Farmout

West Cote Blanche Bay
Farmout Opportunities

West Cote Blanche Bay is an intermediate piercement salt dome with shallowest salt encountered at 7500’.  This dome has a unique growth history.  The deeper Lower Miocene sediments show evidence of growth with thinning towards the salt.  This growth pattern continues through the Middle and Upper Miocene sections at the top of the salt.  Some faulting in this interval dips at only 25 degrees, indicating tilting of normal faults by postdepositional growth.  This evidence of continued growth through the shallower Plio/Pleistocene sections is also supported by the graben fault system from the top of the salt to near the surface.  This history should support production through the entire section, which it does.  There are 77 productive sands ranging from the shallowest Pleistocene 1600’ sand to the deepest Marg. “A” 13900’ sand.  Cumulative production to date has been 205 MMBO and 266 BCFG.  The original leases were acquired by the Win or Lose Oil Company in the late 1930’s, with production being established in the early 1940’s by Texaco.  Development of the field was with sparse 2-D seismic and subsurface well control.  A 3-D seismic survey was shot in 1992 by Texaco and Benton O & G.  Several successful wells were drilled in the outlying acreage, but in the premerger Texaco environment, further development was lost in the shuffle.  The WCBB North project was shot in 2006 and merged and reprocessed with the existing survey.  LaBay has identified several intermediate depth exploitation prospects on the east flank of the field, as well as several deeper, high potential exploratory prospects.

                          

LaBay West Cote Farmout
Term Sheet

• LaBay West Cote L.L.C., a Louisiana Limited Liability Company (“LaBay”), proposes the terms set forth below to farmout its interest as to its Sublease in the West Cote Blanche Bay Prospect Area. The Sublease is owned, 35% by Phoenix Exploration Co., 17.5% by Castex Energy Co., 17.5% by Energy XXI, and 30% by LaBay West Cote L.L.C.. Castex, Phoenix, and Energy XXI have indicated they would either farmout on the terms set forth below or participate as to their interest in the Initial Test well. The Sublease has a net revenue interest of 71.8334% BPO and 70.8334% APO.

• The Farmee will commit to drill the State Lease 340 No. 4 Well (the “C” Prospect, a developmental well on the east flank of West Cote Blanche Bay, testing shallower sands which were not tested in the State Lease 340 No. 808st well.). Farmee will bear all cost and risk of drilling such well to completion or abandonment and all additional costs until payout. If Farmee timely commences the actual drilling of such well and prosecutes the drilling of same to completion or abandonment, whether the well is completed as a producer or abandoned as a dry hole, it will have the right to spud additional wells on the C Prospect Area, or on the B, D, or E, Prospect Areas. At such time as 180 days elapses between the completion or abandonment of one well and the commencement of the actual drilling operations for the drilling of the next well, Farmee will earn an assignment or assignments of the sublease as to the unit established for each formation deemed capable of producing in paying quanties. Farmee will be entitled to all revenues attributable to the Sublease as to each earned unit until such time as it receives payout of all costs attributable to the drilling, completion or abandonment, production and any other operations conducted pursuant to the farmout.

• At such time as payout occurs, Farmors will have an election to receive a reassignment of a twenty percent interest in the Sublease or a 4% overriding royalty as to the Sublease.

• This Term Sheet is to be used for discussion purposes and under no circumstances should it be considered as an offer or in any way binding the parties referred to above.