10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended March 31, 2004
or
o	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: 1-12534

Newfield Exploration Company

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 72-1133047
(I.R.S. Employer
Identification Number)

363 North Sam Houston Parkway East

Suite 2020

Houston, Texas 77060

(Address and Zip Code of principal executive offices)

(281) 847-6000

(Registrant’s telephone number, including area code)

     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 twelve 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 þ          No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      As of April 27, 2004, there were 56,384,783 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

Credit Agreement

Newfield Exploration Company Stock Plan

Certification of CEO pursuant to Section 302

Certification of CFO pursuant to Section 302

Certification of CEO pursuant to Section 906

Certification of CFO pursuant to Section 906

TABLE OF CONTENTS

		Page
PART I
Item 1.	Unaudited Financial Statements:
	Consolidated Balance Sheet as of March 31, 2004 and December 31, 2003		1
	Consolidated Statement of Income for the three months ended March 31, 2004 and 2003		2
	Consolidated Statement of Cash Flows for the three months ended March 31, 2004 and 2003		3
	Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2004		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		27
PART II
Item 6.	Exhibits and Reports on Form 8-K		28

PART I

Item 1. Unaudited Financial Statements:

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED BALANCE SHEET

			March 31,			December 31,
			2004			2003
			(In thousands, except
			share data)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	16,933		$	15,347
	Accounts receivable — oil and gas			168,733			134,774
	Inventories			784			553
	Derivative assets			5,889			13,786
	Deferred taxes			28,749			12,893
	Other current assets			33,858			61,563
		Total current assets		254,946			238,916
Oil and gas properties (full cost method, of which $369,703 at March 31, 2004 and $331,114 at December 31, 2003 were excluded from amortization)				4,230,462			4,078,115
Less — accumulated depreciation, depletion and amortization				(1,762,782	)		(1,659,615	)
				2,467,680			2,418,500
Floating production system and pipelines				35,000			35,000
Furniture, fixtures and equipment, net				5,489			5,875
Derivative assets				4,154			2,223
Other assets				17,948			16,197
Goodwill				16,378			16,378
		Total assets	$	2,801,595		$	2,733,089
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	26,101		$	30,556
	Accrued liabilities			221,895			204,054
	Advances from joint owners			16,884			5,922
	Secured notes payable			—			2,895
	Asset retirement obligation			11,484			12,095
	Derivative liabilities			81,559			44,696
		Total current liabilities		357,923			300,218
Derivative liabilities				13,582			13,244
Long-term debt				575,988			643,459
Asset retirement obligation				153,839			151,548
Deferred taxes				258,580			242,839
Other liabilities				13,154			13,203
		Total long-term liabilities		1,015,143			1,064,293
Commitments and contingencies				—			—
Stockholders’ equity:
	Preferred stock ($0.01 par value; 5,000,000 shares authorized; no shares issued)			—			—
	Common stock ($0.01 par value; 100,000,000 shares authorized; 57,278,787 and 57,141,807 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively)			573			571
Additional paid-in capital				800,598			796,256
Treasury stock (at cost; 893,972 and 886,247 shares at March 31, 2004 and December 31, 2003, respectively)				(27,050	)		(26,679	)
Unearned compensation				(10,506	)		(10,912	)
Accumulated other comprehensive income (loss):
	Foreign currency translation adjustment			1,116			851
	Commodity derivatives			(49,029	)		(26,428	)
	Minimum pension liability			(833	)		(833	)
Retained earnings				713,660			635,752
		Total stockholders’ equity		1,428,529			1,368,578
		Total liabilities and stockholders’ equity	$	2,801,595		$	2,733,089

The accompanying notes to consolidated financial statements are an integral part of this statement.

1

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF INCOME

			Three Months Ended
			March 31,
			2004			2003
			(In thousands, except
			share and
			per share data)
			(Unaudited)
Oil and gas revenues			$	305,355		$	267,891
Operating expenses:
	Lease operating			29,865			27,807
	Production and other taxes			8,359			10,207
	Transportation			1,440			1,563
	Depreciation, depletion and amortization			105,905			93,318
	General and administrative (includes non-cash stock compensation of $991 and $679 for the three months ended March 31, 2004 and 2003, respectively)			18,560			17,006
	Gas sales obligation settlement			—			9,998
		Total operating expenses		164,129			159,899
Income from operations				141,226			107,992
Other income (expenses):
	Interest expense			(12,532	)		(16,686	)
	Capitalized interest			3,935			3,819
	Dividends on convertible preferred securities of Newfield Financial Trust I			—			(2,336	)
	Commodity derivative expense			(12,241	)		(1,217	)
	Other			660			520
				(20,178	)		(15,900	)
Income from continuing operations before income taxes				121,048			92,092
Income tax provision:
	Current			30,581			22,856
	Deferred			12,559			9,890
				43,140			32,746
Income from continuing operations				77,908			59,346
Loss from discontinued operations, net of tax				—			(780	)
Income before cumulative effect of change in accounting principle				77,908			58,566
Cumulative effect of change in accounting principle, net of tax:
	Adoption of SFAS No. 143			—			5,575
		Net income	$	77,908		$	64,141
Earnings per share:
Basic —
	Income from continuing operations		$	1.39		$	1.14
	Loss from discontinued operations			—			(0.01	)
	Cumulative effect of change in accounting principle, net of tax			—			0.11
		Net income	$	1.39		$	1.24
Diluted —
	Income from continuing operations		$	1.38		$	1.08
	Loss from discontinued operations			—			(0.01	)
	Cumulative effect of change in accounting principle, net of tax			—			0.10
		Net income	$	1.38		$	1.17
Weighted average number of shares outstanding for basic earnings per share				55,921			51,886
Weighted average number of shares outstanding for diluted earnings per share				56,633			56,208

The accompanying notes to consolidated financial statements are an integral part of this statement.

2

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

					Three Months Ended
					March 31,
					2004			2003
					(In thousands)
					(Unaudited)
Cash flows from operating activities:
	Net income				$	77,908		$	64,141
Adjustments to reconcile net income to net cash provided by continuing operating activities:
	Loss from discontinued operations, net of tax					—			780
	Depreciation, depletion and amortization					105,905			93,318
	Gas sales obligation settlement					—			9,998
	Stock compensation					991			679
	Commodity derivative expense					10,762			1,217
	Deferred taxes					12,559			9,890
	Cumulative effect of change in accounting principle					—			(5,575	)
	Changes in operating assets and liabilities:
		Increase in accounts receivable — oil and gas				(33,956	)		(75,248	)
		Increase in inventories				(230	)		(14	)
		(Increase) decrease in other current assets				27,505			(7,466	)
		Increase in other assets				(1,750	)		(1,566	)
		Increase (decrease) in accounts payable and accrued liabilities				8,132			(15,859	)
		Increase (decrease) in advances from joint owners				10,961			(1,529	)
		Decrease in other liabilities				(59	)		(11,683	)
			Net cash provided by continuing activities			218,728			61,083
			Net cash provided by discontinued activities			—			4,572
				Net cash provided by operating activities		218,728			65,655
Cash flows from investing activities:
	Additions to oil and gas properties					(147,058	)		(122,662	)
	Additions to furniture, fixtures and equipment					(702	)		(1,779	)
			Net cash used in continuing activities			(147,760	)		(124,441	)
			Net cash used in discontinued activities			—			(1,442	)
				Net cash used in investing activities		(147,760	)		(125,883	)
Cash flows from financing activities:
	Proceeds from borrowings under credit arrangements					132,500			744,000
	Repayments of borrowings under credit arrangements					(202,500	)		(575,000	)
	Proceeds from issuance of common stock					3,627			726
	Purchases of treasury stock					(371	)		(339	)
	Repurchases of secured notes					(2,895	)		(33,869	)
	Repayments of secured notes					—			(11,215	)
	Deliveries under the gas sales obligation					—			(8,442	)
	Gas sales obligation settlement					—			(62,017	)
			Net cash provided by (used in) continuing activities			(69,639	)		53,844
			Net cash provided by (used in) discontinued activities			—			—
				Net cash provided by (used in) financing activities		(69,639	)		53,844
Effect of exchange rate changes on cash and cash equivalents						257			72
Increase (decrease) in cash and cash equivalents						1,586			(6,312	)
Cash and cash equivalents from continuing operations, beginning of period						15,347			33,798
Cash and cash equivalents from discontinued operations, beginning of period						—			15,100
Cash and cash equivalents, end of period					$	16,933		$	42,586

The accompanying notes to consolidated financial statements are an integral part of this statement.

3

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

																				Accumulated
																				Other
			Common Stock				Treasury Stock						Additional							Comprehensive			Total
													Paid-In		Unearned			Retained		Income			Stockholders’
			Shares		Amount		Shares			Amount			Capital		Compensation			Earnings		(Loss)			Equity
			(In thousands, except share data)
			(Unaudited)
Balance, December 31, 2003				57,141,807	$	571		(886,247	)	$	(26,679	)	$	796,256	$	(10,912	)	$	635,752	$	(26,410	)	$	1,368,578
Issuance of common stock				124,980		2								3,626										3,628
Issuance of restricted stock, less amortization of $26 and cancellations				12,000										585		(559	)							26
Treasury stock, at cost								(7,725	)		(371	)												(371	)
Amortization of stock compensation																965								965
Tax benefit from exercise of stock options														131										131
Comprehensive income:
	Net income																		77,908					77,908
	Foreign currency translation adjustment, net of tax of ($143)																				265			265
	Reclassification adjustments for settled hedging positions, net of tax of $4,395																				(8,163	)		(8,163	)
	Changes in fair value of outstanding hedging positions, net of tax of $7,774																				(14,438	)		(14,438	)
		Total comprehensive income																						55,572
Balance, March 31, 2004				57,278,787	$	573		(893,972	)	$	(27,050	)	$	800,598	$	(10,506	)	$	713,660	$	(48,746	)	$	1,428,529

The accompanying notes to consolidated financial statements are an integral part of this statement.

4

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies:

Organization and Principles of Consolidation

      We are an independent oil and gas company engaged in the exploration, development and acquisition of crude oil and natural gas properties. Our company was founded in 1989. Our initial focus area was the Gulf of Mexico. In the mid-1990s, we began to expand our operations to other select areas. Our areas of operation now include the Gulf of Mexico, the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins, China’s Bohai Bay and the North Sea.

      Our financial statements include the accounts of Newfield Exploration Company, a Delaware corporation, and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Unless otherwise specified or the context otherwise requires, all references in these notes to “Newfield,” “we,” “us” or “our” are to Newfield Exploration Company and its subsidiaries.

      These unaudited consolidated financial statements reflect, in the opinion of our management, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly our financial position as of, and results of operations for, the periods presented. These financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Interim period results are not necessarily indicative of results of operations or cash flows for a full year.

      These financial statements and notes should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2003 included in our Annual Report on Form 10-K.

      On September 5, 2003, we sold Newfield Exploration Australia Ltd., the holding company for all of our Australian assets. As a result of the sale, the historical results of our Australian operations are reflected in our consolidated financial statements as “discontinued operations.” See Note 2, “Discontinued Operations.” Except where noted and for pro forma earnings per share, discussions in these notes relate to our continuing activities only.

Dependence on Oil and Gas Prices

      As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent on prevailing prices for natural gas and oil, which are dependent upon numerous factors beyond our control, such as economic, political and regulatory developments and competition from other sources of energy. The energy markets have historically been very volatile, and there can be no assurance that oil and gas prices will not be subject to wide fluctuations in the future. A substantial or extended decline in oil or gas prices could have a material adverse effect on our financial position, results of operations, cash flows and access to capital and on the quantities of oil and gas reserves that we may economically produce.

Use of Estimates

      The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the reported amounts of proved oil and gas reserves. Actual results could differ from these estimates. Our most significant financial estimates are based on remaining proved oil and gas reserves.

5

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications

      Certain reclassifications have been made to prior year’s reported amounts in order to conform with the current period presentation. These reclassifications, including those related to our discontinued operations (see Note 2, “Discontinued Operations”), did not impact our net income or stockholders’ equity.

Accounting for Asset Retirement Obligations

      We adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” as of January 1, 2003. This statement changes the method of accounting for expected future costs associated with our obligation to perform site reclamation, dismantle facilities and plug and abandon wells. Prior to January 1, 2003, we recognized the undiscounted estimated cost to abandon our oil and gas properties over their estimated productive lives on a unit-of-production basis as a component of depreciation, depletion and amortization expense and no liability or capitalized costs associated with such abandonment were recorded on our consolidated balance sheet. If a reasonable estimate of the fair value of an abandonment obligation can be made, SFAS No. 143 requires us to record a liability (an “asset retirement obligation” or “ARO”) on our consolidated balance sheet and to capitalize the asset retirement cost in oil and gas properties in the period in which the retirement obligation is incurred.

      In general, the amount of an ARO and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date, which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for our company. After recording these amounts, the ARO will be accreted to its future estimated value using the same assumed cost of funds and the additional capitalized costs will be depreciated on a unit-of-production basis over the productive life of the related properties. Both the accretion and the depreciation are included in depreciation, depletion and amortization on our consolidated statement of income.

      At adoption of SFAS No. 143, a cumulative effect of change in accounting principle was required in order to recognize:

•  an initial ARO as a liability on our consolidated balance sheet;

•  an increase in oil and gas properties for the cost to abandon our oil and gas properties;

•  cumulative accretion of the ARO from the period incurred up to the January 1, 2003 adoption date; and

•  cumulative depreciation on the additional capitalized costs included in oil and gas properties up to the January 1, 2003 adoption date.

      As a result of our adoption of SFAS No. 143, we recorded a $134.8 million increase in the net capitalized costs of our oil and gas properties and an initial ARO of $128.5 million. Additionally, we recognized an after-tax gain of $5.6 million (the after-tax amount by which additional capitalized costs, net of accumulated depreciation, exceeded the initial ARO, including in each case discontinued operations) as the cumulative effect of change in accounting principle.

      The change in our ARO for the first quarter of 2004 is set forth below (in thousands):

Balance as of January 1, 2004	$	163,643
Accretion expense		2,214
Additions		77
Settlements		(611	)
Balance of ARO as of March 31, 2004	$	165,323

6

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goodwill

      The $16.4 million recorded as goodwill on our consolidated balance sheet represents the excess of the purchase price over the estimated fair value of the assets acquired less the liabilities assumed in our acquisition of Primary Natural Resources in the third quarter of 2003. We allocated all of the goodwill associated with this acquisition to our Mid-Continent reporting unit.

      Goodwill is tested for impairment on an annual basis, or more frequently if an event occurs or circumstances change that have an adverse effect on the fair value of the reporting unit such that the fair value could be less than the book value of such unit. The impairment test requires the allocation of goodwill and all other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of that reporting unit. If the fair value of the reporting unit is less than the book value (including goodwill) then goodwill is reduced to its implied fair value and the amount of the writedown is charged to earnings.

      We perform our goodwill impairment test annually on December 31, or more frequently if there is an indication of potential impairment. The fair value of the Mid-Continent reporting unit is based on our estimates of future net cash flows from proved reserves and from future exploration for and development of unproved reserves. Downward revisions of estimated reserves or production, increases in estimated future costs or decreases in oil and gas prices could lead to an impairment of all or a portion of this goodwill in future periods.

Stock-Based Compensation

      We account for our employee stock options using the intrinsic value method prescribed by APB Opinion No. 25.

      If the fair value based method of accounting under SFAS No. 123, “Accounting for Stock-Based Compensation,” had been applied using a Black-Scholes option pricing model, our net income and earnings per common share for the three months ended March 31, 2004 and 2003 would have approximated the pro forma amounts below:

		Three Months Ended
		March 31,
		2004		2003
		(In thousands, except
		per share data)
Net income:
	As reported	$	77,908	$	64,141
	Pro forma		76,316		62,480
Basic earnings per common share —
	As reported	$	1.39	$	1.24
	Pro forma		1.36		1.20
Diluted earnings per common share —
	As reported	$	1.38	$	1.17
	Pro forma		1.35		1.14

7

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Developments

      SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” were issued by the FASB in June 2001 and became effective for us on July 1, 2001 and January 1, 2002, respectively. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that certain intangible assets be disaggregated and reported separately from goodwill. SFAS No. 142 established new guidelines for accounting for goodwill and other intangible assets. Under the statement, goodwill and certain other intangible assets are reviewed annually for impairment but are not amortized. To our knowledge, substantially all publicly traded oil and gas companies have continued to include oil and gas rights and interests held under leases, governmental licenses or other contractual arrangements (“leasehold interests”) as part of oil and gas properties after SFAS No. 141 and SFAS No. 142 became effective. This matter was referred to the Emerging Issues Task Force (EITF) in late 2003. Although the EITF has not issued formal guidance for oil and gas companies, at the March 2004 meeting, the Task Force reached a consensus that mineral rights for mining companies should be accounted for as tangible assets. However, the effective date of that consensus is pending until the resolution of a perceived inconsistency between the characterization of mineral rights as tangible assets in this consensus and the characterization of mineral rights as intangible assets in SFAS No. 141 and SFAS No. 142. In order to resolve this inconsistency, the Board directed the FASB staff to prepare a FASB Staff Position (FSP) that will amend SFAS No. 141 and SFAS No. 142. The consensus will be effective when the FSP is finalized.

      If all leasehold interests were deemed to be intangible assets, for companies like us that use the full cost method of accounting for oil and gas activities:

•  leasehold interests with proved reserves that were acquired after June 30, 2001 and leasehold interests with no proved reserves would be classified as intangible assets and would not be included in oil and gas properties on our consolidated balance sheet;

•  our results of operations and cash flows would not be affected because leasehold costs would continue to be amortized in accordance with full cost accounting rules; and

•  the disclosures required by SFAS Nos. 141 and 142 relative to intangibles would be included in the notes to our financial statements.

      If SFAS Nos. 141 and 142 were applied as described above, as of March 31, 2004, we had undeveloped leasehold interests of approximately $117.6 million (without reduction for depreciation, depletion and amortization) that would be classified on our consolidated balance sheet as “intangible undeveloped leaseholds” and we had developed leasehold interests of approximately $637.5 million (without reduction for depreciation, depletion and amortization) that would be classified on our consolidated balance sheet as “intangible developed leaseholds.”

8

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Discontinued Operations:

      On September 5, 2003, we sold our wholly owned subsidiary, Newfield Exploration Australia Ltd., the holding company for all of our Australian assets. The historical results of our Australian operations are reflected in our consolidated financial statements as “discontinued operations” and are summarized as follows:

	Three Months
	Ended
	March 31, 2003
	(In thousands)
Revenues	$	11,393
Operating expenses		(10,773	)
Income from operations		620
Other expense(1)		(1,751	)
Loss before income taxes		(1,131	)
Income tax benefit		351
Loss from discontinued operations	$	(780	)

(1)  Other expense primarily consists of foreign currency exchange gains and losses.

3. Earnings Per Share:

      Basic earnings per share (EPS) is calculated by dividing net income (the numerator) by the weighted average number of shares of common stock outstanding during the period (the denominator). Diluted earnings per share incorporates the incremental shares issuable (if dilutive) upon the assumed exercise of stock options (using the treasury stock method) and upon the assumed conversion of our trust preferred securities as if exercise or conversion to common stock had occurred at the beginning of the accounting period. Net income also has been increased for distributions accrued during the period on our trust preferred securities. We redeemed all of our outstanding trust preferred securities in June 2003.

      The following is the calculation of basic and diluted weighted average shares outstanding and EPS for the three months ended March 31, 2004 and 2003:

		Three Months Ended
		March 31,
		2004		2003
		(In thousands, except
		share and per
		share data)
Income (numerator):
	Income from continuing operations	$	77,908	$	59,346
	Loss from discontinued operations, net of tax		—		(780	)
	Income before cumulative effect of change in accounting principle		77,908		58,566
	Cumulative effect of change in accounting principle, net of tax		—		5,575
	Net income — basic		77,908		64,141
	After-tax dividends on convertible trust preferred securities		—		1,518
	Net income — diluted	$	77,908	$	65,659

9

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				Three Months Ended
				March 31,
				2004		2003
				(In thousands, except
				share and per
				share data)
Weighted average shares (denominator):
	Weighted average shares — basic				55,921		51,886
	Dilution effect of stock options outstanding at end of period				712		399
	Dilution effect of convertible trust preferred securities				—		3,923
	Weighted average shares — diluted				56,633		56,208
Earnings per share:
	Basic:
		Income from continuing operations		$	1.39	$	1.14
		Loss from discontinued operations			—		(0.01	)
		Cumulative effect of change in accounting principle, net of tax			—		0.11
			Net income	$	1.39	$	1.24
	Diluted:
		Income from continuing operations		$	1.38	$	1.08
		Loss from discontinued operations			—		(0.01	)
		Cumulative effect of change in accounting principle, net of tax			—		0.10
			Net income	$	1.38	$	1.17

      The calculation of shares outstanding for diluted EPS for the three months ended March 31, 2004 and 2003 does not include the effect of outstanding stock options to purchase 448,500 and 1,582,850 shares, respectively, because to do so would have been antidilutive.

10

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Oil and Gas Assets:

Oil and Gas Properties

      Oil and gas properties consisted of the following at the indicated dates:

				March 31,			December 31,
				2004			2003
				(In thousands)
Subject to amortization				$	3,860,759		$	3,747,001
Not subject to amortization:
	Exploration wells in progress				12,118			8,221
	Development wells in progress				61,477			31,105
	Capitalized interest				25,066			23,089
	Fee mineral interests				23,298			23,298
	Other capital costs:
		Incurred in 2004			10,043			—
		Incurred in 2003			59,794			61,918
		Incurred in 2002			103,014			105,830
		Incurred in 2001 and prior			74,893			77,653
			Total not subject to amortization		369,703			331,114
Gross oil and gas properties					4,230,462			4,078,115
Accumulated depreciation, depletion and amortization					(1,762,782	)		(1,659,615	)
Net oil and gas properties				$	2,467,680		$	2,418,500

      We believe that substantially all of the costs not currently subject to amortization will be evaluated within four years.

      A portion of incurred (if not previously included in the amortization base) and future development costs associated with qualifying major development projects may be temporarily excluded from amortization. To qualify, a project must require significant costs to ascertain the quantities of proved reserves attributable to the properties under development (e.g., the installation of an offshore production platform from which development wells are to be drilled). Incurred and future costs are allocated between completed and future work. Any temporarily excluded costs are included in the amortization base upon the earlier of when the associated reserves are determined to be proved or impairment is indicated.

      As of March 31, 2004 and December 31, 2003, we excluded from the amortization base $25.7 million (which is included in costs not subject to amortization in the table above) associated with development costs for our deepwater Gulf of Mexico project known as “Glider,” located at Green Canyon 247/248.

11

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Debt:

      As of the indicated dates, our long-term debt consisted of the following:

				March 31,		December 31,
				2004		2003
				(In thousands)
Senior unsecured debt:
	Bank revolving credit facility:
		Prime rate based loans		$	—	$	—
		LIBOR based loans			25,000		90,000
			Total bank revolving credit facility		25,000		90,000
	Money market lines of credit(1)				—		5,000
			Total credit arrangements		25,000		95,000
	7.45% Senior Notes due 2007				124,831		124,821
	Fair value of interest rate swaps(2)				1,319		171
	7 5/8% Senior Notes due 2011				174,908		174,905
	Fair value of interest rate swaps(2)				1,779		449
			Total senior unsecured notes		302,837		300,346
			Total senior unsecured debt		327,837		395,346
8 3/8% Senior Subordinated Notes due 2012					248,151		248,113
			Total long-term debt	$	575,988	$	643,459

(1)	Because capacity under our credit facility was available to repay borrowings under our money market lines of credit, this obligation was classified as long-term.
(2)	See “— Interest Rate Swaps” below.

      At March 31, 2004 and December 31, 2003, the interest rate was 2.38% and 2.50%, respectively, for LIBOR based loans under our credit facility. At December 31, 2003, the interest rate was 3.00% for the loans outstanding under our money market lines of credit.

New Credit Facility

      On March 16, 2004, we entered into a new reserve-based revolving credit facility with JPMorgan Chase Bank, as agent. The banks participating in the new facility have committed to lend us up to $600 million. The amount available under the facility is subject to a calculated borrowing base determined by banks holding 75% of the aggregate commitments, which is reduced by the principal amount of any outstanding senior notes ($300 million at March 31, 2004) and 30% of the principal amount of any outstanding senior subordinated notes (a reduction of $75 million at March 31, 2004). The borrowing base is redetermined at least semi-annually and, after all required adjustments, was $500 million at March 31, 2004. The facility contains restrictions on the payment of dividends and the incurrence of debt as well as other customary covenants and restrictions. The facility matures on March 14, 2008. At March 31, 2004, we had $475 million available under our credit facility and had outstanding borrowings of $25 million.

12

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest Rate Swaps

      During September 2003, we entered into interest rate swap agreements to take advantage of low interest rates and to obtain what we view as a more desirable proportion of variable and fixed rate debt. We hedged $50 million principal amount of our 7.45% Senior Notes due 2007 and $50 million principal amount of our 7 5/8% Senior Notes due 2011. These swap agreements provide for us to pay variable and receive fixed interest payments and are designated as fair value hedges of a portion of our outstanding senior notes.

      Pursuant to SFAS No. 133, changes in the fair value of derivatives designated as fair value hedges are recognized as offsets to the changes in fair value of the exposure being hedged. As a result, the fair value of our interest rate swap agreements is reflected within our derivative assets on our consolidated balance sheet and changes in their fair value are recorded as an adjustment to the carrying value of the associated long-term debt. Receipts and payments related to our interest rate swaps are reflected in interest expense.

Gas Sales Obligation Settlement

      We acquired EEX Corporation in November 2002. Pursuant to a gas forward sales contract entered into in 1999, EEX committed to deliver approximately 50 Bcf of production to Bob West Treasure L.L.C. (BWT) in exchange for proceeds of $105 million. As of the date of our acquisition of EEX, we recorded a liability of approximately $62 million, which represented the then current market value of approximately 16 Bcf of reserves remaining subject to the gas sales contract. We accounted for this obligation as debt on our consolidated balance sheet.

      On March 31, 2003, pursuant to a settlement agreement with BWT and the other parties to related transactions, the gas sales contract, the swaps entered into by BWT in connection with the gas sales contract and all other agreements related to the gas sales contract, including the guarantee and all liens and other security interests on EEX’s properties, were terminated in exchange for a payment by us of approximately $73 million. This payment represented:

•  the remaining unamortized obligation under the gas sales contract;

•  the fair market value of swaps entered into by BWT in conjunction with the gas sales contract;

•  various transaction fees related to the termination; and

•  an agreed upon value for BWT’s membership interest in an EEX subsidiary.

      In connection with the settlement, we recognized a loss of $10.0 million under the caption “Gas sales obligation settlement” on our consolidated statement of income.

6. Contingencies:

      We have been named as a defendant in a number of lawsuits arising in the ordinary course of our business. While the outcome of these lawsuits cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, cash flows or results of operations.

13

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Geographic Information:

			United States		International		Total
			(In thousands)
Three Months Ended March 31, 2004:
Oil and gas revenues			$	304,425	$	930	$	305,355
Operating expenses:
	Lease operating			29,608		257		29,865
	Production and other taxes			8,359		—		8,359
	Transportation			1,440		—		1,440
	Depreciation, depletion and amortization			105,553		352		105,905
	Allocated income taxes			55,813		128
		Net income from oil and gas properties	$	103,652	$	193
	General and administrative (inclusive of stock compensation)(1)							18,560
		Total operating expenses						164,129
Income from operations								141,226
	Interest expense, net of interest income, capitalized interest and other							(7,937	)
	Commodity derivative expense							(12,241	)
Income from continuing operations before income taxes							$	121,048
Total long-lived assets			$	2,411,407	$	56,273	$	2,467,680
Additions to long-lived assets			$	149,101	$	3,246	$	152,347

14

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			United States		International		Total
			(In thousands)
Three Months Ended March 31, 2003:
Oil and gas revenues			$	267,891	$	—	$	267,891
Operating expenses:
	Lease operating			27,807		—		27,807
	Production and other taxes			10,207		—		10,207
	Transportation			1,563		—		1,563
	Depreciation, depletion and amortization			93,318		—		93,318
	Allocated income taxes			47,153		—
		Net income from oil and gas properties	$	87,843	$	—
	Gas sales obligation settlement							9,998
	General and administrative (inclusive of stock compensation)(1)							17,006
		Total operating expenses						159,899
Income from operations								107,992
	Interest expense and dividends, net of interest income, capitalized interest and other							(14,683	)
	Commodity derivative expense							(1,217	)
Income from continuing operations before income taxes							$	92,092
Total long-lived assets			$	2,127,080	$	38,726	$	2,165,806
Additions to long-lived assets(2)			$	229,793	$	2,382	$	232,175

(1)	General and administrative expense includes stock compensation charges of $991 and $679 for the three months ended March 31, 2004 and 2003, respectively.
(2)	Includes $113.1 million (domestic) for capitalized asset retirement obligations associated with our adoption of SFAS No. 143.

8. Commodity Derivative Instruments and Hedging Activities:

      We utilize swap, floor, collar and three-way collar derivative contracts to hedge against the variability in cash flows associated with the forecasted sale of our future oil and gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also may limit future revenues from favorable price movements.

      With respect to a swap contract, the counterparty is required to make a payment to us if the settlement price for any settlement period is less than the swap price for such contract, and we are required to make payment to the counterparty if the settlement price for any settlement period is greater than the swap price for such contract. For a floor contract, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor price for such contract. We are not required to make any payment in connection with the settlement of a floor contract. For a collar contract, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor price for such contract, we are required to make payment to the counterparty if the settlement price for any settlement period is above the ceiling price for such contract and neither party is required to make a payment to the other party if the settlement price for any settlement period is equal to or greater than the floor price and equal to or

15

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

less than the ceiling price for such contract. A three-way collar contract consists of a standard collar contract plus a put sold by us with a price below the floor price of the collar. This additional put requires us to make a payment to the counterparty if the settlement price for any settlement period is below the put price. Combining the collar contract with the additional put results in us being entitled to a net payment equal to the difference between the floor price of the standard collar and the additional put price if the settlement price is equal to or less than the additional put price. If the settlement price is greater than the additional put price, the result is the same as it would have been with a standard collar contract only. This strategy enables us to increase the floor and the ceiling price of the collar beyond the range of a traditional no cost collar while defraying the associated cost with the sale of the additional put.

      Substantially all of our oil and gas derivative contracts are settled based upon reported prices on the NYMEX. The estimated fair value of these contracts is based upon various factors, including closing exchange prices on the NYMEX, over-the-counter quotations, volatility and, in the case of collars and floors, the time value of options. The calculation of the fair value of collars and floors requires the use of an option-pricing model.

      On the date we enter into a derivative contract, we determine whether the derivative contract should be designated as a hedge of the variability in cash flows associated with the forecasted sale of our future oil and gas production. After-tax changes in the fair value of a derivative that is highly effective and is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded under the caption “Accumulated other comprehensive income (loss) — Commodity derivatives” on our consolidated balance sheet until the sale of the hedged oil and gas production. Upon the sale of the hedged production, the net after-tax change in the fair value of the associated derivative recorded under the caption “Accumulated other comprehensive income (loss) — Commodity derivatives” is reversed and the gain or loss on the hedge, to the extent that it is effective, is reported in “Oil and gas revenues” on our consolidated statement of income. At March 31, 2004, we had a net $49.0 million after-tax loss recorded under the caption “Accumulated other comprehensive income (loss) — Commodity derivatives.” We expect hedged production associated with commodity derivatives accounting for a net loss of approximately $44.5 million to be sold within the next 12 months and hedged production associated with the remaining net loss of approximately $4.5 million to be sold thereafter. The actual gain or loss on these commodity derivatives could vary significantly as a result of changes in market conditions and other factors.

      Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the cash flows of the forecasted sale of production) is reported currently each period under the caption “Commodity derivative income (expense)” on our consolidated statement of income.

      We formally document all relationships between derivative instruments designated as cash flow hedges and hedged production, as well as our risk management objective and strategy for particular derivative contracts. This process includes linking the derivatives to the specific forecasted sale of oil or gas at its physical location. We also formally assess (both at the derivative’s inception and on an ongoing basis) whether the derivatives being utilized have been highly effective at offsetting changes in the cash flows of hedged production and whether those derivatives may be expected to remain highly effective in future periods. If it is determined that a derivative has ceased to be highly effective as a hedge, we will discontinue hedge accounting prospectively. If hedge accounting is discontinued and the derivative remains outstanding, we will carry the derivative at its fair value on our consolidated balance sheet and recognize all subsequent changes in its fair value on our consolidated statement of income for the period in which the change occurs. Hedge accounting was not discontinued during the periods presented for any hedging instruments.

      Although our three-way collar contracts are effective as economic hedges of our commodity price exposure, they do not qualify for hedge accounting under SFAS No. 133. These contracts are carried at their fair value on our consolidated balance sheet under the captions “Derivative assets” and “Derivative liabilities.”

16

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Both realized gains and losses upon settlement of three-way collar contracts and unrealized gains and losses due to changes in fair value of open three-way collar contracts are recognized in our consolidated statement of income under the caption “Commodity derivative income (expense).” We recorded an unrealized loss of $9.9 million and a realized loss of $1.5 million on our three-way collar contracts for the three months ended March 31, 2004.

Natural Gas

      As of March 31, 2004, we had entered into derivative contracts that qualify as cash flow hedges with respect to our future natural gas production as follows:

				NYMEX Contract Price Per MMBtu
						Collars
						Floors				Ceilings				Floor Contracts				Estimated
				Swaps														Fair Value
		Volume in		(Weighted				Weighted				Weighted				Weighted		Asset (Liability)
Period and Type of Contract		MMMBtus		Average)		Range		Average		Range		Average		Range		Average		(In millions)
April 2004-June 2004
	Price swap contracts		17,565	$	4.76		—		—		—		—		—		—	$	(17.5	)
	Collar contracts		11,595		—	$	3.00-$5.25	$	4.68	$	4.16-$6.67	$	5.96		—		—		(2.7	)
	Floor contracts		2,250		—		—		—		—		—	$	4.20-$4.21	$	4.21		—
July 2004-September 2004
	Price swap contracts		17,275		4.75		—		—		—		—		—		—		(21.8	)
	Collar contracts		11,595		—		3.00-5.25		4.68		4.16-6.67		5.96		—		—		(5.4	)
	Floor contracts		2,250		—		—		—		—		—		4.20-4.21		4.21		—
October 2004-December 2004
	Price swap contracts		7,645		4.78		—		—		—		—		—		—		(9.8	)
	Collar contracts		4,195		—		3.00-5.25		4.57		4.16-6.67		5.86		—		—		(2.7	)
	Floor contracts		750		—		—		—		—		—		4.20-4.21		4.21		—
January 2005-December 2005
	Price swap contracts		5,440		4.43		—		—		—		—		—		—		(7.1	)
	Collar contracts		1,380		—		3.50		3.50		4.16		4.16		—		—		(2.2	)
																		$	(69.2	)

      As of March 31, 2004, we also had entered into three-way collar contracts with respect to our future natural gas production as set forth in the table below. These contracts do not qualify for hedge accounting.

				NYMEX Contract Price Per MMBtu
								Collars
				Additional Put				Floors				Ceilings				Estimated
																Fair Value
		Volume in				Weighted				Weighted				Weighted		Asset (Liability)
Period and Type of Contract		MMMBtus		Range		Average		Range		Average		Range		Average		(In millions)
April 2004-June 2004
	3-Way collar contracts		6,750	$	3.50-$3.76	$	3.62	$	4.50-$4.76	$	4.62	$	5.20-$6.10	$	5.50	$	(2.8	)
July 2004-September 2004
	3-Way collar contracts		6,750		3.50-3.76		3.62		4.50-4.76		4.62		5.20-6.10		5.50		(5.0	)
October 2004-December 2004
	3-Way collar contracts		2,250		3.50-3.76		3.62		4.50-4.76		4.62		5.20-6.10		5.50		(1.8	)
																$	(9.6	)

17

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Oil

      As of March 31, 2004, we had entered into derivative contracts that qualify as cash flow hedges with respect to our future oil production as follows:

				NYMEX Contract Price Per Bbl
						Collars
						Floors				Ceilings				Estimated
				Swaps										Fair Value
		Volume in		(Weighted				Weighted				Weighted		Asset (Liability)
Period and Type of Contract		Bbls		Average)		Range		Average		Range		Average		(In millions)
April 2004-June 2004
	Price swap contracts		24,000	$	23.23		—		—		—		—	$	(0.3	)
	Collar contracts		300,000		—	$	22.00-$24.00	$	22.80	$	26.04-$28.85	$	27.16		(2.4	)
July 2004-September 2004
	Price swap contracts		204,000		29.85		—		—		—		—		(0.7	)
	Collar contracts		390,000		—		22.00-27.50		26.35		26.35-34.50		31.56		(1.2	)
October 2004-December 2004
	Price swap contracts		204,000		29.85		—		—		—		—		(0.5	)
	Collar contracts		330,000		—		27.00-27.50		27.14		30.65-34.50		32.51		(0.7	)
January 2005-December 2005
	Price swap contracts		294,000		24.90		—		—		—		—		(1.8	)
	Collar contracts		390,000		—		27.00		27.00		30.65-32.30		31.64		(0.7	)
														$	(8.3	)

      As of March 31, 2004, we also had entered into three-way collar contracts with respect to our future oil production as set forth in the table below. These contracts do not qualify for hedge accounting.

				NYMEX Contract Price Per Bbl
						Collars
						Floors				Ceilings				Estimated
														Fair Value
		Volume in		Additional				Weighted				Weighted		Asset (Liability)
Period and Type of Contract		Bbls		Put		Range		Average		Range		Average		(In millions)
April 2004-June 2004
	3-Way collar contracts		377,000	$	21.00	$	25.00-$26.00	$	25.76	$	29.70-$30.05	$	29.91	$	(1.9	)
July 2004-September 2004
	3-Way collar contracts		379,000		21.00		25.00-26.00		25.76		29.70-30.05		29.91		(1.6	)
October 2004-December 2004
	3-Way collar contracts		379,000		21.00		25.00-26.00		25.76		29.70-30.05		29.91		(1.4	)
January 2005-December 2005
	3-Way collar contracts		90,000		21.00		25.00		25.00		29.70		29.70		(0.3	)
														$	(5.2	)

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      We are an independent oil and gas company engaged in the exploration, development and acquisition of crude oil and natural gas properties. Our areas of operation include the Gulf of Mexico, the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins, China’s Bohai Bay and the North Sea.

      Our revenues, profitability and future growth depend substantially on prevailing prices for oil and gas and on our ability to find, develop and acquire oil and gas reserves that are economically recoverable. The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect our reported results of operations and the amount of reported assets, liabilities and proved oil and gas reserves. We use the full cost method of accounting for our oil and gas activities.

      Oil and Gas Prices. Prices for oil and gas fluctuate widely. Oil and gas prices affect:

•  the amount of cash flow available for capital expenditures;

•  our ability to borrow and raise additional capital;

•  the amount of oil and gas that we can economically produce; and

•  the accounting for our oil and gas activities.

      We generally hedge a substantial, but varying, portion of our anticipated future oil and gas production to, among other things, reduce our exposure to commodity price fluctuations.

      Reserve Replacement. Generally, our producing properties in the Gulf of Mexico and the onshore Gulf Coast have high initial production rates, followed by steep declines. As a result, we must locate and develop or acquire new oil and gas reserves to replace those being depleted by production. Substantial capital expenditures are required to find, develop and acquire oil and gas reserves.

      Significant Estimates. We believe the most difficult, subjective or complex judgments and estimates we must make in connection with the preparation of our financial statements are:

•  remaining proved oil and gas reserves;

•  timing of our future drilling, development and abandonment activities;

•  future costs to develop and abandon our oil and gas properties;

•  allocating the purchase price associated with business combinations; and

•  the valuation of our derivative positions.

      Please see “Other Factors Affecting Our Business and Financial Results” in Item 7 of our annual report for the year ended December 31, 2003 for a more detailed discussion of a number of other factors that affect our business, financial condition and results of operations. This report should be read together with those discussions.

Results of Operations

      On September 5, 2003, we sold our wholly owned subsidiary, Newfield Exploration Australia Ltd., which held all of our Australian assets. As a result of the sale, the historical results of our Australian operations are reflected on our consolidated financial statements as “discontinued operations.” Please see Note 2, “Discontinued Operations,” to our consolidated financial statements appearing earlier in this report. Except where noted, discussions in this report relate to our continuing activities.

      Revenues. All of our revenues are derived from the sale of our oil and gas production and the settlement of hedging contracts associated with our production. Our revenues may vary significantly from period to period as a result of changes in commodity prices or production volumes. Revenues for the first quarter of 2004 were

19

about 14% higher than the comparable period of 2003 because of higher commodity prices and higher production.

		Three Months Ended
		March 31,				Percentage
						Increase
		2004		2003		(Decrease)
Production:
	Natural gas (Bcf)		48.1		44.0		9	%
	Oil and condensate (MBbls)		1,546.6		1,516.4		2	%
	Total (Bcfe)(1)		57.4		53.1		8	%
Average Realized Prices(2):
	Natural gas (per Mcf)	$	5.30	$	5.05		5	%
	Oil and condensate (per Bbl)		31.66		29.04		9	%
	Natural gas equivalent (per Mcfe)		5.30		5.02		6	%

(1)

Three months ended March 31, 2004 includes 0.2 Bcfe related to our North Sea operations.

(2)

For purposes of this table, average realized prices for natural gas and oil and condensate are presented net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.02 per Mcf and the realized price of oil and condensate by $0.33 per Bbl in both quarters. Average realized prices include the effects of hedging other than our three-way collar contracts, which do not qualify for hedge accounting under SFAS No. 133. Had we included the realized loss on our three-way oil contracts, our average realized price for oil and condensate would have been $30.70 per Bbl for the first quarter of 2004. The settlement of our three-way gas contracts had no impact on our realized price for natural gas for the first quarter of 2004. We did not enter into any three-way collar contracts prior to August 2003.

      Production. Our total oil and gas production (stated on a natural gas equivalent basis) increased in the first quarter of 2004 when compared to the same period in 2003 primarily because of successful drilling efforts in 2003 and our Primary Natural Resources acquisition in September 2003.

      Effect of Hedging on Realized Prices. The following table presents information about the effect of our hedging program on realized prices (other than our three-way collar contracts, which do not qualify for hedge accounting under SFAS No. 133).

		Average
		Realized Prices				Ratio of
						Hedged to
		With		Without		Non-Hedged
		Hedge		Hedge		Price(1)
Natural Gas:
	Three months ended March 31, 2004	$	5.30	$	5.43		98	%
	Three months ended March 31, 2003		5.05		6.30		80	%
Crude Oil and Condensate:
	Three months ended March 31, 2004	$	31.66	$	34.09		93	%
	Three months ended March 31, 2003		29.04		32.47		89	%

(1)  The ratio is determined by dividing the realized price (which includes the effects of hedging) by the price that otherwise would have been realized without hedging activities.

20

      Operating Expenses. We are a growth-oriented company. As such, our proved reserves and production have grown steadily since our founding. Naturally, our operating expenses have increased with our growth. As a result, we believe the most informative way to analyze changes in our operating expenses from one period to another is on a unit-of-production, or Mcfe, basis. The following table presents information about our operating expenses for the first quarter of 2004 and 2003.

		Unit-of-Production							Amount
		(Per Mcfe)							(In thousands)
		Three Months							Three Months Ended
		Ended March 31,				Percentage			March 31,				Percentage
						Increase							Increase
		2004		2003		(Decrease)			2004		2003		(Decrease)
Lease operating		$	0.52	$	0.52		—		$	29,865	$	27,807		7	%
Production and other taxes			0.15		0.19		(21	)%		8,359		10,207		(18	)%
Transportation			0.03		0.03		—			1,440		1,563		(8	)%
Depreciation, depletion and amortization			1.85		1.76		5	%		105,905		93,318		13	%
General and administrative (exclusive of stock compensation)(1)			0.31		0.31		—			17,569		16,327		8	%
	Total operating(1)		2.86		2.81		2	%		163,138		149,222		9	%

(1)  Stock compensation charges were $991, or $0.01 per Mcfe, and $679, or $0.01 per Mcfe, for the three months ended March 31, 2004 and 2003, respectively. Total operating expense, inclusive of these charges but excluding the gas sales obligation settlement in March 2003, was $164,129, or $2.86 per Mcfe, and $149,901, or $2.82 per Mcfe, for the three months ended March 31, 2004 and 2003, respectively.

      Our total operating expense (excluding stock compensation) for the first quarter of 2004, stated on a unit-of-production basis, increased 2% over the same period in 2003. The increase was primarily related to an increase in per unit depreciation, depletion and amortization (excluding furniture, fixtures and equipment), which for the first quarter of 2004 was $1.79 per Mcfe versus $1.70 per Mcfe for the comparable period of 2003. This increase primarily resulted from the increased cost of reserve additions during 2003. The increase in total operating expense was partially offset by a decrease in production and other taxes. The decrease in production and other taxes is primarily related to production tax exemptions related to certain of our onshore high cost gas wells.

      General and administrative expense in the first quarter of 2004 is net of capitalized direct internal costs of $6.9 million compared to $6.8 million in the first quarter of 2003.

      Gas Sales Obligation Settlement. We acquired EEX Corporation in November 2002. Pursuant to a gas forward sales contract entered into in 1999, EEX committed to deliver approximately 50 Bcf of production to Bob West Treasure L.L.C. (BWT) in exchange for proceeds of $105 million. As of the date of our acquisition of EEX, we recorded a liability of approximately $62 million, which represented the then current market value of approximately 16 Bcf of reserves remaining under the gas sales contact. We accounted for the obligation under the gas sales contract as debt on our consolidated balance sheet.

      On March 31, 2003, pursuant to a settlement agreement with BWT and the other parties to related transactions, the gas sales contract, the swaps entered into by BWT in connection with the gas sales contract and all other agreements related to the gas sales contract, including the guarantee and all liens and other security interests on EEX’s properties, were terminated in exchange for a payment by us of approximately $73 million. This payment represented:

•  the remaining unamortized obligation under the gas sales obligation;

•  the fair market value of swaps entered into by BWT in conjunction with the gas sales contract;

•  various transactions fees related to the termination; and

•  an agreed upon value for BWT’s membership interest in an EEX subsidiary.

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      In connection with the settlement, we recognized a loss of $10 million under the caption “Gas sales obligation settlement” on our consolidated statement of income.

      Interest Expense. The following table presents information about our interest expense for the first quarter of 2004 compared to the same period last year.

		Three Months
		Ended March 31,
		2004			2003
		(In millions)
Gross interest expense		$	12.5		$	16.7
Capitalized interest			(3.9	)		(3.8	)
Net interest expense			8.6			12.9
Distributions on preferred securities			—			2.3
	Total interest expense and distributions	$	8.6		$	15.2

      Our total interest expense and distributions decreased 43% in the first quarter of 2004 compared to the same period in 2003 due to the repayment of debt with excess cash flow from operations and the redemption of our trust preferred securities during 2003 primarily with the net proceeds from an offering of our common stock.

      Commodity Derivative Expense. The commodity derivative expense of $12.2 million for the first quarter of 2004 represents the fair value adjustment ($9.9 million) and the realized loss ($1.5 million) for our three-way collar contracts that do not qualify for hedge accounting and the hedge ineffectiveness associated with our derivatives that qualify as cash flow hedges ($0.8 million). The commodity derivative expense of $1.2 million for the first quarter of 2003 represents the hedge ineffectiveness associated with our hedging program.

      Taxes. The effective tax rate for the first quarter of 2004 and the first quarter of 2003 was 35.6%. Estimates of future taxable income can be significantly affected by changes in oil and natural gas prices, estimates of the timing and amount of future production and estimates of future operating and capital costs.

      Cumulative Effect of Change in Accounting Principle — Adoption of SFAS No. 143. We adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” as of January 1, 2003. This statement changed the method of accounting for expected future costs associated with our obligation to perform site reclamation, dismantle facilities and plug and abandon wells. As a result of our adoption of SFAS No. 143, we recorded a $134.8 million increase in the net capitalized costs of our oil and gas properties and an initial ARO of $128.5 million. Additionally, we recognized an after-tax gain of $5.6 million (the after-tax amount by which additional capitalized costs, net of accumulated depreciation, exceeded the initial ARO, including in each case discontinued operations) as the cumulative effect of change in accounting principle. See Note 1, “Organization and Summary of Significant Accounting Policies — Accounting for Asset Retirement Obligations” to our consolidated financial statements appearing earlier in this report.

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Results of Discontinued Operations

      As a result of the sale of our Australian operations in September 2003, the historical financial position, results of operations and cash flow of our Australian operations are reflected in our consolidated financial statements as “discontinued operations.” The results of our Australian operations for the three months ended March 31, 2003 are summarized as follows:

	Three Months
	Ended
	March 31, 2003
	(In thousands)
Revenues	$	11,393
Operating expenses		(10,773	)
Income from operations		620
Other expense		(1,751	)
Loss before income taxes		(1,131	)
Income tax benefit		351
Loss from discontinued operations	$	(780	)

Liquidity and Capital Resources

      Our capital budget is established at the beginning of each year. Because of the nature of the properties we own, only a small portion of our capital budget is nondiscretionary. The size of our budget is driven by expected cash flow from operations. Based on current commodity prices and the high percentage of our anticipated 2004 production that has been hedged, we currently anticipate that cash flow will exceed our capital budget (which excludes acquisitions) by more than $50 million for the remainder of 2004. We anticipate that we will continue to pay down debt outstanding under our credit arrangements during the remainder of the year, unless we increase our capital budget.

      Credit Arrangements. On March 16, 2004, we entered into a new reserve-based revolving credit facility with JPMorgan Chase Bank, as agent. The banks participating in the new facility have committed to lend us up to $600 million. The amount available under the facility is subject to a calculated borrowing base determined by banks holding 75% of the aggregate commitments, which is reduced by the principal amount of any outstanding senior notes ($300 million at April 28, 2004) and 30% of the principal amount of any outstanding senior subordinated notes (a reduction of $75 million at April 28, 2004). The borrowing base is redetermined at least semi-annually and, after all required adjustments, was $500 million at April 28, 2004. The facility contains restrictions on the payment of dividends and the incurrence of debt as well as other customary covenants and restrictions. The facility matures on March 14, 2008. At April 28, 2004, we had $488 million available under our credit facility and had outstanding borrowings of $12 million.

      We also have money market lines of credit with various banks in an amount limited by our credit facility to $50 million. At April 28, 2004, we had $7 million outstanding under our money market lines of credit. Consequently, at April 28, 2004, we had approximately $531 million of available capacity under our credit arrangements.

      At March 31, 2004 and December 31, 2003, the interest rate was 2.38% and 2.50%, respectively, for LIBOR based loans under our credit facility. At December 31, 2003, the interest rate was 3.00% for the loans outstanding under our money market lines of credit.

      Working Capital. Our working capital balance fluctuates as a result of the timing and amount of borrowings or repayments under our credit arrangements. Generally, we use excess cash to pay down borrowings under our credit arrangements. As a result, we often have a working capital deficit or a relatively small amount of positive working capital. We had a working capital deficit of $103.0 million as of March 31, 2004. This compares to a working capital deficit of $61.3 million as of December 31, 2003.

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      Cash Flows from Continuing Operations. Our net cash flows from continuing operations for the first quarter of 2004 increased 258% compared to the first quarter of 2003. The increase was primarily due to timing and the increased requirements of working capital during the first quarter of 2003.

      Capital Expenditures. Our capital spending during the first quarter of 2004 was $152 million, a 28% increase over the same period last year. During the first quarter of 2004, we invested $112 million in domestic development, $29 million in domestic exploration, $8 million in other domestic leasehold activity and $3 million internationally.

      Our current budget for capital spending in 2004 is $650 million, excluding acquisitions. We expect that 40% of this budget will be invested in the Gulf of Mexico (including deepwater), 50% in the onshore U.S. and the remainder internationally. We anticipate that our current capital expenditure budget for 2004 will be fully funded from cash flow from operations. To the extent that cash receipts during the year are slower than capital needs, we will make up the shortfall with borrowings under our credit arrangements. Actual levels of capital expenditures may vary significantly due to many factors, including the extent to which proved properties are acquired, drilling results, oil and gas prices, industry conditions and the prices and availability of goods and services. We continue to pursue attractive acquisition opportunities; however, the timing, size and purchase price of acquisitions are unpredictable. Historically, we have completed several acquisitions of varying sizes each year. Depending on the timing of an acquisition, we may spend additional capital during the year of the acquisition for drilling and development activities on the acquired properties.

      Cash Flows from Financing Activities. Net cash flows used in financing activities for the first quarter of 2004 were $69.6 million compared to cash flows provided by financing activities of $53.8 million for the same period of 2003. During the first quarter of 2004, we repaid a net $70 million under our revolving credit arrangements. During the first quarter of 2003, we borrowed a net $169 million under our revolving credit arrangements, repaid or repurchased $45.1 million principal amount of our secured notes and settled our gas sales contract obligation for $62.0 million.

Oil and Gas Hedging

      We generally hedge a substantial, but varying, portion of our anticipated oil and gas production for the next 18-24 months as part of our risk management program. We use hedging to reduce price volatility, help ensure that we have adequate cash flow to fund our capital programs and manage price risks and returns on some of our acquisitions and drilling programs. Our decision on the quantity and price at which we choose to hedge our production is based in part on our view of current and future market conditions.

      While the use of these hedging arrangements limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. In addition, the use of hedging transactions may involve basis risk. Substantially all of our hedging transactions are settled based upon reported settlement prices on the NYMEX. We believe there is no material basis risk with respect to our natural gas price hedging contracts because substantially all of our hedged natural gas production is sold at market prices that historically have highly correlated to the settlement price. Because substantially all of our oil production is sold at current market prices that historically have highly correlated to the NYMEX West Texas Intermediate (WTI) price, we believe that we have no material basis risk with respect to these transactions. The actual cash price we receive, however, is about $2.00 per barrel less than the NYMEX WTI price when adjusted for location and quality differences for our Gulf Coast production. Our Mid-Continent production has typically sold at a $1.00-$1.50 per barrel discount to WTI because of location and quality differences.

      In 2003, we entered into three-way collar derivative contracts. Although our three-way collar contracts are effective as economic hedges of our commodity price exposure, they do not qualify for hedge accounting under SFAS No. 133.

      Please see the discussion and tables in Note 8, “Commodity Derivative Instruments and Hedging Activities,” to our consolidated financial statements appearing earlier in this report for a description of the accounting applicable to our hedging program and a listing of open contracts as of March 31, 2004 and the fair value of those contracts as of that date.

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      Between March 31, 2004 and April 26, 2004, we entered into the additional natural gas price hedging contracts set forth in the table below.

				NYMEX Contract Price Per MMBtu
				Collars
				Floors				Ceilings
Period and		Volume in				Weighted				Weighted
Type of Contract		MMMBtus		Range		Average		Range		Average
October 2004-December 2004
	Collar contracts		800	$	5.00	$	5.00	$	10.00	$	10.00
January 2005-March 2005
	Collar contracts		1,200		5.00		5.00		10.00		10.00

Floating Production System and Pipelines

      As a result of our acquisition of EEX Corporation in November 2002, we own a 60% interest in a floating production system (FPS), some offshore pipelines and a processing facility located at the end of the pipelines in shallow water. The FPS is a combination deepwater drilling rig and processing facility capable of simultaneous drilling and production operations. These infrastructure assets are not currently in service and we do not have a specific use for them in our offshore operations. At the time of acquisition, we estimated their fair market value to be $35 million and these assets are periodically evaluated for possible impairment.

      We have engaged brokers who survey the world market for potential application of the assets “as is” or “to-be-modified” for a particular application. We also have direct discussions with other operators about the potential application of the assets to their developments around the world. Because there is no established market for these unique assets, it is difficult to accurately estimate their fair market value. An immediate sale or a sale under distressed circumstances might realize less than the current carrying value of the assets. No assurance can be given that we will be successful in selling these assets or that any sale will recover the carrying value of these assets.

General Information

      General information about us can be found at www.newfld.com. In conjunction with our web page, we also maintain an electronic publication entitled @NFX. @NFX is periodically published to provide updates on our operating activities and our latest publicly announced estimates of expected production volumes, costs and expenses for the then current quarter. Recent editions of @NFX are available on our web page. To receive @NFX directly by email, please forward your email address to info@newfld.com or visit our web page and sign up. Unless specifically incorporated, the information about us at www.newfld.com and in any edition of @NFX is not part of this report.

      Our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file or furnish them to the SEC.

Forward-Looking Information

      This report contains information that is forward-looking or relates to anticipated future events or results such as planned capital expenditures, the availability of capital resources to fund capital expenditures and anticipated cash flows. Although we believe that the expectations reflected in this information are reasonable, this information is based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors, including drilling results, oil and gas prices, industry conditions, the prices of goods and services, the availability of drilling rigs and other support services and the availability of capital resources.

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Commonly Used Oil and Gas Terms

      Below are explanations of some commonly used terms in the oil and gas business.

      Basis risk. The risk associated with the sales point price for oil or gas production varying from the reference (or settlement) price for a particular hedging transaction.

      Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or condensate.

      Bcf. Billion cubic feet.

      Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil or condensate.

      Btu. British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

      MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

      Mcf. One thousand cubic feet.

      Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil or condensate.

      MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

      MMBtu. One million Btus.

      MMMBtu. One billion Btus.

      MMcf. One million cubic feet.

      MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil or condensate.

      NYMEX. The New York Mercantile Exchange.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      We are exposed to market risk from changes in oil and gas prices, interest rates and foreign currency exchange rates as discussed below.

Oil and Gas Prices

      We generally hedge a substantial, but varying, portion of our anticipated oil and gas production for the next 18-24 months as part of our risk management program. We use hedging to reduce price volatility, help ensure that we have adequate cash flow to fund our capital programs and manage price risks and returns on some of our acquisitions and drilling programs. Our decision on the quantity and price at which we choose to hedge our production is based in part on our view of current and future market conditions. While hedging limits the downside risk of adverse price movements, it may also limit future revenues from favorable price movements.

      Please see the discussion and tables in Note 8, “Commodity Derivative Instruments and Hedging Activities,” to our consolidated financial statements appearing earlier in this report and the discussion under the caption “Oil and Gas Hedging” in Item 2 of this report for a description of our hedging program and a listing of open hedging contracts as of March 31, 2004 and the fair value of those contracts as of that date.

26

Interest Rates

      Inclusive of interest rate swaps, at March 31, 2004, we had $450 million in long-term fixed rate debt and $125 million of variable rate debt. Please see the discussion in Note 5, “Debt,” to our consolidated financial statements appearing earlier in this report for a description of our long-term debt and interest rate swaps. Because a large percentage of our debt is at fixed rates, we believe that we do not have any material market risk from changes in interest rates.

Foreign Currency Exchange Rates

      Our cash flow from certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. We consider our current risk exposure to exchange rate movements, based on net cash flows, to be immaterial. We did not have any open derivative contracts relating to foreign currencies at March 31, 2004.

Item 4. Controls and Procedures

      As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2004 in ensuring that material information was accumulated and communicated to management, and made known to our Chief Executive Officer and Chief Financial Officer, on a timely basis to allow disclosure as required in this report. During the three months ended March 31, 2004, there were no changes in our internal controls over financial reporting or in other factors that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

27

PART II

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits:

Exhibit
Number			Description
	10	.1	Credit Agreement, dated as of March 16, 2004, among Newfield Exploration Company, a Delaware corporation, the Lenders party thereto, and JPMorgan Chase Bank, as Administrative Agent and as Issuing Bank (the “Credit Agreement”)
	†10	.2	Newfield Exploration Company 2004 Omnibus Stock Plan
	31	.1	Certification of Chief Executive Officer of Newfield pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer of Newfield pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Chief Executive Officer of Newfield pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer of Newfield pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†  Identifies management contracts and compensatory plans or arrangements.

      (b) Reports on Form 8-K:

      On March 16, 2004, we filed a current report on Form 8-K providing the information required by Regulation BTR with respect to our 401(k) plan.

      On February 13, 2004, we filed a current report on Form 8-K announcing our fourth quarter and full-year 2003 financial results and first quarter 2004 earnings guidance regarding production and significant operating and financial data. Additionally, we announced the issuance of our @NFX publication, which included an update on drilling activities during the fourth quarter and full-year 2003, guidance for the first quarter of 2004 and updated tables detailing complete hedging positions as of February 10, 2004.

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SIGNATURE

      Pursuant to the requirements 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.

NEWFIELD EXPLORATION COMPANY

By:  /s/ TERRY W. RATHERT

Terry W. Rathert

Vice President and Chief Financial Officer

(Authorized Officer and

Principal Financial Officer)

Date: April 29, 2004

29

EXHIBIT INDEX

Exhibit
Number			Description
	10	.1	Credit Agreement, dated as of March 16, 2004, among Newfield Exploration Company, a Delaware corporation, the Lenders party thereto, and JPMorgan Chase Bank, as Administrative Agent and as Issuing Bank (the “Credit Agreement”)
	†10	.2	Newfield Exploration Company 2004 Omnibus Stock Plan
	31	.1	Certification of Chief Executive Officer of Newfield pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer of Newfield pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Chief Executive Officer of Newfield pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer of Newfield pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†  Identifies management contracts and compensatory plans or arrangements.

EX-10.1 2 h14489exv10w1.txt CREDIT AGREEMENT EXHIBIT 10.1 Execution Version ================================================================================ CREDIT AGREEMENT Dated as of March 16, 2004 among NEWFIELD EXPLORATION COMPANY The Lenders Party Hereto and JPMORGAN CHASE BANK, as Administrative Agent and as Issuing Bank ----------------------------------- WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent ----------------------------------- BANK OF MONTREAL d/b/a HARRIS NESBITT CREDIT LYONNAIS NEW YORK BRANCH FLEET NATIONAL BANK As Co-Documentation Agents ----------------------------------- J. P. MORGAN SECURITIES INC., and WACHOVIA CAPITAL MARKETS, LLC as Joint Bookrunners and Co-Lead Arrangers ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01. Defined Terms............................................................................. 1 Section 1.02. Classification of Loans and Borrowings.................................................... 18 Section 1.03. Terms Generally........................................................................... 18 Section 1.04. Accounting Terms; GAAP.................................................................... 19 ARTICLE II THE CREDITS Section 2.01. Commitments............................................................................... 19 Section 2.02. Loans and Borrowings...................................................................... 19 Section 2.03. Requests for Borrowings................................................................... 19 Section 2.04. Borrowing Base............................................................................ 20 Section 2.05. Payments Generally; Pro Rata Treatment; Sharing of Set-offs............................... 21 Section 2.06. Letters of Credit......................................................................... 22 Section 2.07. Funding of Borrowings..................................................................... 26 Section 2.08. Interest Elections........................................................................ 26 Section 2.09. Termination and Reduction of Commitments.................................................. 27 Section 2.10. Repayment of Loans; Evidence of Debt...................................................... 28 Section 2.11. Prepayment of Loans....................................................................... 29 Section 2.12. Fees...................................................................................... 29 Section 2.13. Interest.................................................................................. 30 Section 2.14. Alternate Rate of Interest................................................................ 31 Section 2.15. Increased Costs........................................................................... 31 Section 2.16. Break Funding Payments.................................................................... 32 Section 2.17. Taxes..................................................................................... 32 Section 2.18. Mitigation Obligations; Replacement of Lenders............................................ 33 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. Organization; Powers; Subsidiaries........................................................ 34 Section 3.02. Authorization; Enforceability............................................................. 34 Section 3.03. Governmental Approvals; No Conflicts...................................................... 35 Section 3.04. Financial Condition; No Material Adverse Change........................................... 35 Section 3.05. Properties................................................................................ 35 Section 3.06. Litigation and Environmental Matters...................................................... 36 Section 3.07. Compliance with Laws and Agreements....................................................... 37 Section 3.08. Investment and Holding Company Status..................................................... 37 Section 3.09. Taxes..................................................................................... 37 Section 3.10. ERISA..................................................................................... 37 Section 3.11. Disclosure................................................................................ 37 -i- Section 3.12. Insurance................................................................................. 38 Section 3.13. Fiscal Periods............................................................................ 38 Section 3.14. Use of Proceeds........................................................................... 38 ARTICLE IV CONDITIONS Section 4.01. Effective Date............................................................................ 38 Section 4.02. Each Credit Event......................................................................... 39 ARTICLE V AFFIRMATIVE COVENANTS Section 5.01. Financial Statements; Ratings Change and Other Information................................ 40 Section 5.02. Notices of Material Events................................................................ 41 Section 5.03. Existence; Conduct of Business............................................................ 41 Section 5.04. Payment of Obligations.................................................................... 42 Section 5.05. Maintenance of Properties; Insurance...................................................... 42 Section 5.06. Books and Records; Inspection Rights...................................................... 42 Section 5.07. Compliance with Laws...................................................................... 42 Section 5.08. Oil and Gas Properties.................................................................... 42 Section 5.09. Principal Business........................................................................ 43 Section 5.10. Subsidiary Guaranties..................................................................... 43 Section 5.11. Engineering Reports....................................................................... 43 ARTICLE VI NEGATIVE COVENANTS Section 6.01. Debt...................................................................................... 44 Section 6.02. Liens..................................................................................... 45 Section 6.03. Fundamental Changes....................................................................... 45 Section 6.04. Investments, Loans, Advances, Guarantees and Acquisitions................................. 46 Section 6.05. Swap Agreements........................................................................... 46 Section 6.06. Restricted Payments....................................................................... 46 Section 6.07. Transactions with Affiliates.............................................................. 46 Section 6.08. Restrictive Agreements.................................................................... 46 Section 6.09. Subsidiary Debt and Preferred Stock....................................................... 47 Section 6.10. Designation of Unrestricted Subsidiaries.................................................. 47 Section 6.11. New Unrestricted Subsidiaries............................................................. 48 Section 6.12. Sale Leaseback Transactions............................................................... 48 Section 6.13. Sale or Discount of Receivables........................................................... 48 Section 6.14. Sale of Oil and Gas Properties............................................................ 48 Section 6.15. Subsidiaries and Partnerships............................................................. 48 Section 6.16. Hydrocarbon Sales Contract................................................................ 48 Section 6.17. Environmental Matters..................................................................... 48 Section 6.18. Subordinated Debt......................................................................... 48 Section 6.19. Fiscal Periods............................................................................ 49 -ii- Section 6.20. Use of Proceeds........................................................................... 49 Section 6.21. Total Debt to EBITDA Ratio................................................................ 49 Section 6.22. EBITDA to Interest Ratio.................................................................. 49 ARTICLE VII EVENTS OF DEFAULT Section 7.01. Events of Default......................................................................... 49 ARTICLE VIII THE ADMINISTRATIVE AGENT Section 8.01. The Administrative Agent.................................................................. 51 ARTICLE IX MISCELLANEOUS Section 9.01. Notices................................................................................... 53 Section 9.02. Waivers; Amendments....................................................................... 54 Section 9.03. Expenses; Indemnity; Damage Waiver........................................................ 55 Section 9.04. Successors and Assigns.................................................................... 56 Section 9.05. Survival.................................................................................. 58 Section 9.06. Counterparts; Integration; Effectiveness.................................................. 59 Section 9.07. Severability.............................................................................. 59 Section 9.08. Right of Setoff........................................................................... 59 Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process................................ 59 Section 9.10. WAIVER OF JURY TRIAL...................................................................... 60 Section 9.11. Headings.................................................................................. 60 Section 9.12. Confidentiality........................................................................... 60 Section 9.13. Interest Rate Limitation.................................................................. 61 Section 9.14. Co-Lead Arrangers and Syndication Agent................................................... 61 Section 9.15. USA Patriot Act Notice.................................................................... 61 -iii- SCHEDULES: Schedule 1.01 -- Existing Investments; Existing Letters of Credit Schedule 2.01 -- Commitments Schedule 3.05 -- Subsidiaries Schedule 6.02 -- Existing Liens Schedule 6.08 -- Existing Restrictions EXHIBITS: Exhibit A Form of Assignment and Assumption Exhibit B Form of Opinion of Borrower's Counsel Exhibit C Form of Subsidiary Guaranty -iv- CREDIT AGREEMENT dated as of March 16, 2004 among Newfield Exploration Company, a Delaware corporation, the LENDERS party hereto, and JPMORGAN CHASE BANK, as Administrative Agent and as Issuing Bank. The parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means JPMorgan Chase Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement" means this Credit Agreement dated as of March 16, 2004, as amended or otherwise modified from time to time. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the percentage (expressed as a decimal) of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt:

ABR Eurodollar Commitment Fee Index Debt Ratings: Spread Spread Rate - --------------------------------------------------------------------------------- Category 1 0 0.875% 0.20% BBB/Baa2 or higher - --------------------------------------------------------------------------------- Category 2 0 1.125% 0.25% BBB-/Baa3 - --------------------------------------------------------------------------------- Category 3 0 1.250% 0.30% BB+/Ba1 - --------------------------------------------------------------------------------- Category 4 0 1.500% 0.35% BB/Ba2 - --------------------------------------------------------------------------------- Category 5 0.250% 1.750% 0.45% BB-/Ba3 or lower - ---------------------------------------------------------------------------------

For purposes of the foregoing, (i) if neither Moody's nor S&P shall have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agencies shall be deemed to have established a rating in Category 5; (ii) if only one of Moody's and S&P has in effect a rating for the Index Debt, then the Applicable Rate shall be determined solely based on the rating of such rating agency; (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is two or more Categories lower than the other, in which case the Applicable Rate shall be determined by reference to the Category next above that of the lower of the two ratings; and (iv) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to Section 5.01 or otherwise. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If (a) the rating system of Moody's or S&P shall change, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system of such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating of such rating agency most recently in effect prior to such change; and (b) both Moody's and S&P shall cease on the same date to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect the unavailability of ratings from such rating agencies and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the ratings of such rating agencies most recently in effect prior to such cessation. "Approved Fund" has the meaning assigned to such term in Section 9.04(b). "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the -6- Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Attributable Obligation" means, with respect to any Sale Leaseback Transaction as of any particular time, the present value at such time discounted at the rate of interest implicit in the terms of the lease of the obligations of the lessee under such lease for net rental payments during the remaining term of the lease (including any period for which such lease has been extended or may, at the option of the Borrower or any Subsidiary, be extended). "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Available Commitment" means, for any Lender at any time, the lesser of (i) such Lender's Commitment at such time and (ii) such Lender's Applicable Percentage times the Borrowing Base at such time. "Available Commitment (For Fee Purposes)" means, for any Lender at any time, the amount that would be such Lender's Available Commitment at such time if the Senior Notes were the only Debt included in the Borrowing Base Debt Amount at such time. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Newfield Exploration Company, a Delaware corporation. "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" means, at any time, the amount by which the Calculated Borrowing Base at such time exceeds the sum of (i) Borrowing Base Debt Amount at such time plus (ii) 30% of the aggregate principal amount then outstanding of all Subordinated Debt. Any change in the Borrowing Base due to a change in the Calculated Borrowing Base, the Borrowing Base Debt Amount or the principal amount of such Subordinated Debt shall be effective from and including the date of such change in the Calculated Borrowing Base, the Borrowing Base Debt Amount or the principal amount of such Subordinated Debt, respectively. "Borrowing Base Approval Lenders" means, at any time, Lenders having Credit Exposures and unused Commitments representing at least 75% of the sum of the total Credit Exposures and unused Commitments at such time. "Borrowing Base Debt Amount" means, at any time, the aggregate principal amount outstanding at such time, without duplication, of all consolidated Debt of the Borrower and the Restricted Subsidiaries, except (i) the aggregate Credit Exposures of all Lenders at such time, (ii) Subordinated Debt, (iii) letters of credit (other than Letters of Credit) not exceeding in the aggregate (including both the aggregate maximum undrawn amount thereof and the aggregate amount of all disbursements thereunder that have not been reimbursed) an amount equal to $50,000,000 minus the LC Exposure at such time and (iv) Debt referred to in clause (k) of the definition herein of Debt. -7- A "Borrowing Base Deficiency" will be deemed to exist at all times that the Borrowing Base Deficiency Amount is greater than zero. "Borrowing Base Deficiency Amount" means, at any time, the amount, if any, by which (a) the aggregate Credit Exposures of all Lenders at such time exceeds (b) the Borrowing Base at such time. "Borrowing Base Notice" means a written notice sent to the Borrower by the Administrative Agent notifying the Borrower of the Calculated Borrowing Base determined by the Borrowing Base Approval Lenders. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Calculated Borrowing Base" means at any time an amount equal to the amount determined in accordance with Section 2.04 and in effect at such time. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of Equity Interests representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement by any Governmental Authority, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Co-Documentation Agents" means Bank of Montreal d/b/a Harris Nesbitt, Credit Lyonnais New York Branch and Fleet National Bank, as co-documentation agents in connection with this Agreement. "Co-Lead Arrangers" means J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC. "Commitment" means, with respect to each Lender, the commitment of such Lender to -8- make Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $600,000,000. "Company Report" has the meaning assigned to such term in Section 5.11(a). "Consolidated Interest Expense" means, for any period, the sum of (i) gross interest expense (including all cash and accrued interest expense) of the Borrower and its Consolidated Restricted Subsidiaries for such period on a consolidated basis in accordance with GAAP, including to the extent included in interest expense in accordance with GAAP (a) the amortization of debt discounts and (b) the portion of any payments or accruals with respect to capital leases allocable to interest expense plus (ii) capitalized interest of the Borrower and its Consolidated Restricted Subsidiaries for such period on a consolidated basis in accordance with GAAP. If any Consolidated Restricted Subsidiary is designated as an Unrestricted Subsidiary in accordance with Section 6.10, then on and after the date of such designation, Consolidated Interest Expense shall be computed for all prior periods as if such Subsidiary was not a Consolidated Restricted Subsidiary during such periods. "Consolidated Restricted Subsidiaries" means each Restricted Subsidiary of the Borrower (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrower in accordance with GAAP. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controls", "Controlling" and "Controlled" have meanings correlative thereto. "Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and its LC Exposure at such time. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business that are not more than 90 days past due or that are being contested in good faith by appropriate proceedings and as to which such Person has set aside on its books adequate reserves with respect thereto in accordance with GAAP), (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (f) all Guarantees by such Person of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances, (j) all obligations or undertakings of such Person with respect to payments received by such Person in consideration of oil, gas, or other minerals yet to be acquired or produced at the time of payment (including obligations under "take-or-pay" contracts, contracts to deliver oil, gas or other minerals in return for payments already received and the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment) or with respect to other obligations to deliver goods or services in consideration of advance payments therefor but excluding gas imbalances arising in the ordinary course of business between joint working interest owners of production; (k) obligations arising under futures contracts, swap contracts or similar hedging agreements; and (l) all obligations of such Person under any synthetic lease, tax retention operating lease or off-balance sheet loan or financing. The -9- Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Debt provide that such Person is not liable therefor. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "dollars" or "$" refers to lawful money of the United States of America. "EBITDA" means, for any period, the sum of (i) the consolidated net income (or loss) of the Borrower and its Consolidated Restricted Subsidiaries for such period determined in accordance with GAAP plus (ii) to the extent included in the determination of such net income (or loss), the consolidated charges for such period for interest, depreciation, depletion and amortization plus (or, if there is a benefit from income taxes, minus) (iii) to the extent included in the determination of such net income, the amount of the provision for or benefit from income taxes; provided that in determining such consolidated net income and such consolidated charges, there shall be excluded therefrom (to the extent otherwise included therein) (a) the net income (but not loss) of, and charges for interest, depreciation, depletion and amortization of, any Person which is subject to any restriction, contractual or otherwise, which prevents the payment of dividends or distributions or the making of dividends or distributions on Equity Interests of such Person to the extent of such restrictions, (b) pre-tax gains or losses on the sale, transfer or other disposition of any property by the Borrower or its Consolidated Restricted Subsidiaries (other than sales, transfers and other dispositions in the ordinary course of business), (c) all extraordinary gains and extraordinary losses, prior to applicable income taxes, and (d) any item constituting the cumulative effect of a change in accounting principles, prior to applicable income taxes; provided further that in determining EBITDA, there shall be disregarded the after-tax effects of each of the following matters: (i) write-downs after December 31, 2002 under FASB Statement No. 19, (ii) non-cash write-downs of assets after December 31, 2002 under FASB Statement No. 121 or pursuant to Rule 4-10(c) of SEC Regulation S-X (17CFR Section 210.4-10(c)), and (iii) non-cash gains, losses or adjustments under FASB Statement. No. 133; provided further that if during such period the Borrower or any of its Consolidated Restricted Subsidiaries acquires or disposes of any Person (or any Equity Interest in any Person other than the Borrower) or all or substantially all of the assets of any Person, the EBITDA attributable to such assets (or an amount equal to the percentage of ownership of the Borrower or Consolidated Restricted Subsidiary, as the case may be, in such Person so acquired or disposed times the EBITDA of such Person) for such period determined on a pro forma basis (which determination, in each case, shall be subject to approval of the Administrative Agent, not to be unreasonably withheld) shall be included (in the case of an acquisition) or excluded (in the case of a disposition) as EBITDA for such period; except that during the portion of such period that follows such acquisition or disposition, the computation in respect of EBITDA of such Person or such assets, as the case may be, shall be made on the basis of actual (rather than pro forma) results. If any Consolidated Restricted Subsidiary is designated as an Unrestricted Subsidiary in accordance with Section 6.10, then on and after the date of such designation, EBITDA shall be computed for all prior periods as if such Subsidiary was not a Consolidated Restricted Subsidiary during such periods. "EBITDA to Interest Ratio" means, for any period, the ratio of (i) EBITDA for such period to (ii) Consolidated Interest Expense for such period. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Engineering Reports" has the meaning assigned to that term in Section 2.04(b). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices, permits or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation -10- of natural resources, or the management, release or threatened release of any Hazardous Material. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excepted Liens" means (i) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained; (ii) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance or other social security laws or regulations; (iii) operator's, vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or statutory landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) any Liens reserved in -11- leases or farmout agreements for rent or royalties and for compliance with the terms of the farmout agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or a Restricted Subsidiary or materially impair the value of such Property subject thereto; (v) encumbrances (other than to secure the payment of Debt, the deferred purchase price of Property or services or other monetary obligations), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other Property of the Borrower or a Restricted Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines and distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment which in the aggregate do not have a Material Adverse Effect and, in each case, arise in the ordinary course of business; (vi) defects, irregularities in title, zoning restrictions and deficiencies in title of any Property which in the aggregate do not have a Material Adverse Effect; (vii) deposits not exceeding $10,000,000 in the aggregate outstanding at any one time to secure the performance of requirements of any Governmental Authority, bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; (viii) reservations in original grants from any Governmental Authority; (ix) rights of any Governmental Authority to terminate a lease; and (x) Liens of judgments that do not constitute an Event of Default under Section 7.01(k); provided that in no event will any Lien on property of the Borrower or any Restricted Subsidiary that secures any obligation of an Unrestricted Subsidiary be an Excepted Lien. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a). "Existing Credit Agreement" means the Credit Agreement dated as of January 23, 2001 among the Borrower, JPMorgan Chase Bank and others, as amended. "Existing Letters of Credit" means the letters of credit listed on Schedule 1.01. "Facility Obligations" means all obligations (liquidated, contingent or otherwise) from time to time owed by the Borrower or any Subsidiary pursuant to, as a result of, or in connection with any Loan Document, including all principal of and interest on the Loans, all reimbursement and other obligations in connection with the Letters of Credit and all obligations to pay fees, costs, expenses, indemnities and other amounts payable under any Loan Document. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, -12- treasurer or controller of the Borrower. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each state thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including the creation of any Lien on any asset of the guarantor to secure any such Debt or obligation and any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Debt or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates released into the environment, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hydrocarbon Interests" means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature. "Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is not guaranteed by any other Person or subject to any other credit enhancement. "Information Memorandum" means the Confidential Information Memorandum dated February, 2004 relating to the Borrower and the Transactions. "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.08. -13- "Interest Payment Date" means (a) with respect to any ABR Loan the last day of each March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the fourteenth day thereafter (subject to availability) (an "Irregular Interest Period") or on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may elect, or such other period as may be requested by the Borrower and agreed to by all of the Lenders (also an "Irregular Interest Period"), provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) no Interest Period may be elected that would end after the Maturity Date, and (iii) any Interest Period (other than an Irregular Interest Period) that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Investment" means, as applied to any Person, any direct or indirect (i) purchase or other acquisition by such Person of any Equity Interest, Debt or other securities (including any option, warrant or other right to acquire any of the foregoing) of any other Person, (ii) loan or advance made by such Person to any other Person, (iii) Guarantee, assumption or other incurrence of liability by such Person of or for any Debt or other obligation of any other Person, (iv) creation of any Debt owed to such Person by any other Person, (v) capital contribution or other investment by such Person in any other Person or (vi) purchase or other acquisition (in one transaction or a series of transactions) of any assets of any other Person constituting a business unit. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment or interest earned on such Investment. "Issuing Bank" means JPMorgan Chase Bank, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.06(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Disbursement" means a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate maximum undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. "Letter of Credit" means any letter of credit issued pursuant to this Agreement and the -14- Existing Letters of Credit. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset, (c) production payments and the like payable out of Oil and Gas Properties and (d) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, any promissory note referred to in Section 2.10(e) and each Subsidiary Guaranty. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement or any other Loan Document, except that seasonal declines in energy prices will not constitute a Material Adverse Effect. "Material Indebtedness" means Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Restricted Subsidiaries in an aggregate principal amount equal to or exceeding $25,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Restricted Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Restricted Subsidiary would be required to pay if such Swap Agreement were terminated at such time. "Maturity Date" means March 14, 2008. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Recourse Debt" means Debt of a Subsidiary: (1) as to which neither the Borrower nor any Restricted Subsidiary (a) provides credit support of any kind (including any Guarantee, undertaking, agreement or instrument that would constitute Debt), (b) is directly or indirectly liable as a guarantor or otherwise or (c) is the lender; -15- (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of Debt of the Borrower or any Restricted Subsidiary to declare a default on such Debt or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders of such Non-Recourse Debt have been notified in writing that they will not have any recourse to the Borrower, any Restricted Subsidiary or any assets of any of them. "Oil and Gas Properties" means Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes, together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Oil or Gas Swap Contract" means any crude oil or natural gas price swap, price cap, price collar, forward agreement, or other exchange or price protection transaction or any combination of such transactions or agreements or options with respect to any such transaction or agreement. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "Outside Report" has the meaning assigned to such term in Section 5.11(a). "Participant" has the meaning set forth in Section 9.04. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Investments" means: (a) investments existing on the Effective Date and listed on Schedule 1.01; (b) investments in additional Oil and Gas Properties and gas gathering systems related thereto; (c) accounts receivable arising out of the sale of Hydrocarbons, other assets or -16- services in the ordinary course of business; (d) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or any agency thereof to the extent such obligations are legally backed by the full faith and credit of the United States), in each case maturing within one year from the date of creation thereof; (e) commercial paper maturing within one year from the date of creation thereof rated A2 or higher by S&P or P2 or higher by Moody's; (f) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000 (as of the date such Lender's or bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time by S&P or Moody's, respectively; (g) advances to operators under operating agreements entered into by the Borrower or any Restricted Subsidiary in the ordinary course of business; (h) repurchase agreements of any commercial banks in the United States and Canada, if the commercial paper of such bank or of the bank holding company of which such bank is a wholly-owned subsidiary is rated in the highest rating categories of S&P, Moody's or any other rating agency satisfactory to the Required Lenders, that are fully secured by securities described in paragraph (d) of this definition; (i) eurodollar investments maturing within one year with financial institutions meeting the qualifications established in paragraph (f) of this definition; (j) any investment in any Unrestricted Subsidiary if, at the time of making such investment, the aggregate book value of the assets of the Borrower and the Restricted Subsidiaries, on a consolidated basis (excluding investments in Unrestricted Subsidiaries) exceeds $2,250,000,000; (k) any investment in, or loans or advances to, or Guarantees of any Debt permitted by Section 6.09 of, Restricted Subsidiaries that are wholly-owned by the Borrower; (l) investments in loan participations purchased from a bank with which deposits may be made under paragraph (f) of this definition, if the remaining term of any such participation at the time such participation is bought is 90 days or less and the borrower obligated to pay such loan then has a credit rating of A2 or higher from S&P or P2 or higher from Moody's on such borrower's short term unsecured obligations; (m) remarketed certificates of participation sold in private placements, representing undivided interests in the assets of a trust or similar entity owning debt instruments, provided that such certificates of participation have received a credit rating of A2 or higher from S&P or of P2 or higher from Moody's and are payable in full within 90 days after purchase; (n) asset backed securities with an average life of 24 months or less and rated in one of the top two rating categories of Moody's or S&P; (o) corporate notes or bonds rated A3 or better by Moody's or A- or better by S&P maturing within one year; (p) loans and advances made by any Restricted Subsidiary to the Borrower; -17- (q) money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody's and (iii) have portfolio assets of at least $5,000,000,000; (r) any acquisition of any Equity Interest or other securities if the only consideration given therefor is shares of common stock of the Borrower; and (s) investments in the Newfield Foundation in an amount up to $2,000,000 per year (and the Newfield Foundation may invest such amounts and any amounts funded prior to the Effective Date in any securities or investments deemed appropriate by the trustee committee thereof). "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Property" and "asset" (in each case whether or not capitalized) each means any and all tangible and intangible assets and properties, including goods, real property, personal property, fixtures, cash, securities, accounts, contract rights, intangibles, intellectual property, any other form of asset or property and any interest therein. "Redetermination Date" has the meaning set forth in Section 2.04. "Register" has the meaning set forth in Section 9.04. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Credit Exposures and unused Commitments representing more than 50% of the sum of the total Credit Exposures and unused Commitments at such time. "Reserve Report" means a report, in form and substance satisfactory to the Administrative Agent, setting forth, as of the last day of each December (the "December 31 Reserve Report") and as of the last day of June (the "June 30 Reserve Report") (or such other date as comports with Section 5.11(b) in the event of an unscheduled redetermination) the proved oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries, together with a projection of the rate of production and future net income, production, severance or similar taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time. Furthermore, such information shall be provided for each field, unit or lease comprising the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries and by category of the reserves contained in each well, unit or lease, including proved producing, proved non-producing and proved undeveloped. "Responsible Officer" means the chief executive officer, the president, any vice president or the chief financial officer of the Borrower. -18- "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Subsidiary. "Restricted Subsidiaries" mean all Subsidiaries that are not Unrestricted Subsidiaries. "S&P" means Standard & Poor's. "Sale Leaseback Transaction" means any arrangement entered into by the Borrower or any Subsidiary, directly or indirectly, whereby the Borrower or any Subsidiary shall sell or transfer any Property and whereby the Borrower or any Subsidiary shall then or thereafter rent or lease as lessee such property or any part thereof or other property which the Borrower or any Subsidiary intends to use for substantially the same purpose or purposes as the property sold or transferred. "Scheduled Redetermination Date" shall have the meaning set forth in Section 2.04(a). "Senior Notes" means the senior unsecured notes having a principal balance of $300,000,000 on the Effective Date issued under the indenture dated October 15, 1997 between the Borrower and Wachovia Bank, National Association (formerly First Union National Bank), as trustee, and all other senior notes (other than notes evidencing the Loans) issued by the Borrower or any Subsidiary after the Effective Date to the extent that the principal of such senior notes is due more than one year after the date of issuance thereof. "Senior Subordinated Indenture" means that certain indenture dated as of December 10, 2001 between the Borrower and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee, as supplemented by the First Supplemental Indenture dated as of August 13, 2002. "Senior Subordinated Notes" means those certain 8 3/8% Senior Subordinated Notes due 2012 in an aggregate amount of $250,000,000 issued under the Senior Subordinated Indenture by the Borrower and all obligations relating thereto. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Debt" means the Senior Subordinated Notes and other Debt issued by the Borrower containing provisions subordinating such Debt to the Facility Obligations on terms reasonably comparable to subordination provisions generally used at the time for public subordinated debt issuances and containing other terms and conditions which are substantially similar to subordinated debt issued by companies of similar credit rating in the same industry, but in any event such Debt shall not (i) have any covenants or default provisions more restrictive than this Agreement or be Guaranteed by any Subsidiary or (ii) require any payment of principal or any redemption or purchase prior to March 31, 2011. -19- "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guarantor" means each Subsidiary that has executed a Subsidiary Guaranty. "Subsidiary Guaranty" means a Guaranty Agreement substantially in the form of Exhibit C with such changes thereto, if any, as the Required Lenders may reasonable request, executed by a Subsidiary. "Swap Agreement" means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement. "Syndication Agent" means Wachovia Bank, National Association, as syndication agent in connection with this Agreement. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Total Debt" means the consolidated Debt of the Borrower and its Consolidated Restricted Subsidiaries (other than obligations described in clause (k) of the definition herein of Debt). "Total Debt to EBITDA Ratio" means, as of any day, the ratio of (i) the aggregate principal amount of Total Debt outstanding on such day to (ii) EBITDA for the four consecutive fiscal quarters of the Borrower most recently ended prior to such day (or, if such day is the last day of a fiscal quarter of the Borrower, for the four consecutive fiscal quarters of the Borrower ended on such day). "Transactions" means the execution, delivery and performance by the Borrower and the Subsidiary Guarantors of the Loan Documents, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. -20- "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "Unrestricted Subsidiary" means (i) any Subsidiary that has been designated as an Unrestricted Subsidiary by the Borrower in accordance with Section 6.10, and (ii) each subsidiary of such Unrestricted Subsidiary. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans and Borrowings may be classified and referred to by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing"). Section 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, subject to any limitation on assignments set forth herein, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Section 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II THE CREDITS Section 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans in dollars to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Credit Exposure exceeding such Lender's Available Commitment or (b) the total Credit Exposures exceeding the total Available Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. Section 2.02. Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective -21- Applicable Percentages. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.14, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $2,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $2,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Available Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that any such notice of an ABR Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. -22- Section 2.04. Borrowing Base. (a) During the period beginning on and including the Effective Date until the first Redetermination Date, the amount of the Calculated Borrowing Base shall be $875,000,000. So long as any of the Commitments is in effect or any Letter of Credit is outstanding and until payment in full of all Facility Obligations, the Calculated Borrowing Base shall be redetermined from time to time in accordance with Section 2.04(b) by the Administrative Agent with the concurrence of the Borrowing Base Approval Lenders. Redeterminations shall occur on or around the first Business Day of each May and November, commencing November 1, 2004 (each being a "Scheduled Redetermination Date") and may occur on other dates in accordance with Section 2.04(d). Upon any redetermination of the Calculated Borrowing Base, such redetermination shall remain in effect until the next Redetermination Date. "Redetermination Date" shall mean the date that the redetermined Calculated Borrowing Base becomes effective subject to the notice requirements specified in Section 2.04(e) both for scheduled redeterminations and unscheduled redeterminations. So long as any of the Commitments is in effect or any Letter of Credit is outstanding and until all of the Facility Obligations are paid in full, the credit facilities provided herein shall be governed by the then effective Calculated Borrowing Base. (b) Upon receipt of the reports required by Section 5.11 and such other reports, data and supplemental information as may from time to time be reasonably requested by the Administrative Agent (the "Engineering Reports"), the Administrative Agent will redetermine a new Calculated Borrowing Base. Such redetermination will be in accordance with the Administrative Agent's normal and customary procedures for evaluating oil and gas reserves and other related assets as such exist at that particular time. The Administrative Agent in its sole discretion, may make adjustments to the rates, volumes, prices and other assumptions set forth therein. The Administrative Agent shall propose to the Lenders a new Calculated Borrowing Base within 30 days following receipt by the Administrative Agent of the Engineering Reports in a timely and complete manner. After having received notice of such proposal by the Administrative Agent, each Lender shall have 10 days to agree or disagree with such proposal. Any failure of a Lender to communicate its approval or disapproval within such ten day period shall be deemed to be an approval of such proposal. If the Borrowing Base Approval Lenders approve (including any such deemed approval) the Administrative Agent's proposal, then such proposal shall be the new Calculated Borrowing Base. If however, the Borrowing Base Approval Lenders do not approve such proposal within 10 days, the Borrowing Base Approval Lenders shall, within a reasonable period of time, agree on a new Calculated Borrowing Base. (c) The Administrative Agent may exclude any Oil and Gas Property or portion of production therefrom or any income from any other Property from the Calculated Borrowing Base, at any time, if title information is not reasonably satisfactory. (d) In addition to scheduled redeterminations, the Borrower may request an unscheduled redetermination of the Calculated Borrowing Base at any other time but no more often than once between Scheduled Redetermination Dates by specifying in writing to the Administrative Agent the date on which such redetermination is to occur and providing a Reserve Report in accordance with Section 5.11(b) at least 60 days prior to the requested redetermination date. Also, the Required Lenders may initiate only one unscheduled redetermination during any consecutive 12 month period by specifying in writing to the Borrower the date on which the Borrower is to furnish a Reserve Report in accordance with Section 5.11(b) and the date on which such redetermination is to occur. (e) The Administrative Agent shall promptly notify in writing the Borrower and the Lenders of the new Calculated Borrowing Base. Any redetermination of the Calculated Borrowing Base shall not be in effect until written notice thereof is received by the Borrower. Section 2.05. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available -23- funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. -24- (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(d), 2.06(d) or (e) or 2.07(b), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. Section 2.06. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit in dollars for its own account or for the account of any Restricted Subsidiary, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $50,000,000 and (ii) the total Credit Exposures shall not exceed the total Available Commitments. (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. -25- (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, if such LC Disbursement is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with -26- respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Furthermore, if any amount of cash collateral is required to be paid to the Administrative Agent pursuant to subclause (i)(2) or (ii)(2) of Section 2.10(f), the Borrower shall pay such amount to the Administrative Agent to be deposited in such account. All deposits contemplated by this Section 2.06(j) shall be held by the Administrative Agent as collateral for the payment and performance of the Facility Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the -27- option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other Facility Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. (k) Existing Letters of Credit. All Existing Letters of Credit shall be deemed to be issued under this Agreement as of the Effective Date and shall constitute Letters of Credit hereunder for all purposes (including Section 2.06(d)), and no notice requesting issuance thereof shall be required hereunder. Each reference herein to the issuance of a Letter of Credit shall include any such deemed issuance. JPMorgan Chase Bank is the Issuing Bank for purposes of the Existing Letters of Credit. All fees accrued on the Existing Letters of Credit to but excluding the Effective Date shall be for the account of the "Agent" and the "Banks" (as those terms are used in the Existing Credit Agreement), and all fees accruing on the Existing Letters of Credit on and after the Effective Date shall be for the account of the Issuing Bank and the Lenders as provided herein. Section 2.07. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to the Loans comprising such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing, and the provisions of the preceding sentence applicable to the Borrower in respect of the failure of such Lender to make such share of such Borrowing available to the Administrative Agent shall apply only to the date such payment is made. Section 2.08. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower -28- may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 2.09. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $5,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the total Credit Exposures would exceed the total Available Commitments. -29- (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. Section 2.10. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). (f) If at any time the Borrowing Base Deficiency Amount is greater than zero, then the Borrower shall (i) within 45 days of receipt of written notice thereof, (1) prepay the principal of the Loans (or reduce the LC Exposure) in an amount equal to 50% of such Borrowing Base Deficiency Amount (but this subclause (i)(1) shall not require prepayment or reduction in an amount exceeding the outstanding principal balance of the Loans), and (2), if the Loans are prepaid in full pursuant to the foregoing subclause (i)(1) and 50% of such Borrowing Base Deficiency Amount exceeds the principal amount of the Loans so prepaid plus the amount the LC Exposure was reduced pursuant to the foregoing subclause (i)(l), pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.06(j) hereof; and (ii) within 90 days of receipt of written notice thereof, (1) prepay the principal of the Loans (or reduce the LC Exposure) in an amount equal to such Borrowing Base Deficiency Amount remaining after application of the amounts referenced in clause (i) of this sentence (but this subclause (ii)(1) shall not require prepayment or reduction in an amount exceeding the outstanding principal balance of the Loans), and (2) if the Loans are prepaid in full pursuant to the foregoing subclause (ii)(l) and if such remaining Borrowing Base Deficiency Amount -30- exceeds the principal amount of the Loan so prepaid plus the amount the LC Exposure was reduced pursuant to the foregoing subclause (ii)(l), pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.06(j) hereof. Additionally, at the time of each prepayment of principal of the Loans pursuant to this Section 2.10(f), the Borrower will pay all interest accrued to the date of such prepayment on the principal amount so prepaid. Section 2.11. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13. Section 2.12. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the daily amount of the unused Available Commitment (For Fee Purposes) of such Lender during the period from and including the date of this Agreement to but excluding the date on which the Commitment of such Lender terminates. Commitment fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day and on the date on which the Commitments terminate, commencing on the first such date to occur after the Effective Date. Additionally, if any principal of Senior Notes at any time is paid, then the Borrower agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders, an additional commitment fee equal to the Applicable Rate on the date of such payment times the amount of such payment, for the period from the Redetermination Date immediately prior to such date of payment (or if the first Redetermination Date has not occurred, from the Effective Date) to such date of payment, which additional commitment fee shall be payable on such date of payment. Additionally, if any principal of Subordinated Debt at any time is paid, then the Borrower agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders, an additional commitment fee equal to the Applicable Rate on the date of such payment times the amount of such payment times 0.3, for the period from the Redetermination Date immediately prior to such date of payment (or if the first Redetermination Date has not occurred, from the Effective Date) to such date of payment, which additional commitment fee shall be payable on such date of payment. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Eurodollar Loans on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, provided that the minimum participation fee payable to any Lender with respect to any Letter of Credit will be $500 times such Lender's Applicable Percentage, and -31- (ii) to the Issuing Bank an issuance fee of $250 and a fronting fee, which shall accrue at the rate of 1/8% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances. Section 2.13. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment pursuant to Section 2.11 of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. -32- Section 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. Section 2.15. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be prima facie evidence of the matters covered thereby absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. -33- (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or the existence of a Borrowing Base Deficiency), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. Such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be prima facie evidence of the matters covered thereby absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 2.17. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability -34- delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be prima facie evidence of the matters covered thereby absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. (f) If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person or to take any position to obtain a refund, deduction or credit that is inconsistent with any position otherwise taken by the Administrative Agent or such Lender, as the case may be, on any of its tax returns. Section 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have -35- received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. ARTICLE III REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: Section 3.01. Organization; Powers; Subsidiaries. The Borrower is duly organized and validly existing under the laws of Delaware. The Borrower is in good standing under the laws of Delaware, each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and each of the Borrower and its Subsidiaries has all requisite power and authority to carry on its business as now conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. As of the Effective Date, all Subsidiaries are Restricted Subsidiaries. As of the Effective Date, no Subsidiary has in effect any Guarantee of any Debt or other obligation of the Borrower or any Subsidiary. Section 3.02. Authorization; Enforceability. The Transactions are within the Borrower's (and, in the case of the execution, delivery and performance of a Subsidiary Guaranty by a Subsidiary Guarantor, such Subsidiary Guarantor's) powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Each Subsidiary Guaranty signed by a Subsidiary Guarantor has been duly executed and delivered by such Subsidiary Guarantor and constitutes a legal, valid and binding obligation of such Subsidiary Guarantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Section 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2002, reported on by PricewaterhouseCoopers LLC, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2003, certified by its chief financial officer. Such -36- financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since December 31, 2002, there has been no material adverse change in the business, assets, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole, except that seasonal declines in energy prices will not constitute a material adverse change for purposes hereof. (c) Neither the Borrower nor any Subsidiary has on the Effective Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the financial statements dated as of December 31, 2002 referred to in Section 3.04(a). Since the date of such financial statements, neither the business nor the Properties of the Borrower or any Subsidiary have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. (d) As of the Effective Date, no Subordinated Debt is outstanding except the Senior Subordinated Notes. Section 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property (except Oil and Gas Properties) material to its business, except where the failure to have such title and leasehold interests, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except where the failure to have such ownership or license or the existence of such infringement, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Except as set out in the certificates delivered pursuant to Sections 4.01(f) and 5.11(d), each of the Borrower and the Subsidiaries has good and defensible title to its material (individually or in the aggregate) Oil and Gas Properties, free and clear of all Liens except Liens permitted by Section 6.02. As used in this Agreement, "good and defensible title" to Oil and Gas Properties shall be based on the standard that a prudent Person engaged in the business of ownership, development and operation of Oil and Gas Properties where such Oil and Gas Properties are located with knowledge of all of the facts and their legal bearing would be willing to accept as good and defensible title. Except as set forth in the certificates delivered pursuant to Sections 4.01(f) and 5.11(d), after giving full effect to the Liens permitted by Section 6.02 and subject to permitted sales under this Agreement, the Borrower and its Restricted Subsidiaries own the net interests in production attributable to the Hydrocarbon Interests reflected in the most recently delivered Reserve Report in all material respects and the ownership of such Properties shall not in any material respect obligate the Borrower or any Restricted Subsidiary to bear the costs and expenses relating to the maintenance, development and operation of any such Property in an amount in excess of the working interest of such Property set forth in the most recently delivered Reserve Report. All factual information contained in the most recently delivered Reserve Report is true and correct in all material respects as of the date of such Reserve Report. (d) All leases and agreements necessary for the conduct of the business of the Borrower and its Subsidiaries are, to the best knowledge of the Borrower and its Subsidiaries, valid and subsisting, in full force and effect and, to the best knowledge of the Borrower and its Subsidiaries, there exists no default or event or circumstance which with the giving of notice or the passage of time or both -37- would give rise to a default under any such lease or leases, which would in the aggregate have a Material Adverse Effect. (e) The rights, properties and other assets presently owned, leased or licensed by the Borrower and its Subsidiaries including all easement and rights of way, include all rights, Properties and other assets necessary to permit the Borrower and its Subsidiaries to conduct their business in all material respects in the same manner as their business has been conducted prior to the Effective Date. (f) All of the assets and Properties of the Borrower and its Subsidiaries which are reasonably necessary for the operation of their business are in good working condition for their current use and are maintained in accordance with business standards of a reasonably prudent operator where such assets and Properties are located. (g) Except (i) as set forth on Schedule 3.05 and (ii) for participation agreements existing or entered into in the ordinary course of business of the Borrower with respect to the drilling, development or acquisition of Oil and Gas Properties with participants under arrangements which do not constitute state law partnerships, as of the Effective Date the Borrower has no Subsidiaries and no interest in any partnerships. Section 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions. (b) Except for matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim asserting or alleging any Environmental Liability or (iv) knows of any basis for any Environmental Liability. Section 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.08. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company" as those terms are defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or (b) a "holding company" or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" as those terms are defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. -38- Section 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $10,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $20,000,000 the fair market value of the assets of all such underfunded Plans. Section 3.11. Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the other reports, financial statements, certificates or other written information furnished by or on behalf of the Borrower to the Administrative Agent, the Syndication Agent, either Co-Lead Arranger or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), taken as a whole, contained when furnished any material misstatement of fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed by the Borrower to be reasonable at the time recognizing that there are industry-wide risks normally associated with the types of business conducted by the Borrower and its Subsidiaries; provided further that it is understood that the Reserve Reports are based upon professional opinions, estimates and projections. Section 3.12. Insurance. Insurance complying with the requirements of Section 5.05 is in full force and effect. Neither the Borrower nor any Subsidiary has been refused any insurance with respect to its assets or operations, nor has its coverage been limited below usual and customary policy limits, by an insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last three years. Section 3.13. Fiscal Periods. The fiscal year of the Borrower and its consolidated Subsidiaries is the twelve-month period ending on December 31 of each year and the fiscal quarters of the Borrower and its consolidated Subsidiaries are each of the three-month periods ending on March 31, June 30, September 30 and December 31 of each year. Section 3.14. Use of Proceeds. Following application of the proceeds of each Loan, not more than 25% of the value of assets (either of the Borrower only or of the Borrower and its Restricted Subsidiaries on a consolidated basis), which are subject to any arrangement with the Administrative Agent, the Issuing Bank or any Lender (herein or otherwise) whereby the Borrower's or any Restricted Subsidiary's right or ability to sell, pledge or otherwise dispose of assets is in any way restricted (or pursuant to which the exercise of any such right is or may be cause for accelerating the maturity of all or any portion of the Loans or any amount payable hereunder or under any such other arrangement), will be margin stock (within the meaning of Regulation U of the Board). ARTICLE IV CONDITIONS Section 4.01. Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): -39- (a) The Administrative Agent shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Vinson & Elkins L.L.P., counsel for the Borrower, substantially in the form of Exhibit B, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a), (b) and (c) of Section 4.02 and setting forth the calculation of the Borrowing Base as of the Effective Date. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Administrative Agent shall have received the December 31 Reserve Report for 2003 comporting with the requirements of Section 5.11(a), the related reports contemplated by Section 5.11(c), any related Engineering Reports requested by the Administrative Agent and the certificate contemplated by Section 5.11(d). (g) The Administrative Agent shall have received an original promissory note as contemplated by Section 2.10(e) for each Lender that has notified the Administrative Agent prior to the Effective Date that such Lender requests such note. (h) The Administrative Agent shall have received such other documents as it may reasonably request. (i) All commitments under, and all letters of credit (other than the Existing Letters of Credit) issued pursuant to, the Existing Credit Agreement shall have been terminated and all amounts outstanding under the Existing Credit Agreement shall have been paid in full. Each Lender that is a party to the Existing Credit Agreement waives each notice of termination of such commitments or of prepayment required thereby. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on March 31, 2004 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: -40- (a) The representations and warranties of the Borrower set forth in this Agreement (and, if any Subsidiary Guaranty has been executed, of the Subsidiary Guarantors set forth in the Subsidiary Guaranties) shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing and no Borrowing Base Deficiency shall exist. (c) No Material Adverse Effect shall have occurred since December 31, 2002. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section. ARTICLE V AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 5.01. Financial Statements; Ratings Change and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year of the Borrower, its audited consolidated (and if any Unrestricted Subsidiary existed during such year, its unaudited consolidating) balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, (i) all (other than any such consolidating balance sheet and consolidating statements) reported on by PricewaterhouseCoopers LLC or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, and (ii) in the case of such consolidating balance sheet and consolidating statements, if any, certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidating basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated (and if any Unrestricted Subsidiary existed during such year its consolidating) balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis (and, in the case of such consolidating balance sheet and consolidating statements, if any, on a consolidating basis) in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; -41- (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.21 and 6.22, (iii) setting forth a calculation of the Borrowing Base and (iv) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) promptly after the delivery to the Securities and Exchange Commission, a copy of the certification signed by the principal executive officer and the principal financial officer of the Borrower (each, a "Certifying Officer") as required by Rule 13A-14 under the Securities Exchange Act of 1934 and a copy of the internal controls disclosure statement by such Certifying Officers as required by Rule 13A-15 under the Securities Exchange Act of 1934 and Final Rules Release No. 33-8238 of the United States Securities and Exchange Commission, each as included in the Borrower's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, for the applicable fiscal period; (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; (f) promptly after Moody's or S&P shall have announced a change in the rating established or deemed to have been established for the Index Debt, notice of such rating change; (g) within three Business Days of any issuance of Subordinated Debt or any Senior Note, notice of such issuance including the amount and maturity thereof and a copy of the indenture or other instrument pursuant to which such Subordinated Debt or Senior Note was issued; (h) if the Borrowing Base Debt Amount has increased by more than $5,000,000 since the most recent Redetermination Date (or if the first Redetermination Date has not occurred, since the Effective Date), (i) within five Business Days of such increase, notice of such amount and (ii) until the next Redetermination Date, notice of the amount of each additional increase (if $5,000,000 or more) in the Borrowing Base Debt Amount; provided that the Borrower will not be required to provide such notices with respect to increases in the Borrowing Base Debt Amount resulting from short term borrowings under the Borrower's money market lines of credit so long as the total aggregate outstanding principal amount of such borrowings does not exceed $40,000,000; and (i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Section 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default or the occurrence of any Borrowing Base Deficiency; (b) the filing or commencement of any claim for taxes, action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that involves monetary claims in excess of $20,000,000 or that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; -42- (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $10,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises used or useful in the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 or the release, surrender or disposition of the legal existence of any Restricted Subsidiary or of any such rights, licenses, permits, privileges and franchises (other than the legal existence of the Borrower), if all such releases, surrenders and dispositions, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property (except Oil and Gas Properties) material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as is customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.08. Oil and Gas Properties. (a) The Borrower will operate, and will cause the Subsidiaries to operate, their Oil and Gas Properties or cause such Oil and Gas Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all respects with all requirements of any Governmental Authority, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. -43- (a) The Borrower will and will cause each Subsidiary to, at its own expense, do or cause to be done all things reasonably necessary to preserve and keep in good repair and working order (ordinary wear and tear excepted) all of its Oil and Gas Properties and other material Properties including all equipment, machinery and facilities, and from time to time will make all the reasonably necessary repairs, renewals and replacements so that at all times the state and condition of its Oil and Gas Properties and other material Properties will be fully preserved and maintained, except to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts or where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. In a manner consistent with the prudent operator standard, the Borrower will and will cause each Subsidiary to promptly: (i) pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and obligations accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties, (ii) perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material Properties, (iii) will and will cause each Subsidiary to do all other things necessary to keep unimpaired, except for Liens permitted by Section 6.02, its rights with respect thereto and prevent any forfeiture thereof or a default thereunder, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 5.09. Principal Business. Borrower will, and will cause each Subsidiary to, maintain as its primary business the exploration, production and development of oil, natural gas and other liquid and gaseous Hydrocarbons. Section 5.10. Subsidiary Guaranties. If any Restricted Subsidiary is created or acquired which has Guaranteed, or any Restricted Subsidiary Guarantees or proposes to Guarantee (in each case, the "Guaranteeing Subsidiary"), any Debt or other obligation of the Borrower or any Restricted Subsidiary, then the Borrower will cause the Guaranteeing Subsidiary, simultaneously with or prior to such acquisition or creation or such Guarantee of Debt or other obligation, as the case may be, to deliver to the Administrative Agent (i) a Subsidiary Guaranty duly executed by such Guaranteeing Subsidiary, (ii) certified copies of the charter, by-laws, partnership or company agreement or similar documents pertaining to such Guaranteeing Subsidiary, (iii) evidence, reasonably satisfactory to the Administrative Agent, of the authorization and due execution and delivery of such Subsidiary Guaranty by such Guaranteeing Subsidiary, (iv) other documents and certificates of the type referred to in Section 4.01(c) with respect to such Guaranteeing Subsidiary and (v) a legal opinion of counsel reasonably acceptable to the Administrative Agent in substantially the form of Exhibit B, but referring to such Guaranteeing Subsidiary and such Subsidiary Guaranty rather than the Borrower and the documents referred to in Exhibit B. Section 5.11. Engineering Reports. (a) The Borrower shall deliver the December 31 Reserve Report at least 60 days prior to the next following May 1 Scheduled Redetermination Date. The Borrower shall deliver the June 30 Reserve Report at least 60 days prior to the next following November 1 Scheduled Redetermination Date. The December 31 Reserve Report shall include (a) a report prepared by Ryder-Scott Company, Petroleum Engineers, DeGoyler & McNaughton or other certified independent engineer of recognized standing satisfactory to the Administrative Agent (the "Outside Report"), which covers at least 80% of the proved oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and the Restricted Subsidiaries, and (b) a report prepared by or under the supervision of the chief engineer of the Borrower who shall certify such report to be true and accurate and to have been prepared in accordance with the procedures used in such Outside Report (the "Company Report"), which covers the proved oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and the Restricted Subsidiaries which were not covered by such Outside Report. The June 30 Report shall be a Company Report which covers the proved oil and gas reserves attributable to all of the Oil and Gas Properties of the Borrower and the Restricted Subsidiaries. The Borrower may elect to use the immediately preceding December 31 Reserve Report instead of preparing the June 30 Reserve Report, in which case reserve run off with no replacement will be assumed. Further, the Borrower will be required to -44- provide a review of the Oil and Gas Properties which shall include a comparison of actual and projected production volumes. (a) For each unscheduled redetermination, the Borrower shall furnish to the Lenders, a Reserve Report, as of a date no earlier than 60 days prior to the date on which such redetermination is to occur in accordance with Section 2.04(d), prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding December 31 Reserve Report. For any unscheduled redetermination requested by the Required Lenders pursuant to Section 2.04(d), the Borrower shall provide such Reserve Report as soon as possible, but in any event no later than 45 days following its receipt of the request by the Required Lenders. (b) Concurrently with the delivery of each Reserve Report, the Borrower shall provide the Lenders production reports covering in the aggregate the net production of oil and gas of the Borrower and the Restricted Subsidiaries, which reports shall include quantities or volumes of production, realized product prices, operating expenses, taxes, capital expenditures and such other information as the Administrative Agent may reasonably request and covering the six month period ending on the "as of" date of the Reserve Report being delivered with such production report. (c) With the delivery of each Reserve Report, the Borrower shall provide to the Lenders, a certificate from the Responsible Officer who is the chief engineer of the Borrower that, to the best of his knowledge and in all material respects, (i) the factual information contained in the Reserve Report and Engineering Reports is true and correct, (ii) the Borrower or a Restricted Subsidiary owns good and defensible title to the Oil and Gas Properties evaluated in such Reserve Report free of all Liens except for Excepted Liens, (iii) except as set forth on an exhibit to the certificate or in the Reserve Report, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to the Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or any Restricted Subsidiary to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) no Oil and Gas Properties have been sold since the date of the last Calculated Borrowing Base determination except as permitted by the terms of this Agreement, (v) attached to the certificate are statements of the Borrower's and each Restricted Subsidiary's outstanding Oil or Gas Swap Contracts, which statements shall include for each such Oil or Gas Swap Contract (A) the termination date, (B) the notional amounts or volumes and the periods covered by such volumes, and (C) the price to be paid or the basis for calculating the price to be paid by the Borrower and the other Person under each Oil or Gas Swap Contract for each of the future periods covered by each Oil or Gas Swap Contract, (vi) the Borrowing Base Debt Amount on the date of such certificate is the amount set forth in such certificate, and (vii) the amount of Subordinated Debt outstanding on the date of such certificate is the amount set forth in such certificate. ARTICLE VI NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: Section 6.01. Debt. The Borrower will not, and will not permit any Restricted Subsidiary to, create, incur or assume any Debt, if at the time of such creation, incurrence or assumption or immediately after giving effect thereto any Borrowing Base Deficiency would exist or any Default shall have occurred and be continuing; provided that this Section 6.01 shall not prohibit the Borrower and its Restricted Subsidiaries from creating or incurring, even if a Borrowing Base Deficiency or any Default -45- shall have occurred, (i) Debt evidenced by bonds or surety obligations, in each case required by any Governmental Authority, (ii) obligations to pay into escrow accounts or establish other reserves, in each case under this clause (ii) only in amounts necessary to cover costs of abandonment of oil and gas wells or drilling sites, and (iii) obligations described in clause (k) of the definition herein of Debt that arise after the occurrence of a Borrowing Base Deficiency or Default pursuant to a futures contract, swap contract or similar hedging agreement entered into prior to such occurrence; provided further that this Section 6.01 shall not prohibit obligations described in clause (k) of the definition herein of Debt if no Default shall have occurred and be continuing. Section 6.02. Liens. The Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Excepted Liens; (b) any Lien on any property or asset of the Borrower or any Restricted Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Restricted Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Restricted Subsidiary, (iii) such Lien does not secure any obligation of an Unrestricted Subsidiary and (iv) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (d) Liens securing Capital Lease Obligations of the Borrower or any Restricted Subsidiary if the aggregate amount of all such Capital Lease Obligations does not exceed $25,000,000 and such Liens do not encumber any Oil and Gas Properties; (e) Liens on cash or securities securing obligations of the Borrower or any Restricted Subsidiary arising by law or under production sharing contracts, joint operating agreements or similar agreements to pay into escrow accounts or establish other reserves, in each case only in amounts necessary to cover costs of abandonment of oil and gas wells or drilling sites; and (f) Liens on the Equity Interests of any Unrestricted Subsidiary. Section 6.03. Fundamental Changes. (a) The Borrower will not, and will not permit any Restricted Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its business or assets, or any Equity Interests of any of its Restricted Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing, this Section 6.03 shall not prohibit (i) any Person from merging into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Person (other than the Borrower) from merging into any Restricted Subsidiary in a transaction in which the surviving entity is a Restricted Subsidiary wholly-owned by the Borrower, (iii) any Restricted Subsidiary from selling, transferring, leasing or otherwise disposing of its assets to the Borrower or to another Restricted Subsidiary wholly-owned by the Borrower, (iv) any Restricted Subsidiary from liquidating or dissolving if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders and (v) any Restricted Subsidiary from -46- selling, transferring, leasing or otherwise disposing of its assets if such sale, transfer, lease or other disposition would otherwise be permitted under Section 6.14. (a) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. Section 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any Restricted Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any Investment in any Person except Permitted Investments. The Borrower will not, and will not permit any Restricted Subsidiary to, Guarantee any obligation of any Unrestricted Subsidiary. Section 6.05. Swap Agreements. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Restricted Subsidiary has actual exposure (other than those in respect of Equity Interests of the Borrower or any of its Subsidiaries), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Restricted Subsidiary. Section 6.06. Restricted Payments. The Borrower will not, and will not permit any of the Restricted Subsidiaries to, pay, declare or make, or agree to pay, declare or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries and (d) the Borrower may declare and pay cash dividends, and redeem for cash or repurchase for cash its common and preferred stock, if in each case (i) the aggregate amount of such dividends plus the aggregate amount paid for such redemptions and repurchases during each four consecutive fiscal quarters of the Borrower does not exceed 100% of the consolidated net income of the Borrower and its Restricted Subsidiaries for such four quarters, and (ii) at the time of any such dividend, redemption or repurchase, and immediately after giving effect thereto, no Borrowing Base Deficiency shall exist and no Default shall have occurred and be continuing. Section 6.07. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower and each Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly-owned Restricted Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.06. Section 6.08. Restrictive Agreements. The Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or to Guarantee Debt of the Borrower or any other Restricted Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions -47- and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Debt (including Capital Lease Obligations) permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof. Section 6.09. Subsidiary Debt and Preferred Stock. The Borrower will not permit any Restricted Subsidiary to issue preferred stock and will not permit the aggregate principal amount of Debt of its Restricted Subsidiaries (excluding any Debt of a Restricted Subsidiary owed to the Borrower or another Restricted Subsidiary, but including any Guarantee by a Restricted Subsidiary of Debt of the Borrower) at any time to exceed $25,000,000. Section 6.10. Designation of Unrestricted Subsidiaries. The Borrower will not designate any Subsidiary as an Unrestricted Subsidiary, unless: (i) neither such Subsidiary nor any of its subsidiaries has any Debt except Non-Recourse Debt; (ii) neither such Subsidiary nor any of its subsidiaries is a party to any agreement, arrangement, understanding or other transaction with the Borrower or any Restricted Subsidiary, except those agreements and other transactions entered into in writing in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower and each Restricted Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; (iii) at the time of such designation, the aggregate book value of the assets of the Borrower and the Restricted Subsidiaries, on a consolidated basis (excluding investments in Unrestricted Subsidiaries) exceeds $2,250,000,000; (iv) neither such Subsidiary nor any of its subsidiaries is a Guarantor Subsidiary or has any outstanding Letter of Credit issued for its account; (v) neither such Subsidiary nor any of its subsidiaries owns any Oil and Gas Properties included in the Calculated Borrowing Base or other Property relevant to the Calculated Borrowing Base in effect at the time of such designation; (vi) at the time of such designation and immediately after giving effect thereto, no Borrowing Base Deficiency shall exist and no Default shall have occurred and be continuing; (vii) the Borrower would have been in compliance with Section 6.22 on the last day of the most recently ended fiscal quarter of the Borrower had such Subsidiary been an Unrestricted Subsidiary on such day; (viii) neither such Subsidiary nor any of its subsidiaries owns any Debt or Equity Interest of, or is the beneficiary of any Lien on any property of, the Borrower or any Restricted Subsidiary; and (ix) at or immediately prior to such designation, the Borrower delivers a certificate to the Lenders certifying (a) the names of such Subsidiary and all of its subsidiaries, and (b) that all requirements of this Section have been met for such designation. Section 6.11. New Unrestricted Subsidiaries. The Borrower will not permit any Unrestricted Subsidiary to acquire or create any subsidiary of such Unrestricted Subsidiary unless such subsidiary is designated as an Unrestricted Subsidiary in accordance with Section 6.10. -48- Section 6.12. Sale Leaseback Transactions. The Borrower will not enter into, and will not permit any Restricted Subsidiary to enter into, any Sale Leaseback Transaction if, immediately after giving effect thereto, the aggregate amount of all Attributable Obligations for all Sale Leaseback Transactions would exceed $25,000,000. Section 6.13. Sale or Discount of Receivables. The Borrower will not, and will not permit any Restricted Subsidiary to, discount or sell (with or without recourse) any of its notes receivable or accounts receivable, except that the Borrower may discount or sell past due accounts receivable and past due notes receivable if the Borrower determines in its reasonable judgment that such course of action is a reasonably prudent means of collection with respect to such note receivable or account receivable and if the notes and accounts receivables discounted or sold do not constitute a material portion of the Borrower's and the Restricted Subsidiaries' notes receivable or accounts receivable outstanding at such time. Section 6.14. Sale of Oil and Gas Properties. Except for Hydrocarbons sold in the ordinary course of business as and when produced, the Borrower will not, and will not permit any Restricted Subsidiary to, sell, assign, transfer, farm-out or convey, directly or indirectly, by way of merger or sale of equity securities in a Subsidiary or otherwise ("Transfer"), any interest in any of its Oil and Gas Properties in excess of $100,000,000 in the aggregate during the period from the Effective Date to the initial Redetermination Date or during any period from one Redetermination Date to the next Redetermination Date, as such value is determined by the most recent December 31 Reserve Report using a 9% discount rate and giving effect to production prior to the effective date of the Transfer, without the prior written consent of Required Lenders, which consent will not be unreasonably withheld. Section 6.15. Subsidiaries and Partnerships. The Borrower will not, and will not permit any Restricted Subsidiary to, create or acquire any Subsidiary unless (i) the Borrower shall give the Administrative Agent prompt notice of the creation of such Subsidiary and (ii) the Borrower is in compliance with Sections 5.10 and 6.04. Section 6.16. Hydrocarbon Sales Contract. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any contract for the sale of Hydrocarbons produced from any of its Oil and Gas Properties in which the Borrower or such Subsidiary warrants quantities of Hydrocarbons to be delivered thereunder. Section 6.17. Environmental Matters. The Borrower will not, and will not permit any Subsidiary to, cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property, where such violations and remedial obligations would in the aggregate, have a Material Adverse Effect. Section 6.18. Subordinated Debt. The Borrower will not modify or amend the terms of any Subordinated Debt or any related indentures or other document, if the effect of such modification or amendment would be to shorten the time for payment on any Subordinated Debt, increase the rate of interest on any Subordinated Debt or change the method of calculating interest so as to effectively increase the rate of interest on any Subordinated Debt, change any of the provisions of the covenants, subordination provisions and events of default or any of the definitions used in or relating thereto, or any other provisions which would detrimentally affect the rights of the Lenders. Section 6.19. Fiscal Periods. The Borrower will not change, and will not permit any of its Consolidated Restricted Subsidiaries to change, its fiscal year from the twelve-month period ending on December 31 of each year or any of its fiscal quarters from the three-month periods ending March 31, June 30, September 30 and December 31 of each year. -49- Section 6.20. Use of Proceeds. The Borrower will not use, and will not permit any Subsidiary to use, the proceeds of any Loan for any purpose other than general corporate and working capital purposes which may include the acquisition, exploration and development of Oil and Gas Properties, and in any event will not use, and will not permit any Subsidiary to use, any such proceeds (i) in any manner that violates or results in a violation of any law or regulation or this Agreement, or to purchase or carry, directly or indirectly, any margin stock (within the meaning of Regulation U of the Board) or for any purpose that would result in any Loan being a "purpose credit" within the meaning of Regulation U. The Borrower will not use and will not permit any Subsidiary to use any Letter of Credit to support any Debt of any Person or to support any obligation of an Unrestricted Subsidiary. Section 6.21. Total Debt to EBITDA Ratio. The Borrower will not permit the Total Debt to EBITDA Ratio to exceed 3.00 to 1.00 at any time. Section 6.22. EBITDA to Interest Ratio. The Borrower will not permit the EBITDA to Interest Ratio to be less than 3.00 to 1.00 for any period of four consecutive fiscal quarters of the Borrower. ARTICLE VII EVENTS OF DEFAULT Section 7.01. Events of Default. If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement (other than LC Disbursements that are financed as a Borrowing in accordance with Section 2.06(e)) when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement, any other Loan Document or any amendment, waiver or modification hereof or thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement, any other Loan Document or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02 or 5.03 (with respect to the Borrower's existence) or in Article II or Article VI; (e) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any other Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); (f) the Borrower or any Restricted Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; -50- (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Debt that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Debt if such indebtedness is paid when due; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Restricted Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Restricted Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Restricted Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Restricted Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $25,000,000 (net of insured amounts payable by a financially responsible insurer that has been notified thereof and has not denied coverage) shall be rendered against the Borrower, any Restricted Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Restricted Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect or result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $25,000,000 for all periods; (m) a Change in Control shall occur; (n) any provision of any Subsidiary Guaranty for any reason is not a legal, valid, binding and enforceable obligation of the Subsidiary Guarantor shown as being a party thereto or any Subsidiary or the Borrower shall so state in writing; or (o) the Borrower or any other Person shall petition or apply for or obtain any order restricting payment by the Issuing Bank under any Letter of Credit or extending the liability of the Issuing Bank under any Letter of Credit beyond the expiration date stated therein; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative -51- Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower. Without limiting the foregoing or any other provision hereof, the Borrower shall also have the obligations, and the Administrative Agent and Lenders shall have the rights and remedies, specified in Section 2.06(j). ARTICLE VIII THE ADMINISTRATIVE AGENT Section 8.01. The Administrative Agent. Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. THE ADMINISTRATIVE AGENT SHALL NOT BE LIABLE FOR ANY ACTION TAKEN OR NOT TAKEN BY IT WITH THE CONSENT OR AT THE REQUEST OF THE REQUIRED LENDERS (OR SUCH OTHER NUMBER OR PERCENTAGE OF THE LENDERS AS SHALL BE NECESSARY UNDER THE CIRCUMSTANCES AS PROVIDED IN SECTION 9.02) OR IN THE ABSENCE OF ITS OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT. The Administrative Agent shall not be liable for the accuracy of, or the methodology or procedures used by it in redetermining or proposing, any Calculated Borrowing Base. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, any other Loan Document or any other agreement, -52- instrument or document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the amount of the Borrowing Base, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower (but such consultation shall not be required if an Event of Default shall have occurred and is continuing), to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. EACH LENDER, RATABLY IN ACCORDANCE WITH ITS RESPECTIVE APPLICABLE PERCENTAGE, SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, SUB-AGENTS APPOINTED BY THE ADMINISTRATIVE AGENT PURSUANT -53- TO THIS ARTICLE VIII AND EACH RELATED PARTY OF THE ADMINISTRATIVE AGENT AND SUCH SUB-AGENTS (EACH SUCH PERSON BEING CALLED AN "AGENT INDEMNITEE") AGAINST, AND HOLD EACH AGENT INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY AGENT INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY AGENT INDEMNITEE TO THE EXTENT (i) THAT SUCH AGENT INDEMNITEE IS ENTITLED TO INDEMNIFICATION FROM THE BORROWER PURSUANT TO SECTION 9.03(b) AND (ii) EITHER (1) SUCH AGENT INDEMNITEE IS NOT PROMPTLY AND INDEFEASIBLY PAID THE AMOUNT OF SUCH INDEMNIFICATION BY THE BORROWER OR (2) ANY SUCH PAYMENT IS RESCINDED OR MUST OTHERWISE BE RETURNED BY SUCH AGENT INDEMNITEE UPON THE INSOLVENCY, BANKRUPTCY OR REORGANIZATION OF ANY PERSON OR OTHERWISE. IT IS THE EXPRESS INTENT OF THE PARTIES HERETO THAT EACH AGENT INDEMNITEE SHALL, TO THE EXTENT CONTEMPLATED IN SECTION 9.03 BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. PAYMENT BY ANY LENDER PURSUANT TO THIS ARTICLE VIII SHALL NOT RELIEVE THE BORROWER OF ITS OBLIGATIONS UNDER SECTION 9.03, AND EACH LENDER MAKING A PAYMENT UNDER THIS PARAGRAPH SHALL BE ENTITLED TO RECEIVE FROM EACH AGENT INDEMNITEE SUCH LENDER'S RATABLE SHARE OF ANY AMOUNT INDEFEASIBLY RECOVERED BY SUCH AGENT INDEMNITEE FROM THE BORROWER ON ACCOUNT OF THE PREVIOUSLY UNPAID INDEMNIFICATION PURSUANT TO SECTION 9.03(b) THAT REQUIRED SUCH PAYMENT BY SUCH LENDER UNDER THIS PARAGRAPH, IN EACH CASE WITHOUT INTEREST. ARTICLE IX MISCELLANEOUS Section 9.01. Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (i) if to the Borrower, to it at 363 N. Sam Houston Parkway, Suite 2020, Houston, Texas 77060, Attention of chief financial officer (Telecopy No. (713) 847-6006); (ii) if to the Administrative Agent, to JPMorgan Chase Bank, Loan and Agency Services Group, 1111 Fannin St., 10th Floor, Houston, Texas 77002-8069, Attention of Ms. Janene English (Telecopy No. (713) 427-6307), with a copy to JPMorgan Chase Bank, 600 Travis Street, 20th Floor, Houston, Texas 77002, Attention of Mr. Peter Licalzi (Telecopy No. (713) 216-4117); (iii) if to the Issuing Bank, to it at the address set forth in paragraph (ii) above; and (iv) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. (c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto or, in the case of a change by a Lender, to the Administrative Agent and the Borrower. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. -54- Section 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (a) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase or extend the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) postpone the due date of any payment of the principal amount of any Loan or LC Disbursement due pursuant to Section 2.10(f), or reduce the amount of, waive or excuse any such payment, without the written consent of each Lender affected thereby, (v) delete (or make changes that have the practical effect of deleting) from this Agreement (1) the borrowing base mechanism or (2) the related requirement for mandatory prepayments, without the written consent of each Lender affected thereby (for avoidance of doubt, this clause (v) does not prevent changes consented to pursuant to clause (vi) of this sentence relating to methodology, timing, amounts or matters included or excluded in determining the Calculated Borrowing Base or the Borrowing Base, content of reports and similar items), (vi) change Section 2.04 or 5.11 or change, for the purpose of any such Section, the definitions of defined terms used in any such Section, in each case without the written consent of the Administrative Agent and the Borrowing Base Approval Lenders, (vii) change Section 2.05(b) or (c) or Section 2.09 in a manner that would alter the pro rata treatment of Lenders or pro rata sharing of payments required thereby, without the written consent of each Lender, or (viii) change any of the provisions of this Section, the definition of "Borrowing Base Approval Lenders" or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Bank hereunder without the prior written consent of the Administrative Agent or the Issuing Bank, as the case may be. Section 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of and due diligence related to the credit facilities provided for herein, the preparation and administration of this Agreement, the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of -55- any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY OTHER TRANSACTIONS CONTEMPLATED HEREBY, (ii) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (iii) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (iv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE. IT IS THE EXPRESS INTENT OF THE PARTIES HERETO THAT EACH INDEMNITEE SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 9.03, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or the Issuing Bank under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or the Issuing Bank, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or the Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. Section 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective -56- successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section), sub-agents appointed by the Administrative Agent pursuant to Article VIII and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, any such sub-agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of: (A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and (B) the Administrative Agent. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing; (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. For the purposes of this Section 9.04(b), the term "Approved Fund" has the following meaning: "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any -57- assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c)(i) Any Lender may, without the consent of the Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.05(c) as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender. (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or -58- assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Section 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. Section 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent or the Syndication Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and -59- unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to any Loan Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to any Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower or any Subsidiary, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by -60- the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. Section 9.14. Co-Lead Arrangers, Co-Documentation Agents and Syndication Agent. None of the Co-Lead Arrangers, Co-Documentation Agents and Syndication Agent shall have any duty, responsibility or liability under the Loan Documents in their respective capacities as Co-Lead Arranger, Co-Documentation Agent or Syndication Agent, as the case may be. Section 9.15. USA Patriot Act Notice. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. -61- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NEWFIELD EXPLORATION COMPANY By: /s/ TERRY W. RATHERT ----------------------------------------- Name: Terry W. Rathert Title: Vice President and Chief Financial Officer JPMORGAN CHASE BANK, individually and as Administrative Agent By: /s/ ROBERT C. MERTENSOTTO ----------------------------------------- Name: Robert C. Mertensotto Title: Managing Director WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ PHILIP TRINDER ----------------------------------------- Name: Philip Trinder Title: Vice President HARRIS NESBITT FINANCING, INC. By: /s/ JAMES V. DUCOTE ----------------------------------------- Name: James V. Ducote Title: Vice President -62- CREDIT LYONNAIS NEW YORK BRANCH By: /s/ OLIVIER AUDEMARD ----------------------------------------- Name: Olivier Audemard Title: Senior Vice President FLEET NATIONAL BANK By: /s/ JEFFREY H. RATHKAMP ----------------------------------------- Name: Jeffrey H. Rathkamp Title: Director BARCLAYS BANK PLC By: /s/ NICHOLAS A. BELL ----------------------------------------- Name: Nicholas A. Bell Title: Director - Loan Transaction Management THE BANK OF NOVA SCOTIA By: /s/ NADINE BELL ----------------------------------------- Name: Nadine Bell Title: Senior Manager UNION BANK OF CALIFORNIA By: /s/ ALI AHMED ----------------------------------------- Name: Ali Ahmed Title: Vice President By: /s/ RANDALL OSTERBERG ----------------------------------------- Name: Randall Osterberg Title: Senior Vice President -63- THE BANK OF NEW YORK By: /s/ CRAIG J. ANDERSON ----------------------------------------- Name: Craig J. Anderson Title: Vice President THE ROYAL BANK OF SCOTLAND PLC By: /s/ JAMES R. MCBRIDE ----------------------------------------- Name: James R. McBride Title: Managing Director U.S. BANK NATIONAL ASSOCIATION By: /s/ MARK E. THOMPSON ----------------------------------------- Name: Mark E. Thompson Title: Vice President WASHINGTON MUTUAL BANK, FA By: /s/ DAVID W. PHILLIPS ----------------------------------------- Name: David W. Phillips Title: Vice President -64- SOCIETE GENERALE By: /s/ JASON HENDERSON ----------------------------------------- Name: Jason Henderson Title: Vice President COMERICA BANK By: /s/ CHARLES E. HALL ----------------------------------------- Name: Charles E. Hall Title: Sr. Vice President UFJ BANK By: /s/ CLYDE L. REDFORD ----------------------------------------- Name: Clyde L. Redford Title: Senior Vice President COMPASS BANK By: /s/ DOROTHY MARCHAND ----------------------------------------- Name: Dorothy Marchand Title: Senior Vice President BANK OF AMERICA, N.A. By: /s/ STEVEN A. MACKENZIE ----------------------------------------- Name: Steven A. Mackenzie Title: Vice President -65- DNB NOR BANK ASA By: /s/ PETER M. DODGE ----------------------------------------- Name: Peter M. Dodge Title: First Vice President By: /s/ ALFRED C. JONES III ----------------------------------------- Name: Alfred C. Jones III Title: Senior Vice President THE FROST NATIONAL BANK By: /s/ ANDREW A. MERRYMAN ----------------------------------------- Name: Andrew A. Merryman Title: Senior Vice President NATEXIS BANQUES POPULAIRES By: /s/ DONOVAN C. BROUSSARD ----------------------------------------- Name: Donovan C. Broussard Title: Vice President & Manager By: /s/ DANIEL PAYER ----------------------------------------- Name: Daniel Payer Title: Vice President SOUTHWEST BANK OF TEXAS By: /s/ W. BRYAN CHAPMAN ----------------------------------------- Name: W. Bryan Chapman Title: Senior Vice President - Energy Lending -66- SCHEDULE 2.01 INITIAL COMMITMENTS

AMOUNT OF PERCENTAGE OF TOTAL LENDER COMMITMENT COMMITMENTS - ----------------------------------- ----------- ------------------- JPMorgan Chase Bank $ 45,000,000 7.50% Wachovia Bank, National Association $ 45,000,000 7.50% Harris Nesbitt Financing, Inc. $ 45,000,000 7.50% Credit Lyonnais $ 45,000,000 7.50% Barclays Bank plc $ 32,500,000 5.416667% The Bank of Nova Scotia $ 32,500,000 5.416667% Union Bank of California $ 32,500,000 5.416667% The Bank of New York $ 32,500,000 5.416667% The Royal Bank of Scotland plc $ 32,500,000 5.416667% U.S. Bank National Association $ 32,500,000 5.416667% Fleet National Bank $ 30,000,000 5.00% Washington Mutual Bank, FA $ 28,500,000 4.75% Societe Generale $ 28,500,000 4.75% Comerica Bank $ 22,500,000 3.75% UFJ Bank $ 22,500,000 3.75% Compass Bank $ 18,000,000 3.00% Bank of America, N.A. $ 15,000,000 2.50% DnB NOR Bank ASA $ 15,000,000 2.50% The Frost National Bank $ 15,000,000 2.50% Natexis Banques Populaires $ 15,000,000 2.50% Southwest Bank of Texas $ 15,000,000 2.50% ------------ -------- TOTAL $600,000,000 100%

EX-10.2 3 h14489exv10w2.txt NEWFIELD EXPLORATION COMPANY STOCK PLAN EXHIBIT 10.2 NEWFIELD EXPLORATION COMPANY 2004 OMNIBUS STOCK PLAN I. PURPOSE The purpose of this NEWFIELD EXPLORATION COMPANY 2004 OMNIBUS STOCK PLAN (this "PLAN") is to provide a means through which NEWFIELD EXPLORATION COMPANY, a Delaware corporation (the "COMPANY"), and its subsidiaries may attract and retain able employees and to provide a means whereby those individuals upon whom the responsibilities of the successful administration and management of the Company and its subsidiaries rest, and whose present and potential contributions to the welfare of the Company and its subsidiaries are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and its subsidiaries. A further purpose of this Plan is to provide employees with additional incentive and reward opportunities designed to enhance the profitable growth of the Company and its subsidiaries and to better align the interests of such employees with those of the Company's stockholders. Accordingly, this Plan provides for granting Incentive Stock Options, options that do not constitute Incentive Stock Options, Restricted Stock Awards and any combination of the foregoing, as is best suited to the circumstances of a particular employee. II. DEFINITIONS AND CONSTRUCTION (A) DEFINITIONS. Where the following words and phrases are used in this Plan, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary: "AWARD" means, individually or collectively, any Option or Restricted Stock Award. "BOARD" means the Board of Directors of the Company. "CHANGE OF CONTROL" means the occurrence of any of the following events: (i) the Company is not the surviving Person in any merger, consolidation or other reorganization (or survives only as a subsidiary of another Person), (ii) the stockholders of the Company approve a merger or consolidation of the Company with another Person and as a result of such merger or consolidation less than 50% of the outstanding voting securities of the surviving or resulting corporation will be issued in respect of the capital stock of the Company, (iii) the Company sells, leases or exchanges all or substantially all of its assets to any other Person, (iv) the Company is to be dissolved and liquidated, (v) any Person, including a "group" as contemplated by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control (including the power to vote) of more than 50% of the outstanding shares of the Company's voting stock (based upon voting power) or (vi) as a result of or in connection with a contested election of directors, the Persons who were directors of the Company before such election cease to constitute a majority of the Board. Notwithstanding the foregoing, for purposes of Paragraph IX(d), the definition of "Change of Control" shall not include clause (i) above or any merger, consolidation, reorganization, sale, lease, exchange, or similar transaction involving solely the Company and one or more Persons that were wholly owned, directly or indirectly, by the Company immediately prior to such event. "CHANGE OF CONTROL VALUE" means (i) the price per share offered to stockholders of the Company in any merger, consolidation, reorganization, sale of assets or dissolution transaction that constitutes a Change of Control, (ii) the price per share offered to stockholders of the Company in any tender offer or exchange offer whereby a Change of Control takes place, or (iii) if a Change of Control occurs other than pursuant to a tender offer or exchange offer, the fair market value per share of the shares into which Awards are exercisable, as determined by the Committee. If the consideration offered to stockholders of the Company in any Change of Control transaction consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash. "CODE" means the Internal Revenue Code of 1986, as amended. Reference in this Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section. "COMMITTEE" means, subject to Paragraph IV(d), the Compensation & Management Development Committee of the Board. "COMMON STOCK" means the common stock, par value $.01 per share, of the Company, or any security into which such Common Stock may be changed by reason of any transaction or event of the type described in Paragraph IX. "COMPANY" has the meaning specified in Paragraph I. An "EMPLOYEE" means any Person (including an officer or a director) in an employment relationship with the Company or any parent or subsidiary corporation (as defined in section 424 of the Code). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" means, as of any specified date, the mean of the high and low sales prices of the Common Stock (i) reported by the National Market System of NASDAQ on that date or (ii) if the Common Stock is listed on a national stock exchange, reported on the stock exchange composite tape on that date (or such other reporting service approved by the Committee); or, in either case, if no prices are reported on that date, on the last preceding date on which such prices of the Common Stock were so reported. If the Common Stock is traded over the counter at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be deemed to be equal to the average between the reported high and low or closing bid and asked prices of Common Stock on the most recent date on which Common Stock was publicly traded. If the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate. "FORFEITURE RESTRICTIONS" has the meaning specified in Paragraph VIII(a). "HOLDER" means an employee who has been granted an Award, all or any portion of which remains outstanding. "INCENTIVE STOCK OPTION" means an incentive stock option within the meaning of section 422 of the Code. "OPTION" means an Award granted under Paragraph VII of this Plan and includes both Incentive Stock Options to purchase Common Stock and Options to purchase Common Stock that do not constitute Incentive Stock Options. "OPTION AGREEMENT" means a written agreement between the Company and a Holder with respect to an Option. "PERSON" means any individual, partnership, corporation, limited liability company, trust, incorporated or unincorporated organization or association or other legal entity of any kind. "PLAN" means this Newfield Exploration Company 2004 Omnibus Stock Plan, as it may be amended from time to time. "RESTRICTED STOCK AGREEMENT" means a written agreement between the Company and a Holder with respect to a Restricted Stock Award. "RESTRICTED STOCK AWARD" means an Award granted under Paragraph VIII of this Plan. "RULE 16B-3" means Securities and Exchange Commission Rule 16b-3 promulgated under the Exchange Act, as it may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a similar function. (B) CONSTRUCTION. Unless the context otherwise requires, as used in this Plan (i) a term has the meaning ascribed to it; (ii) "or" is not exclusive; (iii) "including" means "including, without limitation;" (iv) words in the singular include the plural; (v) words in the plural include the singular; (vi) words applicable to one gender shall be construed to apply to each gender; (vii) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Plan; (viii) the term "Paragraph" refers to the specified Paragraph of this Plan; (ix) the descriptive headings contained in this Plan are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Plan; (x) all references to amounts of money are to U.S. dollars; and (xi) a reference to any Person includes such Person's successors and permitted assigns. III. EFFECTIVE DATE AND DURATION OF THIS PLAN This Plan shall become effective upon the date of its adoption by the Board; provided that this Plan is approved by the stockholders of the Company within twelve months thereafter. Notwithstanding any provision in this Plan, in any Option Agreement or in any Restricted Stock Agreement, no Option shall be exercisable and no Restricted Stock Award shall vest prior to such stockholder approval. No further Awards may be granted under this Plan after ten years from the date this Plan is adopted by the Board. This Plan shall remain in effect until all Options granted under this Plan have been satisfied or expired, and all Restricted Stock Awards granted under this Plan have vested or been forfeited. IV. ADMINISTRATION (A) COMMITTEE ADMINISTRATION. Subject to Paragraph IV(d), this Plan shall be administered by the Committee. (B) POWERS. Subject to the express provisions of this Plan, the Committee shall have authority, in its sole discretion, to determine which employees shall receive an Award, the time or times when such Award shall be made, whether an Incentive Stock Option, nonqualified Option or Restricted Stock Award shall be granted, and the number of shares to be subject to each Option or Restricted Stock Award. In making such determinations, the Committee shall take into account the nature of the services rendered by the respective employees, their present and potential contribution to the Company's success and such other factors as the Committee in its sole discretion may deem relevant. (C) ADDITIONAL POWERS. The Committee shall have such additional powers as are delegated to it by the other provisions of this Plan. Subject to the express provisions of this Plan, this shall include the power to construe this Plan and the respective agreements executed hereunder, to prescribe rules and regulations relating to this Plan, and to determine the terms, restrictions and provisions of the agreement relating to each Award, including such terms, restrictions and provisions as shall be requisite in the judgment of the Committee to cause designated Options to qualify as Incentive Stock Options, and to make all other determinations necessary or advisable for administering this Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any agreement relating to an Award in the manner and to the extent it shall deem expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Paragraph IV shall be conclusive. (D) DELEGATION OF AUTHORITY BY THE COMMITTEE. Notwithstanding the preceding provisions of this Paragraph IV or any other provision of this Plan to the contrary, the Committee may from time to time, in its sole discretion, delegate all or any portion of its powers, duties and responsibilities under this Plan to a subcommittee of the Committee. In particular, the Committee may delegate the administration (or interpretation of any provision) of this Plan and the right to grant Awards under this Plan to a subcommittee consisting solely of two or more members of the Committee who are outside directors (within the meaning of the term "outside directors" as used in section 162(m) of the Code and applicable interpretive authority thereunder and within the meaning of "Non-Employee Director" as defined in Rule 16b-3). The Committee may put any conditions and restrictions on the powers that may be exercised by such subcommittee upon such delegation as the Committee determines in its sole discretion, and the Committee may revoke such delegation at any time. V. SHARES SUBJECT TO THIS PLAN; GRANT OF OPTIONS; GRANT OF RESTRICTED STOCK AWARDS (A) SHARES SUBJECT TO THIS PLAN AND AWARD LIMITS. Subject to adjustment from time to time in accordance with the terms of this Plan, the aggregate number of shares of Common Stock that may be issued under this Plan shall not exceed 3,000,000 shares. With respect to each Option granted under this Plan, the number of shares of Common Stock available for issuance under this Plan shall be reduced by the number of shares subject to such Option, and to the extent that such Option lapses or the rights of its Holder terminate, any shares not issued pursuant to such Option shall again be available for the grant of an Award under this Plan. With respect to each Restricted Stock Award granted under this Plan, the number of shares of Common Stock available for issuance under this Plan shall be reduced by two times the number of shares subject to such Restricted Stock Award, and to the extent that such Restricted Stock Award lapses or the rights of its Holder terminate, two times the number of shares subject to such Restricted Stock Award that were forfeited shall again be available for the grant of an Award under this Plan. Notwithstanding any provision in this Plan to the contrary, the maximum number of shares of Common Stock that may be subject to Awards granted to any one individual during any calendar year is 100,000 shares of Common Stock, of which no more than 50,000 shares of Common Stock may be subject to Restricted Stock Awards (as adjusted from time to time in accordance with the terms of this Plan). The limitation set forth in the preceding sentence shall be applied in a manner that will permit compensation generated under this Plan that is intended to constitute "performance-based" compensation for purposes of section 162(m) of the Code to qualify as such, including counting against such maximum number of shares, to the extent required under section 162(m) of the Code and applicable interpretive authority thereunder, any shares subject to Options that are canceled or repriced or shares subject to Restricted Stock Awards that are forfeited. (B) GRANT OF OPTIONS. The Committee may from time to time grant Options to one or more employees determined by it to be eligible for participation in this Plan in accordance with the terms of this Plan. (C) GRANT OF RESTRICTED STOCK AWARDS. The Committee may from time to time grant Restricted Stock Awards to one or more employees determined by it to be eligible for participation in this Plan in accordance with the terms of this Plan. (D) STOCK OFFERED. Subject to the limitations set forth in Paragraph V(a), the stock to be offered pursuant to the grant of an Award may be authorized but unissued Common Stock or Common Stock previously issued and outstanding and reacquired by the Company. Any of such shares that remain unissued and that are not subject to outstanding Awards at the termination of this Plan shall cease to be subject to this Plan but, until termination of this Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of this Plan. VI. ELIGIBILITY Awards may be granted only to Persons who, at the time of grant, are employees. An Award may be granted on more than one occasion to the same Person, and, subject to the limitations set forth in this Plan, such Award may include an Incentive Stock Option, an Option that is not an Incentive Stock Option, a Restricted Stock Award or any combination thereof. VII. STOCK OPTIONS (A) OPTION PERIOD. The term of each Option shall be as specified by the Committee at the date of grant, but in no event shall an Option be exercisable after the expiration of ten years from the date of grant. (B) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in whole or in such installments and at such times as determined by the Committee. (C) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all incentive stock option plans of the Company and its parent and subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be treated as Options that do not constitute Incentive Stock Options. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of a Holder's Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Holder of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an individual if, at the time the Option is granted, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is granted the option price is at least 110% of the Fair Market Value of the Common Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. An Incentive Stock Option shall not be transferable otherwise than by will or the laws of descent and distribution, and shall be exercisable during the Holder's lifetime only by such Holder or the Holder's guardian or legal representative. (D) OPTION AGREEMENT. Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the provisions of this Plan as the Committee from time to time shall approve, including provisions to qualify an Incentive Stock Option under section 422 of the Code. Each Option Agreement shall specify the effect of termination of employment on the exercisability of the Option. An Option Agreement may provide for the payment of the option price, in whole or in part, by the constructive delivery of a number of shares of Common Stock (plus cash if necessary) having a Fair Market Value equal to such option price. Moreover, an Option Agreement may provide for a "cashless exercise" of the Option by establishing procedures satisfactory to the Committee with respect thereto. The terms and conditions of the respective Option Agreements need not be identical. Subject to the consent of the Holder, the Committee may, in its sole discretion, amend an outstanding Option Agreement from time to time in any manner that is not inconsistent with the provisions of this Plan (including an amendment that accelerates the time at which the Option, or any portion thereof, may be exercisable). (E) OPTION PRICE AND PAYMENT. The price at which a share of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee but, subject to adjustment as provided in Paragraph IX, such purchase price shall not be less than the Fair Market Value of a share of Common Stock on the date such Option is granted. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company, as specified by the Committee. The purchase price of the Option or portion thereof shall be paid or otherwise satisfied in full in the manner prescribed by the Committee and the applicable Option Agreement. Separate stock certificates shall be issued by the Company for those shares acquired pursuant to the exercise of an Incentive Stock Option and for those shares acquired pursuant to the exercise of any Option that does not constitute an Incentive Stock Option. (F) RESTRICTIONS ON REPRICING OPTIONS. Except as provided in Paragraph IX, the Committee may not, without approval of the stockholders of the Company, amend any outstanding Option Agreement to lower the option price (or cancel and replace any outstanding Option Agreement with Option Agreements having a lower option price). (G) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to all the privileges and rights of a stockholder only with respect to such shares of Common Stock as have been purchased under the Option and for which certificates of stock have been registered in the Holder's name. (H) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS. Options may be granted under this Plan from time to time in substitution for stock options held by individuals employed by corporations or other Persons who become employees as a result of a merger or consolidation or other business transaction with the Company or a subsidiary of the Company. VIII. RESTRICTED STOCK AWARDS (A) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of Common Stock that are the subject of a Restricted Stock Award shall be subject to restrictions on disposition by the Holder and an obligation of the Holder to forfeit and surrender the shares to the Company under certain circumstances ("FORFEITURE RESTRICTIONS"). Applicable Forfeiture Restrictions shall be determined by the Committee in its sole discretion, and the Committee may provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of one or more performance targets established by the Committee that are based on the price of a share of Common Stock, the Company's consolidated earnings per share, the Company's market share, the market share of a business unit of the Company designated by the Committee, the Company's sales, the sales of a business unit of the Company designated by the Committee, the consolidated net income (before or after taxes) of the Company or any business unit of the Company designated by the Committee, the consolidated cash flow return on investment of the Company or any business unit of the Company designated by the Committee, the consolidated earnings before or after interest, taxes and depreciation, depletion and amortization of the Company or any business unit of the Company designated by the Committee, the economic value added, the return on stockholders' equity achieved by the Company, reserve additions or revisions, economic value added from reserves, total capitalization, total stockholder return, assets, exploration successes, production volumes, finding and development costs, cost reductions and savings, return on sales or profit margins, (ii) the Holder's continued employment as an employee for a specified period of time, (iii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion or (iv) a combination of any of the foregoing. The performance measures described in clause (i) of the preceding sentence may be subject to adjustment for specified significant extraordinary items or events; provided, however, that with respect to a Restricted Stock Award that has been granted to a "covered employee" (within the meaning of Treasury Regulation section 1.162-27(c)(2)) that has been designed to meet the exception for performance-based compensation under section 162(m) of the Code, such performance measures may only be subject to adjustment to the extent that such adjustment would not cause such Award to cease to be performance-based under applicable Treasury Regulations. In addition, such performance measures may be absolute, relative to one or more other companies or relative to one or more indexes, and may be contingent upon future performance of the Company or any subsidiary, division or department thereof. Each Restricted Stock Award may, in the sole discretion of the Committee, have Forfeiture Restrictions that are the same as or different from the Forfeiture Restriction with respect to other Restricted Stock Awards. (B) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a Restricted Stock Award shall be represented by a stock certificate registered in the name of the Holder of such Restricted Stock Award. Unless provided otherwise in a Restricted Stock Agreement, the Holder shall have the right to receive dividends with respect to Common Stock subject to a Restricted Stock Award, to vote Common Stock subject thereto and to enjoy all other stockholder rights, except that (i) the Holder shall not be entitled to delivery of the stock certificate until the Forfeiture Restrictions have expired, (ii) the Company shall retain custody of the stock until the Forfeiture Restrictions have expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions have expired and (iv) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock Award. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms, conditions or restrictions relating to Restricted Stock Awards, including rules pertaining to the termination of employment (by retirement, disability, death or otherwise) of a Holder prior to expiration of the Forfeitures Restrictions. Such additional terms, conditions or restrictions, if any, shall be set forth in a Restricted Stock Agreement made in conjunction with the Award. (C) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the amount and form of any payment for Common Stock received pursuant to a Restricted Stock Award, provided that, in the absence of such a determination, a Holder shall not be required to make any payment for Common Stock received pursuant to a Restricted Stock Award except to the extent otherwise required by law. (D) COMMITTEE'S DISCRETION TO ACCELERATE VESTING OF RESTRICTED STOCK AWARDS. The Committee may, in its sole discretion and as of a date determined by the Committee, fully vest any or all Common Stock awarded to a Holder pursuant to a Restricted Stock Award and, upon such vesting, all restrictions applicable to such Restricted Stock Award shall terminate as of such date. Any action by the Committee pursuant to this Paragraph VIII(d) may vary among individual Holders and may vary among the Restricted Stock Awards held by any individual Holder. Notwithstanding the preceding provisions of this Paragraph VIII(d), the Committee may not take any action described in this Paragraph VIII(d) with respect to a Restricted Stock Award that has been granted to a covered employee (as defined in Paragraph VIII(a)) if such Award has been designed to meet the exception for performance-based compensation under section 162(m) of the Code (unless such action would not cause such Award to cease to be performance-based under applicable Treasury Regulations). (E) RESTRICTED STOCK AGREEMENTS. At the time any Award is made under this Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters contemplated hereby and such other matters as the Committee may, in its sole discretion, determine to be appropriate. The terms and provisions of the respective Restricted Stock Agreements need not be identical. Subject to the consent of the Holder and the restriction set forth in the last sentence of Paragraph VIII(d), the Committee may, in its sole discretion, amend an outstanding Restricted Stock Agreement at any time and from time to time in any manner that is not inconsistent with the provisions of this Plan. IX. RECAPITALIZATION OR REORGANIZATION (A) NO EFFECT ON RIGHT OR POWER. The existence of this Plan and the Awards granted hereunder shall not affect in any way any right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's or any subsidiary's capital structure or its business, any merger or consolidation of the Company or any subsidiary, any issue of debt or equity securities ahead of or affecting Common Stock or the rights thereof, the dissolution or liquidation of the Company or any subsidiary or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. (B) SUBDIVISION OR CONSOLIDATION OF SHARES; STOCK DIVIDENDS. The shares with respect to which Options may be granted are shares of Common Stock as presently constituted, but if, and whenever, prior to the expiration of an Option theretofore granted, the Company shall effect a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend on Common Stock without receipt of consideration by the Company, the number of shares of Common Stock with respect to which such Option may thereafter be exercised (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. Any fractional share resulting from such adjustment shall be rounded down to the next whole share. (C) RECAPITALIZATIONS. If the Company recapitalizes, reclassifies its capital stock or otherwise changes its capital structure, the number and class of shares of Common Stock covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock and securities to which the Holder would have been entitled pursuant to the terms of such transaction if, immediately prior to such transaction, the Holder had been the holder of record of the number of shares of Common Stock then covered by such Option. (D) CHANGE OF CONTROL; RESTRICTED STOCK AWARDS. Notwithstanding any provision herein or in any Restricted Stock Agreement to the contrary, upon a Change of Control all Restricted Stock Awards then outstanding shall automatically be fully vested and nonforfeitable. (E) CHANGE OF CONTROL; OPTIONS. Upon a Change of Control, the Committee, acting in its sole discretion without the consent or approval of any Holder, shall, no later than ten days after the approval by the stockholders of the Company of such Change of Control (other than of the type described in clause (v) of the definition of "Change of Control") or no later than thirty days after a Change of Control of the type described in clause (v) of the definition of "Change of Control," effect one or more of the following alternatives with respect to outstanding Options, which alternatives may vary among individual Holders and which may vary among Options held by any individual Holder: (i) accelerate the time at which Options then outstanding may be exercised so that such Options may be exercised in full for a limited period of time on or before a specified date (before or after such Change of Control) fixed by the Committee, after which specified date all unexercised Options and all rights of Holders thereunder shall terminate, (ii) require the mandatory surrender to the Company by selected Holders of some or all of the outstanding Options held by such Holders (irrespective of whether such Options are then exercisable under the provisions of this Plan) as of a date, before or after such Change of Control, specified by the Committee, in which event the Committee shall thereupon cancel such Options and cause the Company to pay to each Holder an amount of cash per share equal to the excess, if any, of the Change of Control Value of the shares subject to such Option over the exercise price(s) under such Options for such shares, (iii) make such adjustments to Options then outstanding as the Committee deems appropriate, in its sole discretion, to reflect such Change of Control (provided, however, that the Committee may, in its sole discretion, determine that no adjustment is necessary to Options then outstanding) or (iv) provide that the number and class of shares of Common Stock covered by an Option theretofore granted shall be adjusted so that such Option thereafter covers the number and class of shares of stock or other securities or property (including cash) to which the Holder would have been entitled pursuant to the terms of the agreement of merger, consolidation or sale of assets and dissolution if, immediately prior to such transaction, the Holder had been the holder of record of the number of shares of Common Stock then covered by such Option. The provisions of Paragraphs IX(d) and IX(e) shall not terminate any rights of the Holder to further payments pursuant to any other agreement with the Company following a Change of Control. (F) OTHER CHANGES IN THE COMMON STOCK. If the outstanding Common Stock is changed by reason of a recapitalization, reorganization, merger, consolidation, combination, split-up, split-off, spin-off, exchange, distribution to the holders of Common Stock or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Paragraph IX, such Award and any agreement evidencing such Award shall be subject to adjustment by the Committee at its sole discretion as to the number and price of shares of Common Stock or other consideration subject to such Award. If the outstanding Common Stock is so changed, or upon the occurrence of any other event described in this Paragraph IX or a Change of Control, the aggregate number of shares available under this Plan and the maximum number of shares that may be subject to Awards granted to any one individual shall be appropriately adjusted to the extent, if any, determined by the Committee in its sole discretion, which determination shall be conclusive. (G) STOCKHOLDER ACTION. Any adjustment provided for in this Paragraph IX shall be subject to any required stockholder action. (H) NO ADJUSTMENTS UNLESS OTHERWISE PROVIDED. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to Awards theretofore granted or the purchase price per share, if applicable. X. AMENDMENT AND TERMINATION OF THIS PLAN The Board may, in its sole discretion, terminate this Plan at any time with respect to any shares of Common Stock for which Awards have not theretofore been granted. The Board shall have the right to alter or amend this Plan or any part hereof from time to time; provided that no change in this Plan may be made that would impair the rights of a Holder with respect to an Award theretofore granted without the consent of such Holder; and provided further that the Board may not, without the approval of the stockholders of the Company, amend this Plan to (a) increase the maximum aggregate number of shares that may be issued under this Plan, (b) change the third sentence of Paragraph V(a) to provide that the number of shares available for issuance under this Plan shall be reduced by less than two times the number of shares subject to each Restricted Stock Award granted hereunder, (c) change the class of individuals eligible to receive Awards under this Plan, (d) change or delete Paragraph VII(f), (e) increase the maximum number of shares of Common Stock that may be subject to Awards granted to any one individual during any calendar year, (f) permit the award of shares of Common Stock other than in the form of a Restricted Stock Award, (g) provide for additional types of awards, (h) permit the price at which a share of Common Stock may be purchased upon exercise of an Option to be less than the Fair Market Value of a share of Common Stock on the date such Option is granted or (i) alter or otherwise change any provision of this Paragraph X. XI. MISCELLANEOUS (A) NO RIGHT TO AN AWARD. Neither the adoption of this Plan nor any action of the Board or of the Committee shall be deemed to give any employee any right to be granted an Option, a right to a Restricted Stock Award or any other rights hereunder except as may be evidenced by an Option Agreement or a Restricted Stock Agreement duly executed on behalf of the Company, and then only to the extent and on the terms and conditions expressly set forth therein. This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to assure the performance of its obligations under any Award. (B) NO EMPLOYMENT RIGHTS CONFERRED; EMPLOYMENT RELATIONSHIP. Nothing contained in this Plan shall (i) confer upon any employee any right with respect to continuation of employment with the Company or any subsidiary or (ii) interfere in any way with the right of the Company or any subsidiary to terminate his or her employment at any time. An employee shall be considered to have terminated employment for purposes of this Plan if such employee's employer ceases to be a parent or subsidiary corporation of the Company (as defined in section 424 of the Code). (C) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue any Common Stock pursuant to any Award granted under this Plan at any time when the shares covered by such Award have not been registered under the Securities Act of 1933, as amended, and such other state and federal laws, rules and regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules and regulations available for the issuance and sale of such shares. No fractional shares of Common Stock shall be delivered, nor shall any cash in lieu of fractional shares be paid. The Company may (i) withhold, or cause to be withheld, from any payment to a Holder by or on behalf of the Company or any of its subsidiaries or (ii) require a Holder to pay to the Company or any of its subsidiaries any amount necessary to satisfy all tax withholding obligations arising under applicable local, state or federal laws with respect to an Award granted to such Holder. (D) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in this Plan shall be construed to prevent the Company or any of its subsidiaries from taking any corporate action that is deemed by the Company or any such subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on this Plan or any Award under this Plan. No employee, beneficiary or other Person shall have any claim against the Company or any of its subsidiaries as a result of any such action. (E) RESTRICTIONS ON TRANSFER. An Award (other than an Incentive Stock Option, which shall be subject to the transfer restrictions set forth in Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with the consent of the Committee. (F) GOVERNING LAW. This Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflicts of law principles thereof. EX-31.1 4 h14489exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF NEWFIELD EXPLORATION COMPANY PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David A. Trice, certify that: 1. I have reviewed the accompanying quarterly report on Form 10-Q for the quarterly period ended March 31, 2004 of Newfield Exploration Company (the "Registrant"); 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)) for the Registrant and we 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. 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 c. 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 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 controls over financial reporting, to the Registrant's auditors and the audit committee of Registrant's Board of Directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal controls 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 controls over financial reporting. By: /s/ DAVID A. TRICE -------------------------------------- David A. Trice President and Chief Executive Officer Date: April 28, 2004 EX-31.2 5 h14489exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF NEWFIELD EXPLORATION COMPANY PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry W. Rathert, certify that: 1. I have reviewed the accompanying quarterly report on Form 10-Q for the quarterly period ended March 31, 2004 of Newfield Exploration Company (the "Registrant"); 2. Based on my knowledge, this annual 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)) for the Registrant and we 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. 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 c. 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 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 controls over financial reporting, to the Registrant's auditors and the audit committee of Registrant's Board of Directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal controls 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 controls over financial reporting. By: /s/ TERRY W. RATHERT ------------------------------------------ Terry W. Rathert Vice President and Chief Financial Officer Date: April 28, 2004 EX-32.1 6 h14489exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF NEWFIELD EXPLORATION COMPANY PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying report on Form 10-Q for the quarterly period ended March 31, 2004 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Trice, President and Chief Executive Officer of Newfield Exploration Company (the "Company"), hereby certify, to my knowledge, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 29, 2004 /s/ DAVID A. TRICE ----------------------- David A. Trice EX-32.2 7 h14489exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF NEWFIELD EXPLORATION COMPANY PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying report on Form 10-Q for the quarterly period ended March 31, 2004 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Terry W. Rathert, Vice President, Chief Financial Officer and Secretary of Newfield Exploration Company (the "Company"), hereby certify, to my knowledge, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 29, 2004 /s/ TERRY W. RATHERT ---------------------------- Terry W. Rathert -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1
                                                               Execution Version

================================================================================

                                CREDIT AGREEMENT

                                   Dated as of

                                 March 16, 2004

                                      among

                          NEWFIELD EXPLORATION COMPANY

                            The Lenders Party Hereto

                                       and

                              JPMORGAN CHASE BANK,
                   as Administrative Agent and as Issuing Bank

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

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                              as Syndication Agent

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

                      BANK OF MONTREAL d/b/a HARRIS NESBITT
                         CREDIT LYONNAIS NEW YORK BRANCH
                               FLEET NATIONAL BANK
                           As Co-Documentation Agents

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

                          J. P. MORGAN SECURITIES INC.,

                                       and

                          WACHOVIA CAPITAL MARKETS, LLC
                   as Joint Bookrunners and Co-Lead Arrangers

================================================================================



                                TABLE OF CONTENTS

                                                                                                                
                                                   ARTICLE I
                                                  DEFINITIONS

Section 1.01.         Defined Terms.............................................................................     1
Section 1.02.         Classification of Loans and Borrowings....................................................    18
Section 1.03.         Terms Generally...........................................................................    18
Section 1.04.         Accounting Terms; GAAP....................................................................    19

                                                   ARTICLE II
                                                  THE CREDITS

Section 2.01.         Commitments...............................................................................    19
Section 2.02.         Loans and Borrowings......................................................................    19
Section 2.03.         Requests for Borrowings...................................................................    19
Section 2.04.         Borrowing Base............................................................................    20
Section 2.05.         Payments Generally; Pro Rata Treatment; Sharing of Set-offs...............................    21
Section 2.06.         Letters of Credit.........................................................................    22
Section 2.07.         Funding of Borrowings.....................................................................    26
Section 2.08.         Interest Elections........................................................................    26
Section 2.09.         Termination and Reduction of Commitments..................................................    27
Section 2.10.         Repayment of Loans; Evidence of Debt......................................................    28
Section 2.11.         Prepayment of Loans.......................................................................    29
Section 2.12.         Fees......................................................................................    29
Section 2.13.         Interest..................................................................................    30
Section 2.14.         Alternate Rate of Interest................................................................    31
Section 2.15.         Increased Costs...........................................................................    31
Section 2.16.         Break Funding Payments....................................................................    32
Section 2.17.         Taxes.....................................................................................    32
Section 2.18.         Mitigation Obligations; Replacement of Lenders............................................    33

                                                  ARTICLE III
                                         REPRESENTATIONS AND WARRANTIES

Section 3.01.         Organization; Powers; Subsidiaries........................................................    34
Section 3.02.         Authorization; Enforceability.............................................................    34
Section 3.03.         Governmental Approvals; No Conflicts......................................................    35
Section 3.04.         Financial Condition; No Material Adverse Change...........................................    35
Section 3.05.         Properties................................................................................    35
Section 3.06.         Litigation and Environmental Matters......................................................    36
Section 3.07.         Compliance with Laws and Agreements.......................................................    37
Section 3.08.         Investment and Holding Company Status.....................................................    37
Section 3.09.         Taxes.....................................................................................    37
Section 3.10.         ERISA.....................................................................................    37
Section 3.11.         Disclosure................................................................................    37



                                      -i-



                                                                                                                 
Section 3.12.         Insurance.................................................................................    38
Section 3.13.         Fiscal Periods............................................................................    38
Section 3.14.         Use of Proceeds...........................................................................    38

                                                   ARTICLE IV
                                                   CONDITIONS

Section 4.01.         Effective Date............................................................................    38
Section 4.02.         Each Credit Event.........................................................................    39

                                                   ARTICLE V
                                             AFFIRMATIVE COVENANTS

Section 5.01.         Financial Statements; Ratings Change and Other Information................................    40
Section 5.02.         Notices of Material Events................................................................    41
Section 5.03.         Existence; Conduct of Business............................................................    41
Section 5.04.         Payment of Obligations....................................................................    42
Section 5.05.         Maintenance of Properties; Insurance......................................................    42
Section 5.06.         Books and Records; Inspection Rights......................................................    42
Section 5.07.         Compliance with Laws......................................................................    42
Section 5.08.         Oil and Gas Properties....................................................................    42
Section 5.09.         Principal Business........................................................................    43
Section 5.10.         Subsidiary Guaranties.....................................................................    43
Section 5.11.         Engineering Reports.......................................................................    43

                                                   ARTICLE VI
                                               NEGATIVE COVENANTS

Section 6.01.         Debt......................................................................................    44
Section 6.02.         Liens.....................................................................................    45
Section 6.03.         Fundamental Changes.......................................................................    45
Section 6.04.         Investments, Loans, Advances, Guarantees and Acquisitions.................................    46
Section 6.05.         Swap Agreements...........................................................................    46
Section 6.06.         Restricted Payments.......................................................................    46
Section 6.07.         Transactions with Affiliates..............................................................    46
Section 6.08.         Restrictive Agreements....................................................................    46
Section 6.09.         Subsidiary Debt and Preferred Stock.......................................................    47
Section 6.10.         Designation of Unrestricted Subsidiaries..................................................    47
Section 6.11.         New Unrestricted Subsidiaries.............................................................    48
Section 6.12.         Sale Leaseback Transactions...............................................................    48
Section 6.13.         Sale or Discount of Receivables...........................................................    48
Section 6.14.         Sale of Oil and Gas Properties............................................................    48
Section 6.15.         Subsidiaries and Partnerships.............................................................    48
Section 6.16.         Hydrocarbon Sales Contract................................................................    48
Section 6.17.         Environmental Matters.....................................................................    48
Section 6.18.         Subordinated Debt.........................................................................    48
Section 6.19.         Fiscal Periods............................................................................    49



                                      -ii-



                                                                                                                
Section 6.20.         Use of Proceeds...........................................................................    49
Section 6.21.         Total Debt to EBITDA Ratio................................................................    49
Section 6.22.         EBITDA to Interest Ratio..................................................................    49

                                                  ARTICLE VII
                                               EVENTS OF DEFAULT

Section 7.01.         Events of Default.........................................................................    49

                                                  ARTICLE VIII
                                            THE ADMINISTRATIVE AGENT

Section 8.01.         The Administrative Agent..................................................................    51

                                                   ARTICLE IX
                                                 MISCELLANEOUS

Section 9.01.         Notices...................................................................................    53
Section 9.02.         Waivers; Amendments.......................................................................    54
Section 9.03.         Expenses; Indemnity; Damage Waiver........................................................    55
Section 9.04.         Successors and Assigns....................................................................    56
Section 9.05.         Survival..................................................................................    58
Section 9.06.         Counterparts; Integration; Effectiveness..................................................    59
Section 9.07.         Severability..............................................................................    59
Section 9.08.         Right of Setoff...........................................................................    59
Section 9.09.         Governing Law; Jurisdiction; Consent to Service of Process................................    59
Section 9.10.         WAIVER OF JURY TRIAL......................................................................    60
Section 9.11.         Headings..................................................................................    60
Section 9.12.         Confidentiality...........................................................................    60
Section 9.13.         Interest Rate Limitation..................................................................    61
Section 9.14.         Co-Lead Arrangers and Syndication Agent...................................................    61
Section 9.15.         USA Patriot Act Notice....................................................................    61



                                     -iii-



SCHEDULES:

Schedule 1.01 -- Existing Investments; Existing Letters of Credit
Schedule 2.01 -- Commitments
Schedule 3.05 -- Subsidiaries
Schedule 6.02 -- Existing Liens
Schedule 6.08 -- Existing Restrictions

EXHIBITS:

Exhibit A         Form of Assignment and Assumption
Exhibit B         Form of Opinion of Borrower's Counsel
Exhibit C         Form of Subsidiary Guaranty

                                      -iv-



CREDIT AGREEMENT dated as of March 16, 2004 among Newfield Exploration Company,
a Delaware corporation, the LENDERS party hereto, and JPMORGAN CHASE BANK, as
Administrative Agent and as Issuing Bank.

                  The parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Section 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:

                  "ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.

                  "Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.

                  "Administrative Agent" means JPMorgan Chase Bank, in its
capacity as administrative agent for the Lenders hereunder.

                  "Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.

                  "Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.

                  "Agreement" means this Credit Agreement dated as of March 16,
2004, as amended or otherwise modified from time to time.

                  "Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change in
the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.

                  "Applicable Percentage" means, with respect to any Lender, the
percentage (expressed as a decimal) of the total Commitments represented by such
Lender's Commitment. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.

                  "Applicable Rate" means, for any day, with respect to any ABR
Loan or Eurodollar Loan, or with respect to the commitment fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as
the case may be, based upon the ratings by Moody's and S&P, respectively,
applicable on such date to the Index Debt:





                              ABR             Eurodollar           Commitment Fee
Index Debt Ratings:          Spread             Spread                  Rate
- ---------------------------------------------------------------------------------
                                                          
    Category 1                 0                0.875%                 0.20%
BBB/Baa2 or higher
- ---------------------------------------------------------------------------------
    Category 2                 0                1.125%                 0.25%
     BBB-/Baa3
- ---------------------------------------------------------------------------------
    Category 3                 0                1.250%                 0.30%
      BB+/Ba1
- ---------------------------------------------------------------------------------
    Category 4                 0                1.500%                 0.35%
      BB/Ba2
- ---------------------------------------------------------------------------------
    Category 5               0.250%             1.750%                 0.45%
 BB-/Ba3 or lower
- ---------------------------------------------------------------------------------


                  For purposes of the foregoing, (i) if neither Moody's nor S&P
shall have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agencies shall be deemed to have established a rating in Category 5; (ii)
if only one of Moody's and S&P has in effect a rating for the Index Debt, then
the Applicable Rate shall be determined solely based on the rating of such
rating agency; (iii) if the ratings established or deemed to have been
established by Moody's and S&P for the Index Debt shall fall within different
Categories, the Applicable Rate shall be based on the higher of the two ratings
unless one of the two ratings is two or more Categories lower than the other, in
which case the Applicable Rate shall be determined by reference to the Category
next above that of the lower of the two ratings; and (iv) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall be changed (other than as a result of a change in the rating system
of Moody's or S&P), such change shall be effective as of the date on which it is
first announced by the applicable rating agency, irrespective of when notice of
such change shall have been furnished by the Borrower to the Administrative
Agent and the Lenders pursuant to Section 5.01 or otherwise. Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change. If (a) the rating system of Moody's or S&P shall
change, the Borrower and the Lenders shall negotiate in good faith to amend this
definition to reflect such changed rating system of such rating agency and,
pending the effectiveness of any such amendment, the Applicable Rate shall be
determined by reference to the rating of such rating agency most recently in
effect prior to such change; and (b) both Moody's and S&P shall cease on the
same date to be in the business of rating corporate debt obligations, the
Borrower and the Lenders shall negotiate in good faith to amend this definition
to reflect the unavailability of ratings from such rating agencies and, pending
the effectiveness of any such amendment, the Applicable Rate shall be determined
by reference to the ratings of such rating agencies most recently in effect
prior to such cessation.

                  "Approved Fund" has the meaning assigned to such term in
Section 9.04(b).

                  "Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the

                                      -6-



Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate
as shall be determined by the Administrative Agent to be representative of the
cost of such insurance to the Lenders.

                  "Assignment and Assumption" means an assignment and assumption
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.

                  "Attributable Obligation" means, with respect to any Sale
Leaseback Transaction as of any particular time, the present value at such time
discounted at the rate of interest implicit in the terms of the lease of the
obligations of the lessee under such lease for net rental payments during the
remaining term of the lease (including any period for which such lease has been
extended or may, at the option of the Borrower or any Subsidiary, be extended).

                  "Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.

                  "Available Commitment" means, for any Lender at any time, the
lesser of (i) such Lender's Commitment at such time and (ii) such Lender's
Applicable Percentage times the Borrowing Base at such time.

                  "Available Commitment (For Fee Purposes)" means, for any
Lender at any time, the amount that would be such Lender's Available Commitment
at such time if the Senior Notes were the only Debt included in the Borrowing
Base Debt Amount at such time.

                  "Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.

                  "Board" means the Board of Governors of the Federal Reserve
System of the United States of America.

                  "Borrower" means Newfield Exploration Company, a Delaware
corporation.

                  "Borrowing" means Loans of the same Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.

                  "Borrowing Base" means, at any time, the amount by which the
Calculated Borrowing Base at such time exceeds the sum of (i) Borrowing Base
Debt Amount at such time plus (ii) 30% of the aggregate principal amount then
outstanding of all Subordinated Debt. Any change in the Borrowing Base due to a
change in the Calculated Borrowing Base, the Borrowing Base Debt Amount or the
principal amount of such Subordinated Debt shall be effective from and including
the date of such change in the Calculated Borrowing Base, the Borrowing Base
Debt Amount or the principal amount of such Subordinated Debt, respectively.

                  "Borrowing Base Approval Lenders" means, at any time, Lenders
having Credit Exposures and unused Commitments representing at least 75% of the
sum of the total Credit Exposures and unused Commitments at such time.

                  "Borrowing Base Debt Amount" means, at any time, the aggregate
principal amount outstanding at such time, without duplication, of all
consolidated Debt of the Borrower and the Restricted Subsidiaries, except (i)
the aggregate Credit Exposures of all Lenders at such time, (ii) Subordinated
Debt, (iii) letters of credit (other than Letters of Credit) not exceeding in
the aggregate (including both the aggregate maximum undrawn amount thereof and
the aggregate amount of all disbursements thereunder that have not been
reimbursed) an amount equal to $50,000,000 minus the LC Exposure at such time
and (iv) Debt referred to in clause (k) of the definition herein of Debt.

                                      -7-



                  A "Borrowing Base Deficiency" will be deemed to exist at all
times that the Borrowing Base Deficiency Amount is greater than zero.

                  "Borrowing Base Deficiency Amount" means, at any time, the
amount, if any, by which (a) the aggregate Credit Exposures of all Lenders at
such time exceeds (b) the Borrowing Base at such time.

                  "Borrowing Base Notice" means a written notice sent to the
Borrower by the Administrative Agent notifying the Borrower of the Calculated
Borrowing Base determined by the Borrowing Base Approval Lenders.

                  "Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.

                  "Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.

                  "Calculated Borrowing Base" means at any time an amount equal
to the amount determined in accordance with Section 2.04 and in effect at such
time.

                  "Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

                  "Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of Equity Interests representing more than 30% of the aggregate ordinary voting
power represented by the issued and outstanding Equity Interests of the
Borrower; (b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of the Borrower by Persons who were neither (i) nominated
by the board of directors of the Borrower nor (ii) appointed by directors so
nominated; or (c) the acquisition of direct or indirect Control of the Borrower
by any Person or group.

                  "Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement by any Governmental Authority, (b)
any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes
of Section 2.15(b), by any lending office of such Lender or by such Lender's or
the Issuing Bank's holding company, if any) with any request, guideline or
directive (whether or not having the force of law) of any Governmental Authority
made or issued after the date of this Agreement.

                  "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

                  "Co-Documentation Agents" means Bank of Montreal d/b/a Harris
Nesbitt, Credit Lyonnais New York Branch and Fleet National Bank, as
co-documentation agents in connection with this Agreement.

                  "Co-Lead Arrangers" means J.P. Morgan Securities Inc. and
Wachovia Capital Markets, LLC.

                  "Commitment" means, with respect to each Lender, the
commitment of such Lender to

                                      -8-



make Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from
time to time pursuant to Section 2.09 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Assumption pursuant to which such Lender shall have assumed
its Commitment, as applicable. The initial aggregate amount of the Lenders'
Commitments is $600,000,000.

                  "Company Report" has the meaning assigned to such term in
Section 5.11(a).

                  "Consolidated Interest Expense" means, for any period, the sum
of (i) gross interest expense (including all cash and accrued interest expense)
of the Borrower and its Consolidated Restricted Subsidiaries for such period on
a consolidated basis in accordance with GAAP, including to the extent included
in interest expense in accordance with GAAP (a) the amortization of debt
discounts and (b) the portion of any payments or accruals with respect to
capital leases allocable to interest expense plus (ii) capitalized interest of
the Borrower and its Consolidated Restricted Subsidiaries for such period on a
consolidated basis in accordance with GAAP. If any Consolidated Restricted
Subsidiary is designated as an Unrestricted Subsidiary in accordance with
Section 6.10, then on and after the date of such designation, Consolidated
Interest Expense shall be computed for all prior periods as if such Subsidiary
was not a Consolidated Restricted Subsidiary during such periods.

                  "Consolidated Restricted Subsidiaries" means each Restricted
Subsidiary of the Borrower (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in accordance with
GAAP.

                  "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controls", "Controlling" and "Controlled" have meanings correlative
thereto.

                  "Credit Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Loans and its
LC Exposure at such time.

                  "Debt" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding accounts payable
incurred in the ordinary course of business that are not more than 90 days past
due or that are being contested in good faith by appropriate proceedings and as
to which such Person has set aside on its books adequate reserves with respect
thereto in accordance with GAAP), (e) all Debt of others secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such Person, whether or
not the Debt secured thereby has been assumed, (f) all Guarantees by such Person
of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, (j)
all obligations or undertakings of such Person with respect to payments received
by such Person in consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including obligations under
"take-or-pay" contracts, contracts to deliver oil, gas or other minerals in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment) or with respect to other
obligations to deliver goods or services in consideration of advance payments
therefor but excluding gas imbalances arising in the ordinary course of business
between joint working interest owners of production; (k) obligations arising
under futures contracts, swap contracts or similar hedging agreements; and (l)
all obligations of such Person under any synthetic lease, tax retention
operating lease or off-balance sheet loan or financing. The

                                      -9-



Debt of any Person shall include the Debt of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such Debt
provide that such Person is not liable therefor.

                  "Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.

                  "dollars" or "$" refers to lawful money of the United States
of America.

                  "EBITDA" means, for any period, the sum of (i) the
consolidated net income (or loss) of the Borrower and its Consolidated
Restricted Subsidiaries for such period determined in accordance with GAAP plus
(ii) to the extent included in the determination of such net income (or loss),
the consolidated charges for such period for interest, depreciation, depletion
and amortization plus (or, if there is a benefit from income taxes, minus) (iii)
to the extent included in the determination of such net income, the amount of
the provision for or benefit from income taxes; provided that in determining
such consolidated net income and such consolidated charges, there shall be
excluded therefrom (to the extent otherwise included therein) (a) the net income
(but not loss) of, and charges for interest, depreciation, depletion and
amortization of, any Person which is subject to any restriction, contractual or
otherwise, which prevents the payment of dividends or distributions or the
making of dividends or distributions on Equity Interests of such Person to the
extent of such restrictions, (b) pre-tax gains or losses on the sale, transfer
or other disposition of any property by the Borrower or its Consolidated
Restricted Subsidiaries (other than sales, transfers and other dispositions in
the ordinary course of business), (c) all extraordinary gains and extraordinary
losses, prior to applicable income taxes, and (d) any item constituting the
cumulative effect of a change in accounting principles, prior to applicable
income taxes; provided further that in determining EBITDA, there shall be
disregarded the after-tax effects of each of the following matters: (i)
write-downs after December 31, 2002 under FASB Statement No. 19, (ii) non-cash
write-downs of assets after December 31, 2002 under FASB Statement No. 121 or
pursuant to Rule 4-10(c) of SEC Regulation S-X (17CFR Section 210.4-10(c)), and
(iii) non-cash gains, losses or adjustments under FASB Statement. No. 133;
provided further that if during such period the Borrower or any of its
Consolidated Restricted Subsidiaries acquires or disposes of any Person (or any
Equity Interest in any Person other than the Borrower) or all or substantially
all of the assets of any Person, the EBITDA attributable to such assets (or an
amount equal to the percentage of ownership of the Borrower or Consolidated
Restricted Subsidiary, as the case may be, in such Person so acquired or
disposed times the EBITDA of such Person) for such period determined on a pro
forma basis (which determination, in each case, shall be subject to approval of
the Administrative Agent, not to be unreasonably withheld) shall be included (in
the case of an acquisition) or excluded (in the case of a disposition) as EBITDA
for such period; except that during the portion of such period that follows such
acquisition or disposition, the computation in respect of EBITDA of such Person
or such assets, as the case may be, shall be made on the basis of actual (rather
than pro forma) results. If any Consolidated Restricted Subsidiary is designated
as an Unrestricted Subsidiary in accordance with Section 6.10, then on and after
the date of such designation, EBITDA shall be computed for all prior periods as
if such Subsidiary was not a Consolidated Restricted Subsidiary during such
periods.

                  "EBITDA to Interest Ratio" means, for any period, the ratio of
(i) EBITDA for such period to (ii) Consolidated Interest Expense for such
period.

                  "Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).

                  "Engineering Reports" has the meaning assigned to that term in
Section 2.04(b).

                  "Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices, permits or
binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or reclamation

                                      -10-



of natural resources, or the management, release or threatened release of any
Hazardous Material.

                  "Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.

                  "Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person, and any
warrants, options or other rights entitling the holder thereof to purchase or
acquire any such equity interest.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.

                  "ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.

                  "ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.

                  "Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.

                  "Event of Default" has the meaning assigned to such term in
Article VII.

                  "Excepted Liens" means (i) Liens for taxes, assessments or
other governmental charges or levies not yet due or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained; (ii) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance or other social
security laws or regulations; (iii) operator's, vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction
or other like Liens arising by operation of law in the ordinary course of
business or incident to the exploration, development, operation and maintenance
of Oil and Gas Properties or statutory landlord's liens, each of which is in
respect of obligations that have not been outstanding more than 90 days or which
are being contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP; (iv) any Liens
reserved in

                                      -11-



leases or farmout agreements for rent or royalties and for compliance with the
terms of the farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or a Restricted Subsidiary or materially
impair the value of such Property subject thereto; (v) encumbrances (other than
to secure the payment of Debt, the deferred purchase price of Property or
services or other monetary obligations), easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any rights of way
or other Property of the Borrower or a Restricted Subsidiary for the purpose of
roads, pipelines, transmission lines, transportation lines and distribution
lines for the removal of gas, oil, coal or other minerals or timber, and other
like purposes, or for the joint or common use of real estate, rights of way,
facilities and equipment which in the aggregate do not have a Material Adverse
Effect and, in each case, arise in the ordinary course of business; (vi)
defects, irregularities in title, zoning restrictions and deficiencies in title
of any Property which in the aggregate do not have a Material Adverse Effect;
(vii) deposits not exceeding $10,000,000 in the aggregate outstanding at any one
time to secure the performance of requirements of any Governmental Authority,
bids, trade contracts, leases, statutory obligations and other obligations of a
like nature incurred in the ordinary course of business; (viii) reservations in
original grants from any Governmental Authority; (ix) rights of any Governmental
Authority to terminate a lease; and (x) Liens of judgments that do not
constitute an Event of Default under Section 7.01(k); provided that in no event
will any Lien on property of the Borrower or any Restricted Subsidiary that
secures any obligation of an Unrestricted Subsidiary be an Excepted Lien.

                  "Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.17(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.17(a).

                  "Existing Credit Agreement" means the Credit Agreement dated
as of January 23, 2001 among the Borrower, JPMorgan Chase Bank and others, as
amended.

                  "Existing Letters of Credit" means the letters of credit
listed on Schedule 1.01.

                  "Facility Obligations" means all obligations (liquidated,
contingent or otherwise) from time to time owed by the Borrower or any
Subsidiary pursuant to, as a result of, or in connection with any Loan Document,
including all principal of and interest on the Loans, all reimbursement and
other obligations in connection with the Letters of Credit and all obligations
to pay fees, costs, expenses, indemnities and other amounts payable under any
Loan Document.

                  "Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.

                  "Financial Officer" means the chief financial officer,
principal accounting officer,

                                      -12-



treasurer or controller of the Borrower.

                  "Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each state thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.

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

                  "Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.

                  "Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Debt or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including the creation of any Lien on any asset of the guarantor to secure any
such Debt or obligation and any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Debt or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such Debt or
other obligation or (d) as an account party in respect of any letter of credit
or letter of guaranty issued to support such Debt or obligation; provided, that
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business.

                  "Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates released into the
environment, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law.

                  "Hydrocarbon Interests" means all rights, titles, interests
and estates now or hereafter acquired in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.

                  "Hydrocarbons" means oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.

                  "Indemnified Taxes" means Taxes other than Excluded Taxes.

                  "Index Debt" means senior, unsecured, long-term indebtedness
for borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.

                  "Information Memorandum" means the Confidential Information
Memorandum dated February, 2004 relating to the Borrower and the Transactions.

                  "Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.08.

                                      -13-



                  "Interest Payment Date" means (a) with respect to any ABR Loan
the last day of each March, June, September and December, and (b) with respect
to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period.

                  "Interest Period" means (a) with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
fourteenth day thereafter (subject to availability) (an "Irregular Interest
Period") or on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as the Borrower may elect, or such other period
as may be requested by the Borrower and agreed to by all of the Lenders (also an
"Irregular Interest Period"), provided, that (i) if any Interest Period would
end on a day other than a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (ii) no Interest Period may be elected
that would end after the Maturity Date, and (iii) any Interest Period (other
than an Irregular Interest Period) that commences on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.

                  "Investment" means, as applied to any Person, any direct or
indirect (i) purchase or other acquisition by such Person of any Equity
Interest, Debt or other securities (including any option, warrant or other right
to acquire any of the foregoing) of any other Person, (ii) loan or advance made
by such Person to any other Person, (iii) Guarantee, assumption or other
incurrence of liability by such Person of or for any Debt or other obligation of
any other Person, (iv) creation of any Debt owed to such Person by any other
Person, (v) capital contribution or other investment by such Person in any other
Person or (vi) purchase or other acquisition (in one transaction or a series of
transactions) of any assets of any other Person constituting a business unit.
The amount of any Investment shall be the original cost of such Investment plus
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment or interest earned on such Investment.

                  "Issuing Bank" means JPMorgan Chase Bank, in its capacity as
the issuer of Letters of Credit hereunder, and its successors in such capacity
as provided in Section 2.06(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.

                  "LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.

                  "LC Exposure" means, at any time, the sum of (a) the aggregate
maximum undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any
Lender at any time shall be its Applicable Percentage of the total LC Exposure
at such time.

                  "Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Assumption, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Assumption.

                  "Letter of Credit" means any letter of credit issued pursuant
to this Agreement and the

                                      -14-



Existing Letters of Credit.

                  "LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.

                  "Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset, (c) production payments and the like payable
out of Oil and Gas Properties and (d) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities.

                  "Loan Documents" means this Agreement, any promissory note
referred to in Section 2.10(e) and each Subsidiary Guaranty.

                  "Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.

                  "Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations or financial condition of the Borrower and
the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower to
perform any of its obligations under this Agreement or (c) the rights of or
benefits available to the Lenders under this Agreement or any other Loan
Document, except that seasonal declines in energy prices will not constitute a
Material Adverse Effect.

                  "Material Indebtedness" means Debt (other than the Loans and
Letters of Credit), or obligations in respect of one or more Swap Agreements, of
any one or more of the Borrower and its Restricted Subsidiaries in an aggregate
principal amount equal to or exceeding $25,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of the Borrower
or any Restricted Subsidiary in respect of any Swap Agreement at any time shall
be the maximum aggregate amount (giving effect to any netting agreements) that
the Borrower or such Restricted Subsidiary would be required to pay if such Swap
Agreement were terminated at such time.

                  "Maturity Date" means March 14, 2008.

                  "Moody's" means Moody's Investors Service, Inc.

                  "Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

                  "Non-Recourse Debt" means Debt of a Subsidiary:

                  (1)      as to which neither the Borrower nor any Restricted
Subsidiary (a) provides credit support of any kind (including any Guarantee,
undertaking, agreement or instrument that would constitute Debt), (b) is
directly or indirectly liable as a guarantor or otherwise or (c) is the lender;

                                      -15-



                  (2)      no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of Debt of the Borrower or any Restricted Subsidiary to declare a default
on such Debt or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and

                  (3)      as to which the lenders of such Non-Recourse Debt
have been notified in writing that they will not have any recourse to the
Borrower, any Restricted Subsidiary or any assets of any of them.

                  "Oil and Gas Properties" means Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including all units created under
orders, regulations and rules of any Governmental Authority) which may affect
all or any portion of the Hydrocarbon Interests; all operating agreements,
contracts and other agreements which relate to any of the Hydrocarbon Interests
or the production, sale, purchase, exchange or processing of Hydrocarbons from
or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
including all oil in tanks, the lands covered thereby and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests and all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes, together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.

                  "Oil or Gas Swap Contract" means any crude oil or natural gas
price swap, price cap, price collar, forward agreement, or other exchange or
price protection transaction or any combination of such transactions or
agreements or options with respect to any such transaction or agreement.

                  "Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, any Loan Document.

                  "Outside Report" has the meaning assigned to such term in
Section 5.11(a).

                  "Participant" has the meaning set forth in Section 9.04.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.

                  "Permitted Investments" means:

                  (a)      investments existing on the Effective Date and listed
on Schedule 1.01;

                  (b)      investments in additional Oil and Gas Properties and
gas gathering systems related thereto;

                  (c)      accounts receivable arising out of the sale of
Hydrocarbons, other assets or

                                      -16-



services in the ordinary course of business;

                  (d)      direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by, the United States
(or any agency thereof to the extent such obligations are legally backed by the
full faith and credit of the United States), in each case maturing within one
year from the date of creation thereof;

                  (e)      commercial paper maturing within one year from the
date of creation thereof rated A2 or higher by S&P or P2 or higher by Moody's;

                  (f)      deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any Lender
or any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state thereof and
has capital, surplus and undivided profits aggregating at least $500,000,000 (as
of the date such Lender's or bank or trust company's most recent financial
reports) and has a short term deposit rating of no lower than A2 or P2, as such
rating is set forth from time to time by S&P or Moody's, respectively;

                  (g)      advances to operators under operating agreements
entered into by the Borrower or any Restricted Subsidiary in the ordinary course
of business;

                  (h)      repurchase agreements of any commercial banks in the
United States and Canada, if the commercial paper of such bank or of the bank
holding company of which such bank is a wholly-owned subsidiary is rated in the
highest rating categories of S&P, Moody's or any other rating agency
satisfactory to the Required Lenders, that are fully secured by securities
described in paragraph (d) of this definition;

                  (i)      eurodollar investments maturing within one year with
financial institutions meeting the qualifications established in paragraph (f)
of this definition;

                  (j)      any investment in any Unrestricted Subsidiary if, at
the time of making such investment, the aggregate book value of the assets of
the Borrower and the Restricted Subsidiaries, on a consolidated basis (excluding
investments in Unrestricted Subsidiaries) exceeds $2,250,000,000;

                  (k)      any investment in, or loans or advances to, or
Guarantees of any Debt permitted by Section 6.09 of, Restricted Subsidiaries
that are wholly-owned by the Borrower;

                  (l)      investments in loan participations purchased from a
bank with which deposits may be made under paragraph (f) of this definition, if
the remaining term of any such participation at the time such participation is
bought is 90 days or less and the borrower obligated to pay such loan then has a
credit rating of A2 or higher from S&P or P2 or higher from Moody's on such
borrower's short term unsecured obligations;

                  (m)      remarketed certificates of participation sold in
private placements, representing undivided interests in the assets of a trust or
similar entity owning debt instruments, provided that such certificates of
participation have received a credit rating of A2 or higher from S&P or of P2 or
higher from Moody's and are payable in full within 90 days after purchase;

                  (n)      asset backed securities with an average life of 24
months or less and rated in one of the top two rating categories of Moody's or
S&P;

                  (o)      corporate notes or bonds rated A3 or better by
Moody's or A- or better by S&P maturing within one year;

                  (p)      loans and advances made by any Restricted Subsidiary
to the Borrower;

                                      -17-



                  (q)      money market funds that (i) comply with the criteria
set forth in Securities and Exchange Commission Rule 2a-7 under the Investment
Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody's and (iii) have
portfolio assets of at least $5,000,000,000;

                  (r)      any acquisition of any Equity Interest or other
securities if the only consideration given therefor is shares of common stock of
the Borrower; and

                  (s)      investments in the Newfield Foundation in an amount
up to $2,000,000 per year (and the Newfield Foundation may invest such amounts
and any amounts funded prior to the Effective Date in any securities or
investments deemed appropriate by the trustee committee thereof).

                  "Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.

                  "Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.

                  "Prime Rate" means the rate of interest per annum publicly
announced from time to time by JPMorgan Chase Bank as its prime rate in effect
at its principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.

                  "Property" and "asset" (in each case whether or not
capitalized) each means any and all tangible and intangible assets and
properties, including goods, real property, personal property, fixtures, cash,
securities, accounts, contract rights, intangibles, intellectual property, any
other form of asset or property and any interest therein.

                  "Redetermination Date" has the meaning set forth in Section
2.04.

                  "Register" has the meaning set forth in Section 9.04.

                  "Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.

                  "Required Lenders" means, at any time, Lenders having Credit
Exposures and unused Commitments representing more than 50% of the sum of the
total Credit Exposures and unused Commitments at such time.

                  "Reserve Report" means a report, in form and substance
satisfactory to the Administrative Agent, setting forth, as of the last day of
each December (the "December 31 Reserve Report") and as of the last day of June
(the "June 30 Reserve Report") (or such other date as comports with Section
5.11(b) in the event of an unscheduled redetermination) the proved oil and gas
reserves attributable to the Oil and Gas Properties of the Borrower and its
Restricted Subsidiaries, together with a projection of the rate of production
and future net income, production, severance or similar taxes, operating
expenses and capital expenditures with respect thereto as of such date, based
upon the pricing assumptions consistent with SEC reporting requirements at the
time. Furthermore, such information shall be provided for each field, unit or
lease comprising the Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries and by category of the reserves contained in each well, unit or
lease, including proved producing, proved non-producing and proved undeveloped.

                  "Responsible Officer" means the chief executive officer, the
president, any vice president or the chief financial officer of the Borrower.

                                      -18-


                  "Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any Equity
Interests in the Borrower or any Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such Equity Interests in the Borrower or any Subsidiary or
any option, warrant or other right to acquire any such Equity Interests in the
Borrower or any Subsidiary.

                  "Restricted Subsidiaries" mean all Subsidiaries that are not
Unrestricted Subsidiaries.

                  "S&P" means Standard & Poor's.

                  "Sale Leaseback Transaction" means any arrangement entered
into by the Borrower or any Subsidiary, directly or indirectly, whereby the
Borrower or any Subsidiary shall sell or transfer any Property and whereby the
Borrower or any Subsidiary shall then or thereafter rent or lease as lessee such
property or any part thereof or other property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
property sold or transferred.

                  "Scheduled Redetermination Date" shall have the meaning set
forth in Section 2.04(a).

                  "Senior Notes" means the senior unsecured notes having a
principal balance of $300,000,000 on the Effective Date issued under the
indenture dated October 15, 1997 between the Borrower and Wachovia Bank,
National Association (formerly First Union National Bank), as trustee, and all
other senior notes (other than notes evidencing the Loans) issued by the
Borrower or any Subsidiary after the Effective Date to the extent that the
principal of such senior notes is due more than one year after the date of
issuance thereof.

                  "Senior Subordinated Indenture" means that certain indenture
dated as of December 10, 2001 between the Borrower and Wachovia Bank, National
Association (formerly known as First Union National Bank), as Trustee, as
supplemented by the First Supplemental Indenture dated as of August 13, 2002.

                  "Senior Subordinated Notes" means those certain 8 3/8% Senior
Subordinated Notes due 2012 in an aggregate amount of $250,000,000 issued under
the Senior Subordinated Indenture by the Borrower and all obligations relating
thereto.

                  "Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.

                  "Subordinated Debt" means the Senior Subordinated Notes and
other Debt issued by the Borrower containing provisions subordinating such Debt
to the Facility Obligations on terms reasonably comparable to subordination
provisions generally used at the time for public subordinated debt issuances and
containing other terms and conditions which are substantially similar to
subordinated debt issued by companies of similar credit rating in the same
industry, but in any event such Debt shall not (i) have any covenants or default
provisions more restrictive than this Agreement or be Guaranteed by any
Subsidiary or (ii) require any payment of principal or any redemption or
purchase prior to March 31, 2011.

                                      -19-


                  "subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.

                  "Subsidiary" means any subsidiary of the Borrower.

                  "Subsidiary Guarantor" means each Subsidiary that has executed
a Subsidiary Guaranty.

                  "Subsidiary Guaranty" means a Guaranty Agreement substantially
in the form of Exhibit C with such changes thereto, if any, as the Required
Lenders may reasonable request, executed by a Subsidiary.

                  "Swap Agreement" means any agreement with respect to any swap,
forward, future or derivative transaction or option or similar agreement
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial or
pricing indices or measures of economic, financial or pricing risk or value or
any similar transaction or any combination of these transactions; provided that
no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

                  "Syndication Agent" means Wachovia Bank, National Association,
as syndication agent in connection with this Agreement.

                  "Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.

                  "Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.

                  "Total Debt" means the consolidated Debt of the Borrower and
its Consolidated Restricted Subsidiaries (other than obligations described in
clause (k) of the definition herein of Debt).

                  "Total Debt to EBITDA Ratio" means, as of any day, the ratio
of (i) the aggregate principal amount of Total Debt outstanding on such day to
(ii) EBITDA for the four consecutive fiscal quarters of the Borrower most
recently ended prior to such day (or, if such day is the last day of a fiscal
quarter of the Borrower, for the four consecutive fiscal quarters of the
Borrower ended on such day).

                  "Transactions" means the execution, delivery and performance
by the Borrower and the Subsidiary Guarantors of the Loan Documents, the
borrowing of Loans, the use of the proceeds thereof and the issuance of Letters
of Credit hereunder.

                                      -20-


                  "Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.

                  "Unrestricted Subsidiary" means (i) any Subsidiary that has
been designated as an Unrestricted Subsidiary by the Borrower in accordance with
Section 6.10, and (ii) each subsidiary of such Unrestricted Subsidiary.

                  "Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

                  Section 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans and Borrowings may be classified and referred
to by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing").

                  Section 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, subject to any limitation on assignments set
forth herein, (c) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, and (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement.

                  Section 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                                   ARTICLE II

                                   THE CREDITS

                  Section 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Loans in dollars to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Credit Exposure exceeding such
Lender's Available Commitment or (b) the total Credit Exposures exceeding the
total Available Commitments. Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Loans.

                  Section 2.02. Loans and Borrowings. (a) Each Loan shall be
made as part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective

                                      -21-


Applicable Percentages. The failure of any Lender to make any Loan required to
be made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.

                  (b)      Subject to Section 2.14, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.

                  (c)      At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $2,000,000. At the time that
each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $2,000,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Available Commitments or that is required to finance
the reimbursement of an LC Disbursement as contemplated by Section 2.06(e).
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of ten Eurodollar
Borrowings outstanding.

                  (d)      Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to convert
or continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.

                  Section 2.03. Requests for Borrowings. To request a Borrowing,
the Borrower shall notify the Administrative Agent of such request by telephone
(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of the proposed Borrowing or (b)
in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of the proposed Borrowing; provided that any
such notice of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e) may be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:

                  (i)      the aggregate amount of the requested Borrowing;

                  (ii)     the date of such Borrowing, which shall be a Business
                           Day;

                  (iii)    whether such Borrowing is to be an ABR Borrowing or a
                           Eurodollar Borrowing;

                  (iv)     in the case of a Eurodollar Borrowing, the initial
         Interest Period to be applicable thereto, which shall be a period
         contemplated by the definition of the term "Interest Period"; and

                  (v)      the location and number of the Borrower's account to
         which funds are to be disbursed, which shall comply with the
         requirements of Section 2.07.

If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.

                                      -22-


                  Section 2.04. Borrowing Base. (a) During the period beginning
on and including the Effective Date until the first Redetermination Date, the
amount of the Calculated Borrowing Base shall be $875,000,000. So long as any of
the Commitments is in effect or any Letter of Credit is outstanding and until
payment in full of all Facility Obligations, the Calculated Borrowing Base shall
be redetermined from time to time in accordance with Section 2.04(b) by the
Administrative Agent with the concurrence of the Borrowing Base Approval
Lenders. Redeterminations shall occur on or around the first Business Day of
each May and November, commencing November 1, 2004 (each being a "Scheduled
Redetermination Date") and may occur on other dates in accordance with Section
2.04(d). Upon any redetermination of the Calculated Borrowing Base, such
redetermination shall remain in effect until the next Redetermination Date.
"Redetermination Date" shall mean the date that the redetermined Calculated
Borrowing Base becomes effective subject to the notice requirements specified in
Section 2.04(e) both for scheduled redeterminations and unscheduled
redeterminations. So long as any of the Commitments is in effect or any Letter
of Credit is outstanding and until all of the Facility Obligations are paid in
full, the credit facilities provided herein shall be governed by the then
effective Calculated Borrowing Base.

                  (b)      Upon receipt of the reports required by Section 5.11
and such other reports, data and supplemental information as may from time to
time be reasonably requested by the Administrative Agent (the "Engineering
Reports"), the Administrative Agent will redetermine a new Calculated Borrowing
Base. Such redetermination will be in accordance with the Administrative Agent's
normal and customary procedures for evaluating oil and gas reserves and other
related assets as such exist at that particular time. The Administrative Agent
in its sole discretion, may make adjustments to the rates, volumes, prices and
other assumptions set forth therein. The Administrative Agent shall propose to
the Lenders a new Calculated Borrowing Base within 30 days following receipt by
the Administrative Agent of the Engineering Reports in a timely and complete
manner. After having received notice of such proposal by the Administrative
Agent, each Lender shall have 10 days to agree or disagree with such proposal.
Any failure of a Lender to communicate its approval or disapproval within such
ten day period shall be deemed to be an approval of such proposal. If the
Borrowing Base Approval Lenders approve (including any such deemed approval) the
Administrative Agent's proposal, then such proposal shall be the new Calculated
Borrowing Base. If however, the Borrowing Base Approval Lenders do not approve
such proposal within 10 days, the Borrowing Base Approval Lenders shall, within
a reasonable period of time, agree on a new Calculated Borrowing Base.

                  (c)      The Administrative Agent may exclude any Oil and Gas
Property or portion of production therefrom or any income from any other
Property from the Calculated Borrowing Base, at any time, if title information
is not reasonably satisfactory.

                  (d)      In addition to scheduled redeterminations, the
Borrower may request an unscheduled redetermination of the Calculated Borrowing
Base at any other time but no more often than once between Scheduled
Redetermination Dates by specifying in writing to the Administrative Agent the
date on which such redetermination is to occur and providing a Reserve Report in
accordance with Section 5.11(b) at least 60 days prior to the requested
redetermination date. Also, the Required Lenders may initiate only one
unscheduled redetermination during any consecutive 12 month period by specifying
in writing to the Borrower the date on which the Borrower is to furnish a
Reserve Report in accordance with Section 5.11(b) and the date on which such
redetermination is to occur.

                  (e)      The Administrative Agent shall promptly notify in
writing the Borrower and the Lenders of the new Calculated Borrowing Base. Any
redetermination of the Calculated Borrowing Base shall not be in effect until
written notice thereof is received by the Borrower.

                  Section 2.05. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available

                                      -23-


funds, without set-off or counterclaim. Any amounts received after such time on
any date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except payments to be made
directly to the Issuing Bank as expressly provided herein and except that
payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly
to the Persons entitled thereto. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.

                  (b)      If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.

                  (c)      If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect of any principal
of or interest on any of its Loans or participations in LC Disbursements
resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its Loans and participations in LC Disbursements and accrued
interest thereon than the proportion received by any other Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans and participations in LC Disbursements of other
Lenders to the extent necessary so that the benefit of all such payments shall
be shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Loans and participations
in LC Disbursements; provided that (i) if any such participations are purchased
and all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by the Borrower pursuant to
and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any
assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.

                  (d)      Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.

                                      -24-


                  (e)      If any Lender shall fail to make any payment required
to be made by it pursuant to Section 2.05(d), 2.06(d) or (e) or 2.07(b), then
the Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.

                  Section 2.06. Letters of Credit. (a) General. Subject to the
terms and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit in dollars for its own account or for the account of any
Restricted Subsidiary, in a form reasonably acceptable to the Administrative
Agent and the Issuing Bank, at any time and from time to time during the
Availability Period. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the Borrower to, or
entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.

                  (b)      Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of
the requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only if
(and upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after giving effect to
such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $50,000,000 and (ii) the total Credit Exposures shall not exceed the
total Available Commitments.

                  (c)      Expiration Date. Each Letter of Credit shall expire
at or prior to the close of business on the earlier of (i) the date one year
after the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or extension) and (ii)
the date that is five Business Days prior to the Maturity Date.

                  (d)      Participations. By the issuance of a Letter of Credit
(or an amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Bank or the Lenders, the
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
the Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Lender hereby absolutely and unconditionally agrees to pay to
the Administrative Agent, for the account of the Issuing Bank, such Lender's
Applicable Percentage of each LC Disbursement made by the Issuing Bank and not
reimbursed by the Borrower on the date due as provided in paragraph (e) of this
Section, or of any reimbursement payment required to be refunded to the Borrower
for any reason. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.

                                      -25-


                  (e)      Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
if such LC Disbursement is not less than $1,000,000, the Borrower may, subject
to the conditions to borrowing set forth herein, request in accordance with
Section 2.03 that such payment be financed with an ABR Borrowing in an
equivalent amount and, to the extent so financed, the Borrower's obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply,
mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Loans as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.

                  (f)      Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with

                                      -26-


respect to documents presented which appear on their face to be in substantial
compliance with the terms of a Letter of Credit, the Issuing Bank may, in its
sole discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.

                  (g)      Disbursement Procedures. The Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment under a Letter of Credit. The Issuing Bank shall
promptly notify the Administrative Agent and the Borrower by telephone
(confirmed by telecopy) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve the Borrower of its
obligation to reimburse the Issuing Bank and the Lenders with respect to any
such LC Disbursement.

                  (h)      Interim Interest. If the Issuing Bank shall make any
LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement
in full on the date such LC Disbursement is made, the unpaid amount thereof
shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the Borrower reimburses such
LC Disbursement, at the rate per annum then applicable to ABR Loans; provided
that, if the Borrower fails to reimburse such LC Disbursement when due pursuant
to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing Bank,
except that interest accrued on and after the date of payment by any Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.

                  (i)      Replacement of the Issuing Bank. The Issuing Bank may
be replaced at any time by written agreement among the Borrower, the
Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank.
The Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.

                  (j)      Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. Furthermore, if any
amount of cash collateral is required to be paid to the Administrative Agent
pursuant to subclause (i)(2) or (ii)(2) of Section 2.10(f), the Borrower shall
pay such amount to the Administrative Agent to be deposited in such account. All
deposits contemplated by this Section 2.06(j) shall be held by the
Administrative Agent as collateral for the payment and performance of the
Facility Obligations. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the

                                      -27-


option and sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Lenders with LC
Exposure representing greater than 50% of the total LC Exposure), be applied to
satisfy other Facility Obligations. If the Borrower is required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower within three Business Days after all Events of Default have been
cured or waived.

                  (k)      Existing Letters of Credit. All Existing Letters of
Credit shall be deemed to be issued under this Agreement as of the Effective
Date and shall constitute Letters of Credit hereunder for all purposes
(including Section 2.06(d)), and no notice requesting issuance thereof shall be
required hereunder. Each reference herein to the issuance of a Letter of Credit
shall include any such deemed issuance. JPMorgan Chase Bank is the Issuing Bank
for purposes of the Existing Letters of Credit. All fees accrued on the Existing
Letters of Credit to but excluding the Effective Date shall be for the account
of the "Agent" and the "Banks" (as those terms are used in the Existing Credit
Agreement), and all fees accruing on the Existing Letters of Credit on and after
the Effective Date shall be for the account of the Issuing Bank and the Lenders
as provided herein.

                  Section 2.07. Funding of Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request; provided that ABR Loans made to finance the reimbursement of an LC
Disbursement as provided in Section 2.06(e) shall be remitted by the
Administrative Agent to the Issuing Bank.

                  (b)      Unless the Administrative Agent shall have received
notice from a Lender prior to the proposed date of any Borrowing that such
Lender will not make available to the Administrative Agent such Lender's share
of such Borrowing, the Administrative Agent may assume that such Lender has made
such share available on such date in accordance with paragraph (a) of this
Section and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to the Loans comprising such Borrowing.
If such Lender pays such amount to the Administrative Agent, then such amount
shall constitute such Lender's Loan included in such Borrowing, and the
provisions of the preceding sentence applicable to the Borrower in respect of
the failure of such Lender to make such share of such Borrowing available to the
Administrative Agent shall apply only to the date such payment is made.

                  Section 2.08. Interest Elections. (a) Each Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower

                                      -28-


may elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.

                  (b)      To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if the
Borrower were requesting a Borrowing of the Type resulting from such election to
be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.

                  (c)      Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:

                  (i)      the Borrowing to which such Interest Election Request
         applies and, if different options are being elected with respect to
         different portions thereof, the portions thereof to be allocated to
         each resulting Borrowing (in which case the information to be specified
         pursuant to clauses (iii) and (iv) below shall be specified for each
         resulting Borrowing);

                  (ii)     the effective date of the election made pursuant to
         such Interest Election Request, which shall be a Business Day;

                  (iii)    whether the resulting Borrowing is to be an ABR
         Borrowing or a Eurodollar Borrowing; and

                  (iv)     if the resulting Borrowing is a Eurodollar Borrowing,
         the Interest Period to be applicable thereto after giving effect to
         such election, which shall be a period contemplated by the definition
         of the term "Interest Period".

If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.

                  (d)      Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.

                  (e)      If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
an Event of Default has occurred and is continuing and the Administrative Agent,
at the request of the Required Lenders, so notifies the Borrower, then, so long
as an Event of Default is continuing (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.

                  Section 2.09. Termination and Reduction of Commitments. (a)
Unless previously terminated, the Commitments shall terminate on the Maturity
Date.

                  (b)      The Borrower may at any time terminate, or from time
to time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $5,000,000 and
not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce
the Commitments if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.11, the total Credit Exposures would exceed
the total Available Commitments.

                                      -29-


                  (c)      The Borrower shall notify the Administrative Agent of
any election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.

                  Section 2.10. Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Administrative Agent for
the account of each Lender the then unpaid principal amount of each Loan on the
Maturity Date.

                  (b)      Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.

                  (c)      The Administrative Agent shall maintain accounts in
which it shall record (i) the amount of each Loan made hereunder, the Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.

                  (d)      The entries made in the accounts maintained pursuant
to paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.

                  (e)      Any Lender may request that Loans made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).

                  (f)      If at any time the Borrowing Base Deficiency Amount
is greater than zero, then the Borrower shall (i) within 45 days of receipt of
written notice thereof, (1) prepay the principal of the Loans (or reduce the LC
Exposure) in an amount equal to 50% of such Borrowing Base Deficiency Amount
(but this subclause (i)(1) shall not require prepayment or reduction in an
amount exceeding the outstanding principal balance of the Loans), and (2), if
the Loans are prepaid in full pursuant to the foregoing subclause (i)(1) and 50%
of such Borrowing Base Deficiency Amount exceeds the principal amount of the
Loans so prepaid plus the amount the LC Exposure was reduced pursuant to the
foregoing subclause (i)(l), pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as provided
in Section 2.06(j) hereof; and (ii) within 90 days of receipt of written notice
thereof, (1) prepay the principal of the Loans (or reduce the LC Exposure) in an
amount equal to such Borrowing Base Deficiency Amount remaining after
application of the amounts referenced in clause (i) of this sentence (but this
subclause (ii)(1) shall not require prepayment or reduction in an amount
exceeding the outstanding principal balance of the Loans), and (2) if the Loans
are prepaid in full pursuant to the foregoing subclause (ii)(l) and if such
remaining Borrowing Base Deficiency Amount

                                      -30-


exceeds the principal amount of the Loan so prepaid plus the amount the LC
Exposure was reduced pursuant to the foregoing subclause (ii)(l), pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.06(j) hereof. Additionally,
at the time of each prepayment of principal of the Loans pursuant to this
Section 2.10(f), the Borrower will pay all interest accrued to the date of such
prepayment on the principal amount so prepaid.

                  Section 2.11. Prepayment of Loans. (a) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to prior notice in accordance with paragraph (b) of this
Section.

                  (b)      The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; provided that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.09, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.09. Promptly following receipt of any such notice relating to a
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of an advance of a Borrowing of the same Type as
provided in Section 2.02. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.

                  Section 2.12. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the daily amount of the unused Available
Commitment (For Fee Purposes) of such Lender during the period from and
including the date of this Agreement to but excluding the date on which the
Commitment of such Lender terminates. Commitment fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day and on the date on
which the Commitments terminate, commencing on the first such date to occur
after the Effective Date. Additionally, if any principal of Senior Notes at any
time is paid, then the Borrower agrees to pay to the Administrative Agent, for
the ratable benefit of the Lenders, an additional commitment fee equal to the
Applicable Rate on the date of such payment times the amount of such payment,
for the period from the Redetermination Date immediately prior to such date of
payment (or if the first Redetermination Date has not occurred, from the
Effective Date) to such date of payment, which additional commitment fee shall
be payable on such date of payment. Additionally, if any principal of
Subordinated Debt at any time is paid, then the Borrower agrees to pay to the
Administrative Agent, for the ratable benefit of the Lenders, an additional
commitment fee equal to the Applicable Rate on the date of such payment times
the amount of such payment times 0.3, for the period from the Redetermination
Date immediately prior to such date of payment (or if the first Redetermination
Date has not occurred, from the Effective Date) to such date of payment, which
additional commitment fee shall be payable on such date of payment. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).

                  (b)      The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate used to determine the interest rate applicable to Eurodollar Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date on which
such Lender's Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, provided that the minimum participation fee payable to any
Lender with respect to any Letter of Credit will be $500 times such Lender's
Applicable Percentage, and

                                      -31-


(ii) to the Issuing Bank an issuance fee of $250 and a fronting fee, which shall
accrue at the rate of 1/8% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the third Business Day
following such last day, commencing on the first such date to occur after the
Effective Date; provided that all such fees shall be payable on the date on
which the Commitments terminate and any such fees accruing after the date on
which the Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).

                  (c)      The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent.

                  (d)      All fees payable hereunder shall be paid on the dates
due, in immediately available funds, to the Administrative Agent (or to the
Issuing Bank, in the case of fees payable to it) for distribution, in the case
of commitment fees and participation fees, to the Lenders. Fees paid shall not
be refundable under any circumstances.

                  Section 2.13. Interest. (a) The Loans comprising each ABR
Borrowing shall bear interest at the Alternate Base Rate plus the Applicable
Rate.

                  (b)      The Loans comprising each Eurodollar Borrowing shall
bear interest at the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate.

                  (c)      Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.

                  (d)      Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and upon termination of the
Commitments; provided that (i) interest accrued pursuant to paragraph (c) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment pursuant to Section 2.11 of an
ABR Loan prior to the end of the Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.

                  (e)      All interest hereunder shall be computed on the basis
of a year of 360 days, except that interest computed by reference to the
Alternate Base Rate at times when the Alternate Base Rate is based on the Prime
Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable Alternate
Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.

                                      -32-


                  Section 2.14. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:

                  (a)      the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or

                  (b)      the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately
and fairly reflect the cost to such Lenders of making or maintaining their Loans
included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.

                  Section 2.15. Increased Costs. (a) If any Change in Law shall:

                  (i)      impose, modify or deem applicable any reserve,
         special deposit or similar requirement against assets of, deposits with
         or for the account of, or credit extended by, any Lender (except any
         such reserve requirement reflected in the Adjusted LIBO Rate) or the
         Issuing Bank; or

                  (ii)     impose on any Lender or the Issuing Bank or the
         London interbank market any other condition affecting this Agreement or
         Eurodollar Loans made by such Lender or any Letter of Credit or
         participation therein;

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.

                  (b)      If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.

                  (c)      A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be prima
facie evidence of the matters covered thereby absent manifest error. The
Borrower shall pay such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt
thereof.

                                      -33-


                  (d)      Failure or delay on the part of any Lender or the
Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender's or the Issuing Bank's right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender or the Issuing Bank pursuant to this Section for any increased costs or
reductions incurred more than 180 days prior to the date that such Lender or the
Issuing Bank, as the case may be, notifies the Borrower of the Change in Law
giving rise to such increased costs or reductions and of such Lender's or the
Issuing Bank's intention to claim compensation therefor; provided further that,
if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 180-day period referred to above shall be extended to
include the period of retroactive effect thereof.

                  Section 2.16. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of Default
or the existence of a Borrowing Base Deficiency), (b) the conversion of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar
Loan on the date specified in any notice delivered pursuant hereto (regardless
of whether such notice may be revoked under Section 2.11(b) and is revoked in
accordance therewith), or (d) the assignment of any Eurodollar Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.18, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. Such loss, cost or expense to any Lender shall be
deemed to include an amount determined by such Lender to be the excess, if any,
of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the Adjusted LIBO Rate that would
have been applicable to such Loan, for the period from the date of such event to
the last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
Lender would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be prima facie evidence of the matters covered thereby
absent manifest error. The Borrower shall pay such Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.

                  Section 2.17. Taxes. (a) Any and all payments by or on account
of any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.

                  (b)      In addition, the Borrower shall pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.

                  (c)      The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent, such Lender or the Issuing Bank, as the case may be,
on or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability

                                      -34-


delivered to the Borrower by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be prima facie evidence of the matters covered thereby absent
manifest error.

                  (d)      As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority,
the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.

                  (e)      Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the jurisdiction in which
the Borrower is located, or any treaty to which such jurisdiction is a party,
with respect to payments under this Agreement shall deliver to the Borrower
(with a copy to the Administrative Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law or reasonably requested by the Borrower as will permit such
payments to be made without withholding or at a reduced rate.

                  (f)      If the Administrative Agent or a Lender determines,
in its sole discretion, that it has received a refund of any Taxes or Other
Taxes as to which it has been indemnified by the Borrower or with respect to
which the Borrower has paid additional amounts pursuant to this Section 2.17, it
shall pay over such refund to the Borrower (but only to the extent of indemnity
payments made, or additional amounts paid, by the Borrower under this Section
2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net
of all out-of-pocket expenses of the Administrative Agent or such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); provided, that the Borrower, upon the
request of the Administrative Agent or such Lender, agrees to repay the amount
paid over to the Borrower (plus any penalties, interest or other charges imposed
by the relevant Governmental Authority) to the Administrative Agent or such
Lender in the event the Administrative Agent or such Lender is required to repay
such refund to such Governmental Authority. This Section shall not be construed
to require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person or to take any position to
obtain a refund, deduction or credit that is inconsistent with any position
otherwise taken by the Administrative Agent or such Lender, as the case may be,
on any of its tax returns.

                  Section 2.18. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.15, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.

                  (b)      If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then
the Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have

                                      -35-


received payment of an amount equal to the outstanding principal of its Loans
and participations in LC Disbursements, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.15 or payments required
to be made pursuant to Section 2.17, such assignment will result in a reduction
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

            The Borrower represents and warrants to the Lenders that:

                  Section 3.01. Organization; Powers; Subsidiaries. The Borrower
is duly organized and validly existing under the laws of Delaware. The Borrower
is in good standing under the laws of Delaware, each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and each of the Borrower and its Subsidiaries
has all requisite power and authority to carry on its business as now conducted
and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required, except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. As of the Effective Date, all Subsidiaries
are Restricted Subsidiaries. As of the Effective Date, no Subsidiary has in
effect any Guarantee of any Debt or other obligation of the Borrower or any
Subsidiary.

                  Section 3.02. Authorization; Enforceability. The Transactions
are within the Borrower's (and, in the case of the execution, delivery and
performance of a Subsidiary Guaranty by a Subsidiary Guarantor, such Subsidiary
Guarantor's) powers and have been duly authorized by all necessary corporate
and, if required, stockholder action. This Agreement has been duly executed and
delivered by the Borrower and constitutes a legal, valid and binding obligation
of the Borrower, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law. Each
Subsidiary Guaranty signed by a Subsidiary Guarantor has been duly executed and
delivered by such Subsidiary Guarantor and constitutes a legal, valid and
binding obligation of such Subsidiary Guarantor, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

                  Section 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any order
of any Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.

                  Section 3.04. Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows (i)
as of and for the fiscal year ended December 31, 2002, reported on by
PricewaterhouseCoopers LLC, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended September 30,
2003, certified by its chief financial officer. Such

                                      -36-


financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (ii) above.

                  (b)      Since December 31, 2002, there has been no material
adverse change in the business, assets, operations or financial condition of the
Borrower and its Subsidiaries, taken as a whole, except that seasonal declines
in energy prices will not constitute a material adverse change for purposes
hereof.

                  (c)      Neither the Borrower nor any Subsidiary has on the
Effective Date any material Debt, contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in the financial statements dated as of December 31, 2002 referred to in
Section 3.04(a). Since the date of such financial statements, neither the
business nor the Properties of the Borrower or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.

                  (d)      As of the Effective Date, no Subordinated Debt is
outstanding except the Senior Subordinated Notes.

                  Section 3.05. Properties. (a) Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property (except Oil and Gas Properties) material to its business,
except where the failure to have such title and leasehold interests,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

                  (b)      Each of the Borrower and its Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except where the failure to have such ownership or license or the
existence of such infringement, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

                  (c)      Except as set out in the certificates delivered
pursuant to Sections 4.01(f) and 5.11(d), each of the Borrower and the
Subsidiaries has good and defensible title to its material (individually or in
the aggregate) Oil and Gas Properties, free and clear of all Liens except Liens
permitted by Section 6.02. As used in this Agreement, "good and defensible
title" to Oil and Gas Properties shall be based on the standard that a prudent
Person engaged in the business of ownership, development and operation of Oil
and Gas Properties where such Oil and Gas Properties are located with knowledge
of all of the facts and their legal bearing would be willing to accept as good
and defensible title. Except as set forth in the certificates delivered pursuant
to Sections 4.01(f) and 5.11(d), after giving full effect to the Liens permitted
by Section 6.02 and subject to permitted sales under this Agreement, the
Borrower and its Restricted Subsidiaries own the net interests in production
attributable to the Hydrocarbon Interests reflected in the most recently
delivered Reserve Report in all material respects and the ownership of such
Properties shall not in any material respect obligate the Borrower or any
Restricted Subsidiary to bear the costs and expenses relating to the
maintenance, development and operation of any such Property in an amount in
excess of the working interest of such Property set forth in the most recently
delivered Reserve Report. All factual information contained in the most recently
delivered Reserve Report is true and correct in all material respects as of the
date of such Reserve Report.

                  (d)      All leases and agreements necessary for the conduct
of the business of the Borrower and its Subsidiaries are, to the best knowledge
of the Borrower and its Subsidiaries, valid and subsisting, in full force and
effect and, to the best knowledge of the Borrower and its Subsidiaries, there
exists no default or event or circumstance which with the giving of notice or
the passage of time or both

                                      -37-


would give rise to a default under any such lease or leases, which would in the
aggregate have a Material Adverse Effect.

                  (e)      The rights, properties and other assets presently
owned, leased or licensed by the Borrower and its Subsidiaries including all
easement and rights of way, include all rights, Properties and other assets
necessary to permit the Borrower and its Subsidiaries to conduct their business
in all material respects in the same manner as their business has been conducted
prior to the Effective Date.

                  (f)      All of the assets and Properties of the Borrower and
its Subsidiaries which are reasonably necessary for the operation of their
business are in good working condition for their current use and are maintained
in accordance with business standards of a reasonably prudent operator where
such assets and Properties are located.

                  (g)      Except (i) as set forth on Schedule 3.05 and (ii) for
participation agreements existing or entered into in the ordinary course of
business of the Borrower with respect to the drilling, development or
acquisition of Oil and Gas Properties with participants under arrangements which
do not constitute state law partnerships, as of the Effective Date the Borrower
has no Subsidiaries and no interest in any partnerships.

                  Section 3.06. Litigation and Environmental Matters. (a) There
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect or (ii) that involve this
Agreement or the Transactions.

                  (b)      Except for matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
become subject to any Environmental Liability, (iii) has received notice of any
claim asserting or alleging any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.

                  Section 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.

                  Section 3.08. Investment and Holding Company Status. Neither
the Borrower nor any of its Subsidiaries is (a) an "investment company" or a
company "controlled" by an "investment company" as those terms are defined in,
or subject to regulation under, the Investment Company Act of 1940, as amended,
or (b) a "holding company" or a "subsidiary company" of a "holding company," or
an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" as those terms are defined in, or subject to
regulation under, the Public Utility Holding Company Act of 1935.

                  Section 3.09. Taxes. Each of the Borrower and its Subsidiaries
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.

                                      -38-


                  Section 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $10,000,000 the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$20,000,000 the fair market value of the assets of all such underfunded Plans.

                  Section 3.11. Disclosure. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to which
it or any of its Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. Neither the Information Memorandum nor any of the
other reports, financial statements, certificates or other written information
furnished by or on behalf of the Borrower to the Administrative Agent, the
Syndication Agent, either Co-Lead Arranger or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished), taken as a whole, contained
when furnished any material misstatement of fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with
respect to projected financial information, the Borrower represents only that
such information was prepared in good faith based upon assumptions believed by
the Borrower to be reasonable at the time recognizing that there are
industry-wide risks normally associated with the types of business conducted by
the Borrower and its Subsidiaries; provided further that it is understood that
the Reserve Reports are based upon professional opinions, estimates and
projections.

                  Section 3.12. Insurance. Insurance complying with the
requirements of Section 5.05 is in full force and effect. Neither the Borrower
nor any Subsidiary has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary policy
limits, by an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.

                  Section 3.13. Fiscal Periods. The fiscal year of the Borrower
and its consolidated Subsidiaries is the twelve-month period ending on December
31 of each year and the fiscal quarters of the Borrower and its consolidated
Subsidiaries are each of the three-month periods ending on March 31, June 30,
September 30 and December 31 of each year.

                  Section 3.14. Use of Proceeds. Following application of the
proceeds of each Loan, not more than 25% of the value of assets (either of the
Borrower only or of the Borrower and its Restricted Subsidiaries on a
consolidated basis), which are subject to any arrangement with the
Administrative Agent, the Issuing Bank or any Lender (herein or otherwise)
whereby the Borrower's or any Restricted Subsidiary's right or ability to sell,
pledge or otherwise dispose of assets is in any way restricted (or pursuant to
which the exercise of any such right is or may be cause for accelerating the
maturity of all or any portion of the Loans or any amount payable hereunder or
under any such other arrangement), will be margin stock (within the meaning of
Regulation U of the Board).

                                   ARTICLE IV

                                   CONDITIONS

                  Section 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):

                                      -39-


                  (a)      The Administrative Agent shall have received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.

                  (b)      The Administrative Agent shall have received a
favorable written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Vinson & Elkins L.L.P., counsel for the
Borrower, substantially in the form of Exhibit B, and covering such other
matters relating to the Borrower, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinion.

                  (c)      The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good standing of
the Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.

                  (d)      The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a Vice
President or a Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a), (b) and (c) of Section 4.02 and setting
forth the calculation of the Borrowing Base as of the Effective Date.

                  (e)      The Administrative Agent shall have received all fees
and other amounts due and payable on or prior to the Effective Date, including,
to the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.

                  (f)      The Administrative Agent shall have received the
December 31 Reserve Report for 2003 comporting with the requirements of Section
5.11(a), the related reports contemplated by Section 5.11(c), any related
Engineering Reports requested by the Administrative Agent and the certificate
contemplated by Section 5.11(d).

                  (g)      The Administrative Agent shall have received an
original promissory note as contemplated by Section 2.10(e) for each Lender that
has notified the Administrative Agent prior to the Effective Date that such
Lender requests such note.

                  (h)      The Administrative Agent shall have received such
other documents as it may reasonably request.

                  (i)      All commitments under, and all letters of credit
(other than the Existing Letters of Credit) issued pursuant to, the Existing
Credit Agreement shall have been terminated and all amounts outstanding under
the Existing Credit Agreement shall have been paid in full. Each Lender that is
a party to the Existing Credit Agreement waives each notice of termination of
such commitments or of prepayment required thereby.

The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 3:00 p.m., New York City time, on March 31, 2004 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).

                  Section 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:

                                      -40-


                  (a)      The representations and warranties of the Borrower
set forth in this Agreement (and, if any Subsidiary Guaranty has been executed,
of the Subsidiary Guarantors set forth in the Subsidiary Guaranties) shall be
true and correct on and as of the date of such Borrowing or the date of
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable.

                  (b)      At the time of and immediately after giving effect to
such Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing and
no Borrowing Base Deficiency shall exist.

                  (c)      No Material Adverse Effect shall have occurred since
December 31, 2002.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a), (b)
and (c) of this Section.

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

                  Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:

                  Section 5.01. Financial Statements; Ratings Change and Other
Information. The Borrower will furnish to the Administrative Agent and each
Lender:

                  (a)      within 90 days after the end of each fiscal year of
the Borrower, its audited consolidated (and if any Unrestricted Subsidiary
existed during such year, its unaudited consolidating) balance sheet and related
statements of operations, stockholders' equity and cash flows as of the end of
and for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, (i) all (other than any such consolidating balance
sheet and consolidating statements) reported on by PricewaterhouseCoopers LLC or
other independent public accountants of recognized national standing (without a
"going concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, and (ii) in the case of such consolidating balance sheet and
consolidating statements, if any, certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidating basis in accordance with GAAP consistently applied;

                  (b)      within 45 days after the end of each of the first
three fiscal quarters of each fiscal year of the Borrower, its consolidated (and
if any Unrestricted Subsidiary existed during such year its consolidating)
balance sheet and related statements of operations, stockholders' equity and
cash flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis (and, in the case of such
consolidating balance sheet and consolidating statements, if any, on a
consolidating basis) in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

                                      -41-


                  (c)      concurrently with any delivery of financial
statements under clause (a) or (b) above, a certificate of a Financial Officer
of the Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Sections 6.21 and 6.22,
(iii) setting forth a calculation of the Borrowing Base and (iv) stating whether
any change in GAAP or in the application thereof has occurred since the date of
the audited financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;

                  (d)      promptly after the delivery to the Securities and
Exchange Commission, a copy of the certification signed by the principal
executive officer and the principal financial officer of the Borrower (each, a
"Certifying Officer") as required by Rule 13A-14 under the Securities Exchange
Act of 1934 and a copy of the internal controls disclosure statement by such
Certifying Officers as required by Rule 13A-15 under the Securities Exchange Act
of 1934 and Final Rules Release No. 33-8238 of the United States Securities and
Exchange Commission, each as included in the Borrower's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, for the applicable fiscal period;

                  (e)      promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
distributed by the Borrower to its shareholders generally, as the case may be;

                  (f)      promptly after Moody's or S&P shall have announced a
change in the rating established or deemed to have been established for the
Index Debt, notice of such rating change;

                  (g)      within three Business Days of any issuance of
Subordinated Debt or any Senior Note, notice of such issuance including the
amount and maturity thereof and a copy of the indenture or other instrument
pursuant to which such Subordinated Debt or Senior Note was issued;

                  (h)      if the Borrowing Base Debt Amount has increased by
more than $5,000,000 since the most recent Redetermination Date (or if the first
Redetermination Date has not occurred, since the Effective Date), (i) within
five Business Days of such increase, notice of such amount and (ii) until the
next Redetermination Date, notice of the amount of each additional increase (if
$5,000,000 or more) in the Borrowing Base Debt Amount; provided that the
Borrower will not be required to provide such notices with respect to increases
in the Borrowing Base Debt Amount resulting from short term borrowings under the
Borrower's money market lines of credit so long as the total aggregate
outstanding principal amount of such borrowings does not exceed $40,000,000; and

                  (i)      promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition
of the Borrower or any Subsidiary, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably request.

                  Section 5.02. Notices of Material Events. The Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:

                  (a)      the occurrence of any Default or the occurrence of
any Borrowing Base Deficiency;

                  (b)      the filing or commencement of any claim for taxes,
action, suit or proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any Affiliate thereof that involves
monetary claims in excess of $20,000,000 or that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;

                                      -42-


                  (c)      the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in an
aggregate amount exceeding $10,000,000; and

                  (d)      any other development that results in, or could
reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.

                  Section 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises used or
useful in the conduct of its business; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.03 or the release, surrender or disposition of the legal existence of
any Restricted Subsidiary or of any such rights, licenses, permits, privileges
and franchises (other than the legal existence of the Borrower), if all such
releases, surrenders and dispositions, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.

                  Section 5.04. Payment of Obligations. The Borrower will, and
will cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.

                  Section 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain
all property (except Oil and Gas Properties) material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and (b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as is customarily maintained by
companies engaged in the same or similar businesses operating in the same or
similar locations.

                  Section 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.

                  Section 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

                  Section 5.08. Oil and Gas Properties. (a) The Borrower will
operate, and will cause the Subsidiaries to operate, their Oil and Gas
Properties or cause such Oil and Gas Properties to be operated in a careful and
efficient manner in accordance with the practices of the industry and in
compliance with all applicable contracts and agreements and in compliance in all
respects with all requirements of any Governmental Authority, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

                                      -43-


                  (a)      The Borrower will and will cause each Subsidiary to,
at its own expense, do or cause to be done all things reasonably necessary to
preserve and keep in good repair and working order (ordinary wear and tear
excepted) all of its Oil and Gas Properties and other material Properties
including all equipment, machinery and facilities, and from time to time will
make all the reasonably necessary repairs, renewals and replacements so that at
all times the state and condition of its Oil and Gas Properties and other
material Properties will be fully preserved and maintained, except to the extent
a portion of such Properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts or where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect. In a manner
consistent with the prudent operator standard, the Borrower will and will cause
each Subsidiary to promptly: (i) pay and discharge, or make reasonable and
customary efforts to cause to be paid and discharged, all delay rentals,
royalties, expenses and obligations accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas Properties, (ii) perform
or make reasonable and customary efforts to cause to be performed, in accordance
with industry standards, the obligations required by each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its
interests in its Oil and Gas Properties and other material Properties, (iii)
will and will cause each Subsidiary to do all other things necessary to keep
unimpaired, except for Liens permitted by Section 6.02, its rights with respect
thereto and prevent any forfeiture thereof or a default thereunder, except where
the failure to do so could not reasonably be expected to result in a Material
Adverse Effect.

                  Section 5.09. Principal Business. Borrower will, and will
cause each Subsidiary to, maintain as its primary business the exploration,
production and development of oil, natural gas and other liquid and gaseous
Hydrocarbons.

                  Section 5.10. Subsidiary Guaranties. If any Restricted
Subsidiary is created or acquired which has Guaranteed, or any Restricted
Subsidiary Guarantees or proposes to Guarantee (in each case, the "Guaranteeing
Subsidiary"), any Debt or other obligation of the Borrower or any Restricted
Subsidiary, then the Borrower will cause the Guaranteeing Subsidiary,
simultaneously with or prior to such acquisition or creation or such Guarantee
of Debt or other obligation, as the case may be, to deliver to the
Administrative Agent (i) a Subsidiary Guaranty duly executed by such
Guaranteeing Subsidiary, (ii) certified copies of the charter, by-laws,
partnership or company agreement or similar documents pertaining to such
Guaranteeing Subsidiary, (iii) evidence, reasonably satisfactory to the
Administrative Agent, of the authorization and due execution and delivery of
such Subsidiary Guaranty by such Guaranteeing Subsidiary, (iv) other documents
and certificates of the type referred to in Section 4.01(c) with respect to such
Guaranteeing Subsidiary and (v) a legal opinion of counsel reasonably acceptable
to the Administrative Agent in substantially the form of Exhibit B, but
referring to such Guaranteeing Subsidiary and such Subsidiary Guaranty rather
than the Borrower and the documents referred to in Exhibit B.

                  Section 5.11. Engineering Reports. (a) The Borrower shall
deliver the December 31 Reserve Report at least 60 days prior to the next
following May 1 Scheduled Redetermination Date. The Borrower shall deliver the
June 30 Reserve Report at least 60 days prior to the next following November 1
Scheduled Redetermination Date. The December 31 Reserve Report shall include (a)
a report prepared by Ryder-Scott Company, Petroleum Engineers, DeGoyler &
McNaughton or other certified independent engineer of recognized standing
satisfactory to the Administrative Agent (the "Outside Report"), which covers at
least 80% of the proved oil and gas reserves attributable to the Oil and Gas
Properties of the Borrower and the Restricted Subsidiaries, and (b) a report
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such report to be true and accurate and to have been prepared in
accordance with the procedures used in such Outside Report (the "Company
Report"), which covers the proved oil and gas reserves attributable to the Oil
and Gas Properties of the Borrower and the Restricted Subsidiaries which were
not covered by such Outside Report. The June 30 Report shall be a Company Report
which covers the proved oil and gas reserves attributable to all of the Oil and
Gas Properties of the Borrower and the Restricted Subsidiaries. The Borrower may
elect to use the immediately preceding December 31 Reserve Report instead of
preparing the June 30 Reserve Report, in which case reserve run off with no
replacement will be assumed. Further, the Borrower will be required to

                                      -44-


provide a review of the Oil and Gas Properties which shall include a comparison
of actual and projected production volumes.

                  (a)      For each unscheduled redetermination, the Borrower
shall furnish to the Lenders, a Reserve Report, as of a date no earlier than 60
days prior to the date on which such redetermination is to occur in accordance
with Section 2.04(d), prepared by or under the supervision of the chief engineer
of the Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in the
immediately preceding December 31 Reserve Report. For any unscheduled
redetermination requested by the Required Lenders pursuant to Section 2.04(d),
the Borrower shall provide such Reserve Report as soon as possible, but in any
event no later than 45 days following its receipt of the request by the Required
Lenders.

                  (b)      Concurrently with the delivery of each Reserve
Report, the Borrower shall provide the Lenders production reports covering in
the aggregate the net production of oil and gas of the Borrower and the
Restricted Subsidiaries, which reports shall include quantities or volumes of
production, realized product prices, operating expenses, taxes, capital
expenditures and such other information as the Administrative Agent may
reasonably request and covering the six month period ending on the "as of" date
of the Reserve Report being delivered with such production report.

                  (c)      With the delivery of each Reserve Report, the
Borrower shall provide to the Lenders, a certificate from the Responsible
Officer who is the chief engineer of the Borrower that, to the best of his
knowledge and in all material respects, (i) the factual information contained in
the Reserve Report and Engineering Reports is true and correct, (ii) the
Borrower or a Restricted Subsidiary owns good and defensible title to the Oil
and Gas Properties evaluated in such Reserve Report free of all Liens except for
Excepted Liens, (iii) except as set forth on an exhibit to the certificate or in
the Reserve Report, on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to the Oil and Gas Properties evaluated in such
Reserve Report which would require the Borrower or any Restricted Subsidiary to
deliver Hydrocarbons produced from such Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor, (iv) no Oil and
Gas Properties have been sold since the date of the last Calculated Borrowing
Base determination except as permitted by the terms of this Agreement, (v)
attached to the certificate are statements of the Borrower's and each Restricted
Subsidiary's outstanding Oil or Gas Swap Contracts, which statements shall
include for each such Oil or Gas Swap Contract (A) the termination date, (B) the
notional amounts or volumes and the periods covered by such volumes, and (C) the
price to be paid or the basis for calculating the price to be paid by the
Borrower and the other Person under each Oil or Gas Swap Contract for each of
the future periods covered by each Oil or Gas Swap Contract, (vi) the Borrowing
Base Debt Amount on the date of such certificate is the amount set forth in such
certificate, and (vii) the amount of Subordinated Debt outstanding on the date
of such certificate is the amount set forth in such certificate.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

                  Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:

                  Section 6.01. Debt. The Borrower will not, and will not permit
any Restricted Subsidiary to, create, incur or assume any Debt, if at the time
of such creation, incurrence or assumption or immediately after giving effect
thereto any Borrowing Base Deficiency would exist or any Default shall have
occurred and be continuing; provided that this Section 6.01 shall not prohibit
the Borrower and its Restricted Subsidiaries from creating or incurring, even if
a Borrowing Base Deficiency or any Default

                                      -45-


shall have occurred, (i) Debt evidenced by bonds or surety obligations, in each
case required by any Governmental Authority, (ii) obligations to pay into escrow
accounts or establish other reserves, in each case under this clause (ii) only
in amounts necessary to cover costs of abandonment of oil and gas wells or
drilling sites, and (iii) obligations described in clause (k) of the definition
herein of Debt that arise after the occurrence of a Borrowing Base Deficiency or
Default pursuant to a futures contract, swap contract or similar hedging
agreement entered into prior to such occurrence; provided further that this
Section 6.01 shall not prohibit obligations described in clause (k) of the
definition herein of Debt if no Default shall have occurred and be continuing.

                  Section 6.02. Liens. The Borrower will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:

                  (a)      Excepted Liens;

                  (b)      any Lien on any property or asset of the Borrower or
any Restricted Subsidiary existing on the date hereof and set forth in Schedule
6.02; provided that (i) such Lien shall not apply to any other property or asset
of the Borrower or any Restricted Subsidiary and (ii) such Lien shall secure
only those obligations which it secures on the date hereof;

                  (c)      any Lien existing on any property or asset prior to
the acquisition thereof by the Borrower or any Restricted Subsidiary or existing
on any property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that (i)
such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such
Lien shall not apply to any other property or assets of the Borrower or any
Restricted Subsidiary, (iii) such Lien does not secure any obligation of an
Unrestricted Subsidiary and (iv) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person becomes
a Subsidiary, as the case may be;

                  (d)      Liens securing Capital Lease Obligations of the
Borrower or any Restricted Subsidiary if the aggregate amount of all such
Capital Lease Obligations does not exceed $25,000,000 and such Liens do not
encumber any Oil and Gas Properties;

                  (e)      Liens on cash or securities securing obligations of
the Borrower or any Restricted Subsidiary arising by law or under production
sharing contracts, joint operating agreements or similar agreements to pay into
escrow accounts or establish other reserves, in each case only in amounts
necessary to cover costs of abandonment of oil and gas wells or drilling sites;
and

                  (f)      Liens on the Equity Interests of any Unrestricted
Subsidiary.

                  Section 6.03. Fundamental Changes. (a) The Borrower will not,
and will not permit any Restricted Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of its business or assets,
or any Equity Interests of any of its Restricted Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except that,
if at the time thereof and immediately after giving effect thereto no Default
shall have occurred and be continuing, this Section 6.03 shall not prohibit (i)
any Person from merging into the Borrower in a transaction in which the Borrower
is the surviving corporation, (ii) any Person (other than the Borrower) from
merging into any Restricted Subsidiary in a transaction in which the surviving
entity is a Restricted Subsidiary wholly-owned by the Borrower, (iii) any
Restricted Subsidiary from selling, transferring, leasing or otherwise disposing
of its assets to the Borrower or to another Restricted Subsidiary wholly-owned
by the Borrower, (iv) any Restricted Subsidiary from liquidating or dissolving
if the Borrower determines in good faith that such liquidation or dissolution is
in the best interests of the Borrower and is not materially disadvantageous to
the Lenders and (v) any Restricted Subsidiary from

                                      -46-


selling, transferring, leasing or otherwise disposing of its assets if such
sale, transfer, lease or other disposition would otherwise be permitted under
Section 6.14.

                  (a)      The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.

                  Section 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any Restricted
Subsidiary to, purchase, hold or acquire (including pursuant to any merger with
any Person that was not a wholly owned Subsidiary prior to such merger) any
Investment in any Person except Permitted Investments. The Borrower will not,
and will not permit any Restricted Subsidiary to, Guarantee any obligation of
any Unrestricted Subsidiary.

                  Section 6.05. Swap Agreements. The Borrower will not, and will
not permit any Restricted Subsidiary to, enter into any Swap Agreement, except
(a) Swap Agreements entered into to hedge or mitigate risks to which the
Borrower or any Restricted Subsidiary has actual exposure (other than those in
respect of Equity Interests of the Borrower or any of its Subsidiaries), and (b)
Swap Agreements entered into in order to effectively cap, collar or exchange
interest rates (from fixed to floating rates, from one floating rate to another
floating rate or otherwise) with respect to any interest-bearing liability or
investment of the Borrower or any Restricted Subsidiary.

                  Section 6.06. Restricted Payments. The Borrower will not, and
will not permit any of the Restricted Subsidiaries to, pay, declare or make, or
agree to pay, declare or make, directly or indirectly, any Restricted Payment,
except (a) the Borrower may declare and pay dividends with respect to its Equity
Interests payable solely in additional shares of its common stock, (b)
Subsidiaries may declare and pay dividends ratably with respect to their Equity
Interests, (c) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of the Borrower and its Subsidiaries and (d) the Borrower may declare
and pay cash dividends, and redeem for cash or repurchase for cash its common
and preferred stock, if in each case (i) the aggregate amount of such dividends
plus the aggregate amount paid for such redemptions and repurchases during each
four consecutive fiscal quarters of the Borrower does not exceed 100% of the
consolidated net income of the Borrower and its Restricted Subsidiaries for such
four quarters, and (ii) at the time of any such dividend, redemption or
repurchase, and immediately after giving effect thereto, no Borrowing Base
Deficiency shall exist and no Default shall have occurred and be continuing.

                  Section 6.07. Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower and each Subsidiary than could
be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Borrower and its wholly-owned Restricted
Subsidiaries not involving any other Affiliate and (c) any Restricted Payment
permitted by Section 6.06.

                  Section 6.08. Restrictive Agreements. The Borrower will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the
Borrower or any Restricted Subsidiary to create, incur or permit to exist any
Lien upon any of its property or assets, or (b) the ability of any Restricted
Subsidiary to pay dividends or other distributions with respect to any of its
Equity Interests or to make or repay loans or advances to the Borrower or any
other Restricted Subsidiary or to Guarantee Debt of the Borrower or any other
Restricted Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 6.08 (but shall apply to any extension or renewal
of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions

                                      -47-


and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured Debt
(including Capital Lease Obligations) permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Debt and (v) clause (a) of the foregoing shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof.

                  Section 6.09. Subsidiary Debt and Preferred Stock. The
Borrower will not permit any Restricted Subsidiary to issue preferred stock and
will not permit the aggregate principal amount of Debt of its Restricted
Subsidiaries (excluding any Debt of a Restricted Subsidiary owed to the Borrower
or another Restricted Subsidiary, but including any Guarantee by a Restricted
Subsidiary of Debt of the Borrower) at any time to exceed $25,000,000.

                  Section 6.10. Designation of Unrestricted Subsidiaries. The
Borrower will not designate any Subsidiary as an Unrestricted Subsidiary,
unless:

                  (i)      neither such Subsidiary nor any of its subsidiaries
         has any Debt except Non-Recourse Debt;

                  (ii)     neither such Subsidiary nor any of its subsidiaries
         is a party to any agreement, arrangement, understanding or other
         transaction with the Borrower or any Restricted Subsidiary, except
         those agreements and other transactions entered into in writing in the
         ordinary course of business at prices and on terms and conditions not
         less favorable to the Borrower and each Restricted Subsidiary than
         could be obtained on an arm's-length basis from unrelated third
         parties;

                  (iii)    at the time of such designation, the aggregate book
         value of the assets of the Borrower and the Restricted Subsidiaries, on
         a consolidated basis (excluding investments in Unrestricted
         Subsidiaries) exceeds $2,250,000,000;

                  (iv)     neither such Subsidiary nor any of its subsidiaries
         is a Guarantor Subsidiary or has any outstanding Letter of Credit
         issued for its account;

                  (v)      neither such Subsidiary nor any of its subsidiaries
         owns any Oil and Gas Properties included in the Calculated Borrowing
         Base or other Property relevant to the Calculated Borrowing Base in
         effect at the time of such designation;

                  (vi)     at the time of such designation and immediately after
         giving effect thereto, no Borrowing Base Deficiency shall exist and no
         Default shall have occurred and be continuing;

                  (vii)    the Borrower would have been in compliance with
         Section 6.22 on the last day of the most recently ended fiscal quarter
         of the Borrower had such Subsidiary been an Unrestricted Subsidiary on
         such day;

                  (viii)   neither such Subsidiary nor any of its subsidiaries
         owns any Debt or Equity Interest of, or is the beneficiary of any Lien
         on any property of, the Borrower or any Restricted Subsidiary; and

                  (ix)     at or immediately prior to such designation, the
         Borrower delivers a certificate to the Lenders certifying (a) the names
         of such Subsidiary and all of its subsidiaries, and (b) that all
         requirements of this Section have been met for such designation.

                  Section 6.11. New Unrestricted Subsidiaries. The Borrower will
not permit any Unrestricted Subsidiary to acquire or create any subsidiary of
such Unrestricted Subsidiary unless such subsidiary is designated as an
Unrestricted Subsidiary in accordance with Section 6.10.

                                      -48-


                  Section 6.12. Sale Leaseback Transactions. The Borrower will
not enter into, and will not permit any Restricted Subsidiary to enter into, any
Sale Leaseback Transaction if, immediately after giving effect thereto, the
aggregate amount of all Attributable Obligations for all Sale Leaseback
Transactions would exceed $25,000,000.

                  Section 6.13. Sale or Discount of Receivables. The Borrower
will not, and will not permit any Restricted Subsidiary to, discount or sell
(with or without recourse) any of its notes receivable or accounts receivable,
except that the Borrower may discount or sell past due accounts receivable and
past due notes receivable if the Borrower determines in its reasonable judgment
that such course of action is a reasonably prudent means of collection with
respect to such note receivable or account receivable and if the notes and
accounts receivables discounted or sold do not constitute a material portion of
the Borrower's and the Restricted Subsidiaries' notes receivable or accounts
receivable outstanding at such time.

                  Section 6.14. Sale of Oil and Gas Properties. Except for
Hydrocarbons sold in the ordinary course of business as and when produced, the
Borrower will not, and will not permit any Restricted Subsidiary to, sell,
assign, transfer, farm-out or convey, directly or indirectly, by way of merger
or sale of equity securities in a Subsidiary or otherwise ("Transfer"), any
interest in any of its Oil and Gas Properties in excess of $100,000,000 in the
aggregate during the period from the Effective Date to the initial
Redetermination Date or during any period from one Redetermination Date to the
next Redetermination Date, as such value is determined by the most recent
December 31 Reserve Report using a 9% discount rate and giving effect to
production prior to the effective date of the Transfer, without the prior
written consent of Required Lenders, which consent will not be unreasonably
withheld.

                  Section 6.15. Subsidiaries and Partnerships. The Borrower will
not, and will not permit any Restricted Subsidiary to, create or acquire any
Subsidiary unless (i) the Borrower shall give the Administrative Agent prompt
notice of the creation of such Subsidiary and (ii) the Borrower is in compliance
with Sections 5.10 and 6.04.

                  Section 6.16. Hydrocarbon Sales Contract. The Borrower will
not, and will not permit any Restricted Subsidiary to, enter into any contract
for the sale of Hydrocarbons produced from any of its Oil and Gas Properties in
which the Borrower or such Subsidiary warrants quantities of Hydrocarbons to be
delivered thereunder.

                  Section 6.17. Environmental Matters. The Borrower will not,
and will not permit any Subsidiary to, cause or permit any of its Property to be
in violation of, or do anything or permit anything to be done which will subject
any such Property to any remedial obligations under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property, where
such violations and remedial obligations would in the aggregate, have a Material
Adverse Effect.

                  Section 6.18. Subordinated Debt. The Borrower will not modify
or amend the terms of any Subordinated Debt or any related indentures or other
document, if the effect of such modification or amendment would be to shorten
the time for payment on any Subordinated Debt, increase the rate of interest on
any Subordinated Debt or change the method of calculating interest so as to
effectively increase the rate of interest on any Subordinated Debt, change any
of the provisions of the covenants, subordination provisions and events of
default or any of the definitions used in or relating thereto, or any other
provisions which would detrimentally affect the rights of the Lenders.

                  Section 6.19. Fiscal Periods. The Borrower will not change,
and will not permit any of its Consolidated Restricted Subsidiaries to change,
its fiscal year from the twelve-month period ending on December 31 of each year
or any of its fiscal quarters from the three-month periods ending March 31, June
30, September 30 and December 31 of each year.

                                      -49-


                  Section 6.20. Use of Proceeds. The Borrower will not use, and
will not permit any Subsidiary to use, the proceeds of any Loan for any purpose
other than general corporate and working capital purposes which may include the
acquisition, exploration and development of Oil and Gas Properties, and in any
event will not use, and will not permit any Subsidiary to use, any such proceeds
(i) in any manner that violates or results in a violation of any law or
regulation or this Agreement, or to purchase or carry, directly or indirectly,
any margin stock (within the meaning of Regulation U of the Board) or for any
purpose that would result in any Loan being a "purpose credit" within the
meaning of Regulation U. The Borrower will not use and will not permit any
Subsidiary to use any Letter of Credit to support any Debt of any Person or to
support any obligation of an Unrestricted Subsidiary.

                  Section 6.21. Total Debt to EBITDA Ratio. The Borrower will
not permit the Total Debt to EBITDA Ratio to exceed 3.00 to 1.00 at any time.

                  Section 6.22. EBITDA to Interest Ratio. The Borrower will not
permit the EBITDA to Interest Ratio to be less than 3.00 to 1.00 for any period
of four consecutive fiscal quarters of the Borrower.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

                  Section 7.01. Events of Default. If any of the following
events ("Events of Default") shall occur:

                  (a)      the Borrower shall fail to pay any principal of any
Loan or any reimbursement obligation in respect of any LC Disbursement (other
than LC Disbursements that are financed as a Borrowing in accordance with
Section 2.06(e)) when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or otherwise;

                  (b)      the Borrower shall fail to pay any interest on any
Loan or any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement, when and as the same shall
become due and payable, and such failure shall continue unremedied for a period
of three Business Days;

                  (c)      any representation or warranty made or deemed made by
or on behalf of the Borrower or any Subsidiary in or in connection with this
Agreement, any other Loan Document or any amendment, waiver or modification
hereof or thereof, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with this Agreement, any other
Loan Document or any amendment or modification hereof or waiver hereunder, shall
prove to have been incorrect in any material respect when made or deemed made;

                  (d)      the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02 or 5.03 (with respect
to the Borrower's existence) or in Article II or Article VI;

                  (e)      the Borrower or any Subsidiary Guarantor shall fail
to observe or perform any covenant, condition or agreement contained in this
Agreement or any other Loan Document (other than those specified in clause (a),
(b) or (d) of this Article), and such failure shall continue unremedied for a
period of 30 days after notice thereof from the Administrative Agent to the
Borrower (which notice will be given at the request of any Lender);

                  (f)      the Borrower or any Restricted Subsidiary shall fail
to make any payment (whether of principal or interest and regardless of amount)
in respect of any Material Indebtedness, when and as the same shall become due
and payable;

                                      -50-


                  (g)      any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity; provided that this clause (g) shall not apply to secured
Debt that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Debt if such indebtedness is paid when due;

                  (h)      an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization or
other relief in respect of the Borrower or any Restricted Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Restricted Subsidiary or
for a substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered;

                  (i)      the Borrower or any Restricted Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect, (ii) consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Restricted
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors or (vi)
take any action for the purpose of effecting any of the foregoing;

                  (j)      the Borrower or any Restricted Subsidiary shall
become unable, admit in writing its inability or fail generally to pay its debts
as they become due;

                  (k)      one or more judgments for the payment of money in an
aggregate amount in excess of $25,000,000 (net of insured amounts payable by a
financially responsible insurer that has been notified thereof and has not
denied coverage) shall be rendered against the Borrower, any Restricted
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Restricted Subsidiary to enforce any
such judgment;

                  (l)      an ERISA Event shall have occurred that, in the
opinion of the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in a Material Adverse
Effect or result in liability of the Borrower and its Subsidiaries in an
aggregate amount exceeding $25,000,000 for all periods;

                  (m)      a Change in Control shall occur;

                  (n)      any provision of any Subsidiary Guaranty for any
reason is not a legal, valid, binding and enforceable obligation of the
Subsidiary Guarantor shown as being a party thereto or any Subsidiary or the
Borrower shall so state in writing; or

                  (o)      the Borrower or any other Person shall petition or
apply for or obtain any order restricting payment by the Issuing Bank under any
Letter of Credit or extending the liability of the Issuing Bank under any Letter
of Credit beyond the expiration date stated therein;

then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative

                                      -51-


Agent may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower; and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Article, the Commitments shall automatically terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or other notice
of any kind, all of which are hereby waived by the Borrower. Without limiting
the foregoing or any other provision hereof, the Borrower shall also have the
obligations, and the Administrative Agent and Lenders shall have the rights and
remedies, specified in Section 2.06(j).

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

                  Section 8.01. The Administrative Agent. Each of the Lenders
and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its
agent and authorizes the Administrative Agent to take such actions on its behalf
and to exercise such powers as are delegated to the Administrative Agent by the
terms hereof, together with such actions and powers as are reasonably incidental
thereto.

                  The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.

                  The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise as directed in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), and (c) except
as expressly set forth herein, the Administrative Agent shall not have any duty
to disclose, and shall not be liable for the failure to disclose, any
information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. THE ADMINISTRATIVE AGENT SHALL NOT BE LIABLE
FOR ANY ACTION TAKEN OR NOT TAKEN BY IT WITH THE CONSENT OR AT THE REQUEST OF
THE REQUIRED LENDERS (OR SUCH OTHER NUMBER OR PERCENTAGE OF THE LENDERS AS SHALL
BE NECESSARY UNDER THE CIRCUMSTANCES AS PROVIDED IN SECTION 9.02) OR IN THE
ABSENCE OF ITS OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT. The Administrative
Agent shall not be liable for the accuracy of, or the methodology or procedures
used by it in redetermining or proposing, any Calculated Borrowing Base. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Borrower or a Lender, and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement, any other Loan
Document or any other agreement,

                                      -52-


instrument or document, (ii) the contents of any certificate, report or other
document delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the amount of the Borrowing Base, or (vi) the satisfaction of any
condition set forth in Article IV or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent.

                  The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

                  The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

                  Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower (but such consultation shall not be required if
an Event of Default shall have occurred and is continuing), to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint
a successor Administrative Agent which shall be a bank with an office in New
York, New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

                  Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.

                  EACH LENDER, RATABLY IN ACCORDANCE WITH ITS RESPECTIVE
APPLICABLE PERCENTAGE, SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, SUB-AGENTS
APPOINTED BY THE ADMINISTRATIVE AGENT PURSUANT

                                      -53-


TO THIS ARTICLE VIII AND EACH RELATED PARTY OF THE ADMINISTRATIVE AGENT AND SUCH
SUB-AGENTS (EACH SUCH PERSON BEING CALLED AN "AGENT INDEMNITEE") AGAINST, AND
HOLD EACH AGENT INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY AGENT INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
AGENT INDEMNITEE TO THE EXTENT (i) THAT SUCH AGENT INDEMNITEE IS ENTITLED TO
INDEMNIFICATION FROM THE BORROWER PURSUANT TO SECTION 9.03(b) AND (ii) EITHER
(1) SUCH AGENT INDEMNITEE IS NOT PROMPTLY AND INDEFEASIBLY PAID THE AMOUNT OF
SUCH INDEMNIFICATION BY THE BORROWER OR (2) ANY SUCH PAYMENT IS RESCINDED OR
MUST OTHERWISE BE RETURNED BY SUCH AGENT INDEMNITEE UPON THE INSOLVENCY,
BANKRUPTCY OR REORGANIZATION OF ANY PERSON OR OTHERWISE. IT IS THE EXPRESS
INTENT OF THE PARTIES HERETO THAT EACH AGENT INDEMNITEE SHALL, TO THE EXTENT
CONTEMPLATED IN SECTION 9.03 BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR
CONTRIBUTORY NEGLIGENCE. PAYMENT BY ANY LENDER PURSUANT TO THIS ARTICLE VIII
SHALL NOT RELIEVE THE BORROWER OF ITS OBLIGATIONS UNDER SECTION 9.03, AND EACH
LENDER MAKING A PAYMENT UNDER THIS PARAGRAPH SHALL BE ENTITLED TO RECEIVE FROM
EACH AGENT INDEMNITEE SUCH LENDER'S RATABLE SHARE OF ANY AMOUNT INDEFEASIBLY
RECOVERED BY SUCH AGENT INDEMNITEE FROM THE BORROWER ON ACCOUNT OF THE
PREVIOUSLY UNPAID INDEMNIFICATION PURSUANT TO SECTION 9.03(b) THAT REQUIRED SUCH
PAYMENT BY SUCH LENDER UNDER THIS PARAGRAPH, IN EACH CASE WITHOUT INTEREST.

                                   ARTICLE IX

                                  MISCELLANEOUS

                  Section 9.01. Notices. (a) Except in the case of notices and
other communications expressly permitted to be given by telephone (and subject
to paragraph (b) below), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:

                  (i)      if to the Borrower, to it at 363 N. Sam Houston
         Parkway, Suite 2020, Houston, Texas 77060, Attention of chief financial
         officer (Telecopy No. (713) 847-6006);

                  (ii)     if to the Administrative Agent, to JPMorgan Chase
         Bank, Loan and Agency Services Group, 1111 Fannin St., 10th Floor,
         Houston, Texas 77002-8069, Attention of Ms. Janene English (Telecopy
         No. (713) 427-6307), with a copy to JPMorgan Chase Bank, 600 Travis
         Street, 20th Floor, Houston, Texas 77002, Attention of Mr. Peter
         Licalzi (Telecopy No. (713) 216-4117);

                  (iii)    if to the Issuing Bank, to it at the address set
         forth in paragraph (ii) above; and

                  (iv)     if to any other Lender, to it at its address (or
         telecopy number) set forth in its Administrative Questionnaire.

                  (b)      Notices and other communications to the Lenders
hereunder may be delivered or furnished by electronic communications pursuant to
procedures approved by the Administrative Agent; provided that the foregoing
shall not apply to notices pursuant to Article II unless otherwise agreed by the
Administrative Agent and the applicable Lender. The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

                  (c)      Any party hereto may change its address or telecopy
number for notices and other communications hereunder by notice to the other
parties hereto or, in the case of a change by a Lender, to the Administrative
Agent and the Borrower. All notices and other communications given to any party
hereto in accordance with the provisions of this Agreement shall be deemed to
have been given on the date of receipt.

                                      -54-


                  Section 9.02. Waivers; Amendments. (a) No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any right
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent, the Issuing Bank and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.

                  (a)      Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase or extend the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce
any fees payable hereunder, without the written consent of each Lender affected
thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan or LC Disbursement, or any interest thereon, or any fees payable
hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby, (iv) postpone the due date of any
payment of the principal amount of any Loan or LC Disbursement due pursuant to
Section 2.10(f), or reduce the amount of, waive or excuse any such payment,
without the written consent of each Lender affected thereby, (v) delete (or make
changes that have the practical effect of deleting) from this Agreement (1) the
borrowing base mechanism or (2) the related requirement for mandatory
prepayments, without the written consent of each Lender affected thereby (for
avoidance of doubt, this clause (v) does not prevent changes consented to
pursuant to clause (vi) of this sentence relating to methodology, timing,
amounts or matters included or excluded in determining the Calculated Borrowing
Base or the Borrowing Base, content of reports and similar items), (vi) change
Section 2.04 or 5.11 or change, for the purpose of any such Section, the
definitions of defined terms used in any such Section, in each case without the
written consent of the Administrative Agent and the Borrowing Base Approval
Lenders, (vii) change Section 2.05(b) or (c) or Section 2.09 in a manner that
would alter the pro rata treatment of Lenders or pro rata sharing of payments
required thereby, without the written consent of each Lender, or (viii) change
any of the provisions of this Section, the definition of "Borrowing Base
Approval Lenders" or the definition of "Required Lenders" or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Bank hereunder without the prior written
consent of the Administrative Agent or the Issuing Bank, as the case may be.

                  Section 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of and due diligence related to the credit facilities provided
for herein, the preparation and administration of this Agreement, the other Loan
Documents or any amendments, modifications or waivers of the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated), (ii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder and (iii) all
reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Issuing Bank or any Lender, including the fees, charges and disbursements of

                                      -55-


any counsel for the Administrative Agent, the Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Loan Document, including its rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.

                  (b)      THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE
AGENT, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND
HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT
CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY OTHER
TRANSACTIONS CONTEMPLATED HEREBY, (ii) ANY LOAN OR LETTER OF CREDIT OR THE USE
OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING BANK TO HONOR A
DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN
CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER
OF CREDIT), (iii) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, OR (iv) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO
ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE. IT IS THE EXPRESS INTENT OF
THE PARTIES HERETO THAT EACH INDEMNITEE SHALL, TO THE EXTENT PROVIDED IN THIS
SECTION 9.03, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE.

                  (c)      To the extent that the Borrower fails to pay any
amount required to be paid by it to the Administrative Agent or the Issuing Bank
under paragraph (a) or (b) of this Section, each Lender severally agrees to pay
to the Administrative Agent or the Issuing Bank, as the case may be, such
Lender's Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent or the Issuing Bank in its capacity as such.

                  (d)      To the extent permitted by applicable law, the
Borrower shall not assert, and hereby waives, any claim against any Indemnitee,
on any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or Letter of Credit or the use
of the proceeds thereof.

                  (e)      All amounts due under this Section shall be payable
promptly after written demand therefor.

                  Section 9.04. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any Affiliate of the Issuing Bank that issues any Letter of Credit), except that
(i) the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void) and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective

                                      -56-


successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit), Participants (to the extent provided in
paragraph (c) of this Section), sub-agents appointed by the Administrative Agent
pursuant to Article VIII and, to the extent expressly contemplated hereby, the
Related Parties of each of the Administrative Agent, any such sub-agent, the
Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

                  (b)(i)   Subject to the conditions set forth in paragraph
(b)(ii) below, any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld) of:

                           (A)      the Borrower, provided that no consent of
                  the Borrower shall be required for an assignment to a Lender,
                  an Affiliate of a Lender, an Approved Fund or, if an Event of
                  Default has occurred and is continuing, any other assignee;
                  and

                           (B)      the Administrative Agent.

                  (ii)     Assignments shall be subject to the following
                  additional conditions:

                           (A)      except in the case of an assignment to a
                  Lender or an Affiliate of a Lender or an assignment of the
                  entire remaining amount of the assigning Lender's Commitment
                  or Loans, the amount of the Commitment or Loans of the
                  assigning Lender subject to each such assignment (determined
                  as of the date the Assignment and Assumption with respect to
                  such assignment is delivered to the Administrative Agent)
                  shall not be less than $5,000,000 unless each of the Borrower
                  and the Administrative Agent otherwise consent, provided that
                  no such consent of the Borrower shall be required if an Event
                  of Default has occurred and is continuing;

                           (B)      each partial assignment shall be made as an
                  assignment of a proportionate part of all the assigning
                  Lender's rights and obligations under this Agreement;

                           (C)      the parties to each assignment shall execute
                  and deliver to the Administrative Agent an Assignment and
                  Assumption, together with a processing and recordation fee of
                  $3,500; and

                           (D)      the assignee, if it shall not be a Lender,
                  shall deliver to the Administrative Agent an Administrative
                  Questionnaire.

                  For the purposes of this Section 9.04(b), the term "Approved
Fund" has the following meaning:

                  "Approved Fund" means any Person (other than a natural person)
that is engaged in making, purchasing, holding or investing in bank loans and
similar extensions of credit in the ordinary course of its business and that is
administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.

                  (iii)    Subject to acceptance and recording thereof pursuant
to paragraph (b)(iv) of this Section, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any

                                      -57-


assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this Section 9.04 shall be treated for purposes of
this Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (c) of this Section.

                  (iv)     The Administrative Agent, acting for this purpose as
an agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of, and principal
amount of the Loans and LC Disbursements owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and the Borrower, the Administrative Agent, the Issuing
Bank and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.

                  (v)      Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.

                  (c)(i)   Any Lender may, without the consent of the Borrower,
the Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender's
obligations under this Agreement shall remain unchanged, (B) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.05(c) as though it were a
Lender.

                  (ii)     A Participant shall not be entitled to receive any
greater payment under Section 2.15 or 2.17 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.17
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
Section 2.17(e) as though it were a Lender.

                  (d)      Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section
shall not apply to any such pledge or assignment of a security interest;
provided that no such pledge or

                                      -58-


assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

                  Section 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, the Issuing Bank or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
or any Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.

                  Section 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent or the Syndication Agent constitute the entire contract
among the parties relating to the subject matter hereof and supersede any and
all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement shall
become effective when it shall have been executed by the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.

                  Section 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

                  Section 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the Borrower against any of and all the obligations of the Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.

                  Section 9.09. Governing Law; Jurisdiction; Consent to Service
of Process. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.

                  (b)      The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and

                                      -59-


unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement against the Borrower or its
properties in the courts of any jurisdiction.

                  (c)      The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

                  (d)      Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

                  Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                  Section 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.

                  Section 9.12. Confidentiality. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to any Loan Document, (e) in
connection with the exercise of any remedies hereunder or under any other Loan
Document or any suit, action or proceeding relating to any Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i)
any assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating to the Borrower or any Subsidiary, (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section,
"Information" means all information received from the Borrower relating to the
Borrower or its business, other than any such information that is available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis prior to disclosure by

                                      -60-


the Borrower; provided that, in the case of information received from the
Borrower after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.

                  Section 9.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.

                  Section 9.14. Co-Lead Arrangers, Co-Documentation Agents and
Syndication Agent. None of the Co-Lead Arrangers, Co-Documentation Agents and
Syndication Agent shall have any duty, responsibility or liability under the
Loan Documents in their respective capacities as Co-Lead Arranger,
Co-Documentation Agent or Syndication Agent, as the case may be.

                  Section 9.15. USA Patriot Act Notice. Each Lender hereby
notifies the Borrower that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it
is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in
accordance with the Act.

                                      -61-


                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.

                                  NEWFIELD EXPLORATION COMPANY

                                  By: /s/ TERRY W. RATHERT
                                     -----------------------------------------

                                  Name: Terry W. Rathert

                                  Title: Vice President and Chief Financial
                                         Officer

                                  JPMORGAN CHASE BANK, individually and as
                                  Administrative Agent

                                  By: /s/ ROBERT C. MERTENSOTTO
                                     -----------------------------------------

                                  Name: Robert C. Mertensotto

                                  Title: Managing Director

                                  WACHOVIA BANK, NATIONAL ASSOCIATION

                                  By: /s/ PHILIP TRINDER
                                     -----------------------------------------

                                  Name: Philip Trinder

                                  Title: Vice President

                                  HARRIS NESBITT FINANCING, INC.

                                  By: /s/ JAMES V. DUCOTE
                                     -----------------------------------------

                                  Name: James V. Ducote

                                  Title: Vice President

                                      -62-


                                  CREDIT LYONNAIS NEW YORK BRANCH

                                  By: /s/ OLIVIER AUDEMARD
                                     -----------------------------------------

                                  Name: Olivier Audemard

                                  Title: Senior Vice President

                                  FLEET NATIONAL BANK

                                  By: /s/ JEFFREY H. RATHKAMP
                                     -----------------------------------------

                                  Name: Jeffrey H. Rathkamp

                                  Title: Director

                                  BARCLAYS BANK PLC

                                  By: /s/ NICHOLAS A. BELL
                                     -----------------------------------------

                                  Name: Nicholas A. Bell

                                  Title: Director - Loan Transaction Management

                                  THE BANK OF NOVA SCOTIA

                                  By: /s/ NADINE BELL
                                     -----------------------------------------

                                  Name: Nadine Bell

                                  Title: Senior Manager

                                  UNION BANK OF CALIFORNIA

                                  By: /s/ ALI AHMED
                                     -----------------------------------------

                                  Name: Ali Ahmed

                                  Title: Vice President

                                  By: /s/ RANDALL OSTERBERG
                                     -----------------------------------------

                                  Name: Randall Osterberg

                                  Title: Senior Vice President

                                      -63-


                                  THE BANK OF NEW YORK

                                  By: /s/ CRAIG J. ANDERSON
                                     -----------------------------------------

                                  Name: Craig J. Anderson

                                  Title: Vice President

                                  THE ROYAL BANK OF SCOTLAND PLC

                                  By: /s/ JAMES R. MCBRIDE
                                     -----------------------------------------

                                  Name: James R. McBride

                                  Title: Managing Director

                                  U.S. BANK NATIONAL ASSOCIATION

                                  By: /s/ MARK E. THOMPSON
                                     -----------------------------------------

                                  Name: Mark E. Thompson

                                  Title: Vice President

                                  WASHINGTON MUTUAL BANK, FA

                                  By: /s/ DAVID W. PHILLIPS
                                     -----------------------------------------
                                  Name: David W. Phillips

                                  Title: Vice President

                                      -64-


                                  SOCIETE GENERALE

                                  By: /s/ JASON HENDERSON
                                     -----------------------------------------

                                  Name: Jason Henderson

                                  Title: Vice President

                                  COMERICA BANK

                                  By: /s/ CHARLES E. HALL
                                     -----------------------------------------

                                  Name: Charles E. Hall

                                  Title: Sr. Vice President

                                  UFJ BANK

                                  By: /s/ CLYDE L. REDFORD
                                     -----------------------------------------

                                  Name: Clyde L. Redford

                                  Title: Senior Vice President

                                  COMPASS BANK

                                  By: /s/ DOROTHY MARCHAND
                                     -----------------------------------------

                                  Name: Dorothy Marchand

                                  Title: Senior Vice President

                                  BANK OF AMERICA, N.A.

                                  By: /s/ STEVEN A. MACKENZIE
                                     -----------------------------------------

                                  Name: Steven A. Mackenzie

                                  Title: Vice President

                                      -65-


                                  DNB NOR BANK ASA

                                  By: /s/ PETER M. DODGE
                                     -----------------------------------------

                                  Name: Peter M. Dodge

                                  Title: First Vice President

                                  By: /s/ ALFRED C. JONES III
                                     -----------------------------------------

                                  Name: Alfred C. Jones III

                                  Title: Senior Vice President

                                  THE FROST NATIONAL BANK

                                  By: /s/ ANDREW A. MERRYMAN
                                     -----------------------------------------

                                  Name: Andrew A. Merryman

                                  Title: Senior Vice President

                                  NATEXIS BANQUES POPULAIRES

                                  By: /s/ DONOVAN C. BROUSSARD
                                     -----------------------------------------

                                  Name: Donovan C. Broussard

                                  Title: Vice President & Manager

                                  By: /s/ DANIEL PAYER
                                     -----------------------------------------

                                  Name: Daniel Payer

                                  Title: Vice President

                                  SOUTHWEST BANK OF TEXAS

                                  By: /s/ W. BRYAN CHAPMAN
                                     -----------------------------------------

                                  Name: W. Bryan Chapman

                                  Title: Senior Vice President - Energy Lending

                                      -66-


                                  SCHEDULE 2.01

                               INITIAL COMMITMENTS



                                          AMOUNT OF              PERCENTAGE OF TOTAL
              LENDER                      COMMITMENT                COMMITMENTS
- -----------------------------------      -----------            -------------------
                                                          
JPMorgan Chase Bank                      $ 45,000,000                    7.50%
Wachovia Bank, National Association      $ 45,000,000                    7.50%
Harris Nesbitt Financing, Inc.           $ 45,000,000                    7.50%
Credit Lyonnais                          $ 45,000,000                    7.50%
Barclays Bank plc                        $ 32,500,000                5.416667%
The Bank of Nova Scotia                  $ 32,500,000                5.416667%
Union Bank of California                 $ 32,500,000                5.416667%
The Bank of New York                     $ 32,500,000                5.416667%
The Royal Bank of Scotland plc           $ 32,500,000                5.416667%
U.S. Bank National Association           $ 32,500,000                5.416667%
Fleet National Bank                      $ 30,000,000                    5.00%
Washington Mutual Bank, FA               $ 28,500,000                    4.75%
Societe Generale                         $ 28,500,000                    4.75%
Comerica Bank                            $ 22,500,000                    3.75%
UFJ Bank                                 $ 22,500,000                    3.75%
Compass Bank                             $ 18,000,000                    3.00%
Bank of America, N.A.                    $ 15,000,000                    2.50%
DnB NOR Bank ASA                         $ 15,000,000                    2.50%
The Frost National Bank                  $ 15,000,000                    2.50%
Natexis Banques Populaires               $ 15,000,000                    2.50%
Southwest Bank of Texas                  $ 15,000,000                    2.50%
                                         ------------                --------
               TOTAL                     $600,000,000                     100%

EX-10.2

                                                                    EXHIBIT 10.2

                          NEWFIELD EXPLORATION COMPANY
                            2004 OMNIBUS STOCK PLAN

                                  I.  PURPOSE

     The purpose of this NEWFIELD EXPLORATION COMPANY 2004 OMNIBUS STOCK PLAN
(this "PLAN") is to provide a means through which NEWFIELD EXPLORATION COMPANY,
a Delaware corporation (the "COMPANY"), and its subsidiaries may attract and
retain able employees and to provide a means whereby those individuals upon whom
the responsibilities of the successful administration and management of the
Company and its subsidiaries rest, and whose present and potential contributions
to the welfare of the Company and its subsidiaries are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and its subsidiaries. A further purpose of this Plan
is to provide employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company and its subsidiaries
and to better align the interests of such employees with those of the Company's
stockholders. Accordingly, this Plan provides for granting Incentive Stock
Options, options that do not constitute Incentive Stock Options, Restricted
Stock Awards and any combination of the foregoing, as is best suited to the
circumstances of a particular employee.

                       II.  DEFINITIONS AND CONSTRUCTION

     (A) DEFINITIONS.  Where the following words and phrases are used in this
Plan, they shall have the respective meanings set forth below, unless the
context clearly indicates to the contrary:

     "AWARD" means, individually or collectively, any Option or Restricted Stock
Award.

     "BOARD" means the Board of Directors of the Company.

     "CHANGE OF CONTROL" means the occurrence of any of the following events:
(i) the Company is not the surviving Person in any merger, consolidation or
other reorganization (or survives only as a subsidiary of another Person), (ii)
the stockholders of the Company approve a merger or consolidation of the Company
with another Person and as a result of such merger or consolidation less than
50% of the outstanding voting securities of the surviving or resulting
corporation will be issued in respect of the capital stock of the Company, (iii)
the Company sells, leases or exchanges all or substantially all of its assets to
any other Person, (iv) the Company is to be dissolved and liquidated, (v) any
Person, including a "group" as contemplated by Section 13(d)(3) of the Exchange
Act, acquires or gains ownership or control (including the power to vote) of
more than 50% of the outstanding shares of the Company's voting stock (based
upon voting power) or (vi) as a result of or in connection with a contested
election of directors, the Persons who were directors of the Company before such
election cease to constitute a majority of the Board. Notwithstanding the
foregoing, for purposes of Paragraph IX(d), the definition of "Change of
Control" shall not include clause (i) above or any merger, consolidation,
reorganization, sale, lease, exchange, or similar transaction involving solely
the Company and one or more Persons that were wholly owned, directly or
indirectly, by the Company immediately prior to such event.

     "CHANGE OF CONTROL VALUE" means (i) the price per share offered to
stockholders of the Company in any merger, consolidation, reorganization, sale
of assets or dissolution transaction that constitutes a Change of Control, (ii)
the price per share offered to stockholders of the Company in any tender offer
or exchange offer whereby a Change of Control takes place, or (iii) if a Change
of Control occurs other than pursuant to a tender offer or exchange offer, the
fair market value per share of the shares into which Awards are exercisable, as
determined by the Committee. If the consideration offered to stockholders of the
Company in any Change of Control transaction consists of anything other than
cash, the Committee shall determine the fair cash equivalent of the portion of
the consideration offered that is other than cash.


     "CODE" means the Internal Revenue Code of 1986, as amended. Reference in
this Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.

     "COMMITTEE" means, subject to Paragraph IV(d), the Compensation &
Management Development Committee of the Board.

     "COMMON STOCK" means the common stock, par value $.01 per share, of the
Company, or any security into which such Common Stock may be changed by reason
of any transaction or event of the type described in Paragraph IX.

     "COMPANY" has the meaning specified in Paragraph I.

     An "EMPLOYEE" means any Person (including an officer or a director) in an
employment relationship with the Company or any parent or subsidiary corporation
(as defined in section 424 of the Code).

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any specified date, the mean of the high
and low sales prices of the Common Stock (i) reported by the National Market
System of NASDAQ on that date or (ii) if the Common Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date (or such other reporting service approved by the Committee); or, in either
case, if no prices are reported on that date, on the last preceding date on
which such prices of the Common Stock were so reported. If the Common Stock is
traded over the counter at the time a determination of its fair market value is
required to be made hereunder, its fair market value shall be deemed to be equal
to the average between the reported high and low or closing bid and asked prices
of Common Stock on the most recent date on which Common Stock was publicly
traded. If the Common Stock is not publicly traded at the time a determination
of its value is required to be made hereunder, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.

     "FORFEITURE RESTRICTIONS" has the meaning specified in Paragraph VIII(a).

     "HOLDER" means an employee who has been granted an Award, all or any
portion of which remains outstanding.

     "INCENTIVE STOCK OPTION" means an incentive stock option within the meaning
of section 422 of the Code.

     "OPTION" means an Award granted under Paragraph VII of this Plan and
includes both Incentive Stock Options to purchase Common Stock and Options to
purchase Common Stock that do not constitute Incentive Stock Options.

     "OPTION AGREEMENT" means a written agreement between the Company and a
Holder with respect to an Option.

     "PERSON" means any individual, partnership, corporation, limited liability
company, trust, incorporated or unincorporated organization or association or
other legal entity of any kind.

     "PLAN" means this Newfield Exploration Company 2004 Omnibus Stock Plan, as
it may be amended from time to time.

     "RESTRICTED STOCK AGREEMENT" means a written agreement between the Company
and a Holder with respect to a Restricted Stock Award.

     "RESTRICTED STOCK AWARD" means an Award granted under Paragraph VIII of
this Plan.

     "RULE 16B-3" means Securities and Exchange Commission Rule 16b-3
promulgated under the Exchange Act, as it may be amended from time to time, and
any successor rule, regulation or statute fulfilling the same or a similar
function.

     (B) CONSTRUCTION.  Unless the context otherwise requires, as used in this
Plan (i) a term has the meaning ascribed to it; (ii) "or" is not exclusive;
(iii) "including" means "including, without limitation;"

(iv) words in the singular include the plural; (v) words in the plural include
the singular; (vi) words applicable to one gender shall be construed to apply to
each gender; (vii) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Plan; (viii) the term
"Paragraph" refers to the specified Paragraph of this Plan; (ix) the descriptive
headings contained in this Plan are included for convenience of reference only
and shall not affect in any way the meaning or interpretation of this Plan; (x)
all references to amounts of money are to U.S. dollars; and (xi) a reference to
any Person includes such Person's successors and permitted assigns.

                 III.  EFFECTIVE DATE AND DURATION OF THIS PLAN

     This Plan shall become effective upon the date of its adoption by the
Board; provided that this Plan is approved by the stockholders of the Company
within twelve months thereafter. Notwithstanding any provision in this Plan, in
any Option Agreement or in any Restricted Stock Agreement, no Option shall be
exercisable and no Restricted Stock Award shall vest prior to such stockholder
approval. No further Awards may be granted under this Plan after ten years from
the date this Plan is adopted by the Board. This Plan shall remain in effect
until all Options granted under this Plan have been satisfied or expired, and
all Restricted Stock Awards granted under this Plan have vested or been
forfeited.

                              IV.  ADMINISTRATION

     (A) COMMITTEE ADMINISTRATION.  Subject to Paragraph IV(d), this Plan shall
be administered by the Committee.

     (B) POWERS.  Subject to the express provisions of this Plan, the Committee
shall have authority, in its sole discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, nonqualified Option or Restricted Stock Award shall be
granted, and the number of shares to be subject to each Option or Restricted
Stock Award. In making such determinations, the Committee shall take into
account the nature of the services rendered by the respective employees, their
present and potential contribution to the Company's success and such other
factors as the Committee in its sole discretion may deem relevant.

     (C) ADDITIONAL POWERS.  The Committee shall have such additional powers as
are delegated to it by the other provisions of this Plan. Subject to the express
provisions of this Plan, this shall include the power to construe this Plan and
the respective agreements executed hereunder, to prescribe rules and regulations
relating to this Plan, and to determine the terms, restrictions and provisions
of the agreement relating to each Award, including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering this Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any agreement relating to an Award in the manner and to the
extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Paragraph IV shall be
conclusive.

     (D) DELEGATION OF AUTHORITY BY THE COMMITTEE.  Notwithstanding the
preceding provisions of this Paragraph IV or any other provision of this Plan to
the contrary, the Committee may from time to time, in its sole discretion,
delegate all or any portion of its powers, duties and responsibilities under
this Plan to a subcommittee of the Committee. In particular, the Committee may
delegate the administration (or interpretation of any provision) of this Plan
and the right to grant Awards under this Plan to a subcommittee consisting
solely of two or more members of the Committee who are outside directors (within
the meaning of the term "outside directors" as used in section 162(m) of the
Code and applicable interpretive authority thereunder and within the meaning of
"Non-Employee Director" as defined in Rule 16b-3). The Committee may put any
conditions and restrictions on the powers that may be exercised

by such subcommittee upon such delegation as the Committee determines in its
sole discretion, and the Committee may revoke such delegation at any time.

               V.  SHARES SUBJECT TO THIS PLAN; GRANT OF OPTIONS;
                        GRANT OF RESTRICTED STOCK AWARDS

     (A) SHARES SUBJECT TO THIS PLAN AND AWARD LIMITS.  Subject to adjustment
from time to time in accordance with the terms of this Plan, the aggregate
number of shares of Common Stock that may be issued under this Plan shall not
exceed 3,000,000 shares. With respect to each Option granted under this Plan,
the number of shares of Common Stock available for issuance under this Plan
shall be reduced by the number of shares subject to such Option, and to the
extent that such Option lapses or the rights of its Holder terminate, any shares
not issued pursuant to such Option shall again be available for the grant of an
Award under this Plan. With respect to each Restricted Stock Award granted under
this Plan, the number of shares of Common Stock available for issuance under
this Plan shall be reduced by two times the number of shares subject to such
Restricted Stock Award, and to the extent that such Restricted Stock Award
lapses or the rights of its Holder terminate, two times the number of shares
subject to such Restricted Stock Award that were forfeited shall again be
available for the grant of an Award under this Plan. Notwithstanding any
provision in this Plan to the contrary, the maximum number of shares of Common
Stock that may be subject to Awards granted to any one individual during any
calendar year is 100,000 shares of Common Stock, of which no more than 50,000
shares of Common Stock may be subject to Restricted Stock Awards (as adjusted
from time to time in accordance with the terms of this Plan). The limitation set
forth in the preceding sentence shall be applied in a manner that will permit
compensation generated under this Plan that is intended to constitute
"performance-based" compensation for purposes of section 162(m) of the Code to
qualify as such, including counting against such maximum number of shares, to
the extent required under section 162(m) of the Code and applicable interpretive
authority thereunder, any shares subject to Options that are canceled or
repriced or shares subject to Restricted Stock Awards that are forfeited.

     (B) GRANT OF OPTIONS.  The Committee may from time to time grant Options to
one or more employees determined by it to be eligible for participation in this
Plan in accordance with the terms of this Plan.

     (C) GRANT OF RESTRICTED STOCK AWARDS.  The Committee may from time to time
grant Restricted Stock Awards to one or more employees determined by it to be
eligible for participation in this Plan in accordance with the terms of this
Plan.

     (D) STOCK OFFERED.  Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized but
unissued Common Stock or Common Stock previously issued and outstanding and
reacquired by the Company. Any of such shares that remain unissued and that are
not subject to outstanding Awards at the termination of this Plan shall cease to
be subject to this Plan but, until termination of this Plan, the Company shall
at all times make available a sufficient number of shares to meet the
requirements of this Plan.

                                VI.  ELIGIBILITY

     Awards may be granted only to Persons who, at the time of grant, are
employees. An Award may be granted on more than one occasion to the same Person,
and, subject to the limitations set forth in this Plan, such Award may include
an Incentive Stock Option, an Option that is not an Incentive Stock Option, a
Restricted Stock Award or any combination thereof.


                              VII.  STOCK OPTIONS

     (A) OPTION PERIOD.  The term of each Option shall be as specified by the
Committee at the date of grant, but in no event shall an Option be exercisable
after the expiration of ten years from the date of grant.

     (B) LIMITATIONS ON EXERCISE OF OPTION.  An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.

     (C) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS.  To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any calendar
year under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options that do not constitute Incentive Stock Options. The Committee
shall determine, in accordance with applicable provisions of the Code, Treasury
Regulations and other administrative pronouncements, which of a Holder's
Incentive Stock Options will not constitute Incentive Stock Options because of
such limitation and shall notify the Holder of such determination as soon as
practicable after such determination. No Incentive Stock Option shall be granted
to an individual if, at the time the Option is granted, such individual owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the Fair Market Value of the Common
Stock subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws of descent
and distribution, and shall be exercisable during the Holder's lifetime only by
such Holder or the Holder's guardian or legal representative.

     (D) OPTION AGREEMENT.  Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of this Plan as the Committee from time to time shall approve,
including provisions to qualify an Incentive Stock Option under section 422 of
the Code. Each Option Agreement shall specify the effect of termination of
employment on the exercisability of the Option. An Option Agreement may provide
for the payment of the option price, in whole or in part, by the constructive
delivery of a number of shares of Common Stock (plus cash if necessary) having a
Fair Market Value equal to such option price. Moreover, an Option Agreement may
provide for a "cashless exercise" of the Option by establishing procedures
satisfactory to the Committee with respect thereto. The terms and conditions of
the respective Option Agreements need not be identical. Subject to the consent
of the Holder, the Committee may, in its sole discretion, amend an outstanding
Option Agreement from time to time in any manner that is not inconsistent with
the provisions of this Plan (including an amendment that accelerates the time at
which the Option, or any portion thereof, may be exercisable).

     (E) OPTION PRICE AND PAYMENT.  The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the Committee
but, subject to adjustment as provided in Paragraph IX, such purchase price
shall not be less than the Fair Market Value of a share of Common Stock on the
date such Option is granted. The Option or portion thereof may be exercised by
delivery of an irrevocable notice of exercise to the Company, as specified by
the Committee. The purchase price of the Option or portion thereof shall be paid
or otherwise satisfied in full in the manner prescribed by the Committee and the
applicable Option Agreement. Separate stock certificates shall be issued by the
Company for those shares acquired pursuant to the exercise of an Incentive Stock
Option and for those shares acquired pursuant to the exercise of any Option that
does not constitute an Incentive Stock Option.

     (F) RESTRICTIONS ON REPRICING OPTIONS.  Except as provided in Paragraph IX,
the Committee may not, without approval of the stockholders of the Company,
amend any outstanding Option Agreement to lower the option price (or cancel and
replace any outstanding Option Agreement with Option Agreements having a lower
option price).

     (G) STOCKHOLDER RIGHTS AND PRIVILEGES.  The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.

     (H) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS.  Options may be granted under this Plan from time to time in
substitution for stock options held by individuals employed by corporations or
other Persons who become employees as a result of a merger or consolidation or
other business transaction with the Company or a subsidiary of the Company.

                         VIII.  RESTRICTED STOCK AWARDS

     (A) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE.  Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances
("FORFEITURE RESTRICTIONS"). Applicable Forfeiture Restrictions shall be
determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of
one or more performance targets established by the Committee that are based on
the price of a share of Common Stock, the Company's consolidated earnings per
share, the Company's market share, the market share of a business unit of the
Company designated by the Committee, the Company's sales, the sales of a
business unit of the Company designated by the Committee, the consolidated net
income (before or after taxes) of the Company or any business unit of the
Company designated by the Committee, the consolidated cash flow return on
investment of the Company or any business unit of the Company designated by the
Committee, the consolidated earnings before or after interest, taxes and
depreciation, depletion and amortization of the Company or any business unit of
the Company designated by the Committee, the economic value added, the return on
stockholders' equity achieved by the Company, reserve additions or revisions,
economic value added from reserves, total capitalization, total stockholder
return, assets, exploration successes, production volumes, finding and
development costs, cost reductions and savings, return on sales or profit
margins, (ii) the Holder's continued employment as an employee for a specified
period of time, (iii) the occurrence of any event or the satisfaction of any
other condition specified by the Committee in its sole discretion or (iv) a
combination of any of the foregoing. The performance measures described in
clause (i) of the preceding sentence may be subject to adjustment for specified
significant extraordinary items or events; provided, however, that with respect
to a Restricted Stock Award that has been granted to a "covered employee"
(within the meaning of Treasury Regulation section 1.162-27(c)(2)) that has been
designed to meet the exception for performance-based compensation under section
162(m) of the Code, such performance measures may only be subject to adjustment
to the extent that such adjustment would not cause such Award to cease to be
performance-based under applicable Treasury Regulations. In addition, such
performance measures may be absolute, relative to one or more other companies or
relative to one or more indexes, and may be contingent upon future performance
of the Company or any subsidiary, division or department thereof. Each
Restricted Stock Award may, in the sole discretion of the Committee, have
Forfeiture Restrictions that are the same as or different from the Forfeiture
Restriction with respect to other Restricted Stock Awards.

     (B) OTHER TERMS AND CONDITIONS.  Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. Unless provided otherwise
in a Restricted Stock Agreement, the Holder shall have the right to receive
dividends with respect to Common Stock subject to a Restricted Stock Award, to
vote Common Stock subject thereto and to enjoy all other stockholder rights,
except that (i) the Holder shall not be entitled to delivery of the stock
certificate until the Forfeiture Restrictions have expired, (ii) the Company
shall retain custody of the stock until the Forfeiture Restrictions have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the stock until the Forfeiture Restrictions have expired
and (iv) a breach of the terms and conditions established by the Committee
pursuant to the Restricted Stock Agreement shall cause a forfeiture of the
Restricted Stock Award. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions or

restrictions relating to Restricted Stock Awards, including rules pertaining to
the termination of employment (by retirement, disability, death or otherwise) of
a Holder prior to expiration of the Forfeitures Restrictions. Such additional
terms, conditions or restrictions, if any, shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award.

     (C) PAYMENT FOR RESTRICTED STOCK.  The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that, in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award except to the extent otherwise required by law.

     (D) COMMITTEE'S DISCRETION TO ACCELERATE VESTING OF RESTRICTED STOCK
AWARDS.  The Committee may, in its sole discretion and as of a date determined
by the Committee, fully vest any or all Common Stock awarded to a Holder
pursuant to a Restricted Stock Award and, upon such vesting, all restrictions
applicable to such Restricted Stock Award shall terminate as of such date. Any
action by the Committee pursuant to this Paragraph VIII(d) may vary among
individual Holders and may vary among the Restricted Stock Awards held by any
individual Holder. Notwithstanding the preceding provisions of this Paragraph
VIII(d), the Committee may not take any action described in this Paragraph
VIII(d) with respect to a Restricted Stock Award that has been granted to a
covered employee (as defined in Paragraph VIII(a)) if such Award has been
designed to meet the exception for performance-based compensation under section
162(m) of the Code (unless such action would not cause such Award to cease to be
performance-based under applicable Treasury Regulations).

     (E) RESTRICTED STOCK AGREEMENTS.  At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may, in its sole discretion, determine to be
appropriate. The terms and provisions of the respective Restricted Stock
Agreements need not be identical. Subject to the consent of the Holder and the
restriction set forth in the last sentence of Paragraph VIII(d), the Committee
may, in its sole discretion, amend an outstanding Restricted Stock Agreement at
any time and from time to time in any manner that is not inconsistent with the
provisions of this Plan.

                    IX.  RECAPITALIZATION OR REORGANIZATION

     (A) NO EFFECT ON RIGHT OR POWER.  The existence of this Plan and the Awards
granted hereunder shall not affect in any way any right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
subsidiary's capital structure or its business, any merger or consolidation of
the Company or any subsidiary, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or liquidation
of the Company or any subsidiary or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.

     (B) SUBDIVISION OR CONSOLIDATION OF SHARES; STOCK DIVIDENDS.  The shares
with respect to which Options may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an
Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend on
Common Stock without receipt of consideration by the Company, the number of
shares of Common Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased. Any fractional share resulting from
such adjustment shall be rounded down to the next whole share.

     (C) RECAPITALIZATIONS.  If the Company recapitalizes, reclassifies its
capital stock or otherwise changes its capital structure, the number and class
of

shares of Common Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Holder would have been entitled
pursuant to the terms of such transaction if, immediately prior to such
transaction, the Holder had been the holder of record of the number of shares of
Common Stock then covered by such Option.

     (D) CHANGE OF CONTROL; RESTRICTED STOCK AWARDS.  Notwithstanding any
provision herein or in any Restricted Stock Agreement to the contrary, upon a
Change of Control all Restricted Stock Awards then outstanding shall
automatically be fully vested and nonforfeitable.

     (E) CHANGE OF CONTROL; OPTIONS.  Upon a Change of Control, the Committee,
acting in its sole discretion without the consent or approval of any Holder,
shall, no later than ten days after the approval by the stockholders of the
Company of such Change of Control (other than of the type described in clause
(v) of the definition of "Change of Control") or no later than thirty days after
a Change of Control of the type described in clause (v) of the definition of
"Change of Control," effect one or more of the following alternatives with
respect to outstanding Options, which alternatives may vary among individual
Holders and which may vary among Options held by any individual Holder: (i)
accelerate the time at which Options then outstanding may be exercised so that
such Options may be exercised in full for a limited period of time on or before
a specified date (before or after such Change of Control) fixed by the
Committee, after which specified date all unexercised Options and all rights of
Holders thereunder shall terminate, (ii) require the mandatory surrender to the
Company by selected Holders of some or all of the outstanding Options held by
such Holders (irrespective of whether such Options are then exercisable under
the provisions of this Plan) as of a date, before or after such Change of
Control, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and cause the Company to pay to each Holder an
amount of cash per share equal to the excess, if any, of the Change of Control
Value of the shares subject to such Option over the exercise price(s) under such
Options for such shares, (iii) make such adjustments to Options then outstanding
as the Committee deems appropriate, in its sole discretion, to reflect such
Change of Control (provided, however, that the Committee may, in its sole
discretion, determine that no adjustment is necessary to Options then
outstanding) or (iv) provide that the number and class of shares of Common Stock
covered by an Option theretofore granted shall be adjusted so that such Option
thereafter covers the number and class of shares of stock or other securities or
property (including cash) to which the Holder would have been entitled pursuant
to the terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such transaction, the Holder had been the
holder of record of the number of shares of Common Stock then covered by such
Option. The provisions of Paragraphs IX(d) and IX(e) shall not terminate any
rights of the Holder to further payments pursuant to any other agreement with
the Company following a Change of Control.

     (F) OTHER CHANGES IN THE COMMON STOCK.  If the outstanding Common Stock is
changed by reason of a recapitalization, reorganization, merger, consolidation,
combination, split-up, split-off, spin-off, exchange, distribution to the
holders of Common Stock or other relevant change in capitalization occurring
after the date of the grant of any Award and not otherwise provided for by this
Paragraph IX, such Award and any agreement evidencing such Award shall be
subject to adjustment by the Committee at its sole discretion as to the number
and price of shares of Common Stock or other consideration subject to such
Award. If the outstanding Common Stock is so changed, or upon the occurrence of
any other event described in this Paragraph IX or a Change of Control, the
aggregate number of shares available under this Plan and the maximum number of
shares that may be subject to Awards granted to any one individual shall be
appropriately adjusted to the extent, if any, determined by the Committee in its
sole discretion, which determination shall be conclusive.

     (G) STOCKHOLDER ACTION.  Any adjustment provided for in this Paragraph IX
shall be subject to any required stockholder action.

     (H) NO ADJUSTMENTS UNLESS OTHERWISE PROVIDED.  Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares

or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.

     X. AMENDMENT AND TERMINATION OF THIS PLAN

      The Board may, in its sole discretion, terminate this Plan at any time
with respect to any shares of Common Stock for which Awards have not theretofore
been granted. The Board shall have the right to alter or amend this Plan or any
part hereof from time to time; provided that no change in this Plan may be made
that would impair the rights of a Holder with respect to an Award theretofore
granted without the consent of such Holder; and provided further that the Board
may not, without the approval of the stockholders of the Company, amend this
Plan to (a) increase the maximum aggregate number of shares that may be issued
under this Plan, (b) change the third sentence of Paragraph V(a) to provide that
the number of shares available for issuance under this Plan shall be reduced by
less than two times the number of shares subject to each Restricted Stock Award
granted hereunder, (c) change the class of individuals eligible to receive
Awards under this Plan, (d) change or delete Paragraph VII(f), (e) increase the
maximum number of shares of Common Stock that may be subject to Awards granted
to any one individual during any calendar year, (f) permit the award of shares
of Common Stock other than in the form of a Restricted Stock Award, (g) provide
for additional types of awards, (h) permit the price at which a share of Common
Stock may be purchased upon exercise of an Option to be less than the Fair
Market Value of a share of Common Stock on the date such Option is granted or
(i) alter or otherwise change any provision of this Paragraph X.

                               XI.  MISCELLANEOUS

     (A) NO RIGHT TO AN AWARD.  Neither the adoption of this Plan nor any action
of the Board or of the Committee shall be deemed to give any employee any right
to be granted an Option, a right to a Restricted Stock Award or any other rights
hereunder except as may be evidenced by an Option Agreement or a Restricted
Stock Agreement duly executed on behalf of the Company, and then only to the
extent and on the terms and conditions expressly set forth therein. This Plan
shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of funds or assets to assure the
performance of its obligations under any Award.

     (B) NO EMPLOYMENT RIGHTS CONFERRED; EMPLOYMENT RELATIONSHIP.  Nothing
contained in this Plan shall (i) confer upon any employee any right with respect
to continuation of employment with the Company or any subsidiary or (ii)
interfere in any way with the right of the Company or any subsidiary to
terminate his or her employment at any time. An employee shall be considered to
have terminated employment for purposes of this Plan if such employee's employer
ceases to be a parent or subsidiary corporation of the Company (as defined in
section 424 of the Code).

     (C) OTHER LAWS; WITHHOLDING.  The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under this Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules and regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company may (i)
withhold, or cause to be withheld, from any payment to a Holder by or on behalf
of the Company or any of its subsidiaries or (ii) require a Holder to pay to the
Company or any of its subsidiaries any amount necessary to satisfy all tax
withholding obligations arising under applicable local, state or federal laws
with respect to an Award granted to such Holder.

     (D) NO RESTRICTION ON CORPORATE ACTION.  Nothing contained in this Plan
shall be construed to prevent the Company or any of its subsidiaries from taking
any corporate action that is deemed by the Company or any such subsidiary to be
appropriate or in its best interest, whether or not such action would

have an adverse effect on this Plan or any Award under this Plan. No employee,
beneficiary or other Person shall have any claim against the Company or any of
its subsidiaries as a result of any such action.

     (E) RESTRICTIONS ON TRANSFER.  An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.

     (F) GOVERNING LAW.  This Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflicts
of law principles thereof.

EX-31.1

                                                                    EXHIBIT 31.1


                                CERTIFICATION OF
                             CHIEF EXECUTIVE OFFICER
                         OF NEWFIELD EXPLORATION COMPANY
                 PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002


I, David A. Trice, certify that:

         1.       I have reviewed the accompanying quarterly report on Form 10-Q
                  for the quarterly period ended March 31, 2004 of Newfield
                  Exploration Company (the "Registrant");

         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)) for the Registrant and we 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.       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

                  c.       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 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
                  controls over financial reporting, to the Registrant's
                  auditors and the audit committee of Registrant's Board of
                  Directors (or persons performing the equivalent functions):

                  a.       all significant deficiencies and material weaknesses
                           in the design or operation of internal controls 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 controls over
                           financial reporting.


                                     By:        /s/ DAVID A. TRICE
                                         --------------------------------------
                                                    David A. Trice
                                          President and Chief Executive Officer


Date: April 28, 2004

EX-31.2

                                                                    EXHIBIT 31.2


                                CERTIFICATION OF
                             CHIEF FINANCIAL OFFICER
                         OF NEWFIELD EXPLORATION COMPANY
                 PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002


I, Terry W. Rathert, certify that:

         1.       I have reviewed the accompanying quarterly report on Form 10-Q
                  for the quarterly period ended March 31, 2004 of Newfield
                  Exploration Company (the "Registrant");

         2.       Based on my knowledge, this annual 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)) for the Registrant and we 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.       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

                  c.       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 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
                  controls over financial reporting, to the Registrant's
                  auditors and the audit committee of Registrant's Board of
                  Directors (or persons performing the equivalent functions):

                  a.       all significant deficiencies and material weaknesses
                           in the design or operation of internal controls 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 controls over
                           financial reporting.


                                  By:           /s/ TERRY W. RATHERT
                                      ------------------------------------------
                                                    Terry W. Rathert
                                      Vice President and Chief Financial Officer


Date: April 28, 2004

EX-32.1

                                                                    EXHIBIT 32.1


                                CERTIFICATION OF
                             CHIEF EXECUTIVE OFFICER
                         OF NEWFIELD EXPLORATION COMPANY
                 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
                         PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002


In connection with the accompanying report on Form 10-Q for the quarterly period
ended March 31, 2004 filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, David A. Trice, President and Chief Executive
Officer of Newfield Exploration Company (the "Company"), hereby certify, to my
knowledge, that:

         1.       the Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         2.       the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.


Date: April 29, 2004                                 /s/ DAVID A. TRICE
                                                     -----------------------
                                                         David A. Trice

EX-32.2

                                                                    EXHIBIT 32.2


                                CERTIFICATION OF
                             CHIEF FINANCIAL OFFICER
                         OF NEWFIELD EXPLORATION COMPANY
                 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
                         PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002


In connection with the accompanying report on Form 10-Q for the quarterly period
ended March 31, 2004 filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Terry W. Rathert, Vice President, Chief Financial
Officer and Secretary of Newfield Exploration Company (the "Company"), hereby
certify, to my knowledge, that:

         1.       the Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         2.       the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company.


Date: April 29, 2004                                   /s/ TERRY W. RATHERT
                                                    ----------------------------
                                                           Terry W. Rathert