008 totaled $205.1 million. We expect that our exploration and development activities in 2009 will be significantly lower than in prior years in order to conserve cash resources. For 2009, we expect exploration and development expenditures to total less than $10 million, which we expect would be directed primarily toward selective efforts to stabilize existing production levels. Our plans for 2009 do not include any acquisitions or deepwater activities. Our lease portfolio is primarily located offshore in the Gulf of Mexico and includes a mixture of lower risk development and exploitation opportunities, moderate risk exploration opportunities and higher risk, higher potential exploration projects.

Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains important information about events that had a material impact on our business in 2008 and that we expect will continue to materially impact our business in 2009.

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Our Properties

As of December 31, 2008, we had working interests in 24 producing fields, primarily located in the Gulf of Mexico region. These fields fall into five areas which we identify and describe more completely below as:

• Eastern offshore—comprised primarily of one producing field, our East Bay field;

• Central offshore—comprised of four producing fields, all of which are located in close proximity to each other and are in the vicinity of the Bay Marchand salt dome;

• Deepwater Gulf of Mexico—comprised of 22 offshore blocks, including one well at Mississippi Canyon Block 248 that was producing at December 31, 2008;

• Western offshore—comprised of 15 producing fields extending from offshore central and western Louisiana to Texas; and

• Gulf Coast onshore and other—located in South Louisiana and Texas.

The Eastern and Central offshore fields and the acreage surrounding them comprise the core of our property base and the focus of our near term efforts. Over the last several years, we added to our leasehold acreage position in these areas through federal and state lease sales, acquisitions and trades with industry partners.

Eastern Offshore Area

East Bay, the key asset in our Eastern offshore area, comprised approximately 21% of our production during 2008 and 37% of our proved reserves at the end of 2008, and is located 89 miles southeast of New Orleans near the mouth of the Mississippi River. It contains producing wells located onshore along the coastline and in water depths ranging up to approximately 170 feet and is comprised primarily of the South Pass 24, 26 and 27 blocks. We operate this field and own an average 97% interest in our acreage position in this area.

Our leasehold area covered 42,434 gross acres (41,141 net acres) as of December 31, 2008. See “—Recent Events” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for important information about our East Bay leases.

Central Offshore Area

These fields, located in the Greater Bay Marchand area, comprised approximately 46% of our production during 2008 and 43% of our proved reserves at the end of 2008. The core assets of our Central offshore area are located approximately 60 miles south of New Orleans in water depths of 181 feet or less. Our key assets in this area include the South Timbalier 26, 41 and 46 and Bay Marchand fields.

In 2003, we drilled our initial discovery well in the South Timbalier 41 field, in which we hold a 60% working interest, on acreage acquired earlier that year in a federal lease sale. Several exploratory and development wells have been drilled in the field and all but one well has been brought on production. This field, which has additional reserve potential, represents the most significant discovery in our history. We acquired acreage in additional leases in the vicinity of this field in 2005 and subsequent years.

In addition, at the beginning of 2005 we owned a 50% interest in the South Timbalier 26 field. In March 2005, we closed the acquisition of the remaining 50% interest in South Timbalier 26 above approximately 13,000 feet subsea. As a result of the acquisition, we own a 100% interest in the producing horizons in this field. The acquisition expanded our interest in our core Greater Bay Marchand area and gave us additional flexibility in undertaking the future development of the South Timbalier 26 field. In 2008, we closed on the acquisition of the primary lateral natural gas production pipeline serving our South Timbalier 26 field.

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Deepwater Gulf of Mexico Area

During 2008, we closed the acquisition of our leasehold interest in Mississippi Canyon 292, including one well that was drilled in 2007 under our farmout agreement with the prior owner. We also entered into a production handling agreement with the prior owner for production facilities located in the Mississippi Canyon 292 field, allowing us to begin producing our Mississippi Canyon 248 well beginning in November 2008. Our Mississippi Canyon 204 well was drilled in 2006. At December 31, 2008, we owned interests in 22 blocks in the deepwater Gulf of Mexico area. Our working interests in our leases in this area range from 15% to 33%. We have additional prospects identified on our deepwater acreage portfolio. See “—Results of Operations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1A, “Risk Factors” for important information about risks related to our ownership of the deepwater Gulf of Mexico properties.

Western Offshore Area

The properties in the Western offshore area are located in water depths ranging from 7 to 272 feet with working interests ranging from 20% to 100%. In March 2008, we completed the sale of two Gulf of Mexico Shelf properties located in our Western offshore area. We owned interests in 15 producing fields in this area at December 31, 2008.

Gulf Coast Onshore and Other Areas

In 2005, we closed an acquisition of properties and reserves onshore in south Louisiana for $149.6 million in cash, after adjustments. In June 2007, we sold substantially all of our onshore South Louisiana producing assets for approximately $68.6 million after closing adjustments. The remaining properties in these areas are located in south Louisiana and the Permian area in Texas with working interests ranging from 15% to 40% and are comprised of undeveloped acreage with three wells producing at year end.

Oil and Natural Gas Reserves

The following table presents our estimated net proved oil and natural gas reserves and the estimated future net revenues and cash flows related to our reserves at December 31, 2008, 2007 and 2006. Our estimates of proved reserves are based on reserve reports prepared by Netherland, Sewell & Associates, Inc. and Ryder Scott Company, L.P., independent petroleum engineers as of December 31, 2008. Neither the present values, discounted at 10% per year, of estimated future net cash flows before income taxes (“PV-10”), or the standardized measure of discounted future net cash flows shown in the table are intended to represent the current market value of the estimated oil and natural gas reserves that we own. Note 20 “Supplementary Oil and Natural Gas Disclosures” to the consolidated financial statements in Part II, Item 8 of this Annual Report provides important additional information about our proved oil and natural gas reserves.

PV-10 may be considered a non-GAAP financial measure as defined by the SEC. We believe that the presentation of PV-10 is relevant and useful to our investors as supplemental disclosure to the standardized measure, or after-tax amount, because it presents the discounted future net cash flows attributable to our proved reserves before taking into account future corporate income taxes and our current tax structure. While the standardized measure is dependent on the unique tax situation of each company, and our calculation of PV-10 may therefore not be comparable to those of our competitors, PV-10 is based on estimated oil and natural gas selling prices and discount factors that are consistent for all companies. Because of this, PV-10 can be used within the industry and by creditors and securities analysts to evaluate estimated net cash flows from proved reserves on a more comparable basis.

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	As of December 31,
	2008		2007		2006
	(dollars in thousands)
Total estimated net proved reserves (1):
Oil (Mbbls)		21,637		28,123		29,914
Natural gas (Mmcf)		90,808		103,118		170,123
Total (Mboe)		36,771		45,309		58,268
Net proved developed reserves (2):
Oil (Mbbls)		17,052		23,636		24,811
Natural gas (Mmcf)		79,413		85,926		117,392
Total (Mboe)		30,288		37,957		44,376
Estimated future net revenues before income taxes (3)	$	557,660	$	2,172,162	$	1,632,470
Present value of estimated future net revenues before income taxes (3) (4)	$	425,247	$	1,470,285	$	1,188,295
Standardized measure of discounted future net cash flows (5)	$	416,171	$	1,092,935	$	893,474

(1) Approximately 68% of our total proved reserves were proved developed non-producing and proved undeveloped at December 31, 2008.

(2) Net proved developed non-producing reserves as of December 31, 2008 (9,127 Mbbls and 55,844 Mmcf) were 18,434 Mboe, or 50% of our total proved reserves.

(3) The December 31, 2008 amount was calculated using a period-end oil price of $44.77 per barrel and a period-end natural gas price of $6.05 per Mcf. The December 31, 2007 amount was calculated using a period-end oil price of $94.76 per barrel and a period-end natural gas price of $6.98 per Mcf. The December 31, 2006 amount was calculated using a period-end oil price of $58.40 per barrel and a period-end natural gas price of $5.54 per Mcf.

We believe estimated future net revenues before income taxes and present value of estimated future net revenues before income taxes are important measures for evaluating our natural gas and oil properties. Because of factors which may impact the amount of future income taxes that are unique to us and/or unique to other companies to which we might be compared, we believe the use of pre-tax measures provides greater comparability of these measures.

(4) The present value of estimated future net revenues attributable to our reserves was prepared using constant prices, as of the calculation date, discounted at 10% per year on a pre-tax basis.

(5) The standardized measure of discounted future net cash flows represents the present value of future cash flows after income taxes discounted at 10% per year.

Costs Incurred in Oil and Natural Gas Activities

The following table sets forth certain information regarding the costs incurred associated with finding, acquiring, and developing our proved oil and natural gas reserves:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Acquisitions:
Proved	$	—	$	2,167	$	420
Unproved		20,925		7,346		15,896
Exploration		56,202		191,621		224,147
Development (1)		127,948		121,769		167,346
Costs incurred	$	205,075	$	322,903	$	407,809

(1) Includes asset retirement obligations incurred of $13.4 million, $5.6 million and $8.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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Productive Wells

The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of December 31, 2008.

	Total Productive Wells
	Gross	Net
Oil	205	155
Natural gas	63	33
Total	268	188

Productive wells consist of producing wells and wells capable of production, including oil wells awaiting connection to production facilities and natural gas wells awaiting pipeline connections to commence deliveries. Thirty three gross oil wells and eight gross natural gas wells have dual completions.

In this Annual Report, “gross” refers to the total wells in which we have a working interest and “net” refers to gross wells multiplied by our working interest in the wells.

Acreage

The following table sets forth information as of December 31, 2008 relating to acreage held by us. Developed acreage is assigned to producing wells.

	Gross Acreage	Net Acreage
Developed:
Eastern offshore area	30,341	29,047
Central offshore area	26,187	16,937
Western offshore area	69,982	45,117
Deepwater Gulf of Mexico area	5,760	1,920
Gulf Coast onshore area	960	224
Total	133,230	93,245
Undeveloped:
Eastern offshore area	12,093	12,093
Central offshore area	70,525	69,666
Western offshore area	152,287	128,083
Deepwater Gulf of Mexico area	126,720	33,503
Gulf Coast onshore and other area	15,944	1,703
Total	377,569	245,048

Leases covering 12% of our undeveloped net acreage expire in 2009, 32% in 2010, 24% in 2011, 7% in 2012, 18% in 2013 and 7% thereafter. See “—Results of Operations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for important information about our undeveloped acreage.

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Drilling Activity

The following table shows our well activity for the years ended December 31, 2008, 2007 and 2006.

	Years Ended December 31,
	2008		2007		2006
	Gross	Net	Gross	Net	Gross	Net
Development Wells:
Productive	13.0	10.6	4.0	2.6	3.0	1.7
Non-productive	—	—	—	—	—	—
Total	13.0	10.6	4.0	2.6	3.0	1.7
Exploration Wells:
Productive	3.0	0.7	11.0	6.0	17.0	8.7
Non-productive	1.0	0.2	11.0	8.3	6.0	2.7
Total	4.0	0.9	22.0	14.3	23.0	11.4

Drilling activity refers to the number of wells completed at any time during the fiscal years, regardless of when drilling was initiated. For purposes of this table, the term “completed” refers to the installation of permanent equipment for the production of oil or natural gas. See “—Results of Operations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for important information about our suspended wells that were under evaluation as of December 31, 2008.

Title to Properties

Our properties are subject to customary royalty interests, liens under indebtedness, liens incident to operating agreements, mechanics’ and materialman liens for current taxes and other burdens, including other mineral encumbrances and restrictions. We do not believe that any of these burdens materially interfere with the use of our properties in the operation of our business.

We believe that we have satisfactory title to, or rights in, all of our properties. As is customary in the oil and natural gas industry, minimal investigation of title is made at the time of acquisition of undeveloped properties. We investigate title prior to the consummation of an acquisition of producing properties and before the commencement of drilling operations on undeveloped properties. We have obtained or conducted a thorough title review on substantially all of our producing properties and believe that we have satisfactory title to such properties in accordance with standards generally accepted in the oil and natural gas industry.

The MMS, in its order dated March 23, 2009, required us to immediately shut-in production from all of our wells and facilities located in the federal portion of our East Bay field in South Pass Blocks 27 and 28. On April 30, 2009, we entered into a binding term sheet with the MMS to establish terms to address our obligations to the MMS related to plugging and abandonment liabilities associated with all of our federal properties in the Gulf of Mexico, with which we complied. The section “—Recent Events” in Part II, Item 7, “Managements’ Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report contains additional information about our obligations to the MMS and the risks to our offshore leases resulting from those obligations.

Regulatory Matters

Our operations are substantially affected by federal, state and local laws and regulations. In particular, oil and gas production and related operations are, or have been, subject to price controls, taxes and numerous other laws and regulations. All of the jurisdictions in which we own or operate producing crude oil and natural gas properties have statutory provisions regulating the exploration for and production of crude oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon

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which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the abandonment of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of crude oil and natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells.

Regulation of Natural Gas Gathering. Section 1(b) of the Natural Gas Act of 1938, as amended (the “NGA”), exempts natural gas gathering facilities from regulation by the Federal Energy Regulatory Commission (the “FERC”) as a natural gas company under the NGA. We believe that the natural gas pipelines in our gathering systems meet the tests the FERC has historically used to establish a pipeline’s status as a gatherer not subject to regulation as a natural gas company. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is the subject of substantial, on-going litigation, so the classification and regulation of our gathering facilities are subject to change based on future determinations by the FERC, the courts, or Congress. Natural gas gathering may receive greater regulatory scrutiny at both the state and federal levels. Our natural gas gathering operations could be adversely affected should they be subject to more stringent application of state or federal regulation of rates and services. Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We cannot predict what effect, if any, such changes might have on our operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.

Regulation of Offshore Gathering Facilities. Our gathering systems gather gas and oil on the Outer Continental Shelf (the “OCS”) and in Louisiana. Our gathering systems are subject to the jurisdiction of the applicable state regulatory agencies to the extent that those gathering systems traverse state land and/or waters. State regulation of gathering facilities generally includes various safety, environmental, nondiscriminatory take, and common purchaser requirements, and complaint-based rate regulation.

The gathering systems are also subject to the jurisdiction of the MMS, since they traverse the OCS pursuant to MMS-issued easements. The MMS issued a final rule, effective August 18, 2008, that implements a hotline, alternative dispute resolution procedures, and complaint procedures for resolving claims of having been denied open and nondiscriminatory access to pipelines on the OCS. We cannot predict the ultimate impact of these regulatory changes to our OCS natural gas operations. We do not believe that we would be affected by any such regulatory changes materially differently than other gathering lines operating on the OCS with whom we compete.

Regulation of Onshore Gathering Facilities. Our onshore natural gas gathering operations are subject to ratable take and common purchaser statutes in the states in which we operate. The common purchaser statutes generally require our gathering pipelines to purchase or take without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another. The regulations under these statutes can have the effect of imposing some restrictions on our ability as an owner of gathering facilities to decide with whom we contract to gather natural gas. Louisiana and Texas have adopted a complaint-based regulation of natural gas gathering activities, which allows natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to gathering access and rate discrimination. The rates we charge for gathering in Texas and Louisiana are deemed just and reasonable unless challenged in a complaint. We cannot predict whether such a complaint will be filed against us in the future. Failure to comply with state regulations can result in the imposition of administrative, civil and criminal penalties.

Though our natural gas gathering facilities are not subject to regulation by the FERC as natural gas companies under the NGA, our gathering facilities may be subject to certain FERC annual natural gas transaction reporting requirements and daily scheduled flow and capacity posting requirements depending on the volume of natural gas transactions and flows in a given period. See the discussion of “Other Federal Laws and Regulations Affecting Our Industry—FERC Market Transparency Rules.”

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In 2007, Texas enacted new laws regarding rates, competition and confidentiality for natural gas gathering and transmission pipelines ( the “Competition Statute”) and new informal complaint procedures for challenging determinations of lost and unaccounted for gas by gas gatherers, processors and transporters (the “LUG Statute”). The Competition Statute gives the Railroad Commission of Texas (the “RRC”) the ability to use either a cost-of-service method or a market-based method for setting rates for natural gas gathering and intrastate transportation pipelines in formal rate proceedings. This statute also gives the RRC specific authority to enforce its statutory duty to prevent discrimination in natural gas gathering and transportation, to enforce the requirement that parties participate in an informal complaint process and to punish purchasers, transporters, and gatherers for taking discriminatory actions against shippers and sellers. The Competition Statute also provides producers with the unilateral option to determine whether or not confidentiality provisions are included in a contract to which a producer is a party for the sale, transportation, or gathering of natural gas. The LUG Statute modifies the informal complaint process at the RRC with procedures unique to lost and unaccounted for gas issues. Such statute also extends the types of information that can be requested, provides producers with an annual audit right, and provides the RRC with the authority to make determinations and issue orders in specific situations. Both the Competition Statute and the LUG Statute became effective September 1, 2007. We cannot predict what effect, if any, these statutes might have on our future operations in Texas.

Regulation of Sales of Natural Gas and Natural Gas Liquids (“NGLs”). The price at which we buy and sell natural gas and NGLs is currently not subject to federal rate regulation and, for the most part, is not subject to state regulation. However, with regard to our physical purchases and sales of these energy commodities, and any related hedging activities that we undertake, we are required to observe anti-market manipulation laws and related regulations enforced by the FERC and/or the Commodity Futures Trading Commission (the “CFTC”). See below the discussion of “Other Federal Laws and Regulations Affecting Our Industry—Energy Policy Act of 2005.” Should we violate the anti-market manipulation laws and regulations, we could also be subject to related third party damage claims by, among others, market participants, sellers, royalty owners and taxing authorities. In addition, pursuant to Order 704 (as defined below) some of our operations may be required to annually report to the FERC, starting May 1, 2009, information regarding natural gas purchase and sale transactions depending on the volume of natural gas transacted during the prior calendar year. See below the discussion of “Other Federal Laws and Regulations Affecting Our Industry—FERC Market Transparency Rules.”

Regulation of Availability, Terms and Cost of Pipeline Transportation. Our processing operations and our marketing of natural gas and NGLs are affected by the availability, terms and cost of pipeline transportation. The price and terms of access to pipeline transportation can be subject to extensive federal and, if a complaint is filed, state regulation. The FERC is continually proposing and implementing new rules and regulations affecting the interstate transportation of natural gas, and to a lesser extent, the interstate transportation of NGLs. We cannot predict the ultimate impact of these regulatory changes to our natural gas production operations and our natural gas and NGL marketing operations. We do not believe that we would be affected by any such FERC action materially differently than other natural gas producers and natural gas and NGL marketers with whom we compete.

The ability of our facilities to deliver natural gas into third party natural gas pipeline facilities is directly impacted by the gas quality specifications required by those pipelines. In 2006, the FERC issued a policy statement on provisions governing gas quality and interchangeability in the tariffs of interstate gas pipeline companies and a separate order declining to set generic prescriptive national standards. The FERC strongly encouraged all natural gas pipelines subject to its jurisdiction to adopt, as needed, gas quality and interchangeability standards in their FERC gas tariffs modeled on the interim guidelines issued by a group of industry representatives, headed by the Natural Gas Council (the “NGC+ Work Group”), or to explain how and why their tariff provisions differ. We do not believe that the adoption of the NGC+ Work Group’s gas quality interim guidelines by a pipeline that either directly or indirectly interconnects with our facilities would materially affect our operations. We have no way to predict, however, whether FERC will approve of gas quality specifications that materially differ from the NGC+ Work Group’s interim guidelines for such an interconnecting pipeline.

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Regulation of Transportation of Oil. Our wholly owned subsidiary, EPL Pipeline, L.L.C. (“EPL Pipeline”), is an interstate common carrier pipeline subject to regulation by the FERC under the Interstate Commerce Act, or “ICA”. EPL Pipeline owns an approximately twelve-mile pipeline that runs between South Timbalier 26 and a portion of South Timbalier 41 on the Gulf of Mexico OCS to Bayou Fourchon, Louisiana. The ICA requires that we maintain a tariff on file with the FERC for this pipeline. The tariff sets forth the rate, which was established at a negotiated rate that has not been protested, as well as the rules and regulations governing this service. The ICA requires, among other things, that rates on interstate common carrier pipelines be “just and reasonable” and nondiscriminatory. The ICA permits challenges to existing rates and authorizes the FERC to investigate such rates to determine whether they are just and reasonable. If, upon completion of an investigation, the FERC finds that the existing rate is unlawful, it is authorized to require the carrier to refund the revenues in excess of the prior tariff collected during the pendency of the investigation and, in some cases, reparations for the two year period prior to the filing of a complaint.

Other Federal Laws and Regulations Affecting Our Industry

Energy Policy Act of 2005. The Domenici-Barton Energy Policy Act of 2005 (the “EPAct 2005”) is a comprehensive compilation of tax incentives, authorized appropriations for grants and guaranteed loans, and significant changes to the statutory policy that affects all segments of the energy industry. With respect to regulation of natural gas transportation, the EPAct 2005 amended the NGA and the Natural Gas Policy Act of 1978, as amended (the “NGPA”), by increasing the criminal penalties available for violations of each Act. The EPAct 2005 also added a new section to the NGA, which provides the FERC with the power to assess civil penalties of up to $1,000,000 per day for violations of the NGA and $1,000,000 per violation per day for violations of the NGPA. The civil penalty provisions are applicable to entities that engage in the sale of natural gas for resale in interstate commerce, including our Company. EPAct 2005 also amended the NGA to add an anti-market manipulation provision which makes it unlawful for any entity to engage in prohibited behavior in contravention of rules and regulations to be prescribed by the FERC. In 2006, the FERC issued Order No. 670 (“Order 670”) to implement the anti-market manipulation provision of EPAct 2005. Order 670 makes it unlawful to: (1) in connection with the purchase or sale of natural gas subject to the jurisdiction of the FERC, or the purchase or sale of transportation services subject to the jurisdiction of the FERC, for any entity, directly or indirectly, to use or employ any device, scheme or artifice to defraud; (2) to make any untrue statement of material fact or omit any statement necessary to make the statements made not misleading; or (3) to engage in any act or practice that operates as a fraud or deceit upon any person. Order 670 does not apply to activities that relate only to non-jurisdictional sales or gathering, but does apply to activities of gas pipelines and storage companies that provide interstate services, as well as otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” gas sales, purchases or transportation subject to FERC jurisdiction, which now includes the annual reporting requirements under Order 704 (as defined below) and the daily scheduled flow. The anti-market manipulation rule and enhanced civil penalty authority reflect an expansion of the FERC’s NGA enforcement authority.

FERC Market Transparency Rules. In 2007, the FERC issued a final rule on the annual natural gas transaction reporting requirements, as amended by subsequent orders on rehearing (“Order 704”). Under Order 704, wholesale buyers and sellers of more than 2.2 million MMBtu of physical natural gas in the previous calendar year, including interstate and intrastate natural gas pipelines, natural gas gatherers, natural gas processors and natural gas marketers are now required to report, on May 1 of each year, beginning in 2009, aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year. To the extent such transactions utilize, contribute to, or may contribute to the formation of price indices. It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order 704.

Additional proposals and proceedings that might affect the natural gas industry are pending before Congress, FERC and the courts. We cannot predict the ultimate impact of these or the above regulatory changes to our natural gas operations. We do not believe that we would be affected by any such FERC action materially differently than other natural gas companies with whom we compete.

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Environmental Regulations

General. Various federal, state and local laws and regulations governing the protection of the environment, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), the Resource Conservation and Recovery Act, as amended (“RCRA”), the Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and the Federal Clean Air Act, as amended (the “Clean Air Act”), affect our operations and costs. In particular, our exploration, development and production operations, our activities in connection with storage and transportation of oil and other hydrocarbons, and our use of facilities for treating, processing or otherwise handling hydrocarbons and related wastes may be subject to regulation under these and similar state laws and regulations. These laws and regulations:

• restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities;

• limit or prohibit drilling and production activities on certain lands lying within wilderness, wetlands and other protected areas;

• impose permitting, monitoring, and recordkeeping requirements and other regulatory controls; and

• impose substantial liabilities for pollution resulting from our operations, including the performance of remedial measures to address pollution as a result of operations.

Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal fines and penalties or the imposition of injunctive relief. Changes in environmental laws and regulations occur regularly, and any changes that result in more stringent and costly waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position and the oil and natural gas industry in general. While we believe that we are in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements would not have a material adverse impact on us, there is no assurance that this trend will continue in the future.

As within the industry generally, compliance with existing laws and regulations increases our overall cost of business. The areas affected include:

• unit production expenses primarily related to the control and limitation of air emissions and the disposal of produced water;

• capital costs to drill exploration and development wells primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes; and

• capital costs to construct, maintain and upgrade equipment and facilities.

Superfund. CERCLA, also known as Superfund, imposes liability for response costs associated with releases of “hazardous substances” and damages to natural resources as a result of such releases, without regard to fault or the legality of the original act, on certain classes of persons that are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current or former “owner” or “operator” of a disposal site or a site where a release occurred and entities that disposed or arranged for the disposal of the hazardous substances found at the site. CERCLA also authorizes the Environmental Protection Agency (“EPA”) and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur in remediating releases of hazardous substances. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The term “hazardous substance” does not include “petroleum, including crude oil or any fraction thereof,” unless specifically listed or designated under CERCLA, and the term does not include natural gas, NGLs, liquefied natural gas, or synthetic gas usable for fuel. While this “petroleum exclusion” lessens the significance of CERCLA to our operations, in the course of our ordinary operations, we may generate waste that may fall within CERCLA’s definition of a “hazardous substance.” We may be jointly and severally liable under CERCLA or comparable state statutes for all or part of the costs required to clean up sites at which these wastes have been disposed.

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We currently own or lease properties that for many years have been used for the exploration and production of oil and natural gas. Although we and our predecessors have used operating and disposal practices that were standard in the industry at the time, “hazardous substances” may have been disposed or released on, under or from the properties owned or leased by us or on, under or from other locations where these wastes have been taken for disposal. In addition, many of these properties have been operated by third parties whose actions with respect to the treatment and disposal or release of “hazardous substances” were not under our control. These properties and wastes disposed on these properties could give rise to liability under CERCLA and analogous state laws. Under these laws, we could be required:

• to remove or remediate previously disposed wastes, including wastes disposed or released by prior owners or operators;

• to clean up contaminated property, including contaminated groundwater;

• to pay for natural resource damages resulting from the releases;

• to perform certain health studies; or

• to perform remedial operations to prevent future contamination.

At this time, we do not believe that we have any liability associated with any Superfund site, and we have not been notified of any claim, liability or damages under CERCLA.

Oil Pollution Act of 1990. The Oil Pollution Act of 1990, as amended (the “OPA”), and regulations thereunder impose liability on “responsible parties” for damages resulting from oil spills into or upon navigable waters, adjoining shorelines, or in the exclusive economic zone of the United States. A “responsible party” includes the owner or operator of an onshore facility and the lessee or permittee of the area in which an offshore facility is located. OPA also requires the lessee or permittee of the offshore area in which a covered offshore facility is located to establish and maintain evidence of financial responsibility in the amount of $35.0 million ($10.0 million if the offshore facility is located landward of the seaward boundary of a state) to cover liabilities related to an oil spill for which such person is statutorily responsible. The amount of required financial responsibility may be increased above the minimum amounts to an amount not exceeding $150.0 million depending on the risk represented by the quantity or quality of oil that is handled by the facility. We carry insurance coverage to meet these obligations, which we believe is customary for comparable companies in our industry. A failure to comply with OPA’s requirements or inadequate cooperation during a spill response action may subject a responsible party to civil or criminal enforcement actions. We are not aware of the occurrence of any action or event that would subject us to liability under OPA, and we believe that compliance with OPA’s financial responsibility and other operating requirements will not have a material adverse effect on us.

Resource Conservation and Recovery Act. RCRA provides a framework for the disposal of discarded materials and the management of solid and hazardous wastes. RCRA imposes stringent waste management requirements, and liability for failure to meet such requirements, on a person who is either a “generator” or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous waste treatment, storage or disposal facility. At present, RCRA and many similar state statutes include a statutory exemption that allows most oil and natural gas exploration and production waste to be classified as nonhazardous waste. At various times in the past, proposals have been made to amend RCRA to rescind the exemption that excludes oil and natural gas exploration and production wastes from regulation as hazardous waste. Repeal or modification of the exemption by administrative, legislative or judicial process, or modification of similar exemptions in applicable state statutes, would increase the volume of hazardous waste we are required to manage and dispose of and would cause us to incur increased operating expenses.

Clean Water Act. The Clean Water Act imposes restrictions and controls on the discharge of pollutants, including produced water and other wastes into navigable waters. Permits must be obtained to discharge pollutants into state and federal waters and to conduct construction activities in waters and wetlands. Certain state regulations and the general permits issued under the Federal National Pollutant Discharge Elimination

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System program prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and certain other substances related to the oil and natural gas industry into certain coastal and offshore waters. Further, the EPA has adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain permits for storm water discharges. Costs may be associated with the treatment of wastewater or developing and implementing storm water pollution prevention plans. The Clean Water Act and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges for oil and other pollutants or unauthorized discharges of fill material into wetlands or other waters and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release, for natural resource damages resulting from the release, and for mitigation or restoration related to the filling of wetlands and other waters. We are subject to the Clean Water Act’s permitting requirements for discharges associated with exploration and development activities. We believe that our operations comply in all material respects with the requirements of the Clean Water Act and state statutes enacted to control water pollution.

Safe Drinking Water Act. The underground injection of oil and natural gas wastes are regulated by the Underground Injection Control Program, authorized by the Safe Drinking Water Act. The primary objective of injection well operating requirements is to ensure the mechanical integrity of the injection apparatus and to prevent migration of fluids from the injection zone into underground sources of drinking water. In Louisiana and Texas, no underground injection may take place except as authorized by permit or rule. We currently own and operate various underground injection wells. Failure to comply with our permits could subject us to civil and/or criminal enforcement. We believe that we are in compliance in all material respects with the requirements of applicable state underground injection control programs and our permits.

National Marine Sanctuary Act, Marine Mammal Protection Act, and Endangered Species Act. Certain federal laws, including the National Marine Sanctuaries Act and the Marine Mammal Protection Act provide special protection to certain designated marine areas and marine species. Executive Order 13158 (Marine Protected Areas), issued in 2000, directs federal agencies to strengthen existing Marine Protected Areas (“MPAs”), establishes new MPAs, and develops a national system of MPAs This order could adversely affect our operations by restricting areas in which we may carry out future exploration or production activities and/or cause us to incur increased operating expenses. In addition, MMS permit approvals are conditioned on the collection and removal of debris resulting from activities related to exploration, development and production of offshore leases in order to prevent harm to marine species. The MMS also issues Notices to Lessees and Operators (“NTLs”) that provide guidance on the implementation of and compliance with Outer Continental Shelf Lands Act (“OCSLA”) regulations. The MMS has issued numerous NTLs relating to the prevention of harm to marine species, with which we must comply. In addition, certain plants and animals have been classified as “threatened” or “endangered” and are protected under the Endangered Species Act (the “ESA”). The ESA prohibits the “take,” including harm or harassment, of these protected species and damage to their habitat. If endangered species are located in an area in which we conduct operations, our operations could be prohibited, restricted, or delayed, or we could be required to implement expensive mitigation measures.

Consideration of Environmental Issues in Connection with Governmental Approvals. Our operations frequently require federal licenses, permits, and/or other governmental approvals. Several federal statutes, including OCSLA, the National Environmental Policy Act, and the Coastal Zone Management Act require federal agencies to evaluate environmental issues in connection with granting such approvals and/or taking other major agency actions. The environmental review process required under these laws can be costly and time-consuming and could result in the delay or prohibition of our planned activities.

Lead-Based Paints. Various pieces of equipment and structures owned by us have been coated with lead-based paints as was customary in the industry at the time these pieces of equipment were fabricated and constructed. These paints may contain lead at a concentration high enough to be considered a regulated hazardous waste when removed. If we need to remove such paints in connection with maintenance or other activities and they qualify as a regulated hazardous waste, this would increase the cost of disposal. High lead levels in the paint may also require us to institute certain administrative and/or engineering controls required by the Occupational Safety and Health Act and the MMS to ensure worker safety during paint removal.

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Clean Air Act. Our operations utilize equipment that emits air pollutants subject to the federal Clean Air Act and state air pollution control laws. These laws require utilization of air emissions abatement equipment to achieve prescribed emissions limitations and ambient air quality standards, as well as operating permits for existing equipment and construction permits for new and modified equipment. We could be required to incur costs in the future for additional air pollution control equipment, although we do not believe that these requirements will have a material adverse effect on our operations. We believe that we are in compliance in all material respects with applicable air pollution requirements.

Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases” and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere. In response to such studies, the U.S. Congress is considering legislation to reduce emissions of greenhouse gases. President Obama has expressed support for legislation to restrict or regulate emissions of greenhouse gases. In addition, more than one-third of the states, either individually or through multi-state regional initiatives, already have begun implementing legal measures to reduce emissions of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs. Depending on the particular program, we could be required to purchase and surrender allowances for greenhouse gas emissions resulting from our operations, prepare an inventory of greenhouse gas emissions resulting from our operations, or pay a tax on the greenhouse gas emissions resulting from our operations. These requirements could increase our operational and compliance costs and result in reduced demand for the oil and natural gas we produce.

Also, as a result of the United States Supreme Court’s decision on April 2, 2007 in Massachusetts, et al. v. EPA, the EPA may regulate greenhouse gas emissions from mobile sources such as cars and trucks even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. The Court’s holding in Massachusetts that greenhouse gases including carbon dioxide fall under the federal Clean Air Act’s definition of “air pollutant” may also result in future regulation of carbon dioxide and other greenhouse gas emissions from stationary sources. In July 2008, the EPA released an “Advance Notice of Proposed Rulemaking” regarding possible future regulation of greenhouse gas emissions under the Clean Air Act in response to the Supreme Court’s decision in Massachusetts. In the notice, the EPA evaluated the potential regulation of greenhouse gases under the Clean Air Act and other potential methods of regulating greenhouse gases. Although the notice did not propose any specific, new regulatory requirements for greenhouse gases, it indicates that federal regulation of greenhouse gas emissions could occur in the near future even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. In March 2009, the EPA proposed a comprehensive national system for reporting emissions of greenhouse gases for major sources of emissions. Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any such new federal, regional or state restrictions on emissions of carbon dioxide or other greenhouse gases that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on our business and the demand for the oil and natural gas we produce.

Naturally Occurring Radioactive Materials (“NORM”). NORM are materials whose radioactivity is enhanced by technological processing such as mineral extraction or processing through exploration and production conducted by the oil and natural gas industry. NORM wastes are regulated under the RCRA framework, but primary responsibility for NORM regulation has been a state function. Standards have been developed for worker protection; treatment, storage and disposal of NORM waste; management of waste piles, containers and tanks; and limitations upon the release of NORM-contaminated land for unrestricted use. We believe that our operations are in material compliance with all applicable NORM standards.

Plugging, Abandonment and Decommissioning. We are responsible for plugging and abandoning wellbores and decommissioning associated platforms, pipelines and facilities on our oil and natural gas properties. Some of our offshore operations are conducted on federal leases that are administered by the MMS and are required to comply with the regulations and orders promulgated by the MMS under OCSLA.

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Recently, the MMS announced that it will commence more stringent enforcement of requirements to decommission facilities that pose a hazard to safety or the environment or are not useful for lease operations and are not capable of oil and natural gas production in “paying quantities.” Historically, the MMS granted approval to operators to maintain these structures in order to conduct other future activities; however, we expect that this practice will be more limited in the future. The MMS has stated that these measures are in response to the experiences in recent hurricane seasons with damage caused by idle structures. In 2008, we responded to an MMS written request to review and evaluate our inventory of non-producing wells and facilities to determine the future utility of these structures and the level of threat posed to the environment and human safety in the event of a “catastrophic loss.” As a result, we reviewed a plan with the MMS to perform wellbore plugging and abandonment and decommissioning work on certain facilities and structures in our East Bay field during 2009, 2010 and 2011.

The effects of Hurricanes Katrina and Rita during the 2005 hurricane season and Hurricanes Ike and Gustav in 2008 significantly impacted oil and gas operations on the Outer Continental Shelf. The effects included structural damage to fixed production facilities, semi-submersibles and jack-up drilling rigs. The MMS continues to be concerned about the loss of these facilities and rigs as well as the potential for catastrophic damage to key infrastructure and the resultant pollution from future storms. In an effort to reduce the potential for future damage, the MMS issued guidance, through NTLs, aimed at improving platform survivability by taking into account environmental and oceanic conditions in the design of platforms and related structures. It is possible that similar, if not more stringent, design and operational requirements will be issued by the MMS for the 2009 hurricane season. These new requirements could increase our operating costs. The MMS and other regulatory bodies, including those regulating the decommissioning of our pipelines and facilities under the jurisdiction of the state of Louisiana, may change their requirements or enforce requirements in a manner inconsistent with our expectations, which could materially increase the cost of such activities and/or accelerate the timing of cash expenditures and could have a material adverse affect on our financial position, results of operations and cash flows.

The failure to comply with these rules and regulations could result in substantial penalties, including lease termination in the case of federal leases. Under limited circumstances, the MMS could require us to suspend or terminate our operations on a federal lease. The regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations, although the impact of those requirements may vary significantly based on the nature and location of operations and related pipelines and facilities.

Significant Customers

We market substantially all of the oil and natural gas from properties we operate and from properties others operate where our interest is significant. We sell our natural gas to marketing companies pursuant to a variety of contractual arrangements, generally under contracts with terms no longer than seven months. Pricing on those contracts is based largely on published regional index pricing. We sell our oil under contracts with month-to-month terms to a variety of purchasers. The pricing for oil is based upon the posted prices set by major purchasers in the production area, reporting publications, or upon New York Mercantile Exchange (“NYMEX”) pricing. All oil pricing is adjusted for quality and transportation differentials. Oil and natural gas purchasers are selected on the basis of price, credit quality and service reliability.

Our oil, condensate and natural gas production is sold to a variety of purchasers, historically at market-based prices. We believe that the prices for liquids and natural gas are comparable to market prices in the areas where we have production. Of our total oil and natural gas revenues in 2008, Shell Trading (US) Company accounted for approximately 38%, Louis Dreyfus Energy Services, L.P. accounted for approximately 24% and ChevronTexaco Exploration & Production Company accounted for approximately 23%. Due to the nature of the markets for oil and natural gas, we do not believe that the loss of any one of these customers would have a material adverse effect on our financial condition or results of operation, although a temporary disruption in production revenues could occur.

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Employees

As of December 31, 2008, we had 156 full-time employees, including 28 geoscientists, engineers and technicians and 64 field personnel. As of June 30, 2009, we had 117 full-time employees. Our employees are not represented by any labor union or other collective bargaining organization. We consider relations with our employees to be satisfactory and we have never experienced a work stoppage or strike.

As a result of the uncertainties related to our current financial condition, we have lost 39 employees through lay-offs and voluntary departures during the first half of 2009. We regularly use independent consultants and contractors to perform various professional services, particularly in the areas of drilling, completion, field, on-site production operations and certain accounting functions.

Competitors

Our competitors include numerous independent oil and gas companies, individuals and major oil companies. Many of our larger competitors possess and employ financial and personnel resources substantially greater than ours. These competitors are able to pay more for productive oil and natural gas properties and exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. Our ability to replace and expand our reserve base depends on our ability to attract and retain qualified personnel and identify and acquire suitable producing properties and prospects for future drilling. See Part I, Item 1A, “Risk Factors” for additional information about risks related to our competitors, personnel and ability to acquire producing properties and prospects.

Inflation

Prior to the third quarter of 2008, we observed a general rise in the selling prices of our oil and natural gas over the prior three year period due to market factors that include the decline in the value of the U.S. dollar against other currencies, including those from which the U.S. imports oil. During that same period, we also observed increasing prices for drilling services, transportation services and raw materials, such as steel, which have impacted our lease operating expenses and our capital expenditures. We expect the significant decline in commodity prices that occurred in the latter part of 2008, along with a general economic downturn, generally to create downward pressure in 2009 on prices for the materials and services that we use in our operations, primarily our exploration, development and abandonment activities, though the duration and extent of expected price declines is highly uncertain.

Seasonality

Historically, the demand for and price of natural gas generally trends upward during the winter months and downward during the summer months. However, these seasonal fluctuations can be reduced due to summer storage practices where pipeline companies, utilities, distribution companies and industrial users may purchase and place into storage facilities a portion of their anticipated winter requirements of natural gas. These trends are also disrupted by extreme market impacts such as those that occurred in 2008, when oil and natural gas prices reached peak levels in the summer months, then fell to recent lows during the winter. Tropical storms and hurricanes generally occur in the Gulf of Mexico during late summer and fall, which may require us to evacuate personnel and shut-in production during those periods. The winds and turbulent current conditions that occur in the winter months can impact our ability to safely load, unload and transport personnel and equipment, and perform operations, including abandonment activities, which can delay our operations, increase the cost of our operations and/or delay the restoration and maintenance of our oil and natural gas production.

Cautionary Statement Concerning Forward Looking Statements

This Annual Report contains certain forward-looking statements within the meaning of Section 21E of the Exchange Act. When used herein, the words “will,” “would,” “should,” “likely,” “estimates,” “thinks,” “strives,” “may,” “anticipates,” “expects,” “believes,” “intends,” “goals,” “plans,” or “projects” and similar expressions are

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intended to identify forward-looking statements, which are generally not historical in nature. While our management considers the expectations and assumptions to be reasonable when and as made, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

• our inability to continue business operations during the Chapter 11 proceedings;

• our ability to consummate the Plan as currently planned and risks associated with negotiating and closing the Exit Facility;

• the potential adverse effects of the Chapter 11 Cases on our liquidity and results of operations;

• our ability to retain, recruit and motivate key executives and other necessary personnel while seeking to implement the Plan;

• our ability to continue as a going concern;

• changes in general economic conditions;

• uncertainties in reserve and production estimates;

• unanticipated recovery or production problems;

• hurricane and other weather-related interference with business operations;

• the effects of delays in completion of, or shut-ins of, gas gathering systems, pipelines and processing facilities;

• oil and natural gas prices and competition;

• the impact of derivative positions;

• production expense estimates;

• cash flow estimates;

• future financial performance;

• planned capital expenditures; and

• other matters that are discussed in our filings with the SEC.

These statements are based on current expectations and projections about future events and involve known and unknown risks, uncertainties, and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Investors are cautioned that all such statements involve risks and uncertainties. Our actual decisions, performance and results may differ materially. Important trends or factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those described in the section “Risk Factors” in Part 1, Item 1A of this Annual Report and elsewhere in this Annual Report; our reports and registration statements filed from time to time with the SEC; and other announcements we make from time to time.

Although we believe that the assumptions on which any forward-looking statements are based in this Annual Report and other periodic reports filed by us are reasonable when and as made, no assurance can be given that such assumptions will prove correct. All forward-looking statements in this Annual Report are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Annual Report and we undertake no obligation to publicly update or revise any forward-looking statements, except as required by applicable securities laws and regulations.

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Item 1A. Risk Factors

Risks Relating to Energy Partners, Ltd.

We are currently in proceedings under Chapter 11 of the Bankruptcy Code. There is no guarantee that we will successfully emerge from bankruptcy. As part of our bankruptcy proceedings we are negotiating the Exit Facility but there is no guarantee that we will be able to successfully close the Exit Facility. If we are unable to successfully complete the Chapter 11 proceedings or close the Exit Facility, we may be forced to liquidate.

We are currently in proceedings under Chapter 11 of the Bankruptcy Code. While the Plan was approved by the Bankruptcy Court on August 3, 2009, our emergence from bankruptcy is subject to several conditions, including the successful closing of the Exit Facility, and there is no guarantee that we will successfully emerge from bankruptcy. We cannot predict the timing of the Chapter 11 proceedings and undue delays in the proceedings may disrupt our operations. If we are unable to complete the Chapter 11 proceedings in a timely manner, we may be required to liquidate.

One of the conditions to effectiveness of the Plan is the closing of the Exit Facility. We must obtain, consummate and close the Exit Facility in order to emerge from bankruptcy. If we are unable to successfully negotiate definitive documentation for the Exit Facility or unable to satisfy the conditions to closing of the Exit Facility, we would be unable to consummate the Plan and may consequently have to liquidate. Under the Confirmation Order, if we are unable to successfully comply with all conditions to the Plan by the later of (1) September 10, 2009, (2) September 25, 2009, with our approval and the approval of the Majority Consenting Holders (as defined below), or (3) any later date approved by the Bankruptcy Court, the Confirmation Order will be vacated and we will not be able to proceed with the execution of the Plan, as planned.

We faced significant liquidity challenges in 2009 that led to our Chapter 11 filings and could have ongoing material and adverse effects on our business operations even after we emerge from bankruptcy.

Largely as a result of the shut-in of a significant amount of our production from September 2008 into early 2009 following Hurricanes Ike and Gustav, and the dramatic decline in oil and natural gas prices that started in the third quarter of 2008, we face significant liquidity challenges, which led to our Chapter 11 filings. Many current economic forecasts portray a dismal outlook for the oil and natural gas exploration and development business for at least a significant portion of 2009 due to low and volatile oil and natural gas prices, coupled with a global recession that is projected to be long and severe. If prices continue at the current low levels, our anticipated investment will not be adequate to maintain our current production levels and we expect our production to decline significantly during the second half of 2009 due primarily to natural reservoir declines combined with minimal investment in reserve replacement activities. At our current and anticipated production levels, combined with the current and expected lower prices, we do not expect to have sufficient cash flows to fund our operations and meet our 2009 financial obligations as they existed prior to the filing of the Chapter 11 Cases. As a result, we will continue to experience a decline in our revenues and available capital, which will substantially decrease our capital expenditures, drilling activities and operations.

Even if we successfully enter into the Exit Facility and emerge from bankruptcy, we will continue to have substantial capital needs which may not be available in the future.

Assuming the Exit Facility is available and we successfully emerge from bankruptcy, we will continue to have substantial capital requirements to fund our business. We may not be able to generate sufficient cash flow from operations to meet our debt payment obligations, which cash flows will be subject to a range of economic, competitive and business risk factors. Additionally, the amounts available under the Exit Facility may not be sufficient for our capital requirements and we may not be able to access additional financing resources due to a variety of reasons, including restrictive covenants in the Exit Facility and the lack of available capital due to the tightening of the global credit markets. If we are unable to make scheduled payments on the Exit Facility, or if our financing requirements are not met by the Exit Facility and we are unable to access additional financing, our business, operations, financial condition and cash flows will be negatively impacted.

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No established trading market exists for the common stock we anticipate issuing upon our emergence from bankruptcy, and if one develops, it may not be liquid.

No established trading market exists for the common stock we anticipate issuing upon our emergence from bankruptcy, and there is no assurance that any active trading market will develop for it. Our existing common stock has been delisted from the NYSE. Upon or as soon as practicable following our emergence from bankruptcy, we intend to apply for the listing of our new common stock on the NYSE or another national stock exchange, such as the Nasdaq, assuming we satisfy the applicable listing criteria. There is no assurance that the NYSE or any other national exchange will approve our new common stock for listing as there is no assurance that we will satisfy the criteria for listing, or be approved for listing, on the NYSE or another national stock exchange. Failure to list our new common stock will negatively affect the ability of our shareholders to sell their shares.

We do not anticipate paying dividends on our common stock in the foreseeable future.

We do not anticipate paying any dividends in the foreseeable future. In addition, the covenants in certain debt instruments to which we anticipate being a party, including the Exit Facility, will likely place restrictions or conditions on our ability to pay dividends. Certain institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their ability to invest in us.

Failure to maintain compliance with the listing standards of the NYSE has resulted in the delisting of our common stock.

On March 24, 2009, NYSE Regulation, Inc. provided us with a written notice that trading of our common stock would be suspended from trading prior to the NYSE’s opening on March 30, 2009. The notice stated that we were not in compliance with NYSE’s continued listing standards, which currently require a company with common stock listed on the NYSE to maintain an average global market capitalization of not less than $15.0 million over a consecutive 30 trading-day period. The NYSE suspended trading of our common stock prior to the market opening on March 30, 2009. On April 15, 2009, the NYSE filed a Form 25 with the SEC notifying the SEC of the delisting of our common stock, which became effective on April 27, 2009.

Our common stock is being quoted for public trading on the Pink Sheets quotations system, an over-the-counter market, under the symbol ERPLQ.PK. Recently, our common stock has traded at low prices and we have experienced a significant decline in market capitalization. Delisting from the NYSE could continue to adversely affect the trading price of our common stock, significantly limit the liquidity of our common stock and impair our ability to raise additional equity financing. The limitations on trading possibilities for our investors resulting from our delisting from a national exchange may further negatively impact the liquidity of our stock.

Under the terms of the Plan, each holder of (1) our Senior Unsecured Notes and our 8.75% Senior Notes due 2010 would receive, in exchange for their total claim (including principal and interest), their pro rata share of 95% and (2) each holder of our common stock interests would receive, in exchange for their total claim, their pro rata share of 5% of our common stock to be issued pursuant to the Plan upon our emergence from bankruptcy. Following the reorganization, the sole equity interests in the reorganized company would consist of (1) new EPL common stock issued to the holders of the Senior Unsecured Notes, the 8.75% Senior Notes due 2010, and the holders of common stock, (2) restricted new EPL common stock issued to certain members of management of the reorganized company, if any, and (3) new EPL stock options to be issued to certain key employees pursuant to the 2009 Long Term Incentive Plan, if any, which would be exercisable for new EPL common stock. Collectively, the restricted new EPL common stock issued pursuant to subparagraph (2) and the shares reserved for the exercise of new EPL stock options pursuant to subparagraph (3) above would in no event exceed 3% of the new EPL common stock on a fully diluted basis.

Our credit ratings have been reduced and withdrawn and failure to regain and improve our credit ratings could have a material adverse effect on our business.

Moody’s Investors Service recently downgraded each of our Corporate Family Rating, Probability of Default Rating and our Senior Unsecured Notes Rating to “default” levels or equivalent and announced that it

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would withdraw its ratings due to the Chapter 11 proceedings. The decline and withdrawal of our credit ratings reflects concerns over our financial strength. Our current credit ratings status reduces our access to the debt markets and will unfavorably impact our overall cost of borrowing.

The MMS may shut in production on the outer shelf in connection with our failure to provide cash or other adequate security to secure our obligations to plug, abandon and decommission our wellbores and related pipelines and facilities.

Most of our offshore operations are conducted on federal leases that are administered by the MMS and we are required to comply with the regulations and orders promulgated by the MMS under OCSLA. Among other things, MMS regulations establish construction and safety requirements for production facilities located on our federal offshore leases and govern the plugging and abandonment of wells and the operation, maintenance, and removal of production facilities from these leases.

On March 5, 2009, we were notified by the MMS that an Incident of Noncompliance (“INC”) had been issued as a result of our failure to provide supplemental bonds or other security in the amount of $16.7 million that was due by February 27, 2009 to guarantee performance of our obligations to abandon wells, remove platforms and facilities, and clear the seafloor of obstructions on leases with associated lease obligations. The INC stated that our failure to correct this INC by the close of business on March 27, 2009 would result in a shut-in of our outer continental shelf facilities associated with South Pass Block 27 and South Pass Block 28 that are located in federal waters, which payment we informed the MMS we could not make by the March 27 deadline. We received an order from the MMS dated March 23, 2009. The March 23, 2009, order required, among other financial requirements, that we immediately shut-in production from all of our wells and facilities located in South Pass Blocks 27 and 28 in the federal portion of our East Bay field, while properly maintaining these facilities and wells with essential personnel. We promptly completed the shut-in of our federal East Bay facilities before the end of March 2009. Because federal leases would normally terminate if there is no production for 180 consecutive days, the affected leases could expire if (1) we do not comply with the requirements set forth by applicable MMS regulations and restore production to the shut-in federal leases by September 17, 2009; (2) we and the MMS do not otherwise come to an agreement that would prevent the leases from expiring on such date; or (3) there is no unitized production that would prevent the termination provisions in the affected leases from being triggered. The federal East Bay leases are included in production unit(s) covering portions of those leases and state leases in the East Bay field that continue to produce, which we believe may prevent the triggering of lease termination, although there is no assurance that this will be the case. The continued shut down of these facilities and, should it occur, the resulting termination of the related leases would have a material adverse effect on our financial position, results of operations and cash flows.

The production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations which are addressed under Part I, Item 1, “Business—Environmental Regulations” in this Annual Report.

We have been requested to provide additional reserves with respect to our outstanding surety bonds.

In December 2008 and the first quarter of 2009 we posted cash collateral to restricted accounts for the benefit of two of our indemnity companies totaling $5.7 million in response to requests by them to provide reserves against our surety bonds with them. Our agreements with these indemnity companies allow them to demand cash reserves or letters of credit to support our outstanding surety bonds. As of July 1, 2009, we had outstanding $60.0 million in surety bonds with four different indemnity companies. During 2009, our indemnity companies have requested additional reserves with respect to these outstanding surety bonds, and we do not have the cash or borrowing capacity to comply with these requests. As a result, we will default on some or all of these agreements and the indemnity companies may cancel our surety bonds. The cancelation of some or all of our surety bonds may result in violations of other agreements or obligations. As a result, we could be forced to shut in our production or lose our ability to continue to perform our business operations.

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Our current financial condition has adversely affected our business operations and our business prospects.

Our current financial condition and resulting uncertainty have been disruptive to our business. Management has devoted substantial time and attention to improving our financial condition, thereby reducing its focus on operating the business. In addition, as a result of the uncertainties related to our current financial condition, we have lost 39 employees through lay-offs and voluntary departures during the first half of 2009. These employee losses may negatively impact employee morale and productivity and continue to cause voluntary employee resignations. Further, our current financial condition and resulting uncertainty may cause operating partners to terminate their relationships with us or to tighten credit. These developments could have a material adverse effect on our business, operations, financial condition and cash flows.

Our asset carrying values have been impaired based, in part, on oil and natural gas prices as of December 31, 2008 and they may be further impaired if oil and gas prices continue to decline from prices in effect as of that date.

The substantial decline in oil and gas prices and reduced capital spending on certain fields based on this lower price environment in 2008 and continuing in 2009 has impacted the estimated net cash flows from our oil and natural gas reserves, which estimates are used to determine impairments of our oil and natural gas properties. As a result of the decline in oil and gas prices, we have revised our estimated reserves downward and have significantly reduced our estimated future cash flows. Based in part on our 2008 year-end estimates of proved reserves, we recorded a non-cash pre-tax impairment charge of $108.6 million in the fourth quarter of 2008. We may be required to recognize additional non-cash pre-tax impairment charges in future reporting periods if market prices for oil or natural gas continue to decline or based on other factors, including our ability to fund capital expenditures required to maintain our oil and natural gas reserves.

Our current operations are concentrated in the Gulf of Mexico, and a significant part of the value of our production and reserves is concentrated in two geographic areas. Because of this concentration, any production problems or inaccuracies in reserve estimates related to these areas could have a material adverse effect on our business.

All of our current operations are concentrated in the Gulf of Mexico region. We are more vulnerable to operational, regulatory and other risks associated with the Gulf of Mexico, including the risk of adverse weather conditions, than many of our competitors that are more geographically diversified because all or a substantial portion of our operations could experience the same condition at the same time.

During 2008, 46% of our net daily production came from our Greater Bay Marchand properties and approximately 43% of our proved reserves were located in the fields that comprise this area. In addition, 21% of our net daily production came from our East Bay field and approximately 37% of our proved reserves were located on this property. If the actual reserves associated with these two properties are less than our estimated reserves, such a reduction of reserves could have a material adverse effect on our business, financial condition, results of operations and cash flows.

During the 2008 hurricane season, our production was reduced by approximately 21%, on an annual basis, as a result of damage to third party pipelines caused by two hurricanes. The damage limited our ability to sell our production from certain properties for extended periods of time during the third and fourth quarters of 2008. If mechanical problems, storms or other events were to curtail a substantial portion of the production in these areas, such a curtailment could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The relatively steep decline curves generally associated with oil and gas properties located in the Gulf of Mexico and the Gulf Coast region subjects us to higher reserve replacement needs.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. High initial production rates generally result in recovery of a relatively higher percentage of reserves from properties during the initial few years of production, often followed by a rapid decline in the rate of production.

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Because primarily all of our operations are concentrated in the Gulf of Mexico and production from reservoirs in the Gulf of Mexico region generally declines more rapidly compared to reservoirs in many other producing regions of the world, our reserve replacement needs are relatively greater than those of producers with reserves outside the Gulf of Mexico region.

As of December 31, 2008, our independent petroleum engineers estimate that, on average, 65% of our total proved reserves will be produced within five years. We may not be able to develop, exploit, find or acquire additional reserves to sustain our current production levels or to grow our production. In addition, we have substantially cut our planned capital expenditures for 2009 in order to conserve cash resources, which will likely negatively impact our ability to replace existing reserves lost as a result of production. There can be no assurance that we will be able to grow production at rates we have experienced in the past. Our future oil and natural gas reserves and production, results of operations and cash flows are highly dependent on our ability to efficiently develop and exploit our current reserves and economically find or acquire additional recoverable reserves.

Our exploration, exploitation and production operations in the deepwater Gulf of Mexico area present unique operating risks.

The deepwater Gulf of Mexico area is an area that has had relatively limited drilling activity due to risks associated with geological complexity, water depth and higher drilling and development costs, which could result in substantial cost overruns and/or uneconomic projects or wells, including:

• an extended length of time between drilling and first production as compared to typical shallow to moderate-water depth projects;

• drilling that requires specific types of rigs with significantly higher day rates and limited availability as compared to the rigs used in shallow water;

• more costly consequences of mechanical failure because of the equipment required to operate at the water depths and adverse conditions found in the deepwater Gulf of Mexico area;

• mechanical risks because the wellhead equipment is installed on the sea floor;

• many reservoirs are sub-salt and are more difficult to detect with traditional seismic processing; and

• larger installation equipment, sophisticated sea floor production handling equipment, expensive, state-of-the-art platforms and/or infrastructure investment.

Because we have exploration, exploitation and production operations in the deepwater Gulf of Mexico area, we are exposed to these risks. Furthermore, because of the generally higher expense of drilling wells in the deepwater Gulf of Mexico area, if such wells are economically unsuccessful, they may have a larger impact on our financial condition, results of operations and cash flows than wells that we drill in shallow water.

Properties we have acquired may not produce as projected, and we may not have fully identified liabilities associated with these properties or obtained adequate protection from sellers against liabilities.

In the past, we acquired producing properties from third parties, and these acquisitions required assessments of many factors, which are inherently inexact and may be inaccurate, including:

• the amount of recoverable reserves and the rates at which those reserves will be produced;

• future oil and natural gas prices;

• estimates of operating costs;

• estimates of future development costs;

• estimates of the costs and timing of plugging and abandonment activities; and

• potential environmental and other liabilities.

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Our assessments may not have revealed all existing or potential problems, nor permitted us to become adequately familiar with the properties to evaluate fully their deficiencies and capabilities. In the course of our due diligence, we may not have inspected every well, platform or pipeline. Our inspections may not have identified structural and environmental problems, such as pipeline corrosion or groundwater contamination. We may not have obtained contractual indemnities from the seller for liabilities that it created. We may have assumed the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

Periods of high cost or lack of availability of drilling rigs, equipment, supplies, personnel and oilfield services could adversely affect our ability to execute on a timely basis our exploration and development plans.

Substantially all of our current operations are concentrated in the Gulf of Mexico region. Shortages and the high cost of drilling rigs, equipment, supplies or personnel that occur in this region from time to time could delay or adversely affect our exploration and development plans, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. Periodically, as a result of increased drilling activity or a decrease in the supply of equipment, materials and services, we have experienced increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. Increased drilling activity in the Gulf of Mexico and in other offshore areas around the world also decreases the availability of offshore rigs in the Gulf of Mexico. As a result, costs may increase in the future and necessary equipment and services may not be available on terms acceptable to us.

Loss of key management and failure to attract qualified management could negatively impact our operations.

Successfully implementing our strategies will depend, in part, on our management team. The loss of members of our management team could have an adverse effect on our business.

Provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

The existence of some provisions in our organizational documents and under Delaware law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock. The provisions in our Certificate of Incorporation and Bylaws that could delay or prevent an unsolicited change in control of our company include:

• the board of directors’ ability to issue shares of preferred stock and determine the terms of the preferred stock without approval of common stockholders; and

• a prohibition on the right of stockholders to call meetings and a limitation on the right of stockholders to present proposals or make nominations at stockholder meetings.

In addition, Delaware law imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.

Risks Relating to the Oil and Natural Gas Industry

Exploring for and producing oil and natural gas are high-risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.

Our future success will depend on the success of our exploration and production activities. Our oil and natural gas exploration and production activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or natural gas production. Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data

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obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations. Our cost of drilling, completing and operating wells is often uncertain before drilling commences. Overruns in planned expenditures are common risks that can make a particular project uneconomical. Further, many factors may curtail, delay or cancel drilling activity, including the following:

• pressure or irregularities in geological formations;

• shortages of or delays in obtaining equipment and qualified personnel;

• equipment failures or accidents;

• adverse weather conditions, such as hurricanes and tropical storms;

• reductions in oil and natural gas prices;

• title problems;

• limitations in the market for oil and natural gas; and

• cost of services to drill wells.

The continuing crisis in the financial and credit markets, and volatility in oil and natural gas prices may affect our ability to obtain funding or to obtain funding on acceptable terms. These factors may hinder or prevent us from meeting our future capital needs and/or continuing to meet our obligations and conduct our business.

Global financial markets and economic conditions have recently been, and continue to be, disrupted and volatile. The debt and equity capital markets have become exceedingly distressed. These issues, along with significant asset write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions, have made, and will likely continue to make, it difficult to obtain debt or equity capital funding.

Due to these factors, there can be no assurance that funding will be available to us if needed, and to the extent required, on acceptable terms. If funding is not available as needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, implement our exploratory and development plan, enhance our existing business, complete acquisitions or otherwise take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our production, revenues, results of operations, financial position and cash flows.

A substantial or extended decline in oil and natural gas prices may have a material adverse effect on our business, financial condition, results of operations, cash flows and our ability to meet our debt obligations, operating cost requirements, capital expenditure requirements and other financial commitments.

The price we receive for our oil and natural gas production heavily influences our revenue, profitability, financial condition, cash flow, access to capital and future rate of growth. Oil and natural gas are commodities and, as a result, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we receive for our production and the levels of our production depend on numerous factors beyond our control. These factors include:

• changes in the global supply, demand and inventories of oil;

• domestic natural gas supply, demand and inventories;

• the actions of the Organization of Petroleum Exporting Countries;

• the price and quantity of foreign imports of oil;

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• the price and availability of liquefied natural gas imports;

• political conditions, including embargoes, in or effecting other oil-producing countries;

• economic and energy infrastructure disruptions caused by actual or threatened acts of war, or terrorist activities, or national security measures deployed to protect the United States from such actual or threatened acts or activities;

• economic stability of major oil and natural gas companies and the interdependence of oil and natural gas and energy trading companies;

• the level of worldwide oil and natural gas exploration and production activity;

• weather conditions, including energy infrastructure disruptions resulting from those conditions;

• technological advances effecting energy consumption; and

• the price and availability of alternative fuels.

In addition to decreasing our revenues and cash flows on a per unit basis, lower oil and natural gas prices may reduce the amount of oil and natural gas that we can produce economically.

We may incur substantial losses and be subject to substantial liability claims as a result of our oil and natural gas operations. Our insurance coverage may not be sufficient or may not be available to cover some of these losses and claims.

Losses and liabilities arising from uninsured and underinsured events could materially and adversely effect our business, financial condition or results of operations. Our oil and natural gas exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

• environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;

• abnormally pressured formations;

• mechanical difficulties;

• fires and explosions;

• personal injuries and death; and

• natural disasters, especially hurricanes and tropical storms in the Gulf of Mexico region.

Offshore operations are also subject to a variety of operating risks unique to the marine environment, such as capsizing, collisions and damage or loss from hurricanes, tropical storms or other adverse weather conditions. These conditions can cause substantial damage to facilities and interrupt production.

Any of these risks could adversely affect our ability to conduct operations or result in substantial losses. We maintain insurance at levels that we believe are consistent with industry practices and our particular needs, but we are not fully insured against all risks. We may elect not to obtain insurance for certain risks or to limit levels of coverage if we believe that the cost of available insurance is excessive relative to the risks involved. In this regard, the cost of available coverage has increased significantly as a result of losses experienced by third-party insurers in the 2005 and 2008 hurricane seasons in the Gulf of Mexico, in particular those resulting from Hurricanes Katrina and Rita in 2005 and Gustav and Ike in 2008. We believe the cost of coverage will continue to increase and may become prohibitively expensive for smaller independent operators in the Gulf of Mexico. As a result, our coverage may be limited by longer waiting periods on business interruption insurance and higher deductibles on property damage and other types of insurance. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and it is not fully covered by insurance, it could adversely affect our financial condition, results of operations and cash flows and could reduce or eliminate the funds available for exploration, exploitation and acquisitions or result in loss of equipment and properties.

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Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and estimated values of our reserves.

The process of estimating oil and natural gas reserves is complex, requiring interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves disclosed in this Annual Report.

Estimates of oil and natural gas reserves are inherently imprecise. The preparation of our reserve estimates requires projections of production rates and timing of development expenditures, analysis of available geological, geophysical, production and engineering data, and assumptions about oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The extent, quality and reliability of this data can vary. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, drilling and operating expenses and quantities of recoverable oil and natural gas reserves will vary from our estimates.

The present value of future net revenues from our proved reserves and the standardized measure of discounted future net cash flows referred to in this Annual Report should not be assumed to represent or approximate the current market value of our estimated proved oil and natural gas reserves. In accordance with SEC requirements, the estimated discounted future net cash flows from our proved reserves are computed based on prices and costs as of the date of the estimate. Actual future prices and costs may differ materially from those used in our reserve estimates.

If our estimates of the recoverable reserve volumes on a property are revised downward, or if development costs exceed previous estimates, or if commodity prices decrease, as discussed elsewhere in these risk factors, we may be required to record an impairment to our property and equipment, which could have a material adverse effect on our financial position and results of operations. Once recorded, an impairment of property and equipment may not be reversed at a later date. Our ability to obtain financing depends in part on our estimate of the proved oil and natural gas reserves for properties that will serve as collateral. If proved reserves on a property are revised downward, our ability to acquire adequate funding may be significantly reduced.

If we are unable to replace the reserves that we have produced, our reserves and revenues will decline.

Our future success depends on our ability to find, develop, acquire and produce oil and natural gas reserves that are economically recoverable. Lower commodity prices and increased costs associated with exploration and production may lower the threshold of economic recoverability. Additionally, we have substantially cut our planned capital expenditures for 2009 in order to conserve cash resources, which will likely negatively impact our ability to replace existing reserves produced. Without continued successful acquisition or exploration activities, our reserves and revenues will decline as a result of our current reserves being depleted by production. We may not be able to find or acquire additional reserves on an economic basis.

Our business requires substantial capital investment and maintenance expenditures, and our capital resources may not be adequate to provide for all of our cash requirements.

Our operations are capital intensive. Our ability to replace our oil and natural gas production and maintain our production levels and reserves requires extensive capital investment. Our business also requires substantial expenditures for routine maintenance. We may not have access to the capital required to maintain our production levels and reserves.

Impediments to transporting our products may limit our access to oil and natural gas markets or delay our production.

Our ability to market our oil and natural gas production depends on a number of factors, including the proximity of our reserves to pipelines and terminal facilities, the availability and capacity of gathering systems,

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pipelines and processing facilities owned and operated by third parties and the availability of satisfactory oil and natural gas transportation arrangements. These facilities and systems may be shut-in due to factors outside of our control. If any of these third party services and arrangements become partially or fully unavailable, or if we are unable to secure such services and arrangements on acceptable terms, our production could be limited or delayed and our revenues could be adversely affected.

Our ability to collect payments from our partners depends on the partners’ creditworthiness.

In operating our oil and natural gas properties, we typically incur costs on behalf of our partners in advance of billing and collecting our partners’ share of those costs. Some of our partners are highly leveraged and may become unable to pay us for their share of the operating costs. Further, a significant adverse change in the financial and/or credit position of a partner could require us to assume greater credit risk relating to that partner and could limit our ability to collect joint interest receivables. Failure to receive payments from our partners for their share of costs incurred on our oil and natural gas properties could adversely affect our results of operations, financial condition and cash flows.

We are exposed to counterparty risk through our hedging activities using commodity derivative instruments and through other arrangements we enter into with financial and other institutions.

We have entered into transactions with counterparties such as commercial banks, investment banks, insurance companies, and other financial institutions. These transactions expose us to credit risk in the event of default of any of these counterparties. Continued deterioration in the credit markets may impact the credit ratings of our current and potential counterparties and affect their ability to fulfill their existing obligations to us and their willingness to enter into future transactions with us.

When we have oil and natural gas derivative contracts outstanding, we have exposure to these financial institutions related to such contracts, which may protect a portion of our cash flows when commodity prices decline. During periods of low oil and natural gas prices, we may have heightened counterparty risk associated with these derivative contracts because the value of our derivative positions may provide a significant amount of cash flow. If a hedging counterparty defaults on its obligations, we may not realize the benefit of some or all of our derivative instruments.

We also maintain insurance policies with insurance companies to protect us against certain risks inherent in our business. If an insurer defaults on its obligation to us, we may not be reimbursed for losses we have insured against. In addition, if any lender under our credit facility is unable to fund its commitment, our liquidity may be reduced by an amount up to the aggregate amount of such lender’s commitment under our credit facility.

We are subject to extensive governmental laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing business and could result in restrictions on our operations or civil or criminal liability.

Our exploration, development and production operations, our activities in connection with storage and transportation of oil and other hydrocarbons and our use of facilities for treating, processing or otherwise handling hydrocarbons and related wastes are subject to various federal, state and local laws, orders and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal fines and penalties or the imposition of injunctive relief.

Future compliance with laws and regulations, including environmental, production, transportation, sales, rate and tax rules and regulations, and any changes to such laws or regulations, may reduce our profitability and have a material adverse effect on our financial position, liquidity and cash flows. Such laws and regulations may require more stringent and costly waste handling, storage, transport, disposal or cleanup requirements. See Part I, Item 1, “Business—Environmental Regulations” in this Annual Report.

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If third party pipelines and other facilities interconnected to our natural gas pipelines and facilities become partially or fully unavailable to transport natural gas and NGLs, our revenues could be adversely affected.

We depend upon third party pipelines and other facilities that provide delivery options to and from our pipelines and facilities. Since we do not own or operate these pipelines or other facilities, their continuing operation is not within our control. If any of these third party pipelines and other facilities become partially or fully unavailable to transport natural gas and NGLs, or if the gas quality specification for their pipelines or facilities changes so as to restrict our ability to transport gas on these pipelines or facilities, our revenues could be adversely affected.

A change in the jurisdictional characterization of some of our assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our revenues to decline and operating expenses to increase.

Our operations are generally exempt from FERC regulation under the NGA, but FERC regulation still affects our non-FERC jurisdictional businesses and the markets for products derived from these businesses. The FERC has recently issued Order 704 requiring certain participants in the natural gas market, including interstate and intrastate pipelines, natural gas gatherers, natural gas marketers, and natural gas processors, that engage in a minimum level of natural gas sales or purchases to submit annual reports regarding those transactions to the FERC.

Other FERC regulations may indirectly impact our businesses and the markets for products derived from these businesses. The FERC’s policies and practices across the range of its natural gas regulatory activities, including, for example, its policies on open access transportation, gas quality, ratemaking, capacity release and market center promotion, may indirectly affect the intrastate natural gas market. In recent years, the FERC has pursued pro-competitive policies in its regulation of interstate natural gas pipelines. However, we cannot assure you that the FERC will continue this approach as it considers matters such as pipeline rates and rules and policies that may affect rights of access to transportation capacity.

Section 1(b) of the NGA exempts natural gas gathering facilities from regulation by the FERC as a natural gas company under the NGA. We believe that the natural gas pipelines in our gathering systems meet the traditional tests the FERC has used to establish a pipeline’s status as a gatherer not subject to regulation as a natural gas company. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is the subject of substantial, on-going litigation, so the classification and regulation of our gathering facilities are subject to change based on future determinations by the FERC, the courts, or Congress. In addition, the courts have determined that certain pipelines that would otherwise be subject to the ICA are exempt from regulation by the FERC under the ICA as proprietary lines. The classification of a line as a proprietary line is a fact-based determination subject to FERC and court review. Accordingly, the classification and regulation of some of our gathering facilities and transportation pipelines may be subject to change based on future determinations by the FERC, the courts, or Congress.

Should we fail to comply with all applicable FERC administered statutes, rules, regulations and orders, we could be subject to substantial penalties and fines.

Under the EPAct 2005, the FERC has civil penalty authority under the NGA to impose penalties for current violations of up to $1 million per day for each violation and disgorgement of profits associated with any violation. While our systems have traditionally not been subject to full FERC regulation, the FERC has adopted regulations that may subject certain of our otherwise non-FERC jurisdictional facilities to FERC annual reporting. Additional rules and legislation pertaining to those and other matters may be considered or adopted by the FERC from time to time. Failure to comply with those regulations in the future could subject us to civil penalty liability.

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Competition in the oil and natural gas industry is intense, which may adversely affect us.

We operate in a highly competitive environment for acquiring oil and natural gas properties, marketing oil and natural gas and securing trained personnel. Many of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in Gulf of Mexico and Gulf Coast onshore activities. Those companies may be able to pay more for productive oil and natural gas properties and exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. Our ability to acquire additional prospects and to discover reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. There can be no assurance that we will be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital. If we are unable to compete successfully in these areas in the future, our future revenues and growth may be diminished or restricted.

Recent adverse publicity about us, including our Chapter 11 filings, may harm our ability to compete in a highly competitive environment.

Recent adverse publicity concerning our financial condition may harm our ability to attract new customers and to maintain favorable relationships with existing customers, suppliers and partners. For example, it may be more challenging for us to engage in risk sharing transactions, and some of our suppliers may require cash payments rather than extending credit, which adversely affects our liquidity. We may also experience difficulty attracting and retaining key employees.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The information contained in Part I, Item 1, “Business” of this Annual Report is incorporated by reference.

Item 3. Legal Proceedings

For information regarding legal proceedings, see the information in Note 16, “Commitments and Contingencies” in the consolidated financial statements in Part II, Item 8 of this Annual Report.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is currently being quoted for public trading on the Pink Sheets quotations system, an over-the-counter market, under the symbol “ERPLQ.PK.” Prior to March 30, 2009, our common stock was listed on the NYSE under the symbol “EPL.” The following table sets forth, for the periods indicated, the range of the high and low sales prices of our common stock as reported by the NYSE (through the First Quarter 2009) and the Pink Sheets quotations system (subsequent to First Quarter 2009).

	High		Low
	($)		($)
2007
First Quarter	$	24.52	$	16.97
Second Quarter		19.25		15.83
Third Quarter		18.04		12.04
Fourth Quarter		15.39		11.73
2008
First Quarter		12.71		8.04
Second Quarter		16.50		9.24
Third Quarter		15.46		8.00
Fourth Quarter		8.91		1.19
2009
First Quarter		2.34		0.08
Second Quarter		0.45		0.05
Third Quarter (through July 27, 2009)		0.38		0.27

On July 27, 2009, the last reported sale price of our common stock on the Pink Sheets quotations system was $0.35 per share.

As of July 27, 2009, there were approximately 153 holders of record of our common stock.

We have not paid any cash dividends in the past on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain earnings for the future operations and development of our business. Any future cash dividends would depend on contractual limitations, future earnings, capital requirements, our financial condition and other factors determined by our board of directors.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2008, with respect to compensation plans under which our equity securities are authorized for issuance.

	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1)	Weighted Average Exercise Price of Outstanding Options Warrants and Rights (2)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by stockholders	2,054,021	$	15.34	2,685,256
Equity compensation plans not approved by stockholders	—		—	—
Total	2,054,021	$	15.34	2,685,256

(1) Comprised of 1,620,321 shares subject to issuance upon the exercise of options and 433,700 shares to be issued upon the lapsing of restrictions associated with restricted share units

(2) Restricted share units and performance shares do not have an exercise price; therefore, this only reflects the weighted-average option exercise price.

See Note 15 “Employee Benefit Plans” of the consolidated financial statements in Part II, Item 8 of this Annual Report for further information regarding the significant features of the above plans.

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Performance Graph

This information is being “furnished” to the SEC and is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filings we make under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

The graph below matches our cumulative five-year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and a customized peer group of seven independent oil and natural gas exploration and production companies. The peer group includes: ATP Oil & Gas Corp., Callon Petroleum Company, Mariner Energy, Inc., McMoRan Exploration Co., Stone Energy Corp., The Meridian Resource Corp. and W & T Offshore Inc. In 2008, we removed Bois d’Arc Energy, Inc. from the peer group we used in our 2007 Annual Report to Stockholders because it was acquired by Stone Energy Corp. during 2008.

The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index (with the reinvestment of all dividends) from December 31, 2003 to December 31, 2008. This historic price performance is not necessarily indicative of future stock performance.

	12/03	12/04	12/05	12/06	12/07	12/08
Energy Partners, Ltd.	100.00	145.83	156.76	175.68	84.96	9.71
S&P 500	100.00	110.88	116.33	134.70	142.10	89.53
Peer Group	100.00	120.84	138.47	128.57	142.36	51.62

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Item 6. Selected Financial Data

The following table shows selected consolidated financial data derived from our consolidated financial statements, which are set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report. The data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report.

	Years Ended December 31,
	2008			2007 (1)			2006			2005			2004
	(In thousands, except per share data)
Statement of Operations Data:
Revenue	$	356,252		$	454,649		$	449,550		$	402,947		$	295,447
Income (loss) from operations (2)		(25,531	)		(56,013	)		(55,343	)		132,027			86,068
Net income (loss)		(52,212	)		(79,955	)		(50,400	)		73,095			46,416
Net income (loss) available to common stockholders (3)		(52,212	)		(79,955	)		(50,400	)		72,151			43,017
Basic net income (loss) per common share	$	(1.63	)	$	(2.32	)	$	(1.32	)	$	1.94		$	1.31
Diluted net income (loss) per common share	$	(1.63	)	$	(2.32	)	$	(1.32	)	$	1.79		$	1.20
Cash flows provided by (used in):
Operating activities	$	184,610		$	293,889		$	272,074		$	269,969		$	165,074
Investing activities		(205,230	)		(244,421	)		(358,780	)		(449,159	)		(176,713	)
Financing activities		13,747			(43,818	)		83,131			92,442			784
	As of December 31,
	2008			2007 (1)			2006			2005			2004
	(In thousands)
Balance Sheet Data:
Total assets	$	766,766		$	814,856		$	1,003,845		$	931,285		$	647,678
Long-term debt, excluding current maturities (4)		—			484,501			317,000			235,000			150,109
Stockholders’ equity		57,119			101,970			372,269			394,593			315,049
Cash dividends per common share		—			—			—			—			—

(1) Amounts in 2007 reflect the sale of substantially all of our onshore South Louisiana assets in June 2007.

(2) The 2008, 2007, 2006 and 2005 income from operations includes business interruption insurance recoveries of $4.2 million, $9.1 million, $32.9 million and $20.6 million respectively from deferred production at our covered fields resulting from Hurricanes Gustav and Ike in 2008 and Katrina and Rita in 2005.

(3) Net income (loss) available to common stockholders is computed by subtracting preferred stock dividends and accretion of discount of $0.9 million and $3.4 million from net income (loss) for the years ended December 31, 2005 and 2004, respectively.

(4) At December 31, 2008, long-term debt classified as current totaled $497.5 million. At December 31, 2007 and 2006, none of our debt was classified as current. At December 31, 2005 and 2004, long-term debt classified as current was $0.1 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

We were incorporated in January 1998 and operate in a single segment as an independent oil and natural gas exploration and production company. Our current operations are concentrated in the shallow to moderate depth waters in the Gulf of Mexico focusing on the areas of offshore Louisiana as well as the deepwater Gulf of Mexico in depths less than 5,000 feet.

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Recent Events

Background to the Chapter 11 Cases. Prior to our filing the Chapter 11 Cases, a number of events and economic conditions which existed in 2008 negatively impacted our business and liquidity. These events included the following:

• hurricanes in August and September of 2008 damaged third-party production pipelines, causing us to shut-in a significant amount of our production from September 2008 and continuing into early 2009;

• oil and natural gas prices declined in the fourth quarter of 2008 and have remained at low levels during 2009 relative to the levels in 2008; and

• the worldwide credit and capital markets collapsed in 2008 and the availability of debt and equity financing became significantly more scarce, thus reducing financial flexibility for most companies, including us.

These factors negatively impacted our business, and led to several circumstances that significantly affected our liquidity, including:

MMS Order and Term Sheet. We received an order from the MMS dated March 23, 2009 (the “MMS Order”). The MMS is part of the United States Department of the Interior. The MMS Order demanded that we provide to the MMS bonds or other acceptable security in the aggregate amount of $34.7 million to secure plugging and abandonment liabilities associated with all of our properties on federal leases in the Gulf of Mexico, with the first installment payment of $1.2 million due no later than March 31, 2009, an additional installment payment of $1.2 million due no later than June 30, 2009 and the remaining $32.3 million due no later than July 31, 2009. The MMS Order also required us to immediately shut-in production from all of our wells and facilities located in South Pass Blocks 27 and 28 in the federal portion of our East Bay field, while properly maintaining these facilities and wells with essential personnel. We promptly completed the shut-in of our federal East Bay facilities before the end of March, 2009. The production from the wells and properties that we shut-in as a result of the MMS Order constituted less than 5% of our average daily production as of March 27, 2009. We also made two installment payments of approximately $1.2 million on March 30, 2009 and on April 29, 2009 in compliance with the MMS Order and the term sheet discussed below. We entered into a binding term sheet with the MMS on April 30, 2009 to establish terms for us to address our obligations under the MMS Order. Under the term sheet, we and the MMS have agreed to re-affirm the terms and conditions of the previously established trust account for the benefit of the MMS under the Decommissioning Trust Agreement dated December 23, 2008 among us, the MMS and JP Morgan Chase Bank, NA, and we had agreed to make monthly payments to the trust account in the amount of $1.2 million while the Chapter 11 Cases are pending and, on the effective date of the Plan to make a payment to the trust account equal to $21 million minus the aggregate amount of the monthly payments made into the trust account while the Chapter 11 Cases are pending (commencing with the payment made on April 29, 2009). The $1.2 million monthly payments to the trust account remain subject to approval by the Bankruptcy Court. All remaining amounts owed to the trust account to reach the full funding amount owed to the MMS of $36.1 million (after giving credit to all prior payments made by us) were payable in equal quarterly installments of approximately $1.2 million, commencing October 31, 2009, with quarterly payments continuing until full funding has occurred. On June 11, 2009, we received a letter from the MMS requesting an additional $10.95 million in financial assurance based on the actual costs for partial and completed well plugging and abandonment associated with our federal leases in the East Bay field. On June 24, 2009, we advised the MMS that we will provide the additional $10.95 million by increasing our quarterly payments identified in the term sheet—such quarterly payments are presently contemplated to commence on October 31, 2009—which would increase the quarterly payments from approximately $1.2 million to approximately $1.8 million. The MMS agreed to vote in favor of the Plan to the extent its treatment is consistent with the terms set forth in the term sheet. In addition, the MMS has granted a consensual stay of the MMS Order that will remain in place while the Chapter 11 Cases are pending. This stay, however, does not lift the requirement that our Federal wells and facilities located in South Pass Blocks 27 and 28 remain shut-in. The term sheet with MMS contemplates that, on the effective date of the Plan, the MMS Order will be fully rescinded, and we will be allowed to resume production from these wells and facilities. However, the terms of the term sheet, as incorporated into the Plan, will only supersede the MMS Order if the Bankruptcy Court confirms the Plan.

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Reduction of Borrowing Base. In March 2009, we received a notice of redetermination from Bank of America, N.A., the Administrative Agent under the Credit Agreement, that our borrowing base under the Credit Agreement had been lowered from $150 million to $45 million, resulting in a borrowing base deficiency of $38 million. Following the receipt of this notice, we considered various alternatives provided for under the Credit Agreement to repay the borrowing base deficiency and presented to the Administrative Agent the proposal of an installment repayment plan. The Administrative Agent declined to approve our proposed repayment plan, and as a result, on March 24, 2009, we received a notice from the Administrative Agent requiring the lump-sum payment by us of $38 million to the bank lenders under the Credit Agreement (the “Lenders”) by April 3, 2009. On April 3, 2009, we obtained a consent from a majority of the outstanding commitments (the “Required Lenders”) under the Credit Agreement, extending the due date for the repayment of the borrowing base deficiency until April 14, 2009. On April 14, 2009, we and the Required Lenders entered into a letter agreement that further extended the due date for repayment of the borrowing base deficiency until May 1, 2009 and provided that the Lenders agree not to exercise any rights and remedies until May 1, 2009 with respect to all outstanding and certain anticipated defaults by us under the Credit Agreement in exchange for our compliance with specified conditions. On May 1, 2009, we filed the Chapter 11 Cases.

Default on Senior Unsecured Notes. We were required to make annual interest payments of approximately $45.0 million each year on the Senior Unsecured Notes, of which $17 million was due on April 15, 2009, and remains unpaid. Our failure to make these interest payments within 30 days of the due date was an event of default under the indenture governing the Senior Unsecured Notes and under the cross-default provision of the Credit Agreement.

Surety Obligations. As of July 1, 2009, we had outstanding $60.0 million in surety bonds with four different indemnity companies. Our agreements with these indemnity companies allow them to demand cash reserves or letters of credit to support our outstanding surety bonds. In December 2008 and the first quarter of 2009, we posted cash collateral to restricted accounts for the benefit of certain of these indemnity companies totaling $5.7 million in response to requests to provide reserves against our surety bonds with them. If we default on some or all of these surety bonds, the indemnity companies may cancel our surety bonds. The cancelation of some or all of our surety bonds may result in violations of other agreements or obligations. As a result, we could be forced to shut in our production or lose our ability to continue to perform our business operations.

Plan of Reorganization; Plan Support and Lock-Up Agreement. On April 30, 2009, we entered into a Plan Support and Lock-Up Agreement (the “Plan Support Agreement”) with the holders of more than 66 ²/3% (the “Consenting Holders”) of the outstanding principal amount of our Senior Unsecured Notes. The parties to the Plan Support Agreement had agreed, following receipt of the Disclosure Statement, to vote in favor of and support a plan or reorganization that is consistent in all material respects with the term sheet attached to the Plan Support Agreement (“Term Sheet”).

The Plan Support Agreement may be terminated under certain circumstances by the Majority Consenting Holders, including if (1) we fail to file the Plan or the Disclosure Statement with the Bankruptcy Court on or prior to May 15, 2009; (2) the Bankruptcy Court does not approve the Disclosure Statement on or prior to June 30, 2009; (3) the Bankruptcy Court does not confirm the Plan on or prior to August 15, 2009; (4) we do not consummate the restructuring transactions provided for in the Plan on or prior to September 10, 2009, or under certain circumstances, a later date; (5) we or any of our officers or directors fail to take any action required by the Plan Support Agreement in order to comply with our fiduciary obligations under applicable law or otherwise; (6) we file or support a plan of reorganization that is different from the Plan or withdraw or revoke the Plan; (7) we materially breach any of our obligations or fail to satisfy in any material respect any of the terms or conditions under the Plan Support Agreement; (8) our aggregate liabilities as of the dates specified in the Term Sheet (excluding those liabilities that would be extinguished by the Plan or otherwise do not survive the consummation of the Plan) materially exceed the amounts we represented in the Term Sheet; (9) an examiner with expanded powers relating to our business or trustee is appointed in any of the Chapter 11 Cases, any of the Chapter 11 Cases are converted to a case under Chapter 7 of the Bankruptcy Code or any of the Chapter 11 Cases

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are dismissed by the Bankruptcy Court; or (10) any definitive documents executed by us in connection with the Chapter 11 Cases in order to implement the Plan are not consistent in all material respects with the terms set forth in the Term Sheet and otherwise are not reasonably satisfactory in all material respects to the Majority Consenting Holders. In any event, the Plan Support Agreement terminates on September 15, 2009.

Bankruptcy Proceedings, Plan of Reorganization, Exit Facility and Expected Emergence from Bankruptcy. On May 1, 2009, we and certain of our subsidiaries filed voluntary petitions (In re: Energy Partners, Ltd., et. al., Case No. 09-32957) for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended, in the Bankruptcy Court. We continue to manage our properties and operate our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. On June 11, 2009, as part of the Chapter 11 Cases, we filed with the Bankruptcy Court the Plan and the Disclosure Statement, pursuant to which we solicited votes for the confirmation of the Plan. On July 31, 2009, we filed with the Bankruptcy Court our Second Amended Joint Plan of Reorganization, as modified as of July 31, 2009 (Plan). The Plan was formulated after extensive negotiations with committees representing holders of the Senior Unsecured Notes and holders of our common stock interests. The primary purpose of the Plan is to effectuate a restructuring of our capital structure to strengthen our balance sheet by reducing our overall indebtedness and improve cash flow.

On July 23, 2009, we announced that the Plan had received the affirmative vote of the holders of our Senior Unsecured Notes and our 8.75% Senior Notes due 2010 and we consequently proceeded to request confirmation of the Plan from the Bankruptcy Court. On August 3, 2009, after a confirmation hearing in which the Bankruptcy Court considered the Plan and all objections thereto, it entered into a confirmation order (Confirmation Order) and confirmed the Plan as of August 3, 2009. The effectiveness of the Plan and our emergence from bankruptcy is subject to several conditions, including the successful closing of the Exit Facility. We are currently in negotiations with lenders on structuring the Exit Facility. Fore more information on the conditions to the final effectiveness of the Plan see Item 1A“—Risk Factors.”

The material terms of the Plan as confirmed by the Bankruptcy Court on August 3, 2009 include, among other things, that:

• each holder of the Senior Unsecured Notes and our 8.75% Senior Notes due 2010 would receive, in exchange for their total claim (including principal and interest), their pro rata share of 95% of the common stock to be issued pursuant to the Plan “New EPL Common Stock” in us upon our emergence from bankruptcy;

• each holder of our common stock interests would receive, in exchange for their total claim, their pro rata share of 5% of the New EPL Common Stock;

• upon the Effective Date, we shall have access to an exit working capital credit facility (Exit Facility) in form and substance acceptable to us and a majority in interest of the Consenting Holders (the “Majority Consenting Holders”); and

• we may adopt the 2009 Long Term Incentive Plan under which it may issue shares of restricted new EPL common stock and new EPL stock options to certain of its employees and certain members of management;

• following the effective date of the reorganization, the sole equity interests in us would consist of (1) New EPL Common Stock issued to the holders of our Senior Unsecured Notes, the 8.75% Senior Notes due 2010, and holders of our common stock interests, (2) restricted new EPL common stock issued to certain members of our management, if any, and (3) new EPL stock options to be issued to certain key employees pursuant to the 2009 Long Term Incentive Plan, if any, which would be exercisable for new EPL common stock. Collectively, the restricted new EPL common stock issued pursuant to subparagraph (2) and the shares reserved for the exercise of new EPL stock options pursuant to subparagraph (3) above would in no event exceed 3% of the new EPL common stock on a fully diluted basis.

36

The timing and ultimate outcome of the Chapter 11 proceedings remain uncertain. Issues and matters to be resolved prior to emergence from the proceedings include negotiation of the Exit Facility.

Consummation of the Plan is conditioned upon, among other things, the closing of the Exit Facility. There can be no assurance that any or all of the foregoing conditions will be met (or waived) or that the other conditions to consummation, if any, will be satisfied. Accordingly, there can be no assurance that the Plan will be consummated and the restructuring completed.

The above events and circumstances, together with the worldwide credit markets’ collapse in 2008 and the scarcity of available credit from most major commercial financial institutions, as well as the low trading price of our common stock, make it extremely difficult to find additional financing, either to refinance our Credit Agreement or our Senior Unsecured Notes or to provide additional liquidity during 2009.

Restructure of Prepetition Employee Arrangements. Prior to May 1, 2009, various incentive and retention plans and agreements existed for certain of our employees (collectively, the “Arrangements”) that provided for such employees to receive cash payments and/or settlement of equity compensation awards either upon specified future vesting dates or in connection with a termination of employment. The Plan Support Agreement contains certain provisions that provide that such Arrangements must be amended, renegotiated, and/or restructured prior to the effective date of a confirmed plan of reorganization.

As a result of the Plan Support Agreement, the Board of Directors amended the provisions of the Energy Partners, Ltd. Change of Control Severance Plan (the “Severance Plan) in a manner such that the protected employment period initiated by our change of control under such plans, as well as the severance benefits potentially payable in connection with certain terminations of employment during that protected period, would not be triggered by the restructuring contemplated by the Plan Support Agreement.

We also established two programs, a non-insider employee retention program and a senior management employee program (collectively, the “Retention Programs”). In order for an office employee who participates in either of these programs to receive his or her retention payments, the participant has to waive and release any and all potential claims against the Company under the prepetition Arrangements.

Finally, the written change of control severance agreements (each a “Severance Agreement”) with two of our executives were terminated by the Company and each of such executives in exchange for the executives receiving an unsecured claim for the rejection damages.

The total cost of the Retention Programs and the termination of the two Severance Agreements is approximately $2 million of which approximately $0.5 million has been paid during the bankruptcy proceedings and approximately $1.5 million will be paid when we emerge from bankruptcy.

NYSE Delisting. In March 2009, the NYSE notified us that our common stock had been suspended from trading and was subsequently delisted for failure to maintain the required market capitalization minimum criteria. Our common stock is being quoted for public trading on the Pink Sheets quotations system, an over-the-counter market, under the symbol ERPLQ.PK. This significantly impairs our ability to raise additional equity financing.

Changes to Production Levels. Due to our current liquidity situation and lower commodity prices, we expect to significantly reduce capital expenditures during 2009. As a result, we do not expect to be able to maintain our current production levels and we expect our production to decline significantly during the second half of 2009 primarily due to natural reservoir declines combined with minimal investment in reserve replacement activities. At our current and anticipated production levels, combined with the current and expected lower sales prices, we do not expect to have sufficient cash flows to fully fund our operations and meet all of our financial obligations in 2009 as discussed above.

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Changes in the Board of Directors and Management. Commencing in the first half of fiscal 2009 and continuing through the date of this filing, we have experienced major changes in the management of our company. Our Board of Directors declined from eleven to five members during the first quarter of 2009. In addition, on March 1, 2009, Joseph T. Leary resigned as our Executive Vice President and Chief Financial Officer. On March 15, 2009, Richard A. Bachmann resigned as our Chairman and Chief Executive Officer and we engaged Alan D. Bell as our Chief Restructuring Officer. In July 2009, we announced the designation of Alan D. Bell as principal executive officer and Tiffany J. Thom as principal financial officer.

Overview and Outlook

Results of Operations

During the year ended December 31, 2008, we were successful in 16 of 17 drilling operations and 7 of 10 recompletion and workover operations, much of which was substantially completed before the fourth quarter of 2008. We significantly curtailed our drilling operations beginning in the fourth quarter of 2008 and expect to remain at significantly curtailed drilling activity levels during 2009 due to the factors impacting our liquidity addressed under – “—Recent Events.”

Our operating results for the year ended December 31, 2008 compared to the year ended December 31, 2007 reflect a decline in production from our existing core oil and natural gas properties due primarily to natural reservoir declines, and the impact of the hurricanes which shut in a significant amount of our production from September 2008 into early 2009, resulting in an average decline of approximately 18%, or 2,800 Boe per day reduction, from our pre-hurricane production. Our production level also declined due to the sales of producing properties in June 2007 and March 2008. The June 2007 sale of onshore producing properties (the “June 2007 Property Sale”) contributed an average of 2,742 Boe per day from January 1, 2007, through the June 12, 2007 sale date. These impacts were offset in part by successful drilling results in 2008.

Higher average oil and natural gas prices contributed favorably to our revenues for the year ended December 31, 2008 during which we realized a 44% increase in our average sales price per Boe (exclusive of derivative instruments) over the year ended December 31, 2007. The precipitous decline in oil and natural gas prices that began in the third quarter of 2008 is not fully reflected in our realizations for the full 2008 year because of the significant decline in our production as a result of the hurricanes which impacted production from September 2008 into early 2009.

For the year ended December 31, 2008, our revenues declined 22% as compared to the year ended December 31, 2007 due primarily to declines in production volumes. The declines in production volumes were due primarily to natural reservoir declines and the impact of hurricanes addressed above, partially offset by increases in the average sales price of our production during 2008.

In addition to the items addressed above, our net loss of $52.2 million for the year ended December 31, 2008 reflects:

• impairments of producing oil and natural gas properties of $39.3 million due primarily to the decline in estimated sales prices of oil and natural gas;

• impairments, due primarily to our cash flow constraints, of capitalized costs of $47.5 million related to two deepwater properties for which development activities are suspended pending the determination of proved reserves;

• impairments, due primarily to our cash flow constraints, of unevaluated property costs of $20.8 million related to leases expiring in 2009 and 2010;

• losses incurred on abandonment work of $21.7 million primarily related to abandonment work completed in 2008 and estimated cost of abandonment work planned for 2009;

• a decrease of $68.0 million in dry hole and exploratory costs as compared to 2007 primarily as a result of reduced exploratory drilling activities;

38

• a decrease in lease operating expense (“Loe”) as compared to 2007 resulting primarily from the June 2007 Property Sale and our efforts to reduce and control these costs in 2008, which decreases were partially offset by uninsured hurricane-related repair costs incurred in the latter part of 2008; and

• a decrease in general and administrative expenses (“G&A”) as compared to 2007 resulting primarily from G&A during the year ended December 31, 2007 related to our review of strategic alternatives and the repurchase of 8,700,000 shares of our common stock at $23.00 per share, refinancing our bank credit facility and acquisition of substantially all of our existing $150 million 8.75% Senior Notes due 2010 (the “Transactions”).

Cash Flows

Our operating cash flows for the year ended December 31, 2008 were impacted by the hurricanes which caused nearly all of our production to be shut in at one time or another during the third and fourth quarters of 2008 and by lower oil and natural gas sales prices during the fourth quarter of 2008.

Our most significant current challenge is addressing our severe liquidity constraints by completing our Chapter 11 bankruptcy proceedings, securing exit financing and consummating the Plan. Our near term strategy includes the recapitalization of our balance sheet, targeted cost reduction activities, and significantly reduced drilling expenditures during 2009. The sales prices of our oil and natural gas will have a significant impact on our plans beyond 2009. If sales prices continue at the current low levels, our anticipated investment will not be adequate to maintain our current production levels and we expect our production to decline significantly during the second half of 2009 due primarily to natural reservoir declines. As further addressed under “—Financial Condition, Liquidity and Capital Resources,” at our current and anticipated production levels, combined with the current and expected lower sales prices, we do not expect to have sufficient cash flows to fund our operations and meet our financial obligations in 2009.

Tropical Weather Impact

In late August and early September 2008 Hurricanes Gustav and Ike traversed the Gulf of Mexico and adjacent land areas. As a result of these two hurricanes, nearly all of our production was shut in at one time or another during the third and fourth quarters of 2008. We maintained insurance coverage for property damage due to windstorms with a deductible of $10 million for each hurricane. For these occurrences, we also previously maintained business interruption insurance on a portion of our lost revenue on our South Timbalier 41, 42 and 46 properties, which represented 37% of our 2008 year to date daily production volumes prior to the hurricanes. Recovery of lost revenue from these properties began accruing in November 2008 when the “no claim period” provided for under the policy elapsed. Through December 31, 2008, the total business interruption claim on these fields was $4.2 million, all of which is recorded in other receivables at December 31, 2008. All of these amounts were collected in 2009. In order to mitigate the higher cost of insurance coverages in 2009, we negotiated higher deductibles and significantly lower aggregates for property damage due to windstorms. Further, we no longer maintain business interruption insurance.

Dispositions

In March 2008, we completed the sale of two Gulf of Mexico Shelf properties located in our Western offshore area (the “March 2008 Property Sale”) for $15.0 million after giving effect to preliminary closing adjustments. We recorded a gain on the sale of $7.1million.

We have included the results of operations of dispositions discussed above through their closing dates. We experienced substantial revenue and production fluctuations as a result of these dispositions and the tropical weather impacts discussed above. For these reasons the comparability of our historical results of operations with future periods may be materially impacted.

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Outlook

We continue to generate prospects and strive to maintain an extensive inventory of drillable prospects in-house and exposure to new opportunities through relationships with industry partners. Generally, we have attempted to fund any exploration and development expenditures with internally generated cash flows; however, from time to time during 2007 and more significantly in the fourth quarter of 2008, we used our bank credit facility to fund working capital needs as further discussed under the caption “Financial Condition, Liquidity and Capital Resources.”

While we expect drilling activities in 2009 to be significantly lower than in 2008, our long-term operating strategy is to increase our oil and natural gas reserves and production while focusing on reducing finding and development costs and operating costs to be competitive with our industry peers. During the year ended December 31, 2008, we were successful in 16 of 17 drilling operations and 7 of 10 recompletion/workover operations. Our 2008 drilling program was comprised predominately of lower risk, lower reserve potential opportunities, in order to stabilize production. Our near-term business strategy includes restructuring and recapitalization of our balance sheet, debt reduction, cost reduction activities and monitoring the reduction in equipment and service costs before committing to any future drilling programs. We have not established a capital expenditure budget for 2009 while assessing the results of these undertakings and the Chapter 11 Cases. We expect that any funding that may be approved for drilling in 2009 would be allocated primarily to lower risk development and exploitation opportunities.

Our revenue, profitability and future growth rate depend substantially on factors beyond our control, such as tropical weather, economic, political and regulatory developments and availability of other sources of energy. Oil and natural gas prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for oil and natural gas could materially and adversely affect our financial position, our results of operations, the quantities of oil and natural gas reserves that we can economically produce and our access to capital. See “Risk Factors” in Item 1A for a more detailed discussion of these risks.

We use the successful efforts method of accounting for our investment in oil and natural gas properties. Under this method, we capitalize lease acquisition costs, costs to drill and complete exploration wells in which proven reserves are discovered and costs to drill and complete development wells. Exploratory drilling costs are charged to expense if and when the well is determined not to have found reserves in commercial quantities. Seismic, geological and geophysical, and delay rental expenditures are expensed as incurred. We conduct many of our exploration and development activities jointly with others and, accordingly, recorded amounts for our oil and natural gas properties reflect only our proportionate interest in such activities.

Unless specifically addressed, any discussion in this Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our “intent,” “plans” or “expectations” or similar expressions of forward-looking statements may not consider the potential impact of the restructuring and recapitalization of our balance sheet in connection with the Chapter 11 Cases or any acquisition or merger of or by us or changes in plans and/or intentions resulting from changes in our management and/or Board of Directors that may result from the Chapter 11 Cases.

40

Results of Operations

The following table presents information about our oil and natural gas operations.

	Years Ended December 31,
	2008			2007			2006
Net production (per day):
Oil (Bbls)		5,608			8,769			8,238
Natural gas (Mcf)		45,070			92,167			106,042
Total (Boe)		13,120			24,130			25,912
Average sales prices, excluding impact of derivatives:
Oil (per Bbl)	$	97.42		$	66.78		$	59.78
Natural gas (per Mcf)		9.46			7.15			6.98
Total (per Boe)		74.15			51.59			47.57
Impact of derivatives (1):
Oil (per Bbl)	$	1.29		$	(5.11	)	$	—
Natural gas (per Mcf)		(0.03	)		0.09			(0.02	)
Oil & natural gas revenues (in thousands):
Oil	$	199,948		$	213,751		$	179,752
Natural gas		156,074			240,589			269,434
Total		356,022			454,340			449,186
Average costs (per Boe):
Loe	$	13.65		$	7.94		$	6.22
Depreciation, depletion, amortization and accretion (DD&A)		22.43			19.82			21.43
Taxes, other than on earnings		2.34			1.12			1.44
G&A		9.10			7.01			12.70
Increase (decrease) in oil and natural gas revenue (net of hedging) due to:
Change in prices of oil	$	98,201		$	21,053
Change in production volumes of oil		(112,004	)		12,946
Total increase (decrease) in oil sales		(13,803	)		33,999
Change in prices of natural gas		77,739			7,351
Change in production volumes of natural gas		(162,254	)		(36,196	)
Total decrease in natural gas sales		(84,515	)		(28,845	)
Total estimated net proved reserves:
Oil (Mbbls)		21,637			28,123			29,914
Natural gas (Mmcf)		90,808			103,118			170,123
Total (Mboe)		36,771			45,309			58,268
Standardized measure of discounted future net cash flows (in thousands)	$	416,171		$	1,092,935		$	893,474

(1) See Other Income and Expense section for further discussion of the impact of derivative instruments.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenues and Net Loss

	Years Ended December 31,
	2008			2007			$ Change			% Change
	(in thousands)
Oil and natural gas revenues	$	356,022		$	454,340		$	(98,318	)	(22	)%
Net loss		(52,212	)		(79,955	)		27,743		35	%

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Although our average oil and natural gas sales prices increased 44% during the year ended December 31, 2008, the increase was more than offset by 46% lower production primarily due to deferred production from shut-in pipelines during the third and fourth quarters of 2008 as a result of Hurricanes Gustav and Ike, which reduced our Boe per day by approximately 2,800 for the year ended December 31, 2008, natural reservoir declines, the June 2007 Property Sale (that contributed 2,742 Boe per day in 2007 through the June 12, 2007 sale date), and the March 2008 Property Sale (that contributed 300 Boe per day in 2008 through the March 27, 2008 sale date). We expect our revenues to decline significantly in 2009 due to significantly lower forecasted oil and natural gas sales prices as compared to 2008. We expect production in 2009 to decline compared to 2008 production as continued natural reservoir declines from our core producing properties and the impact of curtailed spending on reserve replacement in 2009 are expected to impact our production volumes. Our forecasts do not consider any significant production disruptions that may occur due to hurricanes or other catastrophic events, which could result in significant reductions in our production, revenues and cash flows from operations.

Our net loss for 2008 is due primarily to significant impairments, the impact of the 2008 hurricane season on our production, the decline in the fourth quarter of 2008 of oil and gas prices, and losses on abandonment work performed in 2008 and planned for 2009. These and other factors impacting our net loss for the period are addressed below. We expect to continue to incur net losses in 2009 due to declining production levels and projected low sales prices for our oil and natural gas. If actual experience does not improve significantly from the assumptions in our forecast, especially regarding sales prices for oil and natural gas, our net loss for 2009 could be significant and we may incur additional material impairments of our assets. Under “—Recent Events” above is an expanded discussion of the impact of these challenges on our business.

In addition to the factors addressed above, the reduction in net loss for the year ended December 31, 2008 as compared to the year ended December 31, 2007 was also attributable to gains on derivative instruments in 2008 and lower Loe, exploration expenses, DD&A and G&A for the reasons summarized below.

Offsetting these items was a loss on abandonment of $21.7 million in 2008 resulting from the increase in abandonment activities in 2008 and estimated cost of abandonments scheduled for 2009. In addition, estimated recoveries from business interruption insurance were $4.2 million in 2008, a decline from the $9.1 million recorded in 2007. Additionally, for the year ended December 31, 2007, our total costs and expenses were reduced by a gain on insurance recoveries of $8.1 million, the impact of which was more than offset by the loss on early extinguishment of debt of $10.8 million.

Our 2008 tax benefit resulting from the loss for the period reflects a valuation allowance of $7.5 million against our deferred tax assets, resulting in an effective tax rate on our 2008 net loss of 24.6%. We have recorded significant net losses in the years ended December 31, 2008, 2007 and 2006. As a result, we are unable to conclude that it is more likely than not we will realize all of our deferred tax assets, which relate primarily to net operating losses, offset by deferred tax liabilities related to basis differences in our oil and natural gas properties. We recorded a valuation allowance for the amount by which deferred tax assets exceeded deferred tax liabilities as of December 31, 2008.

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Operating Expenses

Operating expenses consist of the following:

	Years Ended December 31,						$ Change			% Change
	2008			2007
	(in thousands)
Loe	$	65,533		$	69,919		$	(4,386	)	(6	)%
Exploration expenditures		30,199			98,209			(68,010	)	(69	)%
Impairments of properties		110,403			114,913			(4,510	)	(4	)%
DD&A		107,688			174,541			(66,853	)	(38	)%
G&A		43,706			61,724			(18,018	)	(29	)%
Taxes, other than on earnings		11,245			9,900			1,345		14	%
Loss on abandonment		21,695			2,788			18,907		NM
Other		(4,438	)		(12,248	)		7,810		64	%

NM=Not meaningful

The decrease in Loe for the year ended December 31, 2008 compared to the year ended December 31, 2007 is primarily due to a general decline from a reduction in producing properties as a result of the June 2007 Property Sale and the March 2008 Property Sale, fewer workovers in 2008, and ongoing efforts to reduce Loe costs during 2008. These reductions were partially offset by increases in Loe related to the impact of the 2008 hurricanes. On a per Boe basis, costs have increased due primarily to decreased production volumes and hurricane-related costs in 2008.

The decrease in exploration expenditures for the year ended December 31, 2008 compared to the year ended December 31, 2007 is primarily due to lower dry hole costs due to the increased success in our 2008 drilling activity which focused more on developmental drilling as compared to the higher level of exploratory drilling activity in 2007. Exploratory expenditures for the year ended December 31, 2008 is comprised of $21.8 million of dry hole costs primarily for two exploratory wells or portions thereof which were found to be not commercially productive and $8.4 million of seismic expenditures and delay rentals. The expense in the year ended December 31, 2007 is comprised of $87.1 million of dry hole costs for 11 exploratory wells or portions thereof which were found to be not commercially productive and $11.1 million of seismic expenditures and delay rentals. Our exploration expenditures and dry hole costs vary depending on the amount of our planned capital expenditures dedicated to exploration activities, the cost of services to drill wells and the level of success we achieve in exploratory drilling activities.

Our exploratory expenditures and dry hole costs will vary depending on the amount of our planned capital expenditures dedicated to exploration activities and the level of success we achieve in exploratory drilling activities. We significantly reduced our exploratory drilling expenditures in 2008. We expect our exploratory and dry hole costs to decline further in 2009, due to our planned significant reduction in exploratory spending.

Impairments of oil and natural gas properties were $110.4 million in 2008, of which $108.6 million was recorded during the fourth quarter. The impairment expense was primarily related to the deepwater prospects addressed below ($47.5 million), producing fields (primarily five) which were determined to have future net cash flows less than their carrying values due primarily to commodity price declines and reservoir performance resulting in the write down of these properties to their estimated fair values as of December 31, 2008 ($39.3 million) and the undeveloped properties addressed below ($20.8 million). We periodically assess our oil and natural gas assets for impairment based on factors described under the caption “Discussion of Critical Accounting Estimates.” In 2009, we have observed deterioration in the forward pricing curve for natural gas and for oil. We expect that this factor, among other factors, will result in impairment reviews in connection with the preparation of our quarterly financial statements in 2009, which may result in additional material impairments.

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Due to the factors impacting our liquidity addressed under the caption “General” above, our plans to mitigate those impacts, and uncertainties regarding our ability to obtain additional capital to proceed with our drilling and development plans in 2009 and beyond, we determined that we may not be able to fund our share of development costs related to two of our deepwater prospects, Mississippi Canyon 292 and Mississippi Canyon 204, each of which is suspended pending determination of proved reserves related primarily to the generation of a development plan including economic processing and handling agreements. As a result, we assessed these properties for impairment and, based on financial constraints, determined that the leases were impaired. We recorded a charge to earnings for the carrying value of these deepwater prospects of $47.5 million. We maintain our rights to participate in the development of these discoveries until we elect not to proceed with such development plans as may be proposed by the operator of the properties in accordance with the applicable joint operating agreements. If we elect not to proceed, we will lose our rights to participate in the deep zones in these leases. Additionally, we recorded an impairment charge of $5.0 million to write-off the carrying value of a south Louisiana shallow-water well for which drilling operations were suspended during 2008 because we relinquished our interest in the lease.

Applying similar criteria to our portfolio of undeveloped leases, we determined that we may not be able to fund drilling activities required to maintain our unevaluated leases that expire in 2009 and 2010. As a result, we assessed these properties for impairment, and based on financial constraints, determined that the leases are impaired.

Our 2007 impairment expense totaled $114.9 million related to 17 fields. Eight fields with a net book value of $79.4 million experienced mechanical difficulties or facility requirements and it was determined that significant capital would be needed to extend their economic lives and, with our decreased capital budget, we decided that our capital would be better deployed to other projects. Another six fields with a net book value of $15.9 million underperformed and depleted earlier than anticipated. The remaining three fields had estimated future net cash flows less than their carrying values due to performance issues and reserve revisions, resulting in impairment expense of $19.6 million to write down the assets to their estimated fair values at December 31, 2007.

The decrease in depreciation, depletion and amortization (“DD&A”) was primarily due to decreased production volumes from deferred production caused by Hurricanes Gustav and Ike, natural reservoir declines, the sale of substantially all of our onshore South Louisiana assets in June 2007 and the sale of two of our Western Gulf of Mexico properties in March 2008. We anticipate that our DD&A in 2009 will increase in total and on a per Boe basis. While the material impairments recorded in 2008 would typically result in a decline in DD&A in 2009, a significant portion of the impairments recorded in 2008 were related to non-producing properties (undeveloped properties and properties for which development activities were suspended) for which no DD&A was recorded in 2008.

G&A decreased primarily due to $9.4 million of financial and legal advisory fees that were incurred during the prior year ended December 31, 2007 related to the exploration of strategic alternatives and the Transactions (see “Financial Condition, Liquidity and Capital Resources—Capital Transactions” below). Included in G&A is cash and non-cash stock based compensation of $6.5 million and $9.4 million in the years ended December 31, 2008 and 2007, respectively. Our G&A includes $13.0 million and $12.7 million related to insurance coverage in 2008 and 2007, respectively, of which $11.0 million and $10.0 million in 2008 and 2007, respectively, is related to insurance for our oil and natural gas producing properties, including business interruption and property damage insurance coverages.

Taxes, other than on earnings increased for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to higher average sales prices for oil (which is taxed based on value) offset by reduced production of oil and natural gas due to the sale of onshore properties in 2007. These taxes may fluctuate from period to period depending on our production volumes from non-federal leases and commodity prices received.

44

During 2008, we began to plug and abandon a significant number of wellbores and began decommissioning associated with platforms, structures, pipelines and facilities on leases in the Gulf of Mexico that are no longer producing and were required, in most instances, to be performed during that period under MMS requirements. The level of abandonment activity we performed in 2008 was significantly higher than in any past period and was performed at a high pricing point in the market for such services with equipment, in some cases, that exceeded the capability of less costly equipment capable of performing such operations. Further, because we performed this work at a suboptimal time of the year, we were significantly impacted by weather delays. We incurred costs significantly in excess of our recorded asset retirement obligation (“ARO”) for this work. As a result of this experience, and our cost experience on other 2008 abandonment activities, as well as our efforts to estimate our planned work for 2009, we revised our estimated abandonment costs where appropriate to reflect recent experience in determining the estimated fair value of our abandonment obligations. The total impact of our revisions to ARO resulted in a loss on abandonment of $21.7 million in 2008. Revisions to ARO that did not result in an impact to 2008 earnings were recorded as additions to our oil and natural gas properties account and are amortized to DD&A over remaining units-of-production.

Other operating expenses consist primarily of net gains on asset sales in 2008 and 2007 and gains from insurance recoveries in 2007.

Other Income and Expense

	Years Ended December 31,
	2008			2007			$ Change			% Change
	(in thousands)
Interest expense	$	(46,533	)	$	(46,213	)	$	(320	)	(1	)%
Loss on early extinguishment of debt		—			(10,838	)		10,838		NM
Gain (loss) on derivative instruments		2,053			(13,083	)		15,136		116	%

NM=Not meaningful

The increase in interest expense for the year ended December 31, 2008 compared to the year ended December 31, 2007 was primarily attributable to an increase in average borrowings due to the issuance of $450 million in aggregate principal amount of Senior Unsecured Notes in April 2007 combined with borrowings on our bank credit facility, offset by the repurchase of $145.5 million in aggregate principal amount of the $150 million 8.75% Senior Notes due 2010 completed in May 2007.

A loss on early extinguishment of debt for the refinancing of the bank credit facility and the repurchase of the 8.75% Senior Notes due 2010 of approximately $10.8 million was recorded during the year ended December 31, 2007. This loss includes the write-off of previously capitalized unamortized deferred financing costs related to the previous bank credit facility and the $150 million 8.75% Senior Notes due 2010 as well as the consent fees relating to the tender offer for the $150 million 8.75% Senior Notes due 2010. Due to the reduction in our borrowing base in the first quarter of 2009, we expect to record a reduction in the deferred financing costs related to the bank credit facility of approximately $1 million in 2009, which will increase interest expense by the same amount.

For the year ended December 31, 2008, gain (loss) on derivative instruments includes an unrealized gain of $19.1 million due to the change in fair market value of derivative instruments to be settled in the future and a loss of $17.0 million on contracts settled during 2008 for a total net gain of $2.1 million. For the year ended December 31, 2007, gain (loss) on derivative instruments includes an unrealized loss of $13.7 million due to the change in fair market value of derivative instruments to be settled in the future and a gain of $0.6 million on contracts settled during 2007 for a total net loss of $13.1 million.

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Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenues and Net Loss

	Years Ended December 31,						$ Change			% Change
	2007			2006
	(in thousands)
Oil and natural gas revenues	$	454,340		$	449,186		$	5,154		1	%
Net loss		(79,955	)		(50,400	)		(29,555	)	(59	)%

Our oil and natural gas revenues increased during the year ended December 31, 2007 compared to the year ended December 31, 2006. Although production decreased primarily due to the sale of substantially all of our onshore South Louisiana assets in June 2007 (approximately 3,175 Boe per day) combined with natural reservoir declines, we had a slight increase in oil production, which had a higher price than natural gas on an equivalent basis, during the year as well as an increase in both oil and natural gas prices as illustrated in the above tables.

Our increased loss for the year ended December 31, 2007 compared to the year ended December 31, 2006 was largely due to higher lease operating expenses, exploration expenditures including dry hole costs and impairments, loss on derivative instruments and financing costs discussed below. This increased net loss was partially offset by lower G&A in 2007 as compared to 2006, which included expenses of $54.5 million relating to the terminated Merger Agreement with Stone (as discussed and defined below), and the $6.5 million gain recorded in 2007 on the sale of substantially all of our onshore South Louisiana assets in 2007.

As a result of Hurricanes Katrina and Rita and three other hurricanes that traversed the Gulf of Mexico and adjacent land areas in 2005, nearly all of our production was shut in at one time or another during the third quarter of 2005 and into 2006. We maintained business interruption insurance during this period on our significant properties, including our East Bay properties on which recovery of lost revenue continued to accrue through October 2006. We recognized a total of $62.6 million for business interruption recoveries of which $32.9 million and $20.6 million were recorded in 2006 and fourth quarter of 2005, respectively. An additional $9.1 million of business interruption recoveries was recorded in the first quarter of 2007 upon final settlement of the Hurricane Katrina claim. All insurance receivables related to these hurricanes have been collected.

On June 22, 2006, we entered into a merger agreement (“Merger Agreement”) with Stone Energy Corporation (“Stone”). Prior to entering into the Merger Agreement, Stone terminated its then existing merger agreement with Plains Exploration Company (“Plains”). Under the terms of the terminated merger agreement between Stone and Plains, Plains was entitled to a termination fee of $43.5 million, which was advanced by us to Plains. This proposed merger was not consummated and the termination fee was recorded in G&A expenses in 2006 (see additional discussion under Operating Expenses below).

Operating Expenses

	Years Ended December 31,
	2007		2006		$ Change			% Change
	(in thousands)
Loe	$	69,919	$	58,808	$	11,111		19	%
Exploration expenditures		98,209		51,745		46,464		90	%
Impairments of properties		114,913		84,680		30,233		36	%
DD&A		174,541		202,734		(28,193	)	(14	)%
G&A		61,724		120,113		(58,389	)	(49	)%
Taxes other than on earnings		9,900		13,632		(3,732	)	(27	)%

46

The increase in Loe for the year ended December 31, 2007 compared to the year ended December 31, 2006 is primarily a result of new wells in new fields ($1.4 million), workover, maintenance and pipeline repair costs and equipment mobilization costs ($7.0 million), and various increases in fields with increased production. These increases were partially offset by the sale of our onshore South Louisiana assets ($1.5 million decrease). Contributing to the increase on a per Boe basis were production declines from existing fields with fixed costs and the workover, maintenance and pipeline repair costs discussed.

The increase in exploration expenditures for the year ended December 31, 2007 compared to the year ended December 31, 2006 is primarily due to our lower success rate and the higher average cost for each exploratory well. The expense in 2007 is comprised of $87.1 million of costs for 11 exploratory wells or portions thereof which were found to be not commercially productive and $11.1 million of seismic expenditures and delay rentals. The expense in 2006 is comprised of $37.5 million of costs for six exploratory wells or portions thereof which were found to be not commercially productive and $14.2 million of seismic expenditures and delay rentals.

During 2007, we recorded impairments of properties in 17 fields. Eight fields with a net book value of $79.4 million experienced mechanical difficulties or facility requirements and we determined that significant capital would be needed to extend their economic lives. With our decreased capital budget in 2008, we decided that this capital would be better deployed to projects with more potential. Another six fields with a net book value of $15.9 million underperformed and fully depleted earlier than anticipated. The remaining three fields were determined to have future projected cash flows of less than their net book values due to performance issues and reserve revisions; therefore, we recorded an impairment charge of $19.6 million to write down the assets to their fair values during 2007. During 2006, we recorded impairments of properties in eight fields, four of which were onshore assets acquired during an acquisition in January of 2005. Three of these onshore fields along with three offshore fields experienced downward revisions of recoverable reserves at December 31, 2006. These revisions along with decreased oil and natural gas prices resulted in impairments of $52.1 million on these assets. We elected to release the lease on the remaining onshore field. One other offshore field experienced mechanical difficulties. We determined that significant capital would be needed to extend its economic life and that this capital would be better deployed to projects with more potential. We wrote off the net book value of these assets of $27.0 million during 2006.

The decrease in DD&A for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily due to the sale of substantially all of our onshore South Louisiana assets in June 2007 ($55.1 million) partially offset by higher DD&A on our Greater Bay Marchand area due to increased production and capital expenditures in 2007 ($31.8 million).

The overall decrease in G&A for the year ended December 31, 2007 compared to the year ended December 31, 2006 was primarily attributable to expenses of $54.5 million incurred during 2006 related to the terminated Merger Agreement with Stone as well as legal and financial advisory costs of $15.0 million in 2006 associated with an unsolicited offer from Woodside Petroleum, Ltd. (“Woodside”) and the ensuing strategic alternatives process. In 2007, we expensed a total of approximately $9.4 million in financial and legal advisory fees related to the exploration of strategic alternatives and the unsolicited Woodside offer. In addition, G&A included stock-based compensation of $9.4 million and $10.7 million in the years ended December 31, 2007 and 2006, respectively.

The decrease in taxes, other than on earnings for the year ended December 31, 2007 compared to the year ended December 31, 2006 was due to the sale of substantially all of our onshore South Louisiana assets in June 2007 partially offset by a sharp increase in oil prices during the year.

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Other Income and Expense

	Years Ended December 31,
	2007			2006			$ Change			% Change
	(in thousands)
Interest expense	$	(46,213	)	$	(24,570	)	$	(21,643	)	(88	)%
Loss on early extinguishment of debt		(10,838	)		—			(10,838	)	NM
Unrealized loss on derivative instruments		(13,083	)		—			(13,083	)	NM

NM=Not meaningful

The increase in interest expense for the year ended December 31, 2007 compared to the year ended December 31, 2006 is primarily attributable to a net increase in average borrowings due to the issuance of the Senior Unsecured Notes in April 2007 offset by the repurchase of $145.5 million in aggregate principal amount of the 8.75% Senior Notes due 2010 completed in May 2007, combined with increased borrowings on our bank credit facility. Also included in the expense is a $2.3 million commitment fee paid in April 2007 for the availability of a bridge loan, which was not utilized, to facilitate the refinancing.

A loss on early extinguishment of debt for the refinancing of the bank credit facility and the repurchase of the 8.75% Senior Notes due 2010 was recorded during the year ended December 31, 2007. This loss includes the write-off of unamortized deferred financing costs related to the bank credit facility and the 8.75% Senior Notes due 2010 as well as the consent fees relating to the tender for the 8.75% Senior Notes due 2010.

For the year ended December 31, 2007, unrealized loss on derivative instruments includes an unrealized loss of $13.7 million due to the change in fair market value of contracts to be settled in the future and a gain of $0.6 million in contracts settled during the year.

Financial Condition, Liquidity and Capital Resources

	Years Ended December 31,
	2008			2007			$ Change			% Change
	(in thousands)
Net cash provided by operating activities	$	184,610		$	293,889		$	(109,279	)	(37	)%
Net cash used in investing activities		(205,230	)		(244,421	)		39,191		16	%
Net cash provided by (used in) financing activities		13,747			(43,818	)		57,565		131	%

Analysis of 2008 Cash Flows

The decrease in our 2008 cash flows from operations primarily reflects the impact of the hurricanes on our production during 2008, offset by higher average sales prices for our production. Our accounts receivable declined by 38% from 2007 to 2008, reflecting the decline in production and the precipitous decline in oil and natural gas sales prices as of December 31, 2008. Though we incurred $24.6 million in abandonment activities in 2008, our asset retirement obligation increased due primarily to revisions of abandonment estimates in 2008. Despite a significant decline in drilling activity in the fourth quarter of 2008, our accounts payable and accrued expenses have not declined meaningfully as compared to December 31, 2007, in part due to our efforts to increase the time period between when costs are incurred and when we make cash payments to vendors.

Net cash used in investing activities declined in 2008 as a result of curtailed capital expenditures in response to declining oil and natural gas sales prices, contraction in the credit markets and reduced liquidity resulting from the MMS request for supplemental bonding or other acceptable security. In 2008, net cash used in investing activities consisted primarily of oil and natural gas exploration and development expenditures and lease purchases offset by proceeds of $15.6 million primarily from the March 2008 property sale. Dry hole costs resulting from exploratory expenditures are included in investing activities unless the expenditures do not result

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in the acquisition of an asset, such as geological and geophysical costs, costs of carrying and retaining undeveloped properties, and dry hole costs. Net cash used in investing activities in 2007 consisted primarily of oil and natural gas exploration and development expenditures offset by proceeds from property sales of $68.6 million as well as proceeds from insurance recoveries of $19.6 million.

Net cash provided by financing activities in 2008 reflects net proceeds from long term debt as a result of increased utilization of our credit facility to fund working capital shortfalls caused by the decline in production and the precipitous decline in oil and natural gas sales prices in the fourth quarter of 2008. Net cash used in financing activities in 2007 reflects the purchase of $200.9 million of treasury stock, refinancing of our revolving credit facility and acquisition of substantially all of the 8.75% Senior Notes due 2010 with the proceeds from the issuance of the Senior Unsecured Notes.

We have not paid any cash dividends in the past on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain earnings for the future operations and development of our business. Any future cash dividends would depend on contractual limitations, future earnings, capital requirements, our financial condition and other factors determined by our board of directors.

Liquidity and Capital Resources

The content under “—Recent Events” above addresses important factors affecting our financial condition, liquidity and capital resources including the Chapter 11 Cases, impact of the significant reduction in our borrowing base in 2009, debt compliance violations, defaults on our bank credit facility and Senior Unsecured Notes, and surety obligations and anticipated decline in production and cash flows.

At December 31, 2008, our unrestricted cash on hand was $2.0 million and we had $43 million in borrowings on our bank credit facility.

During the quarter ended December 31, 2008, and continuing into the first quarter of 2009, we used our bank credit facility primarily to bridge a decline in our operating cash flows resulting from damage caused by Hurricanes Gustav and Ike to third party sales pipelines, which has prevented us from bringing a significant part of our production to market during the third and fourth quarters of 2008 and the decline in oil and natural gas prices during that time. We also incurred $24.6 million in abandonment activities in 2008. Despite a significant decline in drilling activity in the fourth quarter of 2008, our accounts payable and accrued expenses have not declined meaningfully as compared to December 31, 2007, in part due to our efforts to increase the time period between when costs are incurred and when we make cash payments to vendors.

We maintain deposits in a trust for future abandonment costs at our East Bay property. The trust was originally funded with $15 million and, with accumulated interest, has increased to $16.7 million at December 31, 2008. We may draw from the trust upon completion of qualifying abandonment activities at our East Bay property. We have made draws to date of $3.4 million, all of which were made in 2009. Amounts on deposit in the trust account are reflected in other assets.

We expect our cash flows from operations to decline in 2009 as a result of lower anticipated sales prices for oil and natural gas and, due to our plans to reduce capital expenditures and the impact of those reductions on reserve replacement and production enhancement. We expect our cash used in investing activities will decline significantly as a result of our plans to reduce capital expenditures in 2009. Prior to receiving the reduced borrowing base redetermination on our bank credit facility, we had forecasted to use our bank credit facility to continue funding projected working capital shortfalls during 2009. As a result of the decline in our borrowing capacity, our strategic alternatives are significantly limited and will require that we implement and execute the Plan in order to continue to meet our obligations.

Our exploration and development expenditures for 2008 totaled $205.1 million. We expect that our exploration and development activities in 2009 will be significantly lower than in prior years. For 2009, we

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expect exploration and development expenditures to total less than $10 million, which we expect would be directed primarily toward selective efforts to maintain existing production levels. Our planned expenditures for 2009 do not include any acquisitions or deepwater activities. We expect that any funding that may be approved for drilling in 2009 would be allocated primarily to lower risk development and exploitation opportunities. We also expect to incur abandonment costs of approximately $18.1 million in 2009 on several of our properties in accordance with the applicable regulatory requirements. We expect the abandonment work related to our East Bay field will be funded in part by expected draws of approximately $3.4 million in 2009 from restricted escrow funds previously set aside for this work.

The level of our planned capital expenditures is based on many factors, but the primary items driving capital expenditure decisions currently include obligations for our cash flows related to principal and interest on our currently outstanding debt and, if the Plan is approved as proposed, our potential future debt, other existing obligations including reducing our working capital deficit, estimates for oil and natural gas sales prices, general industry conditions including the level of pricing for equipment and services, and the anticipated level of participation by other working interest owners and the costs of drilling rigs and other oilfield goods and services. We believe that potential industry partners, including those with significantly more resources than us, may choose to defer significant projects and capital expenditures in an effort to preserve cash and strengthen their balance sheets. As a result, we believe the likelihood that we will be able to partner with other working interest owners to explore and develop new opportunities in the near term is diminished as compared to our past expectations.

Based on our planned capital expenditures, we expect that we will not be able to replace reserves at a rate that will allow us to maintain production levels. If actual experience does not improve significantly from the assumptions in our forecast, especially regarding sales prices for oil and natural gas, and our capital expenditures continue at the low levels projected for 2009, we expect that our production will decline significantly in the second half of 2009. Our forecasts do not consider any significant production disruptions that may occur due to hurricanes or other catastrophic events. At our current and anticipated production levels, combined with current sales prices, we do not expect to have sufficient cash flows to fully fund our operations and meet all of our financial obligations in 2009.

We have experienced and expect to again experience substantial working capital deficits. We had a working capital deficit at December 31, 2008 of $575.4 million, including the impact of our total debt of $497.5 million which is classified as a current liability at December 31, 2008. Excluding the impact of our debt, our working capital deficit was $77.9 million at December 31, 2008. Our working capital deficits have historically resulted from increased accounts payable and accrued expenses related to ongoing exploration and development costs, which may be capitalized as noncurrent assets. In 2008, our working capital deficit continued as a result of the impacts to our production and cash flows and changes in the timing of our payments to vendors discussed below. We forecast that our liquidity requirements will continue to increase during 2009, due primarily to expected production declines and forecasted lower sales prices for oil and natural gas. Our accounts payable at December 31, 2008 compared to December 31, 2007 reflects an increase in the time period from when costs are incurred and cash payments are made to vendors for those services.

The MMS recently communicated that it will commence more stringent enforcement of requirements to decommission facilities that pose a hazard to safety or the environment or are not useful for lease operations and are not capable of oil and natural gas production in “paying quantities.” Historically, the MMS granted approval to operators to maintain these structures in order to conduct other future activities; however, we expect that this practice will be more limited in the future. The MMS has stated that these measures are in response to the experiences in recent hurricane seasons in which idle structures were damaged or destroyed. We recently responded to an MMS written request to review and evaluate our inventory of non-producing wells and facilities to determine the future utility of these structures and the level of threat posed to the environment and human safety in the event of a “catastrophic loss.” As a result, we reviewed a plan with the MMS to perform wellbore plugging and abandonment and decommissioning work on certain facilities and structures in our East Bay field during 2009, 2010 and 2011.

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The MMS and other regulatory bodies, including those regulating the decommissioning of our pipelines and facilities under the jurisdiction of the state of Louisiana, may change their requirements or enforce requirements in a manner inconsistent with our expectations, which could materially increase the cost of such activities and/or accelerate the timing of cash expenditures and could have a material adverse effect on our financial position, results of operations and cash flows.

The failure to comply with these rules and regulations can result in substantial penalties, including lease termination in the case of federal leases. Under limited circumstances, the MMS could require us to suspend or terminate our operations on a federal lease. The regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability. Our competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations, though the impact of those requirements may vary significantly based on the nature and location of operations and related pipelines and facilities.

Debt Compliance

Currently, we are in default on our Credit Facility, Senior Unsecured Notes and our 8.75% Senior Notes due 2010.

In November 2008, our credit facility was redetermined with a borrowing base of $150 million. At December 31, 2008, we had a borrowing base of $150 million and $43 million outstanding under the credit facility. In March 2009, our borrowing base was redetermined at $45 million, at which time we had $83 million outstanding resulting in a deficiency of $38 million. The significant effects of this 2009 redetermination are addressed under “—Recent Events” above. We are not able to borrow on the credit facility. The credit facility is secured by substantially all of our assets. The credit facility permitted both prime rate borrowings and London InterBank Offered Rate (“LIBOR”) borrowings plus a floating spread. The spread floats up or down based on our utilization of the credit facility. While we were not in default under the Credit Agreement as of December 31, 2008, we subsequently failed to timely satisfy a number of Credit Agreement covenants, including those requiring the delivery of our December 31, 2008 debt compliance certificate in April 2009 and providing our December 31, 2008, financial results at that time, among other covenants.

In 2008, under the terms of our bank credit facility, the interest rate spread ranged from 1.00% to 2.5% above LIBOR and 0% to 0.50% above prime. In addition we paid an annual fee on the unused portion of the bank credit facility ranging between 0.25% to 0.50% based on utilization. The bank credit facility contains customary events of default and various financial covenants, which required us to: (1) maintain a minimum current ratio, as defined by our bank credit facility, of 1.0x, (2) maintain a minimum Consolidated EBITDAX to interest ratio, as defined by our bank credit facility, of 2.5x, and (3) maintain a ratio of long-term debt to Consolidated EBITDAX below 3.0. On March 11, 2009, we were advised of a borrowing base redetermination in the amount of $45 million, which resulted in a borrowing base deficiency of $38 million. Our failure to cure this borrowing base deficiency by May 1, 2009 constituted an event of default under our bank credit facility. Subsequent to such date, we have been paying interest at the foregoing rates plus 2% per annum (the default rate). See “—Recent Events” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information on the borrowing base redetermination.

The current ratio, as defined by our bank credit facility, includes (among other terms) in current assets our unused availability on the bank credit facility for purposes of satisfying the minimum current ratio covenant. As a result, for purposes of complying with the minimum current ratio covenant at each quarterly compliance reporting date, our working capital deficit, as adjusted by the terms of the bank credit facility, reduces the amount available for borrowings under the bank credit facility.

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Capital Transactions

In April 2007, we repurchased 8,700,000 shares of our common stock at $23.00 per share, refinanced our revolving credit facility and acquired substantially all of our existing $150 million aggregate principal amount 8.75% Senior Notes due 2010 pursuant to the Transactions. We sold selected properties following the completion of the Transactions to reduce debt under our new bank credit facility. In order to fund the Transactions, we undertook a private offering of the Senior Unsecured Notes and entered into a new bank credit facility. In conjunction with the termination of a previous plan of merger with Stone, we paid $8.0 million to Stone, which was included in general and administrative expenses in the fourth quarter of 2006. In addition, the $43.5 million termination fee that was advanced to Plains in June 2006 on behalf of Stone was expensed in 2006 along with other merger and strategic alternatives related costs of $15.0 million. We incurred $9.4 million of financial and legal advisory fees during 2007 related to these activities. In November 2007 we consummated an exchange offer pursuant to which we exchanged registered senior unsecured notes having substantially identical terms as the privately placed Senior Unsecured Notes.

On May 4, 2007, we completed a cash tender offer for our 8.75% Senior Notes due 2010. Approximately $145.5 million of the 8.75% Senior Notes due 2010 were repurchased and substantially all of their covenants have been removed.

On June 12, 2007, we sold substantially all of our onshore South Louisiana producing assets for $72.0 million in cash. After giving effect to closing adjustments, the net cash proceeds received totaled approximately $68.6 million. We used the proceeds to pay down a portion of our revolving credit facility.

During 2007, we also acquired 59,500 shares of our common stock for $0.8 million, an average price of $13.71 per share, under our since expired stock repurchase program.

Disclosures about Contractual Obligations and Commercial Commitments

The following table aggregates the contractual commitments and commercial obligations that affect our financial condition and liquidity position as of December 31, 2008. The table does not reflect any potential changes to our contractual obligations and commercial commitments that may result from the Chapter 11 bankruptcy proceedings and the activities contemplated in the Plan. For example, the Plan contemplates a debt-for-equity swap that would eliminate $454.5 million of our debt which is reflected in the table below. The table below does not include contractual interest payment obligations that would have been required for the original term of our Senior Unsecured Notes and the 8.75% Senior Notes due 2010 because those obligations are classified as current obligations in the table.

	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		Thereafter
	(In thousands)
Debt	$	497,501	$	497,501	$	—	$	—	$	—
Operating leases		12,745		1,855		3,372		3,419		4,099
Unconditional purchase obligations		334		334		—		—		—
Asset retirement obligations		196,924		18,181		27,009		23,454		128,280
Other long-term liabilities		548		—		548		—		—
Total contractual obligations	$	708,052	$	517,871	$	30,929	$	26,873	$	132,379

Off-Balance Sheet Transactions

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our

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financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources other than those disclosed above.

Derivative Instruments

Note 2 “Summary of Significant Accounting Policies” and Note 12 “Derivative Transactions” in Part II, Item 8 of this Annual Report describe our commodity price risks and the instruments we use to manage them.

We may, in the future, enter into derivative instruments to reduce our exposure to fluctuations in the market prices of oil and natural gas. Hedging transactions could expose us to risk of financial loss if, among other things, production is less than expected, the counterparty to the contract defaults on its obligations, or there is a change in the expected differential between the underlying price in the derivative instrument and actual price received. Derivative instruments may limit the benefit we would have otherwise received from increases in the sales prices of our oil and natural gas. Conversely, if we were not to engage in hedging transactions, we may be more adversely affected by declines in oil and natural gas prices than our competitors who do engage in hedging transactions.

Our revenues, profitability and future growth are highly dependent on prices for oil and natural gas. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital. The amount we can borrow under the bank facility is subject to periodic redetermination based in part on changing expectations of future prices. Lower prices may also reduce the amount of oil and natural gas that we can economically produce. We currently sell all of our oil and natural gas production under price sensitive or market price contracts.

Discussion of Critical Accounting Policies

In preparing our financial statements in accordance with accounting principles generally accepted in the United States, management must make estimates and assumptions related to the reporting of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Application of certain of our accounting policies requires a significant number of estimates. These accounting policies are described below.

• Successful-Efforts Method of Accounting—Oil and natural gas exploration and production companies choose from two acceptable methods of accounting for oil and gas properties, the “successful-efforts” method and the “full cost” method. We believe the most significant difference between the two methods relates to the accounting treatment of drilling costs incurred on unsuccessful exploratory wells (dry holes) and exploration costs. Under the successful-efforts method, we recognize exploration costs and dry hole costs as an expense on the income statement when incurred. We capitalize the costs of successful exploratory wells in oil and natural gas properties. We allocate the capitalized cost of producing oil and gas properties to earnings through DD&A on a field-by-field basis as production occurs. Entities that follow the full cost method capitalize drilling and exploratory costs, including dry hole costs, into one or more large pools of oil and natural gas property costs. Under the full cost method, the capitalized costs for each pool is allocated to earnings through DD&A based on the production of each pool. Additionally, under the successful efforts method, we measure impairments of our oil and natural gas properties based on Statement of Financial Accounting Standards Board (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) which measures impairments based on the estimated fair value of oil and natural gas properties on a field-by-field basis. SFAS No. 144 requires that we make assumptions about factors that have a high degree of uncertainty, including expected future sales prices for oil and natural gas, expected future costs of production, development and abandonment, and the appropriate rate at which we discount future cash flows. Under the full cost method, impairments are measured based on criteria determined by the SEC.

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We use the successful-efforts method of accounting for our oil and natural gas properties because we believe that it more accurately reports asset values of our oil and natural gas properties in the balance sheet. We believe that recording dry hole costs in the period in which they are incurred results in reported earnings that more accurately reflect the results of our drilling operations during the period.

We believe that companies with active exploratory drilling programs typically incur dry hole costs. During the last three years we have drilled 49 exploratory wells, of which 18 were classified as dry holes. Dry hole costs charged to expense during the last three years totaled $146.4 million, or 81% of total exploratory drilling costs during the same period of $180.2 million. To the extent that we incur significant amounts of exploratory drilling costs in the future, we expect to continue to incur dry hole costs in the future. We expect our dry hole costs will vary depending on our success rate in finding productive oil and natural gas reserves as well as the amount of our capital expenditures that are dedicated to exploration activities.

• Proved Reserve Estimates—We use our oil and natural gas proved reserve estimates to calculate our DD&A. We allocate the capitalized cost of our producing oil and natural gas properties to earnings, through DD&A, based on Boe units produced during the period as a percentage of total estimated Boe reserves. We also use reserve estimates, which may include on a risk adjusted basis, reserves that are not proved reserves, to assess our productive oil and natural gas properties for impairment. Proved reserves are the estimated quantities of crude oil, natural gas and NGLs that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made.

Independent reserve engineers prepare our oil and natural gas reserve estimates using guidelines established by the SEC and U.S. generally accepted accounting principles (“GAAP”). The quality and quantity of data, the interpretation of data, the accuracy of economic assumptions, and judgments and estimates regarding uncertain events and circumstances by us and our independent reserve engineers affect the accuracy of reserve estimates. We may materially revise our reserve estimates in subsequent periods due to drilling or production results or other data obtained after the date of the estimate.

At December 31, 2008, proved oil and natural gas reserves were 36.8 million barrels of oil-equivalent (Mmboe). Approximately 68% of our proved reserves is classified as either proved undeveloped or proved developed non-producing reserves. Most of our proved developed non-producing reserves are classified as “behind pipe” and will be produced after depletion of another productive zone in the same well. Approximately 18% of total proved reserves are categorized as proved undeveloped reserves. As of December 31, 2008, none of our proved undeveloped reserves are under development nor expected to become proved developed within one year.

The present value of the future net cash flow disclosed in this Annual Report is not intended to reflect the market value of the oil and natural gas reserves. In accordance with SEC guidelines, we use prices and costs determined on the date of the estimate and a 10% discount rate to determine the present value of future net cash flow. Actual costs incurred and prices received in the future may vary significantly and the discount rate may not accurately reflect economic conditions.

At December 31, 2008, the computation of the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves was based on period-end prices of $6.05 per Mcf for natural gas and $44.77 per barrel for crude after adjusting the West Texas Intermediate posted price per barrel and the Gulf Coast spot market price per Mmbtu for energy content, quality, transportation fees, and regional price differentials for each property. We estimated the costs based on costs incurred during 2008 for individual properties. Where a particular property did not have production during the year, we applied pricing adjustments based on the most similar property.

• Depletion, Depreciation, and Amortization of Oil and Natural Gas Properties—We calculate DD&A using the estimates of proved oil and natural gas reserves previously discussed in these critical

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accounting policies. We segregate the capitalized costs and record DD&A for capitalized property costs separately using the units-of-production method. The units-of- production method is based on the ratio of (1) actual volumes produced to (2) total proved developed reserves (those proved reserves recoverable through existing wells with existing equipment and operating methods), or total proved reserves in the case of leasehold costs (the DD&A rate). Each period, this ratio is applied to the applicable capitalized asset cost category, resulting in allocation of the cost of our oil and natural gas properties over the periods during which they produce revenues. As previously discussed, material revisions to proved reserves may occur as a result of unforeseen factors and may materially impact the DD&A rate.

In 2008 we had negative revisions of 5.5 Mmboe, representing 12% of our total proved reserves of 45.3 Mmboe as of December 31, 2007. In 2007 we had downward revisions of 5.3 Mmboe, representing 9% of our total proved reserves as of December 31, 2006. In 2006 our reserve revisions were insignificant. The negative revisions in 2008 resulted from a combination of price decreases in both oil and natural gas (3.5 Mmboe) and underperformance (2.0 Mmboe). The negative revisions in 2007 were a combination of performance revisions and the removal of 4.1 Mmboe of proved reserves on impaired fields due primarily to the decision not to perform well work to restore the related wells to productive status. Our past revisions have had minimal impact on our DD&A rates because they have been relatively low as a percentage of our reserve base and/or related to fields with little cumulative production. Historical revisions are not necessarily indicative of potential future revisions.

• Impairment of Oil and Natural Gas Properties—We evaluate our capitalized oil and natural gas property costs for potential impairment when circumstances indicate that the carrying value may not be recoverable. Because we accumulate capitalized costs separately, property by property (generally analogous to a field or a lease), for our proved oil and natural gas properties under the successful-efforts method of accounting, we perform impairment assessments on a property by property basis. The need to test a property for impairment can be based on several factors, including a significant reduction in sales prices for oil and/or natural gas, unfavorable adjustments to reserve volumes, or other changes to contracts or environmental regulations. In general, we do not view temporarily low oil or natural gas prices as a triggering event for conducting impairment tests. Historically, our sales price for oil and natural gas has varied significantly. Although our sales prices may rise and fall quickly over short periods of time, we believe sales prices over the long-term are primarily based on supply and demand factors. Accordingly, our impairment tests make use of long-term sales price assumptions for oil and natural gas. A significant amount of judgment and uncertainty is involved in performing impairment evaluations because major inputs to the computation are based on our estimates of future events, including projections of future oil and natural gas sales prices, amounts of recoverable oil and natural gas reserves, timing of future production, future costs to develop and produce our oil and natural gas and discount factors.

We base our assessment of possible impairment of proved oil and natural gas properties using our best estimate of future prices, costs and expected net future cash flows by property. An impairment loss is indicated if undiscounted net future cash flows are less than the carrying value of a property. The impairment expense is measured as the shortfall between the net book value of the property and its estimated fair value measured based on the discounted net future cash flows from the property. Actual prices, costs, and net future cash flows may vary from our estimates. Our discount rate may not accurately reflect economic conditions. We recognized impairment expense of $110.4 million, $114.9 million and $84.7 million in the years ending December 31, 2008, 2007 and 2006.

We allocate the capitalized cost of unevaluated properties (those with no corresponding proved reserves) to earnings generally over the average term of each pool of unevaluated properties. We estimate the amount of capitalized costs of unevaluated properties which will prove unproductive by amortizing the balance of each pool of unproved property costs (adjusted by our expected success rate for future development) over an estimated average lease term. If we find oil and natural gas reserves sufficient to justify development of the property, we transfer the capitalized cost of an unproved

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property to proved properties where DD&A will be recorded on the units-of-production basis described above. If our efforts do not result in proved oil and natural gas reserves, the related capitalized costs are written off against accumulated amortization, or charged to earnings if there is a shortfall in accumulated amortization for the respective pool, when the determination is made.

• Asset Retirement Obligations—We have material obligations to plug and abandon oil and natural gas wells and to decommission related platforms, pipelines and equipment as well as to dismantle and abandon facilities when they are no longer being used for the production of oil and natural gas. We record a liability for the estimated fair value of a material ARO in the period when we identify or incur the obligation. When the liability is initially recorded, we capitalize the cost by increasing the carrying amount of the related asset, which is allocated to expense through DD&A on the units-of-production basis. Accretion increases the ARO liability over time, using the effective interest method.

The liability amounts are based on future retirement cost estimates and incorporate many assumptions, such as time to abandonment. Over time, the liability is increased and expense is recognized for changes in its present value, and the initial capitalized cost is depreciated over the useful life of the asset.

Numerous estimates, assumptions and judgments are inherent in the calculation of ARO including ultimate settlement amounts, timing of settlements, technological changes, future inflation rates, the credit adjusted risk-free rate of interest, and changes in legal, regulatory, environmental and political environments. We revise our estimates of the fair value of ARO as information about material changes to the liability become known. Revisions are recorded as an adjustment to existing ARO liabilities and to the carrying amount of the related assets. Revisions occurring at or near the end of an asset’s useful life may result in a material positive or negative impact on earnings.

• Derivative Instruments and Hedging Activities—We enter into hedging transactions for our oil and natural gas production to reduce our exposure to fluctuations in the price of oil and natural gas. Historically, our hedging instruments consisted primarily of financially-settled swaps and collars. We record our hedging instruments at fair market value as either assets or liabilities in our consolidated balance sheet. We estimate the fair value of hedging instruments based on estimated future commodity prices. The fair market value may differ from actual settlements if market prices change, the other party to the contract defaults on its obligations, or there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received.

• Share-Based Compensation—We measure compensation expense for all share-based payment awards at their grant date fair values under SFAS No.123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). For 2008, share-based compensation totaled $6.6 million. We use the Black-Scholes option pricing model to estimate fair values of share-based awards consistent with the provisions of SFAS No. 123(R). Option pricing models, including the Black-Scholes model, require the use of input estimates and assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life most significantly affect the grant date fair value. Our estimate of the forfeiture rate of our stock-based awards also impacts the amount of expense recorded over the expected life of the award.

We currently use historical volatility rather than implied volatility, which is based on options freely traded in the open market, as the activity level for traded options was not sufficient to estimate implied volatility in 2008. We use the midpoint scenario to estimate expected term allowed by the SEC’s Staff Accounting Bulletin 107, in order to leverage as much actual exercise and post-vesting cancellation history as is available. If we determined that another method used to estimate expected volatility or expected life was more reasonable than our current methods, or if another method for calculating these input assumptions was prescribed by authoritative guidance, the fair value calculated for share-based awards could change significantly. Higher volatility and longer expected lives result in increases to share-based compensation determined at the date of grant.

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• Deferred Tax Asset Valuation Allowance—We are required to assess whether it is more likely than not that we will be able to realize some or all of our deferred tax assets. If we cannot determine that deferred tax assets are more likely than not recoverable, we are required to provide a valuation allowance against those assets. This assessment takes into account factors including: (a) the nature, frequency, and severity of current and cumulative financial reporting losses; (b) sources of estimated future taxable income; and (c) tax planning strategies. A pattern of recent financial reporting losses is heavily weighted as a source of negative evidence when determining the realizability of deferred tax assets. Projections of estimated future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profitable operations and can be reasonably estimated. Otherwise, projections are considered inherently subjective and generally will not be sufficient to overcome negative evidence that includes cumulative losses in recent years. If necessary and available, tax planning strategies would be implemented to accelerate taxable amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence supporting the realizability of deferred tax assets.

See Note 14 “Income Taxes” in Part II, Item 8 of this Annual Report for more information regarding our deferred taxes.

Changes in estimates and assumptions described in these critical accounting policies may result in material changes to our net income or loss from period to period.

New Accounting Pronouncements

For information regarding new accounting pronouncements, see the information in Note 19 “New Accounting Pronouncements” in the consolidated financial statements in Part II, Item 8 of this Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view our ongoing market-risk exposure.

Interest Rate Risk

We are exposed to changes in interest rates. Changes in interest rates affect the interest earned on our cash and cash equivalents and the interest rate paid on borrowings under our bank credit facility and on the Floating Rate Notes. Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes. At December 31, 2008, $193 million of our long-term debt had variable interest rates while the remaining long-term debt had fixed interest rates. If the market interest rates had averaged 1% higher during 2008, interest rates for the period on variable rate debt outstanding during the period would have increased, and net loss before income taxes would have increased by approximately $1.6 million based on total variable debt outstanding during the period. If market interest rates had averaged 1% lower during 2008, interest expense for the period on variable rate debt would have decreased, and net loss before income taxes would have decreased by approximately $1.6 million.

Our credit standing and bond ratings impact the fair value and trading activity of our Senior Unsecured Notes. Recent trading activity in our Senior Unsecured Notes indicates that purchasers are requiring yields higher than 25%. The Senior Unsecured Notes have a contractual yield of 9.75%, for the Fixed Rate Notes, or less, for the Floating Rate Notes. As a result, if we were to attempt to issue new Senior Unsecured Notes with similar contractual terms as our existing Senior Unsecured Notes, our proceeds from issuance would be materially discounted from par value. Such a transaction would likely be uneconomical.

57

Commodity Price Risk

Note 2 “Summary of Significant Accounting Policies” and Note 12 “Derivative Transactions” in Part II, Item 8 of this Annual Report describe our commodity price risks and the instruments we use to manage them.

The following table presents information related to our derivative contracts as of December 31, 2008:

Natural Gas Contracts
Remaining Contract Term	Contract Type	Floor/Ceiling-Floor ($/Mmbtu)		Volume (Mmbtu) Daily	Total	Total Fair Value (in thousands)
01/09 - 03/09	Collar	$	6.75/$17.15	10,000	900,000	$	969
04/09 - 06/09	Synthetic Put	$	5.00/$10.00 - 11.00	10,000	910,000	$	(90	)
11/09 - 01/10	Synthetic Put	$	6.00/$10.00 - 11.00	10,000	920,000	$	(59	)
Oil Contracts
Remaining Contract Term	Contract Type	Floor/Ceiling ($/Bbl)		Volume (Bbls) Daily	Total	Total Fair Value (in thousands)
1/09 - 06/09	Collar	$	55.00/$87.17	3,000	543,000	$	4,512

58

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Energy Partners, Ltd.:

We have audited Energy Partners, Ltd. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses, as they relate to the following matters, have been identified and included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A(b) of the Company’s 2008 Annual Report on Form 10-K:

• Control Environment over Financial Reporting

• Complex or Non-Routine Accounting Matters

• Period-End Financial Reporting Process

In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the control criteria, Energy Partners Ltd. and subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

59

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Energy Partners Ltd. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not affect our report dated August 3, 2009, which expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

New Orleans, Louisiana

August 3, 2009

60

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Energy Partners, Ltd.:

We have audited the accompanying consolidated balance sheets of Energy Partners, Ltd. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Energy Partners, Ltd. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company filed voluntary petitions on May 1, 2009 for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended, in the United States Bankruptcy Court that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this matter.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 3, 2009 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

New Orleans, Louisiana

August 3, 2009

61

ENERGY PARTNERS, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2008 and 2007

(In thousands, except share data)

	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	1,991		$	8,864
Trade accounts receivable		29,264			47,081
Receivables from insurance		4,230			—
Fair value of commodity derivative instruments		5,415			—
Deferred tax assets		—			3,865
Prepaid expenses		4,522			6,698
Total current assets		45,422			66,508
Property and equipment, at cost under the successful efforts method of accounting for oil and natural gas properties		1,646,805			1,547,003
Less accumulated depreciation, depletion and amortization		(958,438	)		(824,397	)
Net property and equipment		688,367			722,606
Other assets		23,041			15,556
Deferred tax assets		1,580			—
Deferred financing costs—net of accumulated amortization of $3,780 and $2,100 at December 31, 2008 and 2007, respectively		8,356			10,186
	$	766,766		$	814,856
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,517		$	14,369
Accrued expenses		63,973			100,007
Asset retirement obligations		18,181			4,548
Current portion of long-term debt		497,501			—
Deferred tax liabilities		1,580			—
Fair value of commodity derivative instruments		28			9,124
Total current liabilities		620,780			128,048
Long-term debt		—			484,501
Deferred tax liabilities		—			20,880
Asset retirement obligations		87,506			73,350
Fair value of commodity derivative instruments		55			4,602
Other		1,306			1,505
Commitments and contingencies		—			—
		709,647			712,886
Stockholders’ equity:
Preferred stock, $1 par value. Authorized 1,700,000 shares; no shares issued and outstanding		—			—
Common stock, par value $0.01 per share. Authorized 100,000,000 shares; issued: 2008—44,323,293 shares; 2007—43,980,644 shares; outstanding, net of treasury shares: 2008—32,083,307 shares; 2007—31,740,658 shares		444			441
Additional paid-in capital		382,232			374,874
Accumulated deficit		(67,201	)		(14,989	)
Treasury stock, at cost, 2008—12,239,986 shares; 2007—12,239,986 shares		(258,356	)		(258,356	)
Total stockholders’ equity		57,119			101,970
	$	766,766		$	814,856

See accompanying notes to consolidated financial statements.

62

ENERGY PARTNERS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2008, 2007 and 2006

(In thousands, except per share data)

	2008			2007			2006
Revenue:
Oil and natural gas	$	356,022		$	454,340		$	449,186
Other		230			309			364
		356,252			454,649			449,550
Costs and expenses:
Lease operating		65,533			69,919			58,808
Transportation		1,089			2,441			2,028
Exploration expenditures and dry hole costs		30,199			98,209			51,745
Impairment of properties		110,403			114,913			84,680
Depreciation, depletion and amortization		103,318			170,083			198,162
Accretion of liability for asset retirement obligations		4,370			4,458			4,572
General and administrative		43,706			61,724			120,113
Taxes, other than on earnings		11,245			9,900			13,632
Gain on insurance recoveries		—			(8,084	)		—
(Gain) loss on sale of assets		(5,527	)		(6,605	)		969
Loss on abandonment		21,695			2,788			3,053
		386,031			519,746			537,762
Business interruption recovery		4,248			9,084			32,869
Loss from operations		(25,531	)		(56,013	)		(55,343	)
Other income (expense):
Interest income		784			1,585			1,428
Interest expense		(46,533	)		(46,213	)		(24,570	)
Gain (loss) on derivative instruments		2,053			(13,083	)		—
Loss on early extinguishment of debt		—			(10,838	)		—
		(43,696	)		(68,549	)		(23,142	)
Loss before income taxes		(69,227	)		(124,562	)		(78,485	)
Income taxes		17,015			44,607			28,085
Net loss		(52,212	)		(79,955	)		(50,400	)
Basic loss per share	$	(1.63	)	$	(2.32	)	$	(1.32	)
Diluted loss per share	$	(1.63	)	$	(2.32	)	$	(1.32	)
Weighted average common shares used in computing loss per share:
Basic and diluted		31,988			34,501			38,313

See accompanying notes to consolidated financial statements.

63

ENERGY PARTNERS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31, 2008, 2007 and 2006

(In thousands)

	Treasury Stock Shares	Treasury Stock			Common Stock Shares	Common Stock		Additional Paid In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Deficit)			Total
Balance at December 31, 2005	3,474	$	(57,432	)	41,467	$	415	$	348,863	$	(12,619	)	$	115,366		$	394,593
Stock purchase, compensation and incentive plans, net	6		(8	)	151		2		10,496		—			—			10,490
Exercise of common stock options	—		—		26		—		261		—			—			261
Conversion of warrants into common stock	—		—		834		8		1,825		—			—			1,833
Reclass of performance shares into equity	—		—		—		—		3,126		—			—			3,126
Comprehensive income:
Net loss	—		—		—		—		—		—			(50,400	)		(50,400	)
Fair value of commodity derivative instruments	—		—		—		—		—		11,625			—			11,625
Comprehensive loss																	(38,775	)
Other	—		—		24		—		742		—			—			742
Balance at December 31, 2006	3,480		(57,440	)	42,502		425		365,313		(994	)		64,966			372,270
Stock purchase, compensation and incentive plans, net	1		—		181		4		6,870		—			—			6,874
Exercise of common stock options	—		—		44		—		468		—			—			468
Conversion of warrants into common stock	—		—		1,167		12		297		—			—			309
Purchase of shares into treasury	8,759		(200,916	)	—		—		—		—			—			(200,916	)
Comprehensive income:
Net loss	—		—		—		—		—		—			(79,955	)		(79,955	)
Fair value of commodity derivative instruments	—		—		—		—		—		994			—			994
Comprehensive loss																	(78,961	)
Other	—		—		87		—		1,926		—			—			1,926
Balance at December 31, 2007	12,240		(258,356	)	43,981		441		374,874		—			(14,989	)		101,970
Stock purchase, compensation and incentive plans, net	—		—		116		1		4,789		—			—			4,790
Exercise of common stock options	—		—		79		1		749		—			—			750
Net loss	—		—		—		—		—		—			(52,212	)		(52,212	)
Other	—		—		147		1		1,820		—			—			1,821
Balance at December 31, 2008	12,240	$	(258,356	)	44,323	$	444	$	382,232	$	—		$	(67,201	)	$	57,119

See accompanying notes to consolidated financial statements.

64

ENERGY PARTNERS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2008, 2007 and 2006

(In thousands)

	2008			2007			2006
Cash flows from operating activities:
Net loss	$	(52,212	)	$	(79,955	)	$	(50,400	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization		103,318			170,083			198,162
Accretion of liability for asset retirement obligations		4,370			4,458			4,572
Unrealized (gain) loss on derivative contracts		(19,058	)		13,726			—
Non cash compensation		5,276			8,521			11,038
Loss on early extinguishment of debt		—			3,398			—
Deferred income taxes		(17,015	)		(44,607	)		(27,452	)
(Gain) loss on disposal of assets and other		15,868			(5,083	)		4,047
Exploration expenditures		21,796			87,102			38,288
Impairment of properties		110,403			114,913			84,161
Amortization of deferred financing costs		1,834			1,380			1,133
Gain on insurance recoveries		—			(8,084	)		—
Other		1,711			1,927			1,587
Changes in operating assets and liabilities:
Trade accounts receivable		21,655			23,542			2,390
Other receivables		(4,249	)		58,269			(8,966	)
Prepaid expenses		2,276			1,930			(391	)
Other assets		(5,819	)		(2,529	)		283
Accounts payable and accrued expenses		22,045			(51,449	)		13,599
Other liabilities		(27,589	)		(3,653	)		23
Net cash provided by operating activities		184,610			293,889			272,074
Cash flows used in investing activities:
Acquisition of business, net of cash acquired		—			—			(420	)
Insurance recoveries for property, plant and equipment		—			19,574			—
Property acquisitions		(20,925	)		(7,346	)		(15,897	)
Exploration and development expenditures		(199,157	)		(323,846	)		(341,936	)
Other property and equipment additions		(724	)		(1,402	)		(527	)
Proceeds from sale of oil and gas assets		15,576			68,599			—
Net cash used in investing activities		(205,230	)		(244,421	)		(358,780	)
Cash flows provided by (used in) financing activities:
Deferred financing costs		(5	)		(11,178	)		(853	)
Repayments of long-term debt		(120,000	)		(530,499	)		(73,109	)
Proceeds from long-term debt		133,000			698,000			155,000
Purchase of shares into treasury		—			(200,916	)		—
Exercise of stock options and warrants		752			775			2,093
Net cash provided by (used in) financing		13,747			(43,818	)		83,131
Net increase (decrease) in cash and cash equivalents		(6,873	)		5,650			(3,575	)
Cash and cash equivalents at beginning of year		8,864			3,214			6,789
Cash and cash equivalents at end of year	$	1,991		$	8,864		$	3,214

See accompanying notes to consolidated financial statements.

65

ENERGY PARTNERS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization

The Company was incorporated as a Delaware corporation on January 29, 1998. We operate as an independent oil and natural gas exploration and production company. Our current operations are concentrated in the shallow to moderate depth waters in the Gulf of Mexico focusing on the areas of offshore Louisiana as well as the deepwater Gulf of Mexico in depths less than 5,000 feet.

On May 1, 2009, we and certain of our subsidiaries filed the Chapter 11 Cases in the Bankruptcy Court. We continue to manage our properties and operate our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. The Chapter 11 filings and related matters are addressed in Note 3 “Subsequent Events, Liquidity and Capital Resources.”

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements include the accounts of Energy Partners, Ltd., and our wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Our interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated.

(b) Property and Equipment

We use the successful efforts method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. We may capitalize exploratory well costs beyond one year if (a) we found a sufficient quantity of reserves to justify its completion as a producing well and (b) we are making sufficient progress assessing the reserves and the economic and operating viability of the project; otherwise, these costs are expensed. Geological and geophysical costs are charged to expense as incurred.

Leasehold acquisition costs are capitalized. If proved reserves are found on an undeveloped property, leasehold costs are transferred to proved properties. Costs of undeveloped leases are recorded to expense over the lives of the leases. Capitalized costs of producing oil and natural gas properties are depreciated and depleted by the units-of-production method.

We assess the impairment of capitalized costs of proved oil and natural gas properties when circumstances indicate that the carrying values may not be recoverable. The need to test a property for impairment can be based on several factors, including a significant reduction in sales prices for oil and/or natural gas, unfavorable adjustments to reserve volumes, or other changes to contracts, environmental regulations or tax laws. The calculation is performed on a field-by-field basis, utilizing our current estimates of future revenues and operating expenses. In the event net undiscounted cash flow is less than the carrying value, an impairment loss is recorded based on the present value of expected future net cash flows over the economic lives of the reserves.

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depletion, depreciation and amortization are eliminated from the property accounts, along with the related asset retirement obligations, unless retained by us, and the resulting gain or loss is recognized in earnings.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(c) Asset Retirement Obligations

We account for our AROs in accordance with Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that we record obligations associated with the retirement of tangible long-lived assets at their fair values in the period incurred. The fair value of the obligation is also recorded to the related asset’s carrying amount. Accretion of the liability is recognized as an operating expense and the capitalized cost is amortized using the units-of-production method. Our asset retirement obligations relate primarily to the plugging and abandonment of our oil and natural gas wellbores and to decommissioning related pipelines, facilities and structures.

(d) Income Taxes

We account for income taxes under the asset and liability method, which requires that we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in the tax rates in income in the period that includes the enactment date.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties. Under FIN 48, interest, if any, will be classified as a component of interest expense, and statutory penalties, if any, will be classified as a component of general and administrative expense.

(e) Deferred Financing Costs

We defer costs incurred to obtain debt financing and then amortize such costs as additional interest expense over the maturity period of the related debt.

(f) Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock option awards and warrants and the potential shares associated with restricted share units and performance shares that would have a dilutive effect on earnings per share.

(g) Revenue Recognition

We record revenues from the sales of oil and natural gas when the product is delivered at a determinable price, title has transferred and collectability is reasonably assured. When we have an interest with other producers in properties from which natural gas is produced, we use the entitlement method for recording natural gas sales revenue. Under this method of accounting, revenue is recorded based on our net revenue interest in production. Deliveries of natural gas in excess of our revenue interest are recorded as liabilities and under-deliveries are recorded as receivables. We had natural gas imbalance receivables of $0.1 million and $0.2 million at December 31, 2008 and 2007, respectively, and had liabilities of $2.3 million and $2.9 million at December 31, 2008 and 2007, respectively.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(h) Cash and Cash Equivalents

We include in cash and cash equivalents our highly-liquid investments with original maturities of three months or less. At December 31, 2008 and 2007, cash and cash equivalents includes investments in overnight interest-bearing deposits of $4.1 million and $15.9 million, respectively. These amounts are reduced by overdraft balances on other operating accounts with legal right of offset in the same banking institution to arrive at the cash and cash equivalent balances reported in our consolidated balance sheets.

(i) Derivative Activities

Derivative instruments, including certain derivative instruments embedded in other contracts, are recorded at fair market value and included as either assets or liabilities in the balance sheet. The accounting for changes in fair value depends on the intended use of the derivative and the resulting designation, which is established at the inception of the derivative. Special accounting for qualifying hedging activities allows gains and losses from derivative instruments to offset related results on the hedged item in earnings. For derivative instruments designated as cash-flow hedges, changes in fair value, to the extent the hedges are effective, are recognized in other comprehensive income (a component of stockholders’ equity) until the forecasted transaction is settled, when the resulting gains and losses are recorded in oil and natural gas revenue. Hedge ineffectiveness is measured at least quarterly based on the change in fair value of the derivative contract compared to that of the hedged item. Any change in fair value resulting from ineffectiveness is recorded to earnings. We accounted for our derivative instruments as qualifying hedging activities through April 2, 2007 when we elected to discontinue hedge accounting on our existing contracts and ceased designating hedging contracts that were entered into subsequent to that date as cash flow hedges. Unrealized gains and losses resulting from changes in the fair value of derivative instruments are recorded in other income (expense). Realized gains and losses related to contract settlements subsequent to April 2, 2007 are also recognized in other income (expense).

(j) Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective transition method. Under this method, stock-based compensation expense recognized includes (1) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of , January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (2) compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Additionally, SFAS No. 123(R) requires us to estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We record stock-based compensation expense only for those awards expected to vest using an estimated forfeiture rate based on our historical pre-vesting forfeiture data. We recognize stock-based compensation expense over the requisite service period during which each tranche of a stock-based award is earned.

In accordance with SFAS No. 123(R), we are required to report excess tax benefits from the exercise of stock options as financing cash flows. For the years ended December 31, 2008 and 2007, no excess tax benefits were reported in the statement of cash flows as we are in a net operating loss carryforward position. See Note 15 for additional disclosures.

(k) Allowance for Doubtful Accounts

We routinely assess the recoverability of all material trade and other receivables to determine their collectability. Our crude oil and natural gas revenue receivables are typically collected within two months. We may have the ability to withhold future revenue disbursements to recover any non-payment of joint interest receivables on properties where we are the operator. When we believe collection of the full amount of our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

accounts receivable is in doubt, we record an allowance to reflect accounts receivable at the net realizable value, which may be reflected in earnings or as an increase to the net book value of our oil and natural gas properties depending on the nature of the transaction that created the receivable. The nature of the transaction resulting in the receivable balance determines whether the allowance, when recorded, impacts our earnings (ordinarily through Loe) or our property and equipment balances. As of December 31, 2008 our allowance for doubtful accounts was $1.1 million, $0.9 million of which was recorded as a reduction in earnings in 2008. At December 31, 2007, our allowance for doubtful accounts was $0.2 million.

(l) Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We use historical experience and various other assumptions that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates and assumptions used in preparation of our financial statements. Significant estimates with regard to these financial statements and related unaudited disclosures include the estimate of proved oil and natural gas reserve quantities and the related present value of estimated future net cash flows therefrom disclosed in Note 20.

(m) Reclassifications

Certain reclassifications have been made to the prior period financial statements in order to conform to the classification adopted for reporting in fiscal 2008.

(3) Subsequent Events, Liquidity and Capital Resources

Subsequent Events

As described in Note 1, on May 1, 2009, we filed the Chapter 11 Cases. On August 3, 2009, after a confirmation hearing in which the Bankruptcy Court considered the Plan and all objections thereto, it entered into a confirmation order and confirmed the Plan as of August 3, 2009. The primary purpose of the Plan is to effectuate a restructuring of our capital structure and improve cash flow and strengthen our balance sheet by reducing our overall indebtedness. Presently, we have a substantial amount of indebtedness outstanding (see Note 10).

The effectiveness of the Plan and our emergence from bankruptcy is subject to several conditions, including the successful closing of the Exit Facility. We are currently in negotiations with lenders on structuring the Exit Facility. Fore more information on the conditions to the effectiveness of the Plan see Item 1A“—Risk Factors.”

Prior to the filing of the Chapter 11 Cases, a number of events and economic conditions which existed in 2008 negatively impacted our business and liquidity. These events included the following:

• hurricanes in August and September of 2008 damaged third-party production pipelines, causing us to shut-in a significant amount of our production from September 2008 and continuing into early 2009;

• oil and natural gas prices declined in the fourth quarter of 2008 and have remained at low levels during 2009 relative to the levels reached in 2008; and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

• the worldwide credit and capital markets collapsed in 2008 and the availability of debt and equity financing became significantly more scarce, thus reducing financial flexibility for most companies, including us.

These factors negatively impacted our business, and led to several circumstances that significantly affected our liquidity, including:

MMS Order and Term Sheet. As previously discussed, we received the MMS Order dated March 23, 2009. The MMS is part of the United States Department of the Interior. The MMS Order demanded that we provide to the MMS bonds or other acceptable security in the aggregate amount of $34.7 million to secure plugging and abandonment liabilities associated with all of our properties on federal leases in the Gulf of Mexico, with the first installment payment of $1.2 million due no later than March 31, 2009, an additional installment payment of $1.2 million due no later than June 30, 2009 and the remaining $32.3 million due no later than July 31, 2009. The MMS Order also required us to immediately shut-in production from all of our wells and facilities located in South Pass Blocks 27 and 28 in the federal portion of our East Bay field, while properly maintaining these facilities and wells with essential personnel. We promptly completed the shut-in of our federal East Bay facilities before the end of March 2009. Because federal leases would normally terminate if there is no production for 180 consecutive days, the affected leases could expire if (1) we do not comply with the requirements set forth by applicable MMS regulations and restore production to the shut-in federal leases by September 17, 2009; (2) we and the MMS do not otherwise come to an agreement that would prevent the leases from expiring on such date; or (3) there is no unitized production that would prevent the termination provisions in the affected leases from being triggered. The federal East Bay leases are included in production unit(s) covering portions of those leases and state leases in the East Bay field that continue to produce, which we believe may prevent the triggering of lease termination, although there is no assurance that this will be the case. The production from the wells and properties that we shut-in as a result of the MMS Order constituted less than 5% of our average daily production as of March 27, 2009. We also made two installment payments of approximately $1.2 million on March 30, 2009 and on April 29, 2009 in compliance with the MMS Order and the term sheet discussed below. We entered into a binding term sheet with the MMS on April 30, 2009 to establish terms for us to address our obligations under the MMS Order. Under the term sheet, we and the MMS have agreed to re-affirm the terms and conditions of the previously established trust account for the benefit of the MMS under the Decommissioning Trust Agreement dated December 23, 2008 among us, the MMS and JP Morgan Chase Bank, NA, and we had agreed to make monthly payments to the trust account in the amount of $1.2 million while the Chapter 11 Cases are pending and, on the effective date of the Plan to make a payment to the trust account equal to $21 million minus the aggregate amount of the monthly payments made into the trust account while the Chapter 11 Cases are pending (commencing with the payment made on April 29, 2009). The $1.2 million monthly payments to the trust account remain subject to approval by the Bankruptcy Court. All remaining amounts owed to the trust account to reach the full funding amount owed to the MMS of $36.1 million (after giving credit to all prior payments made by us) were payable in equal quarterly installments of approximately $1.2 million, commencing October 31, 2009, with quarterly payments continuing until full funding has occurred. On June 11, 2009, we received a letter from the MMS requesting an additional $10.95 million in financial assurance based on the actual costs for partial and completed well plugging and abandonment associated with our federal leases in the East Bay field. On June 24, 2009, we advised the MMS that we will provide the additional $10.95 million by increasing our quarterly payments identified in the term sheet—such quarterly payments are presently contemplated to commence on October 31, 2009—which would increase the quarterly payments from approximately $1.2 million to approximately $1.8 million. The MMS has agreed to vote in favor of the Plan to the extent its treatment is consistent with the terms set forth in the term sheet. In addition, the MMS has granted a consensual stay of the MMS Order that will remain in place while the Chapter 11 Cases are pending. This stay, however, does not lift the requirement that our Federal wells and facilities located in South Pass Blocks 27 and 28 remain shut-in. The term sheet with the MMS contemplates that, on the effective date of the Plan, the MMS Order will be fully rescinded, and we will be allowed to resume production from these wells and facilities. However, the terms of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

term sheet, as incorporated into the Plan, will only supersede the MMS Order if the Bankruptcy Court confirms the Plan.

Reduction of Borrowing Base. In March 2009, we received a notice of redetermination from Bank of America, N.A., the Administrative Agent under the Credit Agreement, that our borrowing base under the Credit Agreement had been lowered from $150 million to $45 million, resulting in a borrowing base deficiency of $38 million. Following the receipt of this notice, we considered various alternatives provided for under the Credit Agreement to repay the borrowing base deficiency and presented to the Administrative Agent the proposal of an installment repayment plan. The Administrative Agent declined to approve our proposed repayment plan, and as a result, on March 24, 2009, we received a notice from the Administrative Agent requiring the lump-sum payment by us of $38 million to the Lenders by April 3, 2009. On April 3, 2009, we obtained a consent from the Required Lenders under the Credit Agreement, extending the due date for the repayment of the borrowing base deficiency until April 14, 2009. On April 14, 2009, we and the Required Lenders entered into a letter agreement that further extended the due date for repayment of the borrowing base deficiency until May 1, 2009 and provided that the Lenders agree not to exercise any rights and remedies until May 1, 2009 with respect to all outstanding and certain anticipated defaults by us under the Credit Agreement in exchange for our compliance with specified conditions. On May 1, 2009, we filed the Chapter 11 Cases.

Default on Senior Unsecured Notes. We were required to make annual interest payments of approximately $45.0 million each year on the Senior Unsecured Notes, of which $17 million was due on April 15, 2009, and remains unpaid. Our failure to make these interest payments within 30 days of the due date was an event of default under the indenture governing the Senior Unsecured Notes and under the cross-default provision of our Credit Agreement.

Surety Obligations. As of July 1, 2009, we had outstanding $60.0 million in surety bonds with four different indemnity companies. Our agreements with these indemnity companies allow them to demand cash reserves or letters of credit to support our outstanding surety bonds. In December 2008 and the first quarter of 2009, we posted cash collateral to restricted accounts for the benefit of certain of these indemnity companies totaling $5.7 million in response to requests to provide reserves against our surety bonds with them. If we default on some or all of these surety bonds, the indemnity companies may cancel our surety bonds. The cancelation of some or all of our surety bonds may result in violations of other agreements or obligations. As a result, we could be forced to shut in our production or lose our ability to continue to perform our business operations.

Plan of Reorganization; Plan Support and Lock-Up Agreement. On April 30, 2009, we entered into the Plan Support Agreement with the Consenting Holders of the outstanding principal amount of our Senior Unsecured Notes. The parties to the Plan Support Agreement had agreed, following receipt of the Disclosure Statement, to vote in favor of and support a plan or reorganization that is consistent in all material respects with the Term Sheet.

The Plan Support Agreement may be terminated under certain circumstances by the Majority Consenting Holders, including if (1) we fail to file the Plan or the Disclosure Statement with the Bankruptcy Court on or prior to May 15, 2009; (2) the Bankruptcy Court does not approve the Disclosure Statement on or prior to June 30, 2009; (3) the Bankruptcy Court does not confirm the Plan on or prior to August 15, 2009; (4) we do not consummate the restructuring transactions provided for in the Plan on or prior to September 10, 2009, or under certain circumstances, a later date; (5) we or any of our officers or directors fail to take any action required by the Plan Support Agreement in order to comply with our fiduciary obligations under applicable law or otherwise we file or support a plan of reorganization that is different from the Plan or withdraw or revoke the Plan; (6) we materially breach any of our obligations or fail to satisfy in any material respect any of the terms or conditions under the Plan Support Agreement; (7) our aggregate liabilities as of the dates specified in the Term Sheet (excluding those liabilities that would be extinguished by the Plan or otherwise do not survive the consummation

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of the Plan) materially exceed the amounts we represented in the Term Sheet; (8) an examiner with expanded powers relating to our business or trustee is appointed in any of the Chapter 11 Cases, any of the Chapter 11 Cases are converted to a case under Chapter 7 of the Bankruptcy Code or any of the Chapter 11 Cases are dismissed by the Bankruptcy Court; or (ix) any definitive documents executed by us in connection with the Chapter 11 Cases in order to implement the Plan are not consistent in all material respects with the terms set forth in the Term Sheet and otherwise are not reasonably satisfactory in all material respects to the Majority Consenting Holders. In any event, the Plan Support Agreement terminates on September 15, 2009.

Bankruptcy Proceedings, Plan of Reorganization, Exit Facility and Expected Emergence from Bankruptcy. On May 1, 2009, we and certain of our subsidiaries filed the Chapter 11 Cases with the Bankruptcy Court. We continue to manage our properties and operate our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court. On June 11, 2009, as part of our Chapter 11 Cases, we filed the Plan with the Bankruptcy Court, and the Disclosure Statement, pursuant to which we solicited votes for the confirmation of the Plan. On July 31, 2009, we filed with the Bankruptcy Court the Plan, as modified as of July 31, 2009. The Plan was formulated after extensive negotiations with committees representing holders of the Senior Unsecured Notes and holders of our common stock interests. The primary purpose of the Plan is to effectuate a restructuring of our capital structure to strengthen our balance sheet by reducing our overall indebtedness and improve cash flow.

On July 23, 2009, we announced that the Plan had received the affirmative vote of the holders of our Senior Unsecured Notes and our 8.75% Senior Notes due 2010 and we consequently proceeded to request confirmation of the Plan from the Bankruptcy Court. On August 3, 2009, after a confirmation hearing in which the Bankruptcy Court considered the Plan and all objections thereto, it entered the Confirmation Order and confirmed the Plan as of August 3, 2009. The effectiveness of the Plan and our emergence from bankruptcy is subject to several conditions, including the successful closing of the Exit Facility. We are currently in negotiations with lenders on structuring the Exit Facility. For more information on the conditions to the effectiveness of the Plan see Item 1A“—Risk Factors.”

The material terms of the Plan as confirmed by the Bankruptcy Court on August 3, 2009 include, among other things, that:

• each holder of the Senior Unsecured Notes and our 8.75% Senior Notes due 2010 would receive, in exchange for their total claim (including principal and interest), their pro rata share of 95% of New EPL Common Stock in us upon our emergence from bankruptcy;

• each holder of our common stock interests would receive, in exchange for their total claim, their pro rata share of 5% of New EPL Common Stock;

• upon the Effective Date, we shall have access to the Exit Facility in form and substance acceptable to us and the Majority Consenting Holders; and

• we may adopt the 2009 Long Term Incentive Plan under which it may issue shares of restricted new EPL common stock and new EPL stock options to certain of its employees and certain members of management;

• following the effective date of the reorganization, the sole equity interests in us would consist of (1) New EPL Common Stock issued to the holders of our Senior Unsecured Notes, the 8.75% Senior Notes due 2010, and holders of our common stock interests, (2) restricted new EPL common stock issued to certain members of our management, if any, and (3) new EPL stock options to be issued to certain key employees pursuant to the 2009 Long Term Incentive Plan, if any, which would be exercisable for new EPL common stock. Collectively, the restricted new EPL common stock issued pursuant to subparagraph (2) and the shares reserved for the exercise of new EPL stock options pursuant to subparagraph (3) above would in no event exceed 3% of the new EPL common stock on a fully diluted basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The timing and ultimate outcome of the Chapter 11 proceedings remain uncertain. Issues and matters to be resolved prior to emergence from the proceedings include negotiation of the Exit Facility.

Consummation of the Plan is conditioned upon, among other things, the closing of the Exit Facility. There can be no assurance that any or all of the foregoing conditions will be met (or waived) or that the other conditions to consummation, if any, will be satisfied. Accordingly, there can be no assurance that the Plan will be consummated and the restructuring completed.

Restructure of Prepetition Employee Arrangements. Prior to May 1, 2009, the Arrangements existed for certain of our employees that provided for such employees to receive cash payments and/or settlement of equity compensation awards either upon specified future vesting dates or in connection with a termination of employment. The Plan Support Agreement contains certain provisions that provide that such Arrangements must be amended, renegotiated, and/or restructured prior to the effective date of a confirmed plan of reorganization.

As a result of the Plan Support Agreement, the Board of Directors amended the provisions of the Severance Plan in a manner such that the protected employment period initiated by our change of control under such plans, as well as the severance benefits potentially payable in connection with certain terminations of employment during that protected period, would not be triggered by the restructuring contemplated by the Plan Support Agreement.

We also established the Retention Programs. In order for an office employee who participates in either of these programs to receive his or her retention payments, the participant has to waive and release any and all potential claims against the Company under the prepetition Arrangements.

Finally, the Severance Agreements with two of our executives were terminated by the Company and each of such executives in exchange for the executives receiving an unsecured claim for the rejection damages.

The total cost of the Retention Programs and the termination of the two Severance Agreements is approximately $2 million of which approximately $0.5 million has been paid during the bankruptcy proceedings and approximately $1.5 million will be paid when we emerge from bankruptcy.

NYSE Delisting. In March 2009, the NYSE notified us that our common stock had been suspended from trading and was subsequently delisted for failure to maintain the required market capitalization minimum criteria. Our common stock is being quoted for public trading on the Pink Sheets quotations system, an over-the-counter market, under the symbol “ERPLQ.PK”. This significantly impairs our ability to raise additional equity financing.

Changes to Production Levels. Due to our current liquidity situation and lower commodity prices, we expect to significantly reduce capital expenditures during 2009. As a result, we do not expect to be able to maintain our current production levels and we expect our production to decline significantly during the second half of 2009 primarily due to natural reservoir declines combined with minimal investment in reserve replacement activities. At our current and anticipated production levels, combined with the current and expected lower sales prices, we do not expect to have sufficient cash flows to fully fund our operations and meet all of our financial obligations in 2009 as discussed above.

Changes in the Board of Directors and Management. Our Board of Directors declined from eleven to five members during the first quarter of 2009. In addition, on March 1, 2009, Joseph T. Leary resigned as our Executive Vice President and Chief Financial Officer. On March 15, 2009, Richard A. Bachmann resigned as our Chairman and Chief Executive Officer and we engaged Alan D. Bell as our Chief Restructuring Officer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Liquidity and Capital Resources

The above events and circumstances, together with the worldwide credit markets’ collapse in 2008 and the scarcity of available credit from most major commercial financial institutions, as well as the low trading price of our common stock, make it extremely difficult to find additional financing, either to refinance our Credit Agreement or our Senior Unsecured Notes or to provide additional liquidity during 2009.

Our financial statements reflect significant net losses in 2008, 2007 and 2006, an accumulated deficit of $67.2 million and a working capital deficit of $575.4 million as of December 31, 2008.

Our financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. As a result of defaults that occurred subsequent to December 31, 2008 with respect to the Credit Agreement, the Senior Unsecured Notes and the 8.75% Senior Notes due 2010, all of our indebtedness is classified in current liabilities as of December 31, 2008 (see Note 10). However, as a result of the Chapter 11 filings and related events, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. While we expect consummation of the Chapter 11 proceedings to occur during 2009, the proceedings are not complete and involve inherent uncertainties, including uncertainties that are beyond our control. As a result, our independent public accountants, after considering the plans described above, advised us that they had reached a conclusion that such matters raise substantial doubt regarding our ability to continue as a going concern and, as required by auditing standards generally accepted in the United States, included in their auditors’ report on our 2008 financial statements an explanatory paragraph to reflect that conclusion.

(4) Common Stock

On March 12, 2007, our Board concluded our strategic alternatives process, as discussed in Note 6, which resulted in, among other things, an equity self-tender offer for up to 8,700,000 shares of our common stock at $23.00 per share and the authorization for the repurchase of up to $50 million of our common stock during the one year period following the completion of the equity self tender offer, subject to business and market conditions and any debt covenants restricting such repurchases. On April 23, 2007, we completed the equity self-tender offer and purchased 8,700,000 million shares of our common stock. In addition, during the year ended December 31, 2007, pursuant to our stock repurchase program we acquired 59,500 shares of our common stock for $0.8 million, an average price of $13.71 per share. All of these shares are reflected in treasury stock in the Consolidated Balance Sheets.

(5) Supplemental Cash Flow Information

The following is supplemental cash flow information:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Interest paid	$	46,875	$	42,982	$	23,084
Income taxes paid, net of refunds	$	—	$	—	$	350

The following is supplemental disclosure of non-cash financing activities:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Restricted share units	$	487	$	1,010	$	879

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(6) Mergers, Acquisitions and Dispositions

In March 2008, we completed the sale of two Gulf of Mexico Shelf properties located in our Western offshore area for $15.0 million after giving effect to preliminary closing adjustments. We recorded a gain on the sale of $7.1 million.

In June 2007, we sold substantially all of our onshore South Louisiana producing assets for approximately $68.6 million in cash, after closing adjustments. We used the proceeds to pay down a portion of our revolving credit facility. The estimated proved reserves of the disposed properties were approximately 2.1 Mmboe. We recorded a gain of $6.5 million on the sale.

In April 2007, we repurchased 8,700,000 shares of our common stock at $23.00 per share, refinanced our revolving credit facility and acquired substantially all of our existing $150 million aggregate principal amount 8.75% Senior Notes due 2010 pursuant to the Transactions. We sold selected properties following the completion of the Transactions to reduce debt under our new bank credit facility. In order to fund the Transactions, we undertook a private offering of $450 million in aggregate principal amount of the Senior Unsecured Notes and entered into a new bank credit facility. In conjunction with the termination of a previous plan of merger with Stone, we paid to Stone $8.0 million, which was included in G&A expenses in the fourth quarter of 2006. In addition, a $43.5 million termination fee that was advanced to Plains in June 2006 on behalf of Stone was expensed in 2006 along with other merger and strategic alternatives related costs of $15.0 million. We incurred $9.4 million of financial and legal advisory fees during 2007 related to these activities.

In connection with an acquisition in 2002, we issued, among other things, warrants to purchase four million shares of our common stock in the same acquisition. Of the warrants, one million had a strike price of $9.00 and three million had a strike price of $11.00 per share. The warrants became exercisable on January 15, 2003 and expired on January 15, 2007. All remaining warrants were converted during the first quarter of 2007. In addition, former preferred stockholders of the acquired company had the right to receive contingent consideration based upon a percentage of the amount by which the before tax net present value of proved reserves related, in general, to exploratory prospect acreage held by the acquired company as of the closing date of the acquisition exceeded the net present value discounted at 30%. The potential consideration was determined annually from March 3, 2003 until March 1, 2007. We capitalized, as additional purchase price, all contingent consideration payments all of which were made in cash and totaled $4.3 million. As of March 1, 2007, the final determination date, we determined that no final payment was due.

(7) Property and Equipment

The following is a summary of property and equipment at December 31, 2008 and 2007:

	2008		2007
	(In thousands)
Proved oil and natural gas properties	$	1,601,748	$	1,496,068
Unproved oil and natural gas properties		36,274		42,083
Other		8,783		8,852
	$	1,646,805	$	1,547,003

Substantially all of our oil and natural gas properties serve as collateral for our Credit Agreement.

We recognized impairment expense of $110.4 million, $114.9 million and $84.7 million in the years ending December 31, 2008, 2007 and 2006, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During 2008, we recorded impairments of oil and natural gas properties totaling $110.4 million. The impairment expense was primarily related to certain deepwater prospects ($47.5 million), producing fields (primarily five) which were determined to have future net cash flows less than their carrying values due primarily to commodity price declines and reservoir performance resulting in the write down of these properties to their estimated fair values as of December 31, 2008 ($39.3 million) and certain undeveloped properties ($20.8 million).

During 2007, we recorded impairment expense related to 17 fields. Eight fields with a net book value of $79.4 million experienced mechanical difficulties or facility requirements and we determined that significant capital would be needed to extend their economic lives. With our decreased capital budget for 2008, we determined that this capital would be better deployed to projects with more potential. Another six fields with a net book value of $15.9 million underperformed and fully depleted earlier than anticipated. We determined that the remaining three fields had future projected cash flows of less than their net book values due to performance issues and reserve revisions and therefore recorded impairment charges related to these fields totaling $19.6 million to write them down to their fair values during 2007.

Substantially all of the impairment expense in 2006 was taken in eight fields, four of which were onshore assets acquired during an acquisition in January of 2005. Three of these onshore fields along with three offshore fields experienced downward revisions of recoverable reserves at December 31, 2006. These revisions along with decreased natural gas prices resulted in impairment charges of $52.1 million on these assets. We elected to release the lease on the remaining onshore field. Additionally, one other offshore field experienced mechanical difficulties and we determined that significant capital would be needed to extend its economic life and that this capital would be better deployed to projects with more potential. Therefore, we wrote off the net book value of these assets of $27.0 million during 2006.

We capitalize exploratory well costs until we determine that the well has found proved reserves or is deemed noncommercial, in which case the well costs are immediately charged to exploration expense. Changes in exploratory well costs that were capitalized for a period of greater than one year, excluding amounts that were capitalized and subsequently expensed in the same period, are as follows:

	Years Ended December 31,
	2008			2007		2006
	(In thousands)
Capitalized exploratory well costs, beginning of period	$	32,612		$	28,984	$	—
Additions to capitalized exploratory well costs pending determination of proved reserves		—			3,628		28,984
Capitalized exploratory well costs charged to expense		(32,612	)		—		—
Capitalized exploratory well costs, end of period	$	—		$	32,612	$	28,984

At December 31, 2008, we did not have any projects that were suspended for a period greater than one year. At December 31, 2007, we had two projects whose exploratory well costs were suspended and were capitalized for a period greater than one year in the amount of $32.6 million. At December 31, 2006, we did not have any projects that were suspended for a period greater than one year.

(8) Tropical Weather

In late August and early September 2008 Hurricanes Gustav and Ike traversed the Gulf of Mexico and adjacent land areas. As a result of these two hurricanes, nearly all of our production was shut-in at one time or another during the third and fourth quarters of 2008. We maintain insurance coverage for property damage due to windstorms with a deductible of $10 million for each hurricane. We also maintain business interruption insurance on a portion of our lost revenue on our South Timbalier 41, 42 and 46 properties. Recovery of lost revenue from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

these properties began accruing during the fourth quarter of 2008 when the “no claim period” provided for under the policy elapsed. Through December 31, 2008, the total business interruption claim on these fields was $4.2 million, all of which is recorded in other receivables at December 31, 2008. All of these amounts were collected in 2009.

As a result of Hurricanes Katrina and Rita and three other hurricanes that traversed the Gulf of Mexico and adjacent land areas in 2005, nearly all of our production was shut in at one time or another during the three months ended September 30, 2005 and into 2006. We maintained business interruption insurance during this period on our significant properties, including our East Bay field on which recovery of lost revenue continued to accrue until October 2006. Through March 31, 2007, the total business interruption claim on these fields was $62.6 million (all of which had been collected as of that date). In the first quarter of 2007, we settled and collected all remaining claims related to Hurricanes Katrina and Rita and recognized business interruption income of $9.1 million and a gain of $8.1 million on a property damage settlement.

(9) Asset Retirement Obligations

We record the fair value of a liability for an ARO in the period in which it is incurred, along with a corresponding increase in the carrying amount of the related long-lived asset. The following table reconciles the beginning and ending aggregate recorded amount of the asset retirement obligations:

	Asset Retirement Obligations
	2008			2007
	(in thousands)
Beginning of period total	$	77,898		$	68,767
Accretion expense		4,370			4,457
Sale of properties		(1,821	)		—
Revisions		36,444			3,809
Liabilities incurred		13,385			4,409
Liabilities settled		(24,589	)		(3,544	)
End of period total		105,687			77,898
Less: End of period current portion		(18,181	)		(4,548	)
End of the period noncurrent portion	$	87,506		$	73,350

During 2008, we began to plug and abandon a significant number of wellbores and began decommissioning associated with platforms, structures, pipelines and facilities on leases in the Gulf of Mexico that are no longer producing and were required, in most instances, to be performed during that period under MMS requirements. The level of abandonment activity we performed in 2008 was significantly higher than in any past period and was performed at a high pricing point in the market for such services with equipment, in some cases, that exceeded the capability of less costly equipment capable of performing such operations. Further, because we performed this work at a suboptimal time of the year, we were significantly impacted by weather delays. We incurred costs significantly in excess of our recorded ARO for this work. As a result of this experience, and our cost experience on other 2008 abandonment activities, as well as our efforts to estimate our planned work for 2009, we revised our estimated abandonment costs where appropriate to reflect recent experience in determining the estimated fair value of our abandonment obligations. The total impact of our revisions to ARO for 2008 resulted in a loss on abandonment of $21.7 million. Revisions to ARO that did not result in an impact to 2008 earnings were recorded as additions to our oil and natural gas properties account and are amortized over remaining units-of-production.

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(10) Indebtedness

See Note 3 “Subsequent Events, Liquidity and Capital Resources” for additional information on our indebtedness and the impact of the Chapter 11 Cases on the Credit Agreement, the Senior Unsecured Notes and the 8.75% Senior Notes due 2010.

In April 2007, we refinanced our bank credit facility with the Credit Agreement, which had an initial availability of $225 million and a borrowing base of $200 million. Concurrently with the sale of assets described in Note 6, the availability under the Credit Agreement was automatically reduced to the $200 million borrowing base amount. The Credit Agreement is secured by substantially all of our assets. The borrowing base under the Credit Agreement is subject to redetermination based on the proved reserves of the oil and natural gas properties that serve as collateral as set out in the reserve report delivered to the banks in April and October. We and our group of Credit Agreement participants each may request one additional redetermination each calendar year.

In November 2008, our Credit Agreement was redetermined with a borrowing base of $150 million. At December 31, 2008, we had $43 million outstanding under the Credit Agreement. In March 2009, the administrative agent for the Credit Agreement notified us that the semi-annual redetermination of our borrowing base pursuant to the Credit Agreement had occurred, resulting in a new borrowing base of $45 million. We had $83 million outstanding under the Credit Agreement, resulting in a deficiency of $38 million and a demand for repayment of the borrowing base deficiency. While we were not in default under our Credit Agreement as of December 31, 2008, we subsequently failed to timely satisfy a number of Credit Agreement covenants, including those requiring the delivery of our December 31, 2008 debt compliance certificate in April 2009 and providing our December 31, 2008, financial results at that time.

Prior to the redetermination of our borrowing base in March 2009 and the commencement of the Chapter 11 Cases, the Credit Agreement permitted both prime rate borrowings and LIBOR borrowings plus a floating spread. The spread floated up or down based on utilization of the Credit Agreement. Under the terms of the Credit Agreement, the interest rate spread ranged from 1.00% to 2.5% above LIBOR and 0% to 0.50% above prime. In addition we paid an annual fee on the unused portion of the facility, ranging between 0.25% to 0.50% based on utilization. The Credit Agreement contained customary events of default and various financial covenants, which required us to maintain: (1) a minimum current ratio, as defined by the Credit Agreement, of 1.0x, (2) a minimum Consolidated EBITDAX to interest ratio, as defined by the Credit Agreement, of 2.5x, and (3) a ratio of long-term debt to Consolidated EBITDAX below 3.0. Our failure to cure the borrowing base deficiency by May 1, 2009 constituted an event of default under our bank credit facility. Subsequent to such date, we have been paying interest at the foregoing rates plus 2.00% per annum (the default rate).

The current ratio, as defined by the Credit Agreement, includes (among other terms) in current assets our unused availability on the Credit Agreement for purposes of satisfying the minimum current ratio covenant. As a result, for purposes of complying with the minimum current ratio covenant at each quarterly compliance reporting date, our working capital deficit, as adjusted by the terms of the Credit Agreement, reduces the amount available for borrowings under the Credit Agreement.

In April 2007, we completed an offering of the Senior Unsecured Notes, consisting of $300 million aggregate principal amount of the Fixed Rate Notes, with interest payable semi-annually on April 15 and October 15 beginning on October 15, 2007, and $150 million aggregate principal amount of the Floating Rate Notes. The interest rate on the Floating Rate Notes for a particular interest period is an annual rate equal to the three-month LIBOR plus 5.125%. Interest on the Floating Rate Notes is payable quarterly on January 15, April 15, July 15 and October 15, beginning in July of 2007. We may redeem the Senior Unsecured Notes, in whole or in part, prior to their maturity at specific redemption prices including premiums ranging from 4.875% to 0% from 2011 to 2013 and thereafter for the Fixed Rate Notes and premiums ranging from 2% to 0% from 2008

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to 2010 and thereafter for the Floating Rate Notes. The indenture governing the Senior Unsecured Notes contains covenants, including but not limited to a covenant limiting the creation of liens securing indebtedness. The Senior Unsecured Notes are not subject to any sinking fund requirements. In November 2007, we consummated an exchange offer pursuant to which we exchanged registered senior unsecured notes having substantially identical terms as the privately placed Senior Unsecured Notes.

In May 2007, we completed a cash tender offer for the $150 million 8.75% Senior Notes due 2010. Approximately $145.5 million of the 8.75% Senior Notes due 2010 were repurchased and substantially all of their covenants have been removed.

During the year ended December 31, 2007, we recorded a loss on early extinguishment of debt for the refinancing of the Credit Agreement and the repurchase of the 8.75% Senior Notes due 2010 totaling approximately $10.8 million. This loss included the write-off of unamortized deferred financing costs related to the Credit Agreement and the 8.75% Senior Notes due 2010 as well as consent fees related to the tender for the 8.75% Senior Notes due 2010.

At December 31, 2008 and 2007, our indebtedness was as follows:

	2008		2007
	(In thousands)
Fixed Rate Notes, annual interest of 9.75%, payable May 15, 2014	$	300,000	$	300,000
Floating Rate Notes, with weighted average interest on December 31, 2008, of 9.94%, payable April 15, 2013		150,000		150,000
Senior Notes, annual interest of 8.75%, payable August 1, 2010		4,501		4,501
Credit Agreement, interest rate based on LIBOR borrowing rates plus a floating spread payable April 23, 2011, with weighted average interest on December 31, 2008 of 2.57%		43,000		30,000
		497,501		484,501
Less: Current maturities		497,501		—
	$	—	$	484,501

(11) Significant Customers

We had oil and natural gas sales to three customers accounting for 38%, 24% and 23%, respectively, of total oil and natural gas revenues, excluding the effects of hedging activities, for the year ended December 31, 2008. We had oil and natural gas sales to three customers accounting for 29%, 27% and 14%, respectively, of total oil and natural gas revenues, excluding the effects of hedging activities, for the year ended December 31, 2007. We had oil and natural gas sales to four customers accounting for 28%, 19%, 12% and 11%, respectively, of total oil and natural gas revenues, excluding the effects of hedging activities, for the year ended December 31, 2006.

(12) Derivative Transactions

We enter into derivative transactions to reduce exposure to fluctuations in the price of oil and natural gas for a portion of our production. Our contracts limit our exposure to declines in the sales price of oil or natural gas for a limited amount of production. Some contracts also limit our ability to benefit from increases in the sales price of oil or natural gas. Our Board of Directors has set limitations on the percentage of proved production that we can make subject to these contracts. Our oil contracts are primarily settled based on the average of the reported settlement prices for West Texas Intermediate crude on the NYMEX for each month. Our natural gas contracts are primarily settled based on the average of the last three days of trading of the NYMEX Henry Hub natural gas contract each month. All of our existing contracts are with major financial institutions which are also parties to the Credit Agreement.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We primarily use financially-settled oil and natural gas zero-cost collars, put options and call options to provide varying upside price participation and downside price protection for a portion of our expected production. With a zero-cost collar, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor price of the collar, and we are required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price of the collar. With a put option, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the strike price of the put and we have no obligation to the counterparty except for the payment of any option premium. Our synthetic put option agreements consist of a combination of sales and purchases of put and call contracts covering the same production. With these agreements, we reduce the per unit premium cost of the agreement by allowing the counterparty to take a limited amount of the benefit of price increases, while we retain the benefit over a stated settlement price. On occasion, we have incorporated floors and/or collars into our production sales contracts which are settled under conventional marketing terms.

Prior to the second quarter of 2007, all derivative transactions that qualified for hedge accounting under SFAS No. 133 were designated on the date we entered into each transaction as a hedge of the variability in cash flows associated with the forecasted sale of future oil and natural gas production. After-tax changes in the fair value of a hedge that was highly effective and designated and qualified as a cash flow hedge, to the extent that the hedge was effective, was recorded as Accumulated Other Comprehensive Income (“OCI”) on the consolidated balance sheet until the sale of the hedged oil and natural gas production occurred. Upon the sale of the underlying hedged production, the net after-tax change in the fair value of the associated hedging transaction recorded in OCI was reversed and the resulting gain or loss on the settlement of the hedge, to the extent that it was effective, was reported in oil and natural gas revenues in the consolidated statement of operations. On April 1, 2007, hedge accounting was discontinued prospectively for existing contracts and, until settled, all subsequent changes in fair value are recognized in earnings in the period in which the change occurs. At March 31, 2007, we had a $1.5 million after-tax net loss recorded in OCI.

Effective April 2, 2007, we elected to discontinue hedge accounting on our existing contracts and elected not to designate any additional derivative contracts that were entered into subsequent to that date as cash flow hedges under SFAS No. 133 as amended. Derivative contracts are carried at their fair value on the consolidated balance sheet as Fair value of commodity derivative instruments and all unrealized gains and losses are recorded in Gain (loss) on derivative instruments in Other income (expense) in the consolidated statement of operations and realized gains and losses related to contract settlements subsequent to April 2, 2007 are also recognized in the same line item in Other income (expense) in the consolidated statement of operations.

We had the following derivative contracts as of December 31, 2008:

Natural Gas Contracts

Remaining Contract Term	Contract Type	Floor/Ceiling-Floor ($/Mmbtu)			Volume (Mmbtu)
					Daily	Total
01/09 - 03/09	Collar	$	6.75/$17.15		10,000	900,000
04/09 - 06/09	Synthetic Put	$	5.00/$10.00 - 11.00	1	10,000	910,000
11/09 - 01/10	Synthetic Put	$	6.00/$10.00 - 11.00	1	10,000	920,000

Oil Contracts

Remaining Contract Term	Contract Type	Floor/Ceiling ($/Bbl)		Volume (Bbls)
				Daily	Total
1/09 - 06/09	Collar	$	55.00/$87.17	3,000	543,000

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Subsequent to December 31, 2008, we entered into the following derivative contracts:

Natural Gas Contracts

Remaining Contract Term	Contract Type	Floor/Ceiling-Floor ($/Mmbtu)			Volume (Mmbtu)
					Daily	Total
11/09 - 01/10	Synthetic Put	$	5.83/$10.00 - 11.00	(1)	15,000	1,380,000

(1) The counterparty pays us if the settlement price for the settlement period is below the floor. We pay the counterparty the amount by which the settlement price exceeds $10.00/Mmbtu for the settlement period, such payment being limited to the spread from $10.00/Mmbtu to $11.00/Mmbtu (or $1.00/Mmbtu). We benefit fully from settlement prices in excess of $11.00/Mmbtu.

During March and May 2009, the counterparties to all of the remaining open contracts exercised their right to settle the then outstanding contracts for net cash payments to us totaling $4.1 million. We recorded a net gain on the settlement of our derivative contracts of $ 2.7 million in 2009.

The following table presents information about the components of gain (loss) on derivative instruments for the years ended December 31, 2008 and 2007.

	2008			2007
Derivative contracts:
Unrealized gain (loss) due to change in fair market value	$	19,057		$	(13,726	)
Realized gain (loss) on settlement		(17,004	)		643
Total gain (loss) on derivative instruments	$	2,053		$	(13,083	)

For the year ended December 31, 2006, under cash flow hedge accounting, settlements of hedging contracts reduced oil and natural gas revenues by $0.7 million.

The following table reconciles the change in accumulated other comprehensive income for the year ended December 31, 2007:

	Year Ended December 31, 2007
	(In thousands)
Accumulated other comprehensive loss as of December 31, 2006—net of taxes of $558				$	(994	)
Net loss	$	(79,955	)
Other comprehensive income—net of tax
Hedging activities
Reclassification adjustments for settled contracts—net of taxes of $90		(161	)
Changes in fair value of outstanding hedging positions—net of taxes of $(649)		1,155
Total other comprehensive income		994			994
Comprehensive loss	$	(78,961	)
Accumulated other comprehensive income as of December 31, 2007				$	—

For the year ended December 31, 2008, our comprehensive loss is equal to our net loss of $52.2 million.

(13) Fair Value Measurements

The following tables provide fair value measurement information for our assets and liabilities reported at fair value in the accompanying Consolidated Balance Sheets as of December 31, 2008. At December 31, 2008,

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the carrying values of cash and cash equivalents, trade accounts receivable and accounts payable (including income taxes payable and accrued expenses) approximated fair value and are not presented in the table.

	As of December 31, 2008
							Fair Value Measurements Using:
	Carrying Amount			Total Fair Value			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets (Liabilities) (in thousands):
Oil and natural gas puts and collars	$	5,332		$	5,332		$	—	$	5,332		$	—
Debt	$	(497,501	)	$	(191,281	)	$	—	$	(191,281	)	$	—

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the table above, this hierarchy consists of three broad levels. Level 1 inputs on the hierarchy consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 inputs are other than quoted prices in active markets included in Level 1. Level 3 inputs have the lowest priority and include significant inputs that are generally less observable from objective sources. When available, we measure fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. We currently do not use Level 3 inputs to measure fair value.

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.

Level 2 Fair Value Measurements

Debt—At December 31, 2008, the Fixed Rate Notes and the Floating Rate Notes were not actively traded in an established market. Therefore, quoted prices were not available. However, we estimated the fair values of these debt instruments based on prices reflected by trades which occurred near December 31, 2008 as obtained through financial information services. The fair value of the Credit Agreement is estimated to approximate the carrying amount because the interest rates paid on such debt are generally set for periods of three months or less.

Oil and natural gas puts and collars—The fair values of the oil and natural gas puts and collars are estimated using similar, observable NYMEX published settlements.

(14) Income Taxes

Components of income tax benefit for the years ended December 31, 2008, 2007 and 2006 are as follows:

	Current		Deferred		Total
	(In thousands)
2008:
Federal	$	—	$	16,542	$	16,542
State		—		473		473
	$	—	$	17,015	$	17,015
2007:
Federal	$	—	$	43,368	$	43,368
State		—		1,239		1,239
	$	—	$	44,607	$	44,607
2006:
Federal	$	633	$	26,672	$	27,305
State		—		780		780
	$	633	$	27,452	$	28,085

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The reasons for the differences between the effective tax rates and the expected corporate federal income tax rate are as follows:

	Percentage of Pretax Earnings
	2008		2007		2006
Expected tax rate	35.0	%	35.0	%	35.0	%
State taxes	1.0		1.0		1.0
Valuation allowance	(10.8	)	—		—
Other	(0.6	)	(0.2	)	(0.2	)
	24.6	%	35.8	%	35.8	%

The tax effects of temporary differences that give rise to significant portions of the current tax asset and net deferred tax liability at December 31, 2008 and 2007 are presented below:

	2008			2007
	(In thousands)
Current deferred tax assets (liabilities):
Fair value of commodity derivative instruments	$	(1,636	)	$	3,285
Accrued bonus compensation		56			580
Net current deferred tax asset (liability)	$	(1,580	)	$	3,865
Non-current deferred tax assets:
Restricted stock awards and options	$	6,268		$	5,033
Federal and state net operating loss carryforwards		65,953			53,692
Fair market value of commodity derivative instruments		24			1,657
Other		741
Valuation allowance		(7,465	)		1,465
Non-current deferred tax asset		65,521			61,847
Non-current deferred tax liabilities:
Property, plant and equipment, principally due to differences in depreciation		(63,941	)		(82,727	)
Net non-current deferred tax asset (liability)	$	1,580		$	(20,880	)

At December 31, 2008, we had net operating loss carryforwards (“NOLs”) of approximately $183 million, which are available to reduce future federal taxable income. The NOLs begin expiring in the years 2018 through 2028. The 2008 tax provision does not use any of the NOLs. The amount of our NOLs, and possible certain other tax attributes, may be significantly reduced upon implementation of the Plan. In addition, the Reorganized Company’s subsequent utilization of any built-in losses with respect to its assets and NOLs remaining, and possibly certain other tax attributes, may be restricted as a result of and upon implementation of the Plan.

In 2008, our net deferred tax position changed from a net deferred tax liability position to a net deferred tax asset position. Our assessment of the need for a valuation allowance, as required by SFAS No. 109, was based primarily on a three year trend of significant net losses in 2008, 2007 and 2006, and the precipitous decline and continued weakness in oil and natural gas prices as of December 31, 2008 and continuing into 2009. We are not able to conclude that it is more likely than not that all of the deferred tax assets will be realized through future earnings and reversal of taxable temporary differences. As a result, we have provided a valuation allowance of $7.5 million, reducing our net deferred tax asset to zero. A return to profitability would provide a basis for reversal of a portion of the valuation allowance relating to realized deferred tax assets.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of January 1, 2009, our 2004-2008 income tax years remain subject to examination by the Internal Revenue Service, as well as the Louisiana Department of Revenue. In addition, Texas Franchise Tax calendar years 2003-2008 remain subject to examination.

(15) Employee Benefit Plans

See Note 3 “Subsequent Events, Liquidity and Capital Resources—Subsequent Events—Restructure of Prepetition Employee Arrangements” for a description of certain of the plans described below that were restructured subsequent to December 31, 2008.

At December 31, 2008, we have two stock-based compensation plans which are long term-incentive plans authorizing various types of market and performance based incentive awards to be granted to officers and employees. The 2006 Long Term Stock Incentive Plan (the “Employee Plan”) provides for the grant of stock options for which the exercise price, set at the time of the grant, is not less than the fair market value per share at the date of grant. The outstanding options have a term of 10 years and generally vest over three years with grants to a limited group of people that cliff vest at the end of five years. The Employee Plan also provides for restricted stock and restricted share units, which are referred to as non-vested share awards under SFAS No. 123(R), and performance share awards. The Employee Plan was adopted by the Board of Directors in March 2006 and approved by stockholders in May 2006 and is administered by the Compensation Committee of the Board of Directors or such other committee as may be designated by the Board of Directors. The Compensation Committee is authorized to select the employees who will receive awards, to determine the types of awards to be granted to each person, and to establish the terms of each award. The total number of shares that may be issued under the plan for all types of awards was 2,604,414 as of May 2006.

The Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors (the Director Plan) was adopted by the Board of Directors in March 2005 and approved by our stockholders in May 2005. The Director Plan permits the use of restricted share units in addition to stock options to provide flexibility to adjust grants to maintain a competitive equity component for non-employee directors. The number of shares authorized for issuance under the Director Plan is 500,000. The size of any grants of stock options and restricted share units to non-employee directors, including to new directors, will be determined annually, based on the analysis of an independent compensation consultant. The option exercise price for an option granted under the Director Plan shall be the fair market value of the shares covered by the option at the time the option is granted. Options become fully exercisable on the first anniversary of the date of the grant. Prior to the one-year anniversary, the options shall be exercisable as to a number of shares covered by the option determined by pro-rating the number of shares covered by the option based on the number of days elapsed since the date of the grant. Any portion of an option that has not become exercisable prior to the cessation of the optionee’s service as a director for any reason shall not thereafter become exercisable. Each option shall expire on the earlier of (1) 10 years from the date of the granting thereof, or (2) 36 months after the date the optionee ceases to be a director of the Company for any reason. Each restricted share unit represents the right to receive one share of Common Stock upon the earlier to occur of: (1) the cessation of the eligible director’s service as a director of the Company for any reason, or (2) the occurrence of a change of control of the Company. An eligible director shall become 100% vested in a grant of restricted share units on the first anniversary of the date of grant. Prior to the first anniversary of the grant, an eligible director shall be vested in a number of restricted share units determined by pro-rating the grant based on the number of days elapsed since the date of the grant. If the service of an eligible director ceases for any reason prior to the first anniversary of the grant, other than in connection with the occurrence of a change of control of the Company, the director shall forfeit any unvested restricted share units.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table reports stock-based compensation expense and related tax benefits recognized for the years ended December 31, 2008, 2007 and 2006:

	2008			2007			2006
	(in thousands)
Compensation Expense (Benefit):
Option shares	$	2,127		$	3,690		$	4,391
Non-vested share awards		3,440			5,415			5,933
Performance share awards		(293	)		(901	)		828
Amount related to options granted prior to January 1, 2006 (included in option share expense above)		474			1,481			2,415
Deferred Income Tax Benefit		1,899			2,953			4,005

The fair value of each share option award is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for the years ended December 31, 2008, 2007 and 2006:

	Year Ended December 31,
	2008		2007		2006
Black-Scholes option pricing model assumptions:
Risk free interest rate	4.5	%	4.5	%	4.4	%
Expected life (years)	4.95		4.95		4.79
Expected volatility	38	%	37	%	43	%
Dividend yield	—		—		—

Expected volatility is based on the historical volatility of our stock over the period of time equivalent to the expected term of the options granted. The expected term of options granted is derived from historical exercise patterns over a period of time with consideration of expected term of unvested options. We have not experienced significant differences in the historical exercise patterns among officers, employees and non-employee directors for them to be considered separately for valuation purposes. The risk-free interest rate is based on the interest rate on constant maturity bonds published by the Federal Reserve with a maturity commensurate with the expected term of the options granted.

A summary of option share activity for the year ended December 31, 2008 is as follows:

	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Terms	Aggregate Intrinsic Value
					(in years)	(in thousands)
Outstanding on December 31, 2007	2,243,725		$	16.71
Granted	257,197			11.16
Exercised	(77,833	)		9.66
Forfeited/Cancelled	(83,170	)		22.72
Outstanding on December 31, 2008	2,339,919		$	16.12	5.08	$	37,719
Exercisable on December 31, 2008	1,620,321		$	15.34	4.23	$	24,856
Available for future grants on December 31, 2008	2,685,256

The weighted-average grant-date fair value of option shares granted during the years ended December 31, 2008, 2007 and 2006 was $4.53, $6.16 and $9.24, respectively. The aggregate intrinsic value of option shares

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) exercised during the years ended December 31, 2008, 2007 and 2006 was $0.4 million, $0.4 million and $0.4 million, respectively.

The fair value of non-vested share awards equals the market value of the underlying stock on the date of grant. The weighted-average grant-date fair value of the non-vested share awards granted during the years ended December 31, 2008, 2007 and 2006 was $12.50 per share, $17.76 per share, and $21.62 per share, respectively. The total fair value of non-vested share awards that vested during each of the years ended December 31, 2008, 2007 and 2006 was $2.4 million, $3.6 million and $3.3 million, respectively. A summary of the activity related to our non-vested share awards for the year ended December 31, 2008 is as follows:

	Shares		Weighted- Average Grant-Date Fair Value
Non-vested share awards outstanding at December 31, 2007	602,398		$	21.09
Granted	137,728			12.50
Vested	(213,480	)		11.24
Forfeited/Cancelled	(92,946	)		23.99
Non-vested share awards outstanding at December 31, 2008	433,700		$	20.22

During the period from 2003 through 2005, performance shares were awarded to officers and key employees with the number of shares to be issued upon being earned, at the end of their respective three year cycles, being based on certain performance measures. The shares awarded could range from a minimum of 0% to a maximum of 200% of the target number of shares depending on the level at which the goals were attained. We did not award any performance shares in 2006, 2007 or 2008. In the year ended December 31, 2006, 55,111 shares were earned and issued and 35,756 shares expired unearned or were forfeited. In the year ended December 31, 2007, 69,000 shares were earned and issued and 56,100 expired unearned or forfeited leaving 80,990 shares reserved based on the maximum award available. In the year ended December 31, 2008 all remaining available awards expired unearned.

As of December 31, 2008, $1.4 million of total unrecognized compensation expense related to outstanding option shares was expected to be recognized over a weighted-average period of 1 year. As of December 31, 2008, $3.0 million of total unrecognized compensation expense related to non-vested share awards was expected to be recognized over a weighted-average period of 1 year.

We also have a 401(k) Plan that covers all employees. We match 100% of each individual participant’s contribution not to exceed 6% of the participant’s compensation. Our matching contributions were made in common stock of EPL until 2009. We made matching contributions to the 401(k) Plan of 266,365, 57,634 and 38,220 shares of common stock in 2008, 2007 and 2006 valued at approximately $0.9 million, $0.9 million and $0.9 million, respectively. During 2009, our 401(k) Plan was amended to require matching contributions to be made in cash.

2008 Key Employee Retention Plan

The Compensation Committee and the Board of Directors approved a retention plan for a limited group of key employees, which group excludes executive officers, providing for annual cash payments in December 2009, 2010 and 2011 of 20%, 30% and 50%, respectively, of the employees’ annual base salaries. Participants must be employed as of the vesting date to earn the retention award. This plan was effective December 1, 2008. Estimated payments under this plan for 2009, 2010 and 2011 are $0.8 million, $1.2 million and $2.1 million, respectively.

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other

In November 2008, we discontinued a plan that was designed to fund post-employment benefits to a limited group of key non-executive employees through whole life insurance policies, while providing life insurance coverage for the participants during the participation period. The cash surrender value of the cancelled whole life insurance policies distributed to the participants in January 2009 was $0.2 million.

(16) Commitments and Contingencies

As described in Notes 1 and 3, on May 1, 2009, we and certain of our subsidiaries filed the Chapter 11 Cases.

We have operating leases for office space and equipment, which expire on various dates through 2016. In addition, we have an agreement to purchase seismic-related services which expires in 2009.

Future minimum commitments as of December 31, 2008 under these operating obligations are as follows (in thousands):

2009	$	2,189
2010		1,680
2011		1,692
2012		1,704
2013		1,715
Thereafter		4,099
	$	13,079

Expense relating to operating obligations for the years ended December 31, 2008, 2007 and 2006 was $5.4 million, $7.9 million and $9.6 million, respectively.

We maintain deposits in a trust for future abandonment costs at our East Bay property. The trust was originally funded with $15 million and, with accumulated interest, has increased to $16.7 million at December 31, 2008. We may draw from the trust upon completion of qualifying abandonment activities at our East Bay property. We have made draws to date of $3.4 million, all of which were made in 2009. Amounts on deposit in the trust account are reflected in other assets. See Note 3 “Subsequent Events, Liquidity and Capital Resources” for additional information on commitments and contingencies related to abandonment of our oil and natural gas properties.

We had entered into employment agreements with all of our employees including our senior executives and other key employees. In the event of termination of employment (including a change of control of our company) parties to these agreements were entitled to receive a multiple of their salaries and bonuses (typically one, two or three times such amount) and certain other benefits in a lump sum cash payment. Additionally, all options, restricted stock, restricted share units and other similar awards would become fully vested. In the event of a change of control event requiring funding of all such cash payments, we estimated the amount payable in cash under these agreements would be approximately $28.9 million at December 31, 2008. See Note 3 “Subsequent Events, Liquidity and Capital Resources—Subsequent Events—Restructure of Prepetition Employee Arrangements” for a description of plans that were restructured subsequent to December 31, 2008.

On February 21, 2008, we entered into a plea agreement with the United States Department of Justice under which we pled guilty on that same date to one strict liability, misdemeanor violation of the River and Harbors Act in the United States District Court for the Eastern Division of Louisiana. The plea concludes the

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

investigation announced in June 2007 into possible environmental violations at our East Bay properties in late 2005 and early 2006. Under the plea agreement, we have paid a fine of $75,000 and have made a community service payment of $25,000 to a Louisiana state agency. As a part of the plea agreement, we were subject to inactive probation for one year. The foregoing actions represent the final resolution of this matter with all federal agencies involved with the investigation.

We generate liabilities related to production that is delivered to us in excess of our interest in certain properties, often referred to as production imbalances. Additionally, we may, from time to time, receive cash in excess of amounts that we estimate are due to us for our interest in production, which amounts may be subject to further review, may require more information to resolve or may be in dispute. During 2008, we reduced revenue by $4.4 million reflecting our estimate of amounts that, based on information available to us, may be subject to claim by one purchaser of our production. At December 31, 2008, this amount is included in accrued expenses.

In the ordinary course of business, we are a defendant in various other legal proceedings. We do not expect our exposure in these other proceedings, individually or in the aggregate, to have a material adverse effect on our financial position, results of operations or liquidity. See Note 3 “Subsequent Events, Liquidity and Capital Resources” for additional information on legal proceedings related to the Chapter 11 Cases.

(17) Interim Financial Information (Unaudited)

The following is a summary of consolidated unaudited interim financial information for the years ended December 31, 2008 and 2007:

	Three Months Ended
	March 31		June 30			September 30			December 31
	(In thousands, except per share data)
2008
Revenues	$	97,496	$	125,688		$	94,672		$	38,396
Costs and expenses		73,863		71,466			57,738			182,964
Business interruption recovery		—		—			—			4,248
Income (loss) from operations		23,633		54,222			36,934			(140,320	)
Net income (loss)		2,315		3,996			34,445			(92,968	)
Earnings (loss) per share:
Basic	$	0.07	$	0.13		$	1.07		$	(2.90	)
Diluted		0.07		0.12			1.07			(2.90	)
2007
Revenues	$	108,463	$	121,666		$	110,438		$	114,082
Costs and expenses		105,210		109,252			103,542			201,742
Business interruption recovery		9,084		—			—			—
Income (loss) from operations		12,337		12,414			6,896			(87,660	)
Net income (loss)		3,696		(6,270	)		(3,963	)		(73,418	)
Earnings (loss) per share:
Basic	$	0.09	$	(0.18	)	$	(0.12	)	$	(2.31	)
Diluted		0.09		(0.18	)		(0.12	)		(2.31	)

(18) Supplemental Condensed Consolidating Financial Information

In connection with the Senior Unsecured Notes offering, discussed above, all of our current active subsidiaries (the “Guarantor Subsidiaries”) jointly, severally and unconditionally guaranteed the payment obligations under the Senior Unsecured Notes. The following supplemental financial information sets forth, on a

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

consolidating basis, the balance sheet, statement of operations and cash flow information for Energy Partners, Ltd. (Parent Company Only) and for the Guarantor Subsidiaries. We have not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.

The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements. Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Balance Sheet

As of December 31, 2008

	Parent Company Only			Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,991		$	—		$	—		$	1,991
Accounts receivable		37,665			1,244			—			38,909
Other current assets		4,459			63						4,522
Total current assets		44,115			1,307			—			45,422
Property and equipment		1,376,387			270,418			—			1,646,805
Less accumulated depreciation, depletion and amortization		(818,234	)		(140,204	)		—			(958,438	)
Net property and equipment		558,153			130,214			—			688,367
Investment in affiliates		84,697			(66	)		(84,631	)		—
Notes receivable, long-term		—			120,431			(120,431	)		—
Other assets		32,887			90						32,977
		719,852			251,976			(205,062	)		766,766
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	114,510		$	7,161		$	—		$	121,671
Deferred tax liability		1,580			—			—			1,580
Fair value of commodity derivative instruments		28			—			—			28
Current maturities of long-term debt		497,501			—			—			497,501
Total current liabilities		613,619			7,161			—			620,780
Long-term debt		—			120,431			(120,431	)		—
Other liabilities		49,114			39,753			—			88,867
		662,733			167,345			(120,431	)		709,647
Stockholders’ equity:
Preferred stock		—			3			(3	)		—
Common stock		444			98			(98	)		444
Additional paid-in capital		382,232			310			(310	)		382,232
Retained earnings		(67,201	)		84,220			(84,220	)		(67,201	)
Treasury stock		(258,356	)		—			—			(258,356	)
Total stockholders’ equity		57,119			84,631			(84,631	)		57,119
		719,852			251,976			(205,062	)		766,766

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Balance Sheet

As of December 31, 2007

	Parent Company Only			Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	8,864		$	—		$	—		$	8,864
Accounts receivable		(78,119	)		125,200			—			47,081
Other current assets		10,431			132			—			10,563
Total current assets		(58,824	)		125,332			—			66,508
Property and equipment		1,309,898			237,105			—			1,547,003
Less accumulated depreciation, depletion and amortization		(704,890	)		(119,507	)		—			(824,397	)
Net property and equipment		605,008			117,598			—			722,606
Investment in affiliates		199,964			119			(200,083	)		—
Notes receivable, long-term		—			221,909			(221,909	)		—
Other assets		25,652			90			—			25,742
	$	771,800		$	465,048		$	(421,992	)	$	814,856
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	117,709		$	1,215		$	—		$	118,924
Fair value of commodity derivative instruments		9,124			—			—			9,124
Current maturities of long-term debt		—			—			—			—
Total current liabilities		126,833			1,215			—			128,048
Long-term debt		484,501			221,909			(221,909	)		484,501
Other liabilities		58,496			41,841			—			100,337
		669,830			264,965			(221,909	)		712,886
Stockholders’ equity:
Preferred stock		—			3			(3	)		—
Common stock		441			98			(98	)		441
Additional paid-in capital		374,874			1,606			(1,606	)		374,874
Retained earnings		(14,989	)		198,376			(198,376	)		(14,989	)
Treasury stock		(258,356	)		—			—			(258,356	)
Total stockholders’ equity		101,970			200,083			(200,083	)		101,970
	$	771,800		$	465,048		$	(421,992	)	$	814,856

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Operations

Year Ended December 31, 2008

	Parent Company Only			Guarantor Subsidiaries		Eliminations			Consolidated
	(In thousands)
Revenue:
Oil and natural gas	$	259,258		$	96,764	$	—		$	356,022
Other		34,289			154		(34,213	)		230
		293,547			96,918		(34,213	)		356,252
Costs and expenses:
Lease operating expenses		42,587			22,946		—			65,533
Taxes, other than on earnings		775			10,470		—			11,245
Exploration expenditures, dry hole cost and impairments		134,705			5,897		—			140,602
Depreciation, depletion, amortization and accretion		85,595			22,093		—			107,688
General and administrative		42,416			16,290		(15,000	)		43,706
Other expenses		17,248			9		—			17,257
Total costs and expenses		323,326			77,705		(15,000	)		386,031
Business interruption recovery		4,248			—		—			4,248
Income (loss) from operations		(25,531	)		19,213		(19,213	)		(25,531	)
Other income (expense):
Interest expense, net		(45,749	)		—		—			(45,749	)
Gain (loss) on derivative instruments		2,053			—		—			2,053
Income (loss) before income taxes		(69,227	)		19,213		(19,213	)		(69,227	)
Income taxes		17,015			—		—			17,015
Net income (loss)	$	(52,212	)	$	19,213	$	(19,213	)	$	(52,212	)

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Operations

Year Ended December 31, 2007

	Parent Company Only			Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue:
Oil and natural gas	$	365,707		$	88,633		$	—		$	454,340
Other		58,595			172			(58,458	)		309
		424,302			88,805			(58,458	)		454,649
Costs and expenses:
Lease operating expenses		95,237			(22,877	)		—			72,360
Taxes, other than on earnings		364			9,536			—			9,900
Exploration expenditures, dry hole cost and impairments		193,560			19,562			—			213,122
Depreciation, depletion, amortization and accretion		150,130			24,411			—			174,541
General and administrative		60,421			16,303			(15,000	)		61,724
Other expenses		(10,313	)		(1,588	)		—			(11,901	)
Total costs and expenses		489,399			45,347			(15,000	)		519,746
Business interruption recovery		9,084			—			—			9,084
Income (loss) from operations		(56,013	)		43,458			(43,458	)		(56,013	)
Other income (expense):
Interest expense, net		(44,628	)		—			—			(44,628	)
Gain (loss) on derivative instruments		(13,083	)		—			—			(13,083	)
Loss on early extinguishment of debt		(10,838	)		—			—			(10,838	)
Income (loss) before income taxes		(124,562	)		43,458			(43,458	)		(124,562	)
Income taxes		44,607			—			—			44,607
Net income (loss)	$	(79,955	)	$	43,458		$	(43,458	)	$	(79,955	)

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Operations

Year Ended December 31, 2006

	Parent Company Only			Guarantor Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenue:
Oil and gas	$	303,425		$	145,761		$	—		$	449,186
Other		(54,711	)		202			54,873			364
		248,714			145,963			54,873			449,550
Costs and expenses:
Lease operating expenses		6,431			54,405			—			60,836
Taxes, other than on earnings		1,739			11,893			—			13,632
Exploration expenditures, dry hole cost and impairments		82,511			53,914			—			136,425
Depreciation, depletion, amortization and accretion		123,141			79,593			—			202,734
General and administrative		119,083			16,030			(15,000	)		120,113
Other expenses		4,022			—			—			4,022
Total costs and expenses		336,927			215,835			(15,000	)		537,762
Business interruption recovery		32,869			—			—			32,869
Income (loss) from operations		(55,344	)		(69,872	)		69,873			(55,343	)
Interest expense, net		(23,141	)		(1	)		—			(23,142	)
Income (loss) before income taxes		(78,485	)		(69,873	)		69,873			(78,485	)
Income taxes		28,085			—			—			28,085
Net income (loss)	$	(50,400	)	$	(69,873	)	$	69,873		$	(50,400	)

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2008

	Parent Company Only			Guarantor Subsidiaries			Eliminations		Consolidated
	(In thousands)
Net cash provided by operating activities	$	154,340		$	30,270		$	—	$	184,610
Cash flows used in investing activities:
Property acquisitions		(20,833	)		(92	)		—		(20,925	)
Exploration and development expenditures		(168,979	)		(30,178	)		—		(199,157	)
Other property and equipment additions		(724	)		—			—		(724	)
Proceeds from the sale of oil and natural gas assets		15,576			—			—		15,576
Net cash used in investing activities		(174,960	)		(30,270	)		—		(205,230	)
Cash flows provided by (used in) financing activities:
Deferred financing costs		(5	)		—			—		(5	)
Repayments of long-term debt		(120,000	)		—			—		(120,000	)
Proceeds from long-term debt		133,000			—			—		133,000
Exercise of stock options and warrants		752			—			—		752
Net cash provided by financing activities		13,747			—			—		13,747
Net decrease in cash and cash equivalents		(6,873	)		—			—		(6,873	)
Cash and cash equivalents at the beginning of the period		8,864			—			—		8,864
Cash and cash equivalents at the end of the period	$	1,991		$	—		$	—	$	1,991

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2007

	Parent Company Only			Guarantor Subsidiaries			Eliminations		Consolidated
	(In thousands)
Net cash provided by operating activities	$	272,356		$	21,533		$	—	$	293,889
Cash flows used in investing activities:
Insurance recoveries		19,574			—			—		19,574
Property acquisitions		(6,922	)		(424	)		—		(7,346	)
Exploration and development expenditures		(302,737	)		(21,109	)		—		(323,846	)
Other property and equipment additions		(1,402	)		—			—		(1,402	)
Proceeds from the sale of oil and natural gas assets		68,599			—			—		68,599
Net cash used in investing activities		(222,888	)		(21,533	)		—		(244,421	)
Cash flows provided by (used in) financing activities:
Deferred financing costs		(11,178	)		—			—		(11,178	)
Repayments of long-term debt		(530,499	)		—			—		(530,499	)
Proceeds from public offering net of commissions		698,000			—			—		698,000
Purchase of shares into equity		(200,916	)		—			—		(200,916	)
Exercise of stock options and warrants		775			—			—		775
Net cash provided by (used in) financing activities		(43,818	)		—			—		(43,818	)
Net decrease in cash and cash equivalents		5,650			—			—		5,650
Cash and cash equivalents at the beginning of the period		3,214			—			—		3,214
Cash and cash equivalents at the end of the period	$	8,864		$	—		$	—	$	8,864

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2006

	Parent Company Only			Guarantor Subsidiaries			Eliminations		Consolidated
	(In thousands)
Net cash provided by operating activities	$	225,000		$	47,074		$	—	$	272,074
Cash flows used in investing activities:
Acquisition of business, net of cash acquired		(420	)		—			—		(420	)
Property acquisitions		(15,897	)		—			—		(15,897	)
Exploration and development expenditures		(294,971	)		(46,965	)		—		(341,936	)
Other property and equipment additions		(527	)		—			—		(527	)
Net cash used in investing activities		(311,815	)		(46,965	)		—		(358,780	)
Cash flows provided by (used in) financing activities:
Deferred financing costs		(853	)		—			—		(853	)
Repayments of long-term debt		(73,000	)		(109	)		—		(73,109	)
Proceeds from public offering net of commissions		155,000			—			—		155,000
Exercise of stock options and warrants		2,093			—			—		2,093
Net cash provided by (used in) financing activities		83,240			(109	)		—		83,131
Net decrease in cash and cash equivalents		(3,575	)		—			—		(3,575	)
Cash and cash equivalents at the beginning of the period		6,789			—			—		6,789
Cash and cash equivalents at the end of the period	$	3,214		$	—		$	—	$	3,214

(19) New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” which establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for periods beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, which defers the effective date of SFAS No. 157 for non-financial assets and liabilities that are not recorded at fair value on a recurring basis until periods beginning after November 15, 2008. We adopted the non-deferred portion of SFAS No. 157 on January 1, 2008 on a prospective basis. In October 2008, the FASB issued FSP FAS 157-3, which became effective immediately and clarified the application of SFAS No. 157 in a market that is not active. The adoption of SFAS No. 157 and FSP FAS 157-3 has not had a material impact on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities,” which permits entities to choose to measure individually selected financial instruments at fair value. SFAS No. 159 is effective for financial statements issued for periods beginning after November 15, 2007. Since we did not elect the fair value option on any qualifying financial instruments at any time during 2008, this statement has had no impact on our financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which provides new accounting guidance and disclosure requirements for business combinations and is effective for business combinations which occur starting with the first fiscal year beginning on or after December 15, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” This statement provides new accounting guidance and disclosure and presentation requirements for noncontrolling interests in an entity. SFAS No. 160 is effective for the first fiscal year beginning on or after December 15, 2008. We do not expect the effect of this statement on our financial statements to be material.

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133,” which provides new disclosure requirements for an entity’s derivative and hedging activities. SFAS No. 161 is effective for periods beginning after November 15, 2008. We do not expect the effect of this statement on our financial statements to be material.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1. This FSP concluded that instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing basic earnings per share under the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 with prior period retrospective application. We do not expect the effect of this FSP on our financial statements to be material.

In December 2008, the FASB issued FSP SFAS No. 132(R)-1. This FSP requires companies to enhance disclosures related to the assets held in defined benefit plans and other post-retirement benefits. This FSP is effective for financial statements issued for fiscal years ending after December 15, 2009. We do not expect this FSP to have any impact on our financial statements.

In December 2008, the SEC issued a final rule, “Modernization of Oil and Gas Reporting,” which amends its oil and gas reserves estimation and disclosure requirements. The new requirements, among other things: permits the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes; modifies the prices used to estimate reserves for SEC disclosure purposes to an average price based upon the prior twelve month period rather than a year-end price; allows the optional disclosure of “probable” and “possible” reserves to investors; and requires that, if a third party is primarily responsible for preparing or auditing the reserve estimates, the company make disclosures relating to the independence and qualifications of the third party, including filing as an exhibit any report received from the third party. The revised rule is effective January 1, 2010 for reporting 2009 annual oil and natural gas reserve information. We will adopt the provisions of the final rule in connection with the filing of our Annual Report on Form 10-K for the fiscal year ending December 31, 2009. We are currently evaluating the impact of the final rule.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS No. 165 sets forth:

• the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;

• the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and

• disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009. We are currently assessing what impact SFAS 165 may have on our financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140,” which provides accounting and disclosure guidance regarding transfers of financial assets. SFAS No. 166 is effective for periods beginning after November 15, 2009. We do not expect the effect of this statement on our financial statements to be material.

98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” to improve financial reporting by enterprises involved with variable interest entities. SFAS No. 167 is effective for periods beginning after November 15, 2009. We do not expect the effect of this statement on our financial statements to be material.

In July 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.” The FASB Accounting Standards Codification^TM (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. While the Codification does not change GAAP, it introduces a new structure that reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics, which are accessible in an online research system. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In November 2008, SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” became effective, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with GAAP. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162.

(20) Supplementary Oil and Natural Gas Disclosures—(Unaudited)

Our estimates of proved reserves are based on reserve reports prepared by Netherland, Sewell & Associates, Inc. and Ryder Scott Company, L.P., independent petroleum engineers as of December 31, 2008. Users of this information should be aware that the process of estimating quantities of “proved” and “proved-developed” natural gas and crude oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. Proved reserves are estimated quantities of natural gas, crude oil and condensate that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved-developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth our net proved reserves, including the changes therein, and proved-developed reserves:

	Crude Oil (Mbbls)		Natural Gas (Mmcf)		Barrels of Oil Equivalent (Mboe)
Proved-developed and undeveloped reserves:
December 31, 2005	31,478		166,949		59,303
Sales of reserves in place	(129	)	(750	)	(254	)
Extensions, discoveries and other additions (a)	1,057		44,336		8,446
Revisions	515		(1,704	)	231
Production	(3,007	)	(38,708	)	(9,458	)
December 31, 2006	29,914		170,123		58,268
Sales of reserves in place (b)	(363	)	(10,214	)	(2,066	)
Purchases of reserves in place (c)	46		3,628		651
Extensions, discoveries and other additions (d)	469		12,361		2,529
Revisions (e)	1,258		(39,139	)	(5,265	)
Production	(3,201	)	(33,641	)	(8,808	)
December 31, 2007	28,123		103,118		45,309
Sales of reserves in place	(265	)	(1,819	)	(568	)
Extensions, discoveries and other additions (f)	956		8,482		2,370
Revisions (g)	(5,125	)	(2,477	)	(5,538	)
Production	(2,052	)	(16,496	)	(4,802	)
December 31, 2008	21,637		90,808		36,771
Proved-developed reserves:
December 31, 2006	24,811		117,392		44,376
December 31, 2007	23,636		85,926		37,957
December 31, 2008	17,052		79,413		30,288

(a) Includes approximately 2.2 MMboe associated with discoveries in Greater Bay Marchand.

(b) Includes the sale of approximately 2.1 Mmboe proved reserves in the sale of substantially all of our onshore South Louisiana producing assets.

(c) Purchases are the result of the acquisition of an additional interest in our deepwater leases and reserves acquired through the non participation rights in a well operation.

(d) Includes approximately 1.8 Mmboe associated with discoveries in Greater Bay Marchand.

(e) Comprised of approximately 1.4 Mmboe of positive revisions and approximately 6.6 Mmboe of negative revisions, of which approximately 4.1 Mmboe was on fields that were impaired during 2007.

(f) Includes approximately 1.2 Mmboe associated with discoveries in Greater Bay Marchand and approximately 0.4 Mmboe associated with discoveries at our East Bay field.

(g) Comprised of approximately 3.5 Mmboe of negative revisions associated with price decreases in both oil and natural gas and approximately 2.0 Mmboe of negative revisions associated with underperformance of wells.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Capitalized costs for oil and natural gas producing activities consist of the following:

	2008			2007
	(In thousands)
Proved properties	$	1,601,748		$	1,496,068
Unproved properties		36,274			42,083
Accumulated depreciation, depletion and amortization		(951,316	)		(817,923	)
Net capitalized costs	$	686,706		$	720,228

Costs incurred for oil and natural gas property acquisition, exploration and development activities for the years ended December 31, 2008, 2007 and 2006 are as follows:

	Years Ended December 31,
	2008		2007		2006
	(In thousands)
Acquisitions
-Proved	$	—	$	2,167	$	420
-Unproved		20,925		7,346		15,896
Exploration		56,202		191,621		224,147
Development (1)		127,948		121,769		167,346
Costs incurred	$	205,075	$	322,903	$	407,809

(1) Includes asset retirement obligations incurred of $13.4 million, $5.6 million and $8.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Expenditures incurred for exploratory dry holes are excluded from operating cash flows and included in investing activities in the consolidated statements of cash flows.

Standardized Measure of Discounted Future Net Cash Flows Relating to Reserves

The following information has been developed utilizing procedures prescribed by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities”. It may be useful for certain comparative purposes, but should not be solely relied upon in evaluating our performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of our oil and natural gas reserves or the current value of the Company.

We believe that the following factors should be taken into account in reviewing the following information: (1) future costs and sales prices will probably differ from those required to be used in these calculations; (2) due to future market conditions and governmental regulations, actual rates of production achieved in future years may vary significantly from the rate of production assumed in the calculations; (3) selection of a 10% discount rate is arbitrary and may not be reasonable as a measure of the relative risk inherent in realizing future net oil and gas revenues; and (4) future net revenues may be subject to different rates of income taxation.

Under the Standardized Measure, future cash inflows were estimated by applying the use of physical pricing determined by the market on the last day of the fiscal year, applying historical adjustments, including transportation, quality differentials, and purchaser bonuses, on an individual property basis, to the year end quantities of estimated proved reserves. The historical adjustments applied to the market price on the last day of the fiscal year are determined by comparing our historical realized price experience with the comparable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

historical market, or posted, price. These adjustments can vary significantly over time both in amount and as a percentage of the market price on the last day of the fiscal year, especially related to oil prices during periods when the market price for oil varies widely or the year end market price is significantly higher or lower than the average realized price during the year. The price adjustments reflected in our year end reserve prices may not represent the amount of price adjustments we may actually obtain in the future when we sell our production. Future cash inflows were reduced by estimated future development, abandonment and production costs based on period-end costs with the assumption of the continuation of existing economic conditions in order to arrive at net cash flow before tax. Future income tax expense has been computed by applying period-end statutory tax rates to aggregate future net cash flows, reduced by the tax basis of the properties involved and tax carryforwards. Use of a 10% annual discount rate is required by Statement 69.

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is as follows:

	2008			2007			2006
	(In thousands)
Future cash inflows	$	1,517,701		$	3,384,268		$	2,688,624
Future production costs		(612,934	)		(895,352	)		(700,915	)
Future development costs		(347,107	)		(316,753	)		(355,238	)
Future income tax expense		(15,176	)		(598,874	)		(415,250	)
Future net cash flows after income taxes		542,484			1,573,289			1,217,221
10% annual discount for estimated timing of cash flows		(126,313	)		(480,354	)		(323,747	)
Standardized measure of discounted future net cash flows	$	416,171		$	1,092,935		$	893,474

A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved oil and natural gas reserves for the years ended December 31, 2008, 2007 and 2006 is as follows:

	2008			2007			2006
	(In thousands)
Beginning of the period	$	1,092,935		$	893,474		$	1,261,246
Sales and transfers of oil and natural gas produced, net of production costs		(277,493	)		(375,060	)		(379,624	)
Net changes in prices and production costs		(749,426	)		788,913			(648,509	)
Extensions, discoveries and improved recoveries, net of future production costs		28,437			106,690			250,255
Revision of quantity estimates		(117,355	)		(210,230	)		8,316
Previously estimated development costs incurred during the period		27,932			63,588			97,073
Purchase and sales of reserves in place, net		(21,514	)		(50,060	)		(5,951	)
Changes in estimated future development costs		(46,956	)		(8,935	)		(28,356	)
Changes in production rates (timing) and other		(35,692	)		(151,746	)		(91,709	)
Accretion of discount		147,029			118,830			180,618
Net change in income taxes		368,274			(82,529	)		250,115
Net increase (decrease)		(676,764	)		199,461			(367,772	)
End of period	$	416,171		$	1,092,935		$	893,474

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2008, 2007 and 2006, the computation of the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves was based on the following period-end prices:

	2008		2007		2006
per Mcf for natural gas	$	6.05	$	6.98	$	5.54
per barrel for oil	$	44.77	$	94.76	$	58.40

(21) Related Party Transactions

One of our former directors was a senior managing director of Evercore Group L.L.C. (“Evercore”). Evercore provided financial advisory services to us in connection with the Stone transaction, the Woodside offer and our exploration of strategic alternatives. Evercore received fees of $1.6 million in 2006 in connection with the financial advisory services related to the Stone transaction and the consideration of the unsolicited offer from Woodside. In addition, a $7.0 million fee was due to Evercore upon the earlier of the consummation of a transaction or September 5, 2007, of which $2.3 million was accrued during 2006 and the remaining $4.7 million was accrued during the first nine months of 2007 and paid in September 2007.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported on herein. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2008 because of the material weaknesses discussed in Item 9A(b) below.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

In connection with our annual evaluation of internal control over financial reporting, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed the effectiveness as of December 31, 2008 of our internal control over financial reporting based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s evaluation included an assessment of the design of our internal control over financial reporting and testing of the operating effectiveness of our internal control over financial reporting. During this evaluation, management identified the following material weaknesses in our internal control over financial reporting and has concluded that as a result of these material weaknesses, our internal control over financial reporting was not effective as of December 31, 2008 based upon the criteria issued by COSO:

• Control Environment over Financial Reporting. We lacked sufficient resources and accounting expertise to perform effective supervisory reviews and monitoring activities over financial reporting matters and controls related to matters involving judgments and estimates.

These deficiencies contributed to the development of the Complex and Non-Routine Accounting Matters and Period-End Financial Reporting Process material weaknesses described below.

• Complex or Non-Routine Accounting Matters. We lacked sufficient expertise and resources within our organization to effectively identify and evaluate the financial reporting implications of complex or non-routine accounting matters, such as application of SFAS No. 143, “Accounting for Asset Retirement Obligations.”

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• Period-End Financial Reporting Process. We also lacked sufficient expertise and resources within our organization to ensure journal entries, both recurring and non-recurring, were accompanied by sufficient supporting documentation and were adequately reviewed and approved prior to being recorded.

There were material errors in AROs and impairments resulting from the material weaknesses and the errors were corrected prior to the issuance of the financial statements.

KPMG LLP, an independent registered public accounting firm, has issued a report concerning the effectiveness of our internal control over financial reporting as of December 31, 2008. See “Report of Independent Registered Public Accounting Firm” in Part II, Item 8 of this Annual Report.

(c) Changes in Internal Control Over Financial Reporting

There were no changes in our system of internal control over financial reporting during the three months ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

During 2008, we experienced changes in personnel, including our Controller, who were performing key quarterly and annual internal control processes. The material weaknesses in our internal control over financial reporting as described above occurred during the three months ended December 31, 2008.

In light of the material weaknesses described above, we performed additional procedures that were designed to provide reasonable assurance regarding the reliability of (1) our financial reporting; and (2) the preparation of the consolidated financial statements contained in this Annual Report. Accordingly, management believes that the consolidated financial statements included in this Annual Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.

(d) Management’s Remediation Plans

We plan to remediate our material weaknesses caused by a lack of personnel when we are able to recruit and retain the required resources. Management believes that (1) hiring adequate accounting resources with appropriate accounting expertise and (2) enhancing policies and procedures will remedy the material weaknesses described above.

We are committed to finalizing our remediation action plan and implementing the necessary enhancements to our resources, policies and procedures to fully remediate the material weaknesses discussed above, and these material weaknesses will not be considered remediated until (1) new resources are fully engaged and new processes are fully implemented, (2) new processes are implemented for a sufficient period of time and (3) we are confident that the new processes are operating effectively.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

Set forth below are the names, ages and positions of our current directors and executive officers:

Name	Age	Positions Held
Jerry D. Carlisle	63	Director
Robert D. Gershen	55	Director
James R. Latimer, III	63	Director
Bryant H. Patton	50	Director
Steven J. Pully	49	Director
Alan D. Bell	63	Chief Restructuring Officer
Thomas D. DeBrock	49	Senior Vice President of Exploration
Stephen D. Longon	51	Executive Vice President and Chief Operating Officer
John H. Peper	57	Executive Vice President, General Counsel and Corporate Secretary
Tiffany J. Thom	37	Vice President, Treasurer and Investor Relations
L. Keith Vincent	54	Senior Vice President of Acquisitions and Land

Jerry D. Carlisle has been a director since March 2003. Mr. Carlisle was Deputy Inspector General, Audit and Review, in the office of inspector general in the City of New Orleans from December 2008 to April 2009. Mr. Carlisle has been vice president and director of DarC Marketing, Inc., a family-owned marketing company, since 1997. From 1983 to 1997, Mr. Carlisle was vice president, controller and chief accounting officer of The Louisiana Land and Exploration Company (“LL&E”) and, from 1979 to 1983, he held various management positions at LL&E. Mr. Carlisle has a masters of business administration from Loyola University, is a certified public accountant, and serves as a trustee of the Mississippi State University Business School. Mr. Carlisle is also a director of Louisiana Citizen’s Property Insurance Corporation.

Robert D. Gershen has been a director since May 1998. Since September 1989, Mr. Gershen has been president of Associated Energy Managers, LLC, an investment management firm specializing in private equity investments in the energy sector. In addition, since December 2001, Mr. Gershen has served as president of Longview Energy Company, a privately held oil and gas company.

James R. Latimer, III has been a director since May 2008. Since 1991, Mr. Latimer has been the head of The Latimer Companies, a private oil and gas exploration and development company. He is also a partner of Blackhill Partners/Blackhill Advisors, a financial advisory and merchant banking firm, primarily in energy and technology industries, which he founded in 2000. Mr. Latimer currently serves as a director of NGP Capital Resources Company.

Bryant H. Patton has been a director since May 2008. Mr. Patton is the president of BRYCAP Investments, Inc., a merchant banking firm specializing in energy related companies that he founded in 1989. In 2000, he also co-founded Camden Resources, Inc., a private oil and gas exploration and production company, and served as executive vice president until the company was acquired at the end of 2007. Mr. Patton also served as senior vice president of Associated Energy Managers, LLC, an investment management firm specializing in private equity investments in the energy sector, from 1991 to 1998. Mr. Patton also is a director of the general partner of Abraxas Energy Partners, L.P.

Steven J. Pully has been a director since May 2008. Mr. Pully has been the General Counsel of Carlson Capital, L.P., a multi-strategy investment firm, since July 2008. From October 2007 to April 2008, he was a consultant in the asset management industry and provided consulting services for Carlson Capital, L.P. From December 2001 to October 2007, Mr. Pully worked for Newcastle Capital Management, L.P., an investment

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partnership, where he served as president from January 2003 through October 2007. He served as chief executive officer of New Century Equity Holdings Corp., from June 2004 through October 2007. Prior to joining Newcastle Capital Management, he was an investment banker at Banc of America Securities, Inc. and Bear Stearns with a primary focus on the energy sector. Mr. Pully is also a director of Cano Petroleum, Inc. and Ember Resources Inc. Mr. Pully is licensed to practice law in the State of Texas and is a CPA and CFA.

Alan D. Bell joined us in March 2009 as our chief restructuring officer. Mr. Bell has extensive experience in the petroleum industry. Mr. Bell started his career as a production engineer from 1969 to 1972 for Chevron Oil Company in the Gulf of Mexico. He then spent 33 years with Ernst & Young auditing natural resource companies, dealing with the Securities and Exchange Commission and working with senior executives and boards of directors of public companies within the energy industry. At the time of his retirement in June 2006, Mr. Bell was the director of Ernst & Young LLP’s energy practice in the Southwest U.S. area. Mr. Bell earned a master’s degree in business from Tulane University and a bachelor’s degree in petroleum engineering from the Colorado School of Mines, and is a certified public accountant licensed in Texas. Mr. Bell is also a director of Dune Energy, Inc. where he serves as the Chairman of the Audit Committee. Until June 4, 2009, Mr. Bell served as a director of Toreador Resources Corporation.

Thomas D. DeBrock joined us in June 1998 as a senior geologist and was promoted to exploration manager, New Orleans in September 2004, vice president of exploration in August 2006 and senior vice president of exploration in August 2007. He has 23 years of energy industry experience in both the exploration and development efforts. Mr. DeBrock began his career with GTS Seismic Corporation, and then joined Odeco Oil and Gas working the Gulf of Mexico Shelf followed by a move to LL&E to work the Onshore area of South Louisiana. After the merger of LL&E with Burlington Resources, he joined W&T Offshore before joining us.

Stephen D. Longon joined us in July 2007 as senior vice president—drilling and engineering and in February 2008 was assigned additional responsibilities and was named senior vice president—drilling, engineering and production. In July 2008, Mr. Longon was named executive vice president and chief operating officer. He has 29 years of energy industry experience. He was most recently with Dominion Exploration & Production, Inc. (“Dominion”), from May 2001 to July 2007 in its New Orleans office serving as general manager of production and operations, with responsibility for their operations on the Gulf of Mexico Shelf, in the deepwater Gulf of Mexico and onshore South Louisiana. During his earlier years with Dominion, he played a key role in the integration and management of substantial resource assets in the Arklatex area, South Texas and the Texas Gulf Coast. Prior to his position with Dominion, Mr. Longon served in a variety of Gulf of Mexico operational roles as production manager with ATP Oil & Gas Corp. from September 2000 to May 2001, various management positions over construction, Gulf of Mexico assets and deepwater development for Vastar Resources, Inc. from October 1993 to September 2000 and for Atlantic Richfield Company in positions of increasing responsibility, primarily in the Gulf of Mexico and onshore Texas and south Louisiana from June 1979 to October 1993.

John H. Peper joined us in January 2002 as executive vice president, general counsel and corporate secretary. Prior to joining us, Mr. Peper was senior vice president, general counsel and secretary of Hall Houston Oil Company (“HHOC”) since February 1993. Mr. Peper also served as a director of HHOC from October 1991 until we acquired HHOC in January 2002. For more than five years prior to joining HHOC, Mr. Peper was a partner in the law firm of Jackson Walker, L.L.P., where he continued to serve in an of counsel capacity through 2001.

Tiffany J. Thom joined us as a senior asset management engineer in 2000, and has since held the positions of director of corporate reserves and director of investor relations. In July 2009, she was designated as our principal financial officer. Prior to joining us, Ms. Thom was a senior reservoir engineer with Exxon Production Company and ExxonMobil Company. Ms. Thom holds a B.S. in Engineering from the University of Illinois and a M.B.A. in Management with a concentration in Finance from Tulane University.

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L. Keith Vincent joined us as land manager in January 1999 and was appointed vice president, land and business development in July 2000. In August 2007, he was promoted to senior vice president—land and business development and in February 2008 was assigned additional responsibilities and was appointed senior vice president of acquisitions and land. Mr. Vincent was vice president, land and legal, of Great River Oil & Gas Corporation from 1994 to October 1998. From October 1998 until joining us, Mr. Vincent was a self-employed sole proprietor performing contract work for various oil and gas exploration companies. During Mr. Vincent’s 29-year career, he also held various managerial positions with Davis Petroleum Corporation and Transco Exploration Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of our outstanding common stock to file initial reports of ownership and changes in ownership of common stock with the SEC. Reporting persons are required by the SEC to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of reports we received and written representations from our directors and officers, we believe that all filings required to be made under Section 16(a) for the fiscal year ended December 31, 2008 were timely made with the exception of the following:

• On April 3, 2008, Dina B. Riviere filed a Form 4 due March 18, 2008;

• On April 3, 2008, Dina B. Riviere filed a Form 4 due March 19, 2008;

• On June 2, 2008, Dina B. Riviere filed a Form 4 due April 24, 2008; and

• On October 23, 2008, Harold D. Carter filed a Form 4 due October 8, 2008.

Code of Ethics

We have adopted a Corporate Code of Business Conduct and Ethics that applies to all directors and employees, including our chief executive officer, chief financial officer and controller. A copy of the code is available on our website at www.eplweb.com. A copy of the code is also available, at no cost, by writing to our Secretary at 201 St. Charles Avenue, Suite 3400, New Orleans, Louisiana, 70170. We will post on our website any waiver of the code granted to any of our directors or executive officers promptly following the date of the amendment or waiver. No such waiver has ever been sought or granted.

Nominating Procedures

When seeking candidates for director, the Nominating & Governance Committee may solicit suggestions from incumbent directors, management, stockholders or others. In addition, the Nominating & Governance Committee has authority under its charter to retain a search firm for this purpose. After conducting an initial evaluation of a potential candidate, the Nominating & Governance Committee will interview that candidate if it believes such candidate might be suitable to be a director. The Nominating & Governance Committee may also ask the candidate to meet with management. If the Nominating & Governance Committee believes a candidate would be a valuable addition to the Board, it will recommend to the full Board that candidate’s election.

The Nominating & Governance Committee selects each nominee based on the nominee’s skills, achievements and experience. The Nominating & Governance Committee considers a variety of factors in selecting candidates, including, but not limited to the following: independence, wisdom, integrity, an understanding and general acceptance of our corporate philosophy, valid business or professional knowledge and experience, a proven record of accomplishment with excellent organizations, an inquiring mind, a willingness to speak one’s mind, an ability to challenge and stimulate management and a willingness to commit time and energy.

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Audit Committee Information

The Board has a standing Audit Committee established in accordance with Section (3)(a)(58)(A) of the Exchange Act, the current members of which are Messrs. Carlisle, Latimer and Pully. The Board, in its business judgment, has determined that each of the members of the Audit Committee is “independent” as defined by the Company’s categorical standards on independence as well as the listing standards of the NYSE and the rules of the SEC applicable to audit committee members. Further, the Board, in its business judgment, has determined that Mr. Carlisle qualifies as an “audit committee financial expert” as described in Item 407(d)(5) of Regulation S-K.

Item 11. Executive Compensation

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is now, or at any time has been, employed by or served as an officer of our company or any of its subsidiaries or had any substantial business dealings with our company or any of its subsidiaries. None of our executive officers are now, or at any time has been, a member of the compensation committee or board of directors of another entity, one of whose executive officers has been a member of the Compensation Committee or the Board of our company.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the disclosure set forth below under the heading “Compensation Discussion and Analysis” with management and, based on the review and discussions, it has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Respectfully submitted by the Compensation Committee,

Robert D. Gershen

James R. Latimer, III*

Steven J. Pully*

* Messrs. Latimer and Pully joined the Compensation Committee in May 2008 and February 2009, respectively.

Compensation Discussion and Analysis

Objectives of Our Executive Compensation Program

The Compensation Committee (for purposes of this Item 11, the Committee) believes that our executive compensation program should motivate management to achieve our annual, long-term and strategic goals, and enhance stockholder value. Our compensation objectives are to attract and retain the best available talent and foster a corporate culture of teamwork to achieve our business objectives while rewarding individual contributions, all in order to achieve a superior rate of stockholder return over time.

The Committee based its decisions with respect to performance-measured compensation of our executive officers for services rendered in fiscal 2008 upon these principles and its assessment of each officer’s potential to enhance long-term stockholder value. The Committee also considered each executive officer’s current salary and prior year compensation, as well as compensation paid to the executive officer’s peers when making its compensation decisions.

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Setting Our Executive Officer Compensation

Role of the Compensation Consultant, the Committee and Management

The Committee has engaged Towers Perrin and Frederic W. Cook & Co., Inc. in the past as consultants to assist it in determining appropriate types and levels of compensation. For the fiscal year 2008, Towers Perrin assisted the Committee with an evaluation of the base salary levels of our top executive officers. Frederic W. Cook & Co., Inc. prepared an analysis of the following compensation matters for each of the officers named in the Summary Compensation Table located in our proxy statement for the 2008 Annual Meeting of Stockholders: (1) base salary levels, (2) actual total cash compensation (comprised of base salary and cash incentive bonus), (3) total long term incentive compensation and (4) actual total direct compensation. The Committee’s use of this analysis is discussed in more detail below. In addition, Frederic W. Cook & Co., Inc. prepared an analysis of director compensation for the Committee as discussed in more detail below under “—Director Compensation—General.” Neither firm performs services for us other than its work for the Committee.

Prior to July 2008, decisions with respect to the compensation of our executive officers (other than our Chief Executive Officer) were made by the Committee based on recommendations by the Chief Executive Officer. Subsequent to July 2008, decisions with respect to the compensation of our executive officers (with the exception of our Chief Executive Officer) were made by the Board based on recommendations by the Committee. The Committee expects recommendations from our Chief Executive Officer but exercises its own judgment and makes its own determination. The compensation of our Chief Executive Officer is recommended by the Committee and approved by the independent members of the Board. The compensation of our non-executive officers and other employees is determined by our executive officers.

Determining Compensation

The Committee, which relies upon the judgment of its members in making compensation decisions, has established a number of processes to assist it in ensuring that our executive compensation program supports our objectives and company culture. Among those processes are competitive benchmarking and an assessment of individual and company performance, which are described in more detail below.

• Competitive Benchmarking. The Committee compares our executive pay practices against other companies to assist it in the review and comparison of each element of compensation for our executive officers. This practice recognizes that (1) our compensation practices must be competitive in the marketplace and (2) marketplace information is one of the many factors considered in assessing the reasonableness of our executive compensation program. The Committee’s use of competitive benchmarking for each element of compensation is discussed in more detail below. The peer group used by the Committee for its fiscal 2008 compensation decisions included: ATP Oil & Gas Corp., Bois d’Arc Energy, Inc., Callon Petroleum Company, Mariner Energy, Inc., McMoRan Exploration Co., Meridian Resource Corp., Stone Energy Corp. and W & T Offshore, Inc. (collectively, the 2008 Peer Group). The 2008 Peer Group was formulated by management and approved by the Committee. This is the same peer group used for comparing our stock performance as set forth under Part II, Item 5, “Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities” with the exception of Bois d’Arc Energy, Inc., which was not included for stock performance comparisons due to its acquisition by Stone in 2008.

• Assessment of Individual and Company Performance. The Committee believes that a balance of individual and company performance criteria should be used in establishing total compensation. Individual and company performance determines the amounts earned under our annual cash incentive bonus program. Company performance is a significant factor in the value of equity-based compensation. These performance measures are discussed in more detail below.

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Types of Compensation

We generally provide three primary types of compensation to our executive officers:

• annual base salary;

• annual cash incentive bonus; and

• long-term equity-based compensation, consisting of restricted share units (settled in shares or cash) and stock options and share appreciation rights (settled in shares or cash), the value of which is directly linked to the value of our common stock.

Occasionally, we provide one-time cash payments to certain executive officers as described in more detail below under “—Cash Payments.”

The distribution of compensation among the various components of compensation is driven by the Committee’s belief that a substantial component of each officer’s annual compensation is dependent upon measurable improvement to stockholder value and, therefore, “at risk.” For example, the annual cash incentive bonus is primarily determined by the Committee’s assessment of success measured against pre-established corporate goals, which has the effect of making it “at risk.” No amount of annual incentive is guaranteed. The long-term equity-based compensation, although not directly tied to the corporate goals, is variable because its real value is driven by future stock performance, which is linked to corporate performance.

Annual Base Salary

We provide our executive officers and other employees with an annual base salary to compensate them for services rendered during the year.

At least once each year, the Committee reviews each executive officer’s annual base salary. This review is conducted with the assistance of Towers Perrin. Towers Perrin’s analysis typically includes (1) an assessment, which is based on market data derived from published surveys, of each executive officer’s compensation level compared to other executive officers in similar positions in the exploration and production industry as well as the marketplace, in general, and (2) a detailed review of the compensation paid to other executive officers in similar positions in a selected peer group of companies. In general, the Committee targets the median to 75th percentile of available market data for the base salaries levels of our executive officers. A competitive base salary is consistent with our long-term objectives of attracting and retaining highly qualified, competent executives.

In December 2007, Towers Perrin used the following surveys to gather the market data for the first part of its analysis: (1) The William M. Mercer, 2007 Energy Compensation Survey, and (2) the Effective Compensation, Incorporated, 2007 Oil & Gas E&P Compensation Survey. As the second part of its analysis, Towers Perrin reviewed fiscal 2007 compensation disclosures contained in the proxy statements filed by the 2008 Peer Group.

Based on the data provided by Towers Perrin, the Committee approved fiscal 2008 base salary adjustments for each executive officer (other than Mr. Bachmann), consistent with the Committee’s compensation philosophy targeting the median to 75th percentile of the 2008 Peer Group. The following table provides the base salaries for our Named Executive Officers in fiscal years 2007 and 2008 and the percentage increase in their 2008 base salary from their 2007 base salary.

Named Executive Officer	2007 Base Salary	2008 Base Salary	Percentage Increase
	($)	($)	(%)
Richard A. Bachmann	500,000	525,000	5
Joseph T. Leary	250,000	265,000	6
Thomas D. DeBrock	260,000	270,000	4
Stephen D. Longon (1)	240,000	340,000	42
John H. Peper	250,000	275,000	10

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(1) Mr. Longon’s salary was increased from $240,000 to $245,000 in December 2007 (representing a 2.08% increase). In July 2008, Mr. Longon’s salary was increased by the Committee from $245,000 to $340,000 in connection with his promotion to Executive Vice President and Chief Operating Officer.

Cash Payments

From time to time, we make cash payments to our executive officers pursuant to the terms of agreements with our officers and, less frequently, in special recognition of individual and/or company performance.

Commencing December 1, 2007, Mr. DeBrock was entitled to a payment of $120,000 each December 1 through December 1, 2012. The payment received by Mr. DeBrock in 2008 is reflected in the Bonus column of the Summary Compensation Table below. Please see “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” for additional information regarding this payment.

Annual Cash Incentive Bonus

The purpose of our annual incentive bonus program is to motivate our executive officers to achieve, and reward the accomplishment of, our annual company objectives and individual performance. Incentive bonuses are based on quantitative and qualitative factors that the Committee may deem appropriate and the Committee’s assessment of the individual’s performance. Historically, the Committee has targeted the 75th percentile of a selected peer group of companies for the combination of base salary and incentive bonus when results warrant.

While the Committee does not apply a completely formulaic approach, for fiscal 2008, the quantitative targets established by the Committee (based on input provided by management) consisted of:

• An exit production rate of 20,000 Boe per day,

• A 100% reserve replacement,

• Cash costs (lease operating expenses, general and administrative expense and taxes other than on earnings, excluding our merger and acquisition expenses) per Boe (Cash Costs/Boe) relative to the 2008 Bonus Peer Group (as defined below),

• A 20% reduction in cash costs from fiscal 2007, and

• The increase in value of our common stock relative to the 2008 Bonus Peer Group.

“2008 Bonus Peer Group” means the 2008 Peer Group with the addition of Energy XXI (Bermuda) Limited. The Committee included Energy XXI (Bermuda) Limited, a shelf Gulf of Mexico operating company with similar market capitalization and financial structure, in the peer group used for the fiscal 2008 quantitative bonus targets due to the anticipated acquisition of Bois d’Arc Energy, Inc. by Stone Energy Corp. and the Committee’s desire to use the same number of companies for purposes of peer group comparisons.

The Committee weights each of these factors equally, and the Named Executive Officers can receive up to a maximum of 200% of each quantitative target if performance exceeds the predetermined levels. The quantitative performance targets were selected because, in the analysis by management and the Committee, these targets represent “stretch” targets required for the Company to be a successful exploration and production (“E&P”) company for the following reasons:

• An exit production rate of 20,000 Boe per day represented an increase of more than 40% of the average of 14,000 Boe per day at the time when the Committee established this target. In addition, the Committee considered our lower production forecast for the year.

• A target of 100% reserve replacement was considered a substantial goal as compared to our negative reserve replacement for fiscal 2007, particularly in light of our limited financial budget to drill for new reserves.

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• The 20% cash costs reduction was considered a meaningful year over year reduction in expenses.

• Cash costs per Boe and the increase in value of our common stock relative to the 2008 Bonus Peer Group each required performance above the median of the 2008 Bonus Peer Group for accomplishment, which was considered meaningful for purposes of improving stockholder value relative to our peers.

Substantially all of the targets can be compared to other E&P companies from published data, and past experience has indicated that success with these targets will usually have a positive impact on stock price, thus aligning the targets with stockholder interests.

In reviewing quantitative factors, the Committee will determine each year whether a level of performance below our targets is deserving of any bonus percentage, taking into account external factors beyond the control of the executives. For example, the Committee has, in the past, adjusted targets for extraordinary events such as the impact of hurricanes on our ability to achieve such targets. While the Committee does not set objectively ascertainable performance objectives for each individual officer, individual performance is considered by the Committee when making the bonus determinations.

A target bonus percentage of base salary is predetermined and periodically reviewed for each executive on the basis of market practices, although actual bonus payments can be significantly affected by the Committee’s assessment of individual performance. The fiscal 2008 target bonus percentages for the Named Executive Officers set forth in the Summary Compensation Table are as follows: Mr. Bachmann—100%; Mr. Leary—55%; Mr. DeBrock—50%; Mr. Longon—65%; and Mr. Peper—55%.

Historically, the Committee has made the final bonus determinations around March of each fiscal year. In light of the events leading up to and culminating in the filing of Chapter 11 Cases, the Committee determined that no bonuses would be awarded for fiscal 2008.

Long-Term Equity-Based Compensation

Our long-term equity-based incentive program is designed to give our key employees a longer-term stake in our company, act as a long-term retention tool and align employee and stockholder interests by aligning compensation with growth in stockholder value. To achieve these objectives, we generally rely on a combination of different types of equity and grants with equity-like features, which are made pursuant to our 2006 Long Term Stock Incentive Plan (“LTIP”).

In determining the appropriate levels of long-term equity-based compensation, the Committee periodically reviews comparable compensation, as well as historical share usage and dilution analyses and the fair value of long-term compensation as a percentage of market capitalization, of a selected peer group. The Committee also periodically reviews the general mix of equity awards used by exploration and production companies of similar size and revenues in compensating executive officers. The Committee has historically targeted a dollar value of awards that would place our officers at or near the 75th percentile of equity awards provided by a selected peer group for long-term compensation.

For the fiscal 2008 equity awards to our executive officers (other than Mr. Bachmann), the Committee used a combination of stock options, stock-settled restricted share units and cash-settled restricted share units to provide long-term compensation. The Committee’s rationale for selecting each type of equity award is explained in more detail below. The desired dollar value of long-term compensation was (1) based upon targeting the 75th percentile of equity awards provided by the 2008 Peer Group and (2) divided with respect to limitations set forth in our proxy statement for the 2006 Annual Meeting of Stockholders where we committed to an average annual “burn rate” of no more than 2.5% of our outstanding shares for calendar years 2006 through 2008 in order to obtain a favorable recommendation from Risk Metrics Group (formerly, Institutional Shareholder Services,

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Inc.) on the vote for the LTIP. When granting the awards, the Committee aimed to provide an allocation consisting of 25% of option shares and 75% stock-settled restricted share units to achieve its competitive benchmarking target of the 75th percentile. However, because of our burn rate commitment to Risk Metrics Group for the third and final year (2008), the Committee allocated the equity awards as follows: stock options (25%), stock-settled restricted share units (22%) and cash-settled restricted share units (53%). A significant portion of the restricted share units allocation was made by the Committee to cash-settled awards in order to achieve the desired dollar value of long-term compensation because cash-settled restricted share units are not included in the calculation of burn rate.

For purposes of the above commitment, “burn rate” is calculated by dividing the number of stock options, restricted shares, restricted shares units and stock-settled stock appreciation rights granted, and performance shares and stock-settled performance units paid, during each fiscal year by the number of basic shares outstanding at the end of the fiscal year. Under the calculation of burn rate, one full value share equals two option shares.

The following is a description of the material features of the awards and the Committee’s rationale for awarding each type of equity award:

• Stock Options. A stock option is the right to purchase, in the future, shares of common stock at a set price. Stock options may be (1) an Incentive Stock Option (“ISO”), which is any stock option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code; or (2) a Non-Qualified Stock Option (“NQSO”), which is any stock option that is not an ISO. The purchase price of shares subject to any stock option must not be less than the fair market value of a share on the date of the grant of the option. Fair market value is defined as the closing price of the common stock on the date the grant is made. The maximum term of any stock option is 10 years from the date the option was granted except in the event of death or disability. The Committee can fix a shorter period, and can impose such other terms and conditions on the grant of stock options as it chooses, consistent with applicable laws and regulations. Similar to stock appreciation rights, stock options are typically granted subject to time-based vesting requirements. Likewise, stock options deliver value to an executive only to the extent that our stock price increases after the date of grant. The stock option grants made in fiscal 2008 by the Committee have a 10-year term with 1/3^rd of the options vesting and becoming exercisable on each of the first three anniversaries of the date of grant. The Committee believed that the three-year vesting term would help create a long-term incentive and strike an appropriate balance between the interests of our company, our stockholders and our officers in terms of the incentive, value creation and compensatory aspects associated of this type of equity award.

• Restricted Share Units. A restricted share unit is the right to receive shares or cash at the end of a specified deferral period. In addition, restricted share units are subject to such restrictions as the Committee may impose, which may include the attainment of specified performance goals, which restrictions may lapse at the expiration of the deferral period or at earlier or later specified times, as the Committee may determine. Except as otherwise determined by the Committee, upon the termination of the participant’s employment or consulting services with us, our subsidiaries and our affiliates during the applicable deferral period or upon failure to satisfy any other conditions precedent to the delivery of the shares, restricted share units that are at that time subject to deferral or restriction will be forfeited. Restricted share units provide value in the form of stock while resulting in lower share usage and lower dilution than the use of certain other types of equity awards. In addition, the vesting conditions and opportunity for long-term capital appreciation, which are characteristic of restricted share units, help us achieve our objectives of management retention and linking pay to our long-term stockholder value. Restricted share units do not offer dividend or voting rights until they vest and shares are subsequently released to the grantee. These awards are designed to build executive ownership, retain executives, and align compensation with the achievement of creating stockholder value. We believe restricted shares can be a strong motivational tool for our employees. Restricted share awards provide some value to an employee during periods of stock market volatility, whereas other forms of equity compensation, such

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as stock options, may have limited perceived value and may do little to retain and motivate employees when the current value of our stock is less than the option price. The fiscal 2008 grants of stock-settled restricted share units and cash-settled restricted share units by the Committee vest in 1/3^rd increments on each of the first three anniversaries of the date of grant. The Committee believed that the three-year vesting term would help create a long-term incentive and strike an appropriate balance between the interests of our company, our stockholders and our officers in terms of the incentive, value creation and compensatory aspects associated of this type of equity award.

In April 2008, the Committee recommended, and the independent directors approved, long-term equity compensation for Mr. Bachmann in the form of an award of 500,000 cash-settled share appreciation rights. The award was based on data calculated by Frederic W. Cook & Co., which targeted the 75th percentile of the 2008 Peer Group, consistent with the Committee’s compensation philosophy. The following is a description of the material features of this award and the Committee’s rationale for awarding this type of equity award:

• Cash-Settled Share Appreciation Rights. A share appreciation right, or an SAR, is the right to receive upon the exercise of each share the excess of (1) the closing price of one share of common stock on the date of the exercise over (2) the exercise price per share of the SAR, as determined by the Committee as of the date of the grant of the SAR (which shall not be less than the fair market value of the share on the date of the grant of the SAR). The maximum term of any SAR is 10 years from the date the SAR was granted except in the event of death or disability. The Committee can fix a shorter period, and can impose such other terms and conditions on the grant of SARs as it chooses, consistent with applicable laws and regulations. The Committee granted Mr. Bachmann cash-settled SARs in fiscal 2008 instead of stock-settled awards in order to maintain our burn rate commitment and because these equity awards deliver value to him only to the extent that our stock price increases after the date of grant. However, unlike options, SARs do not require the payment of an exercise price. Because this grant is cash- settled, it does not use shares from the LTIP’s authorized stock pool because upon exercise, the SAR’s delivers only the cash value of the number of shares equivalent in value to the appreciation in the underlying stock. The grant of SAR’s to Mr. Bachmann was made with a term of 10 years with 1/3^rd of the covered shares vesting and becoming exercisable on each of the first three anniversaries of the date of grant. The Committee believed the three-year vesting term would help create a long-term incentive and strike an appropriate balance between the interests of our company, our stockholders and Mr. Bachmann in terms of the incentive, value creation and compensatory aspects of this equity award.

Other Benefits

Health and Welfare Benefits

Our Named Executive Officers are eligible to participate in all of our employee health and welfare benefit plans on the same basis as other employees (subject to applicable law) to meet their health and welfare needs. These plans include medical, dental, vision, group life, long-term and short-term disability, accidental death and dismemberment insurance, as well as medical and dependent care flexible spending accounts. These benefits are provided so as to assure that we are able to competitively attract and retain officers and other employees. This is a fixed component of base compensation, and the benefits are provided on a non-discriminatory basis to all employees.

Retirement Benefits

We offer a 401(k) profit sharing plan for the benefit of our employees, including our Named Executive Officers, which is designed to assist our employees in providing for their retirement. Employees may begin participating in the plan at the beginning of the first fiscal quarter following the date of hire for the employee. Under the plan, eligible employees may elect to defer a portion of their earnings up to the annual maximum allowed by IRS regulations. We match 100% of each participant’s contribution up to 6% of the participant’s base compensation. Until 2009, our matching contributions were made in our common stock. During 2009, our plan

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was amended to require matching contributions to be made in cash. Our matching contribution vests 50% per year for the first two years of the participant’s employment.

Perquisites

We believe that the total mix of compensation and other benefits provided to our executive officers is comprehensive and competitive, and our executive officers are not entitled to operate under different standards than other employees. Accordingly, we do not have programs for providing personal benefit perquisites to our executive officers, such as permanent lodging or defraying the cost of personal entertainment or family travel. We provide air and other travel for our executive officers for business purposes only, consistent with the same standards of other employees.

Severance and Change of Control Payments

We maintain the Severance Plan for certain key employees. Until June 2009, we maintained Severance Agreements with certain of our current and former executive officers. These agreements, which are described more fully in “—Potential Payments Upon a Termination or Change in Control,” were designed to meet the following objectives:

• To meet market conditions to provide common and competitive benefits in the energy industry, which, in recent history, have experienced an elevated level of merger/acquisition activity.

• To be used as recruitment and retention tools in light of current industry dynamics, in particular by mitigating the distraction of potential job loss. This objective is particularly relevant in our case, as we are a relatively small company. Additionally, we are now operating as a debtor-in-possession as a result of filing the Chapter 11 Cases. As a result of the financial protection provided, executives are better positioned to make the best decisions to increase shareholder value.

• To provide protection for previous amounts earned.

• We believe it is prudent to put these agreements in place when appropriate consideration can be given to their consequences rather than developing strategies under the pressure of an imminent transaction.

Our Fiscal 2009 Executive Compensation Program

Commencing in the first half of fiscal 2009 and continuing through the date of this filing, we have experienced major changes in the management of our company. Our Board of Directors declined from eleven to five members during the first quarter of 2009. In addition, on March 1, 2009, Joseph T. Leary resigned as our Executive Vice President and Chief Financial Officer. On March 15, 2009, Richard A. Bachmann resigned as our Chairman and Chief Executive Officer and we engaged Alan D. Bell as our Chief Restructuring Officer. In July 2009, we announced the designation of Alan D. Bell as principal executive officer and Tiffany J. Thom as principal financial officer. These management changes, in addition to our filing a voluntary petition (In re: Energy Partners, Ltd., et. al., Case No. 09-32957) for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended, in the United States Bankruptcy Court, led to changes in our executive compensation program.

As a result of the Plan Support Agreement, various incentive and retention plans and agreements that existed for certain of our executive officers required amending, renegotiating, and/or restructuring prior to the effective date of a confirmed plan of reorganization. As discussed in more detail under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Recent Events—Restructure of Prepetition Employee Arrangements,” the provisions of these plans and agreements were amended. Further, we established a Non-Insider Employee Retention Plan and a Senior Management Employee Plan. Finally, the Severance Agreements with certain executive officers were terminated in exchange for the executives receiving an unsecured claim for rejection damages.

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Policy on Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility for federal income taxes of compensation in excess of $1.0 million paid to a publicly-held company’s chief executive officer and any of the other four highest-paid executive officers, except for “performance-based” compensation. The Committee is aware of this limitation and generally considers the effects of Section 162(m) on our company when making compensation decisions, but has not yet adopted a formal policy with respect to the Section 162(m) limitation.

Accounting Treatment of Executive Compensation Decisions

We account for stock-based awards based on their grant date fair value, as determined under SFAS No. 123(R). Compensation expense for these awards, to the extent such awards are expected to vest, is recognized over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier). If the award is subject to a performance condition, however, the cost will vary based on our estimate of the number of shares that ultimately will vest over the requisite service or other period over which the performance condition is expected to be achieved. In connection with its approval of stock-based awards, the Committee is cognizant of and sensitive to the impact of such awards on stockholder dilution.

Stock Ownership Guidelines

The Board adopted Executive Stock Ownership Guidelines that generally require our executive officers to maintain a share ownership equal to 50% of the “profit shares” acquired under our equity compensation plans. Profit shares means the shares held by an executive officer as a result of the exercise of stock options, the lapsing of restrictions on restricted stock and restricted share units and the earning of performance shares, after giving effect to shares sold or netted to pay any exercise price or tax withholding amounts related to such award.

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Summary Compensation Table

The following table summarizes, with respect to our Named Executive Officers, information relating to the compensation earned for services rendered in all capacities.

Summary Compensation Table for the Year Ended December 31, 2008

Name and Principal Position	Year	Salary	Bonus (1)	Stock Awards (2)	Option Awards (3)	Non-Equity Incentive Plan Compensation (4)	All Other Compensation (5)	Total
		($)	($)	($)	($)	($)	($)	($)
Richard A. Bachmann (6)	2008	525,000	—	242,720	530,031	—	21,694	1,319,445
Former Chairman and Chief Executive Officer	2007	500,000	—	248,120	825,977	—	21,394	1,595,491
	2006	440,000	—	649,580	890,594	300,000	20,914	2,301,088
Joseph T. Leary (7)	2008	265,000	—	117,514	352,630	—	3,797	738,941
Former Executive Vice President and Chief Financial Officer	2007	92,788	50,000	—	132,863	—	1,366	277,017
	2006	—	—	—	—	—	—	—
Thomas D. DeBrock (8)	2008	270,000	120,000	260,930	147,671	—	15,892	814,493
Senior Vice President of Exploration	2007	226,620	223,500	419,241	64,795	—	14,883	949,039
	2006	—	—	—	—	—	—	—
Stephen D. Longon (9)	2008	288,307	—	142,750	107,402	60,000	16,364	614,823
Executive Vice President and Chief Operating Officer	2007	—	—	—	—	—	—	—
	2006	—	—	—	—	—	—	—
John H. Peper	2008	275,000	—	144,166	152,711	—	17,700	589,577
Executive Vice President, General Counsel and Corporate Secretary	2007	250,000	200,000	92,720	280,294	—	17,142	840,156
	2006	236,000	—	149,425	313,471	88,264	27,953	815,113

(1) Amounts for 2007 include Chairman’s Awards paid to Messrs. Peper and DeBrock.

(2) Amounts in this column reflect compensation expense recorded in our consolidated financial statements for each Named Executive Officer for the fiscal years ended December 31, 2008, 2007 and 2006, and includes grants made in previous years for which compensation expense is required to be recognized in accordance with SFAS No. 123(R). The expense has been calculated based on the grant date fair value of the respective awards offset by the fiscal 2008 reversal of a portion of the amounts expensed in 2007 due to reductions in assumptions regarding payout levels and in certain cases, share price. The amounts reported have been adjusted to eliminate service-based forfeiture assumptions. Please refer to Notes 2(j) and 15 in Part II, Item 8 of this Annual Report and to our Annual Reports on Form 10-K for the fiscal years ended December 31, 2007 and 2006, for a discussion of the assumptions used in computing the grant date fair value of stock based compensation awards. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that might be realized by the Named Executive Officers. See “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” below for a description of the material features of these awards.

(3) Amounts in this column reflect compensation expense recorded in our consolidated financial statements for each Named Executive Officer for the fiscal years ended December 31, 2008, 2007 and 2006, and includes grants made in previous years for which compensation expense is required to be recognized in accordance with SFAS No. 123(R). The expense has been calculated based on the grant date fair value of the respective awards offset by the fiscal 2008 reversal of a portion of the amounts expensed in 2007 due to reductions in assumptions regarding payout levels and in certain cases, share price. The amounts reported have been adjusted to eliminate service-based forfeiture assumptions. Please refer to Notes 2(j) and 15 in Part II, Item 8 of this Annual Report for a discussion of the assumptions used in computing the grant date fair value of stock based compensation awards. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that might be realized by the Named Executive Officers. See “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” below for a description of the material features of these awards.

(4) Amounts reflected in this column are paid pursuant to our incentive compensation plan as described under “—Compensation Discussion and Analysis—Annual Cash Incentive Bonus.”

(5) The amounts represent the dollar value of term life insurance premiums paid by us for the benefit of the Named Executive Officers, the dollar value of the company match to our 401(k) Plan on the employees’ behalf, and reimbursement of relocation expenses. For 2008, (a) the life insurance premiums for Messrs. Bachmann, Peper, Leary, Longon and DeBrock were $6,574, $2,580, $2,477, $1,354 and $882 respectively; and (b) the value of the 401(k) match for Messrs. Bachmann, Peper, Longon and DeBrock was $13,800, $13,800, $13,800, and $13,800 respectively.

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(6) Mr. Bachmann resigned in March 2009.

(7) Mr. Leary became an executive officer in August 2007 and was paid a cash bonus of $50,000 upon commencement of employment. Mr. Leary resigned in March 2009.

(8) Mr. DeBrock became an executive officer in August 2007. Amounts included in the column titled “Bonus” reflect payments as described under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table.” Previously, the $120,000 payment in 2007 was reported in the column titled “All Other Compensation.”

(9) Mr. Longon became an executive officer in February 2008.

Grants of Plan-Based Awards Table

The following table provides information concerning each grant of an award made to our Named Executive Officers under any plan, including awards, if any, that have been transferred during the fiscal year ended December 31, 2008.

Grants of Plan-Based Awards for the Year Ended December 31, 2008

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)			All Other Stock Awards: Number of Shares of Stock or Units	All Other Option Awards: Number of Securities Underlying Options	Exercise or Base Price of Option Awards	Closing Price on Grant Date	Grant Date Fair Value of Stock and Option Awards (3)
		Threshold	Target	Maximum (2)
		($)	($)	($)	(#)	(#)	($/Sh)	($/Sh)	($)
Richard A. Bachmann		0	525,000	N/A	—	—	—	—	—
	April 21, 2008	—	—	—	—	500,000	11.74	11.74	—
Joseph T. Leary		0	145,750	N/A	—	—	—	—	—
	April 11, 2008	—	—	—	—	53,285	10.58	10.58	228,947
		—	—	—	63,191	—	—	10.58	668,561
Thomas D. DeBrock		0	135,000	N/A	—	—	—	—	—
	April 11, 2008	—	—	—	—	38,959	10.58	10.58	167,393
		—	—	—	46,201	—	—	10.58	488,807
Stephen D. Longon		0	120,000	N/A	—	—	—	—	—
	April 11, 2008	—	—	—	—	38,959	10.58	10.58	167,393
		—	—	—	46,201	—	—	10.58	488,807
John H. Peper		0	151,250	N/A	—	—	—	—	—
	April 11, 2008	—	—	—	—	53,285	10.58	10.58	228,947
		—	—	—	63,191	—	—	10.58	668,561

(1) Amounts actually paid are reflected in the column titled “Non-Equity Incentive Plan Compensation” found on the “Summary Compensation Table” above. For additional information see “—Compensation Discussion and Analysis—Annual Cash Incentive Bonus.”

(2) While executive officers may earn up to a maximum of 200% of each quantitative target under our annual incentive bonus program, the Committee retains discretion to award officers additional amounts based on external factors beyond the control of the officers as well as individual performance by the officers.

(3) Amounts reflect the grant date fair value of the respective awards computed in accordance with SFAS No. 123(R). Please refer to Notes 2 and 15 in Part II, Item 8 of this Annual Report for a discussion of the assumptions used in computing the grant date fair value of stock based compensation awards. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that might be realized by the Named Executive Officer.

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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The following is a discussion of material factors necessary to an understanding of the information disclosed in the “—Summary Compensation Table” and the “—Grants of Plan-Based Awards Table” above.

Salary and Cash Incentive Awards in Proportion to Total Compensation

The following table sets forth the percentage of each Named Executive Officer’s total compensation that we paid in the form of base salary and bonus.

Name	Year	Percentage of Total Compensation
Richard A. Bachmann (1)	2008	40	%
	2007	31	%
	2006	19	%
Joseph T. Leary (2)	2008	36	%
	2007	52	%
	2006	—
Thomas D. DeBrock (3)	2008	48	%
	2007	47	%
	2006	—
Stephen D. Longon (4)	2008	47	%
	2007	—
	2006	—
John H. Peper	2008	47	%
	2007	54	%
	2006	29	%

(1) Mr. Bachmann resigned in March 2009.

(2) Mr. Leary became an executive officer in August 2007 and resigned in March 2009.

(3) Mr. DeBrock became an executive officer in August 2007.

(4) Mr. Longon became an executive officer in February 2008.

Bonuses

Mr. Leary received a cash payment of $50,000 during fiscal 2007 upon commencement of employment. As a recipient of the Chairman’s Award, Mr. Peper received a cash payment of $200,000 during fiscal 2007.

Mr. DeBrock received a cash payment of $120,000 in each of fiscal 2007 and 2008 pursuant to the terms of an agreement with us as described below under the caption “—Employment Agreements.” As a recipient of the Chairman’s Award, Mr. DeBrock received a cash payment of $103,500 during fiscal 2007.

Messrs. Bachmann and Longon did not receive bonuses during fiscal 2006, 2007 or 2008; however, Messrs. Bachmann and Longon each received a cash award under our Annual Cash Bonus Incentive Plan for fiscal 2006 and fiscal 2008, respectively, as further described under the caption “—Non-Equity Incentive Plan Compensation” below.

Stock Awards

Pursuant to our LTIP, we awarded stock-settled restricted share units and cash-settled restricted share units to our Named Executive Officers. These grants are described in further detail under the heading “— Compensation Discussion and Analysis—Long-Term Equity-Based Compensation.”

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Option Awards

Pursuant to our LTIP, we awarded stock options and stock appreciation rights to certain of our Named Executive Officers. These grants are described in further detail under the heading “—Compensation Discussion and Analysis—Long-Term Equity-Based Compensation.”

Non-Equity Incentive Plan Compensation

The non-equity incentive plan compensation set forth in the “—Summary Compensation Table” above reflects annual cash incentive bonus compensation under our annual cash incentive bonus program. Compensation is earned under this program based upon the achievement of pre-established performance targets. More information is set forth under the heading “—Compensation Discussion and Analysis—Annual Cash Incentive Bonus.”

Employment Agreements

Under our offer letter to Mr. Leary dated August 15, 2007, he was entitled to an annual base salary of $250,000. In addition, Mr. Leary received a sign-on bonus of $50,000, an option with a 10-year term to purchase 100,000 shares of common stock, which vested ratably over three years at an exercise price equal to the closing price of our common stock on the date of the grant and 30,000 cash-settled restricted share units which vested on the third anniversary of the date his employment commenced. Mr. Leary’s annual bonus target was 55% of base pay. Mr. Leary resigned from our company in March 2009.

Under our offer letter to Mr. Longon dated June 11, 2007, Mr. Longon was entitled to an annual base salary of $224,000. Mr. Longon also received a sign-on bonus of $50,000, an option with a 10-year term to purchase 10,000 shares of common stock, which vests ratably over three years at an exercise price equal to the closing price of our common stock on the date of the grant and 10,000 cash-settled restricted share units which vest on the third anniversary of the date his employment commenced. Mr. Longon’s annual bonus target was 25% of base pay.

We entered into an agreement with Mr. DeBrock on November 29, 2007, pursuant to which we agreed to pay Mr. DeBrock $120,000 in cash on December 1, 2007 and on December 1 of each of the four succeeding years provided that Mr. DeBrock remained employed by us through the applicable payment date. As described in more detail below under “—Potential Payments Upon Termination or Change in Control,” we entered into a settlement agreement with Mr. DeBrock in July 2009, which terminated this agreement.

We do not have employment agreements with any of the other Named Executive Officers.

Additional Information

We have provided additional information regarding the compensation we pay to our Named Executive Officers under “—Compensation Discussion and Analysis—Other Benefits” and “—Compensation Discussion and Analysis—Severance and Change of Control Payments.”

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Outstanding Equity Awards at Fiscal Year-End Table

The following table provides information concerning unexercised options, stock that has not vested, and equity incentive plan awards for our Named Executive Officers.

Outstanding Equity Awards as of December 31, 2008

Name	Option Awards						Stock Awards
	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested (1)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1)
				($)			(#)		($)	(#)		($)
Richard A. Bachmann	100,000	—		$	10.80	04/30/2011
	53,334	—		$	10.07	05/06/2013
	200,000	—		$	13.58	05/13/2014
	62,000	—		$	25.07	03/24/2015
	74,620	37,310	(3)	$	22.98	03/23/2016
	41,773	20,886	(4)	$	18.00	08/03/2016
	26,083	52,165	(5)	$	17.27	06/01/2017
	—	500,000	(6)	$	11.74	04/21/2018
							5,549	(3)	7,491
							3,034	(4)	4,096
										67,058	(13)	90,530
Joseph T. Leary	33,334	66,666	(7)	$	13.26	08/21/2017
	—	53,285	(8)	$	10.58	04/11/2018
							18,536	(8)	25,024
										30,000	(14)	40,500
										44,655	(8)	60,284
Stephen D. Longon	3,334	6,666	(9)	$	17.45	07/09/2017
		38,959	(8)	$	10.58	04/11/2018
							10,000	(15)	13,500
							13,552	(8)	18,295
										10,000	(15)	13,500
										32,649	(8)	44,076

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Name	Option Awards						Stock Awards
	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested (1)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1)
				($)			(#)		($)	(#)		($)
Thomas D. DeBrock	15,000	—		$	13.58	05/13/2014
	15,000	—		$	27.34	03/17/2015
	6,667	3,333	(10)	$	22.31	03/16/2016
	—	38,959	(8)	$	10.58	04/11/2018
							25,000	(16)	33,750
							1,667	(10)	2,250
							2,000	(10)	2,700
							6,666	(17)	8,999
							13,552	(8)	18,295
										32,649	(8)	44,076
John H. Peper	75,000	—		$	7.98	01/17/2012
	23,333	—		$	10.07	05/06/2013
	33,500	—		$	13.58	05/13/2014
	13,400	—		$	27.34	03/17/2015
	—	100,000	(11)	$	26.59	07/22/2015
	13,454	6,727	(10)	$	22.31	03/16/2016
	6,727	3,363	(3)	$	22.98	03/23/2016
	7,015	3,508	(4)	$	18.00	08/03/2016
	6,029	12,057	(12)	$	16.82	05/30/2017
	—	53,285	(8)	$	10.58	04/11/2008
							1,501	(3)	2,026
							510	(4)	689
							18,536	(8)	25,024
										15,500	(12)	20,925
										44,655	(8)	60,284

(1) Based on the closing price of our common stock of $1.35 on December 31, 2008.

(2) Represents unvested cash-settled restricted share units.

(3) Represents the underlying option shares for unexercisable stock options that were granted on March 23, 2006, which became exercisable on March 23, 2009. For Mr. Bachmann, represents the unvested restricted shares that were granted on March 23, 2006, which vested on March 23, 2009. For Mr. Peper, represents the unvested restricted shares granted on March 23, 2006, which vested on March 23, 2009.

(4) Represents the underlying option shares for unexercisable stock options that were granted on August 3, 2006, which become exercisable on August 3, 2009. Represents the remaining unvested restricted shares that were granted on August 3, 2006, which will vest on August 3, 2009, except for Mr. Bachmann’s shares, which were forfeited on March 15, 2009.

(5) Represents one-half of the underlying option shares for unexercisable stock options that were granted on June 1, 2007, which became exercisable on June 1, 2009. The remaining one-half were scheduled to become exercisable on June 1, 2010, but were forfeited on March 15, 2009.

(6) Represents one-third of the underlying rights for unexercisable stock appreciation rights that were granted on April 21, 2008, which became exercisable on April 21, 2009. The remaining one-third were scheduled to become exercisable on each of April 21, 2010 and April 21, 2011, but were forfeited on March 15, 2009.

(7) Represents one-half of the underlying option shares for unexercisable stock options that were granted on August 21, 2007 that were scheduled to become exercisable on each of August 21, 2009 and August 21, 2010, but were forfeited on March 1, 2009.

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(8) Represents one-third of the underlying shares for unexercisable stock options, one-third of the unvested restricted shares and one-third of the unvested cash-settled restricted share units that were granted on April 11, 2008, which became exercisable or vested (as applicable) on April 11, 2009 and an additional one-third that will become exercisable or will vest (as applicable) on each of April 11, 2010 and April 11, 2011, except for Mr. Leary’s shares, which were forfeited on March 1, 2009.

(9) Represents one-half of the underlying option shares for unexercisable stock options that were granted on July 9, 2007, which became exercisable on July 9, 2009. The remaining one-half will become exercisable on July 9, 2010.

(10) Represents the underlying option shares for unexercisable stock options and unvested restricted shares that were granted on March 16, 2006, which became exercisable on March 16, 2009.

(11) Represents the underlying option shares for the unexercisable stock options that were granted on July 22, 2005, which will become exercisable on July 22, 2010.

(12) Represents one-half of the underlying option shares for unexercisable stock options and unvested cash-settled restricted share units that were granted on May 30, 2007, which became exercisable on May 30, 2009. The remaining one-half will become exercisable on May 30, 2010.

(13) Represents one-half of the unvested cash-settled restricted share units that were granted on June 1, 2007, which became exercisable on March 16, 2009. The remaining one-half were scheduled to become exercisable on June 1, 2010, but were forfeited on March 15, 2009.

(14) Represents all of the unvested cash-settled restricted share units that were granted on August 21, 2007, which were scheduled to become exercisable on August 21, 2010, but were forfeited on March 1, 2009.

(15) Represents all of the unvested restricted shares and unvested cash-settled restricted share units that were granted on July 9, 2007, which will become exercisable on July 9, 2010.

(16) Represents one-half of the unvested restricted shares that were granted on July 22, 2005, which became exercisable on July 22, 2009. The remaining one-half will become exercisable on July 22, 2011.

(17) Represents one-half of the unvested restricted shares that were granted on April 3, 2007, which became exercisable on April 3, 2009. The remaining one-half will become exercisable on April 3, 2010.

Option Exercises and Stock Vested Table

The following table provides information concerning each vesting of stock, including stock-settled restricted share units, cash-settled restricted share units and similar instruments, during the fiscal year ended December 31, 2008 on an aggregated basis with respect to each of our Named Executive Officers. Our Named Executive Officers did not exercise any stock options during the fiscal year ended December 31, 2008.

Option Exercises and Stock Vested for the Year Ended December 31, 2008

Name	Stock Awards
	Number of Shares Acquired on Vesting	Value Realized on Vesting
	(#)	($)
Richard A. Bachmann (1)	42,113	590,527
Joseph T. Leary	—	—
Thomas D. DeBrock	9,500	96,836
Stephen D. Longon	—	—
John H. Peper (2)	9,759	136,043

(1) Includes 33,530 cash-settled restricted share units that vested during fiscal 2008 for a value realized on vesting of $505,297, reflecting a price of $15.07, per cash-settled restricted share unit.

(2) Includes 7,750 cash-settled restricted share units that vested during fiscal 2008 for a value realized on vesting of $116,792, reflecting a price of $15.07, per cash-settled restricted share unit.

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Potential Payments Upon Termination or Change of Control

We do not have any contracts, agreements, plans or arrangements that provide severance benefits to our Named Executive Officers if they terminate employment prior to our change of control. However, certain of our current and former executive officers, Messrs. Bachmann, Leary, Longon and Peper, entered into Severance Agreements with us. Messrs. Bachmann and Peper entered into their respective agreements in March 2005, Mr. Leary entered into a Severance Agreement when he joined us in August 2007, Mr. Longon entered into his agreement in July 2008, and each of the Severance Agreements, following various amendments, contained a termination date of March 28, 2010. In addition, we have Severance Plan (together with the Severance Agreements, our “Severance Program”) for certain key employees, including Mr. DeBrock.

Payments Upon a Change in Control

The Severance Program provides that, upon the occurrence of a change of control (as defined below), all equity awards granted to participants will become fully vested, all stock options and share appreciation rights will become fully exercisable and all restrictions on restricted shares and restricted share units will lapse. With respect to performance shares or other awards contingent on satisfaction of performance measures, the performance cycle will end as of the date of the change of control, and the participant will vest in the number of shares that would have been earned if the performance cycle had ended as of the end of the period covered by the most recently issued year-end financial statement plus such additional number of shares as the Committee determines in respect of any period of the performance cycle not covered by such year-end statement. A termination of employment without cause (as defined below) or for good reason (as defined below) is not a condition for such benefits. Thus, if a change of control were to occur, the Named Executive Officers would receive the benefit of the accelerated vesting of stock options, restricted shares, restricted share units, cash-settled restricted share units, cash-settled share appreciation rights and performance shares as shown in the table below even if the Named Executive Officer’s employment does not terminate. Pursuant to the terms of outstanding stock options and cash-settled share appreciation rights, in the event of a change of control, such options and cash-settled share appreciation rights would remain exercisable until the expiration of their 10-year term. Under the terms of outstanding restricted shares, restricted share units, cash-settled restricted share units and performance shares, in the absence of a change of control, such awards would be forfeited in the event of a termination of employment for any reason. Under the terms of outstanding stock options and cash-settled share appreciation rights, in the absence of a change of control, the following rules would apply upon a termination of employment: (1) in the case of a termination for any reason other than death, disability (defined generally as an individual’s inability, from mental or physical impairment, for a 90 day period, to perform that individual’s expected duties and functions) or retirement (defined to mean a voluntary termination on or after age 55 with at least five years of service), unvested options and cash-settled share appreciation rights would be forfeited and vested options and cash-settled share appreciation rights would remain exercisable for 30 days following termination of employment (but not beyond their expiration date), and (2) in the case of a termination by reason of death, disability or retirement, options and cash-settled share appreciation rights would continue to vest through December 31st of the year of termination of employment, unvested options and cash-settled share appreciation rights would be forfeited as of such December 31st, and vested options and cash-settled share appreciation rights would remain exercisable for three years following termination of employment (but not beyond their expiration date).

Payments Upon Certain Terminations of Employment in Connection with a Change in Control

In addition to the accelerated equity compensation awards, participants in the Severance Program are entitled to receive certain benefits in the event of their termination of employment either by reason of an involuntary termination by us without “cause” (as defined below) or a voluntary termination by the executive for “good reason” (as defined below) occurring within two years after a change of control. Upon the occurrence of both the change in control and a qualifying termination of employment, an eligible participant would be entitled to receive between one and one half and three times the sum of (1) the participant’s annual rate of base salary for the year of termination and (2) the participant’s average annual bonus from us for the three calendar years

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preceding the calendar year in which such termination of employment occurs (or, if the participant was employed for less than three years, the greater of the average annual bonus for all of the calendar years such individual was employed and the target bonus for the calendar year of termination). Messrs. Bachmann, Leary, Longon and Peper are entitled to receive three times, and Mr. DeBrock is entitled to receive two times, the sum described in the preceding sentence. Payments are to be paid in a lump sum in cash within 30 days following termination.

In addition, participants who become entitled to severance benefits will continue to receive the medical, dental and life insurance benefits in existence at the time of the change of control for a specified period of time (18 months for each of our Named Executive Officers), provided that the participant continues to pay the same portion of the required premium for such coverage as was required prior to termination. In the case of a participant who becomes entitled to severance benefits, if the participant has not, by the time of his or her termination of employment, received a bonus for the calendar year before the calendar year of termination of employment, the participant will receive a bonus for that year in an amount equal to his or her target bonus opportunity for that year, payable in a lump sum payment within 30 days of the individual’s termination of employment.

If any payments are subject to the excise tax on “excess parachute payments” under Section 280G of the Internal Revenue Code of 1986, payments to the participant will be reduced until no amount payable to the participant would constitute an “excess parachute payment,” provided that no such reduction will be made if the net after-tax payment to which the participant would otherwise be entitled without such reduction would be greater than the net after-tax payment, in each case, after taking into account Federal, state, local or other income and excise taxes, to the participant resulting from the receipt of such payments with such reduction.

For purposes of the Severance Program and awards under the LTIP, a “change of control” generally includes any of the following events: (1) an acquisition by any person of 25% or more of the securities entitled to vote in the election of directors, (2) the current directors, or their approved successors, no longer constitute a majority of the Board, (3) a merger or similar transaction is consummated which results in the holders of our common stock owning 50% or less of the surviving or transferee entity’s securities entitled to vote generally in the election of directors, or (4) approval of a plan of liquidation or disposition of all or substantially all of our assets. A termination for “cause” includes an individual’s termination due to a conviction of a felony, dishonesty, failure to perform duties, insubordination, theft, wrongful disclosure of confidential information, undisclosed conflicts of interest, violation of our employee policies, or competing with us for personal benefit. “Good reason” may exist if we reduce an individual’s base salary, eliminate or significantly reduce a material benefit under any of our employee benefit plans, take away an individual’s titles or positions or significantly reduce the individuals duties and responsibilities, or require the individual to relocate outside of the greater metropolitan area to which the individual was performing services for us immediately prior to the applicable change in control event.

The following table shows the amounts that would be payable to our Named Executive Officers, assuming there was a change of control as of December 31, 2008 and/or a termination of employment that would qualify the Named Executive Officer for the benefits described below occurred on December 31, 2008. For purposes of calculating the amounts set forth below, we have made the following assumptions:

• our Named Executive Officers have the same rights as other employees to receive benefits they have earned under our broad-based benefit programs, such as their vested account balances under our 401(k) plan, thus such amounts are not included below;

• all earned vacation was taken and all salary and reimbursable expenses were current at the time of the individual’s termination of employment, thus there is no need to pay out any amounts related to these items in addition to the amounts below;

• the closing price of our common stock on December 31, 2008 was $1.35;

• no amounts are included in the “Equity Acceleration” rows for any stock options, as the exercise price for each of the stock options our Named Executive Officers held as of December 31, 2008 was higher than the price of our common stock on that day and considered “underwater”;

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• though in the case of a termination by reason of death, disability or retirement, options and cash-settled share appreciation rights would continue to vest through December 31^st of the year of termination of employment, as the numbers below are calculated as of a termination upon December 31, 2008, no additional acceleration of equity awards would occur upon a death, disability or retirement of the executive; and

• the numbers below are only estimated amounts assuming the applicable event occurred on December 31, 2008, and amounts could not be determined with any certainty until an actual termination or change of control took place.

Potential Payments Upon a Termination or Change in Control Table as of December 31, 2008

Executive Officer	Termination by Good Reason or without Cause in connection with a Change in Control	Change in Control
	$	$
Richard A. Bachmann (1)
Salary and Bonus	2,290,000	N/A
Equity Acceleration	102,117	102,117
Medical Benefit Continuation	17,028	N/A
Total	2,409,145	102,117
Joseph T. Leary (2)
Salary and Bonus	1,232,250	N/A
Equity Acceleration	125,808	125,808
Medical Benefit Continuation	8,617	N/A
Total	1,366,675	125,808
Thomas D. DeBrock (3)
Salary and Bonus	685,000	N/A
Equity Acceleration	110,070	110,070
Medical Benefit Continuation	21,436	N/A
Total	816,506	110,070
Stephen D. Longon (3)
Salary and Bonus	1,683,000	N/A
Equity Acceleration	89,371	89,371
Medical Benefit Continuation	15,922	N/A
Total	1,788,293	89,371
John H. Peper (3)
Salary and Bonus	1,043,234	N/A
Equity Acceleration	108,948	108,948
Medical Benefit Continuation	21,381	N/A
Total	1,173,563	108,948

(1) We entered into an Offer Agreement with Mr. Bachmann in connection with his termination of employment in March 2009. The Offer Agreement set forth the terms and conditions regarding his severance payments, including Mr. Bachmann’s agreement to waive all rights he might have previously had to compensation and benefits prior to the execution of the Offer Agreement, as well as a general waiver of claims and actions in our favor. In exchange for these waivers Mr. Bachmann received a one-time payment of $110,000, as well as the accelerated vesting of his 5,549 restricted stock units, and 33,529 cash-settled restricted stock units. Thus, the amounts in the table above are no longer potential liabilities we have with respect to Mr. Bachmann, as he has received all potential payments pursuant to the Offer Agreement.

(2) We are no longer under an obligation to provide Mr. Leary with the payments disclosed in the table above as Mr. Leary also resigned in March 2009, and he did not receive any compensation from us in connection with his termination of employment.

(3) Messrs. DeBrock, Longon and Peper each have entered into a settlement agreement with us following December 31, 2008 that significantly impacts their potential payments upon a termination of employment or a change in control. Please see “—Actions Following December 31, 2008” below for further details.

Actions Following December 31, 2008

As part of our reorganization, the bankruptcy court approved our entrance into various settlement agreements with a number of our employees that held outstanding equity compensation awards or unpaid bonuses payments. These settlement agreements provided the individual with a cash payment in lieu of his or her

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outstanding equity or bonus awards, and cancelled the outstanding equity awards that individual previously held. Thus the amounts disclosed in the table above are not necessarily indicative of the amounts that we could be potentially liable to provide to each of the Named Executive Officers that are still employed with us at the time of this filing. Mr. DeBrock’s execution of a settlement agreement provided him with a payment of $60,000 in exchange for the cancellation of his outstanding retention payments and cash-settled equity awards. For Messrs. Longon and Peper, the settlement agreements cancelled our Severance Agreement obligations and provided each of these executives with a claim against us for $340,000 and $275,000, respectively, and the executives waived all rights to the future payments pursuant to their Severance Agreements. These claims are being treated as unsecured claims, which would be paid in full under the Plan. The Severance Plan was amended effective April 29, 2009 to modify the definition of a change in control. The events that generally constitute a change in control were not changed, but due to the unique financial situation we were in pending our reorganization, our Board determined that various transactions related to our bankruptcy should not trigger the change of control definition in the Severance Plan. The definition was amended to explicitly exclude the filing of the voluntary petition of bankruptcy, our exit from bankruptcy, or any transaction related to our bankruptcy from activating the change in control definition, although following our exit from bankruptcy, the definition shall apply to all events and transactions as it did prior to our bankruptcy filing. This also means that no events relating to our bankruptcy will trigger the two year protection period that would otherwise immediately follow a change in control under the Severance Plan.

Director Compensation

General

At least once a year, the Committee reviews the total direct compensation paid to our non-employee directors and makes recommendations to the Board for final approval. The purpose of the Committee’s review is to ensure that the level of compensation received by our non-employee directors is appropriate to attract and retain a diverse group of individuals with the breadth of experience necessary to perform the Board’s duties, and to fairly compensate such individuals for their service as our directors. The Committee’s review typically occurs prior to our Annual Meeting of Stockholders, and any changes recommended by the Committee and adopted by the Board are typically effective commencing with the date of the Annual Meeting. The Committee has engaged Frederic W. Cook & Co., Inc. to provide an analysis of total director compensation received by our non-employee directors, and the Committee typically targets the 75th percentile of a peer group of companies for total director compensation.

For fiscal 2008, the peer group of companies comprising the analysis by Frederic W. Cook & Co., Inc. included the 2008 Peer Group used for executive compensation decisions by the Committee.

The following table sets forth a summary of the compensation we paid to our non-employee directors during the fiscal year ended December 31, 2008. Directors who are our full-time employees receive no compensation for serving as directors on the Board.

Director Compensation for the Year Ended December 31, 2008

Name	Fees Earned or Paid in Cash	Stock Awards (1)	Option Awards (2)	All Other Compensation	Total
	($)	($)	($)	($)	($)
John C. Bumgarner, Jr. (3)	56,000	125,615	10,248	—	191,863
Jerry D. Carlisle	63,500	106,240	10,248	—	179,988
Harold D. Carter (4)	64,500	101,657	10,248	—	176,405
Enoch L. Dawkins (5)	47,000	99,365	10,248	—	156,613
Dr. Norman C. Francis (6)	57,000	107,365	10,248	3,776	178,389
Robert D. Gershen	52,000	111,865	10,248	—	174,113
William R. Herrin, Jr. (7)	60,000	111,865	10,248	—	182,113
James R. Latimer	56,833	59,965	10,248	—	127,046
Bryant H. Patton	50,833	59,965	10,248	—	121,046
Steven J. Pully	57,333	63,090	10,248	—	130,671

(1) Amounts in this column reflect compensation expense recorded in our 2008 consolidated financial statements for each named director and include grants made in previous years for which compensation expense is required to be recognized in accordance with

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SFAS No. 123(R). As of December 31, 2008, the outstanding stock awards held by each non-employee director was: (a) 6,000 restricted share units for each director granted under our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors and (b) 21,309, 1,993 and 4,327 phantom shares accrued under our Stock and Deferral Plan for Non-Employee Directors for Messrs. Bumgarner and Gershen and Dr. Francis, respectively. The grant date fair value of restricted share unit awards made to all directors in 2008 was $14.99 per share as computed in accordance with SFAS No. 123(R). Please refer to Note 2(j) and 15 in the Part II, Item 8 of this Annual Report for a discussion of the assumptions used in computing the grant date fair value of stock based compensation awards. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that might be realized by the named directors.

(2) Amounts in this column reflect compensation expense recorded in the 2008 consolidated financial statements for each named director and include grants made in previous years for which compensation expense is required to be recognized in accordance with SFAS No. 123(R). As of December 31, 2008, outstanding stock option awards for which compensation expenses was recognized included shares of common stock underlying options granted under our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors in the following amounts: Mr. Bumgarner—34,875, Mr. Carlisle—24,875, Mr. Carter—34,875, Mr. Dawkins—20,875, Dr. Francis—14,875, Mr. Gershen—34,875, Mr. Herrin— 14,875, Mr. Latimer—3,375, Mr. Patton—3,375 and Mr. Pully—3,375. The grant date fair value for each option award made in 2008 was $6.09. Please refer to footnotes 2(j) and 15 in our consolidated financial statements in Part II, Item 8 of this Annual Report for a discussion of the assumptions used in computing the grant date fair value of stock based compensation awards. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that might be realized by the named directors.

(3) Mr. Bumgarner resigned from the Board in February 2009.

(4) Mr. Carter resigned from the Board in February 2009.

(5) Mr. Dawkins resigned from the Board in March, 2009.

(6) Mr. Francis resigned from the Board in February 2009. In 2009, Mr. Francis was reimbursed $3,776 for income tax liabilities incurred as a result of payment to him in 2008 of certain directors fees that he had previously elected to defer.

(7) Mr. Herrin resigned from the Board in February 2009.

Annual Retainers and Meeting Fees

Prior to our 2008 Annual Meeting of Stockholders held on May 29, 2008, non-employee directors were entitled to receive the following compensation:

• an annual retainer fee of $40,000 per year;

• meeting fees of $2,000 for each Board meeting attended;

• meeting fees of $1,500 for each committee meeting attended (even if held on the same date as a Board meeting);

• an additional retainer of $5,000 per year for each member of the Audit Committee, plus an additional retainer of $15,000 per year for the chairperson of the Audit Committee; and

• an additional retainer of $10,000 per year for the chairperson of each of the Compensation Committee and Nominating & Governance Committee.

Commencing with the 2008 Annual Meeting of Stockholders, the compensation for our non-employees directors is the same as discussed above with the exception that the annual retainer fee was reduced from $40,000 to $20,000. The Committee, based on data provided by Frederic W. Cook & Co, reduced the fee so that the total compensation received by our non-employee directors remains in line with the targeted 75th percentile of the 2008 Peer Group for total direct compensation of non-employee directors.

Meeting fees are paid in cash. Retainer fees are paid in shares of common stock (valued at fair market value); provided that a director may elect to receive up to 50% of such retainer fees in cash. Directors may defer all or a portion of their retainer and meeting fees. Our Stock and Deferral Plan for Non-Employee Directors governs the payment of retainer and meeting fees and the terms of any deferrals of such fees. The SFAS No. 123(R) charge for deferrals of retainer and meeting fees that are invested in phantom shares of our common stock is included in the stock awards column in the above table. Directors are also reimbursed for their reasonable expenses in connection with attending Board meetings and other company events.

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Equity Awards

Our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors provides for grants of stock options and restricted share units to members of the Board who are not employees of our company or any of its subsidiaries. The size of any grants of stock options and restricted share units to non-employee directors, including to new directors, is determined annually, based on the analysis of Frederick W. Cook & Co., Inc., an independent compensation consultant. Based on this analysis, in April 2008, the Committee recommended, and the Board approved, the grant of 6,000 restricted share units to each non-employee director, and stock options with a binomial value of $20,000, on the date of the 2008 Annual Meeting of Stockholders. Pursuant to the terms of the plan, restricted share units and stock options become 100% vested on the first anniversary of the date of grant provided the eligible director continues as a director of throughout that one-year period. Prior to the first anniversary of the date of grant, an eligible director is vested in the pro rata number of restricted share units and stock options based on the number of days during that year that the eligible director served. The total number of shares of our common stock that may be issued under the plan is 500,000, subject to adjustment in the case of certain corporate transactions and events.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2008, with respect to compensation plans under which our equity securities are authorized for issuance.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (a)	Weighted-average exercise price of outstanding options, warrants and rights (2) (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	2,054,021	$	15.34	2,685,256
Equity compensation plans not approved by security holders
Total	2,054,021	$	15.34	2,685,256

(1) Comprised of 1,620,321 shares subject to issuance upon the exercise of options and 433,700 shares to be issued upon the lapsing of restrictions associated with restricted share units.

(2) Our restricted share units and performance shares do not have an exercise price; therefore, this only reflects the weighted-average option exercise price.

See Note 15, “Employee Benefit Plans” of the consolidated financial statements in Part II, Item 8 of this Annual Report for further information regarding the significant features of the above plans.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of our common stock as of July 27, 2009 by (1) each of our directors, (2) each of the executive officers named in the Summary Compensation Table, (3) all current directors and executive officers as a group and (4) each person known by us to own beneficially more than 5% of the outstanding shares of our common stock. Except as otherwise noted below, we are not aware of any agreements among our stockholders that relate to voting or investment of shares of our common stock.

	Common Stock Beneficially Owned (1)
Name of Beneficial Owner	Number of Shares	Percent of Class (2)
Directors
Jerry D. Carlisle (3)	50,562	*
Robert D. Gershen (4)	78,806	*
James R. Latimer, III (5)	10,324	*
Bryant H. Patton (5)	10,324	*
Steven J. Pully (5)	3,005,456	9.3	%
Named Executive Officers
Richard A. Bachmann (6)	1,935,934	6.0	%
Thomas D. DeBrock (7)	90,409	*
Joseph T. Leary	500	*
Stephen D. Longon (7)	25,999	*
John H. Peper (8)	233,755	*
All current directors and executive officers as a group (11 persons) (9)	5,597,479	17.3	%
Principal Holders
Carlson Capital, L.P. and affiliates (10)	2,994,968	9.3	%
Wexford Capital LLC and affiliates (11)	9,934,848	30.8	%

* Less than 1%

(1) Beneficial ownership is determined in accordance with the SEC’s rules and regulations and generally includes voting or investment power with respect to securities. Shares of our common stock subject to options and warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of shares beneficially owned by the person holding

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such options, but are not deemed outstanding for computing the percentage of any other person. Restricted stock not yet vested is included in the total shares outstanding but excluded from both the total shares held by the beneficial holder and the total shares deemed outstanding for computing the percentage of the person holding such restricted stock. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

(2) Based on total shares outstanding of 32,286,310 at July 27, 2009. Also based on the number of shares owned and acquirable within 60 days of July 27, 2009.

(3) Includes 24,875 shares of common stock underlying options exercisable granted to Mr. Carlisle under our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors. Includes 500 shares of common stock beneficially owned by Mr. Carlisle’s wife of which Mr. Carlisle disclaims beneficial ownership.

(4) Includes 34,875 shares of common stock underlying options exercisable granted under our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors to Mr. Gershen. Also includes 1,993 phantom shares accrued for Mr. Gershen under our Stock and Deferral Plan for Non-Employee Directors.

(5) Includes 3,375 shares of common stock underlying options exercisable granted under our Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors to each of Messrs. Latimer, Patton and Pully. Also includes 1,113 phantom shares accrued for Mr. Pully under our Stock and Deferral Plan for Non-Employee Directors and 2,994,968 shares of common stock held by Carlson Capital, L.P. (“Carlson”). Mr. Pully is an employee of Carlson and disclaims any beneficial ownership of shares of common stock held by Carlson.

(6) Includes 45,000 shares of common stock pledged to support obligations incurred in two separate transactions under Forward Purchase Agreements entered into with Citigroup. Mr. Bachmann retains voting rights with respect to these shares. The number of shares to be delivered commencing in August 2009 pursuant to such agreements will be based on the market price of the common stock and will not exceed 45,000 shares. Mr. Bachmann has the right to deliver cash instead of shares of common stock. Also includes (a) 642,088 shares of common stock underlying options (621,202 exercisable and 20,886 exercisable within 60 days of July 27, 2009) granted to Mr. Bachmann under our 2006 Long Term Stock Incentive Plan, (b) 4,174 shares of common stock beneficially owned by Mr. Bachmann and held in trust by our 401(k) Plan, (c) 2,148 shares beneficially owned by Mr. Bachmann’s wife, and (d) 1,128,591 shares of common stock pledged in a margin account held by Mr. Bachmann.

(7) Includes 52,987 and 19,654 shares of common stock underlying options exercisable granted to Messrs. DeBrock and Longon, respectively, under our 2006 Long Term Stock Incentive Plan. Also includes 4,667 and 3,483 shares of common stock beneficially owned by Messrs. DeBrock and Longon, respectively, and held in trust by our 401(k) Plan. Also includes 28,644 shares of common stock pledged in a margin account held by Mr. DeBrock.

(8) Includes 215,846 shares of common stock underlying options (212,338 exercisable and 3,508 exercisable within 60 days of July 27, 2009) and 510 restricted share units exercisable within 60 days of July 27, 2009, granted to Mr. Peper under our 2006 Long Term Stock Incentive Plan. Also includes 5,606 shares of common stock beneficially owned by Mr. Peper and held in trust by our 401(k) Plan.

(9) Includes 1,103,203 shares of common stock underlying options (1,078,809 exercisable and 24,394 exercisable within 60 days of July 27, 2009) and 510 restricted share units exercisable within 60 days of July 27, 2009. See notes 3 through 8 above.

(10) Pursuant to a Schedule 13D/A filed with the SEC on March 9, 2009, Carlson, Double Black Diamond Offshore LDC (“DBDO”), Asgard Investment Corp. (“Asgard”), and Mr. Clint D. Carlson reported the following: Carlson, Asgard and Mr. Carlson each have the sole power to vote and the sole power to dispose of 2,994,968 shares of common stock and DBDO has the sole power to vote and the sole power to dispose of 2,028,446 shares of common stock. Carlson, as DBDO’s investment manager, may, for purposes of Rule 13d-3 under the Exchange Act be deemed to beneficially own 2,028,446 shares of common stock held by DBDO, and beneficially own common stock held by other private investment funds and managed accounts (the “Accounts”). As Carlson’s general partner, Asgard, may, for purposes of Rule 13d-3 under the Exchange Act, be deemed to own beneficially 2,994,968 shares of common stock. As the President of Asgard and the Chief Executive Officer of Carlson, Mr. Clint D. Carlson may, for purposes of Rule 13d-3 under the Exchange Act, be deemed to own beneficially 2,994,968 shares of common stock. Mr. Carlson, Asgard and Carlson disclaim any beneficial ownership of shares of common stock held by DBDO and the Accounts. The business address of the reporting persons is 2100 McKinney Avenue, Suite 1600, Dallas TX 75201.

(11) Pursuant to a Schedule 13D/A filed by Debello Investors LLC (“Debello”), Wexford Catalyst Investors LLC (“Wexford Catalyst”), Wexford Catalyst Trading Limited (“Wexford Trading”), Wexford Spectrum Trading Limited (“Wexford Spectrum”), Wexford Capital LLC (“Wexford Capital”), Mr. Charles E. Davidson and Mr. Joseph M. Jacobs with the SEC on March 5, 2009, Debello has shared voting and dispositive power over 15,709 shares, Wexford Catalyst has shared voting and dispositive power over 382,682 shares, Wexford Trading has shared voting and dispositive power over 405,000 shares, Wexford Spectrum has shared voting and dispositive power over 1,680,321 shares, and each of Wexford Capital, Mr. Charles E. Davidson and Mr. Joseph M. Jacobs have shared voting and dispositive power over 2,483,712 shares. Wexford Capital is the managing member or sub investment manager of each of Debello, Wexford Catalyst, Wexford Trading and Wexford Spectrum and by reason of its status as such may be deemed to own beneficially the interest in the shares of common stock of which such entities possess ownership. Each of Messrs. Davidson and Jacobs is a controlling person of Wexford Capital and may by reason of their status as such be deemed to own beneficially the interest in the shares of common

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stock of which each of Wexford Capital, Debello, Wexford Catalyst, Wexford Trading and Wexford Spectrum possess ownership. Each of Wexford Capital and Messrs Davidson and Jacobs disclaims beneficial ownership of the shares of common stock held by Wexford Capital, Debello, Wexford Catalyst, Wexford Trading and Wexford Spectrum, respectively. The business address of the reporting persons is 411 West Putnam Avenue, Greenwich, CT 06830.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons, Promoters and Certain Control Persons

Policies and Procedures

We currently do not have a written policy with respect to entering into transactions with members of management or affiliated companies. Although we have not adopted formal procedures for the review, approval or ratification of transactions with related persons, our Board of Directors reviews potential transactions with those parties we have identified as related parties prior to the consummation of the transaction, and we adhere to the general policy that such transactions should only be entered into if they are approved by our Board of Directors and in accordance with our Certificate of Incorporation, Bylaws and Delaware law.

Transactions

Since the beginning of the fiscal year ended January 31, 2008, we have not participated in (or proposed to participate in) any transactions with related persons as defined in Item 404(a) of Regulation S-K.

Director Independence

Under our Corporate Governance Guidelines, a majority of the Board must be comprised of directors who are independent under the listing standards of the NYSE. No director will be deemed to be independent unless the Board affirmatively determines that the director has no material relationship with our company, either directly or as an officer, stockholder or partner of an organization that has a relationship with us. In its review of director independence, the Board considers all relevant facts and circumstances, including without limitation, all commercial, banking, consulting, legal, accounting, charitable or other business relationships any director may have with us. The Board has adopted categorical standards to assist it in making determinations of independence for directors, a copy of which was filed as Annex I to our proxy statement for the 2008 Annual Meeting of Stockholders as filed with the SEC in April 2008.

Under the standards adopted by the Board, it has determined that each of Messrs. Carlisle, Gershen, Latimer, Patton and Pully is independent.

Item 14. Principal Accounting Fees and Services

General

The following table sets forth the amount of audit fees, audit-related fees and tax fees billed or expected to be billed by KPMG LLP, our independent registered public accounting firm, for the fiscal years ended December 31, 2008 and December 31, 2007:

	2008		2007
Audit fees (1)	$	845,000	$	688,850
Audit-related fees (2)		—		—
Tax fees (3)		—		—
All other fees (4)		—		—
Total Fees	$	845,000	$	688,850

(1) Represents amount incurred through July 15, 2009. Audit fees for 2008 consisted only of integrated audit services. Audit fees for 2007 consisted of: (a) integrated audit services—$550,000 and (b) registration statements—$138,850.

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(2) There were no audit-related fees (including expenses) with respect to fiscal 2008 and fiscal 2007.

(3) There were no tax fees (including expenses) with respect to fiscal 2008 and fiscal 2007.

(4) There were no other fees (including expenses) with respect to fiscal 2008 and fiscal 2007.

The Audit Committee believes that the foregoing expenditures are compatible with maintaining the independence of our public accountants. The Audit Committee pre-approved all such audit and non-audit services by our independent registered public accountants during 2007 and 2008 pursuant to the policies and procedures discussed below.

Pre-Approval Policies and Procedures

The Audit Committee has adopted procedures for pre-approving all audit and permissible non-audit services provided by the independent registered public accountants. Under such procedures, the Audit Committee will annually review and pre-approve the audit, review and attest services to be provided during the next audit cycle by the independent registered public accountants and may annually review and pre-approve permitted non-audit services to be provided during the next audit cycle by the independent registered public accountants. To the extent practicable, the Audit Committee will also review and approve a budget for such services. Services proposed to be provided by the independent registered public accountants that have not been pre-approved during the annual review and the fees for such proposed services must be pre-approved by the Audit Committee or its designated subcommittee. Additionally, fees for previously approved services that are expected to exceed the previously approved budget must also be pre-approved by the Audit Committee or its designated subcommittee. All requests or applications for the independent registered public accountants to provide services to our company must be submitted to the Audit Committee or its designated subcommittee by the Chief Financial Officer or Controller and must address whether, in his or her view, the request or application is consistent with applicable laws, rules and regulations relating to auditor independence.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents to be filed as part of this Annual Report

1. Financial Statements

The following items are included in Part II, Item 8 this Annual Report:

• Independent Registered Public Accounting Firm’s Report

• Consolidated Balance Sheets as of December 31, 2008 and 2007

• Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

• Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006

• Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

• Notes to the Consolidated Financial Statements

2. Financial Statement Schedules

All schedules have been omitted because the information is not required or not in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

3. Exhibits

The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of Exhibits 32.1 and 32.2) with this Annual Report. The exhibits marked with the cross symbol (†) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

We have not filed with this Annual Report copies of the instruments defining rights of all holders of the long-term debt of us and our consolidated subsidiaries based upon the exception set forth in Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such instruments will be furnished to the SEC upon request.

Exhibit Number		Description
3.1	—	Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of November 16, 1999 (incorporated by reference to Exhibit 3.1 to Energy Partners, Ltd.’s Form S-1 (File No. 333-42876)).
3.2	—	Amendment to Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of September 15, 2000 (incorporated by reference to Exhibit 3.2 to Energy Partners, Ltd.’s Form S-1 (File No. 333-42876)).
3.3	—	Certificate of Amendment of the Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of May 5, 2006 (incorporated by reference to Exhibit 3.6 to Energy Partners, Ltd.’s Form 10-Q filed May 9, 2006 (File No. 001-16179)).
3.4	—	Certificate of Elimination of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Preferred Stock of Energy Partners, Ltd. (incorporated by reference to Exhibit 4.2 of Energy Partners, Ltd.’s Form 8-K filed January 22, 2002 (File No. 001-16179)).

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Exhibit Number		Description
3.5	—	Certificate of Elimination of the Series D Exchangeable Convertible Preferred Stock of Energy Partners, Ltd. (incorporated by reference to Exhibit 3.4 to Energy Partners, Ltd.’s Form 10-K filed February 27, 2006 (File No. 001-16179)).
3.6	—	Amended and Restated Bylaws of Energy Partners, Ltd. (incorporated by reference to Exhibit 3.5 of Energy Partners, Ltd.’s Form 10-K filed March 3, 2008 (File No. 001-16179)).
*4.1	—	Indenture dated as of August 5, 2003 between Energy Partners, Ltd., as Issuer, and Wells Fargo Bank, N.A., as Trustee.
4.2	—	Indenture dated as of April 23, 2007 between Energy Partners, Ltd., as Issuer, and Wells Fargo Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Energy Partners, Ltd.’s Form 8-K filed on April 26, 2007 (File No. 011-16179)).
10.1	—	Second Amended Joint Plan of Reorganization of Energy Partners, Ltd. and certain of its Subsidiaries Under Chapter 11 of the Bankruptcy Code, as Modified as of July 31, 2009 (incorporated by reference to Exhibit 99.1 to Energy Partners, Ltd.’s Form 8-K filed on August 4, 2009 (File No. 001-16179)).
10.2	—	Plan of Support and Lock-Up Agreement dated as of April 30, 2009 between Energy Partners, Ltd., and the holders of claims against Energy Partners, Ltd. signatory thereto (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on May 5, 2009 (File No. 001-16179)).
10.3	—	Credit Agreement dated as of April 23, 2007 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, L/C Issuer and Collateral Agent, JPMorgan Chase Bank, N.A. and BNP Paribas, as Co-Syndication Agents, The Bank of Nova Scotia and BMO Capital Markets Financing, Inc., as Co-Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to Energy Partners, Ltd.’s Form 8-K filed on April 26, 2007 (File No. 001-16179)).
*10.4	—	Letter Agreement dated as of April 3, 2009 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, Lender, Collateral Agent and L/C Issuer, and the other loan parties and lenders party thereto.
10.5	—	Letter Agreement dated as of April 14, 2009 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, Lender, Collateral Agent and L/C Issuer, and the other loan parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on April 14, 2009 (File No. 001-16179)).
*10.6	—	Term sheet with the United States Department of the Interior, Minerals Management Service dated April 30, 2009.
10.7	—	Letter Agreement, dated as of April 1, 2008 among Energy Partners, Ltd., Double Black Diamond Offshore LDC, Carlson Capital, L.P., Asgard Investment Corp., James, R. Latimer, III, Bryant H. Patton, Steven J. Pully and Clint D. Carlson (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on April 2, 2008 (File No. 001-16179)).
†10.8	—	Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.9	—	Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors effective as of May 12, 2005 (incorporated by reference to Annex B to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed April 4, 2005 (File No. 001-16179)).
†10.10	—	First Amendment to the Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors dated November 13, 2008 (incorporated by reference to Exhibit 10.4 to Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).

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Exhibit Number		Description
†10.11	—	Form of Restricted Share Unit Agreement under the Amended and Restated 2000 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2008 (File No. 001-16179)).
†10.12	—	Energy Partners, Ltd. Stock and Deferral Plan for Non-Employee Directors, as amended and restated effective as of July 17, 2003 (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 10-Q filed on August 5, 2008 (File No. 001-16179)).
†10.13	—	First Amendment to the Energy Partners, Ltd. Stock and Deferral Plan for Non-Employee Directors dated as of November 13, 2008 (incorporated by reference to Exhibit 10.5 to Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†*10.14	—	Summary of Non-Employee Director Compensation as of July 2009.
†10.15	—	Amended and Restated 2000 Long Term Stock Incentive Plan effective as of September 12, 2000 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 10-K filed March 15, 2002 (File No. 001-16179)).
†10.16	—	First Amendment to Amended and Restated 2000 Long Term Stock Incentive Plan effective as of May 13, 2004 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.17	—	Form of Nonqualified Stock Option Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2004 (File No. 001-16179)).
†10.18	—	Form of Restricted Share Unit Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2004 (File No. 001-16179)).
†10.19	—	Form of Performance Share Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.20	—	2006 Long Term Stock Incentive Plan effective as of May 4, 2006 (incorporated by reference to Annex C to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed April 5, 2006 (File No. 001-16179)).
†10.21	—	First Amendment to the 2006 Long Term Stock Incentive Plan dated November 13, 2008 (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.22	—	Form of 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on June 5, 2007 (File No. 001-16179)).
†10.23	—	Form of 2006 Long Term Stock Incentive Plan Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.5 to Energy Partners, Ltd.’s Form 10-Q filed on May 3, 2007 (File No. 001-16179)).
†10.24	—	Form of 2006 Long Term Stock Incentive Plan Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.6 to Energy Partners, Ltd.’s Form 10-Q filed on May 3, 2007 (File No. 001-16179)).
†10.25	—	Form of 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Appreciation Right Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 10-Q filed on May 8, 2008 (File No. 001-16179)).

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Exhibit Number		Description
†10.26	—	Amendment to Restricted Share Unit Agreements and Cash-Settled Restricted Share Unit Agreements under the 2006 Long Term Stock Incentive Plan or the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Energy Partners, Ltd.’s Form 8-K filed on November 14, 2008 (File No. 001-16179)).
†10.27	—	Change of Control Severance Plan effective as of March 24, 2005 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.28	—	First Amendment to Change of Control Severance Plan effective as of September 13, 2006 (incorporated by reference to Exhibit 10.3 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.29	—	Second Amendment to Change of Control Severance Plan effective as of April 16, 2008 (incorporated by reference to Exhibit 10.3 to Energy Partners, Ltd.’s Form 10-Q filed on May 8, 2008 (File No. 001-16179)).
†10.30	—	Third Amendment to Change of Control Severance Plan dated November 13, 2008 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.31	—	Form of Change of Control Severance Agreement (incorporated by reference to Exhibit 10.1 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.32	—	Form of First Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.2 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.33	—	Form of Second Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.13 of Energy Partners, Ltd.’s Form 10-K filed March 3, 2008 (File No. 001-16179)).
†10.34	—	Form of Third Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.7 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†*10.35	—	Form of Senior Management Settlement Agreement.
†*10.36	—	Form of Omnibus Settlement Agreement.
†10.37	—	Description of the Fiscal 2007 Annual Incentive Bonus Program for Executive Officers of Energy Partners, Ltd. (incorporated by reference to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed on April 28, 2008 (File No. 001-16179)).
†10.38	—	Description of the Fiscal 2008 Annual Incentive Bonus Program for Executive Officers of Energy Partners, Ltd. (incorporated by reference to Part III, Item 11 of Energy Partners, Ltd.’s Form 10-K filed on August 4, 2009 (File No. 001-16179)).
†10.39	—	General Release between T. Rodney Dykes and Energy Partners, Ltd. effective as of March 31, 2008 (incorporated by reference to Exhibit 10.25 to Energy Partners, Ltd.’s Form 10-K filed on March 3, 2008 (File No. 001-16179)).
†*10.40	—	Letter Agreement between Thomas DeBrock and Energy Partners, Ltd. dated November 29, 2007.
†10.41	—	Amendment to Letter Agreement between Thomas DeBrock and Energy Partners, Ltd. dated November 12, 2008 (incorporated by reference to Exhibit 10.8 to Energy Partners, Ltd.’s Form 8-K filed on November 14, 2008 (File No. 001-16179)).
†*10.42	—	Senior Management Settlement Agreement dated as of June 30, 2009 by and between Energy Partners, Ltd. and Thomas DeBrock.

138

Exhibit Number		Description
†*10.43	—	Amendment to Nonqualified Stock Options granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.44	—	Amendment to Restricted Share Unit Agreements granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.45	—	Amendment to Cash-Settled Restricted Share Unit Agreement granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.46	—	Amendment to Restricted Share Unit Agreements granted to Phillip A. Gobe dated as of November 19, 2008.
†*10.47	—	Amendment to Cash Settled Restricted Share Unit Agreement granted to Phillip A. Gobe dated as of November 19, 2008.
†*10.48	—	Offer Letter to Joseph T. Leary dated August 15, 2007.
†*10.49	—	Offer Letter to Stephen D. Longon dated June 11, 2007.
†*10.50	—	Settlement Agreement dated as of June 23, 2009 by and between Energy Partners, Ltd. and Stephen D. Longon.
†*10.51	—	Settlement Agreement dated as of June 23, 2009 by and between Energy Partners, Ltd. and John H. Peper.
*21.1	—	Subsidiaries of Energy Partners, Ltd.
*23.1	—	Consent of KPMG LLP.
*23.2	—	Consent of Netherland, Sewell & Associates, Inc.
*23.3	—	Consent of Ryder Scott Company, L.P.
*31.1	—	Certification of Principal Executive Officer of Energy Partners, Ltd. pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*31.2	—	Certification of Principal Financial Officer of Energy Partners, Ltd. pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*32.1	—	Section 1350 Certification of Principal Executive Officer of Energy Partners, Ltd. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
*32.2	—	Section 1350 Certification of Principal Financial Officer of Energy Partners, Ltd. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

139

GLOSSARY OF OIL AND NATURAL GAS TERMS

“Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this Annual Report in reference to oil and other liquid hydrocarbons.

“Boe” Barrels of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.

“Bcf” One billion cubic feet.

“Bcfe” One billion cubic feet equivalent, with one barrel of oil being equivalent to six thousand cubic feet of natural gas.

“completion” The installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

“EBITDAX” Net income (loss) before interest expense, income taxes, depreciation, depletion and amortization, exploration expenditures and cumulative effect of change in accounting principle.

“Loe” Lease operating expenditures.

“Mbbls” One thousand barrels of oil or other liquid hydrocarbons.

“Mboe” One thousand barrels of oil equivalent.

“Mcf” One thousand cubic feet of natural gas.

“Mmbbls” One million barrels of oil or other liquid hydrocarbons.

“Mmboe” One million barrels of oil equivalent.

“Mmbtu” One million British Thermal Units.

“Mmcf” One million cubic feet of natural gas.

“plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Federal regulations and regulations of many states require plugging of abandoned wells.

“proved undeveloped reserves” Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

“reservoir” A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

“working interest” The interest in an oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

140

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 4, 2009	ENERGY PARTNERS, LTD.
	By:	/S/    ALAN D. BELL
		Alan D. Bell Chief Restructuring Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    ALAN D. BELL         Alan D. Bell	Chief Restructuring Officer (Principal Executive Officer)	August 4, 2009
/S/    TIFFANY J. THOM         Tiffany J. Thom	Vice President, Treasurer and Investor Relations (Principal Financial Officer)	August 4, 2009
/S/    DAVID P. CEDRO         David P. Cedro	Vice President, Controller (Principal Accounting Officer)	August 4, 2009
/S/    JERRY D. CARLISLE         Jerry D. Carlisle	Director	August 4, 2009
/S/    ROBERT D. GERSHEN         Robert D. Gershen	Director	August 4, 2009
/S/    JAMES R. LATIMER         James R. Latimer	Director	August 4, 2009
/S/    BRYANT H. PATTON         Bryant H. Patton	Director	August 4, 2009
/S/    STEVEN J. PULLY         Steven J. Pully	Director	August 4, 2009

141

INDEX TO EXHIBITS

The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of Exhibits 32.1 and 32.2) with this Annual Report. The exhibits marked with the cross symbol (†) are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

We have not filed with this Annual Report copies of the instruments defining rights of all holders of the long-term debt of us and our consolidated subsidiaries based upon the exception set forth in Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such instruments will be furnished to the SEC upon request.

Exhibit Number		Description
3.1	—	Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of November 16, 1999 (incorporated by reference to Exhibit 3.1 to Energy Partners, Ltd.’s Form S-1 (File No. 333-42876)).
3.2	—	Amendment to Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of September 15, 2000 (incorporated by reference to Exhibit 3.2 to Energy Partners, Ltd.’s Form S-1 (File No. 333-42876)).
3.3	—	Certificate of Amendment of the Restated Certificate of Incorporation of Energy Partners, Ltd. dated as of May 5, 2006 (incorporated by reference to Exhibit 3.6 to Energy Partners, Ltd.’s Form 10-Q filed May 9, 2006 (File No. 001-16179)).
3.4	—	Certificate of Elimination of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Preferred Stock of Energy Partners, Ltd. (incorporated by reference to Exhibit 4.2 of Energy Partners, Ltd.’s Form 8-K filed January 22, 2002 (File No. 001-16179)).
3.5	—	Certificate of Elimination of the Series D Exchangeable Convertible Preferred Stock of Energy Partners, Ltd. (incorporated by reference to Exhibit 3.4 to Energy Partners, Ltd.’s Form 10-K filed February 27, 2006 (File No. 001-16179)).
3.6	—	Amended and Restated Bylaws of Energy Partners, Ltd. (incorporated by reference to Exhibit 3.5 of Energy Partners, Ltd.’s Form 10-K filed March 3, 2008 (File No. 001-16179)).
*4.1	—	Indenture dated as of August 5, 2003 between Energy Partners, Ltd., as Issuer, and Wells Fargo Bank, N.A., as Trustee.
4.2	—	Indenture dated as of April 23, 2007 between Energy Partners, Ltd., as Issuer, and Wells Fargo Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Energy Partners, Ltd.’s Form 8-K filed on April 26, 2007 (File No. 011-16179)).
10.1	—	Second Amended Joint Plan of Reorganization of Energy Partners, Ltd. and certain of its Subsidiaries Under Chapter 11 of the Bankruptcy Code, as Modified as of July 31, 2009 (incorporated by reference to Exhibit 99.1 to Energy Partners, Ltd.’s Form 8-K filed on August 4, 2009 (File No. 001-16179)).
10.2	—	Plan of Support and Lock-Up Agreement dated as of April 30, 2009 between Energy Partners, Ltd., and the holders of claims against Energy Partners, Ltd. signatory thereto (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on May 5, 2009 (File No. 001-16179)).
10.3	—	Credit Agreement dated as of April 23, 2007 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, L/C Issuer and Collateral Agent, JPMorgan Chase Bank, N.A. and BNP Paribas, as Co-Syndication Agents, The Bank of Nova Scotia and BMO Capital Markets Financing, Inc., as Co-Documentation Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to Energy Partners, Ltd.’s Form 8-K filed on April 26, 2007 (File No. 001-16179)).

142

Exhibit Number		Description
*10.4	—	Letter Agreement dated as of April 3, 2009 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, Lender, Collateral Agent and L/C Issuer, and the other loan parties and lenders party thereto.
10.5	—	Letter Agreement dated as of April 14, 2009 among Energy Partners, Ltd., Bank of America, N.A., as Administrative Agent, Lender, Collateral Agent and L/C Issuer, and the other loan parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on April 14, 2009 (File No. 001-16179)).
*10.6	—	Term sheet with the United States Department of the Interior, Minerals Management Service dated April 30, 2009.
10.7	—	Letter Agreement, dated as of April 1, 2008 among Energy Partners, Ltd., Double Black Diamond Offshore LDC, Carlson Capital, L.P., Asgard Investment Corp., James, R. Latimer, III, Bryant H. Patton, Steven J. Pully and Clint D. Carlson (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on April 2, 2008 (File No. 001-16179)).
†10.8	—	Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.9	—	Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors effective as of May 12, 2005 (incorporated by reference to Annex B to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed April 4, 2005 (File No. 001-16179)).
†10.10	—	First Amendment to the Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors dated November 13, 2008 (incorporated by reference to Exhibit 10.4 to Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.11	—	Form of Restricted Share Unit Agreement under the Amended and Restated 2000 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2008 (File No. 001-16179)).
†10.12	—	Energy Partners, Ltd. Stock and Deferral Plan for Non-Employee Directors, as amended and restated effective as of July 17, 2003 (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 10-Q filed on August 5, 2008 (File No. 001-16179)).
†10.13	—	First Amendment to the Energy Partners, Ltd. Stock and Deferral Plan for Non-Employee Directors dated as of November 13, 2008 (incorporated by reference to Exhibit 10.5 to Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†*10.14	—	Summary of Non-Employee Director Compensation as of July 2009.
†10.15	—	Amended and Restated 2000 Long Term Stock Incentive Plan effective as of September 12, 2000 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 10-K filed March 15, 2002 (File No. 001-16179)).
†10.16	—	First Amendment to Amended and Restated 2000 Long Term Stock Incentive Plan effective as of May 13, 2004 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.17	—	Form of Nonqualified Stock Option Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2004 (File No. 001-16179)).
†10.18	—	Form of Restricted Share Unit Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of Energy Partners, Ltd.’s Form 10-Q filed August 5, 2004 (File No. 001-16179)).

143

Exhibit Number		Description
†10.19	—	Form of Performance Share Agreement under the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.20	—	2006 Long Term Stock Incentive Plan effective as of May 4, 2006 (incorporated by reference to Annex C to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed April 5, 2006 (File No. 001-16179)).
†10.21	—	First Amendment to the 2006 Long Term Stock Incentive Plan dated November 13, 2008 (incorporated by reference to Exhibit 10.3 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.22	—	Form of 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 8-K filed on June 5, 2007 (File No. 001-16179)).
†10.23	—	Form of 2006 Long Term Stock Incentive Plan Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.5 to Energy Partners, Ltd.’s Form 10-Q filed on May 3, 2007 (File No. 001-16179)).
†10.24	—	Form of 2006 Long Term Stock Incentive Plan Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.6 to Energy Partners, Ltd.’s Form 10-Q filed on May 3, 2007 (File No. 001-16179)).
†10.25	—	Form of 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Appreciation Right Agreement (incorporated by reference to Exhibit 10.1 to Energy Partners, Ltd.’s Form 10-Q filed on May 8, 2008 (File No. 001-16179)).
†10.26	—	Amendment to Restricted Share Unit Agreements and Cash-Settled Restricted Share Unit Agreements under the 2006 Long Term Stock Incentive Plan or the Amended and Restated 2000 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Energy Partners, Ltd.’s Form 8-K filed on November 14, 2008 (File No. 001-16179)).
†10.27	—	Change of Control Severance Plan effective as of March 24, 2005 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.28	—	First Amendment to Change of Control Severance Plan effective as of September 13, 2006 (incorporated by reference to Exhibit 10.3 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.29	—	Second Amendment to Change of Control Severance Plan effective as of April 16, 2008 (incorporated by reference to Exhibit 10.3 to Energy Partners, Ltd.’s Form 10-Q filed on May 8, 2008 (File No. 001-16179)).
†10.30	—	Third Amendment to Change of Control Severance Plan dated November 13, 2008 (incorporated by reference to Exhibit 10.2 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†10.31	—	Form of Change of Control Severance Agreement (incorporated by reference to Exhibit 10.1 of Energy Partners, Ltd.’s Form 8-K filed March 30, 2005 (File No. 001-16179)).
†10.32	—	Form of First Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.2 to Energy Partners, Ltd.’s Form 8-K filed on September 14, 2006 (File No. 001-16179)).
†10.33	—	Form of Second Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.13 of Energy Partners, Ltd.’s Form 10-K filed March 3, 2008 (File No. 001-16179)).

144

Exhibit Number		Description
†10.34	—	Form of Third Amendment to Change of Control Severance Agreement (incorporated by reference to Exhibit 10.7 of Energy Partners, Ltd.’s Form 8-K filed November 14, 2008 (File No. 001-16179)).
†*10.35	—	Form of Senior Management Settlement Agreement.
†*10.36	—	Form of Omnibus Settlement Agreement.
†10.37	—	Description of the Fiscal 2007 Annual Incentive Bonus Program for Executive Officers of Energy Partners, Ltd. (incorporated by reference to Energy Partners, Ltd.’s proxy statement on Schedule 14A filed on April 28, 2008 (File No. 001-16179)).
†10.38	—	Description of the Fiscal 2008 Annual Incentive Bonus Program for Executive Officers of Energy Partners, Ltd. (incorporated by reference to Part III, Item 11 of Energy Partners, Ltd.’s Form 10-K filed on August 4, 2009 (File No. 001-16179)).
†10.39	—	General Release between T. Rodney Dykes and Energy Partners, Ltd. effective as of March 31, 2008 (incorporated by reference to Exhibit 10.25 to Energy Partners, Ltd.’s Form 10-K filed on March 3, 2008 (File No. 001-16179)).
†*10.40	—	Letter Agreement between Thomas DeBrock and Energy Partners, Ltd. dated November 29, 2007.
†10.41	—	Amendment to Letter Agreement between Thomas DeBrock and Energy Partners, Ltd. dated November 12, 2008 (incorporated by reference to Exhibit 10.8 to Energy Partners, Ltd.’s Form 8-K filed on November 14, 2008 (File No. 001-16179)).
†*10.42	—	Senior Management Settlement Agreement dated as of June 30, 2009 by and between Energy Partners, Ltd. and Thomas DeBrock.
†*10.43	—	Amendment to Nonqualified Stock Options granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.44	—	Amendment to Restricted Share Unit Agreements granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.45	—	Amendment to Cash-Settled Restricted Share Unit Agreement granted to Phillip A. Gobe dated as of August 21, 2007.
†*10.46	—	Amendment to Restricted Share Unit Agreements granted to Phillip A. Gobe dated as of November 19, 2008.
†*10.47	—	Amendment to Cash Settled Restricted Share Unit Agreement granted to Phillip A. Gobe dated as of November 19, 2008.
†*10.48	—	Offer Letter to Joseph T. Leary dated August 15, 2007.
†*10.49	—	Offer Letter to Stephen D. Longon dated June 11, 2007.
†*10.50	—	Settlement Agreement dated as of June 23, 2009 by and between Energy Partners, Ltd. and Stephen D. Longon.
†*10.51	—	Settlement Agreement dated as of June 23, 2009 by and between Energy Partners, Ltd. and John H. Peper.
*21.1	—	Subsidiaries of Energy Partners, Ltd.
*23.1	—	Consent of KPMG LLP.

145

Exhibit Number		Description
*23.2	—	Consent of Netherland, Sewell & Associates, Inc.
*23.3	—	Consent of Ryder Scott Company, L.P.
*31.1	—	Certification of Principal Executive Officer of Energy Partners, Ltd. pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*31.2	—	Certification of Principal Financial Officer of Energy Partners, Ltd. pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*32.1	—	Section 1350 Certification of Principal Executive Officer of Energy Partners, Ltd. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
*32.2	—	Section 1350 Certification of Principal Financial Officer of Energy Partners, Ltd. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

146

EX-4.1

Exhibit 4.1

ENERGY PARTNERS, LTD.,

Issuer

8 ³/4% Senior Notes Due 2010

INDENTURE

Dated as of August 5, 2003

WELLS FARGO BANK, N.A.,

Trustee

CROSS-REFERENCE TABLE

TIA Section	Indenture Section
310(a)(1)	7.10
(a)(2)	7.10
(a)(3)	N.A.
(a)(4)	N.A.
(a)(5)	7.10
(b)	7.08; 7.10
(c)	N.A.
311(a)	7.11
(b)	7.11
(c)	N.A.
312(a)	2.05
(b)	11.03
(c)	11.03
313(a)	7.06
(b)(1)	7.06
(b)(2)	7.06
(c)	11.02
(d)	7.06
314(a)	4.02; 4.12; 11.02
(b)	N.A.
(c)(1)	2.02
(c)(2)	2.02
(c)(3)	N.A.
(d)	N.A.
(e)	11.05
(f)	N.A.
315(a)	7.01
(b)	7.05; 11.02
(c)	7.01
(d)	7.01
(e)	6.11
316(a)(last sentence)	11.06
(a)(1)(A)	6.05
(a)(1)(B)	6.04
(a)(2)	N.A.
(b)	6.07
(c)	N.A.
317(a)(1)	6.08
(a)(2)	6.09
(b)	2.04
318(a)	11.01
(b)	N.A.
(c)	N.A.

N.A. means Not Applicable.

i

Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture.

ii

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE		6
SECTION 1.01	Definitions	6
SECTION 1.02	Other Definitions	35
SECTION 1.03	Incorporation by Reference of Trust Indenture Act	35
SECTION 1.04	Rules of Construction	36
ARTICLE II THE SECURITIES		36
SECTION 2.01	Form and Dating	36
SECTION 2.02	Execution and Authentication	37
SECTION 2.03	Registrar and Paying Agent	37
SECTION 2.04	Paying Agent To Hold Money in Trust	38
SECTION 2.05	Securityholder Lists	38
SECTION 2.06	Transfer and Exchange	38
SECTION 2.07	Replacement Securities	39
SECTION 2.08	Outstanding Securities	39
SECTION 2.09	Temporary Securities	39
SECTION 2.10	Cancellation	39
SECTION 2.11	Defaulted Interest	40
SECTION 2.12	CUSIP Numbers	40
SECTION 2.13	Issuance of Additional Securities	40
ARTICLE III REDEMPTION		41
SECTION 3.01	Notices to Trustee	41
SECTION 3.02	Selection of Securities To Be Redeemed	41
SECTION 3.03	Notice of Redemption	41
SECTION 3.04	Effect of Notice of Redemption	42
SECTION 3.05	Deposit of Redemption Price	42
SECTION 3.06	Securities Redeemed in Part	43
ARTICLE IV COVENANTS		43
SECTION 4.01	Payment of Securities	43
SECTION 4.02	SEC Reports	43
SECTION 4.03	Limitation on Indebtedness	43
SECTION 4.04	[Reserved]	46
SECTION 4.05	Limitation on Restricted Payments	46
SECTION 4.06	Limitation on Restrictions on Distributions from Restricted Subsidiaries	49
SECTION 4.07	Limitation on Sales of Assets and Subsidiary Stock	51
SECTION 4.08	Limitation on Affiliate Transactions	53
SECTION 4.09	Change of Control	55
SECTION 4.10	Restricted and Unrestricted Subsidiaries	56
SECTION 4.11	Limitation on Liens	57
SECTION 4.12	Compliance Certificate	57
SECTION 4.13	Further Instruments and Acts	57
SECTION 4.14	Future Subsidiary Guarantors	58
SECTION 4.15	Limitation on Line of Business	58

iii

		Page
SECTION 4.16	Covenant Suspension	58
ARTICLE V SUCCESSOR COMPANY		59
SECTION 5.01	When Company May Merge or Transfer Assets	59
SECTION 5.02	When Subsidiary Guarantors May Merge or Transfer Assets	60
ARTICLE VI DEFAULTS AND REMEDIES		60
SECTION 6.01	Events of Default	60
SECTION 6.02	Acceleration	62
SECTION 6.03	Other Remedies	63
SECTION 6.04	Waiver of Past Defaults	63
SECTION 6.05	Control by Majority	63
SECTION 6.06	Limitation on Suits	63
SECTION 6.07	Rights of Holders To Receive Payment	64
SECTION 6.08	Collection Suit by Trustee	64
SECTION 6.09	Trustee May File Proofs of Claim	64
SECTION 6.10	Priorities	65
SECTION 6.11	Undertaking for Costs	65
SECTION 6.12	Waiver of Stay or Extension Laws	65
ARTICLE VII TRUSTEE		65
SECTION 7.01	Duties of Trustee	65
SECTION 7.02	Rights of Trustee	67
SECTION 7.03	Individual Rights of Trustee	67
SECTION 7.04	Trustee’s Disclaimer	68
SECTION 7.05	Notice of Defaults	68
SECTION 7.06	Reports by Trustee to Holders	68
SECTION 7.07	Compensation and Indemnity	68
SECTION 7.08	Replacement of Trustee	69
SECTION 7.09	Successor Trustee by Merger	70
SECTION 7.10	Eligibility; Disqualification	70
SECTION 7.11	Preferential Collection of Claims Against Company	70
ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE		71
SECTION 8.01	Discharge of Liability on Securities; Defeasance	71
SECTION 8.02	Conditions to Defeasance	72
SECTION 8.03	Application of Trust Money	73
SECTION 8.04	Repayment to Company	73
SECTION 8.05	Indemnity for Government Obligations	73
SECTION 8.06	Reinstatement	73
ARTICLE IX AMENDMENTS		74
SECTION 9.01	Without Consent of Holders	74
SECTION 9.02	With Consent of Holders	74
SECTION 9.03	Compliance with Trust Indenture Act	75
SECTION 9.04	Revocation and Effect of Consents and Waivers	75
SECTION 9.05	Notation on or Exchange of Securities	76
SECTION 9.06	Trustee To Sign Amendments	76

iv

		Page
ARTICLE X SUBSIDIARY GUARANTEES		76
SECTION 10.01	Subsidiary Guarantees	76
SECTION 10.02	Limitation on Liability	78
SECTION 10.03	Successors and Assigns	78
SECTION 10.04	No Waiver	78
SECTION 10.05	Modification	78
SECTION 10.06	Release of Subsidiary Guarantor	78
SECTION 10.07	Contribution among Subsidiaries	79
ARTICLE XI MISCELLANEOUS		79
SECTION 11.01	Trust Indenture Act Controls	79
SECTION 11.02	Notices	79
SECTION 11.03	Communication by Holders with Other Holders	80
SECTION 11.04	Certificate and Opinion as to Conditions Precedent	80
SECTION 11.05	Statements Required in Certificate or Opinion	80
SECTION 11.06	When Securities Disregarded	81
SECTION 11.07	Rules by Trustee, Paying Agent and Registrar	81
SECTION 11.08	Legal Holidays	81
SECTION 11.09	Governing Law	81
SECTION 11.10	No Recourse Against Others	81
SECTION 11.11	Successors	82
SECTION 11.12	Multiple Originals	82
SECTION 11.13	Table of Contents; Headings	82
SECTION 11.14	Severability	82
APPENDICES
APPENDIX A	Provisions Relating to Initial Securities, Exchange Securities, Private Exchange Securities and Other Securities	A-1
APPENDIX B	Form of Supplemental Indenture	B-1
APPENDIX C	Form of Certificate from Acquiring Institutional Accredited Investor	C-1

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INDENTURE dated as of August 5, 2003 among Energy Partners, Ltd., a Delaware corporation (the “Company”), the Company’s subsidiaries signatory hereto (each, a “Subsidiary Guarantor” and, collectively, the “Subsidiary Guarantors”) and Wells Fargo Bank, N.A. (the “Trustee”).

Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company’s Initial Securities, Exchange Securities and Private Exchange Securities (each as defined herein and, collectively, the “Securities”):

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01    Definitions.

“Additional Assets” means

(a) any property or assets (other than Indebtedness and Capital Stock) in the Oil and Gas Business;

(b) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or

(c) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary;

provided, however, that any such Restricted Subsidiary described in clause (b) or (c) above is engaged in the Oil and Gas Business.

“Adjusted Consolidated Net Tangible Assets” or “ACNTA” means (without duplication), as of the date of determination,

(a) the sum of:

(1) discounted future net revenue from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated in a reserve report prepared as of the end of the Company’s most recently completed fiscal year, which reserve report is prepared or reviewed by independent petroleum engineers, as increased by, as of the date of determination, the discounted future net revenue of

(A) estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries attributable to acquisitions consummated since the date of such year-end reserve report, and

(B) estimated crude oil and natural gas reserves of the Company and its Restricted Subsidiaries attributable to extensions, discoveries and other additions and upward determinations of estimates of proved crude oil and natural gas reserves

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(including previously estimated development costs incurred during the period and the accretion of discount since the prior year end) due to exploration, development or exploitation, production or other activities, which reserves were not reflected in such year-end reserve report, that would, in the case of determinations made under clauses (A) and (B), in accordance with standard industry practice, result in such determinations, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report),

and decreased by, as of the date of determination, the discounted future net revenue attributable to

(C) estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such year-end reserve report produced or disposed of since the date of such year-end reserve report and

(D) reductions in the estimated crude oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such year-end reserve report since the date of such year-end reserve report attributable to downward determinations of estimates of proved crude oil and natural gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such year-end reserve report that would, in the case of determinations made under clauses (C) and (D), in accordance with standard industry practice, result in such determinations, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report);

provided, however, that, in the case of each of the determinations made under clauses (A) through (D), such increases and decreases will be as estimated by the Company’s engineers, except that if as a result of such acquisitions, dispositions, discoveries, extensions or revisions, there is a Material Change that is an increase, then such increases and decreases in the discounted future net revenue will be confirmed in writing by an independent petroleum engineer;

(2) the capitalized costs that are attributable to crude oil and natural gas properties of the Company and its Restricted Subsidiaries to which no proved crude oil and natural gas reserves are attributed, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements;

(3) the Net Working Capital on a date no earlier than the date of the Company’s latest annual or quarterly financial statements; and

(4) the greater of (I) the net book value on a date no earlier than the date of the Company’s latest annual or quarterly financial statements and (II) the appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries as of a date no earlier than the date of the Company’s latest audited financial statements (provided that the Company will not be required to obtain such an appraisal of such assets if no such appraisal has been performed);

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minus

(b) to the extent not otherwise taken into account in the immediately preceding clause (a), the sum of:

(1) minority interests;

(2) any natural gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest audited financial statements;

(3) the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Company’s year-end reserve report), attributable to reserves subject to participation interests, overriding royalty interests or other interests of third parties, under participation, partnership, vendor financing or other agreements then in effect, or which otherwise are required to be delivered to third parties;

(4) the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Company’s year-end reserve report), attributable to reserves that are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereto; and

(5) the discounted future net revenue, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments that, based on the estimates of production included in determining the discounted future net revenue specified in the immediately preceding clause (a)(1) (utilizing the same prices utilized in the Company’s year-end reserve report), would be necessary to satisfy fully the obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments on the schedules specified with respect thereto.

If the Company changes its method of accounting from the successful efforts method to the full cost method or a similar method of accounting, “ACNTA” will continue to be calculated as if the Company were still using the successful efforts method of accounting.

“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. For purposes of Sections 4.05 [Limitation on Restricted Payments], 4.07 [Limitation on Sales of Assets and Subsidiary Stock] and 4.08 [Limitation on Affiliate Transactions] only, “Affiliate” will also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner under the first sentence hereof.

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“Asset Disposition” means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a “disposition”), of:

(a) any shares of Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary);

(b) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary; or

(c) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary.

Notwithstanding the foregoing, none of the following will be deemed to be an Asset Disposition:

(a) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;

(b) for purposes of Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock] only, a disposition that constitutes a Restricted Payment permitted by Section 4.05 [Limitation on Restricted Payments], a disposition of all or substantially all the assets of the Company in compliance with Section 5.01 [When Company May Merge or Transfer Assets] or a disposition that constitutes a Change of Control under clause (c) [stockholder-approved plan of liquidation or dissolution of the Company] of the definition thereof;

(c) the sale or transfer (whether or not in the ordinary course of business) of crude oil and natural gas properties or direct or indirect interests in real property; provided, however, that at the time of such sale or transfer such properties do not have associated with them any proved reserves;

(d) the abandonment, farm-out, lease or sublease of developed or undeveloped crude oil and natural gas properties in the ordinary course of business;

(e) the trade or exchange by the Company or any Restricted Subsidiary of any crude oil and natural gas property owned or held by the Company or such Restricted Subsidiary for (1) any crude oil and natural gas property owned or held by another Person or (2) the Capital Stock of another Person that becomes a Restricted Subsidiary as a result of such trade or exchange and all or substantially all of whose assets consist of crude oil and natural gas properties, in either case including any cash or cash equivalents necessary in order to achieve an exchange of equivalent value; provided, however, that the value of the property or Capital Stock received by the Company or any Restricted Subsidiary in such trade or exchange (including any cash or cash equivalents) is at least equal to the fair market value (as determined in good faith by the Board of Directors or an Officer of the Company with responsibility for such transaction) of the property (including any cash or cash equivalents) so traded or exchanged;

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(f) the sale or transfer of hydrocarbons or other mineral products or surplus or obsolete equipment in the ordinary course of business;

(g) any sale, lease or other disposition of any individual assets or series of related sales, leases or other dispositions where the cash proceeds and fair market value of non-cash proceeds do not exceed $750,000; or

(h) Production Payments and Reserve Sales in connection with the acquisition of any crude oil and natural gas property after the Issue Date; provided that any such Production Payment and Reserve Sale is created, incurred, issued or assumed in connection with the financing of, and within 90 days after the acquisition of, such oil and natural gas property.

“Attributable Debt” in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate implicit in the Sale/Leaseback Transaction, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction, including any period for which such lease has been extended; provided, however, that if such Sale/Leaseback Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented by such Sale/Leaseback Transaction will be determined in accordance with the definition of “Capital Lease Obligation.”

“Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing

(a) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment, by

(b) the sum of all such payments.

“Board of Directors” means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board.

“Business Day” means each day other than a Legal Holiday as defined in Section 11.08 [Legal Holidays].

“Capital Lease Obligation” means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in, however designated, equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

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“Change of Control” means the occurrence of any of the following events:

(a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (a) such person will be deemed to have “beneficial ownership” of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company (for the purposes of this clause (a), such person will be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such person is the beneficial owner (as defined in this clause (a)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation);

(b) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office;

(c) the stockholders of the Company have approved any plan of liquidation or dissolution of the Company; or

(d) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale, lease, conveyance or transfer of all or substantially all the assets of the Company and its Restricted Subsidiaries, taken as a whole, to another Person or group of related Persons (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than the Permitted Holders, and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and that represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation.

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

“Company” means the party named as such in the preamble to this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities.

“Consolidated Coverage Ratio” as of any date of determination means the ratio of

(a) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination, to

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(b) Consolidated Interest Expense for such four fiscal quarters; provided, however, that:

(1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period;

(2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period will be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness;

(3) if since the beginning of such period the Company or any Restricted Subsidiary has made any Asset Disposition, then EBITDA for such period will be reduced by an amount equal to EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Disposition for such period, or increased by an amount equal to EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);

(4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition (including by way of lease) of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and

(5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted

12

Subsidiary since the beginning of such period) has made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment under clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period.

For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations will be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness will be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness, but if the remaining term of such Interest Rate Agreement is less than 12 months, then such Interest Rate Agreement will only be taken into account for that portion of the period equal to the remaining term of such agreement).

The Consolidated Interest Expense attributable to interest on any Indebtedness under a revolving credit facility, the outstanding principal balance of which is required to be computed on a pro forma basis in accordance with the foregoing, will be computed based on the average daily balance of such Indebtedness during the applicable period, provided, that such average daily balance will take into account the amount of any repayment of Indebtedness under such revolving credit facility during the applicable period, to the extent such repayment permanently reduced the commitments or amounts available to be borrowed under such facility.

“Consolidated Interest Expense” means, for any period, the total interest expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication:

(a) interest expense attributable to Capital Lease Obligations and imputed interest with respect to Attributable Debt;

(b) amortization of debt discount and debt issuance cost;

(c) capitalized interest;

(d) non-cash interest expense;

(e) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

(f) net costs (including amortization of fees and up-front payments) associated with Interest Rate Agreements that, at the time entered into, resulted in the Company and its Restricted Subsidiaries being net payees as to future payouts under such agreements, and Interest Rate Agreements for which the Company or any of its Restricted Subsidiaries has paid a premium;

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(g) dividends paid (excluding dividends paid in shares of Capital Stock that is not Disqualified Stock) in respect of all Preferred Stock held by Persons other than the Company or a Wholly Owned Subsidiary;

(h) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by, or secured by a Lien on Property of, the Company or any Restricted Subsidiary (whether or not such Guarantee or Lien is called upon);

(i) interest incurred in connection with Investments in discontinued operations; and

(j) cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust;

minus, to the extent included above, write-off of deferred financing costs and interest attributable to Dollar-Denominated Production Payments.

“Consolidated Net Income” means, for any period, the net income of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided, however, that there will not be included in such Consolidated Net Income:

(a) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that:

(1) subject to the exclusion contained in clause (c) below, the Company’s equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend, interest payment or other distribution (subject, in the case of a dividend, interest payment or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (b) below); and

(2) the Company’s equity in a net loss of any such Person for such period will not be included in determining such Consolidated Net Income, except to the extent of the aggregate cash actually contributed to such Person by the Company or a Restricted Subsidiary during such period;

(b) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that:

(1) subject to the exclusion contained in clause (c) below, the equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the amount of cash permitted to be distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and

14

(2) the Company’s equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;

(c) any gain or loss realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including any sale or disposition under any sale-and-leaseback arrangement) that is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person;

(d) extraordinary gains or losses, together with any related provision for taxes on such gains or losses and all related fees and expenses;

(e) any non-cash compensation expense realized for grants of performance shares, stock options or stock awards to officers, directors and employees of the Company or any of its Restricted Subsidiaries;

(f) any impairment losses on oil and natural gas properties;

(g) the cumulative effect of a change in accounting principles; and

(h) any unrealized non-cash gains or losses or charges in respect of Hedging Obligations.

Notwithstanding the foregoing, for the purposes of Section 4.05 [Limitation on Restricted Payments] only, there will be excluded from Consolidated Net Income any dividends, interest payments, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, interest payments, repayments or transfers increase the amount of Restricted Payments permitted under Section 4.05(a)(3)(E).

“Consolidated Net Worth” means the total of the amounts shown on the balance sheet of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as the sum of (a) the par or stated value of all outstanding Capital Stock of the Company plus (b) paid-in capital or capital surplus relating to such Capital Stock plus (c) any retained earnings or earned surplus less (x) any accumulated deficit and (y) any amounts attributable to Disqualified Stock.

“Credit Agreement” means that certain Third Amended and Restated Credit Agreement, dated November 1, 2002, as amended by the First Amendment thereto dated effective as of July 28, 2003, by and among the Company, certain of the Subsidiary Guarantors and Bank One, NA (or any successor thereto or replacement thereof), as administrative agent, letter of credit issuer and a bank, and certain other financial institutions, as banks, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced, refinanced or increased in whole or in part from time to time.

15

“Credit Facilities” means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities (including the Credit Agreement) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

“Currency Agreement” means, in respect of a Person, any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such Person against fluctuations in currency values.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Disqualified Stock” means, with respect to any Person, any Capital Stock that by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable, or upon the happening of any event: (a) matures or is mandatorily redeemable under a sinking fund obligation or otherwise; (b) is convertible or exchangeable at the option of the holder thereof for Indebtedness or Disqualified Stock; or (c) is redeemable or repurchasable, in whole or in part, at the option of the holder thereof; in each case on or prior to the first anniversary of the Stated Maturity of the Securities; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control” occurring prior to the Stated Maturity of the Securities will not constitute Disqualified Stock if: (x) the “asset sale” or “change of control” provisions applicable to such Capital Stock are not more favorable, as measured by the purchase or redemption price or the breadth of the definition of the event or events triggering such purchase or redemption obligation to the holders of such Capital Stock than the provisions of Sections 4.07 [Limitation on Sales of Assets and Subsidiary Stock] and 4.09 [Change of Control] and (y) any such requirement only becomes operative after compliance with such corresponding terms applicable to the Securities, including the purchase of any Securities tendered pursuant thereto.

The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined under the Indenture; provided, however, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person.

“Dollar-Denominated Production Payments” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.

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“Earnout Agreement” means the Earnout Agreement, dated January 15, 2002, as amended on July 1, 2002, by and among the Company and Hall-Houston Oil Company, with Hall-Houston Oil Company executing on behalf of the Participants (as defined therein).

“EBITDA” means, with respect to any period, the Consolidated Net Income for such period:

(a) plus the sum of, to the extent reflected in the consolidated income statement of the Company and its Restricted Subsidiaries for such period from which Consolidated Net Income is determined and deducted in the determination of such Consolidated Net Income, without duplication:

(1) Consolidated Interest Expense;

(2) income tax expense;

(3) depreciation, depletion and amortization expense (excluding amortization expense attributable to a prepaid operating activity item that was paid in cash in the prior period);

(4) exploration expense; and

(5) all other non-cash charges including non-cash charges taken under FAS 133 (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period except such amounts as the Company determines in good faith are nonrecurring);

(b) less, to the extent included in the determination of such Consolidated Net Income and in excess of any costs or expenses attributable thereto and deducted in the determination of such Consolidated Net Income, the sum of:

(1) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments; and

(2) amounts recorded in accordance with GAAP as repayments of principal and interest under Dollar-Denominated Production Payments.

Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depletion, depreciation, amortization and exploration and other non-cash charges of, a Restricted Subsidiary will be added to Consolidated Net Income to compute EBITDA only:

(1) to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in the determination of Consolidated Net Income; and

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(2) if a corresponding amount would be permitted at the date of determination to be paid as a dividend to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), under the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders.

“Equity Offering” means:

(a) a primary offering of shares of common stock of the Company pursuant to an underwritten offering registered under the Securities Act; or

(b) a private offering of shares of common stock of the Company so long as, at the time of consummation of the sale pursuant to such offering, the Company’s common stock continues to be registered pursuant to Section 12(b) or Section 12(g) under the Exchange Act,

in each case, other than public offerings with respect to such common stock or options, warrants or rights to acquire same, registered on Form S-4 or Form S-8.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Existing Preferred Stock” means the Series D Exchangeable Convertible Preferred Stock, par value $1.00 per share and stated value of $100 per share, of the Company.

“Fair Market Value” means, with respect to any non-cash consideration or property transferred or received by any Person, the fair market value of such consideration or property as determined by the Board of Directors of the Company.

“FAS 133” means Financial Accounting Standards Board Statement No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities.”

“GAAP” means generally accepted accounting principles in the United States of America as in effect on the Issue Date, including those set forth in: (a) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; (b) statements and pronouncements of the Financial Accounting Standards Board; (c) such other statements by such other entity as approved by a significant segment of the accounting profession; and (d) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed under Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

“Guarantee” means, without duplication, any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or (b) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in

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respect thereof (in whole or in part); provided, however, that the term “Guarantee” will not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning. The term “Guarantor” will mean any Person Guaranteeing any obligation.

“Guarantee Agreement” means a supplemental indenture, in a form satisfactory to the Trustee, by which a Subsidiary Guarantor or any other Person becomes subject to the applicable terms and conditions of this Indenture.

“Hedging Obligations” of any Person means the obligations of such Person under any Oil and Gas Hedging Contract, Interest Rate Agreement or Currency Agreement.

“Holder” or “Securityholder” or “Noteholder” means the Person in whose name a Security is registered on the Registrar’s books.

“Incur” means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term “Incurrence” when used as a noun will have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security will not be deemed the Incurrence of Indebtedness.

“Indebtedness” means, with respect to any Person on any date of determination, without duplication:

(a) the principal of and premium, if any, in respect of

(1) indebtedness of such Person for money borrowed and

(2) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable;

(b) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person;

(c) all obligations of such Person issued or assumed as the deferred purchase price of property, which purchase price is due more than six months after the date of taking delivery of title to such property, including all obligations of such Person for the deferred purchase price of property under any title retention agreement, but excluding trade accounts payable arising in the ordinary course of business;

(d) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (a) through (c) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is

19

reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit);

(e) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock, but excluding any accrued dividends;

(f) any Preferred Stock of any Restricted Subsidiary;

(g) all obligations of the type referred to in clauses (a) through (f) above of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee;

(h) all obligations of the type referred to in clauses (a) through (g) above of other Persons secured by any Lien on any Property of such first-mentioned Person, whether or not such obligation is assumed by such first-mentioned Person, the amount of such obligation being deemed to be the lesser of the value of such Property or the amount of the obligation so secured;

(i) to the extent not otherwise included in this definition, Hedging Obligations of such Person; and

(j) any Guarantee by such Person of production or payment with respect to a Production Payment and Reserve Sale.

The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, assuming the occurrence on such date of the contingency giving rise to the obligation, of any contingent obligations outstanding at such date.

None of the following will constitute Indebtedness:

(a) obligations for indemnification or adjustment of purchase price or arising from guarantees securing any obligations of the Company or any of its Subsidiaries incurred or assumed in connection with the disposition of any business, assets or Subsidiary of the Company, other than guarantees or similar credit support by the Company or any of its Subsidiaries of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition;

(b) any trade payables or other similar liabilities to trade creditors and other accrued current liabilities incurred in the ordinary course of business as the deferred purchase price of property;

(c) any liability for Federal, state, local or other taxes owed or owing by such Person;

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(d) amounts due in the ordinary course of business to other royalty and working interest owners;

(e) obligations arising from guarantees to suppliers, lessors, licensees, contractors, franchisees or customers incurred in the ordinary course of business;

(f) obligations (other than express Guarantees of indebtedness for borrowed money) in respect of Indebtedness of other Persons arising in connection with (A) the sale or discount of accounts receivable, (B) trade acceptances and (C) endorsements of instruments for deposit in the ordinary course of business;

(g) obligations in respect of performance bonds provided by the Company or any of its Subsidiaries in the ordinary course of business and refinancing thereof;

(h) obligations arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided, however, that such obligation is extinguished within two Business Days of its incurrence;

(i) any obligations under workers’ compensation laws and similar legislation; and

(j) except as expressly provided in clause (j) above [guarantee of production or payment with respect to a Production Payment and Reserve Sale], obligations relating to Production Payments and Reserve Sales.

“Independent Qualified Party” means an investment banking firm, accounting firm or appraisal firm of national standing; provided, however, that such firm is not an Affiliate of the Company.

“Indenture” means this Indenture as amended or supplemented from time to time, including the provisions of the TIA that are deemed to be a part of and govern this Indenture and any supplemental indenture, respectively.

“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates.

“Investment” in any Person means any direct or indirect advance, loan (other than advances to customers or joint interest partners or drilling partnerships sponsored by the Company or any Restricted Subsidiary in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. Except as otherwise provided for herein, the amount of an Investment will be its fair value at the time the Investment is made and without giving effect to subsequent changes in value.

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For purposes of the definition of “Unrestricted Subsidiary,” the definition of “Restricted Payment” and Section 4.05 [Limitation on Restricted Payments]:

(a) “Investment” will include the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (1) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (2) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and

(b) any property transferred to or from an Unrestricted Subsidiary will be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the Board of Directors.

“Issue Date” means the date on which the Securities are originally issued.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind, including any conditional sale or other title retention agreement or lease in the nature thereof.

“Material Change” means an increase or decrease (excluding changes that result solely from changes in prices and changes resulting from the incurrence of previously estimated future development costs) of more than 25% during a fiscal quarter in the discounted future net revenues from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries, calculated in accordance with clause (a)(1) of the definition of Adjusted Consolidated Net Tangible Assets; provided, however, that the following will be excluded from the calculation of Material Change:

(a) any acquisitions during the fiscal quarter of oil and gas reserves that have been estimated by independent petroleum engineers and with respect to which a report or reports of such engineers exist; and

(b) any disposition of properties existing at the beginning of such fiscal quarter that have been disposed of in compliance with Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock].

“Moody’s” means Moody’s Investor’s Service, Inc. and its successors.

“Net Available Cash” from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal under a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form), in each case net of:

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(a) all legal, title and recording tax expenses, commissions and other fees (including financial and other advisory fees) and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition;

(b) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition;

(c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition; and

(d) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition.

“Net Cash Proceeds,” with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.

“Net Present Value” means, with respect to any proved hydrocarbon reserves, the discounted future net cash flows associated with such reserves, determined in accordance with the rules and regulations (including interpretations thereof) of the SEC in effect on July 29, 2003.

“Net Working Capital” means (a) all current assets of the Company and its Restricted Subsidiaries; minus (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities included in Indebtedness; in each case determined in accordance with GAAP.

“Non-recourse Purchase Money Indebtedness” means Indebtedness (other than Capital Lease Obligations) of the Company or any Subsidiary Guarantor incurred in connection with the acquisition by the Company or such Subsidiary Guarantor in the ordinary course of business of fixed assets used in the Oil and Gas Business (including office buildings and other real property used by the Company or such Subsidiary Guarantor in conducting its operations) with respect to which:

(a) the holders of such Indebtedness agree that they will look solely to the fixed assets so acquired that secure such Indebtedness, and neither the Company nor any Restricted Subsidiary (1) is directly or indirectly liable for such Indebtedness or (2) provides credit support, including any undertaking, Guarantee, agreement or instrument that would constitute Indebtedness (other than the grant of a Lien on such acquired fixed assets); and

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(b) no default or event of default with respect to such Indebtedness would cause, or permit (after notice or passage of time or otherwise), any holder of any other Indebtedness of the Company or a Subsidiary Guarantor to declare a default or event of default on such other Indebtedness or cause the payment, repurchase, redemption, defeasance or other acquisition or retirement for value thereof to be accelerated or payable prior to any scheduled principal payment, scheduled sinking fund payment or maturity.

“Obligations” means, with respect to any Indebtedness, all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements and other amounts payable pursuant to the documentation governing such Indebtedness.

“Officer” means the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company.

“Officers’ Certificate” means a certificate of the Company signed by two Officers.

“Oil and Gas Business” means (a) the acquisition, exploration, exploitation, development, operation or disposition of interests in, or obtaining production from, oil, natural gas or other hydrocarbon properties; (b) the gathering, marketing, treating, processing (but not refining), storage, selling or transporting of any production from such interests or properties; or (c) any activity that is ancillary, necessary or appropriate to facilitate, or that is incidental to, the activities described in clauses (a) and (b) of this definition.

“Oil and Gas Hedging Contract” means any oil and gas purchase or hedging agreement, and other agreement or arrangement, in each case, that is designed to provide protection against oil and gas price fluctuations.

“Oil and Gas Liens” means:

(a) Liens on any specific property or any interest therein, construction thereon or improvement thereto to secure all or any part of the costs incurred for surveying, exploration, drilling, extraction, development, operation, production, construction, alteration, repair or improvement of, in, under or on such property and the plugging and abandonment of wells located thereon (it being understood that, in the case of oil and gas producing properties, or any interest therein, costs incurred for “development” will include costs incurred for all facilities relating to such properties or to projects, ventures or other arrangements of which such properties form a part or that relate to such properties or interests);

(b) Liens on an oil or gas producing property to secure obligations incurred or guarantees of obligations incurred in connection with or necessarily incidental to commitments for the purchase or sale of, or the transportation or distribution of, the products derived from such property;

(c) Liens arising under partnership agreements, oil and gas leases, overriding royalty agreements, net profits agreements, production payment agreements, royalty trust agreements, incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to the

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Company or a Restricted Subsidiary, farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of oil, gas or other hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, operating agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements that are customary in the Oil and Gas Business; provided, however, that in all instances such Liens are limited to the assets that are the subject of the relevant agreement, program, order or contract;

(d) Liens arising in connection with Production Payments and Reserve Sales; and

(e) Liens on pipelines or pipeline facilities that arise by operation of law.

“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.

“Permitted Business Investment” means any investment or expenditure made in the ordinary course of, and of a nature that is or has become customary in, the Oil and Gas Business including investments or expenditures arising through agreements, transactions, interests or arrangements that permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of Oil and Gas Business jointly with third parties, including:

(a) ownership interests in oil and gas properties, processing facilities, gathering systems, pipelines or ancillary real property interests; and

(b) Investments in the form of or under operating agreements, processing agreements, farm-in agreements, farm-out agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements and other similar agreements (including for limited liability companies) with third parties, excluding, however, Investments in any corporation, partnership, limited liability company or any other entity that is not a Restricted Subsidiary.

“Permitted Holders” means

(a) Richard A. Bachmann;

(b) Evercore Capital Partners L.P., Evercore Capital Offshore Partners L.P., Evercore Capital Partners (NQ) L.P. and Evercore Co-Investment Partnership L.P.;

(c) trusts, the sole beneficiary and trustee of which is the individual who would be a Permitted Holder under clause (a) above or his immediate family members; and

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(d) corporations, partnerships and other entities (1) of which the individual who would be a Permitted Holder under clause (a) above or his immediate family members is or are the beneficial owners of all Capital Stock and other equity or voting interests and (2) that are controlled by such individual and his immediate family members.

“Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:

(a) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is the Oil and Gas Business;

(b) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person’s primary business is the Oil and Gas Business;

(c) Temporary Cash Investments;

(d) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances;

(e) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

(f) loans or advances to employees made in the ordinary course of business;

(g) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments;

(h) any Person to the extent such Investment represents the noncash portion of the consideration received for an Asset Disposition as permitted under Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock];

(i) Permitted Business Investments;

(j) Investments made pursuant to Hedging Obligations of the Company and the Restricted Subsidiaries;

(k) any Person where such Investment was acquired by the Company or any of its Restricted Subsidiaries (1) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or

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accounts receivable or (2) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; and

(l) any Person, not otherwise permitted to be made under clause (a) through (k) above, in an aggregate amount, which when taken together with all other Investments made on or after the Issue Date under this clause, does not exceed $20 million at any one time outstanding.

“Permitted Liens” means, with respect to any Person:

(a) Liens existing as of the Issue Date;

(b) Liens securing the Securities, any Subsidiary Guarantee and other obligations arising under this Indenture;

(c) any Lien existing on any Property of a Person at the time such Person is merged or consolidated with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary (and not incurred in anticipation of or in connection with such transaction), provided that such Liens are not extended to other Property of the Company or the Restricted Subsidiaries;

(d) any Lien existing on any Property at the time of the acquisition thereof (and not incurred in anticipation of or in connection with such transaction), provided that such Liens are not extended to other Property of the Company or the Restricted Subsidiaries;

(e) any Lien incurred in the ordinary course of business incidental to the conduct of the business of the Company or the Restricted Subsidiaries or the ownership of their property including

(1) easements, rights of way and similar encumbrances,

(2) rights or title of lessors under leases (other than Capital Lease Obligations),

(3) rights of collecting banks having rights of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or the Restricted Subsidiaries on deposit with or in the possession of such banks,

(4) Liens imposed by law, including Liens under workers’ compensation or similar legislation and mechanics’, carriers’, warehousemen’s, materialmen’s, suppliers’ and vendors’ Liens,

(5) Liens incurred to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature and incurred in a manner consistent with industry practice, and

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(6) Oil and Gas Liens, in each case which are not incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property (other than trade accounts payable arising in the ordinary course of business);

(f) Liens for taxes, assessments and governmental charges not yet due or the validity of which are being contested in good faith by appropriate proceedings, promptly instituted and diligently conducted, and for which adequate reserves have been established to the extent required by GAAP as in effect at such time;

(g) Liens incurred to secure appeal bonds and judgment and attachment Liens, in each case in connection with litigation or legal proceedings that are being contested in good faith by appropriate proceedings, so long as reserves have been established to the extent required by GAAP as in effect at such time and so long as such Liens do not encumber assets by an aggregate amount (together with the amount of any unstayed judgments against the Company or any Restricted Subsidiary but excluding any such Liens to the extent securing insured or indemnified judgments or orders) in excess of $5 million;

(h) Liens securing Hedging Obligations of the Company and its Restricted Subsidiaries;

(i) Liens securing Purchase Money Indebtedness or Capital Lease Obligations Incurred in accordance with this Indenture, provided that such Liens attach only to the property acquired (or if such property is Capital Stock, to the assets of such Person as well as such Capital Stock) with the proceeds of such Purchase Money Indebtedness or the property that is the subject of such Capital Lease Obligations;

(j) Liens securing Non-recourse Purchase Money Indebtedness granted in connection with the acquisition by the Company or any Restricted Subsidiary in the ordinary course of business of fixed assets used in the Oil and Gas Business (including the office buildings and other real property used by the Company or such Restricted Subsidiary in conducting its operations), provided that

(1) such Liens attach only to the fixed assets acquired with the proceeds of such Non-recourse Purchase Money Indebtedness and

(2) such Non-recourse Purchase Money Indebtedness is not in excess of the purchase price of such fixed assets;

(k) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of decreasing or legally defeasing Indebtedness of the Company or any Restricted Subsidiary so long as such deposit of funds is permitted under Section 4.05 [Limitation on Restricted Payments];

(l) Liens resulting from a pledge of Capital Stock of a Person that is not a Restricted Subsidiary to secure obligations of such Person and any refinancings thereof;

(m) Liens securing Obligations under the Credit Agreement;

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(n) Liens to secure any permitted extension, renewal, refinancing, refunding or exchange (or successive extensions, renewals, refinancings, refundings or exchanges), in whole or in part, of or for any Indebtedness secured by Liens referred to in clauses (a), (b), (c), (d), (i), (j) and (m) above; provided, however, that

(1) such new Lien must be limited to all or part of the same property (including future improvements thereon and accessions thereto) subject to the original Lien, and

(2) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of

(A) the outstanding principal amount or, if greater, the committed amount of the Indebtedness secured by such original Lien immediately prior to such extension, renewal, refinancing, refunding or exchange and

(B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement; and

(o) Liens in favor of the Company or a Restricted Subsidiary.

Notwithstanding anything in this definition to the contrary, the term “Permitted Liens” will not include Liens resulting from the creation, incurrence, issuance or assumption of any Production Payments and Reserved Sales other than

(1) any such Liens existing as of the Issue Date;

(2) Production Payments and Reserve Sales in connection with the acquisition of any Property after the Issue Date; provided that any such Lien created in connection therewith is created, incurred, issued, or assumed in connection with the financing of, and within 90 days after the acquisition of, such Property; and

(3) Production Payments and Reserve Sales other than those described in clauses (1) and (2) above, to the extent such Production Payments and Reserve Sales constitute Asset Dispositions made pursuant to and in compliance with Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock];

provided, however, that, in the case of the immediately foregoing clauses (1), (2) and (3), any Lien created in connection with any such Production Payments and Reserve Sales must be limited to the Property that is the subject of such Production Payments and Reserve Sales.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Preferred Stock,” as applied to the Capital Stock of any Person, means Capital Stock of any class or classes, however designated, that ranks prior, as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary

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liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person.

The term “principal” of a Security means the principal of the Security plus the premium, if any, payable on the Security that is due or overdue or is to become due at the relevant time.

“Production Payments and Reserve Sales” means the grant or transfer by the Company or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest or production payment (whether volumetric or dollar denominated) in oil and natural gas properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business.

“Property” means, for any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock and other securities issued by any other Person (but excluding Capital Stock or other securities issued by such first mentioned Person).

“Purchase Money Indebtedness” means any Indebtedness Incurred in connection with the acquisition, construction or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets or the acquisition of the Capital Stock or other equity interests of any Person owning such property or assets, or otherwise.

“Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. “Refinanced” and “Refinancing” will have correlative meanings.

“Refinancing Indebtedness” means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that

(a) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced,

(b) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced,

(c) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the

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aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced and

(d) if the Indebtedness being Refinanced is Non-recourse Purchase Money Indebtedness, such Refinancing Indebtedness satisfies clauses (a) and (b) of the definition of “Non-recourse Purchase Money Indebtedness”;

provided further, however, that Refinancing Indebtedness will not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.

“Restricted Payment” with respect to any Person means:

(a) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than (1) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (2) dividends or distributions payable solely to the Company or a Restricted Subsidiary, and (3) pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation));

(b) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock);

(c) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations of such Person (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or

(d) the making of any Investment (other than a Permitted Investment) in any Person.

“Restricted Subsidiary” means any Subsidiary of the Company that is not an Unrestricted Subsidiary.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Company, Inc., and its successors.

“Sale/Leaseback Transaction” means an arrangement relating to property owned on the Issue Date or thereafter acquired whereby the Company or a Restricted Subsidiary

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transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

“SEC” means the Securities and Exchange Commission.

“Secured Indebtedness” means any Indebtedness of the Company or of any Subsidiary secured by a Lien.

“Senior Indebtedness” means with respect to any Person:

(a) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred; and

(b) all other Obligations of such Person, including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating such Person to the extent post-filing interest is allowed in such proceeding, in respect of Indebtedness described in clause (a) above;

unless, with respect to obligations described in the immediately preceding clause (a) or (b), in the instrument creating or evidencing the same or under which the same is outstanding, it is provided that such Indebtedness or other Obligations are subordinate in right of payment to the Securities or the applicable Subsidiary Guarantee; provided, however, that Senior Indebtedness will not include:

(a) any obligation of such Person to any Subsidiary of such Person;

(b) any liability for Federal, state, local or other taxes owed or owing by such Person;

(c) any accounts payable or other liability to trade creditors arising in the ordinary course of business, including guarantees thereof or instruments evidencing such liabilities;

(d) any Indebtedness or other Obligations of such Person, and any accrued and unpaid interest in respect thereof, that is subordinate or junior in any respect to any other Indebtedness or other Obligation of such Person;

(e) Subordinated Obligations;

(f) that portion of any Indebtedness that at the time of Incurrence is Incurred in violation of this Indenture (other than, in the case of the Company or any Subsidiary Guarantor that Guarantees or is an obligor under any Credit Facility, Indebtedness under any Credit Facility that is Incurred on the basis of a representation by the Company or the applicable Subsidiary Guarantor to the applicable lenders that such Person is permitted to Incur such Indebtedness under this Indenture); or

(g) any Disqualified Stock or obligations with respect to any Capital Stock.

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“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.

“Stated Maturity” means, with respect to any security or obligation, the date specified in such security or obligation as the fixed date on which the final payment of principal of such security or payment on such obligation is due and payable, including under any mandatory redemption provision (but excluding any provision providing for the repurchase of such security or obligation, at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).

“Subordinated Obligation” means any Indebtedness of the Company or any Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter Incurred, that is subordinate or junior in right of payment to, in the case of the Company, the Securities or, in the case of a Subsidiary Guarantor, its Subsidiary Guarantee under a written agreement to that effect.

“Subsidiary” means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of such Person or (c) one or more Subsidiaries of such Person.

“Subsidiary Guarantee” means a Guarantee by a Subsidiary Guarantor of the Company’s obligations with respect to the Securities.

“Subsidiary Guarantor” means each Subsidiary of the Company that executes this Indenture as a guarantor and each other Subsidiary of the Company that thereafter Guarantees the Securities under the terms of this Indenture, in each case unless and until such Subsidiary is released from its obligations under its Subsidiary Guarantee in accordance with the terms of this Indenture. Initially, the Subsidiary Guarantors will be EPL Pipeline, L.L.C., Nighthawk, L.L.C., EPL of Louisiana, L.L.C., Delaware EPL of Texas, LLC, and Pioneer Houston, Inc.

“Temporary Cash Investments” means any of the following:

(a) Investments in U. S. Government Obligations maturing within one year of the date of the acquisition thereof;

(b) Investments in (1) time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America or any state thereof or the District of Columbia that is a member of the Federal Reserve System and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $250 million and whose long-term debt is rated “A” (or such similar equivalent rating) or higher by Moody’s or S&P or (2) any money-market fund having assets in excess of $500 million all of which consist of obligations of the types described in clauses (a), (b), (c), (d) and (e) hereof;

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(c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with a bank meeting the qualifications described in clause (b) above;

(d) Investments in commercial paper, maturing not more than one year after the date of acquisition, issued by a Person (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America with a rating at the time as of which any investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher) according to S&P; and

(e) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least “A” by S&P or “A” by Moody’s.

“TIA” means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb), as in effect on the date of this Indenture except as provided in Section 9.03; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, “TIA” means, to the extent required by any such amendments, the Trust Indenture Act of 1939 as so amended.

“Trustee” means the party named as such in the preamble to this Indenture until a successor replaces it and, thereafter, means the successor.

“Trust Officer” means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture.

“Uniform Commercial Code” means the New York Uniform Commercial Code as in effect from time to time.

“Unrestricted Subsidiary” means:

(a) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and

(b) any Subsidiary of an Unrestricted Subsidiary.

The Board of Directors may designate any Subsidiary of the Company, including any newly acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary in the manner and subject to the conditions set forth in Section 4.10 [Restricted and Unrestricted Subsidiaries].

“U.S. Government Obligations” means direct obligations, or certificates representing an ownership interest in such obligations, of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and that are not callable at the issuer’s option.

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“Volumetric Production Payments” means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.

“Voting Stock” of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled, without regard to the occurrence of any contingency, to vote in the election of directors, managers or trustees thereof.

“Wholly Owned Subsidiary” means a Restricted Subsidiary all the Capital Stock of which (other than directors’ qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries.

SECTION 1.02    Other Definitions.

Term	Defined in Section
“Additional Securities”	2.13
“Affiliate Transaction”	4.08(a)
“Bankruptcy Law”	6.01
“covenant defeasance option”	8.01(b)
“Custodian”	6.01
“Event of Default”	6.01
“Guaranteed Obligations”	10.01
“Investment Grade Rating”	4.16(a)
“legal defeasance option”	8.01(b)
“Legal Holiday”	11.08
“Notice of Default”	6.01
“Paying Agent”	2.03
“Registrar”	2.03
“Securities”	Preamble
“Successor Company”	5.01(a)
“Suspended Covenants”	4.16(a)

Terms not defined herein but defined in Appendix A shall have the meaning set forth therein.

SECTION 1.03    Incorporation by Reference of Trust Indenture Act.

This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings:

“Commission” means the SEC.

“indenture securities” means the Securities.

“indenture security holder” means a Securityholder.

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“indenture to be qualified” means this Indenture.

“indenture trustee” or “institutional trustee” means the Trustee.

“obligor” on the indenture securities means the Company and any other obligor on the indenture securities.

All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

SECTION 1.04    Rules of Construction.

Unless the context otherwise requires:

(a) a term has the meaning assigned to it;

(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(c) “or” is not exclusive unless the context otherwise requires;

(d) “including” means including without limitation;

(e) words in the singular include the plural and words in the plural include the singular;

(f) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness;

(g) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the Company dated such date prepared in accordance with GAAP; and

(h) the principal amount of any Preferred Stock shall be (1) the maximum liquidation value of such Preferred Stock or (2) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater.

ARTICLE II

THE SECURITIES

SECTION 2.01    Form and Dating.

Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in Appendix A hereto which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit 1 to Appendix A which is hereby incorporated in and expressly made a part of this Indenture. The Private Exchange Securities and the Exchange Securities and the Trustee’s certificate of authentication shall be substantially in

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the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in Appendix A and Exhibit A are part of the terms of this Indenture.

SECTION 2.02    Execution and Authentication.

Two Officers shall sign the Securities for the Company by manual or facsimile signature.

If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless.

A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.

On the Issue Date, the Trustee shall authenticate and deliver $150 million of 8 ³/4% Senior Notes Due 2010 and, at any time and from time to time thereafter, the Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount specified in such order, in each case upon receipt of a written order of the Company signed by two Officers of the Company; provided that the Trustee shall be entitled to receive an Officers’ Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Securities. Such order shall specify the amount of Securities to be authenticated, the date on which the original issue of Securities is to be authenticated and the aggregate principal amount of Securities then authorized and, in the case of an issuance of Additional Securities pursuant to Section 2.13 [Issuance of Additional Securities] after the Issue Date, shall certify that such issuance is in compliance with Section 4.03 [Limitation on Indebtedness].

The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.

SECTION 2.03    Registrar and Paying Agent.

The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange, which office shall maintain the names and addresses of Securityholders (the “Registrar”), and an office or agency where Securities may be presented for payment (the “Paying Agent”). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term “Paying Agent” includes any additional paying agent.

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The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 [Compensation and Indemnity]. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent.

The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities.

SECTION 2.04    Paying Agent To Hold Money in Trust.

Prior to 11:30 a.m., New York City time, on each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee.

SECTION 2.05    Securityholder Lists.

The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.

SECTION 2.06    Transfer and Exchange.

The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(a) of the Uniform Commercial Code and the transfer restriction provisions set forth in Annex A to this Indenture are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met.

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SECTION 2.07    Replacement Securities.

If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate and deliver a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security.

Every replacement Security is an additional obligation of the Company.

SECTION 2.08    Outstanding Securities.

Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security.

If a Security is replaced pursuant to Section 2.07 [Replacement Securities], it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser.

If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue.

SECTION 2.09    Temporary Securities.

Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate and deliver temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities.

SECTION 2.10    Cancellation.

The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities

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surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver canceled Securities to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation.

SECTION 2.11    Defaulted Interest.

If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall mail promptly to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid.

SECTION 2.12    CUSIP Numbers.

The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use) and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.

SECTION 2.13    Issuance of Additional Securities.

The Company shall be entitled, subject to its compliance with Section 4.03, to issue additional securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance and issue price (“Additional Securities”). The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture.

With respect to any Additional Securities, the Company shall deliver to the Trustee the following:

(a) a resolution of the Board of Directors setting forth the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture and authorizing the appropriate Officers of the Company to furnish to the Trustee the certificates identified in (b) and (c) of this Section 2.13;

(b) an Officer’s Certificate setting forth the issue price, the issue date and the CUSIP number of such Additional Securities; provided, however, that no Additional Securities may be issued unless such Additional Securities are fungible in all respects for federal income tax purposes with the Securities then outstanding; and

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(c) an Officer’s Certificate setting forth whether such Additional Securities shall be Transfer Restricted Securities and issued in the form of Initial Securities as set forth in Appendix A to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit A.

ARTICLE III

REDEMPTION

SECTION 3.01    Notices to Trustee.

If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur.

The Company shall give each notice to the Trustee provided for in this Section at least 30 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers’ Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein.

SECTION 3.02    Selection of Securities To Be Redeemed.

If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee in its sole discretion considers fair and appropriate. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000 or, in the case of a selected Security of $1,000 in original principal amount or less, such security must be redeemed in full. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company, the Registrar and each Paying Agent promptly of the Securities or portions of Securities to be redeemed.

SECTION 3.03    Notice of Redemption.

At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed.

The notice shall identify the Securities to be redeemed and shall state:

(a) the redemption date;

(b) the redemption price;

(c) the name and address of the Paying Agent;

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(d) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price;

(e) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed;

(f) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portions thereof) called for redemption ceases to accrue on and after the redemption date; and

(g) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities.

At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense. In such event, the Company shall provide the Trustee with the information required by this Section.

SECTION 3.04    Effect of Notice of Redemption.

Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice, subject to any condition or contingency stated therein. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder.

SECTION 3.05    Deposit of Redemption Price.

On or prior to 11:30 a.m. New York City time on the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation.

If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest will cease to accrue on the Securities or the portions of Securities called for redemption, whether or not such Securities are presented for payment, and the Holders of such Securities shall have no further rights with respect to such Securities except for the right to receive the redemption price, accrued interest and additional interest, if any, upon surrender of such Securities. If a Security is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest to the redemption date shall be paid to the Person in whose name such Security was registered at the close of business on such record date. If any Security called for redemption is not so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal from the redemption or purchase date

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until such principal is paid, and to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.01 hereof.

SECTION 3.06    Securities Redeemed in Part.

Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder (at the Company’s expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered.

ARTICLE IV

COVENANTS

SECTION 4.01    Payment of Securities.

The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture.

The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful.

SECTION 4.02    SEC Reports.

Notwithstanding that the Company may not at any time be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC (to the extent the SEC will accept such filing) and provide the Trustee and Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections (but without exhibits in the case of Securityholders), such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections.

In addition, the Company shall furnish to the Securityholders and to prospective investors, upon the request of such Securityholders, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as any Securities are not freely transferable under the Securities Act.

The Company also shall comply with the other provisions of TIA Section 314(a).

SECTION 4.03    Limitation on Indebtedness.

(a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, that the Company or a Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence and after giving

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effect thereto, no Default has occurred and is continuing and the Consolidated Coverage Ratio exceeds 2.5 to 1.0.

(b) Notwithstanding Section 4.03(a), the Company and any Restricted Subsidiary may Incur the following Indebtedness:

(1) Indebtedness Incurred under any Credit Facility, so long as the aggregate amount of all Indebtedness outstanding under all Credit Facilities pursuant to this Section 4.03(b)(1) does not exceed the greater of (A) $100 million less the sum of all principal payments since the Issue Date with respect to such Indebtedness under Section 4.07(a)(3)(A) and (B) 25% of ACNTA as of the date of such Incurrence;

(2) Indebtedness owed to and held by the Company or any Restricted Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if the Company is the obligor on such Indebtedness, unless such Indebtedness is owed to a Subsidiary Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Securities;

(3) the Securities (other than any Additional Securities);

(4) Indebtedness outstanding on the Issue Date (other than Indebtedness described in paragraph (b) (1), (2) or (3) of this Section 4.03);

(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company (other than Indebtedness Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions by which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company); provided, however, that on the date of such Incurrence and after giving pro forma effect thereto, the Company would have been entitled to Incur at least $1.00 of additional Indebtedness under Section 4.03(a);

(6) Refinancing Indebtedness in respect of Indebtedness Incurred under Section 4.03(a) or Section 4.03(b)(3), (4), (5), this clause (6) or clause (7) below; provided, however, that to the extent such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a Restricted Subsidiary described in Section 4.03(b)(5), such Refinancing Indebtedness will be Incurred only by such Restricted Subsidiary or the Company;

(7) Non-recourse Purchase Money Indebtedness;

(8) Indebtedness arising from any agreement providing for indemnities, Guarantees, purchase price adjustments, holdbacks, contingency payment obligations based on the performance of the acquired or disposed assets or similar obligations (other than Guarantees of Indebtedness) Incurred by any Person in connection with the acquisition or disposition of assets and Indebtedness under the Earnout Agreement;

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(9) Indebtedness consisting of the Subsidiary Guarantees and any Guarantee by the Company or a Subsidiary Guarantor of Indebtedness permitted by this Indenture to be Incurred by the Company or a Subsidiary other than Non-recourse Purchase Money Indebtedness;

(10) Hedging Obligations consisting of Interest Rate Agreements directly related to Indebtedness outstanding on the Issue Date or permitted to be Incurred by the Company and its Restricted Subsidiaries under this Indenture;

(11) Hedging Obligations consisting of Oil and Gas Hedging Contracts and Currency Agreements entered into in the ordinary course of business for the purpose of limiting risks that arise in the ordinary course of business of the Company and its Restricted Subsidiaries;

(12) obligations in respect of bid, performance or surety bonds including Guarantees and letters of credit functioning as or supporting such bid, performance or surety bonds, completion guarantees and other reimbursement obligations provided by the Company or any Restricted Subsidiary in the ordinary course of business (in each case other than for an obligation for money borrowed);

(13) in-kind obligations relating to oil and gas balancing positions arising in the ordinary course of business; and

(14) Indebtedness in an aggregate amount that, together with the amount of all other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by Section 4.03(a) or Section 4.03(b)(1) through (13)) above does not exceed $35 million of which not more than $10 million may be Indebtedness of Restricted Subsidiaries that are not Subsidiary Guarantors.

(c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Subsidiary Guarantor to, Incur any Indebtedness under Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities or the relevant Subsidiary Guarantee, as the case may be, to at least the same extent as such Subordinated Obligations.

The Company shall not, and shall not permit any Subsidiary Guarantor to, directly or indirectly, incur any Indebtedness that by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company or of such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be, pursuant to terms no less favorable to the Holders of the Securities.

(d) For purposes of determining compliance with this Section 4.03:

(1) if an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in this Section 4.03, or is entitled to be incurred in compliance with Section 4.03(a), then the Company, in its sole discretion, may classify such item

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of Indebtedness (or any portion thereof) at the time of Incurrence in any manner that complies with this Section and will only be required to include the amount and type of such Indebtedness in one of the above clauses of this Section 4.03; and

(2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described in this Section 4.03 or treated as having been incurred in compliance with Section 4.03(a).

SECTION 4.04    [Reserved]

SECTION 4.05    Limitation on Restricted Payments.

(a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment:

(1) a Default or an Event of Default has occurred and is continuing (or would result therefrom);

(2) the Company is not entitled to Incur an additional $1.00 of Indebtedness under Section 4.03(a); or

(3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of, without duplication:

(A) 50% of the aggregate Consolidated Net Income of the Company accrued during the period (treated as one accounting period) commencing on the first day of the fiscal quarter during which the Issue Date occurs and ending on the last day of the most recent fiscal quarter for which financial statements of the Company are publicly available prior to the date of such proposed Restricted Payment (or, if such aggregate Consolidated Net Income is a deficit, minus 100% of such deficit); plus

(B) 100% of (i) the aggregate Net Cash Proceeds, and (ii) the Fair Market Value of (a) Capital Stock (other than Capital Stock of the Company) of a Person (other than an Affiliate of the Company) engaged primarily in the Oil and Gas Business, provided that Person becomes a Restricted Subsidiary of the Company, and (b) other assets used in the Oil and Gas Business, in the case of clauses (i) and (ii) received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); plus

(C) the aggregate Net Cash Proceeds received by the Company subsequent to the Issue Date from the issue or sale of its Capital Stock (other than Disqualified Stock) to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees;

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provided, however, that if such employee stock ownership plan or trust Incurs any Indebtedness to finance the purchase of such Capital Stock, such aggregate amount will be limited to the excess of such Net Cash Proceeds over the amount of such Indebtedness plus an amount equal to any increase in the Consolidated Net Worth of the Company resulting from principal repayments made by such employee stock ownership plan or trust with respect to such Indebtedness; plus

(D) the amount by which the Company’s Indebtedness is reduced on its balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any of the Company’s Indebtedness that is convertible or exchangeable for its Capital Stock (other than Disqualified Stock) (less the amount of any cash, or the fair value of any other Property, distributed by the Company upon such conversion or exchange); provided, however, that the foregoing will not exceed the Net Cash Proceeds received by the Company or any Restricted Subsidiary from the sale of such Indebtedness (excluding Net Cash Proceeds from sales to a Subsidiary of the Company or to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); plus

(E) an amount equal to the sum of (i) the net reduction in Investments (other than Permitted Investments) made by the Company or any Restricted Subsidiary in any Person resulting from repurchases, repayments or redemption of such Investments by such Person, proceeds realized on the sale of such Investment and proceeds representing the return of capital, in each case received by the Company or any Restricted Subsidiary, and (ii) to the extent such Person is an Unrestricted Subsidiary, the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that to the extent the foregoing sum exceeds, in the case of any such Person or Unrestricted Subsidiary, the amount of Investments (excluding Permitted Investments) previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary, such excess will not be included in this clause (E) unless the amount represented by such excess has not been and will not be taken into account in one of the foregoing clauses (A) through (D); plus

(F) $5 million.

(b) The provisions of Section 4.05(a) will not prohibit:

(1) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this Section 4.05; provided, however, that such dividend will be included in the calculation of the amount of Restricted Payments at the time of payment;

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(2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided, however, that (A) such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale will be excluded from the calculation of amounts under Section 4.05(a)(3)(B) (but only to the extent that such Net Cash Proceeds were used to purchase, repurchase, redeem, defease or otherwise acquire or retire for value such Capital Stock or Subordinated Obligations as provided in this clause (2));

(3) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness that is permitted to be Incurred under Section 4.03 [Limitation on Indebtedness]; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments;

(4) so long as no Default or Event of Default has occurred and is continuing, the purchase, redemption or other acquisition or retirement for value of shares of Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), under the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such purchases, redemptions and other acquisitions and retirements (excluding amounts representing cancellation of Indebtedness) will not exceed $2 million in any calendar year; provided further, however, that such purchases, redemptions and other acquisitions and retirements will be excluded in the calculation of the amount of Restricted Payments;

(5) so long as no Default or Event of Default has occurred and is continuing, any declaration or payment of dividends and other distributions in respect of, but excluding any purchase, redemption or other acquisition or retirement for value of, the Existing Preferred Stock; provided, however, that such dividends and distributions will be included in the calculation of the amount of Restricted Payments for purposes of determining whether any subsequent Restricted Payment may be made under Section 4.05(a);

(6) repurchases, acquisitions or retirements of shares of Company common stock deemed to occur upon the exercise of stock options or similar rights issued under employee benefit plans or warrants when shares are surrendered to pay all or a portion of the exercise price or to satisfy any federal income tax obligations; provided, however, that the aggregate amount of such repurchases, acquisitions or retirements (A) effected to satisfy any federal income tax obligations shall not exceed $2 million in any twelve-month period and (B) will be excluded in the calculation of the amount of Restricted Payments;

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(7) the payment of cash in lieu of fractional shares of Capital Stock in connection with any transaction otherwise permitted under this Section 4.05; provided, however, that such payment will be excluded in the calculation of the amount of Restricted Payments;

(8) upon the occurrence of a Change of Control or an Asset Disposition and within 60 days after the completion of the offer to repurchase the Securities under Section 4.09 [Change of Control] or Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock] (including the purchase of all Securities tendered), any purchase, repurchase, redemption, defeasance, acquisition or other retirement for value of Subordinated Obligations required under the terms thereof as a result of such Change of Control or Asset Disposition at a purchase or redemption price not to exceed 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any; provided, however, that (A) at the time of such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, no Default or Event of Default has occurred and is continuing (or would result therefrom), and (B) such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value will be excluded in the calculation of the amount of Restricted Payments; or

(9) the redemption, repurchase or repayment of the Company’s 11% Senior Subordinated Notes due 2009 with the proceeds from the issuance of the Securities; provided, however, that such redemption, repurchase or repayment will be excluded in the calculation of the amount of Restricted Payments.

The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, in accordance with the Restricted Payment.

For purposes of determining compliance with this Section 4.05, if a Restricted Payment meets the criteria of more than one of the types of Restricted Payments described above, the Company, in its sole discretion, may order and classify such Restricted Payment in any manner in compliance with this Section 4.05.

SECTION 4.06    Limitation on Restrictions on Distributions from Restricted Subsidiaries.

The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary:

(a) to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or a Restricted Subsidiary,

(b) to make any loans or advances to the Company or a Restricted Subsidiary or

(c) to transfer any of its Property to the Company or a Restricted Subsidiary, except:

(1) with respect to clauses (a), (b) and (c),

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(A) any encumbrance or restriction in the Credit Agreement on the Issue Date or under any other agreement governing Indebtedness or Capital Stock in effect at or entered into on the Issue Date;

(B) any encumbrance or restriction relating to Indebtedness of a Restricted Subsidiary and existing at the time it became a Restricted Subsidiary, provided that such encumbrance or restriction relates solely to such Restricted Subsidiary and was not created in anticipation of or in connection with the transactions by which such Restricted Subsidiary became a Restricted Subsidiary;

(C) any encumbrance or restriction under an agreement effecting a Refinancing of Indebtedness Incurred under an agreement referred to in clause (A) or (B) of clause (1) of this Section 4.06 or this clause (C) or contained in any amendment to, or modification, restatement, renewal, increase, supplement, replacement or extension of, an agreement referred to in clause (A) or (B) of clause (1) of this Section 4.06 or this clause (C); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment, modification, restatement, renewal, increase, supplement, replacement or extension are not materially more restrictive, taken as a whole, to the Securityholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements;

(D) customary restrictions with respect to a Restricted Subsidiary imposed under an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition;

(E) customary restrictions contained in agreements entered into in the ordinary course of business of the types described in the definition of the term “Permitted Business Investments”; and

(2) with respect to clause (c) only,

(A) customary nonassignment provisions, including provisions forbidding subletting or sublicensing, in leases governing leasehold interests and licenses to the extent such provisions restrict the transfer of the lease or license or the property leased or licensed thereunder;

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(B) any encumbrance or restriction under Liens permitted to be in effect without also securing the Securities as described under Section 4.11 [Limitation on Liens] that limit the right of the debtor to dispose of the Property subject to such Lien;

(C) any encumbrance or restriction with respect to Property at the time it is acquired by the Company or a Restricted Subsidiary, provided that such encumbrance or restriction relates solely to the Property so acquired and was not created in anticipation of or in connection with such acquisition;

(D) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business;

(E) encumbrances and restrictions contained in contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of, or from the ability of the Company and the Restricted Subsidiaries to realize the value of, property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; and

(F) restrictions on the transfer of property or assets required by any regulatory authority having jurisdiction over the Company or such Restricted Subsidiary.

SECTION 4.07    Limitation on Sales of Assets and Subsidiary Stock

(a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless:

(1) the Company receives or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration) (as determined in good faith by the Board of Directors or an Officer with responsibility for such transaction), of the shares and assets subject to such Asset Disposition;

(2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of (A) cash or cash equivalents, (B) oil and natural gas properties, (C) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of such acquisition and all or substantially all of whose assets consist of oil and natural gas properties or (D) capital assets to be used by the Company or any Restricted Subsidiary in the Oil and Gas Business; and

(3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be):

(A) to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of the Company or any Subsidiary Guarantor or Indebtedness of a Wholly Owned Subsidiary that is not a Subsidiary Guarantor (in each case other than Indebtedness owed to the Company or a Subsidiary of the Company) within

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one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash;

(B) to the extent the Company elects, to acquire Additional Assets or to make capital expenditures in the Oil and Gas Business within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; and

(C) to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and/or (B), to make an offer to the Holders of the Securities (and to holders of other Senior Indebtedness of the Company designated by the Company) to purchase Securities (and such other Senior Indebtedness of the Company) pursuant to and subject to the conditions contained in Sections 4.07(b) and 4.07(c);

provided, however, that in connection with any prepayment, repayment, purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness under clause (A) or (C) above, the Company or such Restricted Subsidiary must permanently retire such Indebtedness and cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased.

Notwithstanding the foregoing provisions of this Section 4.07, the Company and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this Section 4.07 except to the extent that the aggregate Net Available Cash from all Asset Dispositions that is not applied in accordance with this Section 4.07 exceeds $10 million.

For the purposes of this Section 4.07, the following shall be deemed to be cash or cash equivalents:

(1) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and

(2) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 120 days of receipt.

Notwithstanding the foregoing, the 75% limitation referred to in clause (a)(2) above shall be deemed satisfied with respect to any Asset Disposition in which the cash or cash equivalents portion of the consideration received therefrom, determined in accordance with the foregoing provision on an after-tax basis, is equal to or greater than what the after-tax proceeds would have been had such Asset Disposition complied with such 75% limitation.

The requirement of clause (a)(3)(B) above shall be deemed to be satisfied if an agreement (including a lease, whether a capital lease or an operating lease) committing to make the acquisitions or expenditures referred to therein is entered into by the Company or a Restricted Subsidiary within the time period specified in such clause and such Net Available

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Cash is subsequently applied in accordance with such agreement within six months following such agreement.

(b) If an Asset Disposition occurs that requires the purchase of Securities (and other Senior Indebtedness of the Company) under clause (a)(3)(C) above, the Company shall

(1) make such offer to purchase Securities on or before the 366th day after the later of the date of such Asset Disposition or the receipt of such Net Available Cash, and

(2) purchase Securities tendered under an offer by the Company for the Securities (and such other Senior Indebtedness of the Company) at a purchase price of 100% of their principal amount (or, in the event such other Senior Indebtedness of the Company was issued with significant original issue discount, 100% of the accreted value thereof) without premium, plus accrued but unpaid interest (or, in respect of such other Senior Indebtedness of the Company, such lesser price, if any, as may be provided for by the terms of such Senior Indebtedness of the Company) in accordance with the procedures (including prorating in the event of oversubscription) set forth in this Section 4.07.

If the aggregate purchase price of the securities tendered exceeds the Net Available Cash allotted to their purchase, the Company shall select the securities to be purchased on a pro rata basis but in round denominations, which in the case of the Securities will be denominations of $1,000 principal amount or multiples thereof. The Company will not be required to make such an offer to purchase Securities (and other Senior Indebtedness of the Company) under this Section 4.07 if the Net Available Cash available therefor is less than $10 million (which lesser amount will be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). Upon completion of such an offer to purchase, Net Available Cash will be deemed to be reduced by the aggregate amount of such offer.

(c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities under this Section 4.07. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.07, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.07 by virtue thereof.

SECTION 4.08    Limitation on Affiliate Transactions.

(a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any Property or the rendering of any service) with any Affiliate of the Company (an “Affiliate Transaction”) unless:

(1) the terms thereof are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm’s-length dealings with a Person who is not such an Affiliate;

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(2) if such Affiliate Transaction involves an amount in excess of $5 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company who are disinterested with respect to such Affiliate Transaction have determined in good faith that the criteria set forth in clause (1) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a resolution of the Board of Directors; and

(3) if such Affiliate Transaction involves an amount in excess of $20 million, the Board of Directors has also received a written opinion from an Independent Qualified Party to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or is not less favorable to the Company and its Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an arm’s-length transaction with a Person who was not an Affiliate.

(b) The provisions of the Section 4.08(a) will not prohibit:

(1) the sale to an Affiliate of the Company of Capital Stock of the Company that does not constitute Disqualified Stock, and the sale to an Affiliate of the Company of Indebtedness (including Disqualified Stock) of the Company in connection with an offering of such Indebtedness in a market transaction and on terms substantially identical to those of other purchasers in such market transaction;

(2) transactions contemplated by any employment agreement or other compensation plan or arrangement existing on the Issue Date or thereafter entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business;

(3) the payment of reasonable fees to directors of the Company or any of its Restricted Subsidiaries who are not employees of the Company or any Restricted Subsidiary;

(4) indemnities of officers and directors of the Company or any Restricted Subsidiary consistent with such Person’s charter, bylaws and applicable statutory provisions;

(5) the payment of reasonable compensation to officers of the Company or any Restricted Subsidiary as determined in good faith by the Board of Directors;

(6) Restricted Payments that are permitted by Section 4.05 [Limitation on Restricted Payments];

(7) any transaction between or among the Company and a Restricted Subsidiary or joint venture or similar entity that would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns an equity interest in or otherwise controls such Restricted Subsidiary, joint venture or similar entity; provided that no more than 10% of the total voting power of the Voting Stock of any such Restricted Subsidiary, joint venture or similar entity is owned by an Affiliate of the Company (other than a Restricted Subsidiary); and

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(8) transactions or obligations provided for under the Stockholder Agreement, dated as of November 17, 1999 and amended and restated as of March 17, 2003 by and among the Company and the stockholders parties thereto, as in effect on the Issue Date.

SECTION 4.09    Change of Control.

(a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company purchase such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.09(b).

If at the time a Change of Control occurs the terms of the Indebtedness under the Credit Agreement restrict or prohibit the repurchase of Securities pursuant to this Section 4.09, then prior to the mailing of the notice to Holders provided for in Section 4.09(b) below, but in any event within 30 days following any Change of Control, the Company shall:

(1) repay in full the Indebtedness under the Credit Agreement; or

(2) obtain the requisite consent under the agreements governing the Indebtedness under the Credit Agreement to permit the repurchase of the Securities as provided for in Section 4.09(b).

(b) Within 30 days following a Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating:

(1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date);

(2) the circumstances and relevant facts regarding such Change of Control (including reasonably available information with respect to pro forma historical income, cash flow and capitalization, in each case after giving effect to such Change of Control);

(3) the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; and

(4) the instructions determined by the Company, consistent with this Section 4.09, that a Holder must follow in order to have its Securities purchased.

(c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than three Business Days prior to the purchase date, a telegram, facsimile transmission or letter setting forth the name of

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the Holder, the principal amount of the Security that was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased.

(d) On the purchase date, all Securities purchased by the Company under this Section 4.09 shall be delivered to the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto.

(e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of Securities pursuant to this Section 4.09. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.09, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.09 by virtue thereof.

(f) The Company will not be required to make an offer to purchase Securities as a result of a Change of Control pursuant to this Section 4.09 if a third party (1) makes such offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 4.09(b) and (2) purchases all Securities validly tendered and not withdrawn under such an offer.

SECTION 4.10    Restricted and Unrestricted Subsidiaries.

Unless defined or designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or any of its Restricted Subsidiaries will be classified as a Restricted Subsidiary subject to the provisions of the next paragraph. The Company may designate a Subsidiary, including a newly formed or newly acquired Subsidiary, or any of its Restricted Subsidiaries as an Unrestricted Subsidiary if:

(a) such Subsidiary does not at such time own any Capital Stock or Indebtedness of, or own or hold any Lien on any Property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated:

(b) such Subsidiary does not at such time have any Indebtedness or other obligations that, if in default, would permit any holder of any Indebtedness or other obligations of the Company or any Restricted Subsidiary to declare a default on such Indebtedness or obligations or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and

(c) (1) such designation is effective immediately upon such Subsidiary becoming a Subsidiary of the Company or of a Restricted Subsidiary.

(2) the Subsidiary to be so designated has total assets of $1,000 or less, or

(3) if such Subsidiary has assets greater than $1,000, then such redesignation as an Unrestricted Subsidiary will be deemed to constitute a Restricted Payment in an amount equal to the Fair Market Value of the Company’s direct and indirect ownership

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interest in such Subsidiary, and such Restricted Payment would be permitted to be made at the time of such designation under Section 4.05 [Limitation on Restricted Payments].

Except as provided in the immediately preceding sentence, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. The designation of an Unrestricted Subsidiary or removal of such designation shall be made by the Board of Directors or a committee thereof under a certified resolution delivered to the Trustee and will be effective as of the date specified in the applicable certified resolution, which will not be prior to the date such certified resolution is delivered to the Trustee.

The Company shall not, and shall not permit any Unrestricted Subsidiaries to, take any action or enter into any transaction or series of transactions that would result in a Person becoming a Restricted Subsidiary (whether through an acquisition or otherwise) unless, after giving effect to such action, transaction or series of transactions, on a pro forma basis:

(a) the Company could Incur at least $1.00 of additional Indebtedness under clause (a) of the first paragraph under Section 4.03 [Limitation on Indebtedness]; and

(b) no Default or Event of Default would occur or be continuing.

SECTION 4.11    Limitation on Liens.

The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, create, incur, assume or suffer to exist or become effective any Lien securing Indebtedness, except for Permitted Liens, on or with respect to any Property of the Company or such Restricted Subsidiary, whether owned on the Issue Date or acquired after the Issue Date, or any interest therein or any income or profits therefrom, unless the Securities or any Subsidiary Guarantee of such Restricted Subsidiary, as applicable, are secured equally and ratably with such Indebtedness.

SECTION 4.12    Compliance Certificate.

The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers’ Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such fiscal year. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA Section 314(a)(4).

SECTION 4.13    Further Instruments and Acts.

Upon reasonable request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.

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SECTION 4.14    Future Subsidiary Guarantors.

The Company shall cause each Restricted Subsidiary that: (a) incurs Indebtedness or issues Preferred Stock following the Issue Date; or (b) has Indebtedness or Preferred Stock outstanding on the date on which such Restricted Subsidiary becomes a Restricted Subsidiary, to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to a Supplemental Indenture substantially in the form of Appendix B at the time such Restricted Subsidiary Incurs such Indebtedness, issues such Preferred Stock or becomes a Restricted Subsidiary; provided, however, that such Restricted Subsidiary will not be required to deliver a supplemental indenture providing for a Subsidiary Guarantee if the aggregate amount of such Indebtedness or Preferred Stock, together with all other Indebtedness and Preferred Stock then outstanding among Restricted Subsidiaries that are not Subsidiary Guarantors, does not exceed $10 million.

SECTION 4.15    Limitation on Line of Business.

The Company shall not engage in any business other than the Oil and Gas Business; provided, however, that this restriction will not prevent the Company from acquiring an entity that is primarily engaged in the Oil and Gas Business if that entity does not have either (a) a Significant Subsidiary that is not in the Oil and Gas Business or (b) an amount of assets or operations not used in the Oil and Gas Business such that, if such assets or operations were held in or conducted through a single Subsidiary, they would represent a Significant Subsidiary of that entity.

SECTION 4.16    Covenant Suspension.

(a) During any period that the Securities have a rating equal to or higher than BBB- by S&P and Baa3 by Moody’s (each, an “Investment Grade Rating”) and no Default has occurred and is continuing, the Company and the Restricted Subsidiaries will not be subject to Sections 4.03 [Limitation on Indebtedness], 4.05 [Limitation on Restricted Payments], 4.06 [Limitation on Restrictions on Distributions from Restricted Subsidiaries], 4.07 [Limitation on Sales of Assets and Subsidiary Stock], 4.08 [Limitation on Affiliate Transactions], 4.14 [Future Subsidiary Guarantors] and 5.01(c) (collectively, the “Suspended Covenants”).

(b) In the event that the Company and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the operation of clause (a) of this Section 4.16, and subsequently one or both of S&P and Moody’s downgrades the rating assigned to the Securities below their respective Investment Grade Rating, then the Company and the Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants (subject to subsequent suspension if the Securities again receive Investment Grade Ratings from both S&P and Moody’s). With respect to Restricted Payments proposed to be made after the time of such a downgrade, the permissibility of proposed Restricted Payments will be calculated in accordance with the terms of Section 4.05 [Limitation on Restricted Payments] as though such Section 4.05 had been in effect since the Issue Date.

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ARTICLE V

SUCCESSOR COMPANY

SECTION 5.01    When Company May Merge or Transfer Assets.

The Company shall not consolidate with or merge with or into, or convey, transfer, lease or otherwise dispose of, in one transaction or a series of transactions, all or substantially all the assets of the Company and its Restricted Subsidiaries, taken as a whole, to, any Person, unless:

(a) (1) the resulting, surviving or transferee Person (the “Successor Company”) is a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and (2) the Successor Company (if not the Company) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture;

(b) immediately after giving pro forma effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or such Subsidiary as a result of the transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing;

(c) immediately after giving pro forma effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a);

(d) immediately after giving pro forma effect to such transaction, the Successor Company shall have Adjusted Consolidated Net Tangible Assets that are not less than the Adjusted Consolidated Net Tangible Assets of the Company immediately prior to such transaction;

(e) in the case of a conveyance, transfer or lease of all or substantially all the assets of the Company and its Restricted Subsidiaries, taken as a whole, such assets shall have been so conveyed, transferred or leased as an entirety or virtually as an entirety to one Person; and

(f) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture;

provided, however, that clauses (c) and (d) shall not be applicable to any such transaction solely between the Company and any Restricted Subsidiary.

The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, and the predecessor company, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the Securities.

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SECTION 5.02    When Subsidiary Guarantors May Merge or Transfer Assets.

The Company shall not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless:

(a) the resulting, surviving or transferee Person (if not such Subsidiary) is a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and, if such Person is not the Company, such Person shall expressly assume, by executing a Guarantee Agreement, all the obligations of such Subsidiary, if any, under its Subsidiary Guarantee;

(b) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness that becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing;

(c) in the case of a conveyance, transfer or lease of all or substantially all the assets of a Subsidiary Guarantor, such assets shall have been so conveyed, transferred or leased as an entirety or virtually as an entirety to one Person; and

(d) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Guarantee Agreement, if any, complies with this Indenture.

The provisions of the preceding paragraph shall not apply to any one or more transactions that constitute an Asset Disposition if the Company has complied with the applicable provisions of Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock].

ARTICLE VI

DEFAULTS AND REMEDIES

SECTION 6.01    Events of Default.

An “Event of Default” occurs if:

(a) the Company defaults in the payment of interest on the Securities when due and such default continues for a period of 30 days;

(b) the Company defaults in the payment of the principal of any Security when the same becomes due at its Stated Maturity, upon optional redemption, upon required purchase, upon declaration of acceleration or otherwise;

(c) the Company fails to comply with Section 5.01 [When Company May Merge or Transfer Assets];

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(d) the Company fails to comply with Section 4.02, 4.03, 4.05, 4.06, 4.07 (other than a failure to purchase Securities when required under Section 4.07), 4.08, 4.09 (other than a failure to purchase Securities when required under Section 4.09), 4.11 or 4.14 and such failure continues for 30 days after the notice specified below;

(e) the Company or any Subsidiary Guarantor fails to comply with any of its agreements contained in the Securities or in this Indenture (other than those referred to in clause (a), (b), (c) or (d) above) and such failure continues for 60 days after the notice specified below;

(f) Indebtedness of the Company, any Subsidiary Guarantor or any Significant Subsidiary (other than Production Payments and Reserve Sales and Non-recourse Purchase Money Indebtedness) is not paid within any applicable grace period after final maturity or the maturity of such Indebtedness is accelerated by the holders thereof because of a default (and such acceleration is not rescinded or annulled) and the total amount of such Indebtedness unpaid or accelerated exceeds $5 million;

(g) the Company, a Subsidiary Guarantor or a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

(1) commences a voluntary case;

(2) consents to the entry of an order for relief against it in an involuntary case;

(3) consents to the appointment of a Custodian of it or for any substantial part of its property; or

(4) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency;

(h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(1) is for relief against the Company, a Subsidiary Guarantor or any Significant Subsidiary in an involuntary case;

(2) appoints a Custodian of the Company, a Subsidiary Guarantor or any Significant Subsidiary or for any substantial part of its property; or

(3) orders the winding up or liquidation of the Company, a Subsidiary Guarantor or any Significant Subsidiary;

or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days;

(i) any judgment or decree for the payment of money in an uninsured or unindemnified amount in excess of $5 million or its foreign currency equivalent at the time is rendered against the Company, a Subsidiary Guarantor or a Significant Subsidiary, remains

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outstanding for a period of 60 days following the entry of such judgment or decree and such judgment or decree is not discharged, waived, bonded or the execution thereof stayed within 10 days after the notice from the Company to the Trustee specified below; or

(j) any Subsidiary Guarantee ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guarantee) for a period of five days after the notice specified below or any Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee.

The foregoing will constitute “Events of Default” whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

The term “Bankruptcy Law” means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

A Default under clause (d), (e) or (j) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the Securities notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a “Notice of Default.”

The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice, in the form of an Officers’ Certificate, of any Event of Default under clause (c) or (f) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (d), (e) or (i), describing its status and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of any Default or Event of Default unless one of its Trust Officers receives written notice thereof from the Company or any of the Holders.

SECTION 6.02    Acceleration.

If an Event of Default (other than an Event of Default specified in Section 6.01(g) or (h) with respect to the Company) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 25% in principal amount of the outstanding Securities by written notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(g) or (h) with respect to the Company occurs and is continuing, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the outstanding Securities by written notice to the Trustee may rescind any such acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except

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nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto.

SECTION 6.03    Other Remedies.

If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative.

SECTION 6.04    Waiver of Past Defaults.

The Holders of a majority in principal amount of the Securities by written notice to the Trustee may waive an existing or past Default and its consequences except (a) a Default in the payment of the principal of or interest on a Security or (b) a Default in respect of a provision that under Section 9.02 [Amendments With Consent of Holders] cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

SECTION 6.05    Control by Majority.

The Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01 [Duties of Trustee], that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking or not taking any action hereunder, the Trustee shall have been offered by the Securityholders reasonable indemnification or security against all losses, liabilities or expenses caused by taking or not taking such action.

SECTION 6.06    Limitation on Suits.

A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless:

(a) the Holder gives to the Trustee written notice stating that an Event of Default is continuing;

(b) the Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy;

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(c) such Holder or Holders furnish, if required by the Trustee, to the Trustee reasonable security or indemnity against any loss, liability or expense;

(d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of the required security or indemnity; and

(e) the Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction inconsistent with the request within such 60-day period.

A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder.

SECTION 6.07    Rights of Holders To Receive Payment.

Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium (if any) or interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

SECTION 6.08    Collection Suit by Trustee.

If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07 [Compensation and Indemnity].

SECTION 6.09    Trustee May File Proofs of Claim.

The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company or any Subsidiary Guarantor or their respective creditors or their respective properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07 [Compensation and Indemnity].

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SECTION 6.10    Priorities.

If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money or property in the following order:

FIRST: to the Trustee for amounts due under Section 7.07 [Compensation and Indemnity];

SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and

THIRD: to the Company.

The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid.

SECTION 6.11    Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 [Rights of Holders to Receive Payment] or a suit by Holders of more than an aggregate of 10% in principal amount of the Securities.

SECTION 6.12    Waiver of Stay or Extension Laws.

The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE VII

TRUSTEE

SECTION 7.01    Duties of Trustee.

(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and

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skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person’s own affairs.

(b) Except during the continuance of an Event of Default:

(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; the permissive rights of the Trustee enumerated in this Indenture shall not be construed as duties; and

(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture.

(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;

(2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 [Control by Majority].

(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.

(e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company.

(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

(g) No provision of this Indenture shall require the Trustee to advance, expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. The Trustee, however, may so advance or expend its own funds if, in its own reasonable judgment, the Trustee believes that repayment of such funds or adequate indemnity against such risk or liability has been reasonably assured to it.

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(h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 7.01 and to the provisions of the TIA.

(i) Notwithstanding anything to the contrary herein, the Trustee shall have no duty to review the reports and information documents required to be provided by Section 4.02 [SEC Reports] for the purposes of determining compliance with any provisions of this Indenture.

SECTION 7.02    Rights of Trustee.

(a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers’ Certificate or Opinion of Counsel.

(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee’s conduct does not constitute willful misconduct or negligence.

(e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

(f) The Trustee shall not be charged with knowledge of any Default or Event of Default unless either (1) a Trust Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of the Securities.

SECTION 7.03    Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 [Eligibility; Disqualification] and 7.11 [Preferential Collection of Claims against Company].

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SECTION 7.04    Trustee’s Disclaimer.

The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee’s certificate of authentication.

SECTION 7.05    Notice of Defaults.

If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a Committee of its trust officers determines that withholding notice is not opposed to the interests of Securityholders. The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default, except failure of the obligor to cause to be made any of the payments to the Trustee required to be made, unless the Trustee shall be specifically notified by a writing of such default by the Company or by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes delivered to the Corporate Trust Office of the Trustee and, in the absence of such notice so delivered the Trustee may conclusively assume no Default exists.

SECTION 7.06    Reports by Trustee to Holders.

Within 60 days after May 15 of each year, beginning with May 15, 2004, the Trustee shall mail to each Securityholder a brief report dated as of May 15 of such year, that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b).

A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof.

SECTION 7.07    Compensation and Indemnity.

The Company shall pay to the Trustee from time to time reasonable compensation for its services, including extraordinary services such as default administration. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including attorneys’ fees) arising out of its acceptance of this trust or incurred by it in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture against the Company (including under this Section 7.07). The Trustee shall notify the Company promptly of any claim (whether asserted by any Securityholder or the

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Company) for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee’s own willful misconduct, negligence or bad faith.

To secure the Company’s payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities.

The Company’s payment obligations pursuant to this Section shall survive the resignation or removal of the Trustee and the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(g) or (h) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.

SECTION 7.08    Replacement of Trustee.

The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount outstanding of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. A holder may petition a court of competent jurisdiction to remove the Trustee in the manner and under the circumstances contemplated by TIA Section 310(b)(iii). The Company shall remove the Trustee if:

(a) the Trustee fails to comply with Section 7.10 [Eligibility; Disqualification];

(b) the Trustee is adjudged bankrupt or insolvent;

(c) a receiver or other public officer takes charge of the Trustee or its property; or

(d) the Trustee otherwise becomes incapable of acting.

If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount outstanding of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee.

A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it

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as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07 [Compensation and Indemnity].

If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee.

If the Trustee fails to comply with Section 7.10 [Eligibility; Disqualification], any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

Notwithstanding the replacement of the Trustee pursuant to this Section, the Company’s obligations under Section 7.07 [Compensation and Indemnity] shall continue for the benefit of the retiring Trustee.

SECTION 7.09    Successor Trustee by Merger.

If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.

In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have.

SECTION 7.10    Eligibility; Disqualification.

The Trustee shall at all times satisfy the requirements of TIA Section 310(a). The Trustee shall have a combined capital and surplus of at least $50.0 million as set forth in its most recent annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met.

SECTION 7.11    Preferential Collection of Claims Against Company.

The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated.

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ARTICLE VIII

DISCHARGE OF INDENTURE; DEFEASANCE

SECTION 8.01    Discharge of Liability on Securities; Defeasance.

(a) When (1) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07 [Replacement Securities]) for cancellation or (2) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07 [Replacement Securities]), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel and at the cost and expense of the Company.

(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture (“legal defeasance option”) or (ii) its obligations under Sections 4.02, 4.03, 4.05, 4.06, 4.07, 4.08, 4.09, 4.11, 4.12 and 4.14 and the operation of Sections 6.01(f), 6.01(g) (but only with respect to Subsidiary Guarantors and Significant Subsidiaries), 6.01(h) (but only with respect to Subsidiary Guarantors and Significant Subsidiaries), 6.01(i) and 6.01(j) and its obligations under Sections 5.01(c) and (d) (“covenant defeasance option”). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option.

If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.01(d), 6.01(e), 6.01(f), 6.01(g) (but only with respect to Subsidiary Guarantors and Significant Subsidiaries), 6.01(h) (but only with respect to Subsidiary Guarantors and Significant Subsidiaries), 6.01(i) (but only with respect to Subsidiary Guarantors and Significant Subsidiaries) or 6.01(j) or because of the failure of the Company to comply with Section 5.01(c) or (d). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor will be released from all its obligations with respect to its Subsidiary Guarantee.

Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates.

(c) Notwithstanding clauses (a) and (b) above, the Company’s obligations in Sections 2.03, 2.04, 2.05, 2.07, 7.07, 7.08 and this Article VIII shall survive until the Securities have been paid in full. Thereafter, the Company’s obligations in Sections 7.07, 8.04 and 8.05 shall survive.

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SECTION 8.02    Conditions to Defeasance.

The Company may exercise its legal defeasance option or its covenant defeasance option only if:

(a) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to maturity or redemption, as the case may be;

(b) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing its opinion that the payments of principal of and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be;

(c) 123 days pass after the deposit is made and during the 123-day period no Default specified in Section 6.01(g) or (h) with respect to the Company occurs which is continuing at the end of the period;

(d) the deposit does not constitute a default under any other agreement binding on the Company;

(e) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940;

(f) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (1) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred;

(g) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and

(h) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article VIII have been complied with.

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Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article III.

SECTION 8.03    Application of Trust Money.

The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article X.

SECTION 8.04    Repayment to Company.

The Trustee and the Paying Agent shall promptly turn over to the Company upon request any money or securities held by them at any time which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required for the Company to exercise its legal defeasance option or its covenant defeasance option pursuant to this Article VIII.

Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors.

SECTION 8.05    Indemnity for Government Obligations.

The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations.

SECTION 8.06    Reinstatement.

If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.

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ARTICLE IX

AMENDMENTS

SECTION 9.01    Without Consent of Holders.

The Company, the Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder:

(a) to cure any ambiguity, omission, defect or inconsistency;

(b) to comply with Article V;

(c) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code;

(d) to add guarantees with respect to the Securities (including any Subsidiary Guarantee) or to secure the Securities;

(e) to add to the covenants of the Company or a Subsidiary Guarantor for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any Subsidiary Guarantor;

(f) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; or

(g) to make any change that does not adversely affect the rights of any Securityholder.

After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.

SECTION 9.02    With Consent of Holders.

The Company, the Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. Without the consent of each Securityholder affected, however, an amendment may not:

(a) reduce the amount of Securities whose Holders must consent to an amendment;

(b) reduce the rate of or extend the time for payment of interest on any Security;

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(c) reduce the principal of or extend the Stated Maturity of any Security;

(d) reduce the amount payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article III hereof and paragraph 5 of the Securities;

(e) make any Security payable in money other than that stated in the Security;

(f) make any change in Section 6.04 [Waiver of Past Defaults] or 6.07 [Rights of Holders to Receive Payment] or the second sentence of this Section 9.02;

(g) make any change in the ranking or priority of any Security that would adversely affect the Securityholders; or

(h) make any change in any Subsidiary Guarantee that would adversely affect the Securityholders.

It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.

After an amendment under this Section 9.02 becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.02.

SECTION 9.03    Compliance with Trust Indenture Act.

Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect.

SECTION 9.04    Revocation and Effect of Consents and Waivers.

A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder’s Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder.

The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any

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such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date.

SECTION 9.05    Notation on or Exchange of Securities.

If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment.

SECTION 9.06    Trustee To Sign Amendments.

The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01 [Duties of Trustee]) shall be fully protected in relying upon, an Officers’ Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture.

ARTICLE X

SUBSIDIARY GUARANTEES

SECTION 10.01    Subsidiary Guarantees.

Each Subsidiary Guarantor, jointly and severally, as primary obligor and not merely as surety, hereby irrevocably, fully and unconditionally Guarantees on a senior unsecured basis to each Holder and to the Trustee and its successors and assigns the full and punctual payment of principal of and interest on the Securities when due, whether at Stated Maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities (all the foregoing obligations hereinafter collectively called the “Guaranteed Obligations”). Each Subsidiary Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Subsidiary Guarantor, and that such Subsidiary Guarantor shall remain bound under this Article X notwithstanding any extension or renewal of any such Guaranteed Obligation.

Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Guaranteed Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any

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Holder or the Trustee for the Guaranteed Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranteed Obligations; or (f) except as provided in Section 10.06 [Release of Subsidiary Guarantor], any change in the ownership of such Subsidiary Guarantor.

Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a Guarantee of payment, performance and compliance when due (and not a Guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations.

Except as expressly set forth in Sections 8.01(b), 10.02 [Limitation on Liability] and 10.06 [Release of Subsidiary Guarantor], the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations, or by any other act or thing or omission or delay to do any other act or thing that may or might in any manner or to any extent vary the risk of such Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity.

Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise.

In furtherance of the foregoing and not in limitation of any other right that any Holder or the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, each Subsidiary Guarantor shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (a) the unpaid principal amount of such Guaranteed Obligations, (b) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent not prohibited by law) and (c) all other monetary Guaranteed Obligations of the Company to the Holders and the Trustee.

Each Subsidiary Guarantor agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (a) the maturity of the Guaranteed Obligations Guaranteed hereby may be accelerated as provided in Article VI for the purposes of such Subsidiary Guarantor’s Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations Guaranteed hereby, and (b) in the event of any declaration of acceleration of such Guaranteed Obligations as

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provided in Article VI, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of this Section 10.01.

Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.01.

SECTION 10.02    Limitation on Liability.

Any term or provision of this Indenture to the contrary notwithstanding, the maximum, aggregate amount of the obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

SECTION 10.03    Successors and Assigns.

This Article X shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.

SECTION 10.04    No Waiver.

Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article X shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article X at law, in equity, by statute or otherwise.

SECTION 10.05    Modification.

No modification, amendment or waiver of any provision of this Article X, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances.

SECTION 10.06    Release of Subsidiary Guarantor.

This Subsidiary Guarantee as to any Subsidiary Guarantor shall terminate and be of no further force or effect upon the sale or other disposition (including by way of consolidation

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or merger) of all or substantially all of the assets or all of the Capital Stock of such Subsidiary Guarantor, in each case other than to the Company or a Subsidiary of the Company; provided, however, that such sale or transfer is permitted by, and the proceeds from any such disposition are applied in accordance with, Section 4.07 [Limitation on Sales of Assets and Subsidiary Stock] . In addition, if the Board of Directors designates a Subsidiary Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of this Indenture, then such Subsidiary Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee.

SECTION 10.07    Contribution among Subsidiaries.

Each Subsidiary Guarantor that makes a payment under its Subsidiary Guarantee will be entitled to a contribution from each other Subsidiary Guarantor in an amount equal to such other Subsidiary Guarantor’s pro rata portion of such payment based on the respective net assets of all the Subsidiary Guarantors, determined in accordance with GAAP, at the time of such payment.

ARTICLE XI

MISCELLANEOUS

SECTION 11.01    Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control.

SECTION 11.02    Notices.

Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows:

if to the Company or any Subsidiary Guarantor:

Energy Partners, Ltd.

201 St. Charles Avenue

Suite 3400

New Orleans, Louisiana 70170

Attention: Corporate Secretary

if to the Trustee:

Wells Fargo Bank, N.A.

505 Main Street, Suite 301

Fort Worth, Texas 76102

Attention: Corporate Trust Services

The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

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Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder’s address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.

Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.

SECTION 11.03    Communication by Holders with Other Holders.

Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).

SECTION 11.04    Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee:

(a) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

(b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

SECTION 11.05    Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include:

(a) a statement that the individual making such certificate or opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with.

Any Officers’ Certificate may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless any such Officer knows or in the exercise of reasonable care

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should have known that such Opinion of Counsel is erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, information with respect to which is in possession of the Company, upon an Officers’ Certificate, unless such counsel knows or in the exercise of reasonable care should have known that such Officers’ Certificate is erroneous.

SECTION 11.06    When Securities Disregarded.

In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee actually knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination.

SECTION 11.07    Rules by Trustee, Paying Agent and Registrar.

The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions.

SECTION 11.08    Legal Holidays.

A “Legal Holiday” is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York or in the State of Texas. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue with respect to such payment for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected.

SECTION 11.09    Governing Law.

This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby.

SECTION 11.10    No Recourse Against Others.

No director, officer, employee, incorporator or stockholder, as such, of the Company or any Subsidiary Guarantor shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Subsidiary Guarantees or this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities.

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SECTION 11.11    Successors.

All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors.

SECTION 11.12    Multiple Originals.

The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.

SECTION 11.13    Table of Contents; Headings.

The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.

SECTION 11.14    Severability.

If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.

ENERGY PARTNERS, LTD.
By:	/S/    SUZANNE V. BAER
	Name: Suzanne V. Baer Title: Executive Vice President and Chief            Financial Officer

SUBSIDIARY GUARANTORS:
EPL PIPELINE, L.L.C., a Delaware Limited Liability Company
By:	/S/    SUZANNE V. BAER
	Name: Suzanne V. Baer Title: Executive Vice President and Chief            Financial Officer

NIGHTHAWK, L.L.C., a Louisiana Limited Liability Company
By:	/S/    SUZANNE V. BAER
	Name: Suzanne V. Baer Title: Executive Vice President and Chief            Financial Officer

EPL OF LOUISIANA, L.L.C., a Louisiana Limited Liability Company
By:	/S/    SUZANNE V. BAER
	Name: Suzanne V. Baer Title: Executive Vice President and Chief            Financial Officer

83

DELAWARE EPL OF TEXAS, LLC, a Delaware Limited Liability Company
By:	/S/    GARY L. HALL
	Name: Gary L. Hall Title: President

PIONEER HOUSTON, INC., a Texas Corporation:
By:	/S/    SUZANNE V. BAER
	Name: Suzanne V. Baer Title: Executive Vice President and Chief            Financial Officer Trustee:

WELLS FARGO BANK, N.A., as Trustee
By:	/S/    MELISSA SCOTT
	Name: Melissa Scott Title: Vice President

84

Appendix A

PROVISIONS RELATING TO INITIAL SECURITIES,

EXCHANGE SECURITIES, PRIVATE EXCHANGE SECURITIES

AND OTHER SECURITIES

1. Definitions

1.1 Definitions. For the purposes of this Appendix A the following terms shall have the meanings indicated below:

“Applicable Procedures” means, with respect to any transfer or transaction involving a Temporary Regulation S Global Security or beneficial interest therein, the rules and procedures of the Depository, Euroclear and Clearstream for such a Temporary Regulation S Global Security, in each case to the extent applicable to such transaction and as in effect from time to time.

“Clearstream” means Clearstream Banking, societe anonyme, or any successor securities clearing agency.

“Definitive Security” means a certificated Initial Security or Exchange Security or Private Exchange Security bearing, if required, the restricted securities legend set forth in Section 2.3(e).

“Depository” means The Depository Trust Company, its nominees and their respective successors.

“Distribution Compliance Period”, with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such Securities are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the date on which such Securities are issued.

“Euroclear” means the Euroclear Clearance System or any successor securities clearing agency.

“Exchange Securities” means (1) the 8 ³/4% Senior Notes Due 2010 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Agreement and (2) Additional Securities, if any, issued pursuant to a registration statement filed with the SEC under the Securities Act.

“Initial Purchasers” means (1) with respect to the Initial Securities issued on the Issue Date, Credit Suisse First Boston LLC, Banc One Capital Markets, Inc., BNP Paribas Securities Corp., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Dominion Securities Corporation, and Wells Fargo Securities, LLC and (2) with respect to each issuance of Additional Securities, the Persons purchasing such Additional Securities under the related Purchase Agreement.

“Initial Securities” means (1) $150,000,000 aggregate principal amount of 8 ³/4% Senior Notes Due 2010 issued under this Indenture on the Issue Date and (2) Additional

Appendix A-1

Appendix A

Securities, if any, issued in a transaction exempt from the registration requirements of the Securities Act.

“Private Exchange” means the offer by the Company, pursuant to a Registration Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities.

“Private Exchange Securities” means any 8 ³/4 % Senior Notes Due 2010 issued in connection with a Private Exchange.

“Purchase Agreement” means (1) with respect to the Initial Securities issued on the Issue Date, the Purchase Agreement dated July 29, 2003, among the Company, the Subsidiary Guarantors and the Initial Purchasers and (2) with respect to each issuance of Additional Securities, the purchase agreement or underwriting agreement among the Company and the Persons purchasing such Additional Securities.

“QIB” means a “qualified institutional buyer” as defined in Rule 144A.

“Registered Exchange Offer” means the offer by the Company, pursuant to a Registration Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act.

“Registration Agreement” means (1) with respect to the Initial Securities issued on the Issue Date, the Registration Rights Agreement dated August 5, 2003, among the Company, the Subsidiary Guarantors and the Initial Purchasers and (2) with respect to each issuance of Additional Securities issued in a transaction exempt from the registration requirements of the Securities Act, the registration rights agreement, if any, among the Company and the Persons purchasing such Additional Securities under the related Purchase Agreement.

“Rule 144A Securities” means all Initial Securities offered and sold to QIBs in reliance on Rule 144A.

“Securities” means the Initial Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities Custodian” means the custodian with respect to a Global Security (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee.

“Shelf Registration Statement” means the registration statement issued by the Company in connection with the offer and sale of Initial Securities or Private Exchange Securities pursuant to a Registration Agreement.

“Transfer Restricted Securities” means Definitive Securities and any other Securities that bear or are required to bear the legend set forth in Section 2.3(e) hereto.

Appendix A-2

Appendix A

1.2 Other Definitions.

Term	Defined in Section
“Agent Members”	2.1	(b)
“Global Security”	2.1	(a)
“Institutional Accredited Investors	2.1	(a)
“Other Global Security	2.1	(a)
“Other Security”	2.1	(a)
“Permanent Regulation S Global Security”	2.1	(a)
“Regulation S”	2.1	(a)
“Rule 144A”	2.1	(a)
“Rule 144A Global Security”	2.1	(a)
“Temporary Regulation S Global Security”	2.1	(a)

2. The Securities

2.1 (a) Form and Dating. The Initial Securities will be offered and sold by the Company, from time to time, pursuant to one or more Purchase Agreements. The Initial Securities will be resold initially only to QIBs in reliance on Rule 144A under the Securities Act (“Rule 144A”) and in reliance on Regulation S under the Securities Act (“Regulation S”). Initial Securities may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and institutional “accredited investors” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act (“Institutional Accredited Investors”) in transactions exempt from registration under the Securities Act not made in reliance on Rule 144A or Regulation S (as so transferred to Institutional Accredited Investors, “Other Securities”), subject to the restrictions on transfer set forth herein. Initial Securities initially resold pursuant to Rule 144A shall be issued initially in the form of one or more temporary global Securities in definitive, fully registered form (collectively, the “Rule 144A Global Security”) and Initial Securities initially resold pursuant to Regulation S shall be issued initially in the form of one or more temporary global securities in definitive, fully registered form (collectively, the “Temporary Regulation S Global Security”), in each case without interest coupons and with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto, which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Securities Custodian, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as provided in this Indenture. Beneficial ownership interests in the Temporary Regulation S Global Security will not be exchangeable for interests in the Rule 144A Global Security, a permanent global security (the “Permanent Regulation S Global Security”), or any other Security without a legend containing restrictions on transfer of such Security prior to the expiration of the Distribution Compliance Period and then only upon certification in form reasonably satisfactory to the Trustee that beneficial ownership interests in such Temporary Regulation S Global Security are owned either by non-U.S. persons or U.S. persons who purchased such interests in a transaction that did not require registration under the Securities Act. The Other Securities will initially be represented by one or more global securities in registered form without interest coupons (collectively, the “Other Global Securities”). The Other Global Securities (and any securities issued in exchange

Appendix A-3

Appendix A

therefor), including beneficial interests in the Other Global Securities, will be subject to certain restrictions on transfer set forth herein and will bear the global securities legend and the restrictive securities legend set forth in Exhibit 1 hereto. The Rule 144A Global Security, the Temporary Regulation S Global Security, the Permanent Regulation S Global Security and the Other Global Security are collectively referred to herein as “Global Securities.” The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided.

(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depository.

The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depository for such Global Security or Global Securities or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository’s instructions or held by the Trustee as custodian for the Depository.

Members of, or participants in, the Depository (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Security, and the Company, the Trustee and any agent of the Company or the Trustee shall be entitled to treat the Depository as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security.

(c) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners of beneficial interests in Global Securities shall not be entitled to receive physical delivery of Definitive Securities.

2.2 Authentication. The Trustee shall authenticate and deliver: (1) on the Issue Date, an aggregate principal amount of $150,000,000 8 ³/4% Senior Notes Due 2010, (2) any Additional Securities for an original issue in an aggregate principal amount specified in the written order of the Company pursuant to Section 2.02 of the Indenture and (3) Exchange Securities or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to a Registration Agreement, for a like principal amount of Initial Securities, upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated, the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. In the case of any issuance of Additional Securities pursuant to Section 2.13 of the Indenture, such order shall certify that such issuance is in compliance with Section 4.03 of the Indenture.

Appendix A-4

Appendix A

2.3 Transfer and Exchange (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar or a co-registrar with a request:

(x) to register the transfer of such Definitive Securities; or

(y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations,

the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange:

(i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and

(ii) if such Definitive Securities are required to bear a restricted securities legend, they are being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable:

(A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or

(B) if such Definitive Securities are being transferred to the Company, a certification to that effect; or

(C) if such Definitive Securities are being transferred (x) pursuant to an exemption from registration in accordance with Rule 144A, Regulation S or Rule 144 under the Securities Act; or (y) in reliance upon another exemption from the requirements of the Securities Act: (i) a certification to that effect (in the form set forth on the reverse of the Security or, in the case of Other Securities, in the form set forth in Appendix C to the Indenture) and (ii) in the case of a transfer pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), an opinion of counsel as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(e)(i).

(b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Rule 144A Global Security, Permanent Regulation S Global Security or Other Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with:

(i) certification (A) in the form set forth on the reverse of the Security, that such Definitive Security is either (1) being transferred to a QIB in accordance with Rule

Appendix A-5

Appendix A

144A or (2) is being transferred after expiration of the “distribution compliance period” of Regulation S by a Person who initially purchased such Security in reliance on Regulation S to a buyer who elects to hold its interest in such security in the form of a beneficial interest in the Permanent Regulation S Security, or (B) in the form set forth in Appendix C to the Indenture, that such Definitive Security is being transferred to an Institutional Accredited Investor pursuant to an exemption from registration under the Securities Act; and

(ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Rule 144A Global Security (in the case of a transfer pursuant to clause (b)(i)(A)(1)), Permanent Regulation S Security (in the case of a transfer pursuant to clause (b)(i)(A)(2)), or Other Global Security (in the case of a transfer pursuant to clause (b)(i)(B)) to reflect an increase in the aggregate principal amount of the Securities represented by the Rule 144A Global Security, Permanent Regulation S Security or Other Global Security, as applicable, such instructions to contain information regarding the Depository account to be credited with such increase,

then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, the aggregate principal amount of Securities represented by the Rule 144A Global Security, Permanent Regulation S Security or Other Global Security, as applicable, to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security, Permanent Regulation S Security or Other Global Security, as applicable, equal to the principal amount of the Definitive Security so canceled. If no Rule 144A Global Securities, Permanent Regulation S Securities or Other Global Securities, as applicable, are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers’ Certificate, a new Rule 144A Global Security, Permanent Regulation S Security or Other Global Security, as applicable, in the appropriate principal amount.

(c) Transfer and Exchange of Global Securities

(i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depository’s procedures containing information regarding the participant account of the Depository to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions instruct the Depository to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred.

Appendix A-6

Appendix A

(ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of the Global Security from which such interest is being transferred.

(iii) Notwithstanding any other provisions of this Appendix A (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository.

(iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4 prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company.

(d) Restrictions on Transfer of Temporary Regulation S Global Securities. During the Distribution Compliance Period, beneficial ownership interests in Temporary Regulation S Global Securities may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the Applicable Procedures and only (i) to the Company, (ii) so long as such Security is eligible for resale pursuant to Rule 144A, to a person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (iii) in the United States to an Institutional Accredited Investor that is acquiring the securities for its own account or for the account of another Institutional Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act and that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee a certificate containing certain representations and agreements relating to restrictions on transfer of the securities (the form of which certificate can be found in Appendix C to the Indenture), (iv) in an offshore transaction in accordance with Regulation S, (v) pursuant to an exemption from registration provided by Rule 144 under the Securities Act (if applicable) or (vi) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States.

(e) Legend.

(i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities and the Definitive Securities (and all

Appendix A-7

Appendix A

Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form:

THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (V) IN THE UNITED STATES TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF IN VIOLATION OF THE SECURITIES ACT AND THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A CERTIFICATE IN THE FORM PRESCRIBED BY THE INDENTURE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO RESTRICTIONS ON TRANSFER OF THIS NOTE, (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (VI) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

Appendix A-8

Appendix A

Each Definitive Security will also bear the following additional legend:

IN ADDITION WITH RESPECT TO ANY TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (A)(VI) ABOVE), THE HOLDER WILL DELIVER TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AND, IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (A)(IV) ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER BY IT COMPLIES WITH THE FOREGOING RESTRICTIONS.

(ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, the Registrar shall permit the transferee thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the transferor thereof certifies in writing to the Registrar that such sale or transfer was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security).

(iii) After a transfer of any Initial Securities or Private Exchange Securities pursuant to and during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Securities or such Private Exchange Securities will cease to apply, the requirements that Initial Securities or Private Exchange Securities issued to certain Holders be issued in global form will cease to apply to such Initial Securities or Private Exchange Securities, and certificated Initial Securities or Private Exchange Securities or Initial Securities or Private Exchange Securities in global form, in each case without restrictive transfer legends, will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holder’s certificated Initial Securities or Private Exchange Securities or directions to transfer such Holder’s interest in the Global Security, as applicable.

(iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply with respect to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in certificated or global form will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer.

(v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply with respect to Holders of such Initial Securities that do not exchange their Initial Securities, and Private Exchange Securities in global form with the global securities legend and the restricted securities legend set forth in Exhibit 1 hereto

Appendix A-9

Appendix A

will be available to Holders that exchange such Initial Securities in such Private Exchange.

(f) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction.

(g) Obligations with Respect to Transfers and Exchanges of Securities.

(i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities and Global Securities at the Registrar’s or co-registrar’s request.

(ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 4.09 and 9.05 of the Indenture).

(iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any Definitive Security selected for redemption in whole or in part pursuant to Article 3 of this Indenture, except the unredeemed portion of any Definitive Security being redeemed in part, or (b) any Security for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 Business Days before an interest payment date.

(iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary.

(v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange.

(h) No Obligation of the Trustee.

(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depository or other

Appendix A-10

Appendix A

Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners.

(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depository participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

2.4 Definitive Securities.

(a) A Global Security deposited with the Depository or with the Trustee as Securities Custodian for the Depository pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depository (a) notifies the Company that it is unwilling or unable to continue as Depository for such Global Security and the Depository fails to appoint a successor depository within 90 day of such notice or (b) ceases to be a “clearing agency” registered under the Exchange Act, or (ii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture, or (iii) an Event of Default has occurred and is continuing.

(b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee located at its corporate trust office in the Borough of Manhattan, The City of New York, or in Minneapolis, Minnesota, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 principal amount and any integral multiple thereof and registered in such names as the Depository shall direct. Any Definitive Security delivered in exchange for an interest in the Global Security shall, except as

Appendix A-11

Appendix A

otherwise provided by Section 2.3(e), bear the restricted securities legend set forth in Exhibit 1 hereto.

(c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security shall be entitled to grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities.

(d) In the event of the occurrence of either of the events specified in Section 2.4(a), the Company shall promptly make available to the Trustee a reasonable supply of Definitive Securities in definitive, fully registered form without interest coupons.

Appendix A-12

Exhibit 1 to Appendix A

[FORM OF FACE OF INITIAL SECURITY]

[Global Securities Legend]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.

[Restricted Securities Legend]

THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, (THE “SECURITIES ACT”), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (V) IN THE UNITED STATES TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL

Exhibit 1-1

Exhibit 1 to Appendix A

ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF IN VIOLATION OF THE SECURITIES ACT AND THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A CERTIFICATE IN THE FORM PRESCRIBED BY THE INDENTURE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO RESTRICTIONS ON TRANSFER OF THIS NOTE, (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (VI) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

[Temporary Regulation S Global Security Legend]

[BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE RULE 144A GLOBAL NOTE OR THE PERMANENT REGULATION S GLOBAL NOTE OR ANY OTHER NOTE REPRESENTING AN INTEREST IN THE NOTES REPRESENTED HEREBY WHICH DO NOT CONTAIN A LEGEND CONTAINING RESTRICTIONS ON TRANSFER, UNTIL THE EXPIRATION OF THE “40-DAY DISTRIBUTION COMPLIANCE PERIOD” (WITHIN THE MEANING OF RULE 903(b)(2) OF REGULATION S UNDER THE SECURITIES ACT) AND THEN ONLY UPON CERTIFICATION IN FORM REASONABLY SATISFACTORY TO THE TRUSTEE THAT SUCH BENEFICIAL INTERESTS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY DISTRIBUTION COMPLIANCE PERIOD, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE MAY ONLY BE SOLD, PLEDGED OR TRANSFERRED THROUGH THE EUROCLEAR SYSTEM OR CLEARSTREAM AND ONLY (I) TO THE COMPANY, (II) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, OTHER THAN IN CANADA, OR TO OR FOR THE BENEFIT OF A RESIDENT OF CANADA PURSUANT TO A PROSPECTUS QUALIFYING THE NOTES FOR SALE UNDER THE SECURITIES LAW IN ANY PROVINCE OR TERRITORY OF CANADA IN WHICH THE PURCHASER RESIDES OR AN EXEMPTION FROM THE PROSPECTUS REQUIREMENTS OF SUCH LAWS, (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (V) IN THE UNITED STATES TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF IN VIOLATION OF THE

Exhibit 1-2

Exhibit 1 to Appendix A

SECURITIES ACT AND THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A CERTIFICATE IN THE FORM PRESCRIBED BY THE INDENTURE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO RESTRICTIONS ON TRANSFER OF THIS NOTE OR (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. HOLDERS OF INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE WILL NOTIFY ANY PURCHASER OF SUCH RESALE RESTRICTIONS, IF THEN APPLICABLE.]

[Definitive Securities Legend]

[IF CERTIFICATED: IN ADDITION WITH RESPECT TO ANY TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER PURSUANT TO CLAUSE A(VI) ABOVE), THE HOLDER WILL DELIVER TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AN, IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (A)(IV) ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER BY IT COMPLIES WITH THE FOREGOING RESTRICTIONS.]

[OID Legend]

FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $[            ] AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $[            ], IN EACH CASE PER $1000 PRINCIPAL AMOUNT OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS [            ]. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS [            ]%.

Exhibit 1-3

Exhibit 1 to Appendix A

CUSIP No.                                 

ISIN No.                                 

$                        

No.                                 

8 ³/4% Senior Notes Due 2010

ENERGY PARTNERS, LTD., a Delaware corporation, for value received, promises to pay to CEDE & CO., or registered assigns, the principal sum of [            ] Dollars or such greater or lesser amount as indicated on the Schedule of Increases or Decreases in Global Security hereto, on August 1, 2010.

Interest Payment Dates:             February 1 and August 1.

Record Dates:                             January 15 and July 15.

Additional provisions of this Security are set forth on the other side of this Security.

Dated:

ENERGY PARTNERS, LTD.
By:
	Name Title
By:
	Name Title

Exhibit 1-4

Exhibit 1 to Appendix A

TRUSTEE’S CERTIFICATE OF

AUTHENTICATION

WELLS FARGO BANK, N.A., as Trustee, certifies that this is one of the Securities referred to in the Indenture.
By:
	Authorized Signatory

Exhibit 1-5

Exhibit 1 to Appendix A

[FORM OF REVERSE SIDE OF INITIAL SECURITY]

8 ³/4% Senior Notes Due 2010

1. Interest

Energy Partners, Ltd., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “Company”), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum (increasing by an additional 0.50% per annum after each consecutive 90-day period that occurs after the date on which such Registration Default occurs up to a maximum additional interest rate of 2.00%) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. The Company will pay interest semiannually on February 1 and August 1 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from August 5, 2003. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful.

2. Method of Payment

The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the January 15 or July 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the Paying Agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder.

3. Paying Agent and Registrar

Initially, Wells Fargo Bank, N.A. (the “Trustee”) will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.

Exhibit 1-6

Exhibit 1 to Appendix A

4. Indenture

The Company issued the Securities under an Indenture dated as of August 5, 2003 among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms.

The Securities are general unsecured, senior obligations of the Company. The Company may, subject to Article 4 of the Indenture, issue additional Securities under the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and certain of its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and certain of its Subsidiaries, the purchase or redemption of Capital Stock of the Company and of certain Capital Stock of such Subsidiaries, the sale or transfer of assets and Subsidiary stock, the creation of Liens and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and certain of its Subsidiaries to restrict distributions and dividends from Subsidiaries. The Indenture also restricts the ability of the Company and the Subsidiary Guarantors to consolidate or merge with or into, or to transfer all or substantially all their assets to, another Person.

The Indenture also provides that the Subsidiary Guarantors will Guarantee the Securities pursuant to the Subsidiary Guarantees. The Subsidiary Guarantees will secure the due and punctual payment of the principal of and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise. The Subsidiary Guarantees will unconditionally guarantee the Guaranteed Obligations on a senior basis pursuant to the terms of the Indenture.

5. Optional Redemption

The Securities will not be redeemable at the option of the Company prior to August 1, 2007. On and after August 1, 2007, the Securities shall be redeemable, at the Company’s option, in whole or in part, at any time or from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on August 1 of the years set forth below:

Period	Percentage
2007	104.375	%
2008	102.188	%
2009 and thereafter	100.000	%

Exhibit 1-7

Exhibit 1 to Appendix A

Prior to August 1, 2006, the Company may at its option on one or more occasions redeem Securities (which includes Additional Securities, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Securities (which includes Additional Securities, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 108.75%, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Equity Offerings; provided that

(1) at least 65% of such aggregate principal amount of Securities (which includes Additional Securities, if any) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and

(2) each such redemption occurs within 90 days after the date of consummation of the related Equity Offering.

In the case of any partial redemption, the Trustee will select the Securities for redemption on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion deems to be fair and appropriate, although no Security of $1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereto will be issued in the name of the Holder thereof upon cancellation of the original Security. Securities called for redemption become due on the date fixed for redemption. On and after the redemption date, interest will cease to accrue on the Securities or portions thereof called for redemption.

6. Notice of Redemption

Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption.

7. Put Provisions

Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to purchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be purchased plus accrued interest to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture.

Exhibit 1-8

Exhibit 1 to Appendix A

8. Denominations; Transfer; Exchange

The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date.

9. Persons Deemed Owners

The registered Holder of this Security shall be treated as the owner of it for all purposes.

10. Unclaimed Money

If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment.

11. Discharge and Defeasance

Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture, including the Subsidiary Guarantees, if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be.

12. Amendment, Waiver

Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding and (ii) any default or noncompliance with any provisions may be waived with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. Subject to certain exceptions set forth in the Indenture, without notice to or the consent of any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code), or to add guarantees (including Subsidiary Guarantees) with respect to the Securities, or to secure the Securities, or to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power conferred on the Company or any Subsidiary Guarantor, or to make any change that does not adversely affect the rights of any Securityholder, or to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act.

Exhibit 1-9

Exhibit 1 to Appendix A

13. Defaults and Remedies

Under the Indenture, Events of Default include

(i) default for 30 days in the payment of interest on the Securities when due and such default continues for a period of 30 days;

(ii) default in payment of principal on the Securities at Stated Maturity, upon redemption pursuant to paragraph 5 of the Securities, upon required purchase, upon declaration of acceleration or otherwise;

(iii) failure by the Company to comply with its obligations under certain covenants;

(iv) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time;

(v) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company, a Subsidiary Guarantor or a Significant Subsidiary (other than Production Payments and Reserve Sales and Non-recourse Purchase Money Indebtedness) if the amount accelerated (or so unpaid) exceeds $5 million;

(vi) certain events of bankruptcy, insolvency or reorganization with respect to the Company, a Subsidiary Guarantor or a Significant Subsidiary;

(vii) any judgment or decree for the payment of money in excess of $5 million is rendered against the Company, any Subsidiary Guarantor or a Significant Subsidiary, remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived or stayed within 10 days after notice; or

(viii) any Subsidiary Guarantee ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guarantee) if such default continues for a period of 5 days after notice thereof to the Company or any Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee.

If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable immediately. Certain events of bankruptcy, insolvency or reorganization are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. A default under clauses (iii), (iv) or (viii) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Securities notifies the Company of the default and the Company does not cure such default within the time specified after receipt of such notice.

Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities

Exhibit 1-10

Exhibit 1 to Appendix A

unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders.

14. Trustee Dealings with the Company

Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

15. No Recourse Against Others

No director, officer, employee, incorporator or stockholder, as such, of the Company or any Subsidiary Guarantor or the Trustee shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

16. Authentication

This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security.

17. Abbreviations

Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

18. CUSIP Numbers.

Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.

Exhibit 1-11

Exhibit 1 to Appendix A

19. Holders’ Compliance with Registration Rights Agreement.

Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein.

20. Governing Law.

THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture. Requests may be made to:

Energy Partners, Ltd.

201 St. Charles Avenue

Suite 3400

New Orleans, Louisiana 70170

Attention of Corporate Secretary

Exhibit 1-12

Exhibit 1 to Appendix A

ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to

(Print or type assignee’s name, address and zip code)

(Insert assignee’s soc. sec. or tax I.D. No.)

and irrevocably appoint                              agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.

Date:	Your Signature:
Sign exactly as your name appears on the other side of this Security.

In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act of 1933, as amended (the “Securities Act”), after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms:

CHECK ONE BOX BELOW

(1) [    ] to the Company; or

(2) [    ] pursuant to an effective registration statement under the Securities Act of 1933; or

(3) [    ] inside the United States to a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act;

(4) [    ] in the United States to an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring the securities for its own account or for the account of another institutional accredited investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act and that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the trustee a certificate containing certain

Exhibit 1-13

Exhibit 1 to Appendix A

representations and agreements relating to restrictions on transfer of the securities (the form of which certificate can be found in Appendix C to the Indenture);

(5) [    ] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act; or

(6) [    ] pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933.

If such transfer is being made pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act, the undersigned further certifies that:

(i) the offer of the Securities was not made to a person in the United States;

(ii) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;

(iii) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903 or Rule 904 of Regulation S, as applicable;

(iv) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act;

(v) we have advised the transferee of the transfer restrictions applicable to the Securities; and

(vi) if the circumstances set forth in Rule 904(b) under the Securities Act are applicable, we have complied with the additional conditions therein, including (if applicable) sending a confirmation or other notice stating that the Securities may be offered and sold during the distribution compliance period specified in Rule 903 of Regulation S only in accordance with the provisions of Regulation S; pursuant to registration of the Securities under the Securities Act; or pursuant to an available exemption from the registration requirements under the Securities Act.

Exhibit 1-14

Exhibit 1 to Appendix A

Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act.

	Signature:
Signature Guarantee:
Signature must be guaranteed	Signature

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

Exhibit 1-15

Exhibit 1 to Appendix A

TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Dated:                                                                                            NOTICE: To be executed by an executive officer

Exhibit 1-16

Exhibit 1 to Appendix A

[TO BE ATTACHED TO GLOBAL SECURITIES]

SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY

The following increases or decreases in this Global Security have been made:

Date of Exchange Amount of decrease in
Principal Amount of this
Global Security Amount of increase in
Principal Amount of this
Global Security Principal amount of this
Global Security following
such decrease or increase Signature of authorized
signatory of Trustee or
Securities Custodian

Exhibit 1-17

Exhibit 1 to Appendix A

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or Section 4.09 of the Indenture, check the box:

[            ]

If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or Section 4.09 of the Indenture, state the amount in principal amount:

$
Date:	Your Signature:
	(Sign exactly as your name appears on the other side of this Security.)
Signature Guarantee:
(Signature must be guaranteed)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

Exhibit 1-18

Exhibit 1 to Appendix A

[FORM OF FACE OF EXCHANGE SECURITY

OR PRIVATE EXCHANGE SECURITY]

[OID Legend]

FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $[            ] AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $[            ], IN EACH CASE PER $1000 PRINCIPAL AMOUNT OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS [            ]. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS [            ]%.¹²

¹ If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned “[TO BE ATTACHED TO GLOBAL SECURITIES] — SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY.”

² If the Security is a Private Exchange Security issued in a Private Exchange to an Initial Purchaser holding an unsold portion of its initial allotment, add the Restricted Securities Legend from Exhibit I to Appendix A and replace the Assignment Form included in this Exhibit A with the Assignment Form included in such Exhibit 1.

Exhibit 1-19

Exhibit 1 to Appendix A

CUSIP No. ______________

ISIN No. ______________

$______________

No. ____________

8 ³/4% Senior Notes Due 2010

ENERGY PARTNERS, LTD., a Delaware corporation, for value received, promises to pay to CEDE & CO., or registered assigns, the principal sum of [            ] Dollars or such greater or lesser amount as indicated on the Schedule of Increases or Decreases in Global Security hereto, on August 1, 2010.

Interest Payment Dates:              February 1 and August 1.

Record Dates:                              January 15 and July 15.

Additional provisions of this Security are set forth on the other side of this Security.

Dated: [            ]

ENERGY PARTNERS, LTD.
BY:
	Name:
	Title
By:
	Name:
	Title

Exhibit 1-20

Exhibit 1 to Appendix A

TRUSTEE’S CERTIFICATE OF

AUTHENTICATION

WELLS FARGO BANK, N.A., as Trustee,

    certifies that this is one of the Securities

    referred to in the Indenture.

By:
	Authorized Signatory

Exhibit 1-21

Exhibit 1 to Appendix A

[FORM OF REVERSE SIDE OF EXCHANGE SECURITY

OR PRIVATE EXCHANGE SECURITY]

8 ³/ 4% Senior Notes Due 2010

1. Interest

Energy Partners, Ltd., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “Company”), promises to pay interest on the principal amount of this Security at the rate per annum shown above[; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum (increasing by an additional 0.50% per annum after each consecutive 90-day period that occurs after the date on which such Registration Default occurs up to a maximum additional interest rate of 2.00%) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured.]³ The Company will pay interest semiannually on February 1 and August 1 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from August 5, 2003. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful.

2. Method of Payment

The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the January 15 or July 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts.

Payments in respect of Securities (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the Paying Agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder.

³ Insert if at the date of issuance of the Exchange Security or Private Exchange Security (as the case may be) any Registration Default has occurred with respect to the related Initial Securities during the interest period in which such date of issuance occurs.

Exhibit 1-22

Exhibit 1 to Appendix A

3. Paying Agent and Registrar.

Initially, Wells Fargo Bank, N.A. (the “Trustee”), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.

4. Indenture.

The Company issued the Securities under an Indenture dated as of August 5, 2003 among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms.

The Securities are general unsecured, senior subordinated obligations of the Company. The Company may, subject to Article 4 of the Indenture, issue additional Securities under the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and certain of its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and certain of its Subsidiaries, the purchase or redemption of Capital Stock of the Company and of certain Capital Stock of such Subsidiaries, the sale or transfer of assets and Subsidiary stock, the creation of Liens and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and certain of its Subsidiaries to restrict distributions and dividends from Subsidiaries. The Indenture also restricts the ability of the Company and the Subsidiary Guarantors to consolidate or merge with or into, or to transfer all or substantially all their assets to, another Person.

The Indenture also provides that the Subsidiary Guarantors will Guarantee the Securities pursuant to the Subsidiary Guarantees. The Subsidiary Guarantees will secure the due and punctual payment of the principal of and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise. The Subsidiary Guarantees will unconditionally guarantee the Guaranteed Obligations on a senior basis pursuant to the terms of the Indenture.

5. Optional Redemption.

The Securities will not be redeemable at the option of the Company prior to August 1, 2007. On and after August 1, 2007, the Securities shall be redeemable, at the Company’s option, in whole or in part, at any time or from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record

Exhibit 1-23

Exhibit 1 to Appendix A

date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on August 1 of the years set forth below:

Period	Percentage
2007	104.375	%
2008	102.188
2009 and thereafter	100.00

Prior to August 1, 2006, the Company may at its option on one or more occasions redeem Securities (which includes Additional Securities, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Securities (which includes Additional Securities, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 108.75%, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Equity Offerings; provided that

(1) at least 65% of such aggregate principal amount of Securities (which includes Additional Securities, if any) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and

(2) each such redemption occurs within 90 days after the date of consummation of the related Equity Offering.

In the case of any partial redemption, the Trustee will select the Securities for redemption on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion deems to be fair and appropriate, although no Security of $1,000 in original principal amount or less will be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereto will be issued in the name of the Holder thereof upon cancellation of the original Security. Securities called for redemption become due on the date fixed for redemption. On and after the redemption date, interest will cease to accrue on the Securities or portions thereof called for redemption.

6. Notice of Redemption.

Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption.

Exhibit 1-24

Exhibit 1 to Appendix A

7. Put Provisions.

Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to purchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be purchased plus accrued interest to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture.

8. Denominations; Transfer; Exchange.

The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date.

9. Persons Deemed Owners.

The registered Holder of this Security shall be treated as the owner of it for all purposes.

10. Unclaimed Money.

If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment.

11. Discharge and Defeasance.

Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture, including the Subsidiary Guarantees, if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be.

12. Amendment, Waiver.

Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding and (ii) any default or noncompliance with any provisions may be waived with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. Subject to certain exceptions set forth in the Indenture, without notice to or the consent of any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities to cure any ambiguity,

Exhibit 1-25

Exhibit 1 to Appendix A

omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code), or to make any change to the subordination provisions of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness (or its Representative) of the Company or any Subsidiary Guarantor, or to add guarantees (including Subsidiary Guarantees) with respect to the Securities, or to secure the Securities, or to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power conferred on the Company or any Subsidiary Guarantor, or to make any change that does not adversely affect the rights of any Securityholder, or to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act. No amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness of the Company or of any Subsidiary Guarantor then outstanding unless the holders of such Senior Indebtedness (or their Representative) consent to such change.

13. Defaults and Remedies.

Under the Indenture, Events of Default include

(i) default for 30 days in the payment of interest on the Securities when due and such default continues for a period of 30 days;

(ii) default in payment of principal on the Securities at Stated Maturity, upon redemption pursuant to paragraph 5 of the Securities, upon required purchase, upon declaration of acceleration or otherwise;

(iii) failure by the Company to comply with its obligations under certain covenants;

(iv) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time;

(v) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company, any Subsidiary Guarantor or a Significant Subsidiary (other than Production Payments and Reserve Sales and Non-recourse Purchase Money Indebtedness) if the amount accelerated (or so unpaid) exceeds $5 million;

(vi) certain events of bankruptcy, insolvency or reorganization with respect to the Company, a Subsidiary Guarantor or a Significant Subsidiary;

(vii) any judgment or decree for the payment of money in excess of $5 million is rendered against the Company, any Subsidiary Guarantor or a Significant Subsidiary, remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived or stayed within 10 days after notice; or

Exhibit 1-26

Exhibit 1 to Appendix A

(viii) any Subsidiary Guarantee ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guarantee) if such default continues for a period of 5 days after notice thereof to the Company or any Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee.

If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable immediately. Certain events of bankruptcy, insolvency or reorganization are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. A default under clauses (iii), (iv) or (viii) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Securities notifies the Company of the default and the Company does not cure such default within the time specified after receipt of such notice.

Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders.

14. Trustee Dealings with the Company.

Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

15. No Recourse Against Others.

No director, officer, employee, incorporator or stockholder, as such, of the Company or any Subsidiary Guarantor or the Trustee shall have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

16. Authentication.

This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security.

Exhibit 1-27

Exhibit 1 to Appendix A

17. Abbreviations.

Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

18. CUSIP Numbers.

Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.

19. Holders’ Compliance with Registration Rights Agreement.

Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein.⁴

20. Governing Law

THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture. Requests may be made to:

Energy Partners, Ltd.

201 St. Charles Avenue

Suite 3400

New Orleans, Louisiana 70170

Attention of Corporate Secretary

⁴ Delete if this Security is not being issued in exchange for an Initial Security.

Exhibit 1-28

Exhibit 1 to Appendix A

ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to

(Print or type assignee’s name, address and zip code)

(Insert assignee’s soc. sec. or tax I.D. No.)

and irrevocably appoint                      agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.

Date:                                                                                                      Your Signature:                                                                                               

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

Sign exactly as your name appears on the other side of this Security.

Exhibit 1-29

Exhibit 1 to Appendix A

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or Section 4.09 of the Indenture, check the box:

[        ]

If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or Section 4.09 of the Indenture, state the amount in principal amount:

$

Date:	Your Signature:
	(Sign exactly as your name appears on the other side of this Security.)
Signature Guarantee:
(Signature must be guaranteed)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

Exhibit 1-30

Appendix B

FORM OF SUPPLEMENTAL INDENTURE

SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of             , 20         , among [SUBSIDIARY GUARANTOR] (the “New Subsidiary Guarantor”), a subsidiary of Energy Partners, Ltd. (or its successor) (the “Company”), ENERGY PARTNERS, LTD., a Delaware corporation, on behalf of itself and the Subsidiary Guarantors (the “Existing Subsidiary Guarantors”) under the Indenture referred to below, and Wells Fargo Bank, N.A., as trustee under the indenture referred to below (the “Trustee”).

WITNESSETH:

WHEREAS the Company has heretofore executed and delivered to the Trustee an Indenture (the “Indenture”), dated as of August 5, 2003, providing for the issuance of 8 ³/4% Senior Notes Due 2010 (the “Securities”);

WHEREAS Section 4.14 of the Indenture provides that under certain circumstances the Company is required to cause the New Subsidiary Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Subsidiary Guarantor shall unconditionally guarantee all of the Company’s obligations under the Securities pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and

WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company and Existing Subsidiary Guarantors are authorized to execute and deliver this Supplemental Indenture;

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows:

1. Definitions.

(a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Supplement, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words “herein,” “hereof” and “hereby” and other words of similar import used in this Supplement refer to this Supplement as a whole and not to any particular section hereof.

2. Agreement to Guarantee. The New Subsidiary Guarantor hereby agrees, jointly and severally with all other Subsidiary Guarantors, to guarantee the Company’s obligations under the Securities on the term and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture.

3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and

Appendix B-1

Appendix B

all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

5. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.

6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof.

Appendix B-2

Appendix B

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

[NEW SUBSIDIARY GUARANTOR]
By:
	Name:
	Title:
ENERGY PARTNERS, LTD., on behalf of itself and the Existing Subsidiary Guarantors
By:
	Name:
	Title:
WELLS FARGO BANK, N.A., as Trustee
By:
	Name:
	Title:

Appendix B-3

APPENDIX C

FORM OF CERTIFICATE FROM

ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

Energy Partners, Ltd.

201 St. Charles Avenue, Suite 3400

New Orleans, LA 70170

Wells Fargo Bank, N.A.

505 Main Street, Suite 301

Fort Worth, Texas 76201

Attention: Corporate Trust Services

Re: 8 ³/4% Senior Notes due 2010

Reference is hereby made to the Indenture, dated as of August 5, 2003 (the “Indenture”), among Energy Partners, Ltd., as issuer (the “Company”), the Guarantors named on the signature pages thereto and Wells Fargo Bank, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture and the Company’s Confidential Offering Circular dated as of July 29, 2003.

In connection with our proposed purchase of $                     aggregate principal amount of:

(a)  ¨ a beneficial interest in a Global Note, or

(b)  ¨ a Certificated Note,

we confirm that:

1.    We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the “Securities Act”).

2.    We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered, resold, pledged or otherwise transferred in the absence of such registration or an applicable exemption therefrom.

3.    We understand that for the benefit of the Company that the Notes may be offered, sold, or otherwise transferred only (i) to the Company, (ii) in the United States to a person whom we reasonably believe is a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (iii) outside the United States in an offshore transaction in accordance with Rule 904 under the Securities Act, (iv) pursuant to an exemption from registration under the

Appendix C-1

Securities Act provided by Rule 144 (if available), (v) in the United States to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) that is acquiring the Notes for its own account or for the account of another institutional accredited investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act and that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the trustee an executed certificate substantially in the form of this certificate or (vi) pursuant to an effective registration statement under the Securities Act, in each of cases (i) through (vi) in accordance with any applicable securities laws of any state of the United States.

4.    We understand that we will notify any purchaser of the Notes of the resale restrictions referred to in (3) above.

5.    We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certificates, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.

6.    We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.

7.    We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional “accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) as to each of which we exercise sole investment discretion.

You and the Company are entitled to rely upon this certificate and are irrevocably authorized to produce this certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

	[INSERT NAME OF ACCREDITED INVESTOR]
	By:
		Name:
		Title:
Dated:

Appendix C-2

EX-10.4

Exhibit 10.4

April 3, 2009

T. J. Thom

Energy Partners, Ltd.

201 St. Charles Avenue, Suite 3400

New Orleans, Louisiana 70170

Re: Credit Agreement dated as of April 23, 2007, among Energy Partners, Ltd., a Delaware corporation (the “Borrower”), Bank of America, N.A., as Administrative Agent, Collateral Agent, and L/C Issuer (the “Administrative Agent”) and the Lenders party thereto (the “Lenders”) (as amended, the “Credit Agreement”). Capitalized terms used in this letter shall have the meanings given to them in the Credit Agreement.

Dear Ms. Thom:

Background. The Borrower’s Borrowing Base was determined on March 11, 2009, pursuant to Section 2.15 of the Credit Agreement (the “Determination”). As a result of the Determination, the Borrowing Base Deficiency is currently in the amount of $38,000,000. In accordance with Section 2.05 of the Credit Agreement, on March 23, 2009, Borrower provided the Administrative Agent a plan to reduce the Borrowing Base Deficiency (the “Plan”). On March 24, 2009, the Administrative Agent, at the direction of the Lenders, notified the Borrower that the Plan was not approved. In accordance with Section 2.05, the Borrower has until April 3, 2009, to pay the Borrowing Base Deficiency in full (the “Borrowing Base Deficiency Payment”).

Requested Consent. The Borrower requests that the due date for the Borrowing Base Deficiency Payment be extended until April 14, 2009 (the “Payment Extension”). Section 10.01 of the Credit Agreement permits the Borrowing Base Deficiency Payment to be extended upon the written consent of the Required Lenders.

Representations and Warranties. The Borrower represents and warrants to the Administrative Agent and the Lenders that (a) this consent agreement (this “Agreement”) is a Loan Document under the Credit Agreement and constitutes its legal, valid, and binding obligation, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any Debtor Relief Laws), (b) the execution, delivery and performance by the Borrower and each other Loan Party of this Agreement, and the consummation of the transactions contemplated thereby, do not and will not (i) require any consent, approval or license not already obtained, (ii) violate any applicable Law, or (iii) conflict with, result in a breach of, or constitute a default under the organizational and governance documents of the Borrower or any other Loan Party, or under any material license, indenture, agreement or other instrument, to which the Borrower or any other Loan Party is a party or beneficiary of, or by its collateral may be bound, (c) except as otherwise disclosed to the Administrative Agent and the

Lenders, there has been no change, occurrence or development that has had a Material Adverse Effect, and (d) the Credit Agreement, as affected by this Agreement, and the other Loan Documents remain in full force and effect and are hereby reaffirmed.

Acknowledgement of Existing Defaults. Borrower acknowledges and agrees that certain Defaults have occurred as disclosed to the Administrative Agent (“Existing Defaults”). Borrower further acknowledges and agrees that the Administrative Agent’s and each Required Lender’s execution of this Agreement is not a waiver of or forbearance in any manner with respect to the Existing Defaults and as such, the Administrative Agent and each Lender has all rights and remedies afforded to them under the Loan Documents, at Law or in equity, and nothing contained herein shall prohibit or affect the Administrative Agent or any Lender in exercising such rights and remedies.

Consent. Notwithstanding anything to the contrary in the Credit Agreement and subject to the effectiveness of this Agreement, the Required Lenders hereby consent to and expressly permit the Payment Extension subject to the conditions that (a) except for the Existing Defaults, all conditions, obligations and covenants of the Borrower and each other Loan Party under the Credit Agreement, the other Loan Documents and herein are and shall continue to be complied with, and (b) each representation and warranty contained herein shall be true and correct on the date hereof.

Conditions Precedent. This Agreement shall not be effective until the Administrative Agent shall have received counterparts of this Agreement executed by the Borrower, each other Loan Party, the Administrative Agent and the Required Lenders.

Release. As a material part of the consideration for the Administrative Agent and the Required Lenders entering into this Agreement, Borrower and each Loan Party signing this Agreement (collectively “Releasor”) agree as follows (the “Release Provision”):

(a) Releasor hereby releases and forever discharges the Administrative Agent and each Lender and the Administrative Agent’s and each Lender’s predecessors, successors, assigns, officers, managers, directors, shareholders, employees, agents, attorneys, representatives, parent corporations, subsidiaries, and affiliates (hereinafter all of the above collectively referred to as “Lender Group”) jointly and severally from any and all claims, counterclaims, demands, damages, debts, agreements, covenants, suits, contracts, obligations, liabilities, accounts, offsets, rights, actions, and causes of action of any nature whatsoever occurring prior to the date hereof and relating to any of the Loan Documents or the transactions contemplated thereby, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at Law or in equity, presently possessed, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, presently accrued, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted (“Claims”), which Releasor may have or claim to have against any of Lender Group; except, as to any member of Lender Group, to the extent that any such Claims results from any of gross negligence or willful misconduct of that member.

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(b) Releasor agrees not to sue any of Lender Group or in any way assist any other person or entity in suing Lender Group with respect to any claim released herein. The Release Provision may be pleaded as a full and complete defense to, and may be used as the basis for an injunction against, any action, suit, or other proceeding which may be instituted, prosecuted, or attempted in breach of the release contained herein.

(c) Releasor acknowledges, warrants, and represents to Lender Group that:

(i) Releasor has read and understands the effect of the Release Provision. Releasor has had the assistance of independent counsel of its own choice, or has had the opportunity to retain such independent counsel, in reviewing, discussing, and considering all the terms of the Release Provision; and if counsel was retained, counsel for Releasor has read and considered the Release Provision and advised Releasor to execute the same. Before execution of this Agreement, Releasor has had adequate opportunity to make whatever investigation or inquiry it may deem necessary or desirable in connection with the subject matter of the Release Provision.

(ii) Releasor is not acting in reliance on any representation, understanding, or agreement not expressly set forth herein. Releasor acknowledges that Lender Group has not made any representation with respect to the Release Provision except as expressly set forth herein.

(iii) Releasor has executed this Agreement and the Release Provision thereof as its free and voluntary act, without any duress, coercion, or undue influence exerted by or on behalf of any person.

(iv) Releasor is the sole owner of the claims released by the Release Provision, and Releasor has not heretofore conveyed or assigned any interest in any such claims to any other person or entity.

(d) Releasor understands that the Release Provision was a material consideration in the agreement of the Administrative Agent and each Required Lender to enter into this Agreement.

(e) It is the express intent of Releasor that the release and discharge set forth in the Release Provision be construed as broadly as possible in favor of Lender Group so as to foreclose forever the assertion by Releasor of any claims released hereby against Lender Group.

(f) If any term, provision, covenant, or condition of the Release Provision is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable, the remainder of the provisions shall remain in full force and effect.

Counterparts. This Agreement may be executed in any number of counterparts by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. Telecopies of signatures shall be binding and effective as originals.

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Not a Waiver. Nothing contained in this Agreement shall be construed as a waiver of any Event of Default or a consent to any action or inaction by the Borrower or any other Loan Party, other than as expressed by the terms herein nor shall it be construed as a course of dealing or conduct on the part of the Administrative Agent or any Lender. All rights and remedies now or hereafter available to the Administrative Agent or any Lender are hereby reserved.

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Remainder of the Page Intentionally Left Blank.

Signature Pages to Follow.]

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ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as Administrative Agent
By:	/s/ Kathleen M. Carry
Name:	Kathleen M. Carry
Title:	Vice President

Signature Page to Consent Agreement

BANK OF AMERICA, N.A., as a Lender, Collateral Agent and L/C Issuer
By:	/s/ Tyler D. Levings
Name:	Tyler D. Levings
Title:	Senior Vice President

Signature Page to Consent Agreement

BANK OF MONTREAL, as a Lender

By:

Name:

Title:

Signature Page to Consent Agreement

BNP PARIBAS, as a Lender
By:	/s/ Amy Kirshner
Name:	Amy Kirshner
Title:	Managing Director
By:	/s/ Albert A. Young, Jr.
Name:	Albert A. Young, Jr.
Title:	Managing Director

Signature Page to Consent Agreement

CALYON NEW YORK BRANCH, as a Lender

By:

Name:

Title:

Signature Page to Consent Agreement

FORTIS CAPITAL CORP., as a Lender

By:

Name:

Title:

Signature Page to Consent Agreement

JPMORGAN CHASE BANK NA, as a Lender
By:	/s/ John Runger
Name:	John Runger
Title:	Managing Director

Exhibit C to Consent Agreement

BANK OF NOVA SCOTIA, as a Lender

By:

Name:

Title:

Signature Page to Consent Agreement

SOCIÉTÉ GÉNÉRALE, as a Lender
By:	/s/ Kevin C. Joyce
Name:	Kevin C. Joyce
Title:	Vice President

Signature Page to Consent Agreement

U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:	/s/ Monte E. Deckerd
Name:	Monte E. Deckerd
Title:	Senior Vice President

Signature Page to Consent Agreement

ACKNOWLEDGED AND AGREED:
BORROWER:
ENERGY PARTNERS, LTD.
By:	/s/ T. J. Thom
Name:	T. J. Thom
Title:	Vice President—Treasurer

Signature Page to Consent Agreement

Each Loan Party (a) consents and agrees to the terms of this Agreement and all other Loan Documents executed in connection therewith, (b) affirms that nothing contained in this Agreement shall modify in any respect whatsoever its obligations under the Guarantee and Collateral Agreement, (c) agrees that the “Obligations” as defined in the Guarantee and Collateral Agreement shall include without limitation, the indebtedness and obligations of the Borrower and the Loan Parties under the Loan Documents, including the Credit Agreement as amended hereby, and (d) agrees that the Guarantee and Collateral Agreement remains in full force and effect, continues to be legal, valid, binding, and enforceable in accordance with its terms, and that such Guarantee and Collateral Agreement guarantees the repayment of the Obligations, and all renewals, extensions, and modifications thereof, in accordance with, and to the extent of, the terms of the Guarantee and Collateral Agreement.

EPL OF LOUISIANA, L.L.C., a Louisiana limited liability company
By:	/s/ T. J. Thom
	T. J. Thom, Vice President – Treasurer

DELAWARE EPL OF TEXAS, LLC, a Delaware limited liability company
By:	/s/ Paul B. Jones
	Paul Jones, President

EPL PIPELINE, L.L.C., a Delaware limited liability company
By:	/s/ T. J. Thom
	T. J. Thom, Vice President – Treasurer

NIGHTHAWK, L.L.C., a Louisiana limited liability company
By:	/s/ T. J. Thom
	T. J. Thom, Vice President – Treasurer

EPL PIONEER HOUSTON, INC., a Texas corporation
By:	/s/ T. J. Thom
	T. J. Thom, Vice President – Treasurer

Signature Page to Consent Agreement

EX-10.6

Exhibit 10.6

CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

EAST BAY P&A SECURITY/FUNDING

This term sheet (the “Term Sheet”) is between Energy Partners, Ltd. and the United States Department of the Interior, Minerals Management Service, and sets forth the general terms and conditions of a prospective structure for the establishment of additional financial security for certain East Bay properties. This Term Sheet is in the nature of compromise and settlement negotiations, but shall be binding upon Energy Partners, Ltd. and the United States Department of the Interior, Minerals Management Service, for the express purposes stated herein, but not otherwise. Furthermore, this Term Sheet is subject to all disclaimers and limitations set forth herein.

EPL or Debtor	Energy Partners, Ltd. and its subsidiaries
MMS	The United States Department of the Interior, Minerals Management Service.
Trustee	JP Morgan Chase Bank, N.A.
East Bay	EPL’s interest in Lease OCS-00352 (Portion of South Pass Block 27), Lease OCS-00353 (Portion of South Pass Block 28), Lease OCS-00693 (Portion of South Pass Block 27), and Lease OCS-00694 (Portion of South Pass Block 28).
Trust Agreement	That certain Decommissioning Trust Agreement, dated effective December 23, 2008, covering East Bay, by and among EPL, MMS, and Trustee.
Trust Account	Account number xxxxx7851, established at Trustee.
MMS Order	That certain Order, dated March 23, 2009, issued by the MMS to EPL, which superseded an Order from the MMS issued March 20, 2009, issued in response to the failure of EPL to timely fund the remaining deposit pursuant to the Trust Agreement, and which, inter alia, (i) ordered a shut-in of Debtor’s East Bay wells and facilities, and (ii) created an area-wide bond demand in the amount of $37,735,000.
Ad Hoc Committee	That certain Ad Hoc Committee of Noteholders representing in excess of 66 and 2/3% in principal amount of the $450 million in outstanding notes issued by EPL under an Indenture dated as of April 23, 2007.
Bank Group	That certain group of banks participating in EPL’s credit facility dated April 23, 2007, with Bank of America, N.A. acting as administrative agent.

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CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

Plan Support Agreement	If requested, EPL and the MMS both agree to execute a reasonable plan support agreement with certain of the other interested constituencies of EPL in an effort to merge the terms hereof with additional Plan provisions required for a complete and consensual reorganization.
Commencement Date	The date that EPL will file for bankruptcy protection under chapter 11 of title 11 of the United States Code.
Plan	EPL shall incorporate the terms hereof (or similar terms acceptable to EPL and the MMS) into a consensual Plan, which shall be supported by the MMS. Such support shall include (i) voting in favor of the Plan (if needed), conditioned upon the approval of a disclosure statement, and (ii) supporting EPL’s efforts to obtain confirmation of the Plan.
Effective Date	The date on which the consensual Plan is consummated.
Bankruptcy Case Issues and Terms of MMS Plan Treatment	Subject to Bankruptcy Court approval, where appropriate: a. With the exception of the sixth paragraph of the MMS Order, which pertains to the “shut-in of all OCS facilities located on and all OCS wells associated with South Pass Block Nos. 27 and 28, while properly maintaining said facilities and wells and essential personnel,” MMS shall grant a consensual stay of the MMS Order, commencing on the Commencement Date, and remaining in place during EPL’s bankruptcy proceeding; b. EPL shall pay into the Trust Account $1,202,333.33 million on the last day of each calendar month during EPL’s bankruptcy proceeding (including a $1,202,333.33 payment on April 30, 2009; collectively, the “Adequate Protection Payments”) as adequate protection for the claims asserted by the MMS, whether such claims are included within the MMS Order or otherwise; c. MMS and EPL shall re-affirm the terms and conditions of the Trust Agreement and shall attach a new Schedule A (Funding Obligations) thereto, which shall (i) include references to all Adequate Protection Payments made and (ii) require a payment into the Trust Account on the Effective Date equal to (x) $21 million minus (y) the sum total of all Adequate Protection Payments that are made prior to the time EPL emerges from bankruptcy. EPL’s Plan will also require EPL to pay any remaining unpaid balance of the “Funding Cap” described on Schedule A, which payments will be made in equal quarterly installments of $1,202,333.33, commencing October 31, 2009;1

¹ A replacement Schedule A contemplating a projected July 31, 2009 order confirming the Plan is attached hereto.

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CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

d. EPL shall assume, to the extent 11 USC §365 applies, all of its OCS leases granted by and through MMS;

e. On the Effective Date, the MMS shall release and cancel Bond No. RLB0001113 in the amount of $3 million;

f. MMS shall support EPL’s efforts to obtain expedited approval of a disclosure statement and Plan incorporating the terms hereof;

g. EPL will continue with its ordinary course decommissioning activities and its “Idle Iron” activities, specifically including such activities in East Bay;

h. Consistent with paragraph a., above, and continuing until the Effective Date, EPL shall continue with the shut-in of its OCS facilities located on and all OCS wells associated with South Pass Block Nos. 27 and 28, while properly maintaining said facilities and wells and essential personnel;²

i. On the Effective Date, EPL shall be allowed to resume production associated with its OCS facilities located on and all OCS wells associated with South Pass Block Nos. 27 and 28; and

j. On the Effective Date, in consideration for the Plan treatment outlined herein, the MMS Order shall be rescinded.

Further MMS Review

MMS agrees to review appropriate financial data on the reorganized EPL, when same becomes available, to analyze whether the reorganized EPL qualifies for a waiver of supplemental bond requirements.

Disclaimers, Etc.

This Term Sheet is intended to outline certain basic terms of the transactions contemplated hereby based upon information presently available. It is not intended to be definitive and further negotiations regarding the Plan are anticipated. This Term Sheet is for discussion purposes only and is not an offer to enter into a contract. The transactions contemplated hereby require internal approvals from the EPL and the MMS, and will need to compliment treatment of and provisions relating to the Noteholders and the Bank Group pursuant to the Plan. Consequently, the terms hereof are dependent upon EPL receiving satisfactory Plan support commitments from the Bank Group and the Ad Hoc Committee.

² EPL reserves the right to petition the Bankruptcy Court for relief from this provision solely to protect its leasehold rights which may be impacted by non-production for six consecutive months, or as otherwise provided by law or regulation.

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CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

This Term Sheet does not constitute a commitment to lend or restructure and is in the nature of settlement discussions and shall accordingly not be admissible as evidence and is entitled to the protections of Federal Rule of Evidence 408 and any other applicable statutes or doctrines protecting the use or disclosure of confidential information and information exchanged in the context of settlement discussions. This Term Sheet is provided on a confidential basis, and both EPL and the MMS are not authorized to disclose this Term Sheet to any other person or entity other than its professional advisors, who are also required as a matter of settlement negotiations to maintain its confidentiality, unless such disclosure is (i) approved by the other party hereto, or (ii) to the Bank Group or the Ad Hoc Committee and their respective advisors. This Term Sheet is otherwise subject to the requirements of the Bankruptcy Code and Rules and shall be conditioned upon approval by the Bankruptcy Court as necessary.

Agreed to and accepted this 30^th day of April, 2009.

ENERGY PARTNERS, LTD.

By:	/s/ John H. Peper
Name:	John H. Peper
Title:	Executive Vice President, Corporate Secretary

Agreed to and accepted this              day of April, 2009.

THE UNITED STATES DEPARTMENT OF THE INTERIOR,

BY AND THROUGH THE MINERALS MANAGEMENT SERVICE

By:	/s/ John Rodi
Name:	for Lars Herbst
Title:	MMS GOMR Regional Director

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CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

Schedule A

Funding Obligations

Funding Cap:

Lease OCS-00352:	$	260,000
Lease OCS-00353:	$	12,040,000
Lease OCS-00693:	$	1,380,000
Lease OCS-00694:	$	22,390,000
	$	36,070,000

Deposit:

Comprised of the following:

$1,335,000	paid by wire transfer on December 23, 2008
$1,202,333.33	paid by wire transfer on or about March 31, 2009
$1,202,333.33	paid by wire transfer on April 29, 2009
$1,202,333.33	to be paid by wire transfer on the last business day of each calendar month starting May 31, 2009 and ending [July 31, 2009]
[$16,190,666.68]	to be satisfied on or about [August 31, 2009], or at some other time mandated by other agreements by and among the parties

Quarterly Payments:

The remaining amount of $             necessary to reach the Funding Cap shall be paid in quarterly payments of $1,202,333.33, commencing on October 31, 2009

Adjustment to Funding Cap:

As decommissioning work is performed on the Properties by Settlor, and subject to applicable regulation, the Funding Cap shall be adjusted downward dollar for dollar for all such decommissioning associated with the Property, as assessed by MMS; provided, however, any reduction in the Funding Cap shall not diminish the quarterly payment amount of $1,202,333.33 until the remaining balance owed to reach the Funding Cap is less than $1,202,333.33

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CONFIDENTIAL – DO NOT DISCLOSE

SENT PURSUANT TO ONGOING SETTLEMENT DISCUSSIONS

NOT ADMISSIBLE IN ANY CAUSE, MATTER OR PROCEEDING

Additional Credits:

Settlor shall receive a dollar for dollar credit against the Funding Cap for any Third Party Indemnity Agreement posted in favor of the Beneficiary by Devon (or another entity acceptable to and qualified with the MMS) and/or a dollar for dollar credit for any other acceptable form of security as may be presented by Settlor to Beneficiary

Miscellaneous:

All deposits/payment obligations created hereby shall be the general corporate obligations of Settlor and shall not be tied to production from the Property or from any of its other oil and gas interests

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EX-10.14

Exhibit 10.14

ENERGY PARTNERS, LTD.

NON-EMPLOYEE DIRECTOR COMPENSATION SUMMARY

(AS OF JULY 2009)

Annual Retainers and Meeting Fees

The non-employee directors of Energy Partners, Ltd. are entitled to receive the following compensation:

• an annual retainer fee of $20,000 per year;

• meeting fees of $2,000 for each Board meeting attended;

• meeting fees of $1,500 for each committee meeting attended (even if held on the same date as a Board meeting);

• an additional retainer of $5,000 per year for each member of the Audit Committee, plus an additional retainer of $15,000 per year for the chairperson of the Audit Committee; and

• an additional retainer of $10,000 per year for the chairperson of each of the Compensation Committee and Nominating & Governance Committee.

Meeting fees are paid in cash. Retainer fees are paid in shares of common stock (valued at fair market value); provided that a director may elect to receive up to 50% of such retainer fees in cash. Directors may defer all or a portion of their retainer and meeting fees. The Energy Partners, Ltd. Stock and Deferral Plan for Non-Employee Directors governs the payment of retainer and meeting fees and the terms of any deferrals of such fees. Directors are also reimbursed for their reasonable expenses in connection with attending Board meetings and other company events.

Equity Awards

The Energy Partners, Ltd. Amended and Restated 2000 Stock Incentive Plan for Non-Employee Directors provides for grants of stock options and restricted share units to members of the Board who are not employees of Energy Partners, Ltd. or any of its subsidiaries. The size of any grants of stock options and restricted share units to non-employee directors, including to new directors, is determined annually by the Compensation Committee. Pursuant to the terms of the plan, restricted share units and stock options become 100% vested on the first anniversary of the date of grant provided the eligible director continues as a director of throughout that one-year period. Prior to the first anniversary of the date of grant, an eligible director is vested in the pro rata number of restricted share units and stock options based on the number of days during that year that the eligible director served. The total number of shares of common stock that may be issued under the plan is 500,000, subject to adjustment in the case of certain corporate transactions and events.

EX-10.35

Exhibit 10.35

SENIOR MANAGEMENT SETTLEMENT AGREEMENT

This Senior Management Settlement Agreement (the “Settlement Agreement”) is entered into on this          day of                         , 2009 (the “Signing Date”), between Energy Partners, Ltd. (the “Company”) and                          (“Individual”) (collectively, the “Parties”).

RECITALS

WHEREAS, the Company and Individual have entered into various arrangements that provide the Individual with certain potential claims to receive cash payments and/or the settlement of equity compensation awards in exchange for Individual’s continuous employment with the Company;

WHEREAS, the Company is undergoing a significant restructuring that requires the Company to address its ability to fully perform its potential obligations under these arrangements;

WHEREAS, the Company’s promise to pay the settlement payment provided for within this Settlement Agreement is sufficient consideration for the exchange of Individual’s potential claims under the arrangements noted below;

WHEREAS, subject to the approval of the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”) in that certain case styled In re Energy Partners, Ltd., et al., case no. 09-32957 (jointly administered), the Company and Individual now desire to amend the Parties’ rights and obligations with regard to the compensation arrangements in exchange for new rights and obligations that will be governed solely by this Settlement Agreement; and

WHEREAS, each arrangement by and between the Company and Individual that shall be affected by this Settlement Agreement is specified below.

NOW, THEREFORE, in consideration of the mutual promises and benefits contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SETTLEMENT AGREEMENT

1. Effectiveness of Agreement. This Settlement Agreement shall become effective only upon the occurrence of the following two events: (a) Individual executes this Settlement Agreement within the specified time period noted below, and (b) the Court approves this Settlement Agreement (the “Approval Date”) (the date on which the later of the two individual events occur shall be referred to herein as the “Effective Date”). For Individual’s execution to become effective under this Section 1, Individual must execute and return this Settlement Agreement to the Company by the later of the following dates: (i) June 30, 2009, and (ii) the next business day immediately following the Approval Date.

2. Arrangements. As of the Effective Date, Individual is a party to, a participant in, and/or has an interest in connection with the following arrangements with or sponsored by the Company:

¨ [Cash Retention Payment agreements, evidenced by a letter to Individual dated November 17, 2008

¨ Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan Special Restricted Share Unit Agreement

¨ Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Unit Agreement

¨ Bonuses for the 2008 calendar year]

For purposes of this Settlement Agreement, the arrangements noted above in this Section 2 shall be collectively referred to as the “Arrangements.”

3. Exchange. Individual will waive, release, discharge, return, surrender or abandon, as appropriate, any and all potential claims to receive cash and/or other property arising in respect of, and will surrender to the Company all outstanding equity compensation awards granted pursuant to, the Arrangements (collectively, the “Obligations”), in exchange for an allowed general unsecured claim against the Company in the amount of [$] (the “Settlement Payment”). The Settlement Payment shall be paid to Individual in accordance with the terms of a chapter 11 plan of reorganization confirmed by the Court (the date on which such Settlement Payment is made, the “Settlement Payment Date”), provided that Individual is still employed by the Company on the Settlement Payment Date or, if Individual is not employed by the Company on the Settlement Payment Date, Individual’s termination of employment was due solely to a termination by the Company without Cause. For purposes of this Agreement, “Cause” shall mean that Individual: (i) has engaged in gross negligence, gross incompetence or willful misconduct in the performance of Individual’s duties with respect to the Company or any of its affiliates, (ii) has refused without proper legal reason to perform Individual’s duties and responsibilities to the Company or any of its affiliates faithfully and to the best of Individual’s abilities, (iii) has materially breached any material provision of a written agreement or corporate policy or code of conduct established by the Company or any of its affiliates, (iv) has willfully engaged in conduct that is materially injurious to the Company or any of its affiliates, (v) has failed to devote substantially all of Individual’s business time to the Company’s business affairs (excluding failures due to illness, incapacity, vacations, incidental civic activities, and incidental personal time), (vi) has disclosed without proper authorization confidential information of the Company or any of its affiliates that is injurious to any such entity, (vii) has failed to meet the performance objectives or standards established for Individual’s job position by Individual’s employer, (viii) has committed an act of theft, fraud, embezzlement, misappropriation or willful breach of a fiduciary duty to the Company or any of its affiliates, or (ix) has been convicted of (or pleaded no contest to) a crime involving fraud, dishonesty or moral turpitude or any felony (or a crime of similar import in a foreign jurisdiction).

4. Waiver, Release and Compromise. The Settlement Payment shall be conditioned upon the execution by Individual of a release agreement in favor of the Company in the form attached hereto as Exhibit A (the “Release Agreement”) with such modifications as the Company may reasonably request. The Release Agreement must be executed and returned to the Company alongside this Settlement Agreement in accordance with the time limitations described in Section 1 of this Settlement Agreement.

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5. Agreement. The Parties understand and agree that (a) the consideration for this Settlement Agreement is contractual and not a mere recital, (b) the Company’s promise to pay the Settlement Payment is sufficient consideration for the exchange of the Individual’s potential claims under the Arrangements, (c) each Party has had the opportunity to engage counsel to review this Settlement Agreement and advise such Party with respect hereto, (d) this Settlement Agreement and the agreements contained herein are binding upon, and inure to the benefit of, the Parties, their respective successors and assigns, and all persons claiming by or through such Parties, and (e) Individual’s sole right hereunder is to receive the Settlement Payment in exchange for the Release Agreement and, if Individual does not execute the Release Agreement, Individual shall have no right to receive the Settlement Payment. This Settlement Agreement shall be construed as if jointly drafted by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provision of this Settlement Agreement.

6. Complete Agreement. This Settlement Agreement and the Release Agreement contain the complete agreement of the Parties with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, representations and negotiations relating thereto. This Settlement Agreement may be modified only by written amendment executed by both Parties.

7. Severability. If any provision contained in this Settlement Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

8. No Admission of Liability. This Settlement Agreement is not an admission of any liability but is a compromise and neither this Settlement Agreement nor the payment or provision of the Settlement Payment shall be treated as an admission of liability. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Settlement Agreement, the negotiation thereof, and information exchanged between the Parties shall be governed and protected in accordance with Federal Rule of Evidence 408 to the fullest extent permitted by law.

9. Governing Law. This Settlement Agreement shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflict of laws.

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IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the day and year first above written.

ENERGY PARTNERS, LTD.

By:

Name:

Title:

INDIVIDUAL

[Name]

4

Appendix A

RELEASE AGREEMENT

This Release Agreement (this “Release”) is executed by                          (the “Individual”) this          day of                         , 2009 (the “Effective Date”). In consideration of the benefits to be derived from this Release, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, the Individual hereby agrees as follows:

1. Senior Management Settlement Agreement. This Release is executed by the Individual pursuant to the requirements of the Senior Management Settlement Agreement between the Individual and Energy Partners, Ltd. (the “Company”) executed as of the date hereof (the “Settlement Agreement”), as a condition to the receipt of any payments thereunder by Individual. Terms not otherwise defined in this Release shall have the respective meanings given to such terms within the Settlement Agreement.

2. Release and Waiver by Individual. For and in consideration of the covenants and promises contained herein and in the Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, Individual, on behalf of himself and his family, assigns, representatives, agents, heirs and/or attorneys, if any, hereby covenants not to sue and fully, finally and forever completely waives, releases and discharges the Company, along with each of its present and former parents, subsidiaries and/or affiliates, predecessors, successors and/or assigns, if any (collectively, the “Company Parties”), as well as each of the Company Parties’ respective past, present and future officers, directors, managers, members, shareholders, employees, agents, attorneys and representatives, if any, jointly and severally (collectively, with the Company Parties, the “Company Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Individual has or might claim to have against any of the Company Released Parties:

(a) for the Obligations;

(b) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, other than those relating to fraud, arising out of the Settlement Agreement, including, but not limited to, the return, surrender, or abandonment of Individual’s potential claims to receive cash, other property or the Individual’s equity compensation awards pursuant to such Settlement Agreement; and

(c) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, if any, whenever incurred or suffered by Individual arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur prior to the Effective Date (but excluding claims arising out of fraud), including, without limitation:

(i) any claim under state or Federal law that provides civil remedies for the enforcement of rights arising out of the employment relationship, including, without limitation, discrimination claims such as claims or causes of action under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq.; Civil Rights

A-1

Act of 1866, 42 U.S.C. § 1981; Civil Rights Act of 1991, 42 U.S.C. § 1981a; Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; Fair Labor Standards Act, 29 U.S.C. § 201, et seq.; Employee Retirement Income Security Act, 29 U.S.C. § 1000 et seq.; Family and Medical Leave Act, 29 U.S.C. § 2601, et seq.; Worker Adjustment Retraining and Notification Act, 29 U.S.C. § 2101, et seq.; Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., as amended by the Older Workers Benefit Protection Act of 1990, or any other Federal or state statute prohibiting discrimination in employment or granting rights to an individual arising out of an employment relationship; and

(ii) any claims for unpaid or withheld wages, bonuses, benefits, stock, stock options, or profit-sharing, wrongful discharge or termination, breach of contract, promissory estoppel, breach of any implied covenants (including any duty of good faith and fair dealing), negligence, negligent hiring, negligent supervision, negligent retention, defamation, invasion of privacy, slander, and intentional infliction of emotional distress.

3. Additional Covenants and Agreements.

(a) Individual hereby waives, releases and forever discharges each of the Company Released Parties from any claims that this Release was procured by fraud or signed under duress or coercion so as to make this Release not binding.

(b) Notwithstanding anything contained herein to the contrary, this Release shall not release or waive, or in any manner affect or void:

(i) Individual’s or the Company’s rights and obligations under the Settlement Agreement;

(ii) Individual’s (and if applicable, Individual’s dependents’) right, for so long as Individual is employed by any Company Released Party, to remain covered under any insurance policy sponsored, maintained or purchased by any Company Released Party (if and to the extent that Company Released Party is able to remain subscribed to such policy on and following the Effective Date of this Release) in which Individual (and if applicable, Individual’s dependents) participated as of the Effective Date of this Release;

(iii) Individual’s right to be indemnified by the Company for actions or claims against Individual resulting from his or her daily and ordinary employment duties, including, but not limited to, any claim with respect to which Individual would be entitled to indemnification by the Company under applicable corporate law, the certificate of incorporation or bylaws of the Company or, if applicable, those certain indemnity agreements by and between certain of the Company’s officers or directors and the Company in place as of March 1, 2009; or

(iv) Individual’s rights pursuant to the Energy Partners, Ltd. Change of Control Severance Plan originally effective March 24, 2005, as amended or the Energy Partners, Ltd. Employee Change of Control Severance Plan originally effective September 13, 2006, as amended.

4. Modification. This Release cannot be modified orally and can only be modified through a written document signed by both parties.

A-2

5. Severability. If any provision contained in this Release is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. Choice of Law. This Release shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflicts of law.

7. Entire Agreement. This Release and the Settlement Agreement constitute the entire understanding and agreement of the Company and Individual and supersede prior understandings and agreements, if any, among or between the Company and Individual, with respect to the subject matter of this Release, other than as specifically referenced herein. Other than the terms set forth in this Release and the Settlement Agreement, there are no representations, agreements, arrangements or understandings, oral or written, concerning the subject matter hereof between the Company and Individual that are not fully expressed or incorporated by reference in this Release. This Release does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Individual to the Company under any prior agreement.

8. Fully Understood. By executing this Release, Individual acknowledges and affirms that he or she has read and understood the foregoing, agreed to the terms, and acknowledges receipt of a copy of the same. Individual further acknowledges and agrees that after receiving a copy of this Release, (a) Individual has been advised and had an opportunity to consult an attorney before signing it, and (b) Individual enters into this Release knowingly, voluntarily and after any consultations with any attorney or other advisor as Individual deemed appropriate. Individual understands and agrees that by signing this Release he or she is giving up the right to pursue any legal claims that he or she may have against any Company Released Party.

IN WITNESS WHEREOF, Individual has executed this Release as of the day and year first above written.

INDIVIDUAL

[Name]

A-3

EX-10.36

Exhibit 10.36

OMNIBUS SETTLEMENT AGREEMENT

This Omnibus Settlement Agreement (the “Settlement Agreement”) is entered into on this          day of                         , 2009 (the “Signing Date”), between Energy Partners, Ltd. (the “Company”) and                          (“Individual”) (collectively, the “Parties”).

RECITALS

WHEREAS, the Company and Individual have entered into various arrangements that provide Individual with certain potential claims to receive cash payments and/or the settlement of equity compensation awards in exchange for Individual’s continuous employment with the Company;

WHEREAS, the Company is undergoing a significant restructuring that requires the Company to address its ability to fully perform its potential obligations under these arrangements;

WHEREAS, the Company’s promise to pay the settlement payment provided for within this Settlement Agreement is sufficient consideration for the exchange of Individual’s potential claims under the arrangements noted below;

WHEREAS, subject to the approval of the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”) in that certain case styled In re Energy Partners, Ltd., et al., case no. 09-32957 (jointly administered), the Company and Individual now desire to amend the Parties’ rights and obligations with regard to the compensation arrangements in exchange for new rights and obligations that will be governed solely by this Settlement Agreement; and

WHEREAS, each arrangement by and between the Company and Individual that shall be affected by this Settlement Agreement is specified below.

NOW, THEREFORE, in consideration of the mutual promises and benefits contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SETTLEMENT AGREEMENT

1. Effectiveness of Agreement. This Settlement Agreement shall become effective only upon the occurrence of the following two events: (a) Individual executes this Settlement Agreement within the specified time period noted below, and (b) the Court approves this Settlement Agreement (the “Approval Date”) (the date on which the later of the two individual events occur shall be referred to herein as the “Effective Date”). For Individual’s execution to become effective under this Section 1, Individual must execute and return this Settlement Agreement to the Company by the later of the following dates: (i) June 30, 2009, and (ii) the next business day immediately following the Approval Date.

2. Arrangements. As of the Effective Date, Individual is a party to, a participant in, and/or has an interest in connection with the following arrangements with or sponsored by the Company:

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¨ [Cash Retention Payment agreements, evidenced by a letter to Individual dated November 17, 2008

¨ Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan Special Restricted Share Unit Agreement

¨ Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Unit Agreement

¨ Bonuses for the 2008 calendar year]

For purposes of this Settlement Agreement, the arrangements noted above in this Section 2 shall be collectively referred to as the “Arrangements.”

3. Exchange. Individual will waive, release, discharge, return, surrender or abandon, as appropriate, any and all potential claims to receive cash and/or other property arising in respect of, and will surrender to the Company all outstanding equity compensation awards granted pursuant to, the Arrangements (collectively, the “Obligations”), in exchange for a cash payment in the amount of [$] (the “Settlement Payment”). The Settlement Payment shall be paid one-half (1/2) to Individual on the Effective Date. The remaining one-half (1/2) of the Settlement Payment shall be paid to Individual on the first to occur of the following two events:

(a) the Company’s exit from bankruptcy under the terms of a confirmed plan of reorganization, provided that Individual is still employed by the Company on such date; or

(b) the date Individual is terminated by the Company without Cause. For purposes of this Settlement Agreement, the term “Cause” shall mean that Individual: (i) has engaged in gross negligence, gross incompetence or willful misconduct in the performance of Individual’s duties with respect to the Company or any of its affiliates, (ii) has refused without proper legal reason to perform Individual’s duties and responsibilities to the Company or any of its affiliates faithfully and to the best of Individual’s abilities, (iii) has materially breached any material provision of a written agreement or corporate policy or code of conduct established by the Company or any of its affiliates, (iv) has willfully engaged in conduct that is materially injurious to the Company or any of its affiliates, (v) has failed to devote substantially all of Individual’s business time to the Company’s business affairs (excluding failures due to illness, incapacity, vacations, incidental civic activities, and incidental personal time), (vi) has disclosed without proper authorization confidential information of the Company or any of its affiliates that is injurious to any such entity, (vii) has failed to meet the performance objectives or standards established for Individual’s job position by Individual’s employer, (viii) has committed an act of theft, fraud, embezzlement, misappropriation or willful breach of a fiduciary duty to the Company or any of its affiliates, or (ix) has been convicted of (or pleaded no contest to) a crime involving fraud, dishonesty or moral turpitude or any felony (or a crime of similar import in a foreign jurisdiction).

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4. Complete Agreement. This Settlement Agreement constitutes the entire understanding and agreement of the Company and Individual, and supersedes prior understandings and agreements, if any, among or between the Company and Individual, with respect to the subject matter of this Settlement Agreement, other than as specifically referenced herein. Other than the terms set forth in this Settlement Agreement, there are no representations, agreements, arrangements or understandings, oral or written, concerning the subject matter hereof between and among the Company and Individual that are not fully expressed or incorporated by reference in this Settlement Agreement. This Settlement Agreement does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Individual to the Company under any prior agreement.

5. Severability. If any provision contained in this Settlement Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. No Admission of Liability. This Settlement Agreement is not an admission of any liability but is a compromise, and neither this Settlement Agreement nor the payment or provision of the Settlement Payment shall be treated as an admission of liability. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Settlement Agreement, the negotiation thereof, and information exchanged between the Parties shall be governed and protected in accordance with Federal Rule of Evidence 408 to the fullest extent permitted by law.

7. Governing Law. This Settlement Agreement shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflict of laws.

8. Waiver, Release and Compromise. In consideration of the benefits to be derived from this Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, Individual hereby agrees as follows:

(a) Release and Waiver by Individual. Individual, on behalf of him or herself and his or her family, assigns, representatives, agents, heirs and/or attorneys, if any, hereby covenants not to sue and fully, finally and forever completely waives, releases and discharges the Company, along with each of its present and former parents, subsidiaries and/or affiliates, predecessors, successors and/or assigns, if any (collectively, the “Company Parties”), as well as each of the Company Parties’ respective past, present and future officers, directors, managers, members, shareholders, employees, agents, attorneys and representatives, if any, jointly and severally (collectively with the Company Parties, the “Company Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Individual has or might claim to have against any of the Company Released Parties:

(i) for the Obligations;

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(ii) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, other than those relating to fraud, arising out of this Settlement Agreement, including, but not limited to, the return, surrender, or abandonment of Individual’s potential claims to receive cash, other property or Individual’s equity compensation awards pursuant to this Settlement Agreement; and

(iii) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, if any, whenever incurred or suffered by Individual arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur prior to the Effective Date (though excluding claims arising out of fraud), including, without limitation:

A. any claim under state or Federal law that provides civil remedies for the enforcement of rights arising out of the employment relationship, including, without limitation, discrimination claims such as claims or causes of action under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq.; Civil Rights Act of 1866, 42 U.S.C. § 1981; Civil Rights Act of 1991, 42 U.S.C. § 1981a; Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; Fair Labor Standards Act, 29 U.S.C. § 201, et seq.; Employee Retirement Income Security Act, 29 U.S.C. § 1000 et seq.; Family and Medical Leave Act, 29 U.S.C. § 2601, et seq.; Worker Adjustment Retraining and Notification Act, 29 U.S.C. § 2101, et seq.; Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., as amended by the Older Workers Benefit Protection Act of 1990, or any other Federal or state statute prohibiting discrimination in employment or granting rights to an individual arising out of an employment relationship; and

B. claims for unpaid or withheld wages, bonuses, benefits, stock, stock options, or profit-sharing, wrongful discharge or termination, breach of contract, promissory estoppel, breach of any implied covenants (including any duty of good faith and fair dealing), negligence, negligent hiring, negligent supervision, negligent retention, defamation, invasion of privacy, slander, and intentional infliction of emotional distress.

(b) Additional Covenants and Agreements.

(i) Individual hereby waives, releases and forever discharges each of the Company Released Parties from any claims that this Settlement Agreement was procured by fraud or signed under duress or coercion so as to make this Settlement Agreement not binding.

(ii) Notwithstanding anything contained herein to the contrary, this Settlement Agreement shall not release or waive, or in any manner affect or void:

A. Individual’s or the Company’s rights and obligations under this Settlement Agreement;

B. Individual’s (and, if applicable, Individual’s dependents’) right, for so long as Individual is employed by any Company Released Party, to

4

remain covered under any insurance policy sponsored, maintained or purchased by any Company Released Party (if and to the extent that Company Released Party is able to remain subscribed to such policy on and following the Effective Date of this Settlement Agreement) in which Individual (and if applicable, Individual’s dependents) participated as of the Effective Date of this Settlement Agreement;

C. Individual’s right to be indemnified by the Company for actions or claims against Individual resulting from his or her daily and ordinary employment duties, including, but not limited to, any claim with respect to which Individual would be entitled to indemnification by the Company under applicable corporate law, the certificate of incorporation or bylaws of the Company or, if applicable, those certain indemnity agreements by and between certain of the Company’s officers or directors and the Company in place as of March 1, 2009; or

D. Individual’s rights pursuant to the Energy Partners, Ltd. Change of Control Severance Plan originally effective March 24, 2005, as amended or the Energy Partners, Ltd. Employee Change of Control Severance Plan originally effective September 13, 2006, as amended.

9. Fully Understood. The Parties understand and agree that (a) the consideration for this Settlement Agreement is contractual and not a mere recital, (b) the Company’s promise to pay the Settlement Payment is sufficient consideration for the exchange of Individual’s potential claims under the Arrangements, (c) each Party has had the opportunity to engage counsel to review this Settlement Agreement and advise such Party with respect hereto, (d) this Settlement Agreement and the agreements contained herein are binding upon, and inure to the benefit of, the Parties, their respective successors and assigns, and all persons claiming by or through such Parties, and (e) Individual’s sole right here under is to receive the Settlement Payment, and if Individual does not execute this Settlement Agreement, Individual shall have no right to receive the Settlement Payment. Individual understands and agrees that by signing this Settlement Agreement he or she is giving up the right to pursue any legal claims that he or she may have against any of the Company Released Parties. This Settlement Agreement shall be construed as if jointly drafted by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provision of this Settlement Agreement.

10. Amendment. This Settlement Agreement cannot be modified orally and can only be modified through a written document signed by both parties.

IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the day and year first above written.

ENERGY PARTNERS, LTD.

By:

Name:

Title:

INDIVIDUAL

[Name]

5

EX-10.40

Exhibit 10.40

RICHARD A. BACHMANN Chairman and CEO Direct (504) 799-1944 Fax: (504) 799-1901 bachmann@eplweb.com

November 29, 2007

Mr. Thomas DeBrock

102 Audubon Lane

Mandeville, LA 70471

Dear Tom:

In recognition of your valuable services to Energy Partners, Ltd. (the “Company”) and to encourage you to remain in the employment of the Company, the Company will pay you a cash bonus of $120,000 (the “Annual Bonus Amount”) on each of the Applicable Payment Dates (as hereinafter defined) provided that you remain in the employment of the Company through the Applicable Payment Date. For purposes of this letter, the following are the Applicable Payment Dates: (i) December 1, 2007, (ii) December 1, 2008, (iii) December 1, 2009, (iv) December 1, 2010, and (v) December 1, 2011.

In the event that there is a Change of Control (as defined in Exhibit A hereto) and your employment terminates before December 1, 2011 by reason of a Qualifying Termination (as defined in Exhibit A hereto) following such Change of Control, the Company will, subject to the provisions of the next paragraph, pay you in a lump sum on such date as may be determined by the Company but not later than 60 days after such Qualifying Termination an amount equal to the sum of the Annual Bonus Amounts for each of the Applicable Payment Dates subsequent to the date of termination of your employment. In the event that your employment terminates for any reason other than as set forth in the preceding sentence, you will forfeit any right to receive any Annual Bonus Amounts for any Applicable Payment Dates subsequent to the date of termination of your employment.

It is intended that the payments under this letter agreement satisfy the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and this letter agreement shall be interpreted and operated consistently with that intent. If you are a “specified employee” (within the meaning of Code Section 409A and the regulations thereunder and as determined by the Company in accordance with said Section 409A) at the time of your separation from service (as defined below), any payment under this letter agreement that is payable on account of such separation from service and not exempt under said Section 409A or the regulations thereunder shall be made no earlier than the date which is 6 months after the date of your separation from service (or, if earlier than the end of such 6-month period, the date of your death), and (ii) you shall be deemed to have terminated from employment for purposes of this letter agreement if and only if you have experienced a “separation from service” within the meaning of said Section 409A and the regulations thereunder. To the extent any payment under this letter agreement is subject to the 6-month delay, such payment shall be paid immediately after the end of such 6-month period (or the date of your death, if earlier).

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Nothing in this letter will confer on you any right to continuance of employment with the Company or interfere in any way with the right of the Company to terminate your employment at any time or for any reason.

If you have any questions, please call me.

Please acknowledge your acceptance of the terms of this bonus arrangement by signing below and returning one copy to the undersigned, whereupon this shall constitute a binding agreement between us.

Sincerely,

/s/ Richard A. Bachmann

Richard A. Bachmann

Chairman and

Chief Executive Officer

ACCEPTED AND AGREED

THIS 29^TH day of November 2007

/s/ Thomas DeBrock

Thomas DeBrock

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EXHIBIT A

DEFINITIONS

The following definitions shall apply for purposes of this letter agreement:

1. “Cause” means with respect to you (i) your conviction of a felony, (ii) dishonesty, (iii) your failure to perform your duties, (iv) insubordination, (v) theft, (vi) wrongful disclosure of confidential information, (vii) conflict of interest that is undisclosed and not approved by the Company’s Board of Directors, (viii) violation of written Company policies applicable to all employees, or (ix) engaging in any manner, directly or indirectly, in a business that competes with the business of the Company in any capacity that is undisclosed and not approved by the Company’s Board of Directors.

2. “Change of Control” means and shall be deemed to have occurred if:

(a) any person (within the meaning of the Securities Exchange Act of 1934, as amended from time to time), other than the Company or a Related Party, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended from time to time), directly or indirectly, of Voting Securities representing 25 percent or more of the total voting power of all the then-outstanding Voting Securities; or

(b) the individuals who, as of May 4, 2006, constitute the Board of Directors of the Company, together with those who first become directors subsequent to such date and whose recommendation, election or nomination for election to the Board of Directors of the Company was approved by a vote of at least a majority of the directors then still in office who either were directors as of May 4, 2006 or whose recommendation, election or nomination for election was previously so approved (the “Continuing Directors”), cease for any reason to constitute a majority of the members of the Board of Directors of the Company; or

(c) a merger, consolidation, recapitalization or reorganization of the Company or a Subsidiary, reverse split of any class of Voting Securities, or an acquisition of securities or assets by the Company or a Subsidiary is consummated, other than (I) any such transaction in which the holders of outstanding Voting Securities immediately prior to the transaction receive (or, in the case of a transaction involving a Subsidiary and not the Company, retain), with respect to such Voting Securities, voting securities of the surviving or transferee entity representing more than 50 percent of the total voting power outstanding immediately after such transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction, or (II) any such transaction which would result in a Related Party beneficially owning more than 50 percent of the voting securities of the surviving entity outstanding immediately after such transaction; or

(d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets other than any such transaction which would result in a

1

Related Party owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction.

For purposes of this definition of “Change of Control”:

(i) “Related Party” means (a) a majority-owned subsidiary of the Company; (b) an employee or group of employees of the Company or any majority-owned subsidiary of the Company; (c) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any majority-owned subsidiary of the Company; or (d) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of Voting Securities.

(ii) “Voting Securities” means any securities of the Company which carry the right to vote generally in the election of directors.

3. “Good Reason” for termination shall exist with respect to you if, without the your consent, any of the following events occur:

(i) a material reduction in the your base salary;

(ii) a material diminution in the your authority, duties or responsibilities; or

(iii) any requirement that you relocate to an office which is more than 35 miles in driving distance from the office at which the you are employed immediately prior to the Change of Control.

Notwithstanding the foregoing, if the Company ceases to be a public company, an event otherwise described in clause (ii) above shall not be deemed to have occurred merely because your authority, duties or responsibilities are changed in connection with the Company’s ceasing to be a public company, provided your authority, duties and responsibilities otherwise remain substantially the same as the authority, duties and responsibilities of a person with your position (determined before the change) within a comparably sized independent private energy company.

A termination of employment by you shall not be considered to be for Good Reason unless you provide written notice to the Company of the existence of the condition constituting Good Reason within ninety (90) days after the initial existence of such condition, and the Company fails to remedy the condition within 30 days after receiving such notice.

4. “Qualifying Termination” means the termination of your employment within two years following a Change of Control either by reason of an involuntary termination of employment by the Company without Cause or a voluntary termination of employment by you for Good Reason.

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EX-10.42

Exhibit 10.42

SENIOR MANAGEMENT SETTLEMENT AGREEMENT

This Senior Management Settlement Agreement (the “Settlement Agreement”) is entered into on this 30th day of June, 2009 (the “Signing Date”), between Energy Partners, Ltd. (the “Company”) and Thomas DeBrock (“Individual”) (collectively, the “Parties”).

RECITALS

WHEREAS, the Company and Individual have entered into various arrangements that provide the Individual with certain potential claims to receive cash payments and/or the settlement of equity compensation awards in exchange for Individual’s continuous employment with the Company;

WHEREAS, the Company is undergoing a significant restructuring that requires the Company to address its ability to fully perform its potential obligations under these arrangements;

WHEREAS, the Company’s promise to pay the settlement payment provided for within this Settlement Agreement is sufficient consideration for the exchange of Individual’s potential claims under the arrangements noted below;

WHEREAS, subject to the approval of the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”) in that certain case styled In re Energy Partners, Ltd., et al., case no. 09-32957 (jointly administered), the Company and Individual now desire to amend the Parties’ rights and obligations with regard to the compensation arrangements in exchange for new rights and obligations that will be governed solely by this Settlement Agreement; and

WHEREAS, each arrangement by and between the Company and Individual that shall be affected by this Settlement Agreement is specified below.

NOW, THEREFORE, in consideration of the mutual promises and benefits contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SETTLEMENT AGREEMENT

1. Effectiveness of Agreement. This Settlement Agreement shall become effective only upon the occurrence of the following two events: (a) Individual executes this Settlement Agreement within the specified time period noted below, and (b) the Court approves this Settlement Agreement (the “Approval Date”) (the date on which the later of the two individual events occur shall be referred to herein as the “Effective Date”). For Individual’s execution to become effective under this Section 1, Individual must execute and return this Settlement Agreement to the Company by the later of the following dates: (i) June 30, 2009, and (ii) the next business day immediately following the Approval Date.

2. Arrangements. As of the Effective Date, Individual is a party to, a participant in, and/or has an interest in connection with the following arrangements with or sponsored by the Company:

• Deferred compensation arrangement, evidenced by a letter to Individual dated November 29, 2007

• Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan Cash-Settled Restricted Share Unit Agreement

• Bonus for the 2008 calendar year

For purposes of this Settlement Agreement, the arrangements noted above in this Section 2 shall be collectively referred to as the “Arrangements.”

3. Exchange. Individual will waive, release, discharge, return, surrender or abandon, as appropriate, any and all potential claims to receive cash and/or other property arising in respect of, and will surrender to the Company all outstanding equity compensation awards granted pursuant to, the Arrangements (collectively, the “Obligations”), in exchange for an allowed general unsecured claim against the Company in the amount of $60,000 (the “Settlement Payment”). The Settlement Payment shall be paid to Individual in accordance with the terms of a chapter 11 plan of reorganization confirmed by the Court (the date on which such Settlement Payment is made, the “Settlement Payment Date”), provided that Individual is still employed by the Company on the Settlement Payment Date or, if Individual is not employed by the Company on the Settlement Payment Date, Individual’s termination of employment was due solely to a termination by the Company without Cause. For purposes of this Agreement, “Cause” shall mean that Individual: (i) has engaged in gross negligence, gross incompetence or willful misconduct in the performance of Individual’s duties with respect to the Company or any of its affiliates, (ii) has refused without proper legal reason to perform Individual’s duties and responsibilities to the Company or any of its affiliates faithfully and to the best of Individual’s abilities, (iii) has materially breached any material provision of a written agreement or corporate policy or code of conduct established by the Company or any of its affiliates, (iv) has willfully engaged in conduct that is materially injurious to the Company or any of its affiliates, (v) has failed to devote substantially all of Individual’s business time to the Company’s business affairs (excluding failures due to illness, incapacity, vacations, incidental civic activities, and incidental personal time), (vi) has disclosed without proper authorization confidential information of the Company or any of its affiliates that is injurious to any such entity, (vii) has failed to meet the performance objectives or standards established for Individual’s job position by Individual’s employer, (viii) has committed an act of theft, fraud, embezzlement, misappropriation or willful breach of a fiduciary duty to the Company or any of its affiliates, or (ix) has been convicted of (or pleaded no contest to) a crime involving fraud, dishonesty or moral turpitude or any felony (or a crime of similar import in a foreign jurisdiction).

4. Waiver, Release and Compromise. The Settlement Payment shall be conditioned upon the execution by Individual of a release agreement in favor of the Company in the form attached hereto as Appendix A (the “Release Agreement”) with such modifications as the Company may reasonably request. The Release Agreement must be executed and returned to the Company alongside this Settlement Agreement in accordance with the time limitations described in Section 1 of this Settlement Agreement.

5. Agreement. The Parties understand and agree that (a) the consideration for this Settlement Agreement is contractual and not a mere recital, (b) the Company’s promise to pay the Settlement Payment is sufficient consideration for the exchange of the Individual’s potential claims under the Arrangements, (c) each Party has had the opportunity to engage counsel to

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review this Settlement Agreement and advise such Party with respect hereto, (d) this Settlement Agreement and the agreements contained herein are binding upon, and inure to the benefit of, the Parties, their respective successors and assigns, and all persons claiming by or through such Parties, and (e) Individual’s sole right hereunder is to receive the Settlement Payment in exchange for the Release Agreement and, if Individual does not execute the Release Agreement, Individual shall have no right to receive the Settlement Payment. This Settlement Agreement shall be construed as if jointly drafted by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provision of this Settlement Agreement.

6. Complete Agreement. This Settlement Agreement and the Release Agreement contain the complete agreement of the Parties with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, representations and negotiations relating thereto. This Settlement Agreement may be modified only by written amendment executed by both Parties.

7. Severability. If any provision contained in this Settlement Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

8. No Admission of Liability. This Settlement Agreement is not an admission of any liability but is a compromise and neither this Settlement Agreement nor the payment or provision of the Settlement Payment shall be treated as an admission of liability. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Settlement Agreement, the negotiation thereof, and information exchanged between the Parties shall be governed and protected in accordance with Federal Rule of Evidence 408 to the fullest extent permitted by law.

9. Governing Law. This Settlement Agreement shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflict of laws.

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IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the day and year first above written.

ENERGY PARTNERS, LTD.
By:	/s/ Alan Bell
Name:	Alan Bell
Title:	Chief Restructuring Officer
INDIVIDUAL
/s/ Thomas DeBrock
Thomas DeBrock

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Appendix A

RELEASE AGREEMENT

This Release Agreement (this “Release”) is executed by Thomas DeBrock (the “Individual”) this 30th day of June, 2009 (the “Effective Date”). In consideration of the benefits to be derived from this Release, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, the Individual hereby agrees as follows:

1. Senior Management Settlement Agreement. This Release is executed by the Individual pursuant to the requirements of the Senior Management Settlement Agreement between the Individual and Energy Partners, Ltd. (the “Company”) executed as of the date hereof (the “Settlement Agreement”), as a condition to the receipt of any payments thereunder by Individual. Terms not otherwise defined in this Release shall have the respective meanings given to such terms within the Settlement Agreement.

2. Release and Waiver by Individual. For and in consideration of the covenants and promises contained herein and in the Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, Individual, on behalf of himself and his family, assigns, representatives, agents, heirs and/or attorneys, if any, hereby covenants not to sue and fully, finally and forever completely waives, releases and discharges the Company, along with each of its present and former parents, subsidiaries and/or affiliates, predecessors, successors and/or assigns, if any (collectively, the “Company Parties”), as well as each of the Company Parties’ respective past, present and future officers, directors, managers, members, shareholders, employees, agents, attorneys and representatives, if any, jointly and severally (collectively, with the Company Parties, the “Company Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Individual has or might claim to have against any of the Company Released Parties:

(a) for the Obligations;

(b) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, other than those relating to fraud, arising out of the Settlement Agreement, including, but not limited to, the return, surrender, or abandonment of Individual’s potential claims to receive cash, other property or the Individual’s equity compensation awards pursuant to such Settlement Agreement; and

(c) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, if any, whenever incurred or suffered by Individual arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur prior to the Effective Date (but excluding claims arising out of fraud), including, without limitation:

(i) any claim under state or Federal law that provides civil remedies for the enforcement of rights arising out of the employment relationship, including, without limitation, discrimination claims such as claims or causes of action under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq.; Civil Rights

A-1

Act of 1866, 42 U.S.C. § 1981; Civil Rights Act of 1991, 42 U.S.C. § 1981a; Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; Fair Labor Standards Act, 29 U.S.C. § 201, et seq.; Employee Retirement Income Security Act, 29 U.S.C. § 1000 et seq.; Family and Medical Leave Act, 29 U.S.C. § 2601, et seq.; Worker Adjustment Retraining and Notification Act, 29 U.S.C. § 2101, et seq.; Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., as amended by the Older Workers Benefit Protection Act of 1990, or any other Federal or state statute prohibiting discrimination in employment or granting rights to an individual arising out of an employment relationship; and

(ii) any claims for unpaid or withheld wages, bonuses, benefits, stock, stock options, or profit-sharing, wrongful discharge or termination, breach of contract, promissory estoppel, breach of any implied covenants (including any duty of good faith and fair dealing), negligence, negligent hiring, negligent supervision, negligent retention, defamation, invasion of privacy, slander, and intentional infliction of emotional distress.

3. Additional Covenants and Agreements.

(a) Individual hereby waives, releases and forever discharges each of the Company Released Parties from any claims that this Release was procured by fraud or signed under duress or coercion so as to make this Release not binding.

(b) Notwithstanding anything contained herein to the contrary, this Release shall not release or waive, or in any manner affect or void:

(i) Individual’s or the Company’s rights and obligations under the Settlement Agreement;

(ii) Individual’s (and if applicable, Individual’s dependents’) right, for so long as Individual is employed by any Company Released Party, to remain covered under any insurance policy sponsored, maintained or purchased by any Company Released Party (if and to the extent that Company Released Party is able to remain subscribed to such policy on and following the Effective Date of this Release) in which Individual (and if applicable, Individual’s dependents) participated as of the Effective Date of this Release;

(iii) Individual’s right to be indemnified by the Company for actions or claims against Individual resulting from his or her daily and ordinary employment duties, including, but not limited to, any claim with respect to which Individual would be entitled to indemnification by the Company under applicable corporate law, the certificate of incorporation or bylaws of the Company or, if applicable, those certain indemnity agreements by and between certain of the Company’s officers or directors and the Company in place as of March 1, 2009; or

(iv) Individual’s rights pursuant to the Energy Partners, Ltd. Change of Control Severance Plan originally effective March 24, 2005, as amended or the Energy Partners, Ltd. Employee Change of Control Severance Plan originally effective September 13, 2006, as amended.

4. Modification. This Release cannot be modified orally and can only be modified through a written document signed by both parties.

A-2

5. Severability. If any provision contained in this Release is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. Choice of Law. This Release shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflicts of law.

7. Entire Agreement. This Release and the Settlement Agreement constitute the entire understanding and agreement of the Company and Individual and supersede prior understandings and agreements, if any, among or between the Company and Individual, with respect to the subject matter of this Release, other than as specifically referenced herein. Other than the terms set forth in this Release and the Settlement Agreement, there are no representations, agreements, arrangements or understandings, oral or written, concerning the subject matter hereof between the Company and Individual that are not fully expressed or incorporated by reference in this Release. This Release does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Individual to the Company under any prior agreement.

8. Fully Understood. By executing this Release, Individual acknowledges and affirms that he or she has read and understood the foregoing, agreed to the terms, and acknowledges receipt of a copy of the same. Individual further acknowledges and agrees that after receiving a copy of this Release, (a) Individual has been advised and had an opportunity to consult an attorney before signing it, and (b) Individual enters into this Release knowingly, voluntarily and after any consultations with any attorney or other advisor as Individual deemed appropriate. Individual understands and agrees that by signing this Release he or she is giving up the right to pursue any legal claims that he or she may have against any Company Released Party.

IN WITNESS WHEREOF, Individual has executed this Release as of the day and year first above written.

INDIVIDUAL

/s/ Thomas DeBrock

Thomas DeBrock

A-3

EX-10.43

Exhibit 10.43

AMENDMENT TO

NONQUALIFIED STOCK OPTIONS

GRANTED TO PHILLIP A. GOBE

The Nonqualified Stock Options granted to Phillip A. Gobe under the Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan on December 6, 2004, March 17, 2005, July 22, 2005, March 16, 2006, March 23, 2006, August 3, 2006 and May 30, 2007 are hereby amended in the following respects:

1. Subparagraph (b) of Paragraph 7 is amended to read in its entirety as follows:

“(b) Death, Disability or Retirement

“If you die or become disabled (as defined below) while employed by the Company, the period during which this Option may vest will be extended through December 31^st of the year in which you die or become disabled. All shares that will not have vested under this Option on or before December 31^st of the year in which you die or become disabled shall be forfeited as of the date you die or become disabled. With respect to all shares vested under this Option on or before December 31^st of the year in which you die or become disabled, this Option may be exercised for a period of three (3) years from the date that you die or become disabled (but in no event beyond the Expiration Date). Any shares vested under this Option but not exercised on or before the earlier of the Expiration Date or the date that is three (3) years from the date of your death or disability are forfeited and this Option shall be null and void and without further effect.

“In the event of your death, your beneficiary(s) (as defined below) may exercise this Option.

“If you become disabled, this Option may be exercised by your legal representative.

“Except as hereafter provided in this subparagraph (b), if your employment with the Company terminates as a result of your retirement (as defined below), this Option shall continue to vest and become exercisable in accordance with the schedule set forth in Paragraph 3 of this Agreement and may be exercised (to the extent vested and exercisable at the applicable time) for a period of three (3) years beginning on the date of your retirement (but in no event beyond the Expiration Date). Any shares under this Option as to which this Option is not exercised on or before the earlier of the Expiration Date or the last day of the three (3)-year period beginning on the date of your retirement shall be forfeited and this Option shall be null and void and without further effect.

“If your employment with the Company terminates as a result of your retirement and you thereafter ‘change your retirement status’ (as defined below) prior to the Expiration Date, any shares under this Option as to which this Option has not been exercised shall be forfeited and this Option shall be null and void and without further effect. You will be considered to ‘change your retirement status’ for purposes of this Agreement if you commence full-time employment as an executive with a business enterprise engaged directly or through one or more subsidiaries in the oil and gas exploration and production business or commence service on the board of directors of such a business enterprise.”

2. The last sentence of subparagraph (c) of Paragraph 7 is amended to read in its entirety as follows:

“For purposes of this Option, ‘retirement’ means a termination of your employment that is described as a retirement by the Company in any press release issued by it or in any document filed by it with the Securities and Exchange Commission.”

ENERGY PARTNERS, LTD.
By:	/s/ Richard A. Bachmann	Date:	8-21-07
Attest:	/s/ John H. Peper
I HEREBY AGREE TO THIS AMENDMENT TO MY NONQUALIFIED STOCK OPTIONS
/s/ Phillip A. Gobe		Date:	8/21/07
Phillip A. Gobe

EX-10.44

Exhibit 10.44

AMENDMENT TO

RESTRICTED SHARE UNIT AGREEMENTS

GRANTED TO PHILLIP A. GOBE

The Restricted Share Unit Agreements providing for the grant of Restricted Share Units to Phillip A. Gobe on December 6, 2004, March 23, 2006 and August 3, 2006 under the Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan are hereby amended in the following respects:

1. Section 5 is hereby amended to read in its entirety as follows:

“5. Termination of Employment—In the event of the termination of your employment for any reason other than your retirement (as defined below) during the Restricted Period, all Restricted Share Units which have not vested pursuant to Section 4 above shall be forfeited and the Company may take any action necessary to effect such forfeiture without further notice to you. Except as hereafter provided in this Section 5, if your employment with the Company terminates as a result of your retirement (as defined below), your Restricted Share Units shall continue to vest in accordance with Section 4 above. However, if your employment with the Company terminates as a result of your retirement and you thereafter ‘change your retirement status’ prior to the date on which all Restricted Share Units have vested, any Restricted Share Units which have not vested pursuant to Section 4 above shall be forfeited and the Company may take any action necessary to effect such forfeiture without any further notice to you. For purposes of this Section 5, ‘retirement’ shall mean a termination of your employment that is described as a retirement by the Company in any press release issued by it or in any document filed by it with the Securities and Exchange Commission. For purposes of this Section 5, you will be considered to ‘change your retirement status’ if you commence full-time employment as an executive with a business enterprise engaged directly or through one or more subsidiaries in the oil and gas exploration and production business or commence service on the board of directors of such a business enterprise.”

2. Section 6 is hereby amended to read in its entirety as follows:

“6. Payment—If any Restricted Share Units vest pursuant to Section 4 above, certificate(s) evidencing the shares of Company Common Stock represented by those Restricted Share Units shall be delivered to you on the vesting date. Notwithstanding the foregoing, pursuant to Section 409A of the Internal Revenue Code of 1986, as amended, if you are a ‘specified employee’
(within the meaning of said Section 409A and the regulations thereunder) at the time of your retirement (as defined in Section 5 above), no payment may be made to you under this Agreement on account of your retirement earlier than the date which is 6 months after the date of your retirement (or, if earlier than the end of such 6-month period, the date of your death).”

ENERGY PARTNERS, LTD.
By:	/s/ Richard A. Bachmann	Date:	8-21-07
Attest:	/s/ John H. Peper

I HEREBY AGREE TO THIS AMENDMENT TO MY RESTRICTED SHARE UNIT AGREEMENTS

/s/ Phillip A. Gobe	Date:	8/21/07
Phillip A. Gobe

EX-10.45

Exhibit 10.45

AMENDMENT TO

CASH-SETTLED RESTRICTED SHARE UNIT AGREEMENT

GRANTED TO PHILLIP A. GOBE

The Cash-Settled Restricted Share Unit Agreement providing for the grant of Restricted Share Units to Phillip A. Gobe on May 30, 2007 under the Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan are hereby amended in the following respects:

1. Section 5 is hereby amended to read in its entirety as follows:

“5. Termination of Employment—In the event of the termination of your employment for any reason other than your retirement (as defined below) during the Restricted Period, all Restricted Share Units which have not vested pursuant to Section 4 above shall be forfeited and the Company may take any action necessary to effect such forfeiture without further notice to you. Except as hereafter provided in this Section 5, if your employment with the Company terminates as a result of your retirement (as defined below), your Restricted Share Units shall continue to vest in accordance with Section 4 above. However, if your employment with the Company terminates as a result of your retirement and you thereafter ‘change your retirement status’ prior to the date on which all Restricted Share Units have vested, any Restricted Share Units which have not vested pursuant to Section 4 above shall be forfeited and the Company may take any action necessary to effect such forfeiture without any further notice to you. For purposes of this Section 5, ‘retirement’ shall mean a termination of your employment that is described as a retirement by the Company in any press release issued by it or in any document filed by it with the Securities and Exchange Commission. For purposes of this Section 5, you will be considered to ‘change your retirement status’ if you commence full-time employment as an executive with a business enterprise engaged directly or through one or more subsidiaries in the oil and gas exploration and production business or commence service on the board of directors of such a business enterprise.”

2. Section 6 is hereby amended to read in its entirety as follows:

“6. Payment—If any Restricted Share Units vest pursuant to Section 4 above, certificate(s) evidencing the shares of Company Common Stock represented by those Restricted Share Units shall be delivered to you on the vesting date. Notwithstanding the foregoing, pursuant to Section 409A of the Internal Revenue Code of 1986, as amended, if you are a ‘specified employee’
(within the meaning of said Section 409A and the regulations thereunder) at the time of your retirement (as defined in Section 5 above), no payment may be made to you under this Agreement on account of your retirement earlier than the date which is 6 months after the date of your retirement (or, if earlier than the end of such 6-month period, the date of your death).”

ENERGY PARTNERS, LTD.
By:	/s/ Richard A. Bachmann	Date:	8-21-07
Attest:	/s/ John H. Peper

I HEREBY AGREE TO THIS AMENDMENT TO MY CASH-SETTLED RESTRICTED SHARE UNIT AGREEMENTS

/s/ Phillip A. Gobe	Date:	8/21/07
Phillip A. Gobe

EX-10.46

Exhibit 10.46

AMENDMENT TO

RESTRICTED SHARE UNIT AGREEMENTS

GRANTED TO PHILLIP A. GOBE

The Restricted Share Unit Agreements providing for the grant of Restricted Share Units to Phillip A. Gobe on March 23, 2006 and August 3, 2006 under the Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan are hereby amended in the following respects:

1. Section 5 is amended by adding the following sentence at the end thereof:

“Anything in the Plan or this Agreement to the contrary notwithstanding, you shall be deemed to have terminated employment for purposes of the Plan and this Agreement if and only if you have experienced a ‘separation from service’ within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.”

2. Section 6 is amended by adding the following sentence at the end thereof;

“To the extent any payment is subject to the 6-month delay, such payment shall be paid immediately after the end of such 6-month period (or the date of your death, if earlier).”

3. Exhibit A is amended to read in its entirety as follows:

“Exhibit A

“Change of Control” means a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.”

ENERGY PARTNERS, LTD.
By:	/s/ John H. Peper	Date: 11/13/08
	John Peper Executive Vice President
I HEREBY AGREE TO THIS AMENDMENT TO MY RESTRICTED SHARE UNIT AGREEMENTS

/s/ Phillip A. Gobe	Date: 11/19/08
Phillip A. Gobe

EX-10.47

Exhibit 10.47

AMENDMENT TO

CASH-SETTLED RESTRICTED SHARE UNIT AGREEMENT

GRANTED TO PHILLIP A. GOBE

The Cash-Settled Restricted Share Unit Agreement providing for the grant of cash-settled Restricted Share Units to Phillip A. Gobe on May 30, 2007 under the Energy Partners, Ltd. 2006 Long Term Stock Incentive Plan is hereby amended in the following respects:

1. Section 5 is amended by adding the following sentence at the end thereof:

“Anything in the Plan or this Agreement to the contrary notwithstanding, you shall be deemed to have terminated employment for purposes of the Plan and this Agreement if and only if you have experienced a ‘separation from service’ within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.”

2. Section 6 is amended by adding the following sentence at the end thereof;

“To the extent any payment is subject to the 6-month delay, such payment shall be paid immediately after the end of such 6-month period (or the date of your death, if earlier).”

3. Exhibit A is amended to read in its entirety as follows:

“Exhibit A

“Change of Control” means a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.”

ENERGY PARTNERS, LTD.
By:	/s/ John H. Peper	Date: 11/13/08
	John Peper Executive Vice President

I HEREBY AGREE TO THIS AMENDMENT TO MY CASH-SETTLED RESTRICTED SHARE UNIT AGREEMENTS

/s/ Phillip A. Gobe	Date: 11/19/08
Phillip A. Gobe

EX-10.48

Exhibit 10.48

RICHARD A. BACHMANN Chairman, and Chief Executive Officer Direct (504) 799-1944 Fax: (504) 799-1901 bachmann@eplweb.com

August 15, 2007

Joseph T. Leary

Dear Joe:

This letter serves to confirm the offer of employment to you for the position of Executive Vice President and Chief Financial Officer of Energy Partners, Ltd. (the “Company”). This offer is subject to the Company’s Board of Directors approving your appointment in these capacities.

The following represent the terms and conditions of this offer:

• Commencement date on August 20, 2007 (or such other date in close proximity thereto as shall be mutually agreed between us).

• A commencement of employment payment of $50,000.

• Starting base salary of $250,000 annually.

• Annual bonus target of 55% of base pay. In your first year of employment, you will be eligible for a prorated bonus amount, depending upon your date of hire.

• The grant on the commencement date of your employment of an option with a ten year term to purchase 100,000 shares of Common Stock of the Company that will vest in one-third increments on each of the first three anniversaries of the date of grant at an exercise price equal to the closing price of the Company’s Common Stock on the date of grant (a detailed Stock Option Agreement containing standard terms consistent with the foregoing will be provided shortly after your commencement of employment).

• The award on the commencement date of your employment of 30,000 Cash-Settled Restricted Share Units that will vest on the third anniversary of your date of employment (likewise, a Cash-Settled Restricted Share Unit Agreement containing standard terms consistent with the foregoing will be provided shortly after your commencement of employment).

• You will be eligible for twenty-five days of vacation annually, prorated for 2007.

• Terms of the moving and relocation assistance will be provided to you separately.

• Eligible for Change of Control Agreement, including a three (3) times multiple of base and annual bonus (details of the calculation will be provided in the Agreement).

In addition to your compensation, you will be entitled to participate in any plans sponsored by the Company, including medical, dental, disability and life insurance plans, subject in each instance to applicable conditions and waiting periods. The Company also sponsors a 401(k) plan in which you will be eligible to participate on the terms provided in the plan documents. A summary of the benefit plans and a copy of the 401(k) Summary Plan description are being provided to you separately.

The Company, as do most employers, expressly reserves the right to discontinue or amend the nature or amount of any of the compensation or benefit plans/programs/policies/practices that it offers. Also, your employment at the Company will be on an “at will” basis, meaning that you or the Company may terminate this employment relationship at any time, with or without reason.

If you have any questions, please call me. We are very pleased to make this offer to you and are looking forward to you joining our team.

Please acknowledge your acceptance of this offer by signing below and returning one copy to the undersigned, whereupon this shall constitute a binding agreement between us.

Sincerely,

/s/ Richard A. Bachmann

Richard A. Bachmann

Chairman and

Chief Executive Officer

ACCEPTED AND AGREED

this 16 day of August 2007.

/s/ J.T. Leary

Joseph Leary

ENERGY PARTNERS, LTD. • 201 ST. CHARLES AVENUE, SUITE 3400 • NEW ORLEANS, LA 70170 • (504) 569-1875

EX-10.49

Exhibit 10.49

RICHARD A. BACHMANN Chairman and Chief Executive Officer Direct (504)799-1944 Fax: (504)799-1901 bachmann@eplweb.com

June 11, 2007

Mr. Stephen Longon

1415 Soniat

New Orleans, LA 70115

Dear Steve:

This letter serves to confirm the offer of employment to you for the position of Senior Vice President, Drilling and Engineering with Energy Partners, Ltd. (the “Company”). This offer is subject to the Company’s Board of Directors approving your appointment as an Officer of the Company at its meeting on August 2, 2007.

The following represent the terms and conditions of this offer:

• Commencement date on July 9, 2007 (or such other date in close proximity thereto as shall be mutually agreed between us).

• An employment payment of $50,000 on the first payday after employment.

• Starting base salary of $224,000 annually.

• Annual bonus target of 50% of base pay.

• The grant on the commencement date of your employment of an option with a ten year term to purchase 10,000 shares of Common Stock of the Company that will vest in one-third increments on each of the first three anniversaries of the date of grant at an exercise price equal to the closing price of the Company’s Common Stock on the date of grant (a detailed Stock Option Agreement containing standard terms consistent with the foregoing will be provided shortly after your commencement of employment).

• The award on the commencement date of your employment of 10,000 Restricted Share Units that will vest on the third anniversary of your date of employment (likewise, a Restricted Share Unit Agreement containing standard terms consistent with the foregoing will be provided shortly after your commencement of employment).

• The award on the commencement date of your employment of 10,000 Cash-settled Restricted Share Units that will vest on the third anniversary of your date of employment (similarly, a Cash-settled Restricted Share Unit Agreement containing standard terms consistent with the foregoing will be provided shortly after your commencement of employment).

• A 2007 performance bonus of at least 25% of base salary.

• Eligible for Change in Control Plan.

• You will be eligible for twenty-five days of vacation annually, pro-rated for 2007.

In addition to your compensation, you will be entitled to participate in any plans sponsored by the Company, including medical, dental, disability and life insurance plans, subject in each instance to applicable conditions and waiting periods. The Company also sponsors a 401(k) plan in which you will be eligible to participate on the terms provided in the plan documents. A summary of the benefit plans and a copy of the 401(k) Summary Plan description are being provided to you separately.

The Company, as do most employers, expressly reserves the right to discontinue or amend the nature or amount of any of the compensation or benefit plans/programs/policies/practices that it offers. Also, your employment at the Company will be on an “at will” basis, meaning that you or the Company may terminate this employment relationship at any time, with or without reason.

If you have any questions, please call me. We are very pleased to make this offer to you and are looking forward to you joining our team.

Please acknowledge your acceptance of this offer by signing below and returning one copy to the undersigned, whereupon this shall constitute a binding agreement between us.

Sincerely,

/s/ Richard A. Bachmann

Richard A. Bachmann

Chairman and

Chief Executive Officer

ACCEPTED AND AGREED

this 11th day of June, 2007

/s/ Steve Lognon

Steve Longon

ENERGY PARTNERS, LTD.     ·     201 ST. CHARLES AVENUE, SUITE 3400     ·     NEW ORLEANS, LA 70170     ·     (504) 569-1875

EX-10.50

Exhibit 10.50

SETTLEMENT AGREEMENT

This Settlement Agreement (the “Settlement Agreement”) is entered into on this 23rd day of June, 2009 (the “Signing Date”), by and between Energy Partners, Ltd. (the “Company”) and Stephen D. Longon (“Individual”) (collectively, the “Parties”).

RECITALS

WHEREAS, the Company and Individual have entered into that certain Change of Control Severance Agreement originally effective July 14, 2008 and amended by the First Amendment thereto (as amended, the “Severance Agreement”);

WHEREAS, the Company is undergoing a significant restructuring that requires the Company to address its ability to fully perform its potential obligations under the Severance Agreement;

WHEREAS, the Company’s promise to pay the settlement payment provided for within this Settlement Agreement is sufficient consideration for the exchange of Individual’s potential claims noted below; and

WHEREAS, subject to the approval of the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”) in that certain case styled In re Energy Partners, Ltd., et al., case no. 09-32957 (jointly administered), the Company and Individual now desire to amend the Parties’ rights and obligations with regard to the Severance Agreement in exchange for new rights and obligations that will be governed solely by this Settlement Agreement.

NOW, THEREFORE, in consideration of the mutual promises and benefits contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SETTLEMENT AGREEMENT

1. Effectiveness of Agreement. This Settlement Agreement shall become effective only upon the occurrence of the following two events: (a) the Court approves this Settlement Agreement, and (b) the effective date occurs for a plan of reorganization for the Company that is confirmed by the Court (the “Plan of Reorganization”) and that, as of the effective date of the Plan of Reorganization, rejects the Severance Agreement pursuant to the terms of 11 U.S.C. § 365(a) (the two events collectively referred to herein as the “Approval Events” and the date on which the later of the two individual Approval Events occur shall be referred to herein as the “Effective Date”).

(a) Exchange. Individual hereby waives and releases all potential claims to receive cash severance payments and all other benefits (including, but not limited to, continued medical benefits or the accelerated vesting of equity compensation awards) provided under the Severance Agreement (the “Obligations”) in exchange for an allowed general unsecured claim against the Company in the amount of $340,000, which is an amount equal to one full year of Individual’s annual base salary as in effect on April 13, 2009 (the “Settlement Payment”). The Settlement Payment shall be paid to Individual in accordance with the terms of the Plan of Reorganization (the date on which such Settlement Payment is made, the “Settlement Payment

Date”), provided that Individual is still employed by the Company on the Settlement Payment Date or if Individual is not employed by the Company on the Settlement Payment Date, Individual’s termination of employment was due solely to a termination by the Company without Cause. For purposes of this Agreement, “Cause” shall mean, on the part of Individual: (i) conviction of a felony; (ii) dishonesty; (iii) failure to perform his duties; (iv) insubordination; (v) theft; (vi) wrongful disclosure of confidential information; (vii) conflict of interest that is undisclosed and not approved by the Company’s board of directors; (viii) violation of a written Company policy applicable to all employees generally; or (ix) engaging in any manner, directly or indirectly, in a business that competes with the business of the Company in any capacity that is undisclosed and not approved by the Company’s board of directors.

2. Waiver, Release and Compromise. The Settlement Payment provided pursuant to this Settlement Agreement shall be conditioned upon the execution by Individual of a release agreement in favor of the Company in the form attached hereto as Appendix A (the “Release Agreement”) with such modifications as the Company may reasonably request.

3. Agreement. The Parties understand and agree that (a) the consideration for this Settlement Agreement is contractual and not a mere recital, (b) the Company’s promise to pay the Settlement Payment is sufficient consideration for the exchange of Individual’s potential claims under the Severance Agreement, (c) each Party has had the opportunity to engage counsel to review this Settlement Agreement and advise such Party with respect hereto, (d) this Settlement Agreement and the agreements contained herein are binding upon, and inure to the benefit of, the Parties, their respective successors and assigns, and all persons claiming by or through such Parties and (e) Individual’s sole right hereunder is to receive the Settlement Payment in exchange for the Release Agreement and, if Individual does not execute the Release Agreement, Individual shall have no right to receive the Settlement Payment. This Settlement Agreement shall be construed as if jointly drafted by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provision of this Settlement Agreement.

4. Complete Agreement. This Settlement Agreement and the Release Agreement contain the complete agreement of the Parties with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, representations and negotiations relating thereto. This Settlement Agreement may be modified only by written amendment executed by both Parties.

5. Severability. If any provision contained in this Settlement Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. No Admission of Liability. This Settlement Agreement is not an admission of any liability but is a compromise, and neither this Settlement Agreement nor the payment or provision of the Settlement Payment shall be treated as an admission of liability. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Settlement Agreement, the negotiation thereof, and information exchanged between the Parties shall be governed and protected in accordance with the Federal Rule of Evidence 408 to the fullest extent permitted by law.

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7. Governing Law. This Settlement Agreement shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflict of laws.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the day and year first above written.

ENERGY PARTNERS, LTD.
By:	/s/ Alan Bell
Name:	Alan Bell
Title:	Chief Restructuring Officer

INDIVIDUAL

/s/ Stephen D. Longon

Stephen D. Longon

4

Appendix A

RELEASE AGREEMENT

This Release Agreement (this “Release”) is executed by Stephen D. Longon (“Individual”) this 23rd day of June, 2009 (the “Effective Date”). In consideration of the benefits to be derived from this Release, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, the Individual hereby agrees as follows:

1. Settlement Agreement. This Release is executed by the Individual pursuant to the requirements of the Settlement Agreement between Individual and Energy Partners, Ltd. (the “Company”) dated as of the date hereof and effective on the date described therein (the “Settlement Agreement”), as a condition to the receipt of any payments thereunder by Individual. Terms not otherwise defined in this Release shall have the respective meanings given to such terms within the Settlement Agreement.

2. Release and Waiver by Individual. For and in consideration of the covenants and promises contained herein and in the Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, Individual, on behalf of himself and his family, assigns, representatives, agents, heirs and/or attorneys, if any, hereby covenants not to sue and fully, finally and forever completely waives, releases and discharges the Company, along with each of its present and former parents, subsidiaries and/or affiliates, predecessors, successors and/or assigns, if any (collectively, the “Company Parties”), as well as each of the Company Parties’ respective past, present and future officers, directors, managers, members, shareholders, employees, agents, attorneys and representatives, if any, jointly and severally (collectively, with the Company Parties, “Company Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Individual has or might claim to have against any of the Company Released Parties:

(a) for the Obligations;

(b) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and or liabilities or other detriments, other than those relating to fraud, arising out of the Settlement Agreement, including, but not limited to, the return, surrender, or abandonment of Individual’s potential claims to receive cash, other property or the Individual’s equity compensation awards pursuant to such Settlement Agreement; and

(c) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, if any, whenever incurred or suffered by Individual arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur prior to the Effective Date (but excluding claims arising out of fraud), including, without limitation:

(i) any claim under state or Federal law that provides civil remedies for the enforcement of rights arising out of the employment relationship, including, without limitation, discrimination claims such as claims or causes of action under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq.; Civil Rights

A-1

Act of 1866, 42 U.S.C. § 1981; Civil Rights Act of 1991, 42 U.S.C. § 1981a; Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; Fair Labor Standards Act, 29 U.S.C. § 201, et seq.; Employee Retirement Income Security Act, 29 U.S.C. § 1000 et seq.; Family and Medical Leave Act, 29 U.S.C. § 2601, et seq.; Worker Adjustment Retraining and Notification Act, 29 U.S.C. § 2101, et seq.; Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., as amended by the Older Workers Benefit Protection Act of 1990, or any other Federal or state statute prohibiting discrimination in employment or granting rights to an individual arising out of an employment relationship; and

(ii) any claims for unpaid or withheld wages, bonuses, benefits, stock, stock options, profit-sharing, wrongful discharge or termination, breach of contract, promissory estoppel, breach of any implied covenants (including any duty of good faith and fair dealing), negligence, negligent hiring, negligent supervision, negligent retention, defamation, invasion of privacy, slander, and intentional infliction of emotional distress.

3. Additional Covenants and Agreements.

(a) Individual hereby waives, releases and forever discharges each of the Company Released Parties from any claims that this Release was procured by fraud or signed under duress or coercion so as to make this Release not binding.

(b) Notwithstanding anything contained herein to the contrary, this Release shall not release or waive, or in any manner affect or void:

(i) Individual’s or the Company’s rights and obligations under the Settlement Agreement;

(ii) Individual’s (and, if applicable, Individual’s dependents’) right, for so long as Individual is employed by any Company Released Party, to remain covered under any insurance policy sponsored, maintained or purchased by any Company Released Party (if and to the extent that Company Released Party is able to remain subscribed to such policy on and following the Effective Date of this Release) in which Individual (and if applicable, Individual’s dependents) participated as of the Effective Date of this Release;

(iii) Individual’s right to be indemnified by the Company for actions or claims against Individual resulting from his or her daily and ordinary employment duties, including, but not limited to, any claim with respect to which Individual would be entitled to indemnification by the Company under applicable corporate law, the certificate of incorporation or bylaws of the Company or if applicable, those certain indemnity agreements by and between certain of the Company’s officers or directors and the Company in place as of March 1, 2009; or

(iv) Individual’s rights pursuant to the Energy Partners, Ltd. Change of Control Severance Plan originally effective March 24, 2005, as amended, or the Energy Partners, Ltd. Employee Change of Control Severance Plan originally effective September 13, 2006, as amended.

4. Modification. This Release cannot be modified orally and can only be modified through a written document signed by both parties.

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5. Severability. If any provision contained in this Release is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. Choice of Law. This Release shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflicts of law.

7. Entire Agreement. This Release and the Settlement Agreement constitute the entire understanding and agreement of the Company and Individual and supersede prior understandings and agreements, if any, among or between the Company and Individual, with respect to the subject matter of this Release, other than as specifically referenced herein. Other than the terms set forth in this Release and the Settlement Agreement, there are no representations, agreements, arrangements or understandings, oral or written, concerning the subject matter hereof between the Company and Individual that are not fully expressed or incorporated by reference in this Release. This Release does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Individual to the Company under any prior agreement.

8. Fully Understood. By executing this Release, Individual acknowledges and affirms that he has read and understood the foregoing, agreed to the terms, and acknowledges receipt of a copy of the same. Individual further acknowledges and agrees that after receiving a copy of this Release, (a) Individual has been advised and had an opportunity to consult an attorney before signing it, and (b) Individual enters into this Release knowingly, voluntarily and after any consultations with any attorney or other advisor as Individual deemed appropriate. Individual understands and agrees that by signing this Release he is giving up the right to pursue any legal claims that he may have against any Company Released Party.

IN WITNESS WHEREOF, Individual has executed this Release as of the day and year first above written.

INDIVIDUAL

/s/ Stephen D. Longon

Stephen D. Longon

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EX-10.51

Exhibit 10.51

SETTLEMENT AGREEMENT

This Settlement Agreement (the “Settlement Agreement”) is entered into on this 23rd day of June, 2009 (the “Signing Date”), by and between Energy Partners, Ltd. (the “Company”) and John H. Peper (“Individual”) (collectively, the “Parties”).

RECITALS

WHEREAS, the Company and Individual have entered into that certain Change of Control Severance Agreement originally effective March 28, 2005 and amended by the First, Second and Third Amendments thereto (as amended, the “Severance Agreement”);

WHEREAS, the Company is undergoing a significant restructuring that requires the Company to address its ability to fully perform its potential obligations under the Severance Agreement;

WHEREAS, the Company’s promise to pay the settlement payment provided for within this Settlement Agreement is sufficient consideration for the exchange of Individual’s potential claims noted below; and

WHEREAS, subject to the approval of the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”) in that certain case styled In re Energy Partners, Ltd., et al., case no. 09-32957 (jointly administered), the Company and Individual now desire to amend the Parties’ rights and obligations with regard to the Severance Agreement in exchange for new rights and obligations that will be governed solely by this Settlement Agreement.

NOW, THEREFORE, in consideration of the mutual promises and benefits contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SETTLEMENT AGREEMENT

1. Effectiveness of Agreement. This Settlement Agreement shall become effective only upon the occurrence of the following two events: (a) the Court approves this Settlement Agreement, and (b) the effective date occurs for a plan of reorganization for the Company that is confirmed by the Court (the “Plan of Reorganization”) and that, as of the effective date of the Plan of Reorganization, rejects the Severance Agreement pursuant to the terms of 11 U.S.C. § 365(a) (the two events collectively referred to herein as the “Approval Events” and the date on which the later of the two individual Approval Events occur shall be referred to herein as the “Effective Date”).

(a) Exchange. Individual hereby waives and releases all potential claims to receive cash severance payments and all other benefits (including, but not limited to, continued medical benefits or the accelerated vesting of equity compensation awards) provided under the Severance Agreement (the “Obligations”) in exchange for an allowed general unsecured claim against the Company in the amount of $275,000, which is an amount equal to one full year of Individual’s annual base salary as in effect on April 13, 2009 (the “Settlement Payment”). The Settlement Payment shall be paid to Individual in accordance with the terms of the Plan of Reorganization (the date on which such Settlement Payment is made, the “Settlement Payment

Date”), provided that Individual is still employed by the Company on the Settlement Payment Date or if Individual is not employed by the Company on the Settlement Payment Date, Individual’s termination of employment was due solely to a termination by the Company without Cause. For purposes of this Agreement, “Cause” shall mean, on the part of Individual: (i) conviction of a felony; (ii) dishonesty; (iii) failure to perform his duties; (iv) insubordination; (v) theft; (vi) wrongful disclosure of confidential information; (vii) conflict of interest that is undisclosed and not approved by the Company’s board of directors; (viii) violation of a written Company policy applicable to all employees generally; or (ix) engaging in any manner, directly or indirectly, in a business that competes with the business of the Company in any capacity that is undisclosed and not approved by the Company’s board of directors.

2. Waiver, Release and Compromise. The Settlement Payment provided pursuant to this Settlement Agreement shall be conditioned upon the execution by Individual of a release agreement in favor of the Company in the form attached hereto as Appendix A (the “Release Agreement”) with such modifications as the Company may reasonably request.

3. Agreement. The Parties understand and agree that (a) the consideration for this Settlement Agreement is contractual and not a mere recital, (b) the Company’s promise to pay the Settlement Payment is sufficient consideration for the exchange of Individual’s potential claims under the Severance Agreement, (c) each Party has had the opportunity to engage counsel to review this Settlement Agreement and advise such Party with respect hereto, (d) this Settlement Agreement and the agreements contained herein are binding upon, and inure to the benefit of, the Parties, their respective successors and assigns, and all persons claiming by or through such Parties and (e) Individual’s sole right hereunder is to receive the Settlement Payment in exchange for the Release Agreement and, if Individual does not execute the Release Agreement, Individual shall have no right to receive the Settlement Payment. This Settlement Agreement shall be construed as if jointly drafted by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provision of this Settlement Agreement.

4. Complete Agreement. This Settlement Agreement and the Release Agreement contain the complete agreement of the Parties with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, representations and negotiations relating thereto. This Settlement Agreement may be modified only by written amendment executed by both Parties.

5. Severability. If any provision contained in this Settlement Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. No Admission of Liability. This Settlement Agreement is not an admission of any liability but is a compromise, and neither this Settlement Agreement nor the payment or provision of the Settlement Payment shall be treated as an admission of liability. All communications (whether oral or in writing) between and/or among the Parties, their counsel and/or their respective representatives relating to, concerning or in connection with this Settlement Agreement, the negotiation thereof, and information exchanged between the Parties shall be governed and protected in accordance with Federal Rule of Evidence 408 to the fullest extent permitted by law.

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7. Governing Law. This Settlement Agreement shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflict of laws.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the day and year first above written.

ENERGY PARTNERS, LTD.
By:	/s/ Alan Bell
Name:	Alan Bell
Title:	Chief Restructuring Officer
INDIVIDUAL
/s/ John H. Peper
John H. Peper

4

Appendix A

RELEASE AGREEMENT

This Release Agreement (this “Release”) is executed by John H. Peper (“Individual”) this 23rd day of June, 2009 (the “Effective Date”). In consideration of the benefits to be derived from this Release, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, Individual hereby agrees as follows:

1. Settlement Agreement. This Release is executed by Individual pursuant to the requirements of the Settlement Agreement between the Individual and Energy Partners, Ltd. (the “Company”) dated as of the date hereof and effective on the date described therein (the “Settlement Agreement”), as a condition to the receipt of any payments thereunder by Individual. Terms not otherwise defined in this Release shall have the respective meanings given to such terms within the Settlement Agreement.

2. Release and Waiver by Individual. For and in consideration of the covenants and promises contained herein and in the Settlement Agreement, the receipt and sufficiency of which are hereby acknowledged, Individual, on behalf of himself and his family, assigns, representatives, agents, heirs and/or attorneys, if any, hereby covenants not to sue and fully, finally and forever completely waives, releases and discharges the Company, along with each of its present and former parents, subsidiaries and/or affiliates, predecessors, successors and/or assigns, if any (collectively, the “Company Parties”), as well as each of the Company Parties’ respective past, present and future officers, directors, managers, members, shareholders, employees, agents, attorneys and representatives, if any, jointly and severally (collectively, with the Company Parties, the “Company Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Individual has or might claim to have against any of the Company Released Parties:

(a) for the Obligations;

(b) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, other than those relating to fraud, arising out of the Settlement Agreement, including, but not limited to, the return, surrender, or abandonment of Individual’s potential claims to receive cash, other property or the Individual’s equity compensation awards pursuant to such Settlement Agreement; and

(c) for any and all injuries, harms, damages (whether actual or punitive), costs, losses, expenses, attorneys’ fees and/or liabilities or other detriments, if any, whenever incurred or suffered by Individual arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur prior to the Effective Date (but excluding claims arising out of fraud), including, without limitation:

(i) any claim under state or Federal law that provides civil remedies for the enforcement of rights arising out of the employment relationship, including, without limitation, discrimination claims such as claims or causes of action under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq.; Civil Rights

A-1

Act of 1866, 42 U.S.C. § 1981; Civil Rights Act of 1991, 42 U.S.C. § 1981a; Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; Fair Labor Standards Act, 29 U.S.C. § 201, et seq.; Employee Retirement Income Security Act, 29 U.S.C. § 1000 et seq.; Family and Medical Leave Act, 29 U.S.C. § 2601, et seq.; Worker Adjustment Retraining and Notification Act, 29 U.S.C. § 2101, et seq.; Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq., as amended by the Older Workers Benefit Protection Act of 1990, or any other Federal or state statute prohibiting discrimination in employment or granting rights to an individual arising out of an employment relationship; and

(ii) any claims for unpaid or withheld wages, bonuses, benefits, stock, stock options, profit-sharing, wrongful discharge or termination, breach of contract, promissory estoppel, breach of any implied covenants (including any duty of good faith and fair dealing), negligence, negligent hiring, negligent supervision, negligent retention, defamation, invasion of privacy, slander, and intentional infliction of emotional distress.

3. Additional Covenants and Agreements.

(a) Individual hereby waives, releases and forever discharges each of the Company Released Parties from any claims that this Release was procured by fraud or signed under duress or coercion so as to make this Release not binding.

(b) Notwithstanding anything contained herein to the contrary, this Release shall not release or waive, or in any manner affect or void:

(i) Individual’s or the Company’s rights and obligations under the Settlement Agreement;

(ii) Individual’s (and, if applicable, Individual’s dependents’) right, for so long as Individual is employed by any Company Released Party, to remain covered under any insurance policy sponsored, maintained or purchased by any Company Released Party (if and to the extent that Company Released Party is able to remain subscribed to such policy on and following the Effective Date of this Release) in which Individual (and if applicable, Individual’s dependents) participated as of the Effective Date of this Release;

(iii) Individual’s right to be indemnified by the Company for actions or claims against Individual resulting from his daily and ordinary employment duties, including, but not limited to, any claim with respect to which Individual would be entitled to indemnification by the Company under applicable corporate law, the certificate of incorporation or bylaws of the Company or if applicable, those certain indemnity agreements by and between certain of the Company’s officers or directors and the Company in place as of March 1, 2009; or

(iv) Individual’s rights pursuant to the Energy Partners, Ltd. Change of Control Severance Plan originally effective March 24, 2005, as amended, or the Energy Partners, Ltd. Employee Change of Control Severance Plan originally effective September 13, 2006, as amended.

4. Modification. This Release cannot be modified orally and can only be modified through a written document signed by both parties.

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5. Severability. If any provision contained in this Release is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6. Choice of Law. This Release shall be interpreted under and governed by, construed and enforced in accordance with, and subject to, the laws of the State of Delaware, without giving effect to any principles of conflicts of law.

7. Entire Agreement. This Release and the Settlement Agreement constitute the entire understanding and agreement of the Company and Individual and supersede prior understandings and agreements, if any, among or between the Company and Individual, with respect to the subject matter of this Release, other than as specifically referenced herein. Other than the terms set forth in this Release and the Settlement Agreement, there are no representations, agreements, arrangements or understandings, oral or written, concerning the subject matter hereof between the Company and Individual that are not fully expressed or incorporated by reference in this Release. This Release does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Individual to the Company under any prior agreement.

8. Fully Understood. By executing this Release, Individual acknowledges and affirms that he has read and understood the foregoing, agreed to the terms, and acknowledges receipt of a copy of the same. Individual further acknowledges and agrees that after receiving a copy of this Release, (a) Individual has been advised and had an opportunity to consult an attorney before signing it, and (b) Individual enters into this Release knowingly, voluntarily and after any consultations with any attorney or other advisor as Individual deemed appropriate. Individual understands and agrees that by signing this Release he is giving up the right to pursue any legal claims that he may have against any Company Released Party.

IN WITNESS WHEREOF, Individual has executed this Release as of the day and year first above written.

INDIVIDUAL

/s/ John H. Peper

John H. Peper

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EX-21.1

Exhibit 21.1

SUBSIDIARIES OF ENERGY PARTNERS, LTD.

(AS OF DECEMBER 31, 2008)

SUBSIDIARY	STATE OR JURISDICTION OF INCORPORATION OR ORGANIZATION
EPL Pipeline, L.L.C.	Delaware
Nighthawk, L.L.C.	Louisiana
EPL of Louisiana, L.L.C.	Louisiana
Delaware EPL of Texas, LLC	Delaware
EPL Pioneer Houston, Inc.	Texas
EPL Nicaragua, Ltd.	Cayman Islands
EPL International, Ltd.	Cayman Islands

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Energy Partners, Ltd.:

We consent to the incorporation by reference in the registration statements (No. 333-133931, No. 333-124846, No. 333-89004, and No. 333-55940) on Form S-8 of Energy Partners, Ltd. and subsidiaries of our reports dated August 3, 2009, with respect to the consolidated balance sheets of Energy Partners, Ltd. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of Energy Partners, Ltd. and subsidiaries.

Our report dated August 3, 2009 contains an explanatory paragraph that states that the Company filed voluntary petitions on May 1, 2009 for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended, in the United States Bankruptcy Court that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements and financial statement schedules do not include any adjustments that might result from the outcome of that uncertainty.

/s/ KPMG LLP

New Orleans, Louisiana

August 3, 2009

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the references to our firm and to the use of our reports effective December 31, 2006; December 31, 2007; and December 31, 2008 in the Energy Partners, Ltd. Annual Report on Form 10-K for the year ended December 31, 2008, to be filed with the Securities and Exchange Commission on or about August 3, 2009.

NETHERLAND, SEWELL & ASSOCIATES, INC.

By:	/s/ C.H. Scott Rees
	C.H. (Scott) Rees III, P.E. Chairman and Chief Executive Officer

Dallas, Texas

August 3, 2009

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the references to our firm and to the use of or reference to our report effective December 31, 2008 in the Energy Partners, Ltd. Annual Report on Form 10-K for the year ended December 31, 2008.

/s/ RYDER SCOTT COMPANY, L.P.

Houston, Texas

August 3, 2009

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer of Energy Partners, Ltd.

Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

I, Alan D. Bell, certify that:

1. I have reviewed this Annual Report on Form 10-K of Energy Partners, Ltd.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Alan D. Bell

Chief Restructuring Officer

(Principal Executive Officer)

Dated: August 4, 2009

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer of Energy Partners, Ltd.

Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

I, Tiffany J. Thom, certify that:

1. I have reviewed this Annual Report on Form 10-K of Energy Partners, Ltd.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Tiffany J. Thom

Vice President, Treasurer and Investor Relations

(Principal Financial Officer)

Dated: August 4, 2009

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer

Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

The undersigned hereby certifies, in his capacity as the Principal Executive Officer of Energy Partners, Ltd. (the “Company”), that the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

/s/ Alan D. Bell                        

Chief Restructuring Officer

(Principal Executive Officer)

Dated: August 4, 2009

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer

Under Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

The undersigned hereby certifies, in her capacity as the Principal Financial Officer of Energy Partners, Ltd. (the “Company”), that the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

/s/ Tiffany J. Thom                

Vice President, Treasurer and Investor Relations

(Principal Financial Officer)

Dated: August 4, 2009