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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
Form 10-K
(Mark One)
x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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 001-36253
____________________________________________________________
EP Energy Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
46-3472728
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
 
 
1001 Louisiana Street
 
 
Houston, Texas
 
77002
(Address of Principal Executive Offices)
 
(Zip Code)
Telephone Number: (713) 997-1200
Internet Website: www.epenergy.com
Securities registered pursuant to Section 12(b) of the Act:
 
 
Name of Each Exchange
Title of Each Class
 
on which Registered
Class A Common Stock,
par value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No  x .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No  x .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x   No  o .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, a “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   o
 
Accelerated filer   x
Non-accelerated filer   o
 
Smaller reporting company   x
Emerging Growth Company   o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   o   No   x .
Aggregate market value of the Company’s common stock held by non-affiliates of the registrant as of June 29, 2018 , was $131,502,027 based on the closing sale price on the New York Stock Exchange.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class A Common Stock, par value $0.01 per share. Shares outstanding as of February 28, 2019 : 256,236,218
Class B Common Stock, par value $0.01 per share. Shares outstanding as of February 28, 2019 : 237,256
____________________________________________________________
Documents Incorporated by Reference:  Portions of the definitive proxy statement for the 2019 Annual Meeting of Stockholders of EP Energy Corporation are incorporated by reference into Part III of this Annual Report on Form 10-K.
 

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EP ENERGY CORPORATION  
TABLE OF CONTENTS
Caption
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Below is a list of terms that are common to our industry and used throughout this document:
/d
=
per day
Bbl
=
barrel
Bcf
=
billion cubic feet
Boe
=
barrel of oil equivalent
LLS
=
light Louisiana sweet crude oil
MBoe
=
thousand barrels of oil equivalent
MBbls
=
thousand barrels
Mcf
=
thousand cubic feet
MMBtu
=
million British thermal units
MMBoe
=
million barrels of oil equivalent
MMBbls
=
million barrels
MMcf
=
million cubic feet
MMGal
=
million gallons
Mt. Belvieu
=
natural gas liquids pricing index at the processing and storage hub in Mont Belvieu, TX
NGLs
=
natural gas liquids
NYMEX
=
New York Mercantile Exchange
TBtu
=
trillion British thermal units
Waha
=
natural gas pricing index at the Waha header system/vicinity in the Permian basin in West Texas
WTI
=
West Texas intermediate
When we refer to oil and natural gas in “equivalents,” we are doing so to compare quantities of oil with quantities of natural gas or to express these different commodities in a common unit. Equivalent volumes are computed with natural gas converted to barrels at a ratio of six Mcf to one Bbl. Also, when we refer to cubic feet measurements, all measurements are at a pressure of 14.73 pounds per square inch.
When we refer to “us”, “we”, “our”, “ours”, “the Company”, or “EP Energy”, we are describing EP Energy Corporation and/or its subsidiaries.
All references to “common stock” herein refer to Class A common stock.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and uncertainties, many of which are beyond our control. These forward-looking statements are based on assumptions or beliefs that we believe to be reasonable; however, assumed facts almost always vary from the actual results and such variances can be material. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur. The words “believe”, “expect”, “estimate”, “anticipate”, "plan", “intend”, "could" and “should” and similar expressions will generally identify forward-looking statements. All of our forward-looking statements are expressly qualified by these and the other cautionary statements in this Annual Report, including those set forth in Item 1A, "Risk Factors". Important factors that could cause our actual results to differ materially from the expectations reflected in our forward-looking statements include, among others: 
• the volatility of and potential for sustained low oil, natural gas, and NGLs prices;
• the supply and demand for oil, natural gas and NGLs;
• changes in commodity prices and basis differentials for oil and natural gas;
• our ability to meet production volume targets;
• the uncertainty of estimating proved reserves and unproved resources ;
• our ability to develop proved undeveloped reserves;
• the future level of operating and capital costs;
• the availability and cost of financing to fund future exploration and production operations;
• the success of drilling programs with regard to proved undeveloped reserves and unproved resources;
• our ability to comply with the covenants in various financing documents;
• our ability to generate sufficient cash flow to meet our debt obligations and commitments;
•
the possibility that we may not be able to continue as a going concern beginning in May 2020 if we are not successful in obtaining the necessary additional liquidity and/or if commodity prices do not appreciably increase;
•
our limited ability to borrow under existing debt agreements to fund our operations;
•
our ability to obtain necessary governmental approvals for proposed exploration and production projects and to successfully construct and operate such projects;
• actions by credit rating agencies, including potential downgrades;
•
credit and performance risks of our lenders, trading counterparties, customers, vendors, suppliers and third party operators;
•
general economic and weather conditions in geographic regions or markets we serve, or where operations are located, including the risk of a global recession and negative impact on demand for oil and/or natural gas;
•
the uncertainties associated with governmental regulation, including any potential changes in federal and state tax laws and regulations;
• competition; and
•
the other factors described under Item 1A, “Risk Factors,” on pages 14 through 33 of this Annual Report on Form 10-K, and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
In light of these risks, uncertainties and assumptions, the events anticipated by these forward-looking statements may not occur, and, if any of such events do occur, we may not have anticipated the timing of their occurrence or the extent of their impact on our actual results.  Accordingly, you should not place any undue reliance on any of these forward-looking statements.  These forward-looking statements speak only as of the date made, and we undertake no obligation, other than as required by

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applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

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PART I
ITEM 1.    BUSINESS
Overview
EP Energy Corporation (EP Energy), a Delaware corporation formed in 2013, is an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. Our strategy is to invest in opportunities that provide the highest return across our asset base, continually seek out operating and capital efficiencies, effectively manage costs, and identify accretive acquisition opportunities and divestitures, all with the objective of enhancing our portfolio, growing asset value, improving cash flow and increasing financial flexibility.  
We operate through a diverse base of producing assets and are focused on the development of our drilling inventory located in three areas: the Eagle Ford Shale in South Texas, Northeastern Utah (NEU), formerly Altamont, in the Uinta basin, and the Permian basin in West Texas. As of December 31, 2018 , we had proved reserves of 324.5  MMBoe (52% oil and 70% liquids) and for the year ended December 31, 2018 , we had average net daily production of 80,654 Boe/d ( 57% oil and 74% liquids).
Each of our areas is characterized by a long-lived reserve base and high drilling success rates. We have established significant contiguous leasehold positions in each area, representing approximately 457,000 net (596,000 gross) acres in total.
In addition to opportunities in our current portfolio, strategic acquisitions of leasehold acreage or acquisitions of producing assets can allow us to leverage existing expertise in our operating areas, balance our exposure to regions, basins and commodities, help us achieve or enhance risk-adjusted returns competitive with those available in our existing programs and increase our reserves. We also continuously evaluate our asset portfolio and will sell oil and natural gas properties if they no longer meet our long-term objectives.
Liquidity Concerns

In May 2020, $182 million of our senior unsecured notes will mature. Based on our current forecasted EBITDAX
(assuming $55/barrel of oil), cash on hand, and remaining capacity under our reserve-based revolving credit facility (the RBL
Facility), we project that as of May 2020, we will not have sufficient liquidity available to repay these notes and meet our
working capital needs and/or fund our planned capital expenditures. In order to address this projected shortfall in liquidity, we
are evaluating certain other sources of incremental liquidity, including additional debt issuances or refinancings and asset sales.
If we are not successful in obtaining the necessary additional liquidity, whether through executing one or more of these
potential actions or otherwise, and/or if commodity prices do not appreciably increase prior to the filing date of our Quarterly
Report on Form 10-Q for the period ending March 31, 2019, we would expect to disclose in that Quarterly Report that, in the absence of executing on these potential actions or commodity prices appreciably increasing, there would be substantial doubt that we would be able to continue as a going concern beginning in May 2020. In addition, should we be required to include a going concern disclosure in our year-end audited financial statements (in the absence of a waiver or other suitable relief), the disclosure would result in an event of default under the RBL Facility, after which the lenders thereunder could accelerate the outstanding indebtedness. An event of default under our RBL Facility could trigger cross-defaults under our other debt agreements, including our senior secured term loan and our senior secured and unsecured notes, which could also result in the acceleration of those obligations by the lenders thereunder. Even if we are able to implement such strategic alternatives, they may be insufficient to meet our debt and other obligations. Furthermore, such strategic alternatives may adversely affect our creditors or our existing stockholders, potentially resulting in the loss of all or substantially all of their investment in us.

Reserves Summary

The following table provides a summary of oil, natural gas and NGLs reserves as of December 31, 2018 and production data for the year ended December 31, 2018 for each of our areas of operation.
 
Estimated Proved Reserves (1)
 
 
 
Oil
(MMBbls)
 
NGLs
(MMBbls)
 
Natural Gas
(Bcf)
 
Total
(MMBoe)
 
Liquids
(%)
 
Proved Developed (%) (2)
 
Average
Net Daily
Production
(MBoe/d)
Eagle Ford Shale
83.8


27.7


166.0


139.1


80
%
 
67
%
 
37.1

Northeastern Utah
65.9


—


186.8


97.0


68
%
 
54
%
 
17.1

Permian
19.0


32.4


221.7


88.4


58
%
 
100
%
 
26.5

Total
168.7


60.1


574.5


324.5


70
%
 
72
%
 
80.7

 

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(1)
Proved reserves were evaluated based on the average first day of the month spot price for the preceding 12-month period of $65.56 per Bbl (WTI), $3.10 per MMBtu (Henry Hub) and $23.60 per Bbl of NGLs.
(2)
Includes 7 MMBoe of proved developed non-producing reserves representing 2% of total net proved reserves at December 31, 2018 .

Approximately 226 MMBoe, or 70%, of our total proved reserves are proved developed producing assets, which generated average production of 80.7 MBoe/d in 2018 from approximately 1,744  wells. As of December 31, 2018 , we had approximately 169  MMBbls of proved oil reserves, 60  MMBbls of proved NGLs reserves and 575  Bcf of proved natural gas reserves, representing 52%, 18% and 30%, respectively, of our total proved reserves. For both of the years ended December 31, 2018 and 2017, 74% of our production was related to oil and NGLs. 
As of December 31, 2018 , we operated 95% of our producing wells. This control provides us with flexibility around the amount and timing of capital spending and has allowed us to improve our capital and operating efficiencies. We also employ a function-based organizational structure to accelerate knowledge sharing, innovation, evaluation and target efficiencies across our drilling, completion and operating activities across our operating areas. In 2018 , we completed 136  wells and as of December 31, 2018 , we had a total of 29 wells drilled, but not completed across our programs.
Our Properties
Eagle Ford Shale .  The Eagle Ford Shale, located in South Texas, is one of the premier unconventional oil plays in the United States. We were an early entrant into this play in late 2008, and since that time have acquired a leasehold position in the core of the oil window, primarily in La Salle County. The Eagle Ford formation in La Salle County has up to 125 feet of net thickness (165 feet gross). Due to its high carbonate content, the formation is also very brittle, and exhibits high productivity when fractured.  During 2018 , we (i) completed acquisitions expanding our Eagle Ford acreage position by approximately 30 percent in La Salle County, for approximately $277 million and (ii) invested $425 million in capital (excluding approximately $315 million in acquisition capital). As of December 31, 2018 , we had 119,705 net ( 130,293 gross) acres in the Eagle Ford.
During 2018, we operated an average of three drilling rigs and as of December 31, 2018 , we had 804 net producing wells ( 800 net operated wells) in this program. We are currently running three rigs in the Eagle Ford. For the year ended December 31, 2018 , our average net daily production was 37,067 Boe/d, representing an increase of 4% over the same period in 2017 due to improved well performance and additional capital allocated to this program in 2018.
Northeastern Utah.   The Northeastern Utah asset, formerly Altamont, is located in Duchesne and Uinta counties in the Uinta basin. The Uinta basin is characterized by naturally fractured, tight-oil sands and carbonates with multiple pay zones. Our operations are primarily focused on developing the NEU Complex, which is comprised of the Altamont, Bluebell and Cedar Rim fields. The NEU Complex has a gross pay interval thickness of over 4,300 feet and we believe the Wasatch and Green River formations are ideal targets for horizontal drilling and modern fracture stimulation techniques. Our commingled production is from over 1,500 feet of net stimulated rock. Historically, our activity has been focused on the development of our vertical inventory on 80-acre and 160-acre spacing; however, we also recently completed our first two horizontal wells with lateral lengths between 7,900 and 9,800 feet. Industry activity has focused on horizontal drilling in the Wasatch and Green River formations testing tight carbonate and sand intervals and has also piloted 80-acre vertical downspacing in these formations. Due to the largely held-by-production nature of our acreage position, if horizontal drilling continues to be successful, it will result in additional opportunities that could be added to our inventory of drilling locations.
We are subject to a drilling joint venture to accelerate and fund future oil and natural gas development in
NEU. Under the joint venture, our partner is participating in the development of 60 wells and will provide a capital carry
in exchange for a 50 percent working interest in the joint venture wells. As of December 31, 2018 , we have drilled and completed 43 wells under the joint venture agreement.

During 2018 , we (i) completed the sale of certain assets in NEU for approximately $177 million representing approximately 13 percent of our NEU acreage position and (ii) invested $120 million in capital in NEU (excluding approximately $2 million in acquisition capital). As of December 31, 2018, we had 155,314 net ( 282,885 gross) acres in NEU.
During 2018, we operated an average of two drilling rigs in NEU. As of December 31, 2018 , we had 348 net producing wells ( 342 net operated wells) and are currently running one rig in this program.  For the year ended December 31, 2018 , our average net daily production was 17,051 Boe/d, representing a decrease of 4% over 2017 due to the sale of certain assets in NEU during the first quarter of 2018 as further discussed in Part II, Item 8, "Financial Statements and Supplementary Data", Note 2.
Permian .  The Permian basin is characterized by numerous stacked oil reservoirs (including the Wolfcamp A, B and C zones) that provide multiple targets for horizontal drilling. In 2009 and 2010, we leased 138,130 net (138,469 gross) acres on the University of Texas Land System in the Permian basin, located primarily in Reagan, Crockett, Upton and Irion counties. In

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2014, we acquired approximately 37,000 net acres in the Southern Midland basin. As of December 31, 2018 , we had 182,114 net ( 183,031 gross) acres in the Permian.
We are party to a Consolidated Drilling and Development Unit Agreement with the University of Texas Land System in the Permian basin to provide flexibility to extend the time frame to hold our acreage through 2021, with an annual well completion requirement of 55 wells per year through 2020. For the years ended 2016 and 2017, we met our annual well completion requirement; however, we failed to meet this requirement in 2018. To the extent that we meet our annual well completion requirement, the wells completed during that year qualify for a variable royalty, which is determined using a rolling average six month price with royalty rates of 12.5% at an average price of $50 per Bbl (WTI) and below; 18.75% at an average price of $50.01 to $60 per Bbl (WTI); 25% at an average price of $60.01 to $80 per Bbl (WTI); and 28% above $80 per Bbl (WTI). Should we not meet our annual well completion requirement in a given year, the wells completed during that given year will not qualify for the variable royalty and instead be subject to a 25.00% royalty rate.
In 2017, we entered into a drilling joint venture to accelerate and fund future oil and natural gas development in the Permian basin.  Under the joint venture, our partner had the option to participate in the development of up to 150 wells in two separate 75 well tranches primarily in Reagan and Crockett counties. In April 2018, we amended this drilling joint venture agreement to direct the development area for the second tranche from the Permian to the Eagle Ford with anticipated joint venture investment in the Eagle Ford of $225 million. The first wells under the amended agreement began producing in the third quarter of 2018. We retain operational control of the joint venture assets. For a further discussion of this joint venture, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 11.

During 2018 , we invested $99 million in capital (excluding approximately $23 million in capital adjustments under a joint venture agreement) in the Permian and operated an average of less than one drilling rig. As of December 31, 2018 , we had 353 net producing wells ( 350 net operated wells). We are currently not running any rigs in this program.  For the year ended December 31, 2018 , our average net daily production was 26,465 Boe/d, representing a decrease of 8% over 2017 , reflecting the slower pace of development from reduced capital spending in 2018. 
The following table provides a summary of acreage and gross operated wells completed in each of the following areas as of December 31, 2018 :
 
Acres
 
Gross Operated Wells Completed
(#)
 
Gross
 
Net
 
Eagle Ford Shale
130,293

 
119,705

 
85

Northeastern Utah
282,885

 
155,314

 
27

Permian
183,031

 
182,114

 
24

Total
596,209

 
457,133

 
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Oil and Natural Gas Properties
Oil, Natural Gas and NGLs Reserves and Production
Proved Reserves
The proved oil and gas reserve estimates as of December 31, 2018 presented in the table below have been prepared by Ryder Scott Company L.P. (Ryder Scott), our independent third party reserve engineers. The reserve data represents only estimates, which are often different from the quantities of oil and natural gas that are ultimately recovered, and is consistent with estimates of reserves filed with other federal agencies except for differences of less than 5% resulting from actual production, acquisitions, property sales, necessary reserve revisions and additions to reflect actual experience. The risks and uncertainties associated with estimating proved oil and natural gas reserves are discussed further in Item 1A, “Risk Factors”. Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at December 31, 2018 .
 
Net Proved Reserves (1)
 
Oil
(MMBbls)
 
NGLs
(MMBbls)
 
Natural Gas
(Bcf)
 
Total
(MMBoe)
 
Percent
(%)
Reserves by Classification
 

 
 

 
 

 
 

 
 

Proved Developed
 

 
 

 
 

 
 

 
 

Eagle Ford Shale
57.7

 
17.6

 
105.4

 
92.8

 
29
%
Northeastern Utah
34.5

 
—

 
107.3

 
52.4

 
16
%
Permian
19.0

 
32.4

 
221.7

 
88.4

 
27
%
Total Proved Developed (2) 
111.2

 
50.0

 
434.4

 
233.6

 
72
%
Proved Undeveloped
 

 
 

 
 

 
 

 
 

Eagle Ford Shale
26.1

 
10.1

 
60.6

 
46.3

 
14
%
Northeastern Utah
31.4

 
—

 
79.5

 
44.6

 
14
%
Total Proved Undeveloped
57.5

 
10.1

 
140.1

 
90.9

 
28
%
      Total Proved Reserves
168.7

 
60.1

 
574.5

 
324.5

 
100
%
 
(1)
Proved reserves were evaluated based on the average first day of the month spot price for the preceding 12-month period of $65.56 per Bbl (WTI), $3.10 per MMBtu (Henry Hub) and $23.60 per Bbl of NGLs. For a further discussion of our proved reserves and changes therein, see Part II, Item 8, "Financial Statements and Supplementary Data", under the heading Supplemental Oil and Natural Gas Operations.
(2)
Includes 226 MMBoe of proved developed producing reserves representing 70% of total net proved reserves and 7 MMBoe of proved developed non-producing reserves representing 2% of total net proved reserves at December 31, 2018 .

The table below presents net proved reserves as reported and sensitivities related to our estimated proved reserves based on differing price scenarios as of December 31, 2018 .
 
Net Proved Reserves
(MMBoe)
As Reported
324.5

10 percent increase in commodity prices
330.4

10 percent decrease in commodity prices
316.5


The sensitivities in the table above were based on the average first day of the month spot price for the preceding 12-month period of $65.56 per barrel of oil (WTI), $3.10 per MMBtu of natural gas (Henry Hub) and $23.60 per Bbl of NGLs used to determine net proved reserves at December 31, 2018 .
Ryder Scott prepared 100% (by volume) of our total net proved developed and undeveloped (PUD) reserves on a barrel of oil equivalent basis. The overall procedures and methodologies utilized by Ryder Scott in evaluating and preparing estimates of our net proved reserves as of December 31, 2018 complied with current SEC regulations. Ryder Scott’s report is included as an exhibit to this Annual Report on Form 10-K.

The technical person at Ryder Scott primarily responsible for overseeing the reserves evaluation and preparation has a B.S. degree in chemical engineering. He is a Licensed Professional Engineer in the State of Texas, a member of the Society of Petroleum Engineers and has more than 15 years of experience in petroleum reserves evaluation.
    
The significant assumptions used in the proved oil and gas reserve estimates prepared by Ryder Scott were also assessed by our internal reserve team. Our internal reserve team is comprised of a technical staff of engineers and geoscientists

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that perform technical analysis of each undeveloped location. The staff uses industry accepted practices to estimate, with reasonable certainty, the economically producible oil and natural gas. The practices for estimating hydrocarbons in place include, but are not limited to, mapping, seismic interpretation of two-dimensional and/or three-dimensional data, core analysis, mechanical properties of formations, thermal maturity, well logs of existing penetrations, correlation of known penetrations, decline curve analysis of producing locations with significant production history, well testing, static bottom hole testing, flowing bottom hole pressure analysis and pressure and rate transient analysis.

Our primary internal technical person in charge of overseeing our reserves estimates has a B.S. degree in Petroleum Engineering and is a member of the Society of Petroleum Engineers. He leads the reservoir engineering evaluation and strategic planning groups of the company.  In this capacity, he oversees the reserve reporting and technical support groups. He has eight years of industry experience in various engineering and management roles. For a discussion of the internal controls over our proved reserves estimation process, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates”.
In general, the volume of production from oil and natural gas properties declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or acquire additional properties with proved reserves, or both, our proved reserves will decline as they are produced. Recovery of PUD reserves requires significant capital expenditures and successful drilling operations. The reserve data assumes that we can and will make these expenditures and conduct these operations successfully, but future events, including commodity price changes, may cause these assumptions to change. In addition, estimates of PUD reserves and proved non-producing reserves are inherently subject to greater uncertainties than estimates of proved producing reserves. For further discussion of our reserves, see Part II, Item 8, "Financial Statements and Supplementary Data", under the heading Supplemental Oil and Natural Gas Operations.
Proved Undeveloped Reserves (PUDs)
As of December 31, 2018 , we have 91 MMBoe of PUD reserves in the Eagle Ford and NEU. Estimated capital expenditures to develop our PUD reserves (convert PUD reserves to proved developed reserves) are based upon a long-range plan approved by our management team and reviewed with the Board of Directors. All PUD locations are surrounded by producing properties, and a majority of our PUDs directly offset a producing property. Where we have recorded PUDs beyond one location away from a producing property, reasonable certainty of economic producibility has been established by reliable technology in our areas, including field tests that demonstrate consistent and repeatable results within the formation being evaluated.
Our PUD reserves at December 31, 2018 reflect the effects of adjusting our PUD bookings methodology from a five-year to a three-year timeframe as a result of (i) the current economic price environment, (ii) a lower projected capital budget in 2019, and (iii) our available liquidity and access to the capital markets. Given our current financial situation with limited available liquidity, our PUD reserves of 91 MMboe at December 31, 2018 reflect only a three-year development timframe. The table below includes 64 MMBoe (29 MMBoe to extensions and discoveries, 4 MMBoe to acquisitions, and 31 MMBoe to revisions other than price) of negative adjustments in 2018 when calculating each respective category as a result of determining our PUDs using a three-year timeframe instead of a five-year timeframe. 

The following table summarizes our changes in PUDs for the years ended December 31, 2017 and December 31, 2018 , respectively (in MMBoe):
Balance, December 31, 2016
227.8

Extensions and discoveries
15.1

Revisions due to prices
1.4

Revisions other than prices
(23.4
)
Transfers to proved developed
(30.7
)
Divestitures
(16.4
)
Balance, December 31, 2017
173.8

Extensions and discoveries
—

Acquisitions
12.5

Revisions due to prices
0.1

Revisions other than prices
(65.6
)
Transfers to proved developed
(22.6
)
Divestitures
(7.3
)
Balance, December 31, 2018
90.9



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Revisions due to prices represent PUD revisions due to increases or decreases in commodity prices (using SEC 12-month average pricing). For the year ended December 31, 2018 , revisions to PUDs other than prices primarily include negative revisions of 74 MMBoe due to a reallocation of capital from the Permian to other development areas and positive revisions of 12 MMBoe associated with increased drilling activity in the Eagle Ford and NEU.

Extensions and discoveries in 2017 are primarily related to drilling activities across all areas. For the year ended December 31, 2017 , revisions to PUDs other than prices include, among other items, negative revisions of 23 MMBoe due to a reallocation of capital in our development areas; a negative PUD ownership reversion of 10 MMBoe as a result of our variable royalty agreement in the Permian; a positive revision of 10 MMBoe from improved operating expenses and planned development of longer lateral PUDs; and the divestiture of 16 MMBoe is related to drilling joint ventures we entered into during 2017.

The year ended December 31, 2018 includes 4 MMBoe of PUDs that have a positive undiscounted value, but a negative value when discounted at 10 percent. The majority of these PUDs become negative at a 10 percent discount rate due to the historically lower resource potential in this area. However, recent 2018 results prove this area to be much more prospective than currently modeled. We expect these wells to be economic with current results and assumptions.

During 2018 , 2017 and 2016 we spent approximately $444 million, $377 million and $281 million, respectively, to convert approximately 13% or 23 MMBoe, 13% or 31 MMBoe and 9% or 25 MMBoe, respectively, of our prior year-end PUD reserves to proved developed reserves.  In 2019 , 2020 and 2021 we estimate we will spend approximately $280 million, $564 million and $607 million to develop our PUD reserves, respectively, based on our December 31, 2018 reserve report. At this level of spending from 2019 through 2021, and based on our current liquidity projections and ability to fund capital expenditures in our long-range plan, and expected access to capital market transactions, we have the intent to develop 100% of our existing PUD reserves within a three-year period. The actual amount and timing of our forecasted expenditures will depend on a number of factors, including actual drilling results, oilfield service costs, technology, acreage position, availability of capital and future commodity prices, which in the future could be lower than those in our projected long-range plan.





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Acreage and Wells
The following tables detail (i) our interest in developed and undeveloped acreage at December 31, 2018 , (ii) our interest in oil and natural gas wells at December 31, 2018 and (iii) our development wells completed during the years 2016 through 2018. Any acreage in which our interest is limited to owned royalty, overriding royalty and other similar interests is excluded.
Acreage
 
Developed
 
Undeveloped
 
Total
 
Gross (1)
 
Net (2)
 
Gross (1)
 
Net (2)
 
Gross (1)
 
Net (2)
Eagle Ford Shale
46,367

 
43,718

 
83,926

 
75,987

 
130,293

 
119,705

     Northeastern Utah
144,323

 
103,752

 
138,562

 
51,562

 
282,885

 
155,314

Permian
25,881

 
22,725

 
157,150

 
159,389

 
183,031

 
182,114

Other
70,501

 
5,924

 
214,085

 
96,535

 
284,586

 
102,459

Total Acreage
287,072

 
176,119

 
593,723

 
383,473

 
880,795

 
559,592

 
(1)
Gross interest reflects the total acreage we participate in regardless of our ownership interest in the acreage.
(2)
Net interest is the aggregate of the fractional working interests that we have in the gross acreage.
Our net developed acreage is concentrated in Texas (40%) and Utah (59%). Our net undeveloped acreage is concentrated in Texas (63%), Utah (14%), West Virginia (11%) and Wyoming (9%). Approximately 4%, 2% and 5% of our net undeveloped acreage is held under leases that have minimum remaining primary terms expiring in 2019 , 2020 and 2021 , respectively. We employ various techniques to manage the expiration of leases, including drilling the acreage ourselves prior to lease expiration, entering into farm-out or joint development agreements with other operators or extending lease terms.
Productive Wells
 
Oil
 
Wells In Progress at
December 31, 2018 (1)
 
Gross (2)
 
Net (3)(4)
 
Gross (2)
 
Net (3)
Eagle Ford Shale
896

 
804

 
29

 
27

     Northeastern Utah
449

 
348

 
7

 
6

Permian
399

 
353

 
3

 
3

Total Productive Wells
1,744

 
1,505

 
39

 
36

 
(1)
Comprised of wells that were spud as of December 31, 2018 and have not been completed.
(2)
Gross interest reflects the total wells we participated in, regardless of our ownership interest.
(3)
Net interest is the aggregate of the fractional working interests that we have in the gross wells or gross wells drilled.
(4)
At December 31, 2018 , we operated 1,492 of the 1,505 net productive wells.
Wells Completed (1)  
 
 
Net Development (2)
 
 
2018
 
2017
 
2016
Total Productive Wells Completed
 
91

 
106

 
94

 
(1)
No dry wells or exploratory wells were drilled or completed during the years 2016 through 2018 .     
(2)
Net development is the aggregate of the fractional working interests that we have in the gross wells completed.

The performance above should not be considered indicative of future drilling performance, nor should it be assumed that there is any correlation between the number of productive wells completed and the amount of oil and natural gas that may ultimately be recovered.

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Net Production, Sales Prices, Transportation and Production Costs
The following table details our net production volumes, and prices and costs per unit for each of the three years ended December 31:
 
2018
 
2017
 
2016
Volumes:
 

 
 

 
 

Total Net Production Volumes
 
 
 
 
 

Oil (MBbls)
16,726

 
16,833

 
17,061

Natural Gas (MMcf) (1)
44,913

 
46,356

 
57,799

NGLs (MBbls)
5,227

 
5,465

 
5,383

Total Equivalent Volumes (MBoe)
29,439

 
30,024

 
32,077

MBoe/d (1)
80.7

 
82.3

 
87.6

 
 
 
 
 
 
Net Production Volumes by Area
 

 
 

 
 

Eagle Ford Shale
 
 
 

 
 

Oil (MBbls)
9,137

 
8,168

 
9,679

Natural Gas (MMcf)
12,915

 
14,114

 
18,442

NGLs (MBbls)
2,240

 
2,498

 
3,164

Total Eagle Ford Shale (MBoe)
13,530

 
13,018

 
15,916

Northeastern Utah
 
 
 
 
 
Oil (MBbls)
4,269

 
4,493

 
4,224

Natural Gas (MMcf)
11,708

 
11,992

 
10,851

NGLs (MBbls)
4

 
4

 
6

Total Northeastern Utah (MBoe)
6,224

 
6,495

 
6,039

Permian
 
 
 
 
 
Oil (MBbls)
3,318

 
4,168

 
3,155

Natural Gas (MMcf)
20,169

 
20,117

 
14,823

NGLs (MBbls)
2,980

 
2,959

 
2,210

Total Permian (MBoe)
9,660

 
10,480

 
7,836

Other
 
 
 
 
 
Oil (MBbls)
2

 
4

 
3

Natural Gas (MMcf) (1)
121

 
133

 
13,684

NGLs (MBbls)
3

 
5

 
2

Total Other (MBoe) (1)
25

 
31

 
2,286

 
 
 
 
 
 
Prices and Costs per Unit: (2)
 

 
 

 
 

Oil Average Realized Sales Price ($/Bbl)
 

 
 

 
 

Physical Sales
$
62.34

 
$
48.23

 
$
38.24

Including Financial Derivatives (3)
$
60.37

 
$
53.50

 
$
74.88

Natural Gas Average Realized Sales Price ($/Mcf)
 
 
 

 
 

Physical Sales
$
1.66

 
$
2.32

 
$
1.95

Including Financial Derivatives (3)
$
1.96

 
$
2.47

 
$
2.19

NGLs Average Realized Sales Price ($/Bbl)
 

 
 

 
 

Physical Sales
$
22.88

 
$
18.87

 
$
12.02

Including Financial Derivatives (3)
$
21.79

 
$
18.46

 
$
12.19

Average Transportation Costs
 

 
 

 
 

Oil ($/Bbl)
$
1.80

 
$
1.86

 
$
1.88

Natural Gas ($/Mcf)
$
1.56

 
$
1.79

 
$
1.32

NGLs ($/Bbl)
$
0.08

 
$
0.15

 
$
0.22

Average Lease Operating Expenses ($/Boe) (4)
$
5.35

 
$
5.42

 
$
4.97

Average Production Taxes ($/Boe)
$
2.47

 
$
2.02

 
$
1.37

 
(1)
Natural gas volumes in 2016 include 13,556 MMcf or 6.2 MBoe/d from the Haynesville Shale which was sold in May 2016.
(2)
Oil prices for the years ended December 31, 2018 and 2016 reflect operating revenues for oil reduced by $3 million and $1 million, respectively, for oil purchases associated with managing our physical oil sales. For the year ended December 31, 2017, there were no oil purchases associated with managing our physical oil sales. Natural gas prices for the years ended December 31, 2018 , 2017 and 2016 reflect operating revenues for natural gas reduced by less than $1 million, $2 million and $9 million, respectively, for natural gas purchases associated with managing our physical sales.
(3)
Includes actual cash settlements related to financial derivatives. 
(4)
Includes approximately $0.07 per Boe of adjustments under a joint venture agreement for the year ended December 31, 2018.

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Acquisition, Development and Exploration Expenditures
See Part II, Item 8, "Financial Statements and Supplementary Data" under the heading Supplemental Oil and Natural Gas Operations in the Total Costs Incurred table for details on our acquisition, development and exploration expenditures.
Transportation, Markets and Customers
Our marketing strategy seeks to ensure maximum deliverability of our physical production at the maximum realized prices. We leverage knowledge of markets and transportation infrastructure to enter into beneficial downstream processing, treating and marketing contracts. We primarily sell our domestic oil and natural gas production to third parties at spot market prices, while we sell our NGLs at market prices under monthly or long-term contracts. We typically sell our oil production to a relatively small number of creditworthy counterparties, as is customary in the industry. For the year ended December 31, 2018 , nine purchasers accounted for approximately 90% of our oil revenues. The top two purchasers are: Shell Trading U.S. Co. (an affiliate of Shell Oil Company) and Flint Hills Resources, LP (an affiliate of Koch Industries), which together accounted for approximately 41% of our oil revenues. Across all of our areas, we maintain adequate gathering, treating, processing and transportation capacity, as well as downstream sales arrangements, to accommodate our production volumes.
In our Eagle Ford Shale area, we are connected to the Camino Real oil gathering system and to the NuStar Energy system.  The vast majority of our oil production flows on Camino Real, a 68-mile long pipeline with over 110,000 Bbls/d of capacity and a gravity bank that allows for oil blending to maintain attractive API levels. We have 80,000 Bbls/d of firm capacity on this oil system, of which we utilized an average of 35% during December  2018 and 36% on average for the year.  The system delivers oil to the Storey Oil Terminal east of Cotulla, Texas, southeast of Gardendale, Texas.  From the Storey Oil Terminal, oil can be pumped into Harvest’s Arrowhead #1 and/or #2 pipelines, as well as the Plains All American Pipeline connection to the Gardendale Hub.  Oil can also be loaded into trucks out of the Storey Oil Terminal or out of the numerous central tank batteries throughout our field, providing additional deliverability, reliability and flexibility.  We currently market our oil either at the Storey Oil Terminal, Gardendale or at our central tank batteries under a combination of short and long-term contracts, ranging from monthly deals to multi-year term sales. With adequate takeaway capacity in the region and close proximity to the Gulf Coast refining complex, we believe we have sufficient capacity on our contracts and do not anticipate any issues with marketing and delivering volumes from the Eagle Ford Shale. 
Our Eagle Ford natural gas production flows on either the Camino Real gas gathering system or the Frio LaSalle Pipeline system with the majority flowing on the Camino Real gas gathering system. The Camino Real gas gathering system receives high-pressure, unprocessed wellhead gas into an 83-mile pipeline with capacity up to 150 MMcf/d.  The gas is then redelivered into interconnects with ETC Texas Pipeline LTD, Enterprise Hydrocarbons LP, Regency Energy Partners LP and Eagle Ford Gathering LLC.  We currently have 125 MMcf/d of firm transportation capacity on Camino Real, of which we used an average of 56% during December  2018 and 45% on average for the year, and we have additional capacity available as needed.  We have firm gas gathering, processing and transportation agreements on three of the interconnected gas pipelines downstream of the Camino Real system, with a minimum capacity of approximately 100 MMBtu/d and rights to increase firm capacity as necessary.  In addition, gas produced from our northwest acreage position within the Eagle Ford area is connected to the Frio LaSalle Pipeline system, which provides access to firm H2S treating and processing.  Frio LaSalle can either return gas to the Camino Real system or, after processing, deliver to various Texas intrastate pipelines and a mix of interstates, such as Texas Eastern Transmission, Tennessee Gas Pipeline, and Transco. We market our physical gas to various purchasers at spot market prices. 
In NEU, the wax crude we produce is sold at the wellhead to multiple purchasers who transport the oil via truck to downstream refineries. We sell most of the oil we produce in the basin to Salt Lake City refineries under long-term sales agreements that accommodate our production forecasts. Our produced natural gas is gathered and processed at the Altamont plant, a third-party-owned processing facility, under a long-term sales agreement that provides for residue gas return for operational use.
In the Permian basin, we continue to leverage significant legacy gathering, processing and transportation infrastructure. For natural gas, we are connected to the West Texas Gas (WTG), DCP Midstream LP, Targa Pipeline Mid-Continent WestTex LLC and Cogent Midstream, LLC gathering systems, and we process a majority of our gas at the WTG Benedum & Sonora gas plants. We receive Waha pricing for our natural gas and Mt. Belvieu pricing for our NGLs. Our crude oil production facilities are connected to a third party oil gathering system that delivers to a Plains All American Pipeline at Owens Station in Reagan County, Texas, the Centurion Cline Shale Pipeline at Barnhart in Irion County, Texas and to the Magellan Longhorn pipeline in Crockett County, Texas. We sell our pipeline delivered crude to multiple purchasers under both short and long-term contracts at WTI-based pricing. We also maintain the capability to truck crude oil to those same purchasers under similarly-priced contracts to provide additional flow assurance. Given current Permian basin takeaway capacity, we anticipate no limitations moving physical crude oil to market.

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While most of our physical production is priced off spot market indices, we actively manage the volatility of spot market pricing through our risk management program. We enter into financial derivatives contracts on our oil, natural gas and a portion of our NGLs production to stabilize our cash flows, reduce the risk of downward commodity price movements and protect the economic assumptions associated with our capital investment program. We employ a disciplined risk management program that utilizes risk control processes. For a further discussion of these risk management activities and derivative contracts, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Competitors
The exploration and production business is highly competitive in the search for and acquisition of additional oil and natural gas reserves and in the sale of oil, natural gas and NGLs. Our competitors include major and intermediate sized oil and natural gas companies, independent oil and natural gas operators and individual producers or operators with varying scopes of operations and financial resources. Competitive factors include financial resources, price and contract terms, our ability to access drilling, completion and other equipment and our ability to hire and retain skilled personnel on a timely and cost effective basis. Ultimately, our future success in this business will be dependent on our ability to find and/or fund the acquisition and development of additional reserves at costs that yield acceptable returns on the capital invested.
Use of 3-D Seismic Data  
Within our areas we have an inventory of approximately 1,473 square miles of 3-D seismic data providing approximately 49% coverage of our leased acreage in those areas. We use our 3-D seismic data to improve our geologic models for each area. In the Eagle Ford and the Permian, detailed maps of structural features (e.g., natural fractures, faulting and stratigraphic discontinuities) are used to position well bore laterals to optimally exploit oil bearing zones and navigate drilling hazards. In NEU, data analytics are run using 3-D seismic attributes to identify ideal locations in the reservoir and estimate resource distribution. Seismic data sets are continually updated to keep pace with technological advancements in seismic processing.
Regulatory Environment
Our oil and natural gas exploration and production activities are regulated at the federal, state and local levels in the United States. These regulations include, but are not limited to, those governing the drilling and spacing of wells, conservation, forced pooling and protection of correlative rights among interest owners.  We are also subject to various governmental safety and environmental regulations in the jurisdictions in which we operate.
Our operations under federal oil and natural gas leases are regulated by the statutes and regulations of the Department of the Interior (DOI) that currently impose liability upon lessees for the cost of environmental impacts resulting from their operations. Royalty obligations on all federal leases are regulated by the Office of Natural Resources Revenue within the DOI, which has promulgated valuation guidelines for the payment of royalties by producers. These laws and regulations affect the construction and operation of facilities, water disposal rights and drilling operations, among other items.  In addition, we maintain insurance to limit exposure to sudden and accidental pollution liability exposures.
Hydraulic Fracturing. Hydraulic fracturing is a process of pumping fluid and proppant (usually sand) under high pressure into deep underground geologic formations that contain recoverable hydrocarbons. These hydrocarbon formations are typically thousands of feet below the surface. The hydraulic fracturing process creates small fractures in the hydrocarbon formation. These fractures allow natural gas and oil to move more freely through the formation to the well and finally to the surface production facilities. We use hydraulic fracturing to maximize productivity of our oil and natural gas wells in our areas, and our proved undeveloped oil and natural gas reserves will be developed using hydraulic fracturing. For the year ended December 31, 2018 , we incurred costs of approximately $282 million associated with hydraulic fracturing.
Hydraulic fracturing fluid is typically composed of over 99% water and proppant. The other 1% or less of the fluid is composed of additives that may contain acid, friction reducer, surfactant, gelling agent and scale inhibitor. We retain service companies to conduct such operations and we have worked with several service companies to evaluate, test and, where appropriate, modify our fluid design to reduce the use of chemicals in our fracturing fluid. We have worked closely with our service companies to provide voluntary and regulatory disclosure of our hydraulic fracturing fluids.
In order to protect surface and groundwater quality during the drilling and completion phases of our operations, we follow applicable industry practices and legal requirements of the applicable state oil and natural gas commissions with regard to well design, including requirements associated with casing steel strength, cement strength and slurry design. Our activities in the field are monitored by state and federal regulators. Key aspects of our field protection measures include: (i) pressure testing well construction and integrity, (ii) casing and cementing practices to ensure pressure management and separation of hydrocarbons from groundwater, and (iii) public disclosure of the contents of hydraulic fracturing fluids.

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In addition to these measures, our drilling, casing and cementing procedures are designed to prevent fluid migration and typically include some or all of the following:
•
Our drilling process executes several repeated cycles conducted in sequence—drill, set casing, cement casing and then test casing and cement for integrity before proceeding to the next drilling interval.
•
Conductor casing is drilled and cemented or driven in place. This string serves as the structural foundation for the well. Conductor casing is not necessary or required for all wells.
•
Surface casing is set and is cemented in place. Surface casing is set on all wells. The purpose of the surface casing is to isolate and protect Underground Sources of Drinking Water (USDW) as identified by federal and state regulatory bodies. The surface casing and cement isolates wellbore materials from any potential contact with USDWs.
•
Intermediate casing is set through the surface casing to a depth necessary to isolate abnormally pressured subsurface formations from normally pressured formations. Intermediate casing is not necessary or required for all wells. Our standard practices include cementing above any hydrocarbon bearing zone and performing casing pressure tests to verify the integrity of the casing and cement.
•
Production casing is set through the surface and intermediate casing through the depth of the targeted producing formation. Our standard practices include pumping cement above the confining structure of the target zone and performing casing pressure tests and other tests to verify the integrity of the casing and cement. If any problems are detected, then appropriate remedial action is taken.
•
With the casing set and cemented, a barrier of steel and cement is in place that is designed to isolate the wellbore from surrounding geologic formations. This barrier as designed mitigates against the risk of drilling or fracturing fluids entering potential sources of drinking water.
In addition to the required use of casing and cement in the well construction, we follow additional regulatory requirements and industry operating practices. These typically include pressure testing of casing and surface equipment and continuous monitoring of surface pressure, pumping rates, volumes of fluids and chemical concentrations during hydraulic fracturing operations. When any pressure differential outside the normal range of operations occurs, pumping is shut down until the cause of the pressure differential is identified and any required remedial measures are completed. Hydraulic fracturing fluid is delivered to our sites in accordance with the U.S. Department of Transportation (DOT) regulations in DOT approved shipping containers using DOT transporters.
We also have procedures to address water use and disposal. This includes evaluating surface and groundwater sources, commercial sources, and potential recycling and reuse of treated water sources. When commercially and technically feasible, we use recycled or treated water. This practice helps mitigate against potential adverse impacts to other water supply sources. When using raw surface or groundwater, we obtain all required water rights or compensate owners for water consumption. We are evaluating additional treatment capability to augment future water supplies at several of our sites. During our drilling and completions operations, we manage waste water to minimize environmental risks and costs. Flowback water returned to the surface is typically contained in steel tanks or pits. Water that is not treated for reuse is typically piped or trucked to waste disposal injection wells, a number of which we operate. These wells are permitted through the Underground Injection Control (UIC) program of the Safe Drinking Water Act (SDWA). We also use commercial UIC permitted water injection facilities for flowback and produced water disposal.
We have not received regulatory citations or notice of suits related to our hydraulic fracturing operations for environmental concerns. We have not experienced a surface release of fluids associated with hydraulic fracturing that resulted in material financial exposure or significant environmental impact. Consistent with local, state and federal requirements, releases are reported to appropriate regulatory agencies and site restoration completed. No remediation reserve has been identified or anticipated as a result of hydraulic fracturing releases experienced to date.
Spill Prevention/Response Procedures. There are various state and federal regulations that are designed to prevent and respond to any spills or leaks resulting from exploration and production activities. In this regard, we maintain spill prevention control and countermeasures programs, which frequently include the installation and maintenance of spill containment devices designed to contain spill materials on location. In addition, we maintain emergency response plans to minimize potential environmental impacts in the event of a spill or leak or any significant hydraulic fracturing well control issue.

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Environmental
A description of our environmental remediation activities is included in Part II, Item 8, "Financial Statements and Supplementary Data", Note 9.
Employees
As of February 28, 2019, we had 372 full-time employees in the United States.
Executive Officers of the Registrant
Our executive officers as of February 28, 2019, are listed below.
Name
 
Office
 
Age
Russell E. Parker
 
President, Chief Executive Officer and Director
 
42
Raymond J. Ambrose
 
Senior Vice President, Engineering and Subsurface
 
46
Chad D. England
 
Senior Vice President, Operations
 
39
Kyle A. McCuen
 
Senior Vice President, Chief Financial Officer and Treasurer
 
44
Jace D. Locke
 
Vice President, General Counsel and Corporate Secretary
 
42
Russell E. Parker
Mr. Parker has been our President and Chief Executive Officer and has served as a member of the Board since November 6, 2017. He was previously Chief Executive Officer of Phoenix Natural Resources LLC (Phoenix), from March 2016 to October 2017. Mr. Parker was the President of Chief Oil & Gas LLC from March 2015 to December 2015, and prior to becoming President, was Vice President of Engineering and Operations from October 2014 to March 2015 and Vice President of Engineering from November 2012 to October 2014. From January 2001 to October 2012, Mr. Parker worked in various engineering and asset management capacities for Hilcorp Energy Company (Hilcorp). Mr. Parker received his BS in Petroleum and Geosystems from the University of Texas at Austin, where he also was recognized as an Outstanding Young Graduate of the Cockrell School of Engineering as well as Distinguished Alumnus of the Petroleum Engineering Department.
Raymond J. Ambrose
Dr. Ambrose has been our Senior Vice President, Engineering and Subsurface since November 6, 2017. He was previously Senior Vice President, Engineering and Business Development for Phoenix from April 2016 to October 2017. Dr. Ambrose worked as Senior Director, Petroleum Engineering for NRG Energy, Inc., from April 2015 until joining Phoenix and as the Chief Reservoir Engineer for Hilcorp from March 2012 to March 2015. Dr. Ambrose earned a BS in chemical engineering with a petroleum minor and an MS in petroleum engineering from the University of Southern California and a PhD from the University of Oklahoma where his dissertation was focused on unconventional gas storage phenomena and rate transient analysis of unconventional reservoirs.
Chad D. England
Mr. England has been our Senior Vice President, Operations, since November 6, 2017. He was previously Senior Vice President of Operations for Phoenix from April 2016 to November 2017. Mr. England worked for Hilcorp as an Operations Manager from September 2010 to April 2016 on the Eagle Ford, Utica and South Texas asset teams. Prior to Hilcorp, he held engineering positions for ConocoPhillips from October 2006 to September 2010. Mr. England received his BS in Mechanical Engineering from Texas A&M University.
Kyle A. McCuen
Mr. McCuen has been our Senior Vice President, Chief Financial Officer and Treasurer since January 1, 2018. He was our interim Chief Financial Officer from February 2017 to December 2017, and our Vice President and Treasurer since August 2013. He was Vice President and Treasurer of EP Energy LLC from May 2012 to August 2013. He previously served in various finance and strategic planning roles at El Paso Corporation, most recently serving as Vice President of Corporate and E&P Planning at El Paso Corporation from October 2011 to May 2012. Mr. McCuen graduated from the University of Texas with a BBA and received an MBA from the University of Houston.
Jace D. Locke
Mr. Locke has been our Vice President, General Counsel and Corporate Secretary since January 1, 2018. He was our Associate General Counsel and Assistant Secretary from August 2013 to December 2017 and was Associate General Counsel and

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Assistant Secretary for EP Energy LLC from May 2012 to August 2013. He previously served as Senior Counsel at El Paso Corporation from November 2007 to May 2012, which included service as Corporate Secretary of El Paso’s midstream business unit. Prior to joining El Paso Corporation, Mr. Locke served as an associate at the international law firm of Dewey & LeBoeuf LLP from June 2002 to October 2007. Mr. Locke graduated from the University of Utah with a BS in Political Science and received a JD from Brigham Young University.
Available Information
Our website is http://www.epenergy.com. We make available, free of charge on or through our website, our annual, quarterly and current reports, and any amendments to those reports, including related exhibits and supplemental schedules, as soon as is reasonably possible after these reports are filed or furnished with the Securities and Exchange Commission (SEC). The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. All of our SEC filings are also available on the SEC's website at www.sec.gov. Information about each of our Board members, each of our Board’s standing committee charters, and our Corporate Governance Guidelines as well as a copy of our Code of Conduct are also available, free of charge, through our website. Information contained on our website is not part of this report.


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ITEM 1A.    RISK FACTORS
Risks Related to Our Business and Industry
The prices for oil, natural gas and NGLs are highly volatile and sustained lower prices have adversely affected, and may continue to adversely affect, our business, results of operations, cash flows and financial condition.
Our success depends upon the prices we receive for our oil, natural gas and NGLs. These commodity prices historically have been highly volatile and are likely to continue to be volatile in the future, especially given current global geopolitical and economic conditions. Commodity prices could also remain depressed for a sustained period.  The prices for oil, natural gas and NGLs are subject to a variety of factors that are outside of our control, which include, among others:
•
regional, domestic and international supply of, and demand for, oil, natural gas and NGLs;
•
oil, natural gas and NGLs inventory levels in the United States;
•
political and economic conditions domestically and in other oil and natural gas producing countries, including the current conflicts in the Middle East and conditions in Africa, Russia and South America;
•
actions of OPEC and state-controlled oil companies relating to oil, natural gas and NGLs price and production controls;
•
wars, terrorist activities and other acts of aggression;
•
weather conditions and weather patterns;
•
technological advances affecting energy consumption and energy supply;
•
adoption of various energy efficiency and conservation measures and alternative fuel requirements;
•
the price and availability of supplies of, and consumer demand for, alternative energy sources;
•
the price and quantity of U.S. imports and exports of oil, natural gas, including liquefied natural gas, and NGLs;
•
volatile trading patterns in capital and commodity-futures markets;
•
the strengthening and weakening of the U.S. dollar relative to other currencies;
•
changes in domestic governmental regulations, administrative and/or agency actions, and taxes, including potential restrictive regulations associated with hydraulic fracturing operations;
•
changes in the costs of exploring for, developing, producing, transporting, processing and marketing oil, natural gas and NGLs;
•
availability, proximity and cost of commodity processing, gathering and transportation and refining capacity;
•
perceptions of customers on the availability and price volatility of our products, particularly customers' perception of the volatility of oil and natural gas prices over the longer term; and
•
variations between product prices at sales points and applicable index prices.
Governmental actions may also affect oil, natural gas and NGLs prices.
The negative impact of low commodity prices on our cash flows could limit our cash available for capital expenditures and ultimately reduce our (i) drilling opportunities, (ii) future production volumes and operating revenues, and (iii) oil and gas reserves. Any resulting decreases in production could result in an additional shortfall in our expected cash flows and require us to further reduce our capital spending or borrow funds to cover any such shortfall. In addition to reducing our cash flows, a prolonged and substantial decline in commodity prices could negatively impact our proved oil and natural gas reserves, which in turn, may result in a significant write-down of the carrying value of our proved properties through a corresponding impairment charge on our income statement. For example, given the decline in commodity prices since the third quarter of 2018 and significant reduction in future development capital allocated to the Permian basin, we incurred non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian

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basin in the fourth quarter of 2018. In addition to the impairment charges recorded as of December 31, 2018, future commodity price declines may cause changes to our capital spending levels, production rates, levels of proved reserves and development plans, which may result in a further impairment of the carrying value of our proved and/or unproved properties in the future with our Permian and/or other areas.

Commodity prices also affect our ability to access funds under our reserve-based revolving credit facility (the RBL Facility) and through the capital markets and may adversely affect our ability to refinance our debt. The amount available for borrowing under the RBL Facility is subject to a borrowing base, which was $1.36 billion with commitments of $629 million as of February 28, 2019. Our borrowing base is determined by our lenders taking into account our proved reserves, and is subject to periodic redeterminations (in April and November) based on pricing models determined by the lenders at such time. Declines in oil, natural gas and NGLs prices have and could continue to adversely impact the value of our proved reserves and, in turn, the bank pricing used by our lenders to determine our borrowing base. Upon redetermination, we would be required to repay amounts outstanding under our credit facility should they exceed the redetermined borrowing base. In addition, the availability of borrowings under the RBL Facility is subject to various financial and non-financial covenants and restrictions, which could be directly and negatively affected by falling commodity prices or a worsening of our financial condition. Any of these factors could further negatively impact our liquidity, our ability to replace our production and our future rate of growth. On the other hand, increases in commodity prices may be offset by increases in drilling costs, production taxes and lease operating costs that typically result from any increase in commodity prices. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
We have significant capital programs in our business that may require us to access capital markets, and any inability to obtain access to the capital markets in the future at competitive rates, or any negative developments in the capital markets, could have a material adverse effect on our business.

We have significant capital programs in our business, which may require us to access the capital markets in order to continue the development of our properties. Since we are rated below investment grade and are highly levered, our ability to access the capital markets or the cost of capital could be negatively impacted, which could require us to forego opportunities or could make us less competitive in our pursuit of growth opportunities, especially in relation to many of our competitors that are larger than us or have greater financial resources. There is a risk that our non-investment grade credit rating may be further lowered in the future in light of the sustained lower commodity price environment as well as our substantial leverage, limited liquidity, undesirable credit profile and other factors. Reductions in our credit rating could have a negative impact on us. For example, a lower credit rating could limit our available liquidity if we are required to post incremental collateral on transportation contract obligations or other contractual commitments.
In addition, the turmoil in recent years in the credit markets for companies in the energy sector with volatile commodity prices has led to reduced credit availability, tighter lending standards and higher interest rates on loans for energy companies, especially non-investment grade companies. While we cannot predict the future condition of the credit markets, future turmoil in the credit markets could have a material adverse effect on our business, liquidity, financial condition and cash flows, particularly if our ability to borrow money from lenders or access the capital markets to finance our operations were to be impaired. Our primary source of liquidity beyond cash flow from operations is our RBL Facility. At February 28, 2019, we had $190 million outstanding under the facility, a borrowing base of $1.36 billion and commitments of $629 million .
Although we believe that the banks participating in the RBL Facility have adequate capital and resources, we can provide no assurance that all of those banks will continue to operate as going concerns in the future, or continue to participate in the facility. If any of the banks in our lending group were to fail, or choose not to participate, it is possible that the borrowing capacity under the RBL Facility would be reduced. In the event of such reduction, we could be required to obtain capital from alternate sources or find additional RBL participants in order to finance our capital needs. Our options for addressing such capital constraints would include, but not be limited to, obtaining commitments from the remaining banks in the lending group and accessing the public and private capital markets. In addition, we may delay certain capital expenditures to ensure that we maintain appropriate levels of liquidity. If it became necessary to access additional capital, any such alternatives could have terms less favorable than the current terms under the RBL Facility, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our substantial indebtedness could adversely affect our ability to operate our business, we may not be able to generate sufficient cash flows to service our indebtedness and we may be forced to take actions to satisfy our debt obligations that may not be successful.
We are a highly leveraged company with significant debt and debt service obligations. As of December 31, 2018 , our total debt was approximately $4.4 billion, comprised of $8 million in senior secured term loans maturing in 2019, $738 million in senior unsecured notes due in 2020, 2022 and 2023, and $3.6 billion in senior secured notes due in 2024, 2025 and 2026. For

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the year ended December 31, 2018 , we incurred $365 million in interest expense. Our substantial indebtedness could have material consequences for our business, results of operations and financial condition, including:
•
requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments thereby reducing the availability of cash for working capital, capital expenditures, acquisitions or general corporate purposes;
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limiting our ability to borrow money for our working capital, capital expenditures (including the development of reserves), debt service requirements, strategic initiatives or other purposes;
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exposing us to more liquidity risks, including breach of covenants and default risks, especially during times of financial and commodity price volatility;
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making us more vulnerable to downturns in our business or the economy;
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limiting our flexibility in planning for, or reacting to, changes in our operations or business;
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increasing our leverage relative to our competitors, which may place us at a competitive disadvantage;
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restricting us from making strategic acquisitions, engaging in development activities, introducing new technologies or exploiting business opportunities;
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causing us to make non-strategic divestitures;
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requiring us to secure additional sources of liquidity, which may or may not be available to us; or
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causing us to issue equity thereby diluting existing stockholders.
Our future cash flow may be insufficient to meet our debt obligations and commitments. Any insufficiency could negatively impact our business. A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and to pay our debt. Lower commodity prices have negatively impacted our revenues, earnings and cash flows, and sustained low oil and natural gas prices will likely have an adverse effect on our liquidity and financial condition.    
As of February 28, 2019, we had only $420 million of availability under the RBL Facility and could issue only an
additional $371 million in senior secured debt. In addition, in May 2020, $182 million of our senior unsecured notes will
mature. There can be no assurance that we will have the ability to borrow or otherwise raise the amounts necessary to refinance our indebtedness as it matures. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time, and any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business and operations. Our inability to generate sufficient cash flow to satisfy our debt obligations or to obtain alternative financing could materially and adversely affect our ability to make payments on our indebtedness and our business, financial condition and results of operations.
    
In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis
would likely result in a default under that indebtedness, which would likely cause cross defaults under our other indebtedness, which could force us into bankruptcy or liquidation. Please see “Our debt agreements contain restrictions that limit our flexibility in operating our business.” In the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our debt instruments restrict our ability to dispose of assets and our use of the proceeds from such disposition. We may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

We may be unable to successfully effectuate any or all of the strategic alternatives that we must implement in order to
service our substantial indebtedness.

In May 2020, $182 million of our senior unsecured notes will mature. We project that as of May 2020 we will not
have sufficient liquidity available to repay these notes and meet our working capital needs and/or fund our planned capital
expenditures or meet other near-term maturities. In order to address this projected shortfall in liquidity, we are evaluating
certain other sources of incremental liquidity, including issuing additional debt, refinancing our debt and selling assets.
However, we may fail to effectuate any such strategic alternatives on commercially reasonable terms or at all. If we fail to
obtain the necessary additional liquidity, there may be substantial doubt that we would be able to continue as a going concern

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beginning in May 2020. Even if we are able to implement such strategic alternatives, they may be insufficient to meet our debt
and other obligations. Furthermore, such strategic alternatives may adversely affect our creditors or our existing stockholders,
potentially resulting in the loss of all or substantially all of their investment in us.

Under the RBL Facility, we are required to deliver audited consolidated financial statements without a going concern
or like qualification or explanation. The inclusion of a going concern explanation in our audited financial statements would, in the absence of a waiver or other suitable relief, result in an event of default under the RBL Facility, after which the lenders thereunder could accelerate the outstanding indebtedness. In addition, an event of default under our RBL Facility could trigger cross-defaults under our other debt agreements, including our senior secured term loan and our senior secured and unsecured notes, which could also result in the acceleration of those obligations by the lenders thereunder.

Our ability to issue additional debt and/or refinance our debt depends on numerous factors, such as our financial
condition and the terms of our existing debt agreements, which include restrictions on our ability to, among other things, incur
additional debt and prepay, redeem or repurchase certain debt. Our ability to issue additional debt and/or refinance our debt is
also subject to many factors that are beyond our control, such as the condition of the capital markets in general. Even if we are
able to issue additional debt and/or refinance our debt, we could, as a result, become subject to higher interest rates and/or more
onerous debt covenants, which could further restrict our ability to operate our business. To the extent that we seek to sell assets in order to meet our debt and other obligations, we may fail to effectuate any such dispositions for fair market value, in a timely manner or at all. Furthermore, the proceeds that we realize from any such dispositions may be inadequate to meet our debt and other obligations.

We have been notified by the NYSE that we are currently out of compliance with the NYSE’s minimum share price requirement, and are at risk of the NYSE delisting our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.
Our common stock is currently listed on the NYSE, and the continued listing of our common stock on the NYSE is subject to our compliance with a number of listing standards. On January 3, 2019, we were notified by the NYSE that we were not in compliance with NYSE continued listing standards because the average closing price of our shares of common stock had fallen below $1.00 per share over a period of 30 consecutive trading days.
Under the NYSE’s rules, we have six months following receipt of the notification to regain compliance with the minimum share price requirement. We can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month our common stock has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month. During this six-month period, our common stock will continue to be listed and traded on the NYSE, subject to compliance with other continued listing requirements.
If we do not regain compliance with the minimum share price requirement by the end of the cure period, the common stock will be subject to the NYSE’s suspension and delisting procedures. The commencement of suspension or delisting procedures by the NYSE remains, at all times, at the discretion of the NYSE and would be publicly announced by the NYSE. A delisting of our common stock from the NYSE could negatively impact us, as it would likely reduce the liquidity and market price of our common stock and reduce the number of investors willing to hold or acquire our common stock. In addition, our ability to access equity markets to obtain financing, and attract and retain personnel by means of equity compensation, would be impaired. Furthermore, if our common stock were suspended or delisted, we would expect decreases in analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to our common stock.
Our failure to comply with the covenants under our debt agreements may result in the occurrence of an event of default
under such agreements. If an event of default occurs, we may become subject to cross-defaults under certain of our
remaining debt agreements, making us unable to meet our debt obligations that become immediately due.

An event of default may occur under our debt agreements due to our failure to comply with the covenants thereunder.
If an event of default occurs and/or our lenders accelerate our obligations under such agreements, cross-defaults will exist
under certain of our remaining indebtedness and we may not be able to repay our debt obligations that become immediately
due. For example, the RBL Facility requires us to comply with certain financial covenants and our failure to comply with such
covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on our
business, financial condition and results of operations. If we become subject to cross defaults under our other indebtedness due
to the occurrence of an event of default under the RBL Facility, the lenders or holders under the RBL Facility and our other
secured indebtedness could proceed against the collateral granted to them to secure that indebtedness, which represents the
substantial portion of our assets.

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The success of our business depends upon our ability to find and replace reserves that we produce.

Similar to our competitors, we have a reserve base that is depleted as it is produced. Unless we successfully replace the reserves that we produce, our reserves will decline, which will eventually result in a decrease in oil and natural gas production and lower revenues and cash flows from operations. We historically have replaced reserves through both drilling and acquisitions. The business of exploring for, developing or acquiring reserves requires substantial capital expenditures. If we do not continue to make significant capital expenditures (for any reason, including our access to capital resources becoming limited) or if our exploration, development and acquisition activities are unsuccessful, we may not be able to replace the reserves that we produce, which would negatively impact us. As a result, our future oil and natural gas reserves and production, and therefore our cash flow and results of operations, are highly dependent upon our success in efficiently developing and exploiting our current properties and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs or at all. If we are unable to replace our current and future production, the value of our reserves will decrease, and our business, results of operations and financial condition would be materially adversely affected. We have reduced our PUD reserves by 64 MMBoe, or approximately 41% as of December 31, 2018 based on the adjustment to our PUD bookings methodology from a five-year to a three-year timeframe. We took this action because we do not currently have the financial resources to develop our PUD reserves in years four or five. See Part I, Item 1. "Business" under the heading Oil and Natural Gas Properties for further discussion on our proved reserves.

Our oil and natural gas drilling and producing operations involve many risks, and our production forecasts may differ from actual results.

Our success will depend on our drilling results which are subject to the risk that (i) we may not encounter commercially productive reservoirs or (ii) if we encounter commercially productive reservoirs, we either may not fully recover our investments or our rates of return will be less than expected. Our past performance should not be considered indicative of future drilling performance. As a result, there remains uncertainty on the results of our drilling programs, including our ability to realize proved reserves or to earn acceptable rates of return on our drilling programs. From time to time, we provide forecasts of expected quantities of future production. These forecasts are based on a number of estimates, including expectations of production from existing wells and the outcome of future drilling activity. Our forecasts could be different from actual results and such differences could be material. As of December 31, 2018 , our proved reserves reflect the effects of adjusting our PUD bookings methodology from a five-year to a three-year timeframe. We took this action because we do not currently have the financial resources to develop our PUD reserves in years four or five. See Part I, Item 1. "Business" under the heading Oil and Natural Gas Properties for further discussion on our proved reserves.

Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations. In addition, the results of our exploratory drilling in new or emerging areas are more uncertain than drilling results in areas that are developed and have established production. Our cost of drilling, completing, equipping and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical or less economic than forecasted. Further, many factors may increase the cost of, or curtail, delay or cancel drilling operations, including the following:
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unexpected drilling conditions;
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delays imposed by or resulting from compliance with regulatory and contractual requirements, including requirements on sourcing of materials;
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unexpected pressure or irregularities in geological formations;
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equipment failures or accidents;
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fracture stimulation accidents or failures;
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adverse weather conditions;
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declines in oil and natural gas prices;
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surface access restrictions with respect to drilling or laying pipelines;
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shortages (or increases in costs) of water used in hydraulic fracturing, especially in arid regions or regions that have been experiencing severe drought conditions;

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•
shortages or delays in the availability of, increases in the cost of, or increased competition for, drilling rigs and crews, fracture stimulation crews, equipment, pipe, chemicals and supplies and transportation, gathering, processing, treating or other midstream services; and
•
limitations or reductions in the market for oil and natural gas.
Additionally, the occurrence of certain of these events, particularly equipment failures or accidents, could impact third parties, including persons living in proximity to our operations, our employees and employees of our contractors, leading to possible injuries or death or significant property damage. As a result, we face the possibility of liabilities from these events that could materially adversely affect our business, results of operations and financial condition.
In addition, uncertainties associated with enhanced recovery methods may not allow for the extraction of oil and natural gas in a manner or to the extent that we anticipate and we may be unable to realize an acceptable return on our investments in certain of our projects. The additional production and reserves, if any, attributable to the use of enhanced recovery methods are inherently difficult to predict.
Our drilling locations are scheduled to be drilled over a number of years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.
Our management has identified and scheduled potential drilling locations as an estimate of our future multi-year drilling activities on our existing acreage. All of our potential drilling locations, particularly our potential drilling locations for oil, represent a significant part of our strategy. Our ability to drill and develop these locations is subject to a number of uncertainties, including the availability of capital, seasonal conditions, regulatory approvals, oil, natural gas and NGLs prices, costs and drilling results. If our capital resources are insufficient to support our drilling activities or other risks materialize, we may be unable to drill and develop these locations. Because of these uncertainties, we do not know if the drilling locations we have identified will ever be drilled or if we will be able to produce oil, natural gas or NGLs from these or any other potential drilling locations. Pursuant to existing SEC rules and guidance, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells where a final investment decision has been made to drill within five years of the date of booking. These rules and guidance may limit our potential to book additional proved undeveloped reserves as we pursue our drilling program. We have adjusted our PUD bookings methodology from a five-year to a three-year timeframe because we do not currently have the financial resources to develop our PUD reserves in years four or five.
Certain of our undeveloped leasehold acreage is subject to leases that will expire in several years unless production is established on units containing the acreage.
Although many of our reserves are located on leases that are held-by-production or held by continuous development, we do have provisions in a number of our leases that provide for the lease to expire unless certain conditions are met, such as drilling having commenced on the lease or production in paying quantities having been obtained within a defined time period. If commodity prices remain lower or we are unable to allocate sufficient capital to meet these obligations, there is a risk that some of our existing proved reserves and some of our unproved inventory/acreage could be subject to lease expiration or a requirement to incur additional leasehold costs to extend the lease. This could result in impairment of remaining costs and a reduction in our reserves and our growth opportunities (or the incurrence of significant costs) and therefore could have a material adverse effect on our financial results.
Drilling locations that we decide to drill may not yield oil, natural gas or NGLs in commercially viable quantities.
Our future drilling locations are in various stages of evaluation, ranging from a location which is ready to drill to a location that will require substantial additional interpretation. There is no way to predict in advance of drilling and testing whether any particular location will yield oil, natural gas or NGLs in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of technologies and the study of producing fields in the same area will not enable us to know conclusively, prior to drilling, whether oil, natural gas or NGLs will be present or, if present, whether oil, natural gas or NGLs will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil, natural gas or NGLs exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production from the well or abandonment of the well. We cannot assure you that the analogies we draw from available data from other wells, more fully explored locations or producing fields will be applicable to our other identified drilling locations. Further, initial production rates reported by us or other operators may not be indicative of future or long-term production rates.  The cost of drilling, completing and operating any well is often uncertain, and new wells may not be productive.

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We require substantial capital expenditures to conduct our operations, engage in acquisition activities and replace our production, and we may be unable to obtain needed financing on satisfactory terms necessary to execute our operating strategy.
We require substantial capital expenditures to conduct our exploration, development and production operations, engage in acquisition activities and increase our proved reserves and production. In 2018 , we spent total capital of $644 million (not including approximately $340 million in acquisition capital and adjustments under a joint venture agreement). We have established a capital budget for the first quarter of 2019 of approximately $160 million to $170 million (not including acquisition capital) and we intend to rely on cash flow from operating activities and available cash and borrowings under the RBL Facility as our primary sources of liquidity. As of December 31, 2018 , our available liquidity was approximately $537 million, including available cash and borrowings under the RBL Facility. For a discussion of liquidity, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”. We also may engage in asset sale transactions to, among other things, fund capital expenditures when market conditions permit us to complete monetization transactions on terms we find acceptable. There can be no assurance that such sources will be available to us or sufficient to fund our exploration, development and acquisition activities. If our revenues and cash flows continue to decrease in the future as a result of declines in commodity prices or a reduction in production levels, and we are unable to obtain additional equity or debt financing in the capital markets or access alternative sources of funds, we may be required to reduce the level of our capital expenditures and may lack the capital necessary to increase or even maintain our reserves and production levels.
Interest rates could negatively affect our financing costs and ability to access capital. We have near-term exposure to interest rates from outstanding indebtedness indexed to variable interest rates, and we have exposure to potentially rising interest rates in the future to the extent we seek to raise debt in the capital markets to meet maturing debt obligations and fund our operations. Disruptions in capital and credit markets in the past have resulted in higher interest rates on new publicly issued debt and increased costs for variable interest rate debt.

Due to these factors, we cannot be certain that funding, if needed, will be available to the extent required, or on acceptable terms. If we are unable to access funding when needed on acceptable terms, we may not be able to fully implement our business plans, take advantage of business opportunities, respond to competitive pressures or refinance our debt obligations as they come due, any of which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our acquisition attempts may not be successful or may result in completed acquisitions that do not perform as anticipated.
We have made and may continue to make acquisitions of businesses and properties. However, suitable acquisition candidates may not continue to be available on terms and conditions we find acceptable or at all. Additionally, any acquisition involves potential risks, including (i) the inability to integrate acquired businesses successfully and produce revenues, reserves, earnings or cash flow at anticipated levels or could have environmental, permitting or other problems for which contractual protections prove inadequate, (ii) the assumption of liabilities that were not disclosed to us and for which contractual protections prove inadequate or that exceed our estimates; and (iii) the potential loss of key customers and/or employees. Any of the above risks could significantly impair our ability to manage our business, complete or effectively integrate acquisitions and may have a material adverse effect on our business, results of operations and financial condition.
Retained liabilities associated with businesses or assets that we have sold could exceed our estimates and we could experience difficulties in managing these liabilities.
We have sold various assets and either retained certain liabilities or indemnified certain purchasers against future liabilities relating to businesses and assets sold, including breaches of warranties, environmental expenditures, asset retirements and other representations that we have provided.  We may also be subject to retained liabilities with respect to certain divested assets by operation of law.  For example, the recent and sustained decline in commodity prices has created an environment where there is an increased risk that owners and/or operators of assets purchased from us may no longer be able to satisfy plugging or abandonment obligations that attach to such assets. In that event, due to operation of law, we may be required to assume these plugging or abandonment obligations on assets no longer owned and operated by us. Although we believe that we have established appropriate reserves for any such liabilities, we could be required to accrue additional amounts in the future and these amounts could be material.
Our use of derivative financial instruments could result in financial losses or could reduce our income.
We use fixed price financial options and swaps to mitigate our commodity price and basis exposures. However, we do not typically hedge all of these exposures, and typically do not hedge any of these exposures beyond several years. Our derivative contracts (primarily fixed price derivatives) as of December 31, 2018 , will allow us to realize a weighted average

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price of $55.93 and $60.75 per barrel on 14 MMBbls and 2 MMBbls of oil in 2019 and 2020, respectively, and $2.86 per MMBtu on 26 TBtu of natural gas in 2019 . Subsequent to December 31, 2018 , we entered into additional derivative contracts on 0.3 MBbls of 2019 Midland vs. Cushing oil basis swaps with an average price of $(1.50) per barrel of oil and 9.9 MMBbls of 2020 WTI oil three-way collars with a ceiling price of $65.13, a floor price of $55.00 and a sub-floor price of $45.00 per barrel of oil. We have no price protection currently past this timeframe. As a result, we have substantial commodity price and basis exposure since our business has multi-year drilling programs for our proved reserves and unproved resources, particularly as our existing hedges roll off.
The derivative contracts we enter into to mitigate commodity price risk are not designated as accounting hedges and are therefore marked to market. As a result, we experience volatility in our revenues and net income as a result of changes in commodity prices, counterparty non-performance risks, correlation factors and changes in the liquidity of the market. Furthermore, the valuation of these financial instruments involves estimates based on assumptions that could prove to be incorrect and result in financial losses. Although we have internal controls in place that impose restrictions on the use of derivative instruments, there is a risk that such controls will not be complied with or will not be effective, and we could incur substantial losses on our derivative transactions. The use of derivatives, to the extent they require collateral posting with our counterparties, could impact our working capital and liquidity when commodity prices or change.
To the extent we enter into derivative contracts to manage our commodity price and basis exposures, we may forego the benefits we could otherwise experience if such prices were to change favorably and we could experience losses to the extent that these prices were to increase above the fixed price.  In addition, these hedging arrangements also expose us to the risk of financial loss in the following circumstances, among others:
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when production is less than expected or less than we have hedged;
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when the counterparty to the hedging instrument defaults on its contractual obligations;
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when there is an increase in the differential between the underlying price in the hedging instrument and actual prices received; and
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when there are issues with respect to legal enforceability of such instruments.
Our derivative counterparties are typically large financial institutions. We are subject to the risk of loss on our derivative instruments as a result of non-performance by our counterparties, especially when there is a significant decline in commodity prices. The ability of our counterparties to meet their obligations to us on hedge transactions could reduce our revenue from hedges at a time when we are also receiving a lower price for our oil and natural gas sales. As a result, our business, results of operations and financial condition could be materially adversely affected.
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) provided for federal oversight of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act mandated that the Commodity Futures Trading Commission (the CFTC), the SEC and certain federal regulators of financial institutions (the Prudential Regulators) adopt rules or regulations to implement the Dodd-Frank Act and provide definitions of terms. Among other things, the Dodd-Frank Act and associated rules established margin requirements and required clearing and trade execution practices for certain market participants and resulted in certain market participants curtailing and/or ceasing their derivatives activities. The Dodd-Frank Act and associated rules also place limitations on our ability to enforce remedies against our swap counterparties who are regulated by the Prudential Regulators, and proposed rules would impose position limits on some market participants and also modify the capital reserve requirements applicable to our swap counterparties. While we qualify for various exceptions under the Dodd-Frank Act and associated rules as well as similar foreign regulations enacted by the European Union and other non-U.S. jurisdictions, most if not all of our hedge counterparties are subject to various provisions of these regulations and proposed regulations, which could significantly increase the cost of our derivative contracts, materially alter the terms of our derivative contracts, reduce the availability of derivatives to us that we have historically used to protect against risks that we encounter in our business, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the Dodd-Frank Act and related rules and/or similar foreign regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity contracts related to oil and natural gas. Our revenues could therefore be adversely affected if a consequence of the Dodd-Frank Act and regulations is to lower commodity prices. Any of these consequences could have a material adverse effect on us, our financial condition, and our results of operations.

Estimating our reserves involves uncertainty, our actual reserves will likely vary from our estimates, and negative revisions to our reserve estimates in the future could result in decreased earnings and/or losses and impairments.

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All estimates of proved reserves are determined according to the rules prescribed by the SEC. Our reserve information is evaluated and prepared by an independent petroleum engineering consultant. There are numerous uncertainties involved in estimating proved reserves, which may result in our estimates varying considerably from actual results. Estimating quantities of proved reserves is complex and involves significant interpretation and assumptions with respect to available geological, geophysical and engineering data, including data from nearby producing areas. It also requires us to estimate future economic factors, such as commodity prices, production costs, plugging and abandonment costs, severance, ad valorem and excise taxes, capital expenditures, workover and remedial costs, and the assumed effect of governmental regulation. Due to a lack of substantial production data, there are greater uncertainties in estimating proved undeveloped reserves, proved developed non-producing reserves and proved developed reserves that are early in their production life. As a result, our reserve estimates are inherently imprecise. Furthermore, estimates are subject to revision based upon a number of factors, including many factors beyond our control such as reservoir performance, prices (including commodity prices and the cost of oilfield services), economic conditions and government restrictions and regulations. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of that estimate. Therefore, our reserve information represents an estimate and is often different from the quantities of oil and natural gas that are ultimately recovered or proven recoverable.

The SEC rules require the use of a 10% discount factor for estimating the value of our future net cash flows from reserves and the use of a historical 12-month average price. This discount factor may not necessarily represent the most appropriate discount factor, given our costs of capital, actual interest rates and risks faced by our exploration and production business, and the average historical price will not generally represent the future market prices for oil and natural gas over time. Any significant change in commodity prices could cause the estimated quantities and net present value of our reserves to differ and these differences could be material. You should not assume that the present values referred to in this Annual Report on Form 10-K represent the current market value of our estimated oil and natural gas reserves. Finally, the timing of the production and the expenses related to the development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from our proved reserves and their present value.
We account for our activities under the successful efforts method of accounting. Changes in the estimated fair value of these reserves could result in a write-down in the carrying value of our oil and natural gas properties, which could be substantial and could have a material adverse effect on our net income and stockholders’ equity. Lower estimated fair value of these reserves could also result in lower recorded reserves, which would increase our depreciation, depletion and amortization rates and decrease earnings.
A portion of our proved reserves are undeveloped. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. We have adjusted our PUD bookings methodology from a five-year to a three-year timeframe because we do not currently have the financial resources to develop our PUD reserves in years four or five.
In addition, because our proved reserve base consists primarily of unconventional resources, the costs of finding, developing and producing those reserves may require capital expenditures that are greater than more conventional resource plays. Our estimates of proved reserves assume that we can and will make these expenditures and conduct these operations successfully. However, future events, including commodity price changes and our ability to access capital markets, may cause these assumptions to change.
Our business is subject to competition from third parties, which could negatively impact our ability to succeed.
The oil, natural gas and NGLs businesses are highly competitive. We compete with third parties in the search for and acquisition of leases, properties and reserves, as well as the equipment, materials and services required to explore for and produce our reserves. There has been intense competition for the acquisition of leasehold positions, particularly in many of the oil and natural gas shale plays. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to fund and consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil properties. Similarly, we compete with many third parties in the sale of oil, natural gas and NGLs to customers, some of which have substantially larger market positions, marketing staff and financial resources than us. Our competitors include major and independent oil and natural gas companies, as well as financial services companies and investors, many of which have financial and other resources that are substantially greater than those available to us. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition,

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these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices.
Furthermore, there is significant competition between the oil and natural gas industry and other industries producing energy and fuel, which may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by federal, state and local governments. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing oil and natural gas and may prevent or delay the commencement or continuation of a given operation. Our larger competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than we can, which could negatively impact our competitive position.
Our industry is cyclical, and at certain times historically there have been shortages of drilling rigs, equipment, supplies or qualified personnel. A sustained decline in commodity prices can also reduce the number of service providers for such drilling rigs, equipment, supplies or qualified personnel, contributing to or also resulting in the shortages. Alternatively, during periods of high prices, the cost of rigs, equipment, supplies and personnel can fluctuate widely, significant cost inflation may occur, and availability may be limited. These services may not be available on commercially reasonable terms or at all. We cannot predict the extent to which these conditions will exist in the future or their timing or duration. The high cost or unavailability of drilling rigs, equipment, supplies, personnel and other oil field services could significantly decrease our profit margins, cash flows and operating results and could restrict our ability to drill the wells and conduct the operations that we currently have planned and budgeted or that we may plan in the future. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
Our business is subject to operational hazards and uninsured risks that could have a material adverse effect on our business, results of operations and financial condition.
Our oil and natural gas exploration and production activities are subject to all of the inherent risks associated with drilling for and producing natural gas and oil, including the possibility of:
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Adverse weather conditions, natural disasters, and/or other climate related matters —including extreme cold or heat, lightning and flooding, severe drought, fires, earthquakes, hurricanes, tropical storms, tornadoes and other natural disasters. Although the potential effects of climate change on our operations (such as hurricanes, flooding, etc.) are uncertain at this time, changes in climate patterns could also have a negative impact upon our operations in the future, particularly with regard to any of our facilities that are located in or near coastal regions;
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Acts of aggression on critical energy infrastructure —including terrorist activity or “cyber security” events. We are subject to the ongoing risk that one of these incidents may occur which could significantly impact our business operations and/or financial results. Should one of these events occur in the future, it could impact our ability to operate our drilling and exploration processes, our operations could be disrupted, and/or property could be damaged resulting in substantial loss of revenues, increased costs to respond or other financial loss, damage to reputation, increased regulation and litigation and/or inaccurate information reported from our exploration and production operations to our financial applications, to our customers and to regulatory entities; and
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Other hazards —including the collision of third-party equipment with our infrastructure; explosions, equipment malfunctions, mechanical and process safety failures, well blowouts, formations with abnormal pressures and collapses of wellbore casing or other tubulars; events causing our facilities to operate below expected levels of capacity or efficiency; uncontrollable flows of natural gas, oil, brine or well fluids, release of pollution or contaminants (including hydrocarbons) into the environment (including discharges of toxic gases or substances) and other environmental hazards.
Each of these risks could result in (i) damage to and destruction of our facilities; (ii) damage to and destruction of property, natural resources and equipment; (iii) injury or loss of life; (iv) business interruptions while damaged energy infrastructure is repaired or replaced; (v) pollution and other environmental damage; (vi) regulatory investigations and penalties; and (vii) repair and remediation costs. Any of these results could cause us to suffer substantial losses.
While we maintain insurance against some of these risks in amounts that we believe are reasonable, our insurance coverages have material deductibles, self-insurance levels and limits on our maximum recovery and do not cover all risks. For example, from time to time, we may not carry, or may be unable to obtain, on terms that we find acceptable and/or reasonable, insurance coverage for certain exposures, including, but not limited to certain environmental exposures (including potential environmental fines and penalties), business interruption and named windstorm/hurricane exposures and, in limited

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circumstances, certain political risk exposures. The premiums and deductibles we pay for certain insurance policies are also subject to the risk of substantial increases over time that could negatively impact our financial results. In addition, we may not be able to renew existing insurance policies or procure desirable insurance on commercially reasonable terms. There is also a risk that our insurers may default on their insurance coverage obligations or that amounts for which we are insured, or that the proceeds of such insurance, will not compensate us fully for our losses. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.
Some of our operations are subject to joint ventures or operations by third parties, which could negatively impact our control over these operations and have a material adverse effect on our business, results of operations, financial condition and prospects.
A small portion of our operations and interests are operated by third-party working interest owners.  In such cases, (i) we have limited ability to influence or control the day-to-day operation of such properties, including compliance with environmental, safety and other regulations, (ii) we cannot control the amount of capital expenditures that we are required to fund with respect to properties, (iii) we are dependent on third parties to fund their required share of capital expenditures and (iv) we may have restrictions or limitations on our ability to sell our interests in these jointly owned assets.
The insolvency, failure to perform and/or breach its obligations by an operator of our properties could reduce our production and revenue and result in our liability to governmental authorities for compliance with environmental, safety and other regulatory requirements, to the operator's suppliers and vendors and to royalty owners under oil and gas leases jointly owned with the operator or another insolvent owner. As a result, the success and timing of our drilling and development activities on properties operated by others and the economic results derived therefrom depends upon a number of factors outside of our control, including the operator’s timing and amount of capital expenditures, expertise and financial resources, inclusion of other participants in drilling wells and use of technology. Finally, an operator of our properties may have the right, if another non-operator fails to pay its share of costs, to require us to pay our proportionate share of the defaulting party's share of costs.
We currently sell most of our oil production to a limited number of significant purchasers. The loss of one or more of these purchasers, if not replaced, could reduce our revenues and have a material adverse effect on our financial condition or results of operations.
For the year ended December 31, 2018 , nine purchasers accounted for approximately 90% of our oil revenues. We depend upon a limited number of significant purchasers for the sale of most of our production. The loss of any of these customers, should we be unable to replace them, could adversely affect our revenues and have a material adverse effect on our financial condition and results of operations. We cannot assure you that any of our customers will continue to do business with us or that we will continue to have access to suitably liquid markets for our future production.
We are subject to a complex set of laws and regulations that regulate the energy industry for which we have to incur substantial compliance and remediation costs.
Our operations, and the energy industry in general, are subject to a complex set of federal, state and local laws and regulations over the following activities, among others:
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the location of wells;
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methods of drilling and completing wells;
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allowable production from wells;
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unitization or pooling of oil and gas properties;
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spill prevention plans;
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limitations on venting or flaring of natural gas;
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disposal of fluids used and wastes generated in connection with operations;
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access to, and surface use and restoration of, well properties;
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plugging and abandoning of wells, even if we no longer own and/or operate such wells;
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air quality and emissions, noise levels and related permits;

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•
gathering, transportation and marketing of oil and natural gas (including NGLs);
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taxation;
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protection of threatened or endangered species;
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operations conducted on lands lying within wilderness, wetlands, and ecologicially or seismically sensitive areas;
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competitive bidding rules on federal and state lands; and
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the sourcing and supply of materials needed to operate.
Generally, the regulations have become more stringent and have imposed more limitations on our operations and, as a result, have caused us to incur more costs to comply. Many required approvals are subject to considerable discretion by the regulatory agencies with respect to the timing and scope of approvals and permits issued. If permits are not issued, or if unfavorable restrictions or conditions are imposed on our drilling activities, we may not be able to conduct our operations as planned or at all. Delays in obtaining regulatory approvals or permits, the failure to obtain a drilling permit for a well, or the receipt of a permit with excessive conditions or costs could have a material negative impact on our operations and financial results. We may also incur substantial costs in order to maintain compliance with these existing laws and regulations, including costs to comply with new and more extensive reporting and disclosure requirements. Failure to comply with such requirements may result in the suspension or termination of operations, may subject us to criminal as well as civil and administrative penalties, and may expose us to fines and penalties. In addition, our costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to our operations. Such costs could have a material adverse effect on our business, financial condition and results of operations.
Also, some of our assets are located and operate on federal, state, local or tribal lands and are typically regulated by one or more federal, state or local agencies. For example, we have drilling and production operations that are located on federal lands, which are regulated by the DOI, particularly by the Bureau of Land Management (BLM). We also have operations on Native American tribal lands, which are regulated by the DOI, particularly by the Bureau of Indian Affairs (BIA), as well as local tribal authorities. Operations on these properties are often subject to additional regulations and compliance obligations, which can delay our access to such lands and impose additional compliance costs. There are also various laws and regulations that regulate various market practices in the industry, including antitrust laws and laws that prohibit fraud and manipulation in the markets in which we operate. The authority of the Federal Trade Commission and the CFTC to impose penalties for violations of laws or regulations has generally increased over the last few years.
We are exposed to the credit risk of our counterparties, contractors and suppliers.
We have significant credit exposure related to our sales of physical commodities, payments to contractors and suppliers, hedging activities and to the non-operating working interest owners who are counterparties to our operating agreements.  If our counterparties become insolvent or otherwise fail to make payments/or perform within the time required under our contracts, our results of operations and financial condition could be materially adversely affected.  Although we maintain strict credit policies and procedures and credit insurance in some cases, they may not be adequate to fully eliminate the credit risk associated with our counterparties, contractors and suppliers.
We are exposed to the performance risk of our key contractors and suppliers.
We rely on contractors for certain construction, drilling and completion operations and we rely on suppliers for key materials, supplies and services, including steel mills, pipe and tubular manufacturers and oil field service providers. We also rely upon the services of other third parties to explore or analyze our prospects to determine a method in which the prospects may be developed in a cost-effective manner. There is a risk that such contractors and suppliers may experience credit and performance issues triggered by a sustained low or a volatile commodity price environment that could adversely impact their ability to perform their contractual obligations with us, including their performance and warranty obligations. This could result in delays or defaults in performing such contractual obligations and increased costs to seek replacement contractors, each of which could negatively impact us. We could also be exposed to liability that we would otherwise be indemnified for by these counterparties should they become insolvent or are otherwise unable to satisfy their obligations under their indemnities.
The Sponsors and other legacy investors own more than 75 percent of the equity interests in us and may have conflicts of interest with us and/or public investors.
Investment funds affiliated with, and one or more co-investment vehicles controlled by, our Sponsors (affiliates of Apollo Global Management LLC, Riverstone Holdings LLC, Access Industries and Korea National Oil Corporation,

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collectively, the Sponsors) and other legacy investors collectively own more than 75 percent of our equity interests and such persons or their designees hold substantially all of the seats on our board of directors. As a result, the Sponsors and such other investors have control over our decisions to enter into certain corporate transactions and have the ability to prevent any transaction that typically would require the approval of stockholders, regardless of whether holders of our notes or stock believe that any such transactions are in their own best interests. For example, the Sponsors and other legacy investors could collectively cause us to make acquisitions that increase the amount of our indebtedness or to sell assets, or could cause us to issue additional equity, debt, or declare dividends or other distributions to our equity holders. Furthermore, one or more of our Sponsors may have certain conflicts of interest with our public stockholders in the event of a restructuring of our business, particularly to the extent any such Sponsor also holds our notes in addition to their equity interests in us. So long as investment funds affiliated with the Sponsors and other such investors continue to indirectly own a majority of the outstanding shares of our equity interests or otherwise control a majority of our board of directors, these investors will continue to be able to strongly influence or effectively control our decisions. The indentures governing the notes and the credit agreements governing the RBL Facility and our senior secured term loan permit us, under certain circumstances, to pay advisory and other fees, pay dividends and make other restricted payments to the Sponsors and other investors, and the Sponsors and such other investors or their respective affiliates may have an interest in our doing so.
Additionally, the Sponsors and other legacy investors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or that supply us with goods and services. These persons may also pursue acquisition opportunities that may be complementary to (or competitive with) our business, and as a result those acquisition opportunities may not be available to us. In addition, the Sponsors’ and other investors’ interests in other portfolio companies could impact our ability to pursue acquisition opportunities.
Our strategy involves drilling in shale plays using some of the latest available horizontal drilling and completion techniques, the results of which are subject to drilling and completion technique risks, and drilling results may not meet our expectations for reserves or production.
Our operations involve utilizing the latest horizontal drilling and completion techniques in order to maximize cumulative recoveries and therefore optimize our returns. Drilling risks that we face include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage.
Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently longer period. If our drilling results are less than anticipated, the return on our investment for a particular project may not be as attractive as we anticipated and we could incur material write-downs of unevaluated properties and the value of our undeveloped acreage could decline in the future.
New technologies may cause our current exploration and drilling methods to become obsolete.
The oil and natural gas industry is subject to rapid and significant advancements in technology, resulting in new products and services. As competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, competitors may have greater financial, technical and personnel resources that may allow them now or in the future to enjoy technological advantages before we can. One or more of the technologies that we currently use or that we may implement in the future may become obsolete. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. If we are unable to maintain technological advancements consistent with industry standards, our business, results of operations and financial condition may be materially adversely affected.
Our business depends on access to oil, natural gas and NGLs processing, gathering and transportation systems and facilities.
The marketability of our oil, natural gas and NGLs production depends in large part on the operation, availability, proximity, capacity and expansion of processing, gathering and transportation facilities owned by third parties. We can provide no assurance that sufficient processing, gathering and/or transportation capacity will exist or that we will be able to obtain sufficient processing, gathering and/or transportation capacity on economic terms. A lack of available capacity on processing, gathering and transportation facilities or delays in their planned expansions could result in the shut-in of producing wells or the delay or discontinuance of drilling plans for properties. A lack of availability of these facilities for an extended period of time could negatively impact our revenues. In addition, we have entered into contracts for firm transportation and any failure to

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renew those contracts on the same or better commercial terms could increase our costs and our exposure to the risks described above.
Our operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.
Water currently is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing processes. Historically, we have been able to purchase water from local land owners for use in our operations. In times of drought, we may be subject to local or state restrictions on the amount of water we procure to help protect local water supply. If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce our reserves, which could have an adverse effect on our financial condition, results of operations and cash flows.
We may face unanticipated water and other waste disposal costs.
We may be subject to regulation that restricts our ability to discharge water produced as part of our operations. Productive zones frequently contain water that must be removed in order for the oil and natural gas to produce, and our ability to remove and dispose of sufficient quantities of water from the various zones will determine whether we can produce oil and natural gas in commercial quantities. The produced water must be transported from the lease and injected into disposal wells. The availability of disposal wells with sufficient capacity to receive all of the water produced from our oil and natural gas wells may affect our ability to produce our oil and natural gas wells. Also, the cost to transport and dispose of that water, including the cost of complying with regulations concerning water disposal, may reduce our profitability.
Where water produced from our projects fails to meet the quality requirements of applicable regulatory agencies, our wells produce water in excess of the applicable volumetric permit limits, the disposal wells fail to meet the requirements of all applicable regulatory agencies, or we are unable to secure access to disposal wells with sufficient capacity to accept all of the produced water, we may have to shut in wells, reduce drilling activities, or upgrade facilities for water handling or treatment. The costs to dispose of this produced water may increase if any of the following occur:
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we cannot obtain future permits from applicable regulatory agencies;
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water of lesser quality or requiring additional treatment is produced;
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our wells produce excess water;
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new laws and regulations require water to be disposed in a different manner; or
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costs to transport the produced water to the disposal wells increase.
If commodity prices decrease and/or development capital is significantly reduced, we may be required to take write-downs of the carrying values of our properties, which could result in a material adverse effect on our results of operations and financial condition.
Accounting rules require that we review periodically the carrying value of our oil and natural gas properties for impairment. Under the successful efforts method of accounting, we review our oil and natural gas properties upon a triggering event (such as a significant and sustained decline in forward commodity prices or a significant change in current and anticipated allocated capital) to determine if impairment of such properties is necessary. Significant undeveloped leasehold costs are assessed for impairment at a lease level or resource play level based on our current exploration plans, while leasehold acquisition costs associated with prospective areas that have limited or no previous exploratory drilling are generally assessed for impairment by major prospect area. Proved oil and natural gas property values are reviewed when circumstances suggest the need for such a review and may occur if actual discoveries in a field are lower than anticipated reserves, reservoirs produce below original estimates, capital allocated for development is significantly reduced and/or if commodity prices fall to a level that significantly affects anticipated future cash flows on the property. If required, the proved properties are written down to their estimated fair market value based on proved reserves and other market factors. These impairment charges could have a material adverse effect on our results of operations and financial condition for the periods in which such charges are taken.
Given the decline in commodity prices since the third quarter of 2018 and significant reduction in future development capital allocated to the Permian basin, we incurred non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin in the fourth quarter of 2018. In addition to the impairment charges recorded as of December 31, 2018, future commodity price declines may cause changes to our capital spending levels, production rates, levels of proved reserves and development plans, which may result in a further impairment of

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the carrying value of our proved and/or unproved properties in the future with our Permian and/or other areas. See Part II, Item 8. "Financial Statements and Supplementary Data", Note 3, for further information.
Our operations are subject to governmental laws and regulations relating to environmental matters, which may expose us to significant costs and liabilities and/or significant delays that could exceed current expectations.
Our business is subject to environmental laws and regulations. These regulations include compliance obligations for air emissions, water quality, wastewater discharge and solid and hazardous waste disposal, spill prevention, control and countermeasures, as well as regulations designed for the protection of threatened or endangered species. Accordingly, there is inherent risk of incurring significant environmental liabilities due to these matters as a result of historical industry operations and waste disposal practices by us or third parties not under our control. Additionally, these proposed and/or implemented regulations could materially impact the costs of exploration and production operations and cause substantial delays in the receipt of regulatory approvals from both an environmental and safety perspective. It is possible that more stringent regulations might be enacted or delays in receiving permits may occur in other areas, including drilling operations on other federal or state lands.
In the course of our exploration and production operations, we and/or other owners and operators of these facilities may have generated or disposed of wastes that polluted the soil, surface water or groundwater at our facilities and adjacent properties. As such, we could be subject to claims for personal injury and/or natural resource and property damage (including site clean-up and restoration costs) related to the environmental, health or safety impacts of our oil and natural gas production activities, and we have been from time to time, and currently are, named as a defendant in litigation related to such matters. Under certain laws, we also could be subject to strict liability (i.e., no showing of “fault” is required) that, in some circumstances, may be joint and several for the costs of removing or remediating contamination regardless of whether such contamination was the result of our activities, even if the operations were in compliance with all applicable laws at the time the contamination occurred and even if we no longer own and/or operate on the properties. We may also be subject to litigation from private parties (e.g. property owners, facility owners) who may pursue legal actions to enforce compliance, as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. While to date none of these remediation obligations or claims have involved costs that have materially and adversely affected our business, we cannot predict with certainty whether future costs of newly discovered or new contamination might result in a materially adverse impact on our business or operations.
Legislation and regulatory initiatives intended to address pipeline safety could increase our operating costs.
Some pipelines are subject to construction, installation, operation and safety regulation by the U.S. Department of Transportation (DOT), and/or various other federal, state and local agencies. Congress has enacted several pipeline safety acts over the years. Currently, the Pipeline and Hazardous Materials Safety Administration (PHMSA) under DOT administers pipeline safety requirements for natural gas and hazardous liquid pipelines. These regulations, among other things, address pipeline integrity management and pipeline operator qualification rules. In June 2016, Congress approved new pipeline safety legislation, the “Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016” (the “PIPES Act”), which provides the PHMSA with additional authority to address imminent hazards by imposing emergency restrictions, prohibitions, and safety measures on owners and operators of gas or hazardous liquids pipeline facilities. Significant expenses could be incurred in the future if additional safety measures are required or if safety standards are raised and exceed the current pipeline control system capabilities.
Recently, the PHMSA has proposed additional regulations for gas pipeline safety. For example, in March 2016, the PHMSA proposed a rule that would expand integrity management requirements beyond High Consequence Areas to gas pipelines in newly defined Moderate Consequence Areas. The public comment period closed in July 2016. Also, in January 2017, the PHMSA released an advance copy of its final rules to expand its safety regulations for hazardous liquid pipelines by, among other things, expanding the required use of leak detection systems, requiring more frequent testing for corrosion and other flaws, and requiring companies to inspect pipelines in areas affected by extreme weather or natural disasters. The final rule was withdrawn by the PHMSA in January 2017, and it is unclear whether and to what extend the PHMSA will move forward with its regulatory reforms.
Regulation relating to climate change and energy conservation could result in increased operating costs and reduced demand for oil and natural gas we produce.
In recent years, federal, state and local governments have taken steps to reduce emissions of greenhouse gases (GHGs). The EPA has finalized a series of GHG monitoring, reporting and emission control rules for the oil and natural gas industry, and the U.S. Congress has, from time to time, considered adopting legislation to reduce emissions. Almost one-half of

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the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs.
Additionally, on November 15, 2016, the BLM finalized a waste prevention rule for oil and gas facilities on onshore federal and Indian leases to prohibit venting, limit flaring, require leak detection, and allow adjustment of royalty rates for new leases. The rule went into effect in January 2017 and could have required installation of tank vapor controls at certain existing well sites in the NEU area at a then-estimated cost of approximately $5 million. However, on September 28, 2018, the BLM published final amendments to the waste prevention rule that eliminated certain air quality provisions, including those that would require us to install tank vapor controls. Litigation filed by state and environmental groups to challenge the amended final rule is on-going at this time.
At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France.  The text of the resulting Paris Agreement calls for nations to undertake “ambitious efforts” to “hold the increase in global average temperatures to well below 2 ºC above preindustrial levels and pursue efforts to limit the temperature increase to 1.5 ºC above pre-industrial levels;” reach global peaking of GHG emissions as soon as possible; and take action to conserve and enhance sinks and reservoirs of GHGs, among other requirements. The Paris Agreement went into effect in November 2016. However, in June 2017, the President announced that the United States would withdraw from the Paris Agreement, and began negotiations to either re-enter or negotiate an entirely new agreement with more favorable terms for the United States. The Paris Agreement sets forth a specific exit process, whereby a party may not provide notice of its withdrawal until three years from the effective date, with such withdrawal taking effect one year from such notice. It is not clear what steps the Presidential administration plans to take to withdraw from the Paris Agreement, whether a new agreement can be negotiated, or what terms would be included in such an agreement. Furthermore, in response to the announcement, many state and local leaders have stated their intent to intensify efforts to uphold the commitments set forth in the international accord.
Regulation of GHG emissions could result in reduced demand for our products, as oil and natural gas consumers seek to reduce their own GHG emissions. As our operations also emit GHGs directly, current and future laws or regulations limiting such emissions could increase our own costs. Any regulation of GHG emissions, including through a cap-and-trade system, technology mandate, emissions tax, reporting requirement or other program, could have a material adverse effect on our business, results of operations and financial condition.
Further, there have been various legislative and regulatory proposals at the federal and state levels to provide incentives and subsidies to (i) shift more power generation to renewable energy sources and (ii) support technological advances to drive less energy consumption. These incentives and subsidies could have a negative impact on oil, natural gas and NGLs consumption. In addition, there have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against us and could allege personal injury, property damages, or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
In addition, to the extent climate change results in more severe weather and significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic effects, our own, our counterparties’ or our customers’ operations may be disrupted, which could result in a decrease in our available products or reduce our customers’ demand for our products.
Any of the above risks could impair our ability to manage our business and have a material adverse effect on our operations, cash flows and financial position.
Our operations could result in an equipment malfunction or oil spill that could expose us to significant liability.
Despite the existence of various procedures and plans, there is a risk that we could experience well control problems in our operations. As a result, we could be exposed to regulatory fines and penalties, as well as landowner lawsuits resulting from any spills or leaks that might occur. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition to the extent we are not fully covered by our insurance, which we maintain against some of these risks in amounts that we believe are reasonable, as described above.

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Although we might also have remedies against our contractors or vendors or our joint working interest owners with regard to any losses associated with unintended spills or leaks, the ability to recover from such parties will depend on the indemnity provisions in our contracts as well as the facts and circumstances associated with the causes of such spills or leaks. As a result, our ability to recover associated costs from insurance coverages or other third parties is uncertain.
Legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
We use hydraulic fracturing extensively in our operations. The hydraulic fracturing process is typically regulated by state oil and natural gas commissions. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The Safe Drinking Water Act (SDWA) regulates the underground injection of substances through the Underground Injection Control (UIC) program. While hydraulic fracturing generally is exempt from regulation under the UIC program, Congress has in recent legislative sessions considered legislation to amend the SDWA, including legislation that would repeal the exemption for hydraulic fracturing from the definition of “underground injection” and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process. In addition, the EPA has taken the position that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UIC program as “Class II” UIC wells. Also, in June 2016, EPA published a final rule prohibiting the discharge of wastewater from onshore unconventional oil and gas extraction facilities to publicly owned wastewater treatment plants. The EPA is also conducting a study of private wastewater treatment facilities (also known as centralized waste treatment, or CWT, facilities) accepting oil and gas extraction wastewater. The EPA is collecting data and information related to the extent to which CWT facilities accept such wastewater, available treatment technologies (and their associated costs), discharge characteristics, financial characteristics of CWT facilities, and the environmental impacts of discharges from CWT facilities.
In August 2012, the EPA published final regulations under the Clean Air Act (CAA) that establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA promulgated New Source Performance Standards establishing emission limits for sulfur dioxide (SO2) and volatile organic compounds (VOCs). The final rules require a 95% reduction in VOCs emitted by mandating the use of reduced emission completions or “green completions” on all hydraulically-fractured gas wells constructed or refractured after January 1, 2015. Until this date, emissions from fractured and refractured gas wells were to be reduced through reduced emission completions or combustion devices. The rules also establish new requirements regarding emissions from compressors, controllers, dehydrators, storage tanks and other production equipment. In response to numerous requests for reconsideration and litigation challenging these rules from both industry and the environmental community, the EPA has issued, and will likely continue to issue, revised rules responsive to some of the requests for reconsideration. In particular, in May 2016, the EPA amended its regulations to impose new standards for methane and VOC emissions for certain new, modified, and reconstructed equipment, processes, and activities across the oil and natural gas sector. However, in a March 28, 2017 executive order, the President directed the EPA to review the 2016 regulations and, if appropriate, to initiate a rulemaking to rescind or revise them consistent with the stated policy of promoting clean and safe development of the nation’s energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production. In June 2017, the EPA published a proposed rule to stay for two years certain requirements of the 2016 regulations, including fugitive emission requirements. Also, in October 2018, the EPA published a proposed rule to significantly reduce regulatory burdens imposed by the 2016 regulations, including, for example, reducing the monitoring frequency for fugitive emissions and revising the requirements for pneumatic pumps at well sites. The above standards, to the extent implemented, as well as any future laws and their implementing regulations, may require us to obtain pre-approval for the expansion or modification of existing facilities or the construction of new facilities expected to produce air emissions, impose stringent air permit requirements, or mandate the use of specific equipment or technologies to control emissions.
In March 2015, the Bureau of Land Management (BLM) published a final rule governing hydraulic fracturing on federal and Indian lands. The rule requires public disclosure of chemicals used in hydraulic fracturing, implementation of a casing and cementing program, management of recovered fluids, and submission to the BLM of detailed information about the proposed operation, including wellbore geology, the location of faults and fractures, and the depths of all usable water. On March 28, 2017, the President signed an executive order directing the BLM to review the rule and, if appropriate, to initiate a rulemaking to rescind or revise it. In December 2017, the BLM published a final rule to rescind the 2015 hydraulic fracturing rule; however, a coalition of environmentalists, tribal advocates and the state of California filed lawsuits challenging the rule rescission. At this time, it is uncertain when, or if, the rules will be implemented, and what impact they would have on our operations.

Furthermore, there are certain governmental reviews either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. In December 2016, the EPA released a study examining the potential for hydraulic fracturing activities to impact drinking water resources, finding that, under some circumstances, the use of water in hydraulic

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fracturing activities can impact drinking water resources. Also, in February 2015, the EPA released a report with findings and recommendations related to public concern about induced seismic activity from disposal wells. The report recommends strategies for managing and minimizing the potential for significant injection-induced seismic events. Other governmental agencies, including the U.S. Department of Energy, the U.S. Geological Survey, and the U.S. Government Accountability Office, have evaluated or are evaluating various other aspects of hydraulic fracturing. These studies, when final and depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise.

Several states and local jurisdictions in which we operate have adopted, or are considering adopting, regulations that could restrict or prohibit hydraulic fracturing in certain circumstances, impose more stringent operating standards and/or require the disclosure of the composition of hydraulic fracturing fluids. For example, Texas enacted a law requiring oil and natural gas operators to publicly disclose the chemicals used in the hydraulic fracturing process, effective as of September 1, 2011. The Texas Railroad Commission adopted rules and regulations applicable to all wells for which the Texas Railroad Commission issues an initial drilling permit on or after February 1, 2012. The regulations require that well operators disclose the list of chemical ingredients subject to the requirements of the Occupational Safety and Health Administration (OSHA) for disclosure on an internet website and also file the list of chemicals with the Texas Railroad Commission with the well completion report. The total volume of water used to hydraulically fracture a well must also be disclosed to the public and filed with the Texas Railroad Commission. Furthermore, in May 2013, the Texas Railroad Commission issued an updated “well integrity rule,” addressing requirements for drilling, casing and cementing wells, which took effect in January 2014. In addition, Utah’s Division of Oil, Gas and Mining passed a rule in October 2012 requiring all oil and gas operators to disclose the amount and type of chemicals used in hydraulic fracturing operations using the national registry FracFocus.org.
A number of lawsuits and enforcement actions have been initiated across the country alleging that hydraulic fracturing practices have induced seismic activity and adversely impacted drinking water supplies, use of surface water, and the environment generally. If new laws or regulations that significantly restrict hydraulic fracturing, such as amendments to the SDWA, are adopted, such laws could make it more difficult or costly for us to perform fracturing to stimulate production from tight formations as well as make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is further regulated at the federal or state level, our fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such changes could cause us to incur substantial compliance costs, and compliance or the consequences of any failure to comply by us could have a material adverse effect on our financial condition and results of operations. Until such laws are finalized and implemented, it is not possible to estimate their impact on our business. At this time, no adopted laws or regulations have imposed a material impact on our hydraulic fracturing operations.
Any of the above risks could impair our ability to manage our business and have a material adverse effect on our operations, cash flows and financial position.
Legislation or regulatory initiatives intended to address seismic activity could restrict our drilling and production activities, as well as our ability to dispose of produced water gathered from such activities, which could have a material adverse effect on our business.

State and federal regulatory agencies have recently focused on a possible connection between hydraulic fracturing related activities, particularly the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity, and regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. In addition, a number of lawsuits have been filed in some states alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. In response to these concerns, regulators in some states are seeking to impose additional requirements, including requirements regarding the permitting of produced water disposal wells or otherwise to assess the relationship between seismicity and the use of such wells. For example, in October 2014, the Texas Railroad Commission adopted disposal well rule amendments designed to among other things, require applicants for new disposal wells that will receive non-hazardous produced water or other oil and gas waste to conduct seismic activity searches utilizing the U.S. Geological Survey. The searches are intended to determine the potential for earthquakes within a circular area of 100 square miles around a proposed new disposal well. If the permittee or an applicant of a disposal well permit fails to demonstrate that the produced water or other fluids are confined to the disposal zone or if scientific data indicates such a disposal well is likely to be or determined to be contributing to seismic activity, then the agency may deny, modify, suspend or terminate the permit application or existing operating permit for that well. The Commission has used this authority to deny permits for waste disposal wells.


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Tax laws and regulations may change over time, including the elimination of federal income tax deductions currently available with respect to oil and gas exploration and development.
Tax laws and regulations are highly complex and subject to interpretation, and the tax laws and regulations to which we are subject may change over time. Our tax filings are based upon our interpretation of the tax laws in effect in various jurisdictions at the time that the filings were made. If these laws or regulations change, or if the taxing authorities do not agree with our interpretation of the effects of such laws and regulations, it could have a material adverse effect on our business and financial condition.
For example, on December 22, 2017, the President signed into law Public Law No. 115-97, a comprehensive tax reform bill commonly referred to as the Tax Cuts and Jobs Act (the Act) that significantly reformed the Internal Revenue Code of 1986, as amended (the Code). Among other changes, the Act (i) permanently reduced the U.S. corporate income tax rate, (ii) repealed the corporate alternative minimum tax, (iii) eliminated the deduction for certain domestic production activities, (iv) imposed new limitations on the utilization of net operating losses generated after 2017, and (v) provided for more general changes to the taxation of corporations, including changes to cost recovery rules and to the deductibility of interest expense, which may impact the taxation of oil and gas companies. The passage of the Act had no effect on our financial statements; however, in past years, legislation has been proposed that, if enacted into law, would make significant changes to U.S. federal and state income tax laws, including:
•
the repeal of the percentage depletion allowance for oil and gas properties;
•
the elimination of current expensing of intangible drilling and development costs; and
•
an extension of the amortization period for certain geological and geophysical expenditures.
While these specific changes are not included in the Act, no accurate prediction can be made as to whether any such legislative changes will be proposed or enacted in the future or, if enacted, what the specific provisions or the effective date of any such legislation would be. The elimination of such U.S. federal tax deductions, as well as any other changes to or the imposition of new federal, state, local or non-U.S. taxes (including the imposition of, or increases in production, severance or similar taxes) could have a material adverse effect on our business, results of operations and financial condition.

Our debt agreements contain restrictions that limit our flexibility in operating our business.
As of December 31, 2018, our total debt was approximately $4.4 billion, comprised of $8 million in senior secured term loans maturing in 2019, $738 million in senior unsecured notes due in 2020, 2022 and 2023, and $3.6 billion in senior secured notes due in 2024, 2025 and 2026. Our existing debt agreements contain, and any other existing or future indebtedness of ours would likely contain, a number of covenants that impose operating and financial restrictions on us, including restrictions on our and our subsidiaries ability to, among other things:
•
incur additional debt, guarantee indebtedness or issue certain preferred shares;
•
pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock or make other restricted payments;
•
prepay, redeem or repurchase certain debt;
•
make loans or certain investments;
•
sell certain assets;
•
create liens on certain assets;
•
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
•
enter into certain transactions with our affiliates;
•
alter the businesses we conduct;
•
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
•
designate our subsidiaries as unrestricted subsidiaries.

In addition, the availability of borrowings under the RBL Facility is subject to various financial and non-financial covenants and restrictions. See Part II, Item 8, "Financial Statements and Supplementary Data", Note 8 for additional discussion of the RBL covenants.

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As a result of these covenants, we may be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.
A failure to comply with the covenants under the RBL Facility or any of our other indebtedness could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In the event of any such default, the lenders thereunder:
•
will not be required to lend any additional amounts to us;
•
could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit; or
•
could require us to apply all of our available cash to repay these borrowings.

Such actions by the lenders could cause cross defaults under our other indebtedness. If we were unable to repay those amounts, the lenders or holders under the RBL Facility and our other secured indebtedness could proceed against the collateral granted to them to secure that indebtedness and we could be forced into bankruptcy or liquidation. We pledge a substantial portion of our assets as collateral under the RBL Facility, our senior secured term loans and our secured notes.

Our business could be negatively impacted by security threats, including cyber-security threats and other disruptions of electronic and information technology systems.
As an oil and natural gas exploration and production company, we use computers and information technology systems to conduct our exploration, development and production activities, and they have become an integral part of our business. We use these systems to analyze and store financial and operating data and to communicate within our company and with outside business partners. We face various security threats, including cyber-security threats to gain unauthorized access to sensitive information or to render data or systems unusable, threats to the safety of our employees, threats to the security of our facilities and infrastructure or third-party facilities and infrastructure, such as processing plants and pipelines, and threats from terrorist acts. Cyber-security attacks on businesses have escalated in recent years and are becoming more sophisticated. These attacks may be perpetrated by third parties or insiders. If any of our computer or electronic programs or systems were to fail or create erroneous information in our hardware or software network infrastructure, or if we were subject to a successful cyber-security attack, it could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and/or corruption of data, loss of communication links, inability to find, produce, process and sell oil, natural gas and NGLs, and inability to automatically process commercial transactions or engage in similar automated or computerized business activities. For example, unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information could lead to data corruption, communication interruption, or other disruption to our operations and could have a negative impact on our ability to compete for oil and natural gas resources. Although we utilize various procedures and controls to monitor and protect against these threats, as well as to mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient to prevent cyber-security breaches. Certain cyber-security incidents, such as surveillance, may remain undetected for an extended period. Any such cyber-security breach or failure could have a material adverse effect on our business, reputation, financial position, results of operations or cash flows.

In addition, a cyber-security attack directed at oil and gas distribution systems, which are necessary to transport and market our production and many of which are controlled by external technologies, could damage critical distribution and storage assets or the environment, delay or prevent delivery of production to markets, and make it difficult or impossible to accurately account for production and settle transactions. We also have no control over the technology systems of the third parties with whom we do business. Our vendors, midstream providers and other business partners may separately suffer disruptions or cyber-security breaches, which, in turn, could adversely impact our operations and compromise our information. Although we have not suffered material breaches, disruptions or losses related to cyber-security attacks to date, we have experienced and will continue to experience attempts by external parties to penetrate and attack our networks and systems. If we were successfully attacked, we could incur substantial remediation and other costs or suffer other negative consequences, including exposure to potential liability, in addition to the consequences noted above. As cyber-security threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate or remediate any cyber-security or information technology infrastructure vulnerabilities.





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ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES
A description of our properties is included in Part I, Item 1, "Business", and is incorporated herein by reference. 
We believe that we have satisfactory title to the properties owned and used in our businesses, subject to liens for taxes not yet payable, liens incident to minor encumbrances, liens for credit arrangements and easements and restrictions that do not materially detract from the value of these properties, our interests in these properties or the use of these properties in our businesses. We believe that our properties are adequate and suitable for the conduct of our business in the future.
ITEM 3.    LEGAL PROCEEDINGS  
A description of our material legal proceedings is included in Part II, Item 8, "Financial Statements and Supplementary Data", Note 9, and is incorporated herein by reference.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

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PART II
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock started trading on the New York Stock Exchange under the symbol EPE on January 17, 2014. As of February 28, 2019 , we had 36 stockholders of record, which does not include beneficial owners whose shares are held by a clearing agency, such as a broker or bank.
ITEM 6.    SELECTED FINANCIAL DATA
      Item 6, Selected Financial Data, has been omitted from this report pursuant to the reduced disclosure format permitted by Item 301 of Regulation S-K and Article 8 of Regulation S-X.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements and the accompanying notes presented in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Risk Factors”.  Actual results may differ materially from those contained in any forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” in the front of this report. Unless otherwise indicated or the context otherwise requires, references in this MD&A section to “we”, “our”, “us” and “the Company” refer to EP Energy Corporation and each of its consolidated subsidiaries.
Our Business
Overview .  We are an independent exploration and production company engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. We operate through a diverse base of producing assets and are focused on providing returns to our shareholders through the development of our drilling inventory located in three areas: the Eagle Ford Shale in South Texas, Northeastern Utah (NEU), formerly Altamont, in the Uinta basin, and the Permian basin in West Texas, which are further described in Part I, Item I, "Business".
Our strategy is to invest in opportunities that provide the highest return across our asset base, continually seek out operating and capital efficiencies, effectively manage costs, and identify accretive acquisition opportunities and divestitures, all with the objective of enhancing our portfolio, growing asset value, improving cash flow and increasing financial flexibility. We evaluate opportunities in our portfolio that are aligned with this strategy and our core competencies and that offer a competitive advantage. In addition to opportunities in our current portfolio, strategic acquisitions of leasehold acreage or acquisitions of producing assets allow us to leverage existing expertise in our areas, balance our exposure to regions, basins and commodities, help us to achieve or enhance risk-adjusted returns competitive with those available in our existing programs and increase our reserves. We also continuously evaluate our asset portfolio and will sell oil and natural gas properties if they no longer meet our long-term objectives.

Pursuant to our strategy, during 2018, we (i) completed acquisitions expanding our Eagle Ford acreage position by approximately 30 percent in La Salle County, for approximately $277 million and (ii) completed the sale of certain assets in NEU representing approximately 13 percent of our NEU acreage position for approximately $177 million. Additionally, we are also party to certain joint ventures in our asset areas to enhance the development of wells, hold acreage and/or improve near-term economics in our programs. Joint venture funding is approximately 60 percent of the estimated drilling, completion and equipping costs of the wells in exchange for a 50 percent working interest in the joint venture wells. We are the operator of the assets under our joint ventures.

In the Permian, our joint venture partner initially had the option to participate in the development of up to 150 wells in two separate 75 well tranches primarily in Reagan and Crockett counties. We have completed the first tranche of wells. In April 2018, we amended this drilling joint venture agreement to redirect the development area for the second tranche from the Permian to the Eagle Ford with anticipated joint venture investment in the Eagle Ford of $225 million. As of December 31, 2018, we have drilled and completed 44 wells in the Eagle Ford under the amended agreement and expect to drill and complete the remaining wells in 2019. Additionally, subject to certain time limits, we will provide our joint venture partner the option to participate in additional wells that are located within the first and second tranche development areas. For a further discussion on this joint venture, see Part II, Item 8, "Financial Statements and Supplementary Data", Note 11. In NEU, our joint venture partner is participating in the development of 60 wells, and as of December 31, 2018, we have drilled and completed 43 wells under the joint venture agreement.

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Factors Influencing Our Profitability.   Our profitability is dependent on the prices we receive for our oil and natural gas, the costs to explore, develop, and produce our oil and natural gas, and the volumes we are able to produce, among other factors. Our profitability is and will continue to be influenced primarily by:

•
growing our proved reserve base and production volumes through the successful execution of our drilling programs or through acquisitions;
•
finding and producing oil and natural gas at reasonable costs;
•
managing operating and capital costs;
•
managing commodity price risks on our oil and natural gas production; and
•
managing debt levels and related interest costs.
In addition to these factors, our profitability and performance is affected by volatility in the financial and commodity markets. Commodity price changes may affect our future capital spending levels, production rates and/or related operating revenues (net of any associated royalties), levels of proved reserves and development plans, all of which impact performance and profitability.
As a result of the decline in forward prices during the year and the significant reduction to future development capital allocated to the Permian basin, we incurred non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin in the fourth quarter of 2018. In addition to the impairment charges recorded as of December 31, 2018, future commodity price declines may cause changes to our capital spending levels, production rates, levels of proved reserves and development plans, which may result in a further impairment of the carrying value of our proved and/or unproved properties in the future with our Permian and/or other areas. See Part II, Item 8. "Financial Statements and Supplementary Data", Note 3 and Critical Accounting Estimates for key assumptions and judgments used in this estimation.
As of December 31, 2018 , we adjusted our PUD bookings methodology from a five-year to a three-year timeframe as a result of (i) the current economic price environment, (ii) a lower projected capital budget in 2019, and (iii) our available liquidity and access to the capital markets. Based on our anticipated cash flows and capital expenditures, as well as available liquidity and expected access to capital markets transactions, all of our PUD locations are expected to be drilled within a three-year period.  Changes in circumstance, including commodity pricing, oilfield service costs, technology, acreage positions and availability of capital and other economic factors may lead to changes in development plans. See Part I, Item 1. "Business" under the heading Oil and Natural Gas Properties for further discussion of our proved reserves.

Derivative Instruments. Our realized prices from the sale of our oil, natural gas and NGLs are affected by (i) commodity price movements, including locational or basis price differences that exist between the commodity index price (e.g., WTI) and the actual price at which we sell our commodity and (ii) other contractual pricing adjustments contained in our underlying sales contracts.  In order to stabilize cash flows and protect the economic assumptions associated with our capital investment programs, we enter into financial derivative contracts to reduce the financial impact of downward commodity price movements and unfavorable movements in locational prices. Adjustments to our strategy and the decision to enter into new contracts or positions to alter existing contracts or positions are made based on the goals of the overall company. Because we apply mark-to-market accounting on our derivative contracts, our reported results of operations and financial position can be impacted significantly by commodity price movements from period to period.

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The following table and discussion reflects the contracted volumes and the prices we will receive under derivative contracts we held as of December 31, 2018 .    
 
 
2019
 
2020
 
 
Volumes (1)
 
Average
Price (1)
 
Volumes (1)
 
Average
Price (1)
Oil
 
 
 
 
 
 
 
 
Collars
 
 
 
 
 
 
 
 
Ceiling - WTI
 
1,640

 
$
69.37

 
—

 
$
—

Floors - WTI
 
1,640

 
$
57.23

 
—

 
$
—

Three Way Collars
 
 
 
 
 
 
 
 
Ceiling - WTI
 
12,045

 
$
66.01

 
1,830

 
$
65.00

Floors - WTI
 
12,045

 
$
55.76

 
1,830

 
$
60.75

Sub-Floor - WTI
 
12,045

 
$
45.00

 
1,830

 
$
45.00

Basis Swaps
 
 
 
 
 
 
 
 
Midland vs. Cushing (2) 
 
1,095

 
$
(6.47
)
 
—

 
$
—

Natural Gas
 
 
 
 
 
 
 
 
 Fixed Price Swaps
 
11

 
$
3.01

 
—

 
$
—

Collars
 
 
 
 
 
 
 
 
 Ceiling
 
15

 
$
4.26

 
—

 
$
—

 Floors
 
15

 
$
2.75

 
—

 
$
—

 Basis Swaps
 
 
 
 
 
 
 
 
WAHA vs. Henry Hub (3)
 
7

 
$
(0.39
)
 
—

 
$
—

 
(1)
Volumes presented are MBbls for oil and TBtu for natural gas. Prices presented are per Bbl of oil and MMBtu of natural gas.
(2)
EP Energy receives Cushing plus the basis spread listed and pays Midland.
(3)
EP Energy receives Henry Hub plus the basis spread listed and pays WAHA.
    
For our three-way collar contracts in the tables above, the sub-floor prices represent the price below which we receive
WTI plus a weighted average spread of $10.76 in 2019 and $15.75 in 2020 on the indicated volumes. If WTI is above our sub-floor prices, we receive the noted floor price until WTI exceeds that floor price. Above the floor price, we receive WTI until prices exceed the noted ceiling price in our three-way collars, at which time we receive the fixed ceiling price. As of December 31, 2018 , the average forward price of oil was $47.30 per barrel of oil for 2019 and $49.30 per barrel of oil for 2020 .
    
During 2018 , we (i) settled commodity index hedges on approximately 89% of our oil production, 78% of our total liquids production and 57% of our natural gas production at average floor prices of $58.47 per barrel of oil, $0.45 per gallon of NGLs and $3.04 per MMBtu of natural gas, respectively. As of December 31, 2018 , approximately 100% of our future crude oil contracts allow for upside participation (to a weighted average price of approximately $66.41 per barrel for 2019 and $65.00 per barrel for 2020) while containing certain sub-floor prices (weighted average prices of $45.00 per barrel) that limit the amount of our derivative settlements under these three-way contracts should prices drop below the sub-floor prices. To the extent our oil, natural gas and NGLs production is unhedged, either from a commodity index or locational price perspective, our operating revenues will be impacted from period to period.

For the period from January 1, 2019 through March 13, 2019 , we entered into additional derivative contracts on 0.3 MMBbls of 2019 Midland vs. Cushing oil basis swaps with an average price of $(1.50) per barrel of oil and 9.9 MMBbls of 2020 WTI oil three-way collars with a ceiling price of $65.13, a floor price of $55.00 and a sub-floor price of $45.00 per barrel of oil.

Summary of Liquidity and Capital Resources.   Our profitability and performance may also be affected by our significant debt and debt service obligations. As of December 31, 2018 , our total debt was approximately $4.4 billion, comprised of $8 million in senior secured term loans maturing in 2019, $738 million in senior unsecured notes due in 2020, 2022 and 2023, and $3.6 billion in senior secured notes due in 2024, 2025 and 2026. For the year ended December 31, 2018, we incurred $365 million in interest expense. In May 2020, $182 million of our senior unsecured notes will mature. We project that as of May 2020 we will not have sufficient liquidity available to repay these notes and meet our working capital needs and/or fund our planned capital expenditures. In order to address this projected shortfall in liquidity, we are evaluating certain other sources of incremental liquidity, including issuing additional debt, refinancing our debt and selling assets.


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In 2018, we took a number of steps to improve our asset portfolio and financial flexibility. The actions included (i) completing $277 million in acquisitions in the Eagle Ford (including our largest to date) and divesting of certain assets in NEU for approximately $177 million, (ii) exchanging approximately $1.1 billion of the outstanding amounts of our senior unsecured notes maturing in 2020, 2022 and 2023 for new 2024 senior secured notes, (iii) issuing $1 billion in senior secured notes maturing in 2026 and using the net proceeds to repay in full the outstanding amounts at that time under our RBL Facility and (iv) extending the maturity of our RBL Facility from May 2019 to November 2021. For a further discussion of our liquidity and capital resources, see Liquidity and Capital Resources .


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Production Volumes and Drilling Summary
Production Volumes. Below is a summary of our production volumes for the years ended December 31:
 
2018
 
2017
Equivalent Volumes (MBoe/d)
 

 
 

Eagle Ford Shale
37.1

 
35.7

Northeastern Utah
17.1

 
17.9

Permian
26.5

 
28.7

Total
80.7

 
82.3

 
 
 
 
Oil (MBbls/d)
 
 
 
Eagle Ford Shale
25.0

 
22.4

Northeastern Utah
11.7

 
12.3

Permian
9.1

 
11.4

Total
45.8

 
46.1

 
 
 
 
Natural Gas (MMcf/d)
 
 
 
Eagle Ford Shale (1)
36

 
39

Northeastern Utah
32

 
33

Permian
55

 
55

Total
123

 
127

 
 
 
 
NGLs (MBbls/d)
 
 
 
Eagle Ford Shale
6.1

 
6.8

Northeastern Utah
—

 
—

Permian
8.2

 
8.2

Total
14.3

 
15.0

 
(1)
Production volume excludes 7 MMcf/d of reinjected gas volumes used in operations during the year ended December 31, 2018 .


Drilling Summary. During 2018 , we (i) frac’d (wells fracture stimulated) 85 gross wells in Eagle Ford, all of which were completed for a total of 800 net operated wells, (ii) frac’d 27 gross wells in NEU, all of which were completed for a total of 342 net operated wells, and (iii) frac’d 24 gross wells in Permian, all of which were completed for a total of 350 net operated wells. In addition, we recompleted 81 gross wells in NEU during 2018. As of December 31, 2018 , we also had a total of 39 gross wells in progress, of which 29 gross wells were drilled, but not completed across our programs.

Production Outlook. For the first quarter of 2019, we anticipate our average daily production volumes to be approximately 72 MBoe/d to 73 MBoe/d, including average daily oil production volumes of approximately 38 MBbls/d to 39 MBbls/d. Future volumes across all our assets will be impacted by the level of natural declines, our drilling plans, and the level and timing of capital spending in each respective area.


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Results of Operations
The information below reflects financial results for EP Energy Corporation for the years ended December 31, 2018 and 2017 .
 
Year ended December 31,
 
2018
 
2017
 
(in millions)
Operating revenues:
 
 
 

Oil
$
1,045

 
$
812

Natural gas
75

 
110

NGLs
120

 
103

Total physical sales
1,240

 
1,025

Financial derivatives
84

 
41

Total operating revenues
1,324

 
1,066

Operating expenses:
 
 
 
Oil and natural gas purchases
3

 
2

Transportation costs
100

 
115

Lease operating expense
158

 
163

General and administrative
89

 
81

Depreciation, depletion and amortization
507

 
487

Gain on sale of assets
(3
)
 
—

Impairment charges
1,103

 
2

Exploration and other expense
5

 
12

Taxes, other than income taxes
77

 
65

Total operating expenses
2,039

 
927

Operating (loss) income
(715
)
 
139

Other income
4

 
—

Gain (loss) on extinguishment/modification of debt
73

 
(16
)
Interest expense
(365
)
 
(326
)
Loss before income taxes
(1,003
)
 
(203
)
Income tax benefit
—

 
9

Net loss
$
(1,003
)
 
$
(194
)

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Operating Revenues
The table below provides our operating revenues, volumes and prices per unit for the years ended December 31, 2018 and 2017 . We present (i) average realized prices based on physical sales of oil, natural gas and NGLs as well as (ii) average realized prices inclusive of the impacts of financial derivative settlements and premiums which reflect cash received or paid during the respective period.
 
Year ended December 31,
 
2018
 
2017
 
(in millions)
Operating revenues:
 
 
 

Oil
$
1,045

 
$
812

Natural gas
75

 
110

NGLs
120

 
103

Total physical sales
1,240

 
1,025

Financial derivatives
84

 
41

Total operating revenues
$
1,324

 
$
1,066

Volumes:
 
 
 

Oil (MBbls)
16,726

 
16,833

Natural gas (MMcf)
44,913

 
46,356

NGLs (MBbls)
5,227

 
5,465

Equivalent volumes (MBoe)
29,439

 
30,024

Total MBoe/d
80.7

 
82.3

 
 
 
 
Prices per unit (1) :
 
 
 

Oil
 
 
 

Average realized price on physical sales ($/Bbl) (2) 
$
62.34

 
$
48.23

Average realized price, including financial derivatives ($/Bbl) (2)(3) 
$
60.37

 
$
53.50

Natural gas
 
 
 

Average realized price on physical sales ($/Mcf) (2) 
$
1.66

 
$
2.32

Average realized price, including financial derivatives ($/Mcf) (2)(3) 
$
1.96

 
$
2.47

NGLs
 

 
 

Average realized price on physical sales ($/Bbl)
$
22.88

 
$
18.87

Average realized price, including financial derivatives ($/Bbl) (3) 
$
21.79

 
$
18.46

 
(1)
Oil prices for the year ended December 31, 2018 reflect operating revenues for oil reduced by $3 million for oil purchases associated with managing our physical sales. For the year ended December 31, 2017, there were no oil purchases associated with managing our physical oil sales. Natural gas prices for the years ended December 31, 2018 and 2017 reflect operating revenues for natural gas reduced by less than $1 million and $2 million, respectively, for natural gas purchases associated with managing our physical sales.
(2)
Changes in realized oil and natural gas prices reflect the effects of unhedged locational or basis differentials, unhedged volumes and contractual deductions between the commodity price index and the actual price at which we sold our oil and natural gas.
(3)
The years ended December 31, 2018 and 2017 include approximately $33 million of cash paid and $89 million of cash received, respectively, for the settlement of crude oil derivative contracts. The years ended December 31, 2018 and 2017 include approximately $14 million and $7 million, respectively, of cash received for the settlement of natural gas financial derivatives. The years ended December 31, 2018 and 2017 include approximately $6 million and $3 million of cash paid, respectively, for the settlement of NGLs derivative contracts. No cash premiums were received or paid for the years ended December 31, 2018 and 2017 .

    











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Physical sales.   Physical sales represent accrual-based commodity sales transactions with customers. The table below displays the price and volume variances on our physical sales when comparing the years ended December 31, 2018 and 2017 .
 
Oil
 
Natural gas
 
NGLs
 
Total
 
(in millions)
December 31, 2017 sales
$
812

 
$
110

 
$
103

 
$
1,025

Change due to prices
238

 
(31
)
 
21

 
228

Change due to volumes
(5
)
 
(4
)
 
(4
)
 
(13
)
December 31, 2018 sales
$
1,045

 
$
75

 
$
120

 
$
1,240

Oil sales for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , increased by $233 million ( 29% ), due primarily to higher oil prices. Higher oil production in Eagle Ford was slightly more than offset by lower oil production in NEU and Permian. In 2018 , Eagle Ford oil production volumes increased by 12% ( 2.6  MBbls/d), while NEU and Permian oil production volumes decreased by 5% ( 0.6 MBbls/d) and 20% ( 2.3 MBbls/d), respectively, compared with the year ended December 31, 2017 .
Natural gas sales decreased by $35 million ( 32% ) for the year ended December 31, 2018 compared to the year ended December 31, 2017 , due primarily to lower natural gas prices in NEU and Permian, and lower natural gas volumes in Eagle Ford.
Our oil, natural gas and NGLs are sold at index prices (WTI, LLS, Henry Hub and Mt. Belvieu) or refiners' posted prices at various delivery points across our producing basins.  Realized prices received (not considering the effects of hedges) are generally less than the stated index price as a result of fixed or variable contractual deductions, differentials from the index to the delivery point, adjustments for time, and/or discounts for quality or grade. 
In the Eagle Ford, our oil is sold at prices tied to benchmark LLS crude oil.  In NEU, market pricing of our oil is based upon NYMEX based agreements which reflect a locational difference at the wellhead. In the Permian, physical barrels are generally sold at the WTI Midland Index, which trades at a spread to WTI Cushing. Across all regions, natural gas realized pricing is influenced by factors such as excess royalties paid on flared gas and the percentage of proceeds retained under processing contracts, in addition to the normal seasonal supply and demand influences and those factors discussed above. The table below displays the weighted average differentials and deducts on our oil and natural gas sales on an average NYMEX price.
 
Year ended December 31,
 
2018
 
2017
 
Oil
(Bbl)
 
Natural gas
(MMBtu)
 
Oil
(Bbl)
 
Natural gas
(MMBtu)
Differentials and deducts
$
(1.81
)
 
$
(1.32
)
 
$
(2.92
)
 
$
(0.79
)
NYMEX
$
64.77

 
$
3.09

 
$
50.95

 
$
3.11

Net back realization %
97.2
%
 
57.3
%
 
94.3
%
 
74.6
%
The higher oil realization percentage in the year ended December 31, 2018 was primarily a result of the improvement of ICE Brent and LLS basis pricing and physical sales contracts relative to increased NYMEX WTI pricing. The lower natural gas realization percentage in the year ended December 31, 2018 was primarily a result of presenting certain transportation costs as a deduction from natural gas sales in conjunction with adopting Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers in the first quarter of 2018.
NGLs sales increased by $17 million ( 17% ) for the year ended December 31, 2018 compared with 2017 . Average realized prices for the year ended December 31, 2018 were higher compared to 2017 , due to higher pricing on all liquid components. NGLs pricing is largely tied to crude oil prices.
Future growth in our overall oil, natural gas and NGLs sales (including the impact of financial derivatives) will largely be impacted by commodity pricing, our level of hedging, our ability to maintain or grow oil volumes and by the location of our production and the nature of our sales contracts. For further discussion on our derivative instruments, see Our Business and Liquidity and Capital Resources .
Gains or losses on financial derivatives.   We record gains or losses due to changes in the fair value of our derivative contracts based on forward commodity prices relative to the prices in the underlying contracts. We realize such gains or losses when we settle the derivative position. During the years ended December 31, 2018 and 2017, we recorded derivative gains of $84 million and $41 million , respectively.

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Operating Expenses
The tables below provide our operating expenses, volumes and operating expenses per unit for each of the periods presented:
 
Year ended December 31,
 
2018
 
2017
 
Total
 
Per Unit (1)
 
Total
 
Per Unit (1)
 
(in millions, except per unit costs)
Operating expenses
 
 
 
 
 
 
 
Oil and natural gas purchases
$
3

 
$
0.10

 
$
2

 
$
0.07

Transportation costs
100

 
3.41

 
115

 
3.83

Lease operating expense (2)
158

 
5.35

 
163

 
5.42

General and administrative (3)
89

 
3.03

 
81

 
2.69

Depreciation, depletion and amortization
507

 
17.23

 
487

 
16.22

Gain on sale of assets
(3
)
 
(0.13
)
 
—

 
—

Impairment charges
1,103

 
37.47

 
2

 
0.04

Exploration and other expense
5

 
0.18

 
12

 
0.40

Taxes, other than income taxes
77

 
2.61

 
65

 
2.19

Total operating expenses
$
2,039

 
$
69.25

 
$
927

 
$
30.86

 
 
 
 
 
 
 
 
Total equivalent volumes (MBoe)
29,439

 
 

 
30,024

 
 

 
(1)
Per unit costs are based on actual amounts rather than the rounded totals presented.
(2)
Includes approximately $2 million for the year ended December 31, 2018 or $0.07 per Boe of adjustments under a joint venture agreement.
(3)
For the year ended December 31, 2018 , amount includes approximately $9 million or $0.32 per Boe of transition and severance costs related to workforce reductions, $13 million or $0.47 per Boe of non-cash compensation expense (net of forfeitures). For the year ended December 31, 2017 , amount includes approximately $19 million or $0.64 per Boe of transition and severance costs related to workforce reductions, $(22) million or $(0.75) per Boe of non-cash compensation expense (net of forfeitures) and $5 million or $0.18 per Boe of fees paid to our Sponsors.
Transportation costs.   Transportation costs for the year ended December 31, 2018 decreased by $15 million as compared to 2017 primarily as a result of presenting certain transportation costs as a deduction from natural gas sales in conjunction with adopting ASU No. 2014-09, Revenue from Contracts with Customers in the first quarter of 2018.
Lease operating expense.   Lease operating expense for the year ended December 31, 2018 decreased by $5 million compared to 2017 . The decrease in 2018 compared to 2017 is due to lower maintenance and repair costs in all areas, partially offset by higher compression, disposal, chemical, power and fuel costs primarily in Eagle Ford. In addition, lease operating expense for the year ended December 31, 2018 includes approximately $2 million in adjustments under a joint venture agreement.
General and administrative expenses.   General and administrative expenses for the year ended December 31, 2018 increased by $8 million compared to 2017 primarily due to forfeitures in 2017 of approximately $33 million of long-term incentive awards associated with the change in executive management. In addition, when comparing the year ended December 31, 2018 to 2017, we recorded lower payroll and severance expense of $24 million due to staff reductions in 2017 and 2018.
Depreciation, depletion and amortization expense.  Depreciation, depletion and amortization expense for the year ended December 31, 2018 increased by $20 million compared to 2017 due to increased capital spending and slightly lower production volumes when compared to the same periods in 2017. Our depreciation, depletion and amortization rate in the future will be impacted by the level and timing of capital spending, overall cost of capital and the level and type of reserves recorded on completed projects. Our average depreciation, depletion and amortization costs per unit for the year-to-date periods were:
 
Year ended December 31,
 
2018
 
2017
Depreciation, depletion and amortization ($/Boe)
$
17.23

 
$
16.22


    

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Impairment charges. For the year ended December 31, 2018 , we recorded non-cash impairment charges of
approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin as a result of the decline in commodity prices and the significant reduction in future development capital allocated to the Permian. See Part II, Item 8. Financial Statements, Note 3, for more information on impairment.
    
Exploration and other expense.   Exploration and other expense for the year ended December 31, 2018 decreased by $7 million from 2017 due to lower amortization of unproved leasehold costs reflecting the sale of certain assets in NEU in early 2018 in addition to recording certain expenses in 2018 associated with contractual commitments.

Taxes, other than income taxes.  Taxes, other than income taxes for the year ended December 31, 2018 increased by $12 million from 2017 . The increase in 2018 compared to 2017 is primarily due to an increase in severance taxes as a result of higher oil and NGL prices.
Other Income Statement Items.
Gain (loss) on extinguishment/modification of debt.  During the year ended December 31, 2018 , we recorded a total gain on extinguishment of debt of $73 million primarily due to (i) exchanging certain senior unsecured notes for $1,092 million in new senior secured notes and (ii) repurchasing a portion of our senior unsecured notes due 2020, 2022 and 2023.
For the year ended December 31, 2017 , we recorded a total loss on extinguishment of debt of $16 million as a result of (i) repurchasing senior unsecured notes due 2020 and 2023 and (ii) retiring our senior secured term loans due 2021 and a portion of our 9.375% senior notes due 2020. See Part II, Item 8, Financial Statements, Note 8 for more information on our long-term debt.
Interest expense. Interest expense for the year ended December 31, 2018 increased by $39 million compared to the same period in 2017 due primarily to the issuance of senior secured notes due 2026, partially offset by (i) lower average borrowings under our RBL Facility during the year ended December 31, 2018, (ii) the impact of the retirement of certain debt obligations in 2017 and (iii) the repurchases of a portion of our senior unsecured notes due 2020, 2022 and 2023.
Income taxes.  Our effective tax rates for the years ended December 31, 2018 and 2017 were 0% and 4.5% , which differed from the statutory rates of 21% and 35%, respectively, primarily due to recording a full valuation allowance on our net deferred tax assets. The effective tax rates for 2018 and 2017 are also impacted by recording non-deductible compensation expenses, and in 2017 also reflect recording a current income tax benefit and related receivable for the recovery of previously paid alternative minimum taxes based on a change in our tax depreciation elections. For additional details on our income taxes, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 4.


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Table of Contents

Supplemental Non-GAAP Measures
We use the non-GAAP measures “EBITDAX” and “Adjusted EBITDAX” as supplemental measures. We believe these supplemental measures provide meaningful information to our investors. We define EBITDAX as net income (loss) plus interest and debt expense, income taxes, depreciation, depletion and amortization and exploration expense. Adjusted EBITDAX is defined as EBITDAX, adjusted as applicable in the relevant period for the net change in the fair value of derivatives (mark-to-market effects of financial derivatives, net of cash settlements and cash premiums related to these derivatives), the non-cash portion of compensation expense (which represents non-cash compensation expense under our long-term incentive programs adjusted for cash payments made under these plans), transition, severance and other costs that affect comparability, fees paid to our Sponsors, gains and losses on sale of assets, gains and losses on extinguishment/modification of debt and impairment charges.
We believe that the presentation of EBITDAX and Adjusted EBITDAX is important to provide management and investors with additional information (i) to evaluate our ability to service debt, adjusting for items required or permitted in calculating covenant compliance under our debt agreements, (ii) to provide an important supplemental indicator of the operational performance of our business without regard to financing methods and capital structure, (iii) for evaluating our performance relative to our peers, (iv) to measure our liquidity (before cash capital requirements and working capital needs) and (v) to provide supplemental information about certain material non-cash and/or other items that may not continue at the same level in the future. EBITDAX and Adjusted EBITDAX have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to net income (loss), operating income (loss), operating cash flows or other measures of financial performance or liquidity presented in accordance with GAAP.
Below is a reconciliation of our consolidated net income (loss) to EBITDAX and Adjusted EBITDAX:
 
Year ended December 31,
 
2018
 
2017
 
(in millions)
Net loss
$
(1,003
)
 
$
(194
)
Income tax benefit
—

 
(9
)
Interest expense, net of capitalized interest
365

 
326

Depreciation, depletion and amortization
507

 
487

Exploration expense
4

 
9

EBITDAX
(127
)
 
619

Mark-to-market on financial derivatives (1) 
(84
)
 
(41
)
Cash settlements and cash premiums on financial derivatives (2) 
(25
)
 
93

Non-cash portion of compensation expense (3) 
13

 
(22
)
Transition, severance and other costs (4) 
9

 
19

Fees paid to Sponsors
—

 
5

Gain on sale of assets
(3
)
 
—

(Gain) loss on extinguishment/modification of debt
(73
)
 
16

Impairment charges (5)
1,103

 
2

Adjusted EBITDAX
$
813

 
$
691

 
(1)
Represents the income statement impact of financial derivatives.
(2)
Represents actual cash settlements related to financial derivatives. No cash premiums were received or paid for the years ended December 31, 2018 and 2017 .
(3)
There were no cash payments for the year ended December 31, 2018 . For the year ended December 31, 2017 , the non-cash portion of compensation expense (net of
forfeitures) includes cash payments of approximately $4 million.
(4)
Reflects transition and severance costs related to workforce reductions.
(5)     Represents non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin as
a result of the decline in commodity prices and the significant reduction in future development capital allocated to the Permian.





45
Table of Contents

Liquidity and Capital Resources
Overview . Our primary sources of liquidity are cash generated by our operations and borrowings under our RBL Facility and our primary uses of cash are capital expenditures, debt service, including interest, and working capital requirements. As of December 31, 2018 , our available liquidity was approximately $537 million .

During 2018, we took steps to improve our financial flexibility, which included (i) exchanging approximately $1,147 million of our senior unsecured notes maturing in May 2020, September 2022 and June 2023 for new 9.375% senior secured notes maturing in 2024 with an aggregate principal amount of approximately $1,092 million, (ii) issuing $1 billion of 7.75% senior secured notes, which mature in 2026, and using the net proceeds to repay in full the outstanding amounts at that time under our RBL Facility, (iii) extending the maturity of our RBL Facility from May 2019 to November 2021, and (iv) reaffirming our RBL borrowing base at $1.36 billion (with commitments remaining at $629 million). While overall liquidity declined approximately $700 million due to the reduction in RBL commitments to $629 million from approximately $1.36 billion, these refinancing activities provided us immediate access to the full $629 million of capacity under our RBL Facility (of which approximately $510 million of capacity was available as of December 31, 2018) and an incremental $80 million of cash for capital expenditure and working capital needs while extending the maturity of our RBL Facility until 2021 as noted above. In 2018 and into 2019, we also utilized available liquidity to repurchase $134 million in aggregate principal amount of our 2020, 2022 and 2023 senior unsecured notes for approximately $89 million in cash. Downward revisions of our oil and natural gas reserves volume and value due to declines in commodity prices, the impact of lower estimated capital spending in response to lower prices, performance revisions, sales of assets, or the incurrence of certain types of additional debt, among other items, could cause a reduction of our borrowing base in the future, and these reductions could be significant. Conversely, future acquisitions, reserve additions and higher prices may have the effect of increasing our borrowing base.

     Debt Maturities and Covenants As of December 31, 2018 , our total debt was approximately $4.4 billion , comprised of $8 million in senior secured term loans maturing in 2019, $738 million in senior unsecured notes due in 2020, 2022 and 2023, and $3.6 billion in senior secured notes due in 2024, 2025 and 2026. Our most restrictive financial debt covenants (which were modified and/or extended in 2018) include a requirement to maintain a first lien debt to EBITDAX ratio of 2.25 to 1.00 and a current ratio (as defined in the RBL Facility) to be not less than 1.00 to 1.00. As of December 31, 2018 , we were in compliance with our debt covenants. For additional details on our long-term debt, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 8.

Capital Expenditures.   Our capital expenditures and average drilling rigs for the twelve months ended December 31, 2018 were:
 
Capital
Expenditures (1)
(in millions)
 
Average Drilling
Rigs
Eagle Ford Shale
$
425

 
3.0

Northeastern Utah
120

 
2.0

Permian
99

 
0.3

Total
$
644

 
5.3

   Acquisition and other capital (2)
$
340

 
 
Total capital expenditures
$
984

 
 
 
(1)
Represents accrual-based capital expenditures.
(2)
Reflects cash paid for acquisitions (including a deposit made in December 2017) and capital adjustments under a joint venture agreement.


During 2018, we completed acquisitions of additional working interests in certain producing properties in the Eagle Ford for approximately $277 million, including our largest acquisition to date of $246 million, and sold certain assets in NEU for approximately $177 million.
Outlook. In the first quarter of 2019, we expect to spend approximately $160 million to $170 million in capital (excluding acquisition capital) in our programs, with approximately 85% allocated to the Eagle Ford Shale and approximately 15% allocated to NEU. Based upon our current price and cost assumptions and our hedge program, we believe that our current capital program will exceed our estimated operating cash flows after interest payments. However, we believe the borrowing capacity under our RBL Facility and expected cash flows from our operations will be sufficient to fund our capital program and meet current obligations and projected working capital requirements through the next twelve months.
In May 2020, $182 million of our senior unsecured notes will mature. Based on our current forecasted EBITDAX

46
Table of Contents

(assuming $55/barrel of oil), cash on hand, and remaining RBL capacity, we project that as of May 2020, we will not have
sufficient liquidity available to repay these notes and meet our working capital needs and/or fund our planned capital
expenditures. In order to address this projected shortfall in liquidity, we are evaluating certain other sources of incremental
liquidity including additional debt issuances or refinancings, and asset sales. If we are not successful in obtaining the necessary additional liquidity, whether through executing one or more of these potential actions or otherwise, and/or if commodity prices do not appreciably increase prior to the filing date of our Quarterly Report on Form 10-Q for the period ending March 31, 2019, we would expect to disclose in that Quarterly Report that, in the absence of executing on these potential actions or commodity prices appreciably increasing, there would be substantial doubt that we would be able to continue as a going concern beginning in May 2020. In addition, should we be required to include a going concern disclosure in our year-end audited financial statements (in the absence of a waiver or other suitable relief), the disclosure would result in an event of default under the RBL Facility, after which the lenders thereunder could accelerate the outstanding indebtedness. An event of default under our RBL Facility could trigger cross-defaults under our other debt agreements, including our senior secured term loan and our senior secured and unsecured notes, which could also result in the acceleration of those obligations by the lenders thereunder. Even if we are able to implement such strategic alternatives, they may be insufficient to meet our debt and other obligations over the longer term. Furthermore, such strategic alternatives may adversely affect our creditors or our existing stockholders, potentially resulting in a reduction in the value of their investment or the loss of all or substantially all of their investment in us.

We will continue to be aggressive in managing our cost structure and in turn, our liquidity, to meet our capital and operating needs. Additionally, we continually monitor the capital markets and will be opportunistic in taking certain future actions to manage our capital structure including, where possible and allowed under our debt agreements (i) acquiring additional amounts of our outstanding debt in the future for cash through open market repurchases or privately negotiated transactions with certain of our debtholders and/or (ii) issuing additional secured debt as permitted under our debt agreements, although there is no assurance we would do so.
Our ability to (i) generate sufficient cash flows from operations or obtain future borrowings under the RBL Facility, (ii) repay or refinance any of our indebtedness on commercially reasonable terms or at all, or (iii) obtain additional capital on acceptable terms or at all to fund our capital programs or any potential future acquisitions, joint ventures or other similar transactions, will depend on prevailing economic and industry conditions, many of which are volatile and beyond our control. Should commodity prices decline from current levels, or we experience disruptions in the financial markets impacting our cost of capital, it is possible that additional adjustments to our plan and outlook may occur based on market conditions and the needs of the Company at that time, which could include selling assets, seeking additional partners to develop our assets, issuing equity, and/or further reducing our planned capital spending program.

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Table of Contents

Overview of Cash Flow Activities.   Our cash flows are summarized as follows:
 
Year ended December 31,
 
2018
 
2017
 
(in millions)
Cash Inflows
 
 
 

Operating activities
 
 
 

Net loss
$
(1,003
)
 
$
(194
)
Impairment charges
1,103

 
2

Gain on sale of assets
(3
)
 
—

(Gain) loss on extinguishment/modification of debt
(73
)
 
16

Other income adjustments
537

 
487

Change in assets and liabilities
(139
)
 
64

Total cash flow from operations
$
422

 
$
375

 
 
 
 
Investing activities
 
 
 

Proceeds from the sale of assets
$
192

 
$
—

Deposit received in advance of divestiture
—

 
18

Cash inflows from investing activities
$
192

 
$
18

 
 
 
 
Financing activities
 
 
 
Proceeds from issuance of long-term debt
2,090

 
1,930

Cash inflows from financing activities
$
2,090

 
$
1,930

 
 
 
 
Total cash inflows
$
2,704

 
$
2,323

 
 
 
 
Cash Outflows
 
 
 
Investing activities
 
 
 
Cash paid for capital expenditures
$
690

 
$
541

Cash paid for acquisitions
292

 
29

Deposit paid in advance of acquisition
—

 
25

Cash outflows from investing activities
$
982

 
$
595

 
 
 
 
Financing activities
 
 
 
Repayments and repurchases of long-term debt
$
1,654

 
$
1,679

Fees/costs on debt exchange
62

 
—

Debt issue costs
22

 
21

Other
2

 
3

Cash outflows from financing activities
$
1,740

 
$
1,703

 
 
 
 
Total cash outflows
$
2,722

 
$
2,298

 
 
 
 
Net change in cash, cash equivalents and restricted cash
$
(18
)
 
$
25



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Table of Contents

Commitments and Contingencies
For a further discussion of our commitments and contingencies, see Part II, Item 8, “Financial Statements and Supplementary Data”, Note 9.
Off-Balance Sheet Arrangements
We have no investments in unconsolidated entities or persons that could materially affect our liquidity or the availability of capital resources.  We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition or results of operations.
Critical Accounting Estimates
Our significant accounting policies are described in Part II, Item 8, "Financial Statements and Supplementary Data", Note 1 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expense and the disclosures of contingent assets and liabilities. We consider our critical accounting estimates to be those estimates that require complex or subjective judgment in the application of the accounting policy and that could significantly impact our financial results based on changes in those judgments. Changes in facts and circumstances may result in revised estimates and actual results may differ materially from those estimates. Our management has identified the following critical accounting estimates:
Accounting for Oil and Natural Gas Producing Activities.   We apply the successful efforts method of accounting for our oil and natural gas exploration and development activities. Under this method, non-drilling exploratory costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred while acquisition costs, development costs and the costs of drilling and completing wells are capitalized. If a well is exploratory in nature, such costs are capitalized, pending the determination of proved oil and natural gas reserves. As a result, at any point in time, we may have capitalized costs on our consolidated balance sheet associated with exploratory wells that may be charged to exploration expense in a future period. Costs of drilling exploratory wells that do not result in proved reserves are expensed. Under the successful efforts method, we also capitalize salaries and benefits that we determine are directly attributable to our oil and natural gas activities. Depreciation, depletion, amortization and the impairment of oil and natural gas properties is calculated on a depletable unit basis based on estimates of proved quantities of proved oil and natural gas reserves. Revisions to these estimates can alter our depletion rates in the future and affect our future depletion expense or assessment of impairment.
We evaluate capitalized costs related to proved properties at least annually or upon a triggering event (such as a significant decline in forward commodity prices or change in development plans, among other items) to determine if impairment of such properties has occurred.  Our evaluation of whether costs are recoverable is made based on common geological structure or stratigraphic conditions (for example, we evaluate proved property for impairment separately for each of our operating areas), and the evaluation considers estimated future cash flows for all proved developed (producing and non-producing), proved undeveloped reserves and risk-weighted non-proved reserves in comparison to the carrying amount of the proved properties. Important assumptions in the determination of these cash flows are estimates of future oil and gas production, estimated forward commodity prices as of the date of the estimate, adjusted for geographical location and contractual and quality differentials and estimates of future operating and development costs. If the carrying amount of a property exceeds the estimated undiscounted future cash flows of its reserves, the carrying amount is reduced to estimated fair value through a charge to income. Fair value is calculated by discounting those estimated future cash flows using a risk-adjusted discount rate. The discount rate is based on rates utilized by market participants that are commensurate with the risks inherent in the development and production of the underlying crude oil and natural gas. Each of these estimates involves a high degree of judgment.
Capitalized costs associated with unproved properties (e.g., leasehold acquisition costs associated with non-producing areas) are also assessed for impairment based on estimated drilling plans and capital expenditures, which may also change relative to forward commodity prices and/or potential lease expirations. Generally, economic recovery of unproved reserves in non-producing areas are not yet supported by actual production or conclusive formation tests, but must be confirmed by continued exploration and development activities. Our allocation of capital to the development of unproved properties may be influenced by changes in commodity prices (e.g., a low oil price environment), the availability of oilfield services and the relative returns of our unproved property development in comparison to the use of capital for other strategic objectives.
During the year ended December 31, 2018, we recorded non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin due to the decline in commodity prices during the year as well as the significant reduction in future development capital allocated to the Permian. As

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of December 31, 2018 , our remaining net capitalized costs related to proved properties were approximately $1,815 million in Eagle Ford, $1,137 million in NEU, and $785 million in the Permian basin.
The proved oil and gas reserve estimates as of December 31, 2018 have been prepared by Ryder Scott Company, L.P. (Ryder Scott), our independent third party reserve engineers. Estimates of proved reserves reflect quantities of oil, natural gas and NGLs, which geological and engineering data demonstrate, with reasonable certainty, will be recoverable in future years from known reservoirs under existing economic conditions. These estimates of proved oil and natural gas reserves primarily impact our property, plant and equipment amounts on our balance sheets and the depreciation, depletion and amortization amounts, including any impairment charges, on our consolidated income statements, among other items. The process of estimating oil and natural gas reserves is complex and requires significant judgment to evaluate all available geological, geophysical engineering and economic data. Significant assumptions used in the proved oil and gas reserve estimates are assessed by both Ryder Scott and our internal reserve team. All reserve reports prepared by Ryder Scott were reviewed by our internal reserve and management teams. Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered.

As of December 31, 2018 , 28% of our total proved reserves were undeveloped and 2% were developed, but non-producing. The data for a given field may change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. In addition, the subjective decisions and variances in available data for various fields increase the likelihood of significant changes in these estimates. As a result, material revisions to existing reserve estimates occur from time to time. For example, in 2018 we adjusted our PUD booking methodology from a five-year to a three-year timeframe. Given our current financial situation with limited available liquidity, our PUD reserves of 91 MMBoe at December 31, 2018 reflect 64 MMBoe of negative adjustments as a result of determining our PUDs using a three-year timeframe instead of a five-year timeframe. See Part I, Item 1. "Business" under the heading Oil and Natural Gas Properties for further discussion on our proved reserves.
Deferred Taxes and Valuation Allowances. We record deferred income tax assets and liabilities reflecting the tax consequences of differences between the financial statement carrying value of assets and liabilities and the tax basis of those assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Our deferred tax assets and liabilities reflect our conclusions about which positions are more likely than not to be sustained if they are audited by taxing authorities.
We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. When it is more likely than not that we will not be able to realize all or a portion of such asset, we record a valuation allowance. Based upon the evaluation of the available evidence, we maintained a valuation allowance against our net deferred tax assets of $857 million as of December 31, 2018 . We evaluate our valuation allowances each reporting period and the level of such allowance will change as our deferred tax balances change. Key estimates and assumptions include expectations of future taxable income and the ability and our intent to undertake transactions that will allow us to realize the asset, all of which involve judgment. Changes in these estimates or assumptions can have a significant effect on our operating results.
ITEM 7A.    Qualitative and Quantitative Disclosures About Market Risk
We are exposed to market risks in our normal business activities. Market risk is the potential loss that may result from market changes associated with an existing or forecasted financial or commodity transaction. The types of market risks we are exposed to and examples of each are:
Commodity Price Risk
•
changes in oil, natural gas and NGLs prices impact the amounts at which we sell our production and affect the fair value of our oil and natural gas derivative contracts; and
•
changes in locational price differences also affect amounts at which we sell our oil, natural gas and NGLs production, and the fair values of any related derivative products.
Interest Rate Risk
•
changes in interest rates affect the interest expense we incur on our variable-rate debt and the fair value of fixed-rate debt; and

50

•
changes in interest rates used to discount liabilities result in higher or lower recorded amount of liabilities and accretion expense over time.

Risk Management Activities
Where practical, we manage commodity price risks by entering into contracts involving physical or financial settlement that attempt to limit exposure related to future market movements on our cash flows. The timing and extent of our risk management activities are based on a number of factors, including our market outlook, risk tolerance and liquidity. Our risk management activities typically involve the use of the following types of contracts:
•
forward contracts, which commit us to purchase or sell energy commodities in the future;
•
option contracts, which convey the right to buy or sell a commodity, financial instrument or index at a predetermined price;
•
swap contracts, which require payments to or from counterparties based upon the differential between two prices or rates for a predetermined contractual (notional) quantity; and
•
structured contracts, which may involve a variety of the above characteristics.
Many of the contracts we use in our risk management activities qualify as derivative financial instruments. A discussion of our accounting policies for derivative instruments is included in Part II Item 8, "Financial Statements and Supplementary Data", Notes 1 and 6.
For information regarding changes in commodity prices during 2018 , please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Commodity Price Risk
Oil, Natural Gas and NGLs Derivatives. We attempt to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of oil and natural gas production through the use of derivative oil and natural gas swaps, basis swaps and option contracts. These contracts impact our earnings as the fair value of these derivatives changes. Our derivatives do not mitigate all of the commodity price risks of our forecasted sales of oil and natural gas production and, as a result, we are subject to commodity price risks on our remaining forecasted production.
Sensitivity Analysis. The table below presents the change in fair value of our commodity-based derivatives due to hypothetical changes in oil and natural gas prices, discount rates and credit rates at December 31, 2018 :
 
 
 
Oil and Natural Gas Derivatives
 
 
 
10 Percent Increase
 
10 Percent Decrease
 
Fair Value
 
Fair Value
 
Change
 
Fair Value
 
Change
 
 
 
 
 
(in millions)
 
 
 
 
Price impact (1)  
$
114

 
$
71

 
$
(43
)
 
$
151

 
$
37

 
 
 
Oil and Natural Gas Derivatives
 
 
 
1 Percent Increase
 
1 Percent Decrease
 
Fair Value
 
Fair Value
 
Change
 
Fair Value
 
Change
 
 
 
 
 
(in millions)
 
 
 
 
Discount Rate (2) 
$
114

 
$
114

 
$
—

 
$
115

 
$
1

Credit rate (3) 
$
114

 
$
113

 
$
(1
)
 
$
115

 
$
1

 
(1)    Presents the hypothetical sensitivity of our commodity-based derivatives to changes in fair values arising from changes in oil and natural gas prices.
(2)    Presents the hypothetical sensitivity of our commodity-based derivatives to changes in the discount rates we used to determine the fair value of our derivatives.
(3)    Presents the hypothetical sensitivity of our commodity-based derivatives to changes in credit risk of our counterparties
Interest Rate Risk
Certain of our debt agreements are sensitive to changes in interest rates.  The table below shows the maturity of the carrying amounts and related weighted-average effective interest rates on our long-term interest-bearing debt by expected maturity date as well as the total fair value of the debt.  The fair value of our long-term debt has been estimated primarily based on quoted market prices for the same or similar issues.

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December 31, 2018
 
December 31, 2017
 
Expected Fiscal Year of Maturity of Carrying Amounts
 
 
 
Fair Value
 
Carrying Amounts
 
Fair Value
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
Fixed rate long-term debt
$
50

 
$
182

 
$
—

 
$
182

 
$
324

 
$
3,592

 
$
4,330

 
$
2,468

 
$
3,469

 
$
2,644

Average interest rate
8.2
%
 
8.2
%
 
8.2
%
 
8.2
%
 
8.3
%
 
7.9
%
 
 
 
 
 
 
 
 
Variable rate long-term debt
$
8

 
$
—

 
$
100

 
$
—

 
$
—

 
$
—

 
$
108

 
$
108

 
$
624

 
$
623

Average interest rate
7.0
%
 
7.0
%
 
7.0
%
 
—
%
 
—
%
 
—
%
 
 
 
 
 
 
 
 


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Item 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Below is an index to the items contained in Part II, Item 8, Financial Statements and Supplementary Data
 
Page
 
Supplemental Financial Information
 
 
 
Schedules
 
All financial statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in the financial statements or related notes thereto.

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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined by SEC rules adopted under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It consists of policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we made an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018 . In making this assessment, we used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2018 . The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm that audited the financial statements included in this annual report on Form 10-K, as stated in their report included herein.


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Report of Independent Registered Public Accounting Firm


To the Stockholders and the Board of Directors of
EP Energy Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of EP Energy Corporation (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, cash flows, and changes in equity for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 18, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
/s/ Ernst & Young LLP


We have served as the Company’s auditor since 2006.

Houston, Texas
March 18, 2019





55

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of
EP Energy Corporation

Opinion on Internal Control over Financial Reporting

We have audited EP Energy Corporation’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, EP Energy Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, cash flows and changes in equity for each of the three years in the period ended December 31, 2018, and the related notes and our report dated March 18, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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

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

 
/s/ Ernst & Young LLP


Houston, Texas
March 18, 2019


56

EP ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per common share amounts)
 
Year Ended December 31,
 
2018
 
2017
Operating revenues
 
 
 

Oil
$
1,045

 
$
812

Natural gas
75

 
110

NGLs
120

 
103

Financial derivatives
84

 
41

Total operating revenues
1,324

 
1,066

 
 
 
 
Operating expenses
 
 
 

Oil and natural gas purchases
3

 
2

Transportation costs
100

 
115

Lease operating expense
158

 
163

General and administrative
89

 
81

Depreciation, depletion and amortization
507

 
487

Gain on sale of assets
(3
)
 
—

Impairment charges
1,103

 
2

Exploration and other expense
5

 
12

Taxes, other than income taxes
77

 
65

Total operating expenses
2,039

 
927

 
 
 
 
Operating (loss) income
(715
)
 
139

Other income
4

 
—

Gain (loss) on extinguishment/modification of debt
73

 
(16
)
Interest expense
(365
)
 
(326
)
Loss before income taxes
(1,003
)
 
(203
)
Income tax benefit
—

 
9

Net loss
$
(1,003
)
 
$
(194
)
 
 
 
 
Basic and diluted net income (loss) per common share
 
 
 

Net loss
$
(4.05
)
 
$
(0.79
)
Basic and diluted weighted average common shares outstanding
248

 
246

See accompanying notes.


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EP ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 

Current assets
 
 
 

Cash and cash equivalents
$
27

 
$
27

Restricted cash
—

 
18

Accounts receivable
 
 
 

Customer, net of allowance of less than $1 in 2018 and 2017
164

 
158

Other, net of allowance of $1 in 2018 and 2017
66

 
13

Income tax receivable
—

 
9

Materials and supplies
22

 
16

Derivative instruments
101

 
18

Assets held for sale
—

 
172

Prepaid assets
5

 
35

Total current assets
385

 
466

Property, plant and equipment, at cost
 
 
 

Oil and natural gas properties
7,344

 
7,532

Other property, plant and equipment
81

 
69

 
7,425

 
7,601

Less accumulated depreciation, depletion and amortization
3,651

 
3,179

Total property, plant and equipment, net
3,774

 
4,422

Other assets
 
 
 

Derivative instruments
13

 
4

Unamortized debt issue costs on revolving credit facility
8

 
6

Other
1

 
2

 
22

 
12

Total assets
$
4,181

 
$
4,900

See accompanying notes.

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EP ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
 
December 31, 2018
 
December 31, 2017
LIABILITIES AND EQUITY
 
 
 

Current liabilities
 
 
 

Accounts payable
 
 
 

Trade
$
115

 
$
88

Other
111

 
158

Derivative instruments
—

 
17

Accrued interest
70

 
62

Liabilities related to assets held for sale
—

 
2

Short-term debt, net of debt issue costs
58

 
21

Other accrued liabilities
86

 
100

Total current liabilities
440

 
448

 
 
 
 
Long-term debt, net of debt issue costs
4,285

 
4,022

Other long-term liabilities
 
 
 

Asset retirement obligations
39

 
33

Other
16

 
5

Total non-current liabilities
4,340

 
4,060

 
 
 
 
Commitments and contingencies (Note 9)


 


 
 
 
 
Stockholders’ equity
 
 
 

Class A shares, $0.01 par value; 550 million shares authorized; 256 million shares issued and outstanding at December 31, 2018; 550 million shares authorized; 252 million shares issued and outstanding at December 31, 2017
3

 
3

Class B shares, $0.01 par value; less than one million shares authorized, issued and outstanding at December 31, 2018 and December 31, 2017
—

 
—

Preferred stock, $0.01 par value; 50 million shares authorized; no shares issued or outstanding
—

 
—

Treasury stock (at cost); less than one million shares at December 31, 2018 and December 31, 2017
(1
)
 
(3
)
Additional paid-in capital
3,536

 
3,526

Accumulated deficit
(4,137
)
 
(3,134
)
Total stockholders’ equity
(599
)
 
392

Total liabilities and equity
$
4,181

 
$
4,900

See accompanying notes.


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EP ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Year Ended December 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 

Net loss
$
(1,003
)
 
$
(194
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 

Depreciation, depletion and amortization
507

 
487

Gain on sale of assets
(3
)
 
—

Impairment charges
1,103

 
2

(Gain) loss on extinguishment/modification of debt
(73
)
 
16

Other non-cash income items
30

 
—

Asset and liability changes
 
 
 

Accounts receivable
(56
)
 
(22
)
Accounts payable
6

 
55

Derivative instruments
(109
)
 
52

Accrued interest
8

 
19

Other asset changes
8

 
(16
)
Other liability changes
4

 
(24
)
Net cash provided by operating activities
422

 
375

 
 
 
 
Cash flows from investing activities
 
 
 

Cash paid for capital expenditures
(690
)
 
(541
)
Proceeds from the sale of assets
192

 
—

Cash paid for acquisitions
(292
)
 
(29
)
Deposit paid in advance of acquisition
—

 
(25
)
Deposit received in advance of divestiture
—

 
18

Net cash used in investing activities
(790
)
 
(577
)
 
 
 
 
Cash flows from financing activities
 
 
 

Proceeds from issuance of long-term debt
2,090

 
1,930

Repayments and repurchases of long-term debt
(1,654
)
 
(1,679
)
Fees/costs on debt exchange
(62
)
 
—

Debt issue costs
(22
)
 
(21
)
Other
(2
)
 
(3
)
Net cash provided by financing activities
350

 
227

 
 
 
 
Change in cash, cash equivalents and restricted cash
(18
)
 
25

 
 
 
 

Cash, cash equivalents and restricted cash - beginning of period
45

 
20

Cash, cash equivalents and restricted cash - end of period
$
27

 
$
45

 
 
 
 
Supplemental cash flow information
 
 
 

Interest paid, net of amounts capitalized
$
337

 
$
291

Income tax (refunds) payments
(9
)
 
1

See accompanying notes.

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EP ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions) 
 
Class A Stock
 
Class B Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2016
251

 
$
2

 
0.8

 
$
—

 
$
(3
)
 
$
3,546

 
$
(2,939
)
 
$
606

Cumulative effect of accounting change
—

 
—

 
—

 
—

 
—

 
1

 
(1
)
 
—

Balance at January 1, 2017
251

 
$
2

 
0.8

 
—

 
$
(3
)
 
$
3,547

 
$
(2,940
)
 
$
606

Share-based compensation
1

 
1

 
(0.5
)
 
—

 
—

 
(21
)
 
—

 
(20
)
Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(194
)
 
(194
)
Balance at December 31, 2017
252

 
$
3

 
0.3

 
—

 
$
(3
)
 
$
3,526

 
$
(3,134
)
 
$
392

Share-based compensation
4

 
—

 
—

 
—

 
2

 
10

 
—

 
12

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(1,003
)
 
(1,003
)
Balance at December 31, 2018
256

 
$
3

 
0.3

 
$
—

 
$
(1
)
 
$
3,536

 
$
(4,137
)
 
$
(599
)
See accompanying notes.

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EP ENERGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.    Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Consolidation
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and include the accounts of all consolidated subsidiaries after the elimination of all significant intercompany accounts and transactions.
We consolidate entities when we have the ability to control the operating and financial decisions of the entity or when we have a significant interest in the entity that gives us the ability to direct the activities that are significant to that entity. The determination of our ability to control, direct or exert significant influence over an entity involves the use of judgment.
We are engaged in the exploration for and the acquisition, development, and production of oil, natural gas and NGLs in the United States. Our oil and natural gas properties are managed as a single operating segment rather than through discrete operating segments or business units. We track basic operational data by area and allocate capital resources on a project-by-project basis across our entire asset base without regard to individual areas.  We assess financial performance as a single enterprise and not on a geographical area basis.
New Accounting Pronouncements Issued But Not Yet Adopted
The following accounting standards have been issued but not yet been adopted.         
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases,
which requires lessees to recognize right-of-use assets and liabilities on the balance sheet and disclose key information about
leasing arrangements. Adoption of this standard is required beginning in the first quarter of 2019 and we anticipate adopting
this standard on a modified retrospective basis, recognizing a cumulative-effect adjustment to the opening balance of retained
earnings, if any, upon adoption. In addition, we plan to make certain permitted elections upon adoption around lease
classification of contracts and land easements existing prior to the adoption date and not recognizing short-term leases on our
balance sheet. We do not currently anticipate our adoption of this standard will have a material impact on our financial statements, business processes and/or related controls.

Significant Accounting Policies
Use of Estimates
The preparation of our financial statements requires the use of estimates and assumptions that affect the amounts we report as assets, liabilities, revenues and expenses and our disclosures in these financial statements. Actual results can, and often do, differ from those estimates.
Revenue Recognition
Our revenues are generated primarily through the physical sale of oil, natural gas and NGLs to third party customers at spot or market prices under both short and long-term contracts. We recognize revenue upon satisfaction of our contractual performance obligation requiring us to deliver oil, natural gas and NGLs to a delivery point. Our performance obligation is satisfied upon transfer of control of the commodity to the customer. Transfer of control varies depending on the product and delivery method, but typically occurs when delivery and passage of title and risk of loss have occurred at a pipeline or gathering line delivery point interconnect when delivered via pipeline or at the wellhead or tank battery to purchasers who transport the oil via truck. Realized prices for each barrel of oil, MMcf of natural gas or MMBtu of NGLs are based upon index prices (WTI, LLS, Henry Hub and Mt. Belvieu) or refiners' posted prices at various delivery points across our producing basins. Realized transaction prices received (not considering the effects of hedges) are generally less than the stated index price as a result of contractual deductions, differentials from the index to the delivery point, adjustments for time, and/or discounts for quality or grade.
Revenue is recorded net of any royalty interests or other profit interests in the produced product. Revenues related to products delivered, but not yet billed, are estimated each month. These estimates are based on contract data, commodity prices and preliminary throughput and allocation measurements. When actual sales volumes exceed our entitled share of sales volumes, an overproduced imbalance occurs. To the extent the overproduced imbalance exceeds our share of the remaining estimated proved natural gas reserves for a given property, we record a liability. 


62

Costs associated with the transportation and delivery of production between the wellhead and its intended sale location are generally included in transportation costs.  We also purchase and sell oil and natural gas on a monthly basis to manage our overall oil and natural gas production and sales. These transactions are undertaken to optimize prices we receive for our oil and natural gas, to physically move oil and gas to its intended sales point, or to manage firm transportation agreements. Revenue related to these transactions are recorded in oil and natural gas sales in operating revenues and associated purchases reflected in oil and natural gas purchases in operating expenses in our consolidated income statements.
For the years ended December 31, 2018 and 2017 , we had three and two customers, respectively, that individually accounted for 10 percent or more of our total revenues. The loss of any one customer would not have an adverse effect on our ability to sell our oil, natural gas and NGLs production.
While most of our physical production is priced off of market indices, we actively manage the volatility of market pricing through our risk management program whereby we enter into financial derivatives contracts. All of our derivatives are marked-to-market each period. The change in the fair value of our commodity-based derivatives, as well as any realized amounts, are reflected in operating revenues as financial derivative revenues (see Derivatives below and Note 6).

Cash and Cash Equivalents and Restricted Cash
We consider short-term investments with an original maturity of less than three months to be cash equivalents. As of December 31, 2018 , we had no restricted cash. As of December 31, 2017 , we had $18 million in restricted cash reflecting a deposit received in advance of the divestiture of certain assets.
Allowance for Doubtful Accounts
We establish provisions for losses on accounts receivable and for natural gas imbalances with other parties if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method.
Oil and Natural Gas Properties
We account for oil and natural gas properties in accordance with the successful efforts method of accounting for oil and natural gas exploration and development activities.
Under the successful efforts method, we capitalize (i) lease acquisition costs, all development costs and exploratory drilling costs until results are determined, (ii) certain internal costs directly identified with the acquisition, successful drilling of exploratory wells and development activities, and (iii) interest costs related to financing oil and natural gas projects actively being developed until the projects are evaluated or substantially complete and ready for their intended use if the projects were evaluated as successful. Non-drilling exploratory costs, including certain geological and geophysical costs such as seismic costs and delay rentals, are expensed as incurred.
We provide for depreciation, depletion, and amortization on the basis of common geological structure or stratigraphic conditions applied to total capitalized costs, plus future abandonment costs, net of salvage value, using the unit of production method.  Lease acquisition costs are amortized over total proved reserves, while other exploratory drilling and all developmental costs are amortized over total proved developed reserves.
We evaluate capitalized costs related to proved properties upon a triggering event to determine if impairment of such properties is necessary.  Our evaluation of recoverability is made on the basis of common geological structure or stratigraphic conditions and considers estimated future cash flows primarily from all proved developed (producing and non-producing) and proved undeveloped reserves in comparison to the carrying amount of the proved properties. Estimated future cash flows are determined based on estimates of future oil and gas production, estimated or published commodity prices as of the date of the estimate, adjusted for geographical location, contractual and quality price differentials, and estimates of future operating and development costs. If the carrying amount of a property exceeds these estimated undiscounted future cash flows, the carrying amount is reduced to its estimated fair value through a charge to income. Fair value is calculated by discounting the estimated future cash flows using a risk-adjusted discount rate. This discount rate is based on rates utilized by market participants that are commensurate with the risks inherent in the development and production of the underlying crude oil and natural gas. Leasehold acquisition costs associated with non-producing areas are also assessed for impairment based on our estimated drilling plans and anticipated capital expenditures related to potential lease expirations.



63

Property, Plant and Equipment (Other than Oil and Natural Gas Properties)
Our property, plant and equipment, other than our assets accounted for under the successful efforts method, are recorded at their original cost of construction or, upon acquisition, at the fair value of the assets acquired. We capitalize the major units of property replacements or improvements and expense minor items. We depreciate our non-oil and natural gas property, plant and equipment using the straight-line method over the useful lives of the assets which range from four to 15 years . 
Accounting for Asset Retirement Obligations  
We record a liability for legal obligations associated with the replacement, removal or retirement of our long-lived assets in the period the obligation is incurred and is estimable. Our asset retirement liabilities are initially recorded at their estimated fair value with a corresponding increase to property, plant and equipment. This increase in property, plant and equipment is then depreciated over the useful life of the asset to which that liability relates. An ongoing expense is recognized for changes in the value of the liability as a result of the passage of time, which we record as depreciation, depletion and amortization expense in our consolidated income statements.
Accounting for Long-Term Incentive Compensation
We measure the cost of long-term incentive compensation based on the fair value of the award on the day it is granted.  Awards issued under our incentive compensation programs are recognized as either equity awards or liability awards based on their characteristics.  Expense is recognized in our consolidated financial statements as general and administrative expense over the period of service required by the award. As a result of adopting ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, as of January 1, 2017, we recorded a cumulative adjustment of approximately $1 million to the opening balance of retained earnings related to our election to begin accounting for forfeitures in compensation cost when they occur, rather than estimating them over the service period. See Note 10 for further discussion of our long-term incentive compensation.
Environmental Costs, Legal and Other Contingencies
Environmental Costs. We record environmental liabilities at their undiscounted amounts on our consolidated balance sheet in other current and long-term liabilities when we assess that remediation efforts are probable and the costs can be reasonably estimated. Estimates of our environmental liabilities are based on current available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit future periods and expense costs that do not in general and administrative expense.
We evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of remediation costs from third parties, including insurance coverage, separately from our liability. Recovery is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset separately from the associated liability on our consolidated balance sheet.
Legal and Other Contingencies.   We recognize liabilities for legal and other contingencies when we have an exposure that indicates it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where the most likely outcome of a contingency can be reasonably estimated, we accrue a liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than any other to occur, the low end of the range is accrued.
Derivatives
We enter into derivative contracts on our oil and natural gas products primarily to stabilize cash flows and reduce the risk and financial impact of downward commodity price movements on commodity sales.  Derivative instruments are reflected on our consolidated balance sheet at their fair value as assets and liabilities. We classify our derivatives as either current or non-current based on their anticipated settlement date. We net derivative assets and liabilities with counterparties where we have a legal right of offset.
All of our derivatives are marked-to-market each period and changes in the fair value of our commodity based derivatives, as well as any realized amounts, are reflected as operating revenues. We classify cash flows related to derivative contracts based on the nature and purpose of the derivative. As the derivative cash flows are considered an integral part of our oil and natural gas operations, they are classified as cash flows from operating activities. In our consolidated balance sheet,

64

receivables and payables resulting from the settlement of our derivative instruments are reported as trade receivables and payables. See Note 6 for a further discussion of our derivatives.
Income Taxes
We record current income taxes based on our estimates of current taxable income and provide for deferred income taxes to reflect estimated future income tax payments and receipts. Changes in tax laws are recorded in the period they are enacted. Deferred taxes represent the tax impacts of differences between the financial statement and tax bases of assets and liabilities and carryovers at each year end. We classify all deferred tax assets and liabilities, along with any related valuation allowance, as non-current on the consolidated balance sheet. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available.
The realization of our deferred tax assets depends on recognition of sufficient future taxable income during periods in which those temporary differences are deductible. We record a valuation allowance against deferred tax assets when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances. In evaluating our valuation allowances, we consider cumulative book losses, the reversal of existing temporary differences, the existence of taxable income in carryback years, tax planning strategies and future taxable income for each of our taxable jurisdictions, the latter two of which involve the exercise of significant judgment. Changes to our valuation allowances could materially impact our results of operations.
2.    Acquisitions and Divestitures
Acquisitions . In 2018, we completed the acquisition of producing properties and proved undeveloped acreage in Eagle Ford for approximately $246 million , after customary adjustments. Of the total purchase price, we paid $221 million upon closing during the first quarter of 2018 and $25 million to the buyer as a deposit in December 2017. During 2018, we completed an acquisition of additional working interests in certain producing properties in Eagle Ford for approximately $31 million , after customary closing adjustments. Our consolidated balance sheet reflects the cost of each of these assets acquired during the year as proved properties.
    
Divestitures. During 2018, we also completed the sale of certain assets in Northeastern Utah (NEU), formerly Altamont, for approximately $177 million , after customary adjustments. Of the total sales price, we received a deposit of $18 million (reflected in restricted cash in the balance sheet) in December 2017 and additional cash proceeds of $159 million upon closing. We treated this sale as a normal retirement reflecting the difference between net cash proceeds and the underlying net book value of the assets sold in accumulated depreciation rather than recording a gain on sale of assets. As of December 31, 2017, we classified the assets and liabilities associated with the assets to be sold as held for sale in our consolidated balance sheet.

3.    Impairment Charges
We evaluate capitalized costs related to proved properties upon a triggering event (e.g., a significant continued decline in forward commodity prices or significant reduction to development capital) to determine if an impairment of such properties has occurred. Commodity price declines may cause changes to our capital spending levels, production rates, levels of proved reserves and development plans, which may result in an impairment of the carrying value of our proved and/or unproved properties in the future. Capitalized costs associated with unproved properties (e.g., leasehold acquisition costs associated with non-producing areas) are also assessed upon a triggering event for impairment based on estimated drilling plans and capital expenditures, which may also change relative to forward commodity prices and/or potential lease expirations.

Due to the current oil price environment and the significant reduction to future development capital in the Permian basin, we have recorded non-cash impairment charges during the fourth quarter of 2018 of approximately (i) $1,044 million on our proved properties, reflecting a reduction in the net book value of the proved property in this area to its estimated fair value and (ii) $59 million on our unproved properties.


65

4.    Income Taxes     
Pretax Income (Loss) and Income Tax (Expense) Benefit.   The tables below show the pretax loss and the components of income tax benefit for the following periods:
 
Year Ended December 31,
 
2018
 
2017
 
(in millions)
Pretax Loss
$
(1,003
)
 
$
(203
)
 
 
 
 
Components of Income Tax Benefit
 

 
 

Current
 

 
 

Federal
$
—

 
$
9

State
—

 
—

 
—

 
9

 
 
 
 
Deferred
 

 
 

Federal
$
—

 
$
—

State
—

 
—

Total income tax benefit
$
—

 
$
9

Effective Tax Rate Reconciliation.   Our income taxes included in net income differ from the amount computed by applying the statutory federal income tax rate of 21% for the following reasons:
 
Year Ended December 31,
 
2018
 
2017
 
 
 
(in millions)
Income taxes at the statutory federal rate (1)
$
211

 
$
71

Increase (decrease)
 

 
 

State income taxes, net of federal income tax effect
8

 
(1
)
Change in enacted tax rate
—

 
(409
)
Change in valuation allowance
(213
)
 
341

Capital loss expiration
(5
)
 
—

Other
(1
)
 
7

Income tax benefit
$
—

 
$
9

 
(1)
The statutory rates for the years ended December 31, 2018 and 2017 were 21% and 35%, respectively.

The effective tax rate for the year ended December 31, 2018 was 0% . Our effective tax rate differed from the statutory rate of 21% primarily due to the change in our valuation allowance on our net deferred tax assets, non-deductible compensation expenses, and a non-deductible loss carryover. Changes in our deferred taxes from year to year are offset by changes to our related valuation allowance and thus have the effect of eliminating the impact of federal taxes on our income.
The effective tax rate for the year ended December 31, 2017 was 4.5% . Our effective tax rate differed from the statutory rate of 35% primarily due to recording a current income tax benefit and related receivable for the recovery of previously paid alternative minimum taxes based on a change in our tax depreciation elections, the change in our valuation allowance on our net deferred tax assets, and non-deductible compensation expenses.
In December 2017, Congress passed into law the Tax Cuts and Jobs Act (the Act) which lowered the federal corporate tax rate from 35% to 21% effective January 1, 2018. The passage of the Act had no effect on our financial statements since the effect of adjusting the tax rate on all our deferred tax balances was offset by a corresponding adjustment to the valuation allowance on our net deferred assets.




66

Deferred Tax Assets and Liabilities.   The following are the components of net deferred tax assets and liabilities:
 
December 31, 
 2018
 
December 31, 
 2017
 
(in millions)
Deferred tax assets
 

 
 

Property, plant and equipment
$
157

 
$
50

Net operating loss carryovers
611

 
554

Employee benefits
2

 
2

Financial derivatives
—

 
8

Legal and other reserves
9

 
9

Asset retirement obligations
9

 
8

Interest deduction limitation
76

 
—

Transaction costs
14

 
13

Total deferred tax assets
878

 
644

Valuation allowance
(857
)
 
(644
)
Net deferred tax assets
21

 
—

 
 
 
 
Deferred tax liabilities
 

 
 

Financial derivatives
21

 
—

Total deferred tax liabilities
21

 
—

Net deferred tax liabilities
$
—

 
$
—

Unrecognized Tax Benefits. As of December 31, 2018 , there were no unrecognized tax benefits as income taxes in our financial statements. We did not recognize any interest and penalties related to unrecognized tax benefits (classified as income taxes in our consolidated income statement) in 2018 or 2017 , nor do we have any accrued interest and penalties associated with income taxes in our consolidated balance sheet as of December 31, 2018 and December 31, 2017 . The Company's and certain subsidiaries' income tax years after 2014 remain open and subject to examination by both federal and state tax authorities, and in 2018 we were notified of an IRS examination of our 2016 U.S. tax return.
Net Operating Loss and Tax Credit Carryovers. The table below presents the details of our federal and state net operating loss carryover periods as of December 31, 2018 (in millions): 
 
Expiration Period
 
2031 - 2037
U.S. federal net operating loss carryover (1)
$
2,524

 
2026 - 2038
State net operating loss carryover
$
447

 
(1)
Amounts reflect U.S. federal net operating loss generated prior to 2018. The U.S. federal net operating loss generated in 2018 is $286 million , which does not expire, and
is limited to 80% of taxable income per year.

Utilization of $50 million of our federal net operating loss carryovers is subject to the limitations provided under Sections 382 of the Internal Revenue Code.  While these limitations restrict the amount of carryovers we could potentially utilize in the next few years, it would not cause any carryovers to expire unused.
Our capital loss carryovers of $23 million expired in 2018. There are no alternative minimum tax credits at December 31, 2018.
Valuation Allowances.  As of December 31, 2018 and 2017 , we have a valuation allowance on our deferred tax assets of $857 million and $644 million , respectively. These amounts are recorded based on our evaluation of whether it was more likely than not that our deferred tax assets would be realized. Our evaluations considered cumulative book losses, the reversal of existing temporary differences, the existence of taxable income in prior carryback years, tax planning strategies and future taxable income for each of our taxable jurisdictions.     

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5.    Earnings Per Share
We exclude potentially dilutive securities from the determination of diluted earnings per share (as well as their related income statement impacts) when their impact on net income per common share is antidilutive. Potentially dilutive securities consist of our stock options, restricted stock, performance share unit awards and performance unit awards. For the years ended December 31, 2018 and 2017 , we incurred net losses and accordingly excluded all potentially dilutive securities from the determination of diluted earnings per share as their impact on loss per common share was antidilutive.
6.    Fair Value Measurements
We use various methods to determine the fair values of our financial instruments. The fair value of a financial instrument depends on a number of factors, including the availability of observable market data over the contractual term of the underlying instrument. We separate the fair value of our financial instruments into three levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each of the levels are described below:
•
Level 1 instruments’ fair values are based on quoted prices in actively traded markets.
•
Level 2 instruments’ fair values are based on pricing data representative of quoted prices for similar assets and liabilities in active markets (or identical assets and liabilities in less active markets).
•
Level 3 instruments’ fair values are partially calculated using pricing data that is similar to Level 2 instruments, but also reflect adjustments for being in less liquid markets or having longer contractual terms.
The following table presents the carrying amounts and estimated fair values of our financial instruments:
 
December 31, 2018
 
December 31, 2017
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
(in millions)
Short-term debt
$
58

 
$
44

 
$
21

 
$
19

 
 
 
 
 
 
 
 
Long-term debt
$
4,380

 
$
2,532

 
$
4,072

 
$
3,248

 
 
 
 
 
 
 
 
Derivative instruments
$
114

 
$
114

 
$
5

 
$
5

For the years ended December 31, 2018 and 2017 , the carrying amount of cash and cash equivalents, accounts receivable and accounts payable represent fair value because of the short-term nature of these instruments.  Our long-term debt obligations (see Note 8) have various terms, and we estimated the fair value of debt (representing a Level 2 fair value measurement) primarily based on quoted market prices for the same or similar issuances, considering our credit risk.
Oil, Natural Gas and NGLs Derivative Instruments.   We attempt to mitigate a portion of our commodity price risk and stabilize cash flows associated with forecasted sales of oil, natural gas and NGLs through the use of financial derivatives. As of December 31, 2018 , we had derivatives contracts in the form of collars and three-way collars on 16  MMBbls of oil ( 14 MMBbls in 2019 and 2 MMBbls in 2020). In addition to our oil derivatives, we had derivative contracts in the form of fixed price swaps and collars on 26 TBtu of natural gas in 2019. As of December 31, 2017 , we had derivative contracts for 14 MMBbls of oil, 33  TBtu of natural gas and 92 MMGal of ethane and propane. In addition to the contracts above, we have derivative contracts related to locational basis differences on our oil and natural gas production. None of our derivative contracts are designated as accounting hedges.
As of December 31, 2018 and 2017 , all derivative financial instruments were classified as Level 2. Our assessment of the level of an instrument can change over time based on the maturity or liquidity of the instrument, which can result in a change in the classification level of the financial instrument.
The following table presents the fair value associated with our derivative financial instruments as of December 31, 2018 and 2017 .  All of our derivative instruments are subject to master netting arrangements which provide for the unconditional right of offset for all derivative assets and liabilities with a given counterparty in the event of default. We present assets and liabilities related to these instruments in our consolidated balance sheets as either current or non-current assets or liabilities based on their anticipated settlement date, net of the impact of master netting agreements.  On derivative contracts recorded as assets in the table below, we are exposed to the risk that our counterparties may not perform.

68

 
Level 2
 
Derivative Assets
 
Derivative Liabilities
 
Gross
Fair Value
 
 
 
Balance Sheet Location
 
Gross
Fair Value
 
 
 
Balance Sheet Location
 
 
Impact of
Netting
 
Current
 
Non-current
 
 
Impact of
Netting
 
Current
 
Non-current
 
 
 
(in millions)
 
 
 
 
 
(in millions)
 
 
December 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative instruments
$
116

 
$
(2
)
 
$
101

 
$
13

 
$
(2
)
 
$
2

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative instruments
$
33

 
$
(11
)
 
$
18

 
$
4

 
$
(28
)
 
$
11

 
$
(17
)
 
$
—


For the years ended December 31, 2018 and 2017 , we recorded a derivative gain of $84 million and $41 million respectively. Derivative gains and losses on our oil, natural gas and NGLs financial derivative instruments are recorded in operating revenues in our consolidated income statements.

Credit Risk. We are subject to a risk of loss on our derivative instruments that could occur if our counterparties do not perform pursuant to the terms of their contractual obligations. We maintain credit policies with regard to our counterparties to minimize our overall credit risk. These policies require that we (i) evaluate potential counterparties’ financial condition to determine their credit worthiness; (ii) monitor our oil, natural gas and NGLs counterparties’ credit exposures; (iii) review significant counterparties' credit from physical and financial transactions on an ongoing basis; (iv) use contractual language that affords us netting or set-off opportunities to mitigate risk; and (v) when appropriate, require counterparties to post cash collateral, parent guarantees or letters of credit to minimize credit risk.  Our assets related to derivatives as of December 31, 2018 represent financial instruments from five counterparties, all of which are lenders associated with our Reserve-based Loan facility (RBL Facility) with an “investment grade” (minimum Standard & Poor’s rating of BBB+ or better) credit rating. Subject to the terms of our RBL Facility, collateral or other securities are not exchanged in relation to derivatives activities with the parties in the RBL Facility.
Other Fair Value Considerations. During the year ended December 31, 2018 , we recorded non-cash impairment
charges on our proved and unproved properties in the Permian basin. The estimate of fair value of our proved oil and natural gas properties used to determine the impairment was estimated using a discounted cash flow model and other relevant financial and transactional market participant data. These estimates represented a Level 3 fair value measurement. See Notes 1 and 3 for a further discussion of our impairment charges.

7.    Property, Plant and Equipment
Oil and Natural Gas Properties .  As of December 31, 2018 and 2017 , we had approximately $3.8 billion and $4.4 billion , respectively, of total property, plant, and equipment, net of accumulated depreciation, depletion, and amortization on our balance sheet, substantially all of which relates to proved and unproved oil and natural gas properties. During the fourth quarter of 2018, we recorded non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin. See Note 3 for details of the impairment charge.
Our capitalized costs related to proved and unproved oil and natural gas properties by area for the periods ended December 31 were as follows:
 
2018
 
2017
 
(in millions)
Proved
 
 
 
Eagle Ford
$
3,898

 
$
3,219

Northeastern Utah
1,659

 
1,542

Permian
1,787

 
2,705

Total Proved
7,344

 
7,466

Unproved
 
 
 
Permian
—

 
66

Less accumulated depletion
(3,607
)
 
(3,137
)
Net capitalized costs for oil and natural gas properties
$
3,737

 
$
4,395


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During 2018 and 2017 , we recorded less than $1 million and $5 million , respectively, of amortization of unproved leasehold costs in exploration expense in our consolidated income statement. During 2018, we transferred approximately $7 million from unproved properties to proved properties. Suspended well costs were not material as of December 31, 2018 or December 31, 2017 .
Asset Retirement Obligations.   We have legal asset retirement obligations associated with the retirement of our oil and natural gas wells and related infrastructure. We settle these obligations when production on those wells is exhausted, when we no longer plan to use them or when we abandon them. We accrue these obligations when we can estimate the timing and amount of their settlement.

In estimating the liability associated with our asset retirement obligations, we utilize several assumptions, including a credit-adjusted risk-free rate between 7 percent and 9 percent on a significant portion of our obligations and a projected inflation rate of 2.5 percent . Changes in estimates in the table below represent changes to the expected amount and timing of payments to settle our asset retirement obligations. Typically, these changes primarily result from obtaining new information about the timing of our obligations to plug and abandon oil and natural gas wells and the costs to do so, or reassessing our assumptions in light of changing market conditions. The net asset retirement liability as of December 31 on our consolidated balance sheet in other current and non-current liabilities and the changes in the net liability for the periods ended December 31 were as follows:
 
2018
 
2017
 
(in millions)
Net asset retirement liability at January 1
$
35

 
$
41

Liabilities incurred
1

 
—

Liabilities settled
—

 
(2
)
Accretion expense
3

 
3

Changes in estimate
3

 
(5
)
Liability reclassified as held for sale
—

 
(2
)
Net asset retirement liability at December 31
$
42

 
$
35


Capitalized Interest.   Interest expense is reflected in our financial statements net of capitalized interest. We capitalize interest primarily on the costs associated with drilling and completing wells until production begins using a weighted average interest rate on our outstanding borrowings. Capitalized interest for the years ended December 31, 2018 and 2017 was approximately $5 million and $4 million , respectively.


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8.    Long-Term Debt
Listed below are our debt obligations as of the periods presented:
 
Interest Rate
 
December 31, 2018
 
December 31, 2017
 
 
 
(in millions)
RBL credit facility - due November 23, 2021 (1)
Variable

 
$
100

 
$
595

Senior secured term loans:
 
 
 
 
 
Due May 24, 2018 (2)(3)
Variable

 
—

 
21

Due April 30, 2019 (4)
Variable

 
8

 
8

Senior secured notes:
 
 
 
 
 
Due May 1, 2024
9.375
%
 
1,092

 
—

Due November 29, 2024
8.00
%
 
500

 
500

Due February 15, 2025
8.00
%
 
1,000

 
1,000

Due May 15, 2026
7.75
%
 
1,000

 
—

Senior unsecured notes:
 
 
 
 
 
Due May 1, 2020
9.375
%
 
232

 
1,200

  Due September 1, 2022
7.75
%
 
182

 
250

  Due June 15, 2023
6.375
%
 
324

 
519

       Total debt
 

 
4,438

 
4,093

Less short-term debt, net of debt issue costs of less than $1 million
 
 
(58
)
 
(21
)
       Total long-term debt
 
 
4,380

 
4,072

Less debt discount and non-current portion of unamortized debt issue costs (5)
 
 
(95
)
 
(50
)
       Total long-term debt, net
 
 
$
4,285

 
$
4,022

 
(1)
Carries interest at a specified margin over LIBOR of 2.50% to 3.50% , based on borrowing utilization.
(2)
Issued at 99% of par and carries interest at a specified margin over the LIBOR of 2.75% , with a minimum LIBOR floor of 0.75% . As of December 31, 2017 , the effective interest rate of the term loan was 4.23% .
(3)
In April 2018, we retired the term loan in full.
(4)
Carries interest at a specified margin over the LIBOR of 3.50% , with a minimum LIBOR floor of 1.00% .  As of December 31, 2018 and 2017 , the effective interest rate for the term loan was 6.21% and 4.98% , respectively.
(5)
Includes debt discount of $42 million and less than $1 million as of December 31, 2018 and 2017 , respectively, associated with our senior secured notes maturing in 2024 and unamortized debt issue costs of $53 million and $50 million as of December 31, 2018 and 2017 , respectively.

In May 2018, we issued $1 billion of 7.75% senior secured notes which mature in 2026 and used the proceeds (less fees and expenses) to repay $907 million of the amounts outstanding at that time under our RBL Facility. In conjunction with issuing the notes, we also reduced the amount of RBL Facility commitments to $629 million , which resulted in recording a loss of $2 million reflecting the elimination of associated unamortized debt-issue costs.

In January 2018, we completed an exchange of approximately $1,147 million of our senior unsecured notes maturing in May 2020, September 2022 and June 2023 for new 9.375% senior secured notes maturing in 2024 with an aggregate principal amount of approximately $1,092 million . The exchange transaction was accounted for as a modification of debt for our senior unsecured notes maturing in May 2020 and an extinguishment of debt for our senior unsecured notes maturing in September 2022 and June 2023. In conjunction with the exchange, we incurred approximately $62 million in related fees, recording $48 million as debt discount associated with exchanging our 2020 notes and $12 million in loss on modification of debt. In addition, we recorded a net gain on extinguishment of debt in the amount of $53 million primarily associated with retiring a portion of our 2022 and 2023 notes at less than face value.

    







71

In 2018 and 2017 , we also repurchased additional debt as follows:
 
 
Year ended December 31,
 
 
2018
 
2017
 
 
(in millions)
Debt repurchased - face value (1)
 
84

 
157

Cash paid
 
49

 
118

Gain on extinguishment of debt (2)
 
34

 
37

 
(1)
In 2018 and 2017, repurchases were associated with 2022 and 2023 senior unsecured notes and 2020 and 2023 senior unsecured notes, respectively.
(2)
Includes $1 million and $2 million for the years ended December 31, 2018 and 2017, respectively, of non-cash expense related to eliminating associated unamortized debt issue costs.

In 2019, we paid approximately $40 million in cash to repurchase a total of $50 million in aggregate principal amount of our senior unsecured notes.     

In 2017, we issued $1 billion of 8.00% senior secured notes which mature in 2025 and used the proceeds to repay certain senior secured term loans and notes and repay a portion of the amounts outstanding under our RBL Facility. In conjunction with these transactions, we recorded a loss on extinguishment of debt of approximately $53 million (including $30 million in non-cash expense related to eliminating associated unamortized debt issue costs and debt discounts).


Reserve-based Loan Facility. We have a RBL Facility in place which allows us to borrow funds or issue letters of credit (LCs) up to $629 million .  The RBL Facility matures in November 2021. As of December 31, 2018 , we had $510 million of capacity remaining with approximately $19 million of LCs issued and $100 million outstanding under the RBL Facility. Listed below is a further description of our credit facility as of December 31, 2018 :
Credit Facility
 
Maturity
Date
 
Interest
Rate
 
Commitment fees
$1.36 billion RBL
 
November 23, 2021
 
LIBOR + 2.5% (1)
 2.5% for LCs
 
0.375% commitment fee on unused capacity
 
(1)
Based on our December 31, 2018 borrowing level. Amounts outstanding under the RBL Facility bear interest at specified margins over the LIBOR of between 2.50% and 3.50% for Eurodollar loans or at specified margins over the Alternative Base Rate ( ABR ) of between 1.50% and 2.50% for ABR loans. Such margins will fluctuate based on the utilization of the facility.
The RBL Facility is collateralized by certain of our oil and natural gas properties and has a borrowing base subject to semi-annual redetermination. In November 2018, our RBL Facility borrowing base was affirmed at $1.36 billion and total commitments remained at $629 million . Downward revisions of our oil and natural gas reserve volume and value due to declines in commodity prices, the impact of lower estimated capital spending in response to lower prices, performance revisions, or sales of assets or the incurrence of certain types of additional debt, among other items, could cause a reduction of our borrowing base in the future, and these reductions could be significant.

Restrictive Provisions/Covenants.  The availability of borrowings under our RBL Facility and our ability to incur additional indebtedness is subject to various financial and non-financial covenants and restrictions, including first lien debt to EBITDAX and current ratio financial covenants. First lien debt for purposes of the covenant only includes amounts borrowed under our RBL Facility. As part of our RBL Facility amendment in May 2018, we (i) extended our first lien debt to EBITDAX financial covenant and reduced the ratio to 2.25 to 1.00 and (ii) included a financial covenant for a current ratio (as defined in the RBL Facility) to be not less than 1.00 to 1.00. As of December 31, 2018 , we were in compliance with our debt covenants.
Under our various debt agreements, we are limited in our ability to repurchase certain tranches of non-RBL Facility debt. Certain other covenants and restrictions, among other things, also limit or place certain conditions on our ability to incur or guarantee additional indebtedness, make restricted payments, pay dividends on equity interests, redeem, repurchase or retire equity interests or subordinated indebtedness, sell assets, make investments, create certain liens, prepay debt obligations, engage in certain transactions with affiliates, and enter into certain hedging agreements.


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9.    Commitments and Contingencies
Legal Matters
We and our subsidiaries and affiliates are parties to various legal actions and claims that arise in the ordinary course of our business. For each matter, we evaluate the merits of the case or claim, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome.  If we determine that an unfavorable outcome is probable and can be estimated, we establish the necessary accruals. While the outcome of our current matters cannot be predicted with certainty and there are still uncertainties related to the costs we may incur, based upon our evaluation and experience to date, we believe we have established appropriate reserves for these matters. It is possible, however, that new information or future developments could require us to reassess our potential exposure and adjust our accruals accordingly, and these adjustments could be material. As of December 31, 2018 , we had approximately $5 million accrued for all outstanding legal matters.
FairfieldNodal v. EP Energy E&P Company , L.P. On March 3, 2014, Fairfield filed suit against one of our subsidiaries in the 157th District Court of Harris County, Texas, claiming we were contractually obligated to pay a transfer fee of approximately $21 million for seismic licensing, triggered by a change in control with the Sponsors' acquisition of our predecessor entity in 2012. Prior to the change in control, we had unilaterally terminated the seismic licensing agreements, and we returned the applicable seismic data. Fairfield also claimed EP Energy did not properly maintain the confidentiality of the seismic data and interpretations made from it. In April 2015, the district court granted summary judgment to EP Energy, and Fairfield then appealed. On July 6, 2017, an intermediate court of appeals in Texas reversed the judgment related to the transfer fee and denied rehearing on October 5, 2017. We filed a petition for review in the Texas Supreme Court in December 2017 and filed briefing on the merits in December 2018. At this time, we are unable to estimate the amount or range of possible loss, if any, on this matter.
Weyerhaeuser Company v. Pardee Minerals LLC, et al. On July 5, 2017, Weyerhaeuser filed suit against one of our subsidiaries, among other defendants, in the United States District Court for the Western District of Louisiana.  Weyerhaeuser seeks to recoup the value of production after November 2006 (approximately $15.6 million ) plus judicial interest (approximately $7.8 million at this time) from certain wells drilled by EP Energy between 2002 and 2013 on leases Weyerhaeuser claims were invalid.  Weyerhaeuser alleges that lessees prior to EP Energy had not drilled wells in good faith to perpetuate the associated mineral servitude (rights conveyed to produce minerals), rendering EP Energy’s subsequent lease invalid. A trial date has been set for December 9, 2019. At this time, we are unable to estimate the amount or range of possible loss, if any, on this matter.
Indemnifications and Other Matters. We periodically enter into indemnification arrangements as part of the divestiture of assets or businesses. These arrangements include, but are not limited to, indemnifications for income taxes, the resolution of existing disputes, environmental and other contingent matters. In addition, under various laws or regulations, we could be subject to the imposition of certain liabilities. For example, the decline in commodity prices has created an environment where there is an increased risk that owners and/or operators of assets previously purchased from us may no longer be able to satisfy plugging and abandonment obligations that attach to such assets. In that event, under various laws or regulations, we could be required to assume all, or a portion of the plugging or abandonment obligations on assets we no longer own or operate. As of December 31, 2018 , we had approximately $3 million accrued related to these indemnifications and other matters.
Non-Income Tax Matters. We are under a number of examinations by taxing authorities related to non-income tax matters. As of December 31, 2018 , we had approximately $42 million accrued (in other accrued liabilities in our consolidated balance sheet) in connection with ongoing examinations related to certain prior period non-income tax matters.

Environmental Matters
We are subject to existing federal, state and local laws and regulations governing environmental quality, pollution control and greenhouse gas (GHG) emissions. Numerous governmental agencies, such as the Environmental Protection Agency (EPA), issue regulations which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. Our management believes that we are in substantial compliance with applicable environmental laws and regulations, and we have not experienced any material adverse effect from compliance with these environmental requirements. For additional details on certain environmental matters, including matters related to climate change, air quality and other emissions, hydraulic fracturing regulations and waste handling, refer to Part I, Item 1A, "Risk Factors".
While our reserves for environmental matters are currently not material, there are still uncertainties related to the ultimate costs we may incur in the future in order to comply with increasingly strict environmental laws, regulations, and orders of regulatory agencies, as well as claims for damages to property and the environment or injuries to employees and other persons resulting from our current or past operations. Based upon our evaluation and experience to date, however, we believe

73

our accruals for these matters are adequate. It is possible that new information or future developments could result in substantial additional costs and liabilities which could require us to reassess our potential exposure related to these matters and to adjust our accruals accordingly, and these adjustments could be material.
Lease Obligations

Our noncancellable leases classified as capital leases for accounting purposes include certain compressors under long-term arrangements and are capitalized upon commencement of the lease term at the lower of the fair value of the leased asset or the present value of the minimum lease payments. Capitalized leased assets are included in other property, plant and equipment in our consolidated balance sheet and amortized over the lease term in depreciation, depletion and amortization in our consolidated statements of income. Capital lease obligations are included in other non-current liabilities in our consolidated balance sheet. As of December 31, 2018, the total carrying value of assets under capital lease was $13 million , net of accumulated depreciation of $1 million . We did not acquire any property and/or equipment under capital leases as of December 31, 2017.

Our noncancellable leases classified as operating leases for accounting purposes include those for office space and various equipment. All related payments for operating leases are recognized as expense on a straight-line basis over the lease term.

Future minimum annual rental commitments under non-cancelable future operating and capital lease commitments at December 31, 2018 , were as follows:
Year Ending December 31,
 
Operating Leases
 
Capital Leases
 
 
(in millions)
2019
 
$
4

 
$
5

2020
 
4

 
5

2021
 
4

 
4

2022
 
4

 
4

Thereafter
 
12

 
2

Total
 
$
28

 
$
20

Less: imputed interest
 
 
 
(8
)
   Present value of capital lease obligations
 
 
 
$
12

Rental expense for the years ended December 31, 2018 and 2017 was $7 million and $6 million , respectively.
Other Commercial Commitments
At December 31, 2018 , we have various commercial commitments totaling $260 million primarily related to commitments and contracts associated with volume and transportation, completion activities and seismic activities. Our annual obligations under these arrangements are $101 million in 2019 , $59 million in 2020 , $53 million in 2021 , $40 million in 2022 , and $7 million thereafter.
10.    Long-Term Incentive Compensation / 401(k) Retirement Plan
Overview. Under our current stock-based compensation plans (the EP Energy Corporation 2014 Omnibus Incentive Plan and 2017 EP Energy Corporation Employment Inducement Plan), we may issue to our employees and non-employee directors various forms of long-term incentive (LTI) compensation including stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares/units, incentive awards, cash awards, and other stock-based awards. We are authorized to grant awards of up to 36,832,525 shares of our common stock for awards under these plans, with 8,645,338 shares remaining available for issuance as of December 31, 2018 . 
In addition, in conjunction with the acquisition of certain of our subsidiaries by Apollo and other private equity investors in 2012 (the Acquisition), we issued Class B shares (formerly management incentive units intended to constitute profits interests) which become payable only on the achievement of certain predetermined performance measures as further described below.  No additional Class B shares are available for issuance.
We record stock-based compensation expense as general and administrative expense over the requisite service period. For the years ended December 31, 2018 and 2017 , we recognized pre-tax compensation expense related to our LTI programs, net of the impact of forfeitures of approximately $14 million and $(19) million , respectively, and recorded an associated income tax benefit of $4 million and $5 million for the years 2018 and 2017 , respectively. Included in compensation expense in 2017

74

is a reduction of approximately $33 million reflecting the forfeitures of LTI awards and the reversal of previously recognized compensation expense resulting from the change in our management and staff reductions in 2017.
Restricted stock.  We grant shares of restricted common stock which carry voting and dividend rights and may not be sold or transferred until they are vested. The fair value of our restricted stock is determined on the date of grant and these shares generally vest in equal amounts over 3 years from the date of the grant. A summary of the changes in our non-vested restricted shares for the year ended December 31, 2018 is presented below:
 
Number of Shares
 
Weighted Average
Grant Date Fair Value
per Share
Non-vested at December 31, 2017
5,283,986

 
$
4.93

Granted
7,016,525

 
$
1.94

Vested
(3,587,606
)
 
$
3.92

Forfeited
(1,652,571
)
 
$
4.00

Non-vested at December 31, 2018
7,060,334

 
$
2.69

The total unrecognized compensation cost related to these arrangements at December 31, 2018 was approximately $13 million , which is expected to be recognized over a weighted average period of 2 years .
Performance Share Units. In 2018 and 2017, we granted 618,720 and 912,000 performance share units (PSUs) to members of EP Energy's management team and certain EP Energy employees, of which 1,508,760 were outstanding at December 31, 2018 . The PSUs represent a contractual right to receive one share of EP Energy’s common stock if certain conditions are met, and the number of PSUs actually earned, if any, will be based upon achievement of specified stock price goals over a four -year performance period (grant date thru October 2021). For accounting purposes, the PSUs are treated as an equity award and will vest over a weighted average period of three years with expense recognized on an accelerated basis over the life of the award. Of the 1,508,760 PSU’s outstanding at December 31, 2018 , 1,224,000 shares will remain subject to certain settlement and transfer restrictions from November 2021 through October 2024 unless certain conditions are satisfied.

The grant date fair value of the 2018 and 2017 awards was approximately $5 million and $12 million , respectively, as determined by a Monte Carlo simulation, utilizing multiple input variables that determine the probability of satisfying the market condition stipulated in the award. Volatility was based on life-to-date volatility of EP Energy’s common stock, which has been publicly traded for an amount of time less than the contractual term of the award. We estimated the risk free rate based on zero coupon U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) that have a term equal to the length of the period from the valuation date to the final vest date. The following table summarizes the significant assumptions used to calculate the grant date fair value of the PSUs:
 
 
2018 Awards
 
2017 Awards
Expected Term in Years
 
4

 
6

Expected Volatility
 
89.62
%
 
100.03
%
Risk-Free Interest Rate
 
2.75
%
 
1.89
%

Total compensation cost related to our non-vested performance share units not yet recognized at December 31, 2018 was $9 million , which is expected to be recognized over a weighted average period of 3 years .

Other . We have issued and/or granted, in prior periods, (i) Class B shares (including those issued to EPE Employee Holdings, II, LLC, a subsidiary), which payout only occurs on the achievement of certain predetermined performance measures (e.g., certain liquidity events in which our private equity investors receive a return of at least one times their invested capital plus a stated return), (ii) stock options at a strike price of $19.82 per share and (iii) total shareholder return (TSR) based performance units treated as liability awards. Due to both reductions in force affecting the holders of these awards and/or declines in stock price performance in recent years, these awards will not materially impact the company and as of December 31, 2018 , we had (i) unrecognized compensation expense of $1 million related to Class B shares, which will only be recognized should the liquidity events described above occur and the right to such amounts become nonforfeitable and (ii) less than $1 million in unrecognized compensation cost for non-vested stock options and performance units, which is expected to be recognized over a weighted average period of 1 year .

401(k) Retirement Plan.  We sponsor a tax-qualified defined contribution retirement plan for a broad-based group of employees.  We make matching contributions (dollar for dollar up to 6% of eligible compensation) and non-elective employer contributions ( 5% of eligible compensation) to the plan, and individual employees are also eligible to contribute to the defined

75

contribution plan. During 2018 and 2017 , we contributed $6 million and $7 million , respectively, of matching and non-elective employer contributions. 

11.    Related Party Transactions
Joint Venture. In 2017, we entered into a drilling joint venture with Wolfcamp Drillco Operating L.P. (the Investor), which is managed and controlled by an affiliate of Apollo Global Management LLC, to fund future oil and natural gas development in the Permian basin.  Subsequently, Access Industries acquired an indirect minority ownership interest in the Investor and therefore is also indirectly responsible for funding a portion of the Investor’s capital commitment. The Investor agreed to fund 60 percent of the estimated drilling, completion and equipping costs in the joint venture wells, divided into two approximately $225 million investment tranches, in exchange for a 50 percent working interest. We are the operator of the joint venture assets. Once the Investor achieves a 12 percent internal rate of return on its invested capital in each tranche, its working interest reverts to 15 percent .  We have completed the planned activity in the first tranche. In April 2018, we amended the drilling joint venture to direct the second tranche investment to the Eagle Ford. The first wells in the second tranche began producing in the third quarter of 2018. At December 31, 2018 and 2017, we had accounts receivable of $47 million and $5 million , respectively, from our Investor and accounts payable of $20 million and $10 million , respectively, to our Investor reflected in our consolidated balance sheet.

Affiliate Payments.   In 2017, in connection with the release of members of the leadership team of a portfolio company of funds managed by Apollo Management, LLC (Apollo) affiliates to join the Company, the Company reimbursed that portfolio company approximately $4 million for money contributed to it by fund investors (other than Apollo).

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Supplemental Oil and Natural Gas Operations (Unaudited)
We are engaged in the exploration for, and the acquisition, development and production of oil, natural gas and NGLs, in the United States (U.S.).
Capitalized Costs. Capitalized costs relating to domestic oil and natural gas producing activities and related accumulated depreciation, depletion and amortization were as follows at December 31 (in millions):
 
2018
 
2017 (1)
Oil and natural gas properties
$
7,344

 
$
7,532

Less accumulated depreciation, depletion and amortization
3,607

 
3,137

Net capitalized costs (2)
$
3,737

 
$
4,395


(1)
December 31, 2017 does not include amounts related to certain assets in NEU as these capitalized costs are reflected as assets held for sale on our consolidated balance sheet.
(2)
During the year ended December 31, 2018, we recorded non-cash impairment charges of approximately $1,044 million and $59 million on our proved and unproved properties, respectively, in the Permian basin.

Total Costs Incurred. Costs incurred in oil and natural gas producing activities, whether capitalized or expensed, were as follows for the years ended December 31, 2018 and 2017 (in millions):
 
U.S.
2018:
 
Property acquisition costs
 
Proved properties (1)
$
322

Unproved properties
—

Exploration costs (capitalized and expensed)
7

Development costs
649

Costs expended
978

Asset retirement obligation costs
1

Total costs incurred
$
979

 
 
2017 Consolidated:
 
Property acquisition costs
 
Proved properties
$
7

Unproved properties (1)
27

Exploration costs (capitalized and expensed)
6

Development costs
544

Costs expended
584

Asset retirement obligation costs
—

Total costs incurred
$
584


(1)
Includes approximately $5 million for both of the years ended December 31, 2018 and 2017 related to lease extensions and renewals.

We capitalize salaries and benefits that we determine are directly attributable to our oil and natural gas activities. The table above includes capitalized labor costs of $14 million and $23 million for the years ended December 31, 2018 and 2017 , respectively, and capitalized interest of $5 million and $4 million for the same periods.
Oil and Natural Gas Reserves. We employed Ryder Scott Company, L.P. (Ryder Scott) to evaluate and prepare the estimates of our net proved reserves as of December 31, 2018 .  Ryder Scott prepared 100% (by volume) of our total net proved developed and undeveloped (PUD) reserves on a barrel of oil equivalent basis. The overall procedures and methodologies utilized by Ryder Scott in evaluating and preparing estimates of our net proved reserves as of December 31, 2018 complied with current SEC regulations. Ryder Scott’s report is included as an exhibit to this Annual Report on Form 10-K.
Net quantities of proved developed and undeveloped reserves of natural gas, oil and NGLs and changes in these reserves at December 31, 2018 presented in the tables below are based on Ryder Scott's report. Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at the time of the estimate. Our 2018 proved reserves were consistent with estimates of proved reserves filed with other federal agencies in 2018 except for differences of less than five percent resulting from actual production, acquisitions, property sales, necessary reserve revisions and additions to reflect actual experience.

77

 
Year Ended December 31, 2018 (1)
 
Natural Gas
(in Bcf)
 
Oil
(in MBbls)
 
NGLs
  (in MBbls)
 
Equivalent
Volumes
  (in MMBoe)
Proved developed and undeveloped reserves
 

 
 

 
 

 
 

Beginning of year
652

 
203,865

 
79,477

 
392.1

Revisions due to prices
31


7,975


3,932


17.1

Revisions other than prices (2)
(75
)

(31,581
)

(23,268
)

(67.4
)
Purchase of reserves
31

 
14,902

 
5,285

 
25.4

Sales of reserves in place
(20
)

(9,785
)

(152
)

(13.3
)
Production
(45
)

(16,719
)

(5,220
)

(29.4
)
End of year
574


168,657


60,054


324.5

 











Proved developed reserves:
 
 
 
 
 
 
 
Beginning of year
372

 
114,282

 
41,989

 
218.3

End of year
434


111,201


49,942


233.6

Proved undeveloped reserves:
 
 
 
 
 
 
 
Beginning of year
280

 
89,584

 
37,489

 
173.8

End of year
140


57,455


10,111


90.9


(1)
Proved reserves were evaluated based on the average first day of the month spot price for the preceding 12-month period of $65.56 per Bbl (WTI), $3.10 per MMBtu (Henry Hub) and $23.60 per Bbl of NGLs.
(2)
The 67 MMBoe of revisions other than prices primarily includes negative revisions of 74 MMBoe due to a reallocation of capital from the Permian to other development areas and a positive revision of 12 MMBoe associated with increased drilling activity in the Eagle Ford and NEU.

 
Year Ended December 31, 2017 (1)
 
Natural Gas
(in Bcf)
 
Oil
(in MBbls)
 
NGLs
  (in MBbls)
 
Equivalent
Volumes
  (in MMBoe)
Proved developed and undeveloped reserves
 

 
 

 
 

 
 

Beginning of year
732

 
219,783

 
90,575

 
432.4

Revisions due to prices
16

 
5,937

 
1,733

 
10.4

Revisions other than prices (2)
(72
)
 
(3,369
)
 
(11,950
)
 
(27.3
)
Extensions and discoveries (3) 
44

 
10,143

 
6,752

 
24.2

Purchase of reserves
—

 
102

 
16

 
0.1

Sales of reserves in place
(22
)
 
(11,898
)
 
(2,183
)
 
(17.7
)
Production
(46
)
 
(16,833
)
 
(5,466
)
 
(30.0
)
End of year
652

 
203,865

 
79,477

 
392.1

 
 
 
 
 
 
 
 
Proved developed reserves:
 

 
 

 
 

 
 

Beginning of year
346

 
108,133

 
38,887

 
204.6

End of year
372

 
114,282

 
41,989

 
218.3

Proved undeveloped reserves:
 

 
 

 
 

 
 

Beginning of year
386

 
111,649

 
51,689

 
227.8

End of year
280

 
89,584

 
37,489

 
173.8


(1)
Proved reserves were evaluated based on the average first day of the month spot price for the preceding 12-month period of $51.34 per Bbl (WTI) and $2.98 per MMBtu (Henry Hub).
(2)
The 27 MMBoe of revisions other than prices includes 23 MMBoe of negative PUD revisions due to a reallocation of capital in our development areas and 4 MMBoe of negative revisions. The negative 4 MMBoe of revisions includes a negative revision of 13 MMBoe in the Permian, a net positive revision of 6 MMBoe in Eagle Ford and a net positive revision of 3 MMBoe in NEU.
(3)
The 24 MMBoe of extensions and discoveries are all in the Permian. Of the 24 MMBoe of extensions and discoveries, 16 MMBoe were liquids representing 70% of EP Energy’s total extensions and discoveries.

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In accordance with SEC Regulation S-X, Rule 4-10 as amended, we use the 12-month average price calculated as the unweighted arithmetic average of the spot price on the first day of each month preceding the 12-month period prior to the end of the reporting period. The first day 12-month average price used to estimate our proved reserves at December 31, 2018 was $65.56 per barrel of oil (WTI), $3.10 per MMBtu for natural gas (Henry Hub) and $ 23.60 per Bbl of NGLs.
All estimates of proved reserves are determined according to the rules prescribed by the SEC in existence at the time estimates were made. These rules require that the standard of “reasonable certainty” be applied to proved reserve estimates, which is defined as having a high degree of confidence that the quantities will be recovered. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as more technical and economic data becomes available, a positive or upward revision or no revision is much more likely than a negative or downward revision. Estimates are subject to revision based upon a number of factors, including many factors beyond our control such as reservoir performance, prices, economic conditions and government restrictions. In addition, as a result of drilling, testing and production subsequent to the date of an estimate; a revision of that estimate may be necessary.
Reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. Estimating quantities of proved oil and natural gas reserves is a complex process that involves significant interpretations and assumptions and cannot be measured in an exact manner. It requires interpretations and judgment of available technical data, including the evaluation of available geological, geophysical, and engineering data. The accuracy of any reserve estimate is highly dependent on the quality of available data, the accuracy of the assumptions on which they are based upon economic factors, such as oil and natural gas prices, production costs, severance and excise taxes, capital expenditures, workover and remedial costs, and the assumed effects of governmental regulation. In addition, due to the lack of substantial, if any, production data, there are greater uncertainties in estimating proved undeveloped reserves, proved developed non-producing reserves and proved developed reserves that are early in their production life. As a result, our reserve estimates are inherently imprecise.
The meaningfulness of reserve estimates is highly dependent on the accuracy of the assumptions on which they were based. In general, the volume of production from oil and natural gas properties we own declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or acquire additional properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Subsequent to December 31, 2018 , there have been no major discoveries, favorable or otherwise, on our proved reserves volumes that may be considered to have caused a significant change in our estimated proved reserves at December 31, 2018 .
Results of Operations. Results of operations for oil and natural gas producing activities for the years ended December 31, 2018 and 2017 (in millions):
 
U.S.
2018:
 
Net Revenues (1)  — Sales to external customers
$
1,240

Costs of products and services
(111
)
Production costs (2) 
(231
)
Impairment charges
(1,103
)
Depreciation, depletion and amortization (3) 
(496
)
Exploration and other expense
(5
)
 
(706
)
Income tax benefit
148

Results of operations from producing activities
$
(558
)
 
 
2017:
 
Net Revenues (1)  — Sales to external customers
$
1,025

Costs of products and services
(131
)
Production costs (2) 
(223
)
Depreciation, depletion and amortization (3) 
(476
)
Exploration and other expense
(12
)
 
183

Income tax expense
(66
)
Results of operations from producing activities
$
117


79

 
(1)
Excludes the effects of oil and natural gas derivative contracts.
(2)
Production costs include lease operating expense and production related taxes, including ad valorem and severance taxes.
(3)
Includes accretion expense on asset retirement obligations of $3 million for each of the years ended December 31, 2018 and 2017 .


Standardized Measure of Discounted Future Net Cash Flows. The standardized measure of discounted future net cash flows relating to our consolidated proved oil and natural gas reserves at December 31 is as follows (in millions):
 
U.S.
 
 
2018:
 
Future cash inflows (1) 
$
13,278

Future production costs
(4,708
)
Future development costs
(1,703
)
Future income tax expenses
(456
)
Future net cash flows
6,411

10% annual discount for estimated timing of cash flows
(3,061
)
Standardized measure of discounted future net cash flows
$
3,350

 
 
2017:
 
Future cash inflows (1) 
$
12,395

Future production costs
(5,363
)
Future development costs
(2,692
)
Future income tax expenses
(149
)
Future net cash flows
4,191

10% annual discount for estimated timing of cash flows
(2,158
)
Standardized measure of discounted future net cash flows
$
2,033

 
(1)
The company had no commodity-based derivative contracts designated as accounting hedges at December 31, 2018 and 2017 . Amounts also exclude the impact on future net cash flows of derivatives not designated as accounting hedges.



80

Changes in Standardized Measure of Discounted Future Net Cash Flows. The following are the principal sources of change in our consolidated standardized measure of discounted future net cash flows (in millions):

 
Year Ended December 31, (1)
 
2018
 
2017
Consolidated:
 

 
 

Sales and transfers of oil and natural gas produced net of production costs
$
(1,005
)
 
$
(801
)
Net changes in prices and production costs
1,620

 
1,048

Extensions, discoveries and improved recovery, less related costs
—

 
98

Changes in estimated future development costs
360

 
(196
)
Previously estimated development costs incurred during the period
381

 
441

Revision of previous quantity estimates
(677
)
 
(181
)
Accretion of discount
228

 
157

Net change in income taxes
(80
)
 
(1
)
Purchase of reserves in place
355

 
1

Sales of reserves in place
(165
)
 
(48
)
Change in production rates, timing and other
300

 
488

Net change
$
1,317

 
$
1,006

 
 
 
 
Representative NYMEX prices: (2)
 

 
 

Oil (Bbl)
$
65.56

 
$
51.34

Natural gas (MMBtu)
$
3.10

 
$
2.98

 
(1)
This disclosure reflects changes in the standardized measure calculation excluding the effects of hedging activities.
(2)
Average first day of the month spot price for the preceding 12-month period before price differentials and deducts. Price differentials and deducts were applied when the estimated future cash flows from estimated production from proved reserves were calculated.


81

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2018 , we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), as to the effectiveness, design and operation of our disclosure controls and procedures. This evaluation considered the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in the U.S. Securities and Exchange Commission reports we file or submit under the Exchange Act is accurate, complete and timely. Our management, including our CEO and our CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent and/or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our CEO and CFO concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of December 31, 2018 . See Part II, Item 8, “Financial Statements and Supplementary Data” under Management’s Annual Report on Internal Control Over Financial Reporting.
Design and Evaluation of Internal Control Over Financial Reporting .
Our management has included a report of their assessment of the design and effectiveness of our internal controls over financial reporting as part of this Annual Report for the fiscal year ended December 31, 2018 . The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting. These reports are included in “Item 8. Financial Statements and Supplementary Data” under the captions entitled “Management’s Annual Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” (referencing the “Opinion on Internal Control over Financial Reporting”), respectively, and are incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B.    OTHER INFORMATION
None.

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Table of Contents

PART III
Item 10.     Directors, Executive Officers and Corporate Governance
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.
Item 11.     Executive Compensation
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.
Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.
Item 13.     Certain Relationships and Related Transactions and Director Independence
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.
Item 14.     Principal Accountant Fees and Services
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.



83
Table of Contents

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
1. Financial statements: Refer to Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
2. Financial statement schedules: Refer to Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
 
3. and (b). Exhibits
The exhibits identified below are filed as part of this report and are hereby incorporated herein by reference. The list below is a list of those exhibits filed herewith, and includes and identifies management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.
The agreements included as exhibits to this report are intended to provide information regarding their terms and not to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by the parties to the agreements, including us, solely for the benefit of the other parties to the applicable agreements and:
• should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
• may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
• may apply standards of materiality in a way that is different from what may be viewed as material to certain investors; and
• were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
Exhibits filed with this report are designated by “*”. All exhibits not so designated are incorporated herein by reference to a prior filing as indicated. Exhibits designated with a “+” constitute a management contract or compensatory plan or arrangement. Exhibits designated with a “†” indicate that a confidential treatment has been granted with respect to certain portions of the exhibit. Omitted portions have been filed separately with the SEC. Exhibits designated with a "#" have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A list of these exhibits and schedules is included after the table of contents in the Participation and Development Agreement. The Company agrees to furnish a supplemental copy of any such omitted exhibit or schedule to the SEC upon request.














84
Table of Contents


Exhibit No.
 
Exhibit Description
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 

85
Table of Contents

Exhibit No.
 
Exhibit Description
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 

 
 
 

86
Table of Contents

Exhibit No.
 
Exhibit Description
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 

87
Table of Contents

Exhibit No.
 
Exhibit Description
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 
Consent and Acknowledgement, dated as of January 3, 2018, by Wilmington Trust, National Association, as an Other Second-Priority Lien Obligations Agent, and acknowledged by JPMorgan Chase Bank, N.A., as Applicable First Lien Agent, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% 2024 Notes, Wilmington Trust, National Association, as Term Facility Agent for the holders of the 8.00% 2025 Notes and Applicable Second Lien Agent and EP Energy LLC (on behalf of itself and its subsidiaries), with respect to the Priority Lien Intercreditor Agreement dated as of August 24, 2016 and supplemented on November 29, 2016 and February 6, 2017 (Exhibit 10.1 to Company’s Current Report on Form 8-K, filed with the SEC on January 4, 2018).
 
 
 
 
Consent and Acknowledgement, dated as of January 3, 2018, by Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent, and acknowledged by JPMorgan Chase Bank, N.A., as Applicable First Lien Agent, Wilmington Savings Fund Society, FSB (as successor to Citibank, N.A.), as Applicable Second Lien Agent, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% 2024 Notes, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% 2025 Notes, and EP Energy LLC (on behalf of itself and its subsidiaries), with respect to the Amended and Restated Senior Lien Intercreditor Agreement dated as of August 24, 2016 and supplemented on November 29, 2016 and February 6, 2017 (Exhibit 10.2 to Company’s Current Report on Form 8-K, filed with the SEC on January 4, 2018).

 
 
 
 


88
Table of Contents

Exhibit No.
 
Exhibit Description
 

 
 
 
 


 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consent and Acknowledgement, dated as of May 23, 2018, by Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent, and acknowledged by JPMorgan Chase Bank, N.A., as Applicable First Lien Agent, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% Senior Secured Notes due 2024, Wilmington Trust, National Association, as Term Facility Agent for the holders of the 8.00% Senior Secured Notes due 2025 and Applicable Second Lien Agent, Wilmington Trust, National Association, as an Other Second-Priority Lien Obligations Agent for the holders of the 9.375% Senior Secured Notes due 2024 and EP Energy LLC (on behalf of itself and its subsidiaries), with respect to the Priority Lien Intercreditor Agreement dated as of August 24, 2016 (Exhibit 10.6 to Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018).
 
 
 
 
Consent and Acknowledgement, dated as of May 23, 2018, by Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent, and acknowledged by JPMorgan Chase Bank, N.A., as Applicable First Lien Agent, Wilmington Savings Fund Society, FSB (as successor to Citibank, N.A.), as Applicable Second Lien Agent, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% Senior Secured Notes due 2024, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 8.00% Senior Secured Notes due 2025, Wilmington Trust, National Association, as an Other First-Priority Lien Obligations Agent for the holders of the 9.375% Senior Secured Notes due 2024, and EP Energy LLC (on behalf of itself and its subsidiaries), with respect to the Amended and Restated Senior Lien Intercreditor Agreement dated as of August 24, 2016 (Exhibit 10.7 to Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

89
Table of Contents

 
 
 
Exhibit No.
 
Exhibit Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

90
Table of Contents

 
 
 
Exhibit No.
 
Exhibit Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS*
 
XBRL Instance Document.
 
 
 
101.SCH*
 
XBRL Schema Document.
 
 
 
101.CAL*
 
XBRL Calculation Linkbase Document.
 
 
 
101.DEF*
 
XBRL Definition Linkbase Document.
 
 
 
101.LAB*
 
XBRL Labels Linkbase Document.
 
 
 
101.PRE*
 
XBRL Presentation Linkbase Document.
(c) Financial statement schedules
Financial statement schedules have been omitted because they are either not required or not applicable.
ITEM 16. FORM 10-K SUMMARY
None.

91
Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, EP Energy Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18th day of March  2019 . 
 
EP ENERGY CORPORATION
 
 
 
 
By:
/s/ Russell E. Parker
 
 
Russell E. Parker
 
 
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of EP Energy Corporation and in the capacities and on the dates indicated:
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Russell E. Parker
 
 
 
 
Russell E. Parker
 
President, Chief Executive Officer and Director (Principal Executive Officer)
 
March 18, 2019
 
 
 
 
 
/s/ Kyle A. McCuen
 
 
 
 
Kyle A. McCuen
 
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
 
March 18, 2019
 
 
 
 
 
/s/ Alan R. Crain, Jr.
 
 
 
 
Alan R. Crain, Jr.
 
Chairman of the Board
 
March 18, 2019
 
 
 
 
 
/s/ Gregory A. Beard
 
 
 
 
Gregory A. Beard
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Scott R. Browning
 
 
 
 
Scott R. Browning
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Wilson B. Handler
 
 
 
 
Wilson B. Handler
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ John J. Hannan
 
 
 
 
John J. Hannan
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ J. Barton Kalsu
 
 
 
 
J. Barton Kalsu

 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Rajen Mahagaokar
 
 
 
 
Rajen Mahagaokar

 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Robert C. Reeves
 
 
 
 
Robert C. Reeves
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Giljoon Sinn
 
 
 
 
Giljoon Sinn
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Robert M. Tichio
 
 
 
 
Robert M. Tichio
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Donald A. Wagner
 
 
 
 
Donald A. Wagner
 
Director
 
March 18, 2019
 
 
 
 
 
/s/ Rakesh Wilson
 
 
 
 
Rakesh Wilson
 
Director
 
March 18, 2019

92
Execution Version
Exhibit 2.4

SECOND AMENDMENT TO AMENDED AND RESTATED PARTICIPATION AND DEVELOPMENT AGREEMENT AND CERTAIN ASSOCIATED AGREEMENTS

This Second Amendment to Amended and Restated Participation and Development Agreement and certain Associated Agreements (this “ Second Amendment ”), dated as of December 19, 2018, is made and entered into between Wolfcamp DrillCo Operating L.P. ( “ Partner ”) and EP Energy E&P Company, L.P. (“ EP Energy ”). EP Energy and Partner are each referred to as a “ Party ” and collectively referred to as the “ Parties .” Capitalized terms used but not defined in this Second Amendment shall have the meanings given to such terms in the ARPDA (as hereinafter defined).

WHEREAS, Partner and EP Energy have entered into that certain Amended and Restated Participation and Development Agreement (as further amended, restated and/or supplemented from time to time, the “ ARPDA ”), dated as of April 27, 2018 (the “ Amendment Date ”);
WHEREAS , Partner and EP Energy have entered into that certain Operating Agreement, dated as of the Amendment Date (the “ Second Tranche JOA ”);
WHEREAS, the Parties previously amended ARPDA and the Second Tranche JOA pursuant to that certain First Amendment dated September 26, 2018 to reflect the changes made to Second Tranche – Phase 1; and
WHEREAS , the Parties desire to further amend the ARPDA and the Second Tranche JOA to reflect the Parties’ participation in Second Tranche – Phase 2 as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. Amendment to ARPDA Annex A to Exhibit A – Second Tranche . The Parties agree that, effective as of the Amendment Date, Annex A to Exhibit A – Second Tranche to the ARPDA is hereby deleted in its entirety and replaced with Annex A to Exhibit A – Second Tranche attached to this Second Amendment.
2.      Amendment to ARPDA Exhibit A – Second Tranche . The Parties agree that, effective as of the Amendment Date, Exhibit A – Second Tranche to the ARPDA is hereby deleted in its entirety and replaced with Exhibit A – Second Tranche attached to this Second Amendment.
3.      Amendment to ARPDA Exhibit B – Second Tranche . The Parties agree that, effective as of the Amendment Date, Exhibit B – Second Tranche to the ARPDA is hereby deleted in its entirety and replaced with Exhibit B – Second Tranche attached to this Second Amendment.
4.      Amendment to ARPDA Exhibit D – Second Tranche . The Parties agree that, effective as of the Amendment Date, Exhibit D – Second Tranche to the ARPDA is hereby deleted in its entirety and replaced with Exhibit D – Second Tranche attached to this Second Amendment.
5.      Amendment to ARPDA Schedules . The Parties acknowledge and agree that certain of the Schedules to the ARPDA are divided into two sections, with (i) a section including a label “First Tranche” which corresponds to disclosures made with respect to the First Tranche only (such portions




of such Schedules, the “ First Tranche Disclosures ”) and (ii) a section with no tranche label, which corresponds to disclosures made with respect to the Second Tranche only (such portions of such Schedules, the “ Second Tranche Disclosures ”). Pursuant to this Second Amendment, the Parties agree that, effective as of the Amendment Date, none of the First Tranche Disclosures will be amended, and the following Second Tranche Disclosures will be amended as follows:
(a)
Consents . The Second Tranche Disclosure of Schedule 11.1(d) to the ARPDA is hereby deleted in its entirety and replaced with Schedule 11.1(d) – Second Tranche attached to this Second Amendment.
(b)
Material Contracts . The Second Tranche Disclosure of Schedule 11.1(h) to the ARPDA is hereby deleted in its entirety and replaced with Schedule 11.1(h) – Second Tranche attached to this Second Amendment. The Parties acknowledge and agree that Partner has been provided with true and correct copies, in all respects, of all Material Contracts listed on Schedule 11.1(h) – Second Tranche attached to this Second Amendment.
(c)
Preferential Purchase Rights . The Second Tranche Disclosure of Schedule 11.1(j) to the ARPDA is hereby deleted in its entirety and replaced with Schedule 11.1(j) – Second Tranche attached to this Second Amendment.
(d)
Payout Status . The Second Tranche Disclosure of Schedule 11.1(t) is hereby deleted in its entirety and replaced with Schedule 11.1(t) – Second Tranche attached to this Second Amendment.
6.      Amendment to Second Tranche JOA .
(a)
The Parties agree that, effective as of the Amendment Date, Section 1 (Description of Wells and Formation Depths subject to this Agreement) of Exhibit A to the Second Tranche JOA is hereby deleted in its entirety and replaced with Schedule I attached hereto. The Parties further agree that, effective as of the Amendment Date, Section 1 (Description of Wells and Formation Depths subject to this Agreement) of Exhibit “A” to Exhibit H to the Second Tranche JOA is hereby deleted in its entirety and replaced with Schedule I attached hereto.
(b)
The Parties further agree that, effective as of the Amendment Date, Annex A to Exhibit A to the Second Tranche JOA and Annex A to Exhibit “A” to Exhibit H to the Second Tranche JOA are hereby deleted in their entirety and replaced with Schedule II attached hereto.
7.      Amendment to Second Tranche Recorded Deliverables . The Parties agree to use their commercially reasonable efforts to, promptly following the date of this Second Amendment, execute, acknowledge and record updated memoranda of (a) the ARPDA, in substantially the form of Exhibit J – Second Tranche to the ARPDA, and (b) the Second Tranche JOA, in substantially the form of Exhibit H to the Second Tranche JOA, to reflect the amendments to the Well Locations and Leases in the Second Tranche Drilling Program contained in this Second Amendment.




8.      Pumping Units . The Parties acknowledge and agree that all references to pumping units in the ARPDA are hereby deleted as set forth below.
Section 3.1(c) of the ARPDA is hereby deleted and replaced in its entirety to read:

“Subject to Sections 3.1(a) and 3.1(b) , as operator and as between the Parties, EP Energy will manage and control all Development Operations with respect to each Well Group or Elected Option Well Group and, during the period prior to the Completion of the last Farmout Well or Elected Option Well in such Well Group or Elected Option Well Group, as applicable, will have the sole right on behalf of the Parties to propose and conduct such Development Operations in accordance with this Agreement; provided that, subject to EP Energy’s consent (which consent may be granted or withheld in EP Energy’s sole discretion), Partner may propose additional activities such as workovers, installation of artificial lift and recompletions as permitted by the applicable JOA. Partner hereby authorizes EP Energy on its behalf to, during the period prior to the Completion of the last Farmout Well or Elected Option Well in such Well Group or Elected Option Well Group, as applicable, provide such notices, make such elections and take such actions as may reasonably be required under any JOA or any other Associated Agreement consistent with the terms and conditions of this Agreement (including any right of Partner to approve a Development Operation hereunder or thereunder that is part of an Approved Drilling Program with respect to such Well Group or Elected Option Well Group).”

Section 5.1(b) of the ARPDA is hereby deleted and replaced in its entirety to read:

“Subject to Section 4.3 , in addition to the amounts payable under Section 5.1(a) , for a period beginning on (i) the Original Execution Date with respect to the First Tranche (other than the First Tranche Initial Wells), and (ii) the Amendment Date with respect to the Second Tranche (other than the Second Tranche Initial Wells) and any Post-Reversion Eagle Ford Additional Well Group and ending upon the later of (A) the end of the Availability Period with respect to the First Tranche and Second Tranche (other than with respect to any Post-Reversion Eagle Ford Additional Well Group) and (B) the date that the last Farmout Well in a Post-Reversion Eagle Ford Additional Well Group is Completed (the applicable period, the “ Carry Period ”), and notwithstanding the terms of any JOA to the contrary, Partner will pay, on behalf of EP Energy and its Affiliates, 20% of all Qualified Costs otherwise included within EP Energy’s Initial EP Energy Working Interest Share of Well Costs for Farmout Wells (other than University 8-20 Farmout Wells) and 12% of all Qualified Costs otherwise included within EP Energy’s Initial EP Energy Working Interest Share of Well Costs for University 8-20 Farmout Wells, in each case, included in an Approved Drilling Program (all such Qualified Costs that Partner is obligated to pay, on behalf of EP Energy and its Affiliates, pursuant to this Section 5.1 , the “ Carried Costs ”). For the avoidance of doubt, if the Development Interest in any Farmout Well is a 100% Working Interest (on an 8/8ths basis) and if there is no Partner Qualified Cost Cap Make-Up Amount for the Well Group in which such Farmout Well is included during the Carry Period, then, subject to Section 4.3 , Partner would pay 60% (for Farmout Wells other than University 8-20 Farmout Wells,) and 45% (for University 8-20 Farmout Wells) of all Qualified Costs included in the Well Costs




and attributable to the Development Interest for such Farmout Well and Partner’s obligation to pay Carried Costs for such Farmout Well would terminate when such Farmout Well was initially Completed, online and producing. Subject to Section 4.3 , Partner will pay the Carried Costs in the same manner and at the same time it pays Partner’s Initial Partner Working Interest Share of Well Costs attributable for the Farmout Wells pursuant to Section 5.2(a) ; provided , that all such payments during the Carry Period will be deemed, first, to be a payment in respect of the Carried Costs due at such time and, second, and only to the extent that the portion of the Carried Costs that is due at such time is paid in full, to be a payment in respect of Partner’s Initial Partner Working Interest Share of Well Costs. Any reimbursement for any Carried Costs paid by Partner will be deducted from the calculation of the Carried Costs promptly after Partner’s receipt of such reimbursement. Any reimbursed amounts retained by EP Energy will be used towards future payment obligations of Partner for Carried Costs and Partner’s Initial Partner Working Interest Share of Well Costs.”

The last paragraph of Section 10.1 of the ARPDA is hereby deleted and replaced in its entirety to read:

“Notwithstanding anything herein to the contrary, if this Agreement is terminated pursuant to Section 10.1(c) or Section 10.1(d) , then the terminating party shall elect to (i) immediately withdraw from all Development Operations (even if included in a then-effective Approved Drilling Program) that have not commenced and terminate the Agreement effective upon Completion of those Development Operations that are ongoing or (ii) to continue this Agreement in full force and effect until the Completion of all Development Operations included in a then-effective Approved Drilling Program upon which time this Agreement shall terminate; provided that (x) if this Agreement is terminated pursuant to Section 10.1(c)(iii) or Section 10.1(c)(v) Partner’s right under this paragraph shall be limited to the extent of the Development Interests included in such EP Energy Well Location Change of Control or EP Energy Package Transfer (as applicable) and shall not apply regarding all Development Interests retained by EP Energy, (y) if this Agreement is terminated pursuant to Section 10.1(c)(iv)(A) Partner’s right under this paragraph shall be limited to the extent of the Development Interests included in the First Tranche, and (z) if this Agreement is terminated pursuant to Section 10.1(c)(iv)(B) Partner’s right under this paragraph shall be limited to the extent of the Development Interests included in the Second Tranche.”

The definition of “ Availability Period ” in the ARPDA is hereby deleted and replaced in its entirety to read:
““ Availability Period ” means the period beginning on the Original Execution Date and ending on the earliest to occur of (a) the later of (i) the date that the last Farmout Well in the First Tranche Drilling Program is Completed and (ii) the date that the last Farmout Well in the Second Tranche Drilling Program is Completed, and (b) the termination of this Agreement pursuant to the terms hereof.”
The definition of “ Qualified Costs ” in the ARPDA is hereby deleted and replaced in its entirety to read:




““ Qualified Costs ” means, with respect to any Farmout Well, until the earlier of (i) the completion of the operations to Complete the Farmout Well for production and (ii) the permanent plug and abandonment of such Farmout Well, (a) all Well Costs incurred that are capital costs and expenses customarily set forth on a drilling and Completing AFE for such Farmout Well in similar form and substance as (1) with respect to the First Tranche, the form attached as Exhibit M and (2) with respect to the Second Tranche, the form attached as Exhibit M – Second Tranche (each such form, a “ Representative AFE ”), and (b) all capital costs and expenses related to such Well that are associated with (A) the drilling, testing, evaluating, fracture stimulating and Completing such Well through the wellsite separator, including costs of mobilizing and demobilizing drilling rigs to and from the well-site, (B) deepening, sidetracking and plugging back of such Well, (C) the plugging and abandonment of dry holes related to such Well, (D) permitting such Well and (E) reclamation and related costs relating to such Well (other than reclamation and related costs required to remediate contamination of air, groundwater, surface water, soil, sediments or other media); provided that “ Qualified Costs ” will not include Liabilities, losses, claims and damages associated with such activities or otherwise (including Liabilities arising under Section 4.3(b) ), and related costs of investigation, litigation, arbitration, administrative proceedings, judgment, award and settlement (including court and arbitration costs and attorneys’ fees), (in each case) to the extent attributable to actual or claimed personal injury, illness or death, property damage (other than damage to structures, fences, irrigation systems and other fixtures, crops, livestock and other personal property in the ordinary course of business), environmental damage or contamination, other torts, breach of contract, violation of Law (or private rights of action under any Law), casualty or condemnation.”
9.      Confirmation . Except as otherwise provided herein, the terms of this Second Amendment shall not alter or otherwise modify the provisions of the ARPDA, with all such provisions remaining in full force and effect in accordance with their respective terms following the execution of this Second Amendment. The Parties hereby ratify the ARPDA as amended pursuant to this Second Amendment and agree that the Second Tranche Drilling Program, as amended by this Second Amendment, is an Approved Second Tranche Phase and shall be deemed part of the Approved Drilling Program for the Second Tranche pursuant to the ARPDA.
10.      Choice of Law . This Second Amendment, the ARPDA and the legal relations among the Parties will be governed and construed in accordance with the laws of the State of Texas, excluding any conflicts of law rule or principle that might refer construction of such provisions to the laws of another jurisdiction. All of the Parties consent to the exercise of jurisdiction in personam by the federal courts of the United States of America located in Harris County, Texas or the state courts located in Harris County, Texas for any action arising out of this Second Amendment, the ARPDA, the other Associated Agreements or any transaction contemplated hereby or thereby. All actions or proceedings with respect to, arising directly or indirectly in connection with, out of, related to or from this Second Amendment, the ARPDA, the other Associated Agreements or any transaction contemplated hereby or thereby will be exclusively litigated in courts having sites in Harris County, Texas. Each Party hereto waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to this Second Amendment, the ARPDA, the other Associated Agreements or any transaction contemplated hereby or thereby.
11.      Amendment . This Second Amendment may be amended, restated, supplemented or otherwise modified only by an instrument in writing executed by all Parties specifically referring to the




terms to be amended, restated, supplemented and/or modified and expressly identified as an amendment, restatement, supplement or modification.
12.      Counterparts . This Second Amendment may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile or other electronic transmission shall be deemed an original signature hereto. The provisions of Sections 13.1 through 13.2, 14.1 through 14.17 and 14.20 of the ARPDA are hereby incorporated into this Agreement by reference.
[ Remainder of page intentionally left blank. Signature pages follow. ]





IN WITNESS WHEREOF, the Parties have executed and delivered this Second Amendment as of the date first written above.
 
WOLFCAMP DRILLCO OPERATING, L.P.
 
By:
Wolfcamp DrillCo Operating GP LLC, its General Partner
 
By:
Wolfcamp DrillCo LLC, its sole member

 
 
 
 
By:
/s/ Michael Becci

 
Name:
Michael Becci
 
Title:
Authorized Person



SIGNATURE PAGE TO SECOND AMENDMENT TO
AMENDED AND RESTATED PARTICIPATION AND DEVELOPMENT AGREEMENT




 
EP ENERGY E&P COMPANY, L.P.
 
 
 
 
By:
/s/ Raymond Ambrose

 
Name:
Raymond Ambrose
 
Title:
Senior Vice President


SIGNATURE PAGE TO SECOND AMENDMENT TO
AMENDED AND RESTATED PARTICIPATION AND DEVELOPMENT AGREEMENT


Annex A to Exhibit A – Second Tranche






Exhibit A – Second Tranche

[See attached.]





Exhibit B – Second Tranche

[See attached.]







Exhibit D – Second Tranche

[See attached.]





Schedule 11.1(d) – Second Tranche

[See attached.]






Schedule 11.1(h) – Second Tranche

[See attached.]





Schedule 11.1(j) – Second Tranche

[See attached.]






Schedule 11.1(t) – Second Tranche

[See attached.]






Schedule I

[See attached.]




Schedule II

[See attached.]


Execution Version EIGHTH AMENDMENT TO CREDIT AGREEMENT AND AMENDMENT TO COLLATERAL AGREEMENT EIGHTH AMENDMENT TO CREDIT AGREEMENT AND AMENDMENT TO COLLATERAL AGREEMENT, dated as of May 23, 2018 (this “Amendment”), to the Credit Agreement, dated as of May 24, 2012 (as amended, amended and restated, modified or supplemented from time to time prior to the date hereof, the “Credit Agreement”), among EPE Acquisition, LLC, a Delaware limited liability company (successor-by-merger to EPE Holdings, LLC) (“Holdings”), EP Energy LLC (f/k/a Ev- erest Acquisition LLC), a Delaware limited liability company and a wholly-owned subsidiary of Holdings (the “Borrower”), the banks, financial institutions and other lending institutions from time to time parties as lenders thereto (each a “Lender” and collectively, the “Lenders”), JPMorgan Chase Bank, N.A., as ad- ministrative agent for the Lenders (in such capacity, the “Administrative Agent”) and as collateral agent for the Lenders, the swingline lender and an issuer of Letters of Credit, and each other Issuing Bank from time to time party thereto. W I T N E S S E T H: WHEREAS, Section 13.1 of the Credit Agreement permits the Administrative Agent and/or the Collateral Agent and the requisite Lenders to enter into written amendments, supplements or modifications to the Credit Agreement and the other Credit Documents with the relevant Credit Parties. WHEREAS, the parties hereto desire to enter into this Amendment to (a) decrease the Total Commitment to $629,420,912, to be effective as of the Amendment Effective Date (as defined be- low); (b) extend the maturity date of the Credit Agreement; (c) reaffirm the existing Borrowing Base of $1,359,235,400; and (d) amend certain other terms of the Credit Agreement and certain other Credit Doc- uments in certain respects as provided in this amendment. WHEREAS, in connection with this Amendment and the decrease of the Total Commit- ment, the Borrower and each of the Lenders that has executed this Amendment (each a “Continuing Lender”) agrees (severally and not jointly) that, notwithstanding anything to the contrary set forth in Sec- tion 4.2 of the Credit Agreement with respect to the proportional allocation of any reduction in the Total Commitment to each of the Lenders: (a) the respective Commitment of each of the Lenders listed on An- nex I hereto (each an “Exiting Lender”) is hereby reduced to $0 (as reflected opposite its name on the amended Schedule 1.1(a) attached hereto as Annex II) and, after giving effect thereto, each such Exiting Lender shall cease to be a Lender party to the Credit Agreement, and (b) the respective Commitment of each of the Continuing Lenders is hereby reduced or maintained, as applicable, and otherwise rearranged and adjusted, to the amount set forth opposite such Continuing Lender’s name on the amended Sched- ule 1.1(a) attached hereto as Annex II. NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowl- edged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I Section 1.1. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement unless otherwise defined herein or the context otherwise requires. 727682070 12335469

 
ARTICLE II Section 2.1. Reduction in Total Commitments. On the Amendment Effective Date and notwithstanding anything to the contrary in Section 4.2 of the Credit Agreement with respect to the proportional allocation of any reduction in the Total Commitment to each of the Lenders (but subject to the stipulation set forth in Section 2.2 hereof), (a) each of the parties hereto hereby acknowledges and agrees that the Total Commitments are reduced to $629,420,912, (b) each Continuing Lender hereby acknowledges and agrees (severally and not jointly) with the Borrower that the Commitment of each Exit- ing Lender is hereby reduced to $0 (as reflected opposite each such Exiting Lender’s respective name on the amended Schedule 1.1(a) attached hereto as Annex II) and, after giving effect thereto, each such Exit- ing Lender shall cease to be a Lender party to the Credit Agreement (provided that, for the avoidance of doubt, each provision of the Credit Agreement or any other Credit Document benefiting an Exiting Lend- er that would otherwise survive such Exiting Lender’s assignment in full of its respective Commitment shall continue in effect for the benefit of such Exiting Lender notwithstanding that its Commitment has been reduced to $0), (c) the respective Commitment of each of the Continuing Lenders is hereby reduced or maintained, as applicable, and otherwise rearranged and adjusted, to equal the amount set forth oppo- site such Continuing Lender’s respective name on the amended Schedule 1.1(a) attached hereto as An- nex II, and (d) each Continuing Lender (severally and not jointly) assumes a portion of each Exiting Lender’s Letter of Credit Exposure such that, after giving effect thereto, each Continuing Lender will hold Letter of Credit Exposure in proportion to its Commitment Percentage on the Amendment Effective Date (after giving effect to this Amendment). The parties hereto acknowledge and agree that this Amendment constitutes and satisfies any requisite notice provisions with respect to the reduction in Commitments or prepayment of Loans pursuant to the Credit Agreement (including any such notice re- quirements contemplated under Sections 4.2, 5.1 or 5.2(a) of the Credit Agreement). Section 2.2. Stipulation Regarding Sequence of Commitment Reduction, Amend- ments and Redetermination. Each party hereto hereby acknowledges and agrees (severally and not joint- ly) that (a) after giving effect to the reduction and rearrangement of Commitments and the other transac- tions pursuant to Section 2.1 hereof, (i) each Exiting Lender will no longer have any Commitments, out- standing Loans or Letter of Credit Exposures under the Credit Agreement and (ii) the Continuing Lenders shall comprise all of the Lenders for purposes of approving the amendments to the Credit Agreement and the other Credit Documents that are implemented by Sections 3 and 4 of this Amendment and the rede- termination of the Borrowing Base pursuant to Section 5 of the Amendment, and (b) the reduction and rearrangement of Commitments and the other transactions pursuant to Section 2.1 hereof shall be deemed to have occurred immediately prior to the amendments implemented pursuant to Section 3 and Section 4 hereof and the redetermination of the Borrowing Base pursuant to Section 5 hereof. ARTICLE III Section 3.1. Amendments to the Credit Agreement. (a) On the Amendment Effective Date, the Credit Agreement is hereby amended by deleting the stricken text (indicated textually in the same manner as the following example: stricken text) and by inserting the bold double-underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the pages of the Credit Agreement attached as Exhibit A hereto. (b) Each of Schedules 1.1(a), 8.12, 8.18, 8.19, 8.20 and 8.24 to the Credit Agreement as in effect immediately prior to the Amendment Effective Date is hereby amended and restated -2- 727682070 12335469

 
as set forth on the revised and updated applicable Schedules attached to this Amendment as Annex II. ARTICLE IV Section 4.1. Amendments to Other Credit Documents. On the Amendment Effective Date, Section 3.01(a) of the Collateral Agreement is hereby amended by deleting the final sentence there- of and inserting in its place the following new final sentence: “With respect to the Collateral, no control agreements or control arrangements will be required with respect to any Deposit Accounts, Securities Ac- counts, Commodity Contracts or any other asset, the perfection of a security interest in which specifically requires a control arrangement or control agreement (other than the delivery of Pledged Securities to the Agent to the extent required by Article II and other than Control Agreements (as defined in the Credit Agreement) required by Section 9.11(e) of the Credit Agreement).” ARTICLE V Section 5.1. Lender Approval of Redetermined Borrowing Base. Each Continuing Lender party to this Amendment acknowledges and agrees that its delivery of a counterpart signature page to this Amendment shall constitute an affirmative approval by such Continuing Lender of the rede- termination of the Borrowing Base pursuant to this Article V. Section 5.2. Redetermination of Borrowing Base. On the Amendment Effective Date, and until further adjusted, if at all, pursuant to the next redetermination of the Borrowing Base in accordance with the provisions of Section 2.14 of the Credit Agreement or otherwise, the amount of the Borrowing Base under the Credit Agreement shall be reaffirmed at $1,359,235,400. For the avoidance of doubt, the Borrowing Base redetermination has taken into account the incurrence of Permitted Additional Debt on the Amendment Effective Date and shall not be further adjusted in connection with such incur- rence. Section 5.3. Stipulations Regarding Borrowing Base Redetermination. The Borrow- er, on the one hand, and the Administrative Agent and the Continuing Lenders, on the other hand, agree that the redetermination of the Borrowing Base pursuant to this Article V shall constitute the regularly scheduled semi-annual April 2018 redetermination of the Borrowing Base pursuant to Section 2.14 of the Credit Agreement. ARTICLE VI Section 6.1. Conditions to Effectiveness. This Amendment shall become effective on the date (the “Amendment Effective Date”) on which: (a) The Administrative Agent shall have received this Amendment, executed and delivered by a duly authorized officer of each of the Borrower, Holdings, each other Credit Party and each of the Continuing Lenders. (b) The Administrative Agent shall have received, in the case of each Credit Party, each of the items referred to in subclauses (i), (ii) and (iii) below: (i) a copy of the certificate or articles of incorporation, certificate of limited partnership or certificate of formation, including all amendments thereto, of each Credit Party, in each case, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization, and a certificate as to the good -3- 727682070 12335469

 
standing (to the extent such concept or a similar concept exists under the laws of such ju- risdiction) of each such Credit Party as of a recent date from such Secretary of State (or other similar official); (ii) a certificate of the Secretary or Assistant Secretary or similar of- ficer of each Credit Party dated the Amendment Effective Date and certifying: (A) that attached thereto is a true and complete copy of the bylaws (or partnership agreement, limited liability company agreement or other equivalent governing document) of such Credit Party as in effect on the Amendment Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or managing general partner, managing member or equivalent) of such Credit Party authorizing the execution, delivery and performance of this Amendment, the Credit Agreement as amended hereby, and other the Credit Documents or amendments thereto, to which such person is a party and, in the case of the Borrower, the borrowings under the Credit Agreement as amended hereby, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Amendment Effective Date, (C) that the certificate or articles of incorporation, certificate of limited partnership, articles of incorporation or certificate of formation of such Credit Party has not been amended since the date of the last amendment thereto disclosed pursuant to subclause (i) above, (D) as to the incumbency and specimen signature of each officer executing this Amendment and any other Credit Document or any other document delivered in connection herewith on behalf of such Credit Party, and (E) as to the absence of any pending proceeding for the dissolution or liquidation of such Credit Party; and (iii) a certificate of a director or an officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary or similar officer executing the certificate pursuant to subclause (ii) above. (c) The Administrative Agent shall have received a certificate from an officer of the Borrower certifying that, as of the Amendment Effective Date, the Borrower is in compliance with Section 9.11 of the Credit Agreement, including with respect to the Collateral Coverage Minimum. (d) The Administrative Agent shall have received, on behalf of itself and the Secured Parties on the Amendment Effective Date, a written opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, special counsel to the Credit Parties (A) dated the Amendment Effective Date, (B) addressed to the Administrative Agent, the Collateral Agent, the Continuing Lenders and each Issuing Bank and (C) in form and substance reasonably satisfactory to the Administrative Agent and otherwise consistent with those delivered in connection with the Borrowing Base Agreement and Fourth Amendment Agreement to the Credit Agreement, dated as of -4- 727682070 12335469

 
April 6, 2015. The Borrower, the other Credit Parties and the Administrative Agent hereby instruct such counsel to deliver such legal opinion. (e) Concurrently with the Amendment Effective Date, the Borrower shall have issued Permitted Additional Debt in an aggregate stated principal amount equal to or greater than the difference between (x) $1,600,000,000 and (y) the Total Commitments as in effect after giving effect to this Amendment, and, to the extent revolving Loans under the Credit Agreement are outstanding on the Amendment Effective Date, shall have applied (or shall apply concurrently with receipt) the net cash proceeds thereof to repay such revolving Loans under the Credit Agreement, together with all accrued interest and fees owing to any of the Exiting Lenders or any of the Continuing Lenders as of the Amendment Effective Date. (f) The Administrative Agent shall have received a solvency certificate dated as of the Amendment Effective Date substantially in the form of Exhibit J to the Credit Agreement and signed by a Financial Officer of the Borrower. (g) The Agents shall have received all fees payable thereto or to any Lender (including any agent and arranger in respect of this Facility) on or prior to the Amendment Effective Date and, to the extent invoiced, all other amounts due and payable pursuant to the Credit Documents on or prior to the Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses (including reasonable fees, charges and disbursements of Mayer Brown LLP) required to be reimbursed or paid by the Credit Parties hereunder or under any Credit Document. (h) The Administrative Agent and the Continuing Lenders shall have received at least three (3) Business Days prior to the Amendment Effective Date all documentation and other information required by regulatory authorities under applicable “know your customer” and anti- money laundering rules and regulations, including without limitation, the Patriot Act that has been requested not less than five (5) Business Days prior to the Amendment Effective Date. The Administrative Agent shall notify the Borrower and the Lenders of the Amendment Effective Date, and such notice shall be conclusive and binding. Section 6.2. Ratification. Each Credit Party hereby (a) ratifies and confirms all of the Obligations under the Credit Agreement (as amended hereby) and the other Credit Documents related thereto, and, in particular, affirms that, after giving effect to this Amendment, the terms of the Security Documents secure, and will continue to secure, all Obligations thereunder, and (b) represents and war- rants to the Lenders that as of the effectiveness of this Amendment (i) all of the representations and war- ranties contained in the Credit Document to which it is a party are true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of such date (except where such representations and warranties expressly relate to an earlier date, in which case, such representations and warranties shall have been true and correct in all material respects as of such earlier date) and (ii) no Default or Event of Default has occurred and is continuing. Section 6.3. Representation Regarding Indebtedness. As of the Amendment Effective Date, neither the Borrower nor any Restricted Subsidiary has any material Indebtedness (including Dis- qualified Stock), any material guarantee obligations, contingent liabilities, off balance sheet liabilities, partnership liabilities for taxes or unusual forward or long-term commitments that, in each case, are not reflected or provided for in the financial information of the Borrower and the Restricted Subsidiaries in- cluded in the Offering Memorandum in respect of the Permitted Additional Debt contemplated by Sec- tion 6.1(e) above, except as would not reasonably be expected to result in a Material Adverse Effect. -5- 727682070 12335469

 
Section 6.4. Continuing Effect; No Other Amendments or Waivers. This Amendment shall not constitute an amendment or waiver of or consent to any provision of the Credit Agreement and the other Credit Documents except as expressly stated herein and shall not be construed as an amendment, waiver or consent to any action on the part of the Borrower that would require an amendment, waiver or consent of the Administrative Agent or the Lenders except as expressly stated herein. Except as expressly waived hereby, the provisions of the Credit Agreement and the other Credit Documents are and shall re- main in full force and effect in accordance with their terms. ARTICLE VII Section 7.1. Amendment Fee. Upon the effectiveness of this Amendment pursuant to Section 6.1, the Borrower shall pay to the Administrative Agent for the account of each Continuing Lend- er a fee equal to fifty (50) basis points on each Continuing Lender’s Commitment as of the Amendment Effective Date (after giving effect to this Amendment). ARTICLE VIII Section 8.1. Release. In order to induce the Administrative Agent and the Lenders to enter into this Amendment, each of Holdings, the Borrower and the Subsidiary Guarantors, on behalf of themselves and their respective Related Parties (collectively, the “Releasing Parties”), acknowledges and agrees that: (a) none of the Releasing Parties has any claim or cause of action against the Administrative Agent, the Collateral Agent, the Swingline Lender, any Letter of Credit Issuer or any Continuing Lender, in each case, along with any of their respective Related Parties (collectively, the “Released Parties”) relat- ing to or arising out of the Credit Agreement, the other Credit Documents or any agreement entered into in connection therewith; (b) to the knowledge of any officer of Holdings, the Borrower or any Subsidiary Guarantors, none of the Releasing Parties has any offset right, counterclaim or defense of any kind against any of their respective obligations, Indebtedness or liabilities to the Administrative Agent, the Collateral Agent, the Swingline Lender, any Letter of Credit Issuer or any Continuing Lender; and (c) each of the Administrative Agent, the Collateral Agent, the Swingline Lender, each Letter of Credit Issuer or each Continuing Lender has heretofore properly performed and satisfied in a timely manner all of its obliga- tions to Holdings, the Borrower and its Subsidiaries under the Credit Agreement and the other Credit Documents to which it is a party. Each of Holdings, the Borrower and the Subsidiary Guarantors wishes to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the Administrative Agent’s, the Collateral Agent’s, the Swingline Lender’s, any Letter of Credit Issuer’s or any Continuing Lender’s rights, interests, contracts, or remedies under the Credit Agreement and the other Credit Documents, whether known or unknown, as applicable. Therefore, each of Holdings, the Borrower and the Subsidiary Guarantors, on behalf of the Releasing Parties, unconditionally releases, waives and forever discharges (x) any and all liabilities, obli- gations, duties, promises or Indebtedness of any kind of the Administrative Agent, the Collateral Agent, the Swingline Lender, any Letter of Credit Issuer or any Continuing Lender to the Releasing Parties, ex- cept the obligations to be performed by any of them on or after the date hereof as expressly stated in the Credit Agreement and the other Credit Documents, and (y) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which the Releasing Parties might otherwise have against any of the Released Parties, in each case under clause (x) or clause (y), (A) on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, Indebtedness, claim, cause of action, defense, circumstance or matter of any kind and (B) relating to or arising out of the Credit Agreement, the Credit Documents or any agreement entered into in connection therewith. The Released Parties shall not be liable with respect to, and each of Holdings, the Borrower and the Subsidiary Guarantors hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages relating to the Credit Agreement and the other Credit Doc- -6- 727682070 12335469

 
uments or arising out of activities in connection herewith or therewith (whether before, on or after the date hereof). The Releasing Parties acknowledge that the foregoing waiver was separately bargained for and is a key element of this Amendment. ARTICLE IX Section 9.1. Counterparts. This Amendment may be executed in any number of sepa- rate counterparts by the parties hereto (including by telecopy or via electronic mail), each of which coun- terparts when so executed shall be an original, but all the counterparts shall together constitute one and the same instrument. Section 9.2. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 9.3. FINAL AGREEMENT. THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS, WHICH SHALL INCLUDE THIS AMENDMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. -7- 727682070 12335469

 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. EPE ACQUISITION LLC (SUCCESSOR TO EPE HOLDINGS LLC) By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer EP ENERGY LLC (F/K/A EVEREST ACQUISITION LLC) By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer Signature Page – Eighth Amendment

 
FOR PURPOSES OF ACKNOWLEDGING AND AGREEING TO SECTION 6.2 and ARTICLE VIII HEREOF, each of the Subsidiary Guarantors has caused this Agreement to be executed by its officer(s) thereunto duly authorized as of the date first above written. EVEREST ACQUISITION FINANCE INC. By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer EP ENERGY GLOBAL LLC By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer EP ENERGY MANAGEMENT, L.L.C. By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer EP ENERGY RESALE COMPANY, L.L.C. By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer EP ENERGY E&P COMPANY, L.P. By: Name: Kyle A. McCuen Title: Senior Vice President, Chief Financial Officer and Treasurer Signature Page – Eighth Amendment

 

 

 

 

 

 

 

 

 

 

 

 

 
Exhibit A to Eighth Amendment CREDIT AGREEMENT Dated as of May 24, 2012 among EPE HOLDINGS LLC, as Holdings, EP ENERGY LLC (F/K/A EVEREST ACQUISITION LLC), as the Borrower, The Several Lenders from Time to Time Parties Hereto, JPMORGAN CHASE BANK, N.A., as Administrative Agent, Collateral Agent, Swingline Lender and an Issuing Bank, and J.P. MORGAN SECURITIES LLC and CITIGROUP GLOBAL MARKETS INC., as Lead Arrangers ___________________ J.P. MORGAN SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC., CREDIT SUISSE SECURITIES (USA) LLC, DEUTSCHE BANK SECURITIES INC., BMO CAPITAL MARKETS CORP., RBC CAPITAL MARKETS, UBS SECURITIES LLC and NOMURA SECURITIES INTERNATIONAL, INC., as Joint Bookrunners ___________________ COMPASS BANK, CAPITAL ONE, NATIONAL ASSOCIATION, CIBC WORLD MARKETS CORP., COMERICA BANK, DNB MARKETS, INC., ING FINANCIAL MARKETS LLC, LLOYDS SECURITIES INC., THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., UNION BANK, N.A. MIZUHO CORPORATE BANK, LTD., THE ROYAL BANK OF SCOTLAND PLC, THE BANK OF NOVA SCOTIA, SUMITOMO MITSUI BANKING CORPORATION, SOCIÉTÉ GÉNÉRALE, SUNTRUST BANK and TD SECURITIES (USA) LLC, as Senior Managing Agents 727670773 12335469

 
TABLE OF CONTENTS Page SECTION 1. Definitions 2 1.1 Defined Terms 2 1.2 Other Interpretive Provisions 5662 1.3 Accounting Terms 5762 1.4 Rounding 5863 1.5 References to Agreements, Laws, Etc 5863 1.6 Times of Day 5863 1.7 Timing of Payment or Performance 5863 1.8 Currency Equivalents Generally 5863 1.9 Classification of Loans and Borrowings 5964 SECTION 2. Amount and Terms of Credit 5965 2.1 Commitments 5965 2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings 6166 2.3 Notice of Borrowing 6166 2.4 Disbursement of Funds 6267 2.5 Repayment of Loans; Evidence of Debt 6368 2.6 Conversions and Continuations 6469 2.7 Pro Rata Borrowings 6570 2.8 Interest 6570 2.9 Interest Periods 6671 2.10 Increased Costs, Illegality, Etc 6672 2.11 Compensation 6874 2.12 Change of Lending Office 6975 2.13 Notice of Certain Costs 6975 2.14 Borrowing Base 6975 2.15 Defaulting Lenders 7380 2.16 Increase of Total Commitment 7682 2.17 Extension Offers 7783 SECTION 3. Letters of Credit 8086 3.1 Letters of Credit 8086 3.2 Letter of Credit Applications 8187 3.3 Letter of Credit Participations 8289 3.4 Agreement to Repay Letter of Credit Drawings 8491 3.5 Increased Costs 8693 3.6 New or Successor Issuing Bank 8693 3.7 Role of Issuing Bank 8794 3.8 Cash Collateral 8895 3.9 Existing Letters of Credit 8995 3.10 Applicability of ISP and UCP 8996 3.11 Conflict with Issuer Documents 8996 3.12 Letters of Credit Issued for Restricted Subsidiaries 8996 3.13 Alternate Currency 8996 - i- 727670773 12335469

 
TABLE OF CONTENTS (continued) Page SECTION 4. Fees; Commitments 8996 4.1 Fees 8996 4.2 Voluntary Reduction of Commitments 9097 4.3 Mandatory Termination of Commitments 9198 SECTION 5. Payments 9298 5.1 Voluntary Prepayments 9298 5.2 Mandatory Prepayments 9299 5.3 Method and Place of Payment 94101 5.4 Net Payments 95101 5.5 Computations of Interest and Fees 106 5.6 Limit on Rate of Interest 99106 SECTION 6. Conditions Precedent to Initial Borrowing 100107 SECTION 7. Conditions Precedent to All Subsequent Credit Events 103110 SECTION 8. Representations, Warranties and Agreements 104110 8.1 Corporate Status 104111 8.2 Corporate Power and Authority; Enforceability 104111 8.3 No Violation 104111 8.4 Litigation 104111 8.5 Margin Regulations 105112 8.6 Governmental Approvals 105112 8.7 Investment Company Act 105112 8.8 True and Complete Disclosure 105112 8.9 Financial Condition; Financial Statements 106112 8.10 Tax Matters 106113 8.11 Compliance with ERISA 106113 8.12 Subsidiaries 107114 8.13 Intellectual Property 107114 8.14 Environmental Laws 107114 8.15 Properties 108115 8.16 Solvency 109115 8.17 Insurance 109116 8.18 Gas Imbalances, Prepayments 109116 8.19 Marketing of Production 109116 8.20 Hedge Agreements 109Transactions 116 8.21 Patriot Act; OFAC 109Sanctions 116 8.22 No Material Adverse Effect 110117 8.23 Foreign Corrupt Practices Act 110117 8.24 Deposit Accounts; Securities Accounts; Commodities Accounts 117 8.25 Prohibited Transactions 117 - ii- 727670773 12335469

 
TABLE OF CONTENTS (continued) Page SECTION 9. Affirmative Covenants 110117 9.1 Information Covenants 110118 9.2 Books, Records and Inspections 115123 9.3 Maintenance of Insurance 116123 9.4 Payment of Taxes 117124 9.5 Consolidated Corporate Franchises 117124 9.6 Compliance with Statutes, Regulations, Etc 117124 9.7 ERISA 117125 9.8 Maintenance of Properties 118125 9.9 Transactions with Affiliates 118126 9.10 End of Fiscal Years; Fiscal Quarters 121128 9.11 Additional Guarantors, Grantors and Collateral 121129 9.12 Use of Proceeds 122131 9.13 Further Assurances 123131 9.14 Reserve Reports 124132 9.15 Title Information 125133 9.16 Change in Business 125134 9.17 Holdings Covenant 125134 SECTION 10. Negative Covenants 126134 10.1 Limitation on Indebtedness 126135 10.2 Limitation on Liens 131140 10.3 Limitation on Fundamental Changes 135143 10.4 Limitation on Sale of Assets 137145 10.5 Limitation on Investments 139147 10.6 Limitation on Restricted Payments 143152 10.7 Limitations on Debt Payments and Amendments 147156 10.8 Negative Pledge Agreements 148157 10.9 Limitation on Subsidiary Distributions 150160 10.10 Hedge Agreements 152Transactions 161 10.11 Consolidated Total Debt to EBITDAX Ratio153Financial Performance Covenants163 10.12 Accounts 163 10.13 Use of Credit Extensions in Violation of Sanctions 163 SECTION 11. Events of Default 154163 11.1 Payments 154163 11.2 Representations, Etc 154163 11.3 Covenants 154164 11.4 Default Under Other Agreements 154164 11.5 Bankruptcy, Etc 155164 11.6 ERISA 156165 11.7 Guarantee 156165 11.8 Security Documents 156165 -iii- 727670773 12335469

 
TABLE OF CONTENTS (continued) Page 11.9 Judgments 156166 11.10 Change of Control 156166 11.11 Application of Proceeds 157166 11.12 Equity Cure 158167 SECTION 12. The Agents 159169 12.1 Appointment 159169 12.2 Delegation of Duties 160170 12.3 Exculpatory Provisions 160170 12.4 Reliance by Agents 161171 12.5 Notice of Default 162171 12.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders 162171 12.7 Indemnification 162172 12.8 Agents in Its Individual Capacities 163173 12.9 Successor Agents 164173 12.10 Withholding Tax 165174 12.11 Security Documents and Collateral Agent under Security Documents and Guarantee 165175 12.12 Right to Realize on Collateral and Enforce Guarantee 166175 12.13 Administrative Agent May File Proofs of Claim 166177 12.14 Certain ERISA Matters 177 SECTION 13. Miscellaneous 167179 13.1 Amendments, Waivers and Releases 167179 13.2 Notices 169182 13.3 No Waiver; Cumulative Remedies 170182 13.4 Survival of Representations and Warranties 170183 13.5 Payment of Expenses; Indemnification 170183 13.6 Successors and Assigns; Participations and Assignments 171184 13.7 Replacements of Lenders under Certain Circumstances 177191 13.8 Adjustments; Set-off 178191 13.9 Counterparts 179193 13.10 Severability 179193 13.11 Integration 179193 13.12 GOVERNING LAW 179193 13.13 Submission to Jurisdiction; Waivers 179193 13.14 Acknowledgments. The Borrower hereby acknowledges that: 180 194 13.15 WAIVERS OF JURY TRIAL 181195 13.16 Confidentiality 181195 13.17 Release of Collateral and Guarantee Obligations 182196 13.18 USA PATRIOT Act 183197 13.19 Payments Set Aside 183197 - iv- 727670773 12335469

 
TABLE OF CONTENTS (continued) Page 13.20 Reinstatement 184198 13.21 Disposition of Proceeds 184198 13.22 Collateral Matters; Hedge Agreements 184198 13.23 Agency of the Borrower for the Other Credit Parties 184199 13.24 Acknowledgement and Consent to Bail-In of EEA Financial Institutions 199 - v- 727670773 12335469

 
EXHIBITS Exhibit A Form of Reserve Report Certificate Exhibit B Form of Notice of Borrowing Exhibit C Form of Guarantee Exhibit D Form of Mortgage/Deed of Trust (Texas) Exhibit E Form of Collateral Agreement Exhibit F Form of Pledge Agreement Exhibit G Form of Assignment and Acceptance Exhibit H-1 Form of Promissory Note (Loan) Exhibit H-2 Form of Promissory Note (Swingline Loan) Exhibit I Form of Intercompany Note Exhibit J Form of Solvency Certificate Exhibit K Form of Non-Bank Tax Certificate SCHEDULES Schedule 1.1(a) Commitments Schedule 1.1(b) Excluded Equity Interests Schedule 1.1(c) Excluded Subsidiaries Schedule 1.1(e) Closing Date Subsidiary Guarantors Schedule 1.1(f) Closing Date Hedge Banks Schedule 1.1(g) Closing Date Mortgaged Property Schedule 3.9 Existing Letters of Credit Schedule 6(b) Local Counsels Schedule 8.4 Litigation Schedule 8.12 Subsidiaries Schedule 8.18 Closing Date Gas Imbalance Schedule 8.19 Closing Date Marketing Agreements Schedule 8.20 Closing Date Hedge Agreements Schedule 9.9 Closing Date Affiliate Transactions Schedule 9.13(b) Further Assurances Schedule 10.1 Closing Date Indebtedness Schedule 10.2(d) Closing Date Liens Schedule 10.4(i) Scheduled Dispositions Schedule 10.5(d) Closing Date Investments Schedule 10.8 Closing Date Negative Pledge Agreements Schedule 13.2 Notice Addresses - vi- 727670773 12335469

 
CREDIT AGREEMENT, dated as of May 24, 2012, among EPE Holdings LLC, a Delaware limited liability company (“Holdings”), EP Energy LLC (f/k/a Everest Acquisition LLC), a Delaware limited liability company and a wholly owned subsidiary of Holdings (the “Borrower”), the banks, financial institutions and other lending institutions from time to time parties as lenders hereto (each a “Lender” and, collectively, the “Lenders”), JPMORGAN CHASE BANK, N.A., as administrative agent and collateral agent for the Lenders, as the swing line lender and an issuer of Letters of Credit, and each other Issuing Bank from time to time party hereto. WHEREAS, pursuant to the Purchase and Sale Agreement, dated as of February 24, 2012 (together with all exhibits and schedules thereto, and as amended, supplemented or otherwise modified from time to time, the “Purchase and Sale Agreement”), among EP Energy Holding Company and EP Energy Corporation on the one hand (collectively, the “Seller”), and EPE Acquisition, LLC on the other, the Borrower will acquire (the “Acquisition”) from the Seller, (a) all of the issued and outstanding membership interests of EP Energy, L.L.C., a Delaware limited liability company (f/k/a EP Energy Corporation and t/b/n EP Energy Global LLC, “EPE US LLC”), (b) subject to the rights of TransGlobe Petroleum International Inc., as buyer, under that certain Share Purchase Agreement dated as of April 27, 2012 with EPE US LLC and El Paso Preferred Holdings Company, all of the issued and outstanding shares of El Paso E&P S. Alamein Cayman Company, a Cayman Islands company (“EP Egypt”), (c) all of the issued and outstanding membership interests of El Paso Brazil, L.L.C., a Delaware limited liability company (“EP Brazil” and, together with EPE US LLC, EP Egypt and their respective Subsidiaries, collectively, and, after giving effect to certain reorganization transactions contemplated by the Purchase and Sale Agreement, the “Acquired EP Business”); WHEREAS, to fund, in part, the Acquisition, it is intended that the Co-Investors will contribute an amount in cash to Holdings and/or a direct or indirect parent thereof in exchange for Equity Interests (such contribution, the “Equity Investments”), which shall be no less than 40% of the pro forma total capitalization of Holdings and its Subsidiaries after giving effect to the Transactions (the “Minimum Equity Amount”); WHEREAS, to consummate the transactions contemplated by the Purchase and Sale Agreement, it is intended that the Borrower will (a) issue up to $2,000,000,000 in aggregate principal amount of senior unsecured notes (b) issue up to $750,000,000 in aggregate principal amount of senior second-lien secured notes and (c) borrow up to $750,000,000 in aggregate principal amount under a senior second-lien secured term loan facility on or prior to the Closing Date; WHEREAS, in connection with the foregoing, (a) the Borrower has requested that (i) on the Closing Date, the Lenders provide Loans to the Borrower in an aggregate principal amount of approximately $750,000,000 (the “Closing Date Loans”) and (ii) at any time and from time to time after the Closing Date, the Lenders provide Loans to the Borrower subject to the Available Commitment, (b) the Borrower has requested that each Issuing Bank issue Letters of Credit (subject to the Available Commitment) at any time and from time to time prior to the L/C Maturity Date (including on the Closing Date to back stop and/or replace any Existing Letter of Credit (subject to the Available Commitment)), in an aggregate Stated Amount at any time outstanding not in excess of $250,000,000 and (c) the Borrower has requested that the Swingline 727670773 12335469

 
Lender extend credit in the form of Swingline Loans (subject to the Available Commitment) at any time and from time to time prior to the Swingline Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $50,000,000; WHEREAS, the net proceeds of the Closing Date Loans, together with the net proceeds of the Senior Unsecured Notes, the Senior Secured Notes and the Senior Secured Term Loan Facility and the net proceeds of the Equity Investments, will be used on the Closing Date to consummate the Acquisition, to effect the Debt Repayments and to pay Transaction Expenses; WHEREAS, following the Closing Date, the proceeds of the Loans will be used by the Borrower for the acquisition, development and exploration of Oil and Gas Properties and for working capital and other general corporate purposes of the Borrower and its Subsidiaries (including Permitted Acquisitions) and the Letters of Credit will be used by the Borrower and its Subsidiaries for general corporate purposes and to support deposits required under purchase agreements pursuant to which the Borrower or its Subsidiaries may acquire Oil and Gas Properties and other assets; WHEREAS, the Lenders, the Swingline Lender and the Issuing Banks are willing to make available to the Borrower such revolving credit, swingline and letter of credit facilities upon the terms and subject to the conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. Definitions. 1.1 Defined Terms. As used herein, the following terms shall have the meanings specified below: “2022 Senior Notes” shall mean the 7.750% Senior Notes due 2022 issued on August 13, 2012 (including exchange notes issued in exchange therefor pursuant to a registration rights agreement dated August 13, 2012) pursuant to the Indenture dated as of August 13, 2012. “ABR” shall mean for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 1/2½ of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its “prime rate”Prime Rate and (c) the LIBOR Rate for a one-month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.0%; provided that, for the avoidance of doubt, for purposes of calculating the LIBOR Rate pursuant to clause (c) above, the LIBOR Rate for any day shall be based on the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on such day by reference to the rate appearing on the Reuters Screen LIBOR01 Page (or any successor page or any successor service, or any substitute page or substitute for such service, providing rate quotations comparable to the Reuters Screen LIBOR01 Page, 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) for a period equal to one-month. The “prime rate” is a rate set by the Administrative Agent based upon various factors, including the Administrative - 2- 727670773 12335469

 
Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate; provided further that, for purposes of this Agreement, in no event shall ABR be less than zero. Any change in the ABR due to a change in such rate announced by the Administrative Agent, in the Federal Funds Effective Rate or in the one-month LIBOR Rate shall take effect at the opening of business on the day specified in the public announcement of such change. If ABR is being used as an alternate rate of interest pursuant to Section 2.10(d) hereof, then ABR shall be the greater of clause (a) and (b) above and shall be determined without reference to clause (c) above. “ABR Loan” shall mean each Loan bearing interest based on the ABR. “Acquired EP Business” shall have the meaning provided in the recitals to this Agreement. “Acquired Business Representations” shall mean the representations and warranties made by the Seller with respect to the Acquired EP Business in the Purchase and Sale Agreement as are material to the interests of the Lenders, but only to the extent that EPE Acquisition, LLC (or one of its Affiliates) has the right to terminate the obligations of EPE Acquisition, LLC and its Affiliates under the Purchase and Sale Agreement as a result of a breach of such representations and warranties in the Purchase and Sale Agreement. “Acquisition” shall have the meaning provided in the recitals to this Agreement. “Additional Lender” shall have the meaning provided in Section 2.16(a). “Additional Lender Extended Amount” shall have the meaning provided in Section 2.17(b). “Adjusted Consolidated Net Tangible Assets” shall mean (without duplication), as of the date of determination, the remainder of: (a) the sum of: (i) estimated discounted future net revenues from Proved Reserves of the Borrower and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any provincial, territorial, state, federal or foreign income taxes, as estimated by the Borrower in a reserve report prepared as of the end of the Borrower’s most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from (A) estimated Proved Reserves acquired since such year end, which Proved Reserves were not reflected in such year-end reserve report, and (B) estimated oil and gas reserves attributable to upward revisions of estimates of Proved ReservedReserves (including the impact to discounted future net revenues related to development costs previously estimated in the last year-end reserve report, but only to the extent such costs were actually incurred since the date of the last year-end reserve report) since such year-end due to exploration, development, exploitation or other activities, increased by the accretion of discount from the date of the last year-end reserve report to the date of - 3- 727670773 12335469

 
determination and decreased by, as of the date of determination, the estimated discounted future net revenues from (C) estimated Proved Reserves included in the last year-end reserve report that shall have been produced or disposed of since such year-end, and (D) estimated oil and gas reserves included therein that are subsequently removed from the Proved Reserves of the Borrower and its Restricted Subsidiaries as so calculated due to downward revisions of estimates of Proved Reserves since such year-end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, provided, that (x) in the case of such year-end reserve report and any adjustments since such year-end pursuant to clauses (A), (B) and (D), the estimated discounted future net revenues from Proved Reserves shall be determined in their entirety using oil, gas and other hydrocarbon prices and costs that are either (1) calculated in accordance with the SEC guidelines and, with respect to such adjustments under clauses (A), (B) or (D), calculated with such prices and costs as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to the Borrower were year-end or (2) if the Borrower so elects at any time, calculated in accordance with the foregoing clause (1), except that when pricing of future net revenues of Proved Reserves under the SEC guidelines is not based on a contract price and is instead based upon benchmark, market or posted pricing, the pricing for each month of estimated future production from such Proved Reserves not subject to contract pricing shall be based upon NYMEX (or successor) published forward prices for the most comparable hydrocarbon commodity applicable to such production month (adjusted for energy content, quality and basis differentials (such basis differential being the relevant NYMEX (or successor) published forward basis differential or, if such NYMEX (or successor) forward basis differential is unavailable, as estimated in good faith by the Borrower based on historical basis differential (before any state or federal or other income tax)) and giving application to the last sentence of such definition hereto), as such forward prices are published as of the year end date of such reserve report or, with respect to post-year-end adjustments under clauses (A), (B) or (D), the last day of the most recent fiscal quarter preceding the date of determination, (y) the pricing of estimated Proved Reserves that have been produced or disposed since year end as set forth in clause (DC) shall be based upon the applicable pricing elected for the prior year-end reserve report as provided in clause (x), and (z) in each case as estimated by or under the supervision of the chief engineer of the Borrower or a Restricted Subsidiary or by any Approved Petroleum Engineer; (ii) the capitalized costs that are attributable to Oil and Gas Properties of the Borrower and its Restricted Subsidiaries to which no Proved Reserves are attributable, based on the Borrower’s books and records as of a date no earlier than the date of the Borrower’s latest annual or quarterly consolidated financial statements; (iii) the Net Working Capital on a date no earlier than the date of the Borrower’s latest annual or quarterly consolidated financial statements; (iv) assets related to commodity risk management activities less liabilities related to commodity risk management activities, in each case to the extent that such assets and liabilities arise in the ordinary course of the Oil and Gas Business, provided that such net value shall not be less than zero; and - 4- 727670773 12335469

 
(v) the greater of (A) the net book value of other tangible assets (including, without limitation, investments in unconsolidated Restricted Subsidiaries and mineral rights held under lease or other contractual arrangement) of the Borrower and its Restricted Subsidiaries, as of a date no earlier than the date of the Borrower’s latest annual or quarterly consolidated financial statements, and (B) the Fair Market Value, as estimated by the Borrower, of other tangible assets (including, without limitation, investments in unconsolidated Restricted Subsidiaries and mineral rights held under lease or other contractual arrangement) of the Borrower and its Restricted Subsidiaries, as of a date no earlier than the date of the Borrower’s latest audited consolidated financial statements (it being understood that the Borrower shall not be required to obtain any appraisal of any assets); minus (b) the sum of: (i) any amount included in (a)(i) through (a)(v) above that is attributable to minority interests; (ii) any net gas balancing liabilities of the Borrower and its Restricted Subsidiaries reflected in the Borrower’s latest audited consolidated financial statements; (iii) to the extent included in (a)(i) above, the estimated discounted future net revenues, calculated in accordance with the SEC guidelines (utilizing the prices and costs as provided in (a)(i)), attributable to reserves that are required to be delivered to third parties to fully satisfy the obligations of the Borrower and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and (iv) to the extent included in (a)(i) above, the estimated discounted future net revenues, calculated in accordance with SEC guidelines (utilizing prices and costs as provided in (a)(i)), attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the estimated discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Borrower and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto). If the Borrower changes its method of accounting from the full cost method of accounting to the successful efforts or a similar method, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if the Borrower were still using the full cost method of accounting. “Adjusted Total Commitment” shall mean, at any time, the Total Commitment less the aggregate amount of Commitments of all Defaulting Lenders. “Administrative Agent” shall mean JPMorgan Chase Bank, N.A., as the administrative agent for the Lenders under this Agreement and the other Credit Documents, or any successor administrative agent appointed in accordance with the provisions of Section 12.9. - 5- 727670773 12335469

 
“Administrative Agent’s Office” shall mean the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 13.2, or such other address or account as the Administrative Agent may from time to time notify in writing to the Borrower and the Lenders. “Administrative Questionnaire” shall mean, for each Lender, an administrative questionnaire in a form approved by the Administrative Agent. “Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. “Controlling” (“controlling”) and “controlled” shall have meanings correlative thereto. “Affiliated Institutional Lender” shall mean any investment fund managed or advised by Affiliates of a Co-Investor that is a bona fide debt fund and that extends credit or buys loans in the ordinary course of business. “Affiliated Lender” shall mean a Lender that is a Co-Investor or any Affiliate thereof (other than Holdings, any Subsidiary of Holdings, anythe Borrower or any Affiliated Institutional Lender). “Agents” shall mean the Administrative Agent and the Collateral Agent. “Agreement” shall mean this Credit Agreement, as amended, restated, supplemented or otherwise modified from time to time. “Alternate Currency” shall mean, with respect to any Letter of Credit, Brazilian Reais and Euro. “Alternate Currency Letter of Credit” shall mean any Letter of Credit denominated in an Alternate Currency. “Amendment Period” shall have the meaning provided in Section 10.11. “Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries or Holdings from time to time concerning or relating to bribery or corruption. “Applicable Equity Amount” shall mean, at any time (the “Applicable Equity Amount Reference Time”), an amount equal to, without duplication, (a) the amount of any capital contributions made in cash to, or any proceeds of an equity issuance received by, the Borrower during the period from and including the Business Day immediately following the Closing Date, through and including the Applicable Equity Amount Reference Time, including proceeds from the issuance of Equity Interests of any direct or indirect parent of the Borrower, but excluding all proceeds from the issuance of Disqualified Stock; - 6- 727670773 12335469

 
minus (b) the sum, without duplication, of: (i) the aggregate amount of any Investments made by the Borrower or any Restricted Subsidiary pursuant to Section 10.5(g)(iii)(B), Section 10.5(h)(ii) and Section 10.5(i)(B) after the Closing Date, and prior to the Applicable Equity Amount Reference Time; (ii) the aggregate amount of any Restricted Payments made by the Borrower pursuant to Section 10.6(j) after the Closing Date, and prior to the Applicable Equity Amount Reference Time; and (iii) the aggregate amount of prepayments, repurchases, redemptions and defeasances made by the Borrower or any Restricted Subsidiary pursuant to Section 10.7(c)(iii) after the Closing Date and prior to the Applicable Equity Amount Reference Time. “Applicable Margin” shall mean, for any day, with respect to any ABR Loan or LIBOR Loan, as the case may be, the rate per annum set forth in the grid below based upon the Borrowing Base Utilization Percentage in effect on such day: Borrowing Base Utilization Grid Borrowing Base X ≤ 30% > 30% X ≤ 60% >60% X ≤ 80% > 80% X ≤ 90% X >90% Utilization Percentage LIBOR Loans 2.50% 2.75% 3.00% 3.25% 3.50% ABR Loans 1.50% 1.75% 2.00% 2.25% 2.50% Commitment Fee Rate 0.375% 0.375% 0.50% 0.50% 0.50% Each change in the Commitment Fee Rate or Applicable Margin 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. “Approved Fund” shall mean any Fund 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. “Approved Petroleum Engineers” shall mean (a) Netherland, Sewell & Associates, Inc., (b) Ryder Scott Company, L.P., (c) W. D. Van Gonten & Co. Petroleum Engineering, (d) DeGolyer and MacNaughton, (e) Cawley, Gillespie & Associates, Inc., (f) Miller and Lents, Ltd. and (g) at the Borrower’s option, any other independent petroleum engineers selected by the Borrower and reasonably acceptable to the Administrative Agent. “Assignment and Acceptance” shall mean an assignment and acceptance substantially in the form of Exhibit G or such other form as may be approved by the Administrative Agent. - 7- 727670773 12335469

 
“Authorized Officer” shall mean as to any Person, the President, the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Treasurer, the Assistant or Vice Treasurer, the Vice President-Finance, the General Counsel and any manager, managing member or general partner, in each case, of such Person, and any other senior officer designated as such in writing to the Administrative Agent by such Person. Any document delivered hereunder that is signed by an Authorized Officer shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of the Borrower or any other Credit Party and such Authorized Officer shall be conclusively presumed to have acted on behalf of such Person. “Auto-Extension Letter of Credit” shall have the meaning provided in Section 3.2(b). “Available Commitment” shall mean, at any time, (a) the Loan Limit at such time minus (b) the aggregate Total Exposures of all Lenders at such time. “Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution. “Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule. “Bank Price Deck” shall mean the Administrative Agent’s forward curve for each of oil, natural gas and other Hydrocarbons, as applicable, furnished to the Borrower by the Administrative Agent from time to time in accordance with the terms of this Agreement. “Bankruptcy Code” shall have the meaning provided in Section 11.5. “Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”. “benefited Lender” shall have the meaning provided in Section 13.8. “Board” shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor). “Board of Directors” shall mean, as to any Person, the board of directors or other governing body of such Person, or if such Person is owned or managed by a single entity, the board of directors or other governing body of such entity. “Borrower” shall have the meaning provided in the introductory paragraph hereto. - 8- 727670773 12335469

 
“Borrowing” shall mean the incurrence of one Type of Loan on a given date (or resulting from conversions on a given date) having, in the case of LIBOR Loans, the same Interest Period (provided that ABR Loans incurred pursuant to Section 2.10(b) shall be considered part of any related Borrowing of LIBOR Loans). “Borrowing Base” shall mean, at any time, an amount equal to the amount determined in accordance with Section 2.14, as the same may be adjusted from time to time pursuant to the provisions thereof. “Borrowing Base Deficiency” occurs if, at any time, the aggregate Total Exposure of all Lenders exceeds the Borrowing Base then in effect. The amount of the Borrowing Base Deficiency is the amount by which the Total Exposure of all Lenders exceeds the Borrowing Base then in effect. “Borrowing Base Properties” shall mean the Oil and Gas Properties of the Credit Parties included in the Initial Reserve Report and thereafter in the Reserve Report most recently delivered pursuant to Section 9.14.9.14, together with the Hydrocarbon Interests on which such Oil and Gas Properties are located or to which such Oil and Gas Properties are attributed. “Borrowing Base Required Lenders” shall mean, at any date, (a) Non-Defaulting Lenders having or holding at least 90% of the Adjusted Total Commitment at such date or (b) if the Total Commitment has been terminated, Lenders having or holding at least 90% of the outstanding principal amount of the Loans, the Swingline Exposure and Letter of Credit Exposure (excluding the Loans, Swingline Exposure and Letter of Credit Exposure of Defaulting Lenders) in the aggregate at such date. “Borrowing Base Utilization Percentage” shall mean, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of the aggregate Total Exposures of all Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day. “Borrowing Base Value” shall mean, with respect to any Oil and Gas Property of a Credit Party or any Hedge AgreementTransaction in respect of commodities, the value attributed to such asset in connection with the most recent determination of the Borrowing Base (which Borrowing Base was approved by the Borrowing Base Required Lenders or the Required Lenders, as applicable, in accordance with Section 2.14). “Budget” shall have the meaning provided in Section 9.1(k). “Business Day” shall mean any day excluding Saturday, Sunday and any other day on which banking institutions in New York City or Houston, Texas are authorized by law or other governmental actions to close, and, if such day relates to (a) any interest rate settings as to a LIBOR Loan, (b) any fundings, disbursements, settlements and payments in respect of any such LIBOR Loan, or (c) any other dealings pursuant to this Agreement in respect of any such LIBOR Loan, such day shall be a day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market. - 9- 727670773 12335469

 
“Capital Lease” shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person; provided that leases that are recharacterized as Capital Leases due to a change in GAAP after January 1, 2011 shall not be treated as Capital Leases for any purpose under this Agreement but shall instead be treated as they would have been in accordance with GAAP as in effect on January 1, 2011. “Capitalized Lease Obligations” shall mean, as applied to any Person, all obligations under Capital Leases of such Person or any of its Restricted Subsidiaries, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP; provided that obligations that are recharacterized as Capitalized Lease Obligations due to a change in GAAP after January 1, 2011 shall not be treated as Capitalized Lease Obligations for any purpose under this Agreement but shall instead be treated as they would have been in accordance with GAAP as in effect on January 1, 2011. “Capitalized Software Expenditures” shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a person during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in accordance with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of such Person and its subsidiaries. “Cash Collateral” shall have the meaning provided in Section 3.8. “Cash Collateralize” shall have the meaning provided in Section 3.8(d). “Cash Management Agreement” shall mean any agreement entered into from time to time by the Borrower or any of the Borrower’s Restricted Subsidiaries in connection with cash management services for collections, other Cash Management Services and for operating, payroll and trust accounts of such Person, including automatic clearing house services, controlled disbursement services, electronic funds transfer services, lockbox services, stop payment services and wire transfer services. “Cash Management Bank” shall mean any Person that either (a) at the time it provides Cash Management Services, (b) on the Closing Date or (c) at any time after it has provided any Cash Management Services, is a Lender or an Agent or an Affiliate of a Lender or an Agent. “Cash Management Obligations” shall mean obligations owed by the Borrower or any Restricted Subsidiary to any Cash Management Bank in connection with, or in respect of, any Cash Management Services. “Cash Management Services” shall mean (a) commercial credit cards, merchant card services, purchase or debit cards, including non-card e-payables services, (b) treasury management services (including controlled disbursement, overdraft, automated clearing house fund transfer services, return items and interstate depository network services) and (c) any other demand deposit or operating account relationships or other cash management services, including any Cash Management Agreement. - 10- 727670773 12335469

 
“Casualty Event” shall mean, with respect to any Collateral, (a) any damage to, destruction of, or other casualty or loss involving, any property or asset or (b) any seizure, condemnation, confiscation or taking under the power of eminent domain of, or any requisition of title or use of, or relating to, or any similar event in respect of, any property or asset. “CFC” shall mean a “controlled foreign corporation” within the meaning of Section 957 of the Code. “Change in Law” shall mean, after the Closing Date (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement), (a) the adoption of, or the taking effect of, any law, treaty, order, policy, rule or regulation after the Closing Date, (b) any change in any law, treaty, order, policy, rule or regulation or in the administrative, interpretation or application thereof by any Governmental Authority after the Closing Date or (c) compliance by any Lender with any guideline, request, directive or order enacted or promulgated after the Closing Date by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law); provided that notwithstanding anything herein to the contrary, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) and all guidelines, requests, directives, orders, rules and regulations adopted, enacted or promulgated in connection therewith or in the implementation thereof shall be deemed to have gone into effect after the Closing Datebe included as a Change in Law regardless of the date adopted, enacted or, promulgated and shall be included as a Change in Lawor implemented, but only to the extent a Lender is imposing applicable increased costs or costs in connection with capital adequacy requirements similar to those described in clauses (a)(ii) and (c) of Section 2.10 generally on other borrowers of loans under United States reserve-based credit facilities. “Change of Control” shall mean and be deemed to have occurred if: (a) (i) at any time prior to a Qualifying IPO, (x) the Permitted Holders shall at any time cease to have, directly or indirectly, the power to vote or direct the voting of at least 35% of the Voting Stock of the Borrower or (y) any Person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such Person, entity or “group” and its Subsidiaries and any Person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of a percentage of the voting power of the outstanding Voting Stock of the Borrower that is greater than the percentage of such voting power of such Voting Stock in the aggregate, directly or indirectly, beneficially owned by the Permitted Holders or (ii) at any time on and after a Qualifying IPO, any Person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such Person, entity or “group” and its Subsidiaries and any Person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders (or any holding company parent of Holdings owned directly or indirectly by the Permitted Holders), shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of voting power of the outstanding Voting Stock of the Borrower having more than the greater of (A) 35% of the - 11- 727670773 12335469

 
ordinary voting power for the election of directors of the Borrower and (B) the percentage of the ordinary voting power for the election of directors of the Borrower owned in the aggregate, directly or indirectly, beneficially, by the Permitted Holders, unless in the case of either clause (i) or (ii) of this clause (a), the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the members of the Board of Directors of the Borrower; or (b) at any time on or after a Qualifying IPO, during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of the Borrower shall be occupied by individuals who were neither (1) nominated by the Board of Directors of the Borrower or a Permitted Holder, (2) appointed by directors so nominated nor (3) appointed by a Permitted Holder; or (c) a “Change of Control” (as defined in (i) the Senior Unsecured Notes Indenture, the Senior Secured Notes Indenture or the documentation governing the Senior Secured Term Loan Facility or (ii) any indenture or credit agreement in respect of Permitted Refinancing Indebtedness with respect to the Senior Unsecured Notes, the Senior Secured Notes or the Senior Secured Term Loans, in each case of this subclause (ii) constituting Material Indebtedness) shall have occurred. “Class” (a) when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Existing Loans, Extended Loans (of the same Extension Series) or Swingline Loans; (b) when used in reference to any Commitment, refers to whether such Commitment is an Existing Commitment, an Extended Commitment (of each Extension Series) or a Swingline Commitment and (c) when used in reference to any Lender, refers to whether such Lender has a Loan or Commitment with respect to a single class. “Closing Date” shall mean May 24, 2012. “Closing Date Loans” shall have the meaning provided in the recitals to this Agreement. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. “Co-Investors” shall mean (a) the Sponsors, (b) any other investors party to that certain Interim Investors Agreement dated as of February 24, 2012 (as amended from time to time to the date hereof) and any other investors that may become party thereto prior to or upon the consummation of the Acquisition, in each case of this clause (b) disclosed to the Lead Arrangers on or prior to the Closing Date, and (c) the respective Affiliates of the investors described in clause (b), excluding in each case any of their respective operating portfolio companies. “Collateral” shall have the meaning provided for such term in each of the Security Documents and shall include any and all assets securing any or all of the Obligations; provided that with respect to any Mortgages, “Collateral,” as defined herein, shall include “Mortgaged Property” as defined therein. - 12- 727670773 12335469

 
“Collateral Agent” shall mean JPMorgan Chase Bank, N.A., as collateral agent under the Security Documents, or any successor collateral agent appointed in accordance with the provisions of Section 12.9. “Collateral Agreement” shall mean the Collateral Agreement of even date herewith by and among the Borrower, the other grantors party thereto and the Collateral Agent, for the benefit of the Secured Parties, substantially in the form of Exhibit E hereto. “Collateral Coverage Minimum” shall mean that the Mortgaged Properties shall represent (a) from the date that is 90 days following the Closing Date up to (but excluding) the date that is 120 days following the Closing Date, at least 50comprise at least 90% of the PV-10 of the Credit Parties’ total Proved Reserves and (b) from the date that is 120 days following the Closing Date and thereafter, at least 90% of the PV-10 of the Credit Parties’ total Proved Reserves, in each case, included either in the Initial Reserve Report orincluded in the most recent Reserve Report delivered pursuant to Section 9.14. “Commitment” shall mean, (a) with respect to each Lender that is a Lender on the ClosingEighth Amendment Effective Date, the amount set forth opposite such Lender’s name on Schedule 1.1(a) as such Lender’s “Commitment” and (b) in the case of any Lender that becomes a Lender after the ClosingEighth Amendment Effective Date, the amount specified as such Lender’s “Commitment” in the Assignment and Acceptance pursuant to which such Lender assumed a portion of the Total Commitment, in each case as the same may be changed from time to time pursuant to the terms of this Agreement. The aggregate amount of the Commitments as of the Closing Date is $2,000,000,000. “Commitment Fee” shall have the meaning provided in Section 4.1(a). “Commitment Fee Rate” shall mean, for any day, with respect to the Available Commitment on such day, the applicable rate per annum set forth next to the row heading “Commitment Fee Rate” in the definition of “Applicable Margin” and based upon the Borrowing Base Utilization Percentage in effect on such day. “Commitment Percentage” shall mean, at any time, for each Lender, the percentage obtained by dividing (a) such Lender’s Commitment at such time by (b) the amount of the Total Commitment at such time; provided that at any time when the Total Commitment shall have been terminated, each Lender’s Commitment Percentage shall be the percentage obtained by dividing (i) such Lender’s Total Exposure at such time by (ii) the aggregate Total Exposures of all Lenders at such time. “Company Material Adverse Effect” shall mean a change, event, circumstance, development, state of facts, or condition that has or would reasonably be expected to (A) materially impair, prevent or delay any Seller’s timely consummation of the transaction contemplated by the Purchase and Sale Agreement or (B) have a material adverse effect on the E&P Business or the ownership, assets, operations or financial condition of the Companies and the Company Subsidiaries, taken as a whole; provided, however, that, for purposes of clause (B), Material Adverse Effect shall not include material adverse effects resulting from: (i) changes in the prices of Hydrocarbons; (ii) any declines in Company Well performance that do not result - 13- 727670773 12335469

 
from the gross negligence of any Seller, Company, or Company Subsidiary; (iii) general changes in the industry in which the Companies and the Company Subsidiaries participate or in which the E&P Business is engaged; (iv) general changes in economic or political conditions, or financial markets; (v) changes in conditions or developments generally applicable to the oil and gas industry in any area or areas where the E&P Business is located; (vi) failure alone to meet internal or analyst projections or forecasts or estimates of revenues, earnings or other financial metrics for any period (provided, that the underlying reasons for such failure shall be taken into account in determining whether there has been a Material Adverse Effect); (vii) acts of God, including hurricanes and storms, acts or failures to act of Governmental Authorities (where not caused by the willful or negligent acts of Sellers, Companies, the Company Subsidiaries or any of their respective Affiliates); (viii) civil unrest or similar disorder; terrorist acts; (ix) changes in applicable Laws or interpretations thereof by any Governmental Authority, including any changes in the deductibility of drilling completion or operating costs or other taxes; (x) any reclassification or recalculation of reserves in the ordinary course of business consistent with past practice; (xi) effects or changes that are cured (provided that, except to the extent they would generate a downward adjustment to the Purchase Price pursuant to Section 2.3(g) of the Purchase and Sale Agreement or reduce the two percent (2%) deductible referred to in Section 10.4(c) of the Purchase and Sale Agreement, the costs of the cure to the Companies and the Company Subsidiaries shall be taken into account in determining whether there has been a Material Adverse Effect) or no longer exist by the earlier of the Closing or the termination of the Purchase and Sale Agreement pursuant to Article 9 thereof, (xii) performance of the Purchase and Sale Agreement and the transactions contemplated thereby, including compliance with covenants set forth therein or (xiii) changes resulting from the announcement of the transactions contemplated by the Purchase and Sale Agreement or the Kinder Morgan Merger. Notwithstanding the foregoing (1) for purposes of Sections 3.1(d)(ii), 3.1(d)(iii), 3.2(b)(ii), 3.2(b)(iii), 3.3(b)(ii), 3.3(b)(iii) and 3.14 of the Purchase and Sale Agreement, “Material Adverse Effect” shall be determined without giving effect to clause (xii) of the definition thereof and (2) changes, events, circumstances, developments, states of facts, and conditions referred to in clauses (iii), (iv), (v) and (ix) in the definition of “Material Adverse Effect” shall be considered for purposes of determining whether there has been (or would reasonably be expected to be) a “Material Adverse Effect” if, and only to the extent, such change, event, circumstance, development, state of facts, or condition has had (or would reasonably be expected to have) a disproportionate adverse effect on the E&P Business or the ownership, assets, operations or financial condition of the Companies and the Company Subsidiaries, as opposed to other companies (and businesses) operating in the industries in which such Persons (and the E&P Business) operates. Capitalized terms used in this definition of “Company Material Adverse Effect”, other than the definition of “Purchase and Sale Agreement”, shall have the same meaning set forth in the Purchase and Sale Agreement as in effect on February 24, 2012. “Confidential Information” shall have the meaning provided in Section 13.16. “Consolidated Current Assets” means, as of any date of determination, the current assets of the Borrower and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP, plus, to the extent not already included therein, (x) all Available Commitments as of such date (only to the extent that the Borrower is permitted to borrow such amount as of such date under the terms of this Agreement) and (y) any marketable securities, treasury bonds and bills, certificates of deposit, investments in money market funds and - 14- 727670773 12335469

 
commercial paper of the Borrower and its Restricted Subsidiaries as of such date; provided that for purposes of this definition, current assets shall exclude non-cash assets required to be included in consolidated current assets of the Borrower and its Restricted Subsidiaries as a result of the application of Accounting Standards Codifications 815 or 410. “Consolidated Current Liabilities” means, as of any date of determination, the current liabilities of the Borrower and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP, minus, to the extent included therein, the current portion of long-term Indebtedness outstanding under this Agreement or other Indebtedness for borrowed money; provided that for purposes of this definition, current liabilities shall exclude non-cash liabilities required to be included in consolidated current liabilities of the Borrower and its Restricted Subsidiaries as a result of the application of Accounting Standards Codifications 815 or 410, but shall expressly include any unpaid liabilities for cash charges or payments that have been incurred as a result of the termination of any Hedge Transaction. “Consolidated First Lien Debt to EBITDAX Ratio” shall mean, as of any date of determination, the ratio of (a) the aggregate principal amount of Loans and Unpaid Drawings outstanding as of the last day of the most recent Test Period to (b) EBITDAX for such Test Period; provided that the Consolidated First Lien Debt to EBITDAX Ratio shall be determined for the relevant Test Period on a Pro Forma Basis. “Consolidated Net Income” shall mean, with respect to any Person for any period, the aggregate of the Net Income of such Person and its subsidiaries for such Period, on a consolidated basis; provided, however, that, without duplication, (i) any net after tax extraordinary, nonrecurring or unusual gains or losses or income or expense or charge (less all fees and expenses relating thereto) including any severance, relocation, operating expenses directly attributable to the implementation of cost savings initiatives, any expenses related to any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternative uses, fees, expenses or charges relating to facilities closing costs, curtailments or modifications to pension and post-retirement employee benefit plans, excess pension charges, acquisition integration costs, facilities opening costs, project start-up costs, signing, retention or completion bonuses, and expenses or charges related to any offering of Equity Interests or debt securities of the Borrower, Holdings or any Parent Entity, any Investment, acquisition, Disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), and any fees, expenses, charges or change in control payments related to the Transactions (including any Transaction Expenses incurred before, on or after the Closing Date), in each case, shall be excluded, (ii) any net aftertax income or loss from Disposed of, abandoned, transferred, closed or discontinued operations or fixed assets and any net aftertax gain or loss on disposal of Disposed of, abandoned, transferred, closed or discontinued operations or fixed assets shall be excluded, (iii) any net aftertax gain or loss (less all fees and expenses or charges relating thereto) attributable to business Dispositions or asset Dispositions other than in the - 15- 727670773 12335469

 
ordinary course of business (as determined in good faith by the management of the Borrower) shall be excluded, (iv) any net aftertax income or loss (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of Indebtedness, Hedge AgreementsTransaction or other derivative instruments shall be excluded, (v) (A) the Net Income for such period of any Person that is not a subsidiary of such Person, or is an Unrestricted Subsidiary or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent Person) in respect of such period and (B) the Net Income for such period shall include any ordinary course dividend, distribution or other payment in cash (or to the extent converted into cash) received by the referent Person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent Person) from any Person in excess of, but without duplication of, the amounts included in subclause (A), (vi) the cumulative effect of a change in accounting principles during such period shall be excluded, (vii) effects of purchase accounting adjustments (including the effects of such adjustments pushed down to such Person and its Subsidiaries) in component amounts required or permitted by GAAP, resulting from the application of purchase accounting or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded, (viii) any impairment charges or asset write-offs, in each case pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP, and any impairment charges, asset write-offs or write-down, including ceiling test write-downs, on Oil and Gas Properties under GAAP or SEC guidelines shall be excluded, (ix) any noncash compensation charge or expenses realized or resulting from stock option plans, employee benefit plans or post-employment benefit plans, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other rights shall be excluded, (x) accruals and reserves that are established or adjusted within twelve months after the Closing Date and that are so required to be established or adjusted in accordance with GAAP or as a result of adoption or modification of accounting policies shall be excluded, (xi) non-cash gains, losses, income and expenses resulting from fair value accounting required by the applicable standard under GAAP and related interpretations shall be excluded, (xii) any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from Hedge AgreementsTransactions for currency exchange risk, shall be excluded, - 16- 727670773 12335469

 
(xiii) (i) the non-cash portion of “straight-line” rent expense shall be excluded and (ii) the cash portion of “straight-line” rent expense which exceeds the amount expensed in respect of such rent expense shall be included, (xiv) (a) to the extent covered by insurance and actually reimbursed, or, so long as such Person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (i) not denied by the applicable carrier in writing within 180 days and (ii) in fact reimbursed within 365 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within 365 days), expenses with respect to liability or casualty events or business interruption shall be excluded and (b) amounts estimated in good faith to be received from insurance in respect of lost revenues or earnings in respect of liability or casualty events or business interruption shall be included (with a deduction for amounts actually received up to such estimated amount to the extent included in Net Income in a future period), (xv) without duplication, an amount equal to the amount of distributions actually made to any parent or equity holder of such Person in respect of such period in accordance with Section 10.6(f)(i)(B) shall be included as though such amounts had been paid as income taxes directly by such person for such period, and (xvi) non-cash charges for deferred tax asset valuation allowances shall be excluded (except to the extent reversing a previously recognized increase to net income). “Consolidated Total Assets” shall mean, as of any date of determination, the amount that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries, without giving effect to any amortization of the amount of intangible assets since December 31, 2011, calculated on a pro forma basis after giving effect to any subsequent acquisition or Disposition of a Person or business. “Consolidated Total Debt” shall mean, as of any date of determination, (a) the sum of (without duplication) all Indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of Capital Lease Obligations, Indebtedness for borrowed money and Disqualified Stock of the Borrower and the Restricted Subsidiaries on such date determined on a consolidated basis in accordance with GAAP (provided that the amount of any Capitalized Lease Obligations or any such Indebtedness issued at a discount to its face value shall be determined in accordance with GAAP) minus (b) the aggregate amount of Unrestricted Cash on such date. “Consolidated Total Debt to EBITDAX Ratio” shall mean, as of any date of determination, the ratio of (a) Consolidated Total Debt as of the last day of the most recent Test Period to (b) EBITDAX for such Test Period; provided that the Consolidated Total Debt to EBITDAX Ratio shall be determined for the relevant Test Period on a Pro Forma Basis. “Contractual Requirement” shall have the meaning provided in Section 8.3. “Control Agreement” shall mean a control agreement or other similar agreement by and among an Agent, a Credit Party and the depositary bank, securities intermediary or - 17- 727670773 12335469

 
commodities intermediary, as applicable, in form and substance reasonably satisfactory to the Collateral Agent and the Borrower, in order to give the Collateral Agent “control” (within the meaning set forth in Section 9-104 of the UCC) of such account. “Credit Documents” shall mean this Agreement, the Guarantee, the Security Documents, each Letter of Credit, any promissory notes issued by the Borrower under this Agreement, any Extension Amendment, any Incremental Agreement and any intercreditor agreement with respect to the Facility entered into on or after the Closing Date to which the Collateral Agent is party. “Credit Event” shall mean and include the making (but not the conversion or continuation) of a Loan and the issuance of a Letter of Credit. “Credit Party” shall mean each of the Borrower and the Guarantors. “Cure Amount” shall have the meaning provided in Section 11.12(a). “Cure Deadline” shall have the meaning provided in Section 11.12(a). “Cure Right” shall have the meaning provided in Section 11.12(a). “Current Ratio” shall mean, as of any date of determination, the ratio of (a) Consolidated Current Assets as of the last day of the most recent Test Period ended on or prior to such date of determination to (b) Consolidated Current Liabilities as of the last day of such Test Period. “Debt Repayment” shall mean the repayment in full of all outstanding Indebtedness (other than in respect of letters of credit issued thereunder that are either backstopped by Letter(s) of Credit or cash collateralized by the Borrower), and the termination of all commitments, under the Third Amended & Restated Credit Agreement, dated as of June 2, 2011, by and among El Paso E&P Company, L.P. (n/k/a EPE US LLC) and the lenders and other parties thereto. “Default” shall mean any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. “Default Rate” shall have the meaning provided in Section 2.8(c). “Defaulting Lender” shall mean any Lender whose acts or failures to act, whether directly or indirectly, cause it to meet any part of the definition of “Lender Default”. “Disposition” shall have the meaning provided in Section 10.4. “Dispose” or “Disposed of” shall have a correlative meaning to the defined term of “Disposition”. “Disqualified Stock” shall mean, with respect to any Person, any Equity Interests of such Person which, by its terms, or by the terms of any security into which it is convertible or - 18- 727670773 12335469

 
for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), other than as a result of a change of control or asset sale, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than as a result of a change of control or asset sale to the extent the terms of such Equity Interests provide that such Equity Interests shall not be required to be repurchased or redeemed until the Latest Maturity Date as in effect at the time of issuance has occurred or such repurchase or redemption is otherwise permitted by this Agreement (including as a result of a waiver hereunder)), in whole or in part, in each case prior to the date that is 91 days after the Latest Maturity Date hereunder as in effect at the time of issuance; provided that, if such Equity Interests are issued to any plan for the benefit of employees of the Borrower or its Subsidiaries or by any such plan to such employees, such Equity Interests shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations; provided, further, that any Equity Interests held by any future, present or former employee, director, manager or consultant of the Borrower, any of its Subsidiaries or any of its Parent Entities or any other entity in which the Borrower or a Restricted Subsidiary has an Investment and is designated in good faith as an “affiliate” by the board of directors or managers of the Borrower, in each case pursuant to any equity holders’ agreement, management equity plan or stock incentive plan or any other management or employee benefit plan or agreement shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Borrower or its Subsidiaries. “Distressed Person” shall have the meaning provided in the definition of “Lender-Related Distress Event”. “Dollar-Denominated Production Payments” shall mean production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith. “Dollar Equivalent” meansshall mean, at any time, (a) with respect to anyif an amount denominatedis expressed in Dollars, such amount, and (b) with respect to any amount denominated in any currency other than Dollarsif an amount is expressed in an Alternate Currency, the equivalent of such amount thereof in Dollars as determined by the Administrative Agent at such time on the basis of the Exchange Rate (determined in respect of the most recent Revaluation Date or other applicable date of determination) for the purchase of Dollars with such currencydetermined by using the rate of exchange for the purchase of the Dollars with the Alternate Currency in the London foreign exchange market at or about 11:00 a.m. London time (or New York time, as applicable) on a particular day as displayed by ICE Data Services as the “ask price”, or as displayed on such other information service which publishes that rate of exchange from time to time in place of ICE Data Services (or if such service ceases to be available, the equivalent of such amount in Dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion) and (c) if an amount is denominated in any other currency, the equivalent of such amount in Dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion. - 19- 727670773 12335469

 
“Dollars” and “$” shall mean dollars in lawful currency of the United States of America. “Domestic Subsidiary” shall mean each Subsidiary of the Borrower that is organized under the laws of the United States or any state thereof, or the District of Columbia. “Drawing” shall have the meaning provided in Section 3.4(b). “EBITDAX” shall mean, with respect to the Borrower and the Restricted Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Borrower and the Restricted Subsidiaries for such period plus (a) the sum of (in each case without duplication and to the extent the respective amounts described in subclauses (i) through (xii) of this clause (a) are otherwise deducted (and not added back) in arriving at such Consolidated Net Income for the respective period for which EBITDAX is being determined): (i) provision for Taxes based on income, profits or capital of the Borrower and the Restricted Subsidiaries for such period, including, without limitation, state, franchise and similar taxes and foreign withholding taxes (including penalties and interest related to taxes or arising from tax examinations), (ii) Interest Expense (and to the extent not included in Interest Expense, (x) solely to the extent deducted from Consolidated Net Income, all cash dividend payments (excluding items eliminated in consolidation) on any series of preferred stock or Disqualified Stock and (y) costs of surety bonds in connection with financing activities) of the Borrower and the Restricted Subsidiaries for such period (net of interest income of the Borrower and the Restricted Subsidiaries for such period), (iii) depreciation, depletion and amortization expenses of the Borrower and the Restricted Subsidiaries for such period including, the amortization of intangible assets, deferred financing fees and Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pensions and other post-employment benefits, (iv) business optimization expenses and other restructuring charges or reserves (which, for the avoidance of doubt, shall include, without limitation, the effect of inventory optimization programs, facility closure, facility consolidations, retention, severance, systems establishment costs, contract termination costs, future lease commitments and excess pension charges), (v) any other non-cash charges; provided, that, for purposes of this subclause (v), any non-cash charges or losses shall be treated as cash charges or losses in any subsequent period during which cash disbursements attributable thereto are made (but excluding, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period), (vi) the amount of management, consulting, monitoring, transaction and advisory fees and related expenses paid to the Sponsors and any other Co-Investor (or any - 20- 727670773 12335469

 
accruals related to such fees and related expenses) during such period to the extent permitted under Section 9.9(g) and Section 9.9(j), (vii) any costs or expense incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of the Borrower or a Subsidiary Guarantor or net cash proceeds of an issuance of Equity Interests of the Borrower (other than Disqualified Stock), (viii) any deductions (less any additions) attributable to minority interests except, in each case, to the extent of cash paid or received, (ix) the amount of any loss attributable to a new plant or facility, until the date that is 12 months after the date of completing construction of or acquiring such plant or facility, as the case may be; provided that (A) such losses are reasonably identifiable and factually supportable and certified by a responsible officer of the Borrower and (B) losses attributable to such plant or facility after 12 months from the date of completing such construction of or acquiring such plant or facility, as the case may be, shall not be included in this clause (ix), (x) exploration expenses or costs (to the extent the Borrower adopts the successful efforts method of accounting), (xi) with respect to any joint venture that is not a Restricted Subsidiary and solely to the extent relating to any net income referred to in clause (v) of the definition of “Consolidated Net Income”, an amount equal to the proportion of those items described in clauses (i) and (ii) above relating to such joint venture corresponding to the Borrower’s and the Restricted Subsidiaries’ proportionate share of such joint venture’s Consolidated Net Income (determined as if such joint venture were a Restricted Subsidiary), and (xii) one-time costs associated with commencing Public Company Compliance; minus (b) the sum of (without duplication and to the extent the amounts described in this clause (b) increased such Consolidated Net Income for the respective period for which EBITDAX is being determined) non-cash items increasing Consolidated Net Income of the Borrower and the Restricted Subsidiaries for such period (but excluding any such items (A) in respect of which cash was received in a prior period or will be received in a future period or (B) which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that reduced EBITDAX in any prior period). Notwithstanding anything to the contrary contained herein and subject to adjustments as provided under clause (a)(x) above and other adjustments permitted hereunder with respect to acquisitions, Dispositions and other transactions occurring following the Closing Date and pursuant to the definition of “Pro Forma Basis”, EBITDAX shall be deemed to be $338,000,000 for the fiscal quarter ended September 30, 2011, $386,000,000 for the fiscal quarter ended December 31, 2011, $344,000,000 for the fiscal quarter ended March 31, 2012 and $375,000,000 for the fiscal quarter ending June 30, 2012. - 21- 727670773 12335469

 
Notwithstanding the foregoing, the aggregate amount of add-backs made pursuant to subclause (iv) above and the aggregate amount of operating expense reductions and other operating improvements, synergies or cost savings reasonably expected to result from the Transactions that are included in EBITDAX in any four-fiscal-quarter period shall not exceed 15% of EBITDAX (prior to giving effect to such add-backs) for such period. “EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent. “EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway. “EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution. “Eighth Amendment” shall mean that certain Eighth Amendment to Credit Agreement, dated as of May 23, 2018, among Holdings, the Borrower, the Lenders party thereto and the Administrative Agent. “Eighth Amendment Effective Date” shall have the meaning given to the term Amendment Effective Date in the Eighth Amendment. “Engineering Reports” shall have the meaning provided in Section 2.14(c). “Environmental Claims” shall mean any and all actions, suits, orders, decrees, demands, demand letters, claims, liens, notices of noncompliance, restrictions on use, operations or transferability, violation or potential responsibility or investigation (other than internal reports prepared by or on behalf of the Borrower or any of the Subsidiaries (a) in the ordinary course of such Person’s business or (b) as required in connection with a financing transaction or an acquisition or disposition of real estate) or proceedings arising under or based upon any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereinafter, “Claims”), including, without limitation, (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief relating to the presence, release or threatened release of Hazardous Materials or arising from alleged injury or threat of injury to health or safety (to the extent relating to human exposure to Hazardous Materials), or the environment including, without limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural resources such as wetlands. “Environmental Law” shall mean any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect - 22- 727670773 12335469

 
and in each case as amended, and any binding judicial or administrative interpretation thereof, including any binding judicial or administrative order, consent decree or judgment, relating to the protection of the environment, including, without limitation, ambient air, surface water, groundwater, land surface and subsurface strata and natural resources such as wetlands, or human health or safety (to the extent relating to human exposure to Hazardous Materials), or Hazardous Materials. “EP Brazil” shall have the meaning provided in the recitals to this Agreement. “EP Egypt” shall have the meaning provided in the recitals to this Agreement. “EPE US LLC” shall have the meaning provided in the recitals to this Agreement. “Equity Interests” of any person shall mean any and all shares, interests, rights to purchase or otherwise acquire, warrants, options, participations or other equivalents of or interests in (however designated) equity or ownership of such person, including any preferred stock, any limited or general partnership interest and any limited liability company membership interest, and any securities or other rights or interests convertible into or exchangeable for any of the foregoing. “Equity Investment” shall have the meaning provided in the recitals to this Agreement. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA as in effect on the Closing Date and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or substituted therefor. “ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) that together with the Borrower would be deemed to be a “single employer” within the meaning of 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. “EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time. “Euro” means the lawful single currency unit of the Participating Member States. “Event of Default” shall have the meaning provided in Section 11. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exchange Rate” shall mean on any day with respect to any currency (other than Dollars), the rate at which such currency may be exchanged into any other currency (including Dollars), as set forth at approximately 11:00 a.m. (London time) on such day on the Reuters World Currency Page for such currency. In the event that such rate does not appear on any - 23- 727670773 12335469

 
Reuters World Currency Page, the Exchange Rate shall beapplicable currency exchange rate determined by reference to such other publicly available service for displaying exchange rates as may be agreed by the Administrative Agent and the Borrower, or, in the absence of such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of such currency are then being conducted, at or about 11:00 a.m., local time, on such date for the purchase of the relevant currency for delivery two Business Days later.clauses (b) and (c) of the definition of “Dollar Equivalent” in this Agreement. “Excluded Accounts” shall mean (a) each account all or substantially all of the deposited funds in which comprise amounts utilized to fund payroll, employee benefit or tax obligations of the Borrower and its Subsidiaries, (b) all accounts that are used solely as an escrow account or as a fiduciary or trust account, (c) any disbursement account, (d) any other account that is contractually obligated to be segregated from the other assets of the Credit Parties, in each case, for the benefit of unaffiliated third parties, (e) operator suspense accounts relating to oil and gas production to satisfy royalty and working interest obligations owed to third parties, (f) collateral accounts subject to Permitted Liens under clause (d) or (e) of the definition thereof or clause (j)(i), (o), (w) or (y) of Section 10.2, and (g) other accounts so long as the aggregate average daily maximum balance in any such other account over a 30-day period does not at any time exceed $1,000,000; provided that the aggregate daily maximum balance for all such bank accounts excluded pursuant to this clause (g) on any day shall not exceed $5,000,000. “Excluded Equity Interests” shall mean (a) any Equity Interests with respect to which, in the reasonable judgment of the Administrative Agent and the Borrower evidenced in writing delivered to the Agent, the cost or other consequences of pledging such Equity Interests in favor of the Secured Parties under the Security Documents shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (b) solely in the case of any pledge of Equity Interests of any Foreign Subsidiary or FSHCO (in each case, that is owned directly by the Borrower or a Guarantor) to secure the Obligations, any Equity Interest that is Voting Stock of such Foreign Subsidiary or FSHCO in excess of 65% of the outstanding Equity Interests of such class, (c) any Equity Interests to the extent the pledge thereof would be prohibited by any Requirement of Law, (d) in the case of (i) any Equity Interests of any Subsidiary to the extent the pledge of such Equity Interests is prohibited by Contractual Requirements or (ii) any Equity Interests of any Subsidiary that is not a Wholly owned Subsidiary at the time such Subsidiary becomes a Subsidiary, any Equity Interests of each such Subsidiary described in clause (i) or (ii) to the extent (A) that a pledge thereof to secure the Obligations is prohibited by any applicable Contractual Requirement (other than customary non-assignment provisions which are ineffective under the Uniform Commercial Code or other applicable Requirements of Law), (B) any Contractual Requirement prohibits such a pledge without the consent of any other party; provided that this clause (B) shall not apply if (1) such other party is a Credit Party or a Wholly owned Subsidiary or (2) consent has been obtained to consummate such pledge (it being understood that the foregoing shall not be deemed to obligate the Borrower or any Subsidiary to obtain any such consent)) and for so long as such Contractual Requirement or replacement or renewal thereof is in effect, or (C) a pledge thereof to secure the Obligations would give any other party (other than a Credit Party or a Wholly owned Subsidiary) to any Contractual Requirement governing such Equity Interests the right to terminate its obligations thereunder (other than customary non-assignment provisions that are ineffective under the Uniform - 24- 727670773 12335469

 
Commercial Code or other applicable Requirement of Law), (e) the Equity Interests of any Immaterial Subsidiary and any Unrestricted Subsidiary, (f) the Equity Interests of any Subsidiary of a Foreign Subsidiary, (g) any Equity Interests of any Subsidiary to the extent that the pledge of such Equity Interests would result in material adverse tax consequences to the Borrower or any Subsidiary as reasonably determined by the Borrower in a writing delivered to the Administrative Agent, (h) with respect to Term/Notes Priority Collateral, any asset at any time that is not subject to a Lien securing the Senior Secured Notes or the Senior Secured Term Loan Facility, and (i) any Equity Interests set forth on Schedule 1.1(b) which have been identified on or prior to the Closing Date in writing to the Administrative Agent by an Authorized Officer of the Borrower and agreed to by the Administrative Agent. “Excluded Subsidiary” shall mean (a) each Domestic Subsidiary listed on Schedule 1.1(b) and each future Domestic Subsidiary, in each case, for so long as any such Subsidiary does not constitute a Material Subsidiary, (b) each Domestic Subsidiary that is not a Wholly owned Subsidiary (for so long as such Subsidiary remains a non wholly owned Restricted Subsidiary), (c) each Domestic Subsidiary that is prohibited by any applicable Contractual Requirement or Requirement of Law from guaranteeing or granting Liens to secure the Obligations at the time such Subsidiary becomes a Restricted Subsidiary (and for so long as such restriction or any replacement or renewal thereof is in effect) or that would require consent, approval, license or authorization of a Governmental Authority to guarantee or grant Liens to secure the Obligations at the time such Subsidiary becomes a Restricted Subsidiary (unless such consent, approval, license or authorization has been received), (d) any Foreign Subsidiary, (e) any Domestic Subsidiary (i) that owns no material assets (directly or through its Subsidiaries) other than equity interests of one or more Foreign Subsidiaries that are CFCs or (ii) that is a direct or indirect Subsidiary of a Foreign Subsidiary, (f) each other Domestic Subsidiary acquired pursuant to a Permitted Acquisition financed with Indebtedness of the type incurred pursuant to Section 10.1(k) and would be permitted by the proviso contained in subclause (C) of Section 10.1(k)(i) and each Restricted Subsidiary thereof that guarantees such Indebtedness to the extent and so long as the financing documentation relating to such Permitted Acquisition to which such Restricted Subsidiary is a party prohibits such Restricted Subsidiary from guaranteeing or granting a Lien on any of its assets to secure the Obligations, (g) any other Domestic Subsidiary with respect to which, (x) in the reasonable judgment of the Administrative Agent and the Borrower, the cost or other consequences of providing a Guarantee of or granting Liens to secure the Obligations shall be excessive in view of the benefits to be obtained by the Lenders therefrom or (y) providing such a Guarantee or granting such Liens would result in material adverse tax consequences as reasonably determined by the Borrower, and (h) each Unrestricted Subsidiary. “Excluded Swap Obligation” means, with respect to any Credit Party, any Secured Hedge AgreementTransaction, if and to the extent that, all or a portion of the guarantee of such Credit Party of, or the grant by such Credit Party of a security interest to secure, such Secured Hedge AgreementTransaction (or any guarantee thereof) is or becomes (as a result of a Change in Law after the date of a transaction governed by such Secured Hedge AgreementTransaction is entered into) illegal under the Commodity Exchange Act of 1936, as amended, or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Credit Party’s failure for any reason to constitute a Qualified ECP Guarantor at the time such Credit Party’s guarantee or such Credit Party’s grant of such security interest becomes effective with respect to such Secured Hedge - 25- 727670773 12335469

 
AgreementTransaction. If a Hedging Obligation arises under a Secured Hedge Agreement governing more than one Secured Hedging AgreementTransaction, such exclusion shall apply only to the portion of such Hedging Obligation that is attributable to Secured Hedging AgreementsTransactions for which such guarantee or security interest is or becomes illegal. “Excluded Taxes” shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party hereunder or under any other Credit Document, (i) Taxes imposed on or measured by its overall net income or branch profits (however denominated, and including (for the avoidance of doubt) any backup withholding in respect thereof under Section 3406 of the Code or any similar provision of state, local or foreign law), and franchise (and similar) Taxes imposed on it (in lieu of net income Taxes), in each case by a jurisdiction (including any political subdivision thereof) as a result of such recipient being organized in, having its principal office in, or in the case of any Lender, having its applicable lending office in, such jurisdiction, or as a result of any other present or former connection with such jurisdiction (other than any such connection arising solely from this Agreement or any other Credit Documents or any transactions contemplated thereunder), (ii) U.S. federal withholding Tax imposed on any payment by or on account of any obligation of any Credit Party hereunder or under any other Credit Document that is required to be imposed on amounts payable to a Lender (other than to the extent such Lender is an assignee pursuant to a request by the Borrower under Section 13.7) pursuant to laws in force at the time such Lender becomes a party hereto (or designates a new lending office), except to the extent that such Lender (or its assignor, if any) was entitled, immediately prior to the designation of a new lending office (or assignment), to receive additional amounts or indemnification payments from any Credit Party with respect to such withholding Tax pursuant to Section 5.4, (iii) any withholding Tax imposed on any payment by or on account of any obligation of any Credit Party hereunder or under any other Credit Document that is attributable to the Administrative Agent’s, any Lender’s or any other recipient’s failure to comply with Section 5.4(d) or (e) or (iv) any Tax imposed under FATCA. “Existing Class” shall have the meaning provided in Section 2.17. “Existing Commitment” shall have the meaning provided in Section 2.17. “Existing Commitment Class” shall have the meaning provided in Section 2.17. “Existing Letters of Credit” shall mean each letter of credit existing on the Closing Date and identified on Schedule 1.1(d) and any amendments, extensions and renewals thereof. “Existing Loans” shall have the meaning provided in Section 2.17. “Extended Commitments” shall have the meaning provided in Section 2.17. “Extended Loans” shall have the meaning provided in Section 2.17. “Extending Lender” shall have the meaning provided in Section 2.17. “Extension Amendment” shall have the meaning provided in Section 2.17. - 26- 727670773 12335469

 
“Extension Date” shall have the meaning provided in Section 2.17. “Extension Election” shall have the meaning provided in Section 2.17. “Extension Request” shall have the meaning provided in Section 2.17. “Extension Series” shall mean all Extended Commitments that are established pursuant to the same Extension Amendment (or any subsequent Extension Amendment to the extent such Extension Amendment expressly provides that the Extended Commitments provided for therein are intended to be a part of any previously established Extension Series) and that provide for the same interest margins, extension fees, maturity and other terms. “Facility” shall mean this Agreement and the Commitments and the extensions of credit made hereunder. “Fair Market Value” shall mean, with respect to any asset or group of assets on any date of determination, the value of the consideration obtainable in a Disposition of such asset at such date of determination assuming a Disposition by a willing seller to a willing purchaser dealing at arm’s length and arranged in an orderly manner over a reasonable period of time having regard to the nature and characteristics of such asset, as determined by the Borrower in good faith. “FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), or any Treasury regulations promulgated thereunder or official administrative interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, any intergovernmental agreement entered into in connection with the implementation of such sections of the Code, and any fiscal or regulatory legislation, rules or practices adopted pursuant to any such intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code. “Federal Funds Effective Rate” shall mean, for any day, the weighted average of the per annum rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, 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 date that is a Business Day, the Federal Funds Effective Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 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; provided that if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. “Fifth Amendment” shall mean that certain Fifth Amendment to Credit Agreement, dated as of May 2, 2016, among Holdings, the Borrower, the Lenders party thereto and the Administrative Agent. “Fifth Amendment Effective Date” shall have the meaning given to the term Amendment Effective Date in the Fifth Amendment. - 27- 727670773 12335469

 
“Financial Officer” of any Person shall mean the Chief Financial Officer, principal accounting officer, Treasurer or Assistant Treasurer of such Person. “Financial Performance Covenant” shall mean the covenant, as the context may require, either or both of the covenants of the Borrower set forth in Section 10.11. “Foreign Corporate Subsidiary” shall mean a Foreign Subsidiary that is treated as a corporation for U.S. federal income tax purposes. “Foreign Plan” shall mean any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to by the Borrower or any of its Subsidiaries with respect to employees employed outside the United States other than any government or state sponsored plan or similar program that is not administered by the Borrower or any of its Subsidiaries. “Foreign Subsidiary” shall mean each Subsidiary of the Borrower that is not a Domestic Subsidiary. “Formula Amount”, at any time, shall mean an amount equal to the Borrowing Base (as defined in and determined pursuant to the Senior Unsecured Notes Indenture in effect on the Closing Date (whether or not the Senior Unsecured Notes are outstanding) at such time. “Fronting Fee” shall have the meaning provided in Section 4.1(c). “FSHCO” shall mean any Domestic Subsidiary that owns (directly or through its Subsidiaries) no material assets other than the Equity Interests of one or more Foreign Subsidiaries that are CFCs. “Fund” shall mean any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course. “GAAP” shall mean generally accepted accounting principles in the United States of America, as in effect from time to time. “Governmental Authority” shall mean any nation, sovereign or government, any state, province, territory or other political subdivision thereof, and any entity or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including a central bank or stock exchange. “Granting Lender” shall have the meaning provided in Section 13.6(g). “Guarantee” shall mean the Guarantee made by any Guarantor in favor of the Collateral Agent for the benefit of the Secured Parties, substantially in the form of Exhibit C. “Guarantee Obligations” shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of such Person, - 28- 727670773 12335469

 
whether or not contingent, (a) to purchase any such Indebtedness or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such Indebtedness or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain financial condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness or (d) otherwise to assure or hold harmless the owner of such Indebtedness against loss in respect thereof; provided, however, that the term “Guarantee Obligations” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Guarantee Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. “Guarantors” shall mean Holdings and each Domestic Subsidiary listed on Schedule 1.1(e) and each other Domestic Subsidiary (other than an Excluded Subsidiary) that becomes a party to the Guarantee after the Closing Date pursuant to Section 9.11 or otherwise. “Hazardous Materials” shall mean (a) any petroleum or petroleum products, natural gas or natural gas liquids, radioactive materials, friable asbestos or asbestos containing materials, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, and radon gas, (b) any chemicals, materials or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous waste”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, or “pollutants”, or words of similar import, under any applicable Environmental Law and (c) any other chemical, material or substance, which is prohibited, limited or regulated by any Environmental Law. “Hedge Agreements” shall mean (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, future contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, total return swap, credit spread transaction, repurchase transaction, reserve repurchase transaction, securities lending transaction, weather index transaction, spot contracts, fixed-price physical delivery contracts, whether or not exchange traded, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any - 29- 727670773 12335469

 
such obligations or liabilities under any Master Agreement. Notwithstanding the foregoing, agreements or obligations to physically sell any commodity at any index-based price shall not be considered Hedge Agreements. “Hedge Bank” shall mean (a) any Person (other than the Borrower or any of its Subsidiaries) that (x) at the time it enters into a Hedge AgreementTransaction is a Lender or Agent or an Affiliate of a Lender or Agent, or (y) at any time after it enters into a Hedge Agreement itTransaction becomes a Lender or Agent or an Affiliate of a Lender or Agent or (b) with respect to any Hedge AgreementTransaction that is in effect on the Closing Date, any Person (other than the Borrower or any of its Subsidiaries) that (x) is a Lender or Agent or an Affiliate of a Lender or Agent on the Closing Date or (y) is listed on Schedule 1.1(f) (and, in the case of this clause (y), any Affiliate of such Person). “Hedge PV” shall mean, with respect to any commodity Hedge AgreementTransaction, the present value, discounted at 9% per annum, of the future receipts expected to be paid to the Borrower or the Restricted Subsidiaries underin respect of such Hedge AgreementTransaction netted against the most recent Bank Price Deck provided to the Borrower by the Administrative Agent pursuant to Section 2.14(i) in good faith; provided, however, that the “Hedge PV” shall never be less than $0.00. “Hedge Transaction” shall mean any trade or other transaction entered into by a Person under a Hedge Agreement. “Hedging Condition” shall mean the circumstance that as of the date that is 90 days following the Closing Date, the Borrower shall have entered into or be subject to Hedge Agreements in respect of commodities the net notional volumes for which are not less than 40% of the reasonably anticipated projected Hydrocarbon production on a forward basis from the Credit Parties’ total Proved Developed Producing Reserves as forecast based upon the Initial Reserve Report for a term of five years (or for a shorter period if an equal amount of such notional volumes is hedged on a weighted-average basis (e.g., 80% of such anticipated production for a period of 2.5 years)). It is understood and agreed that the Hedging Condition is satisfied as of the Closing Date. “Hedging Obligations” shall mean, with respect to any Person, the obligations of such Person under Hedge Agreements. “Highest Lawful Rate” means, with respect to each Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loans under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof. “Historical Financial Statements” shall mean (a) the audited consolidated balance sheets of the Acquired EP Business and its consolidated Subsidiaries as of December 30, 2009, 2010 and 2011, and the related audited statements of income and comprehensive income, statements of changes in shareholders’ equity and statements of cash flows for each of the fiscal - 30- 727670773 12335469

 
years in the three-year period ended December 31, 2011 and (b) the unaudited interim consolidated balance sheet of the Acquired EP Business and its consolidated Subsidiaries as of March 31, 2012, and the related statement of income and comprehensive income, statement of changes in shareholders’ equity and statement of cash flows for the fiscal quarter ended March 31, 2011; provided that the audited consolidated financial statements contained in the Registration Statement on Form 10 dated September 16, 2011 and filed with the SEC, together with consolidated financial statements for subsequent fiscal periods (to the extent required under Section 6(h)) prepared on a basis substantially consistent therewith (subject to the absence of footnotes and audit adjustments), will satisfy the requirements of Section 6(h). “Holdings” shall have the meaning provided in the recitals to this Agreement. “Hydrocarbon Interests” shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature. “Hydrocarbons” shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. “Immaterial Subsidiary” shall mean any Subsidiary that is not a Material Subsidiary. “Increasing Lender” shall have the meaning provided in Section 2.16. “Incremental Agreement” shall have the meaning provided in Section 2.16. “Incremental Increase” shall have the meaning provided in Section 2.16. “Indebtedness” of any Person shall mean, if and to the extent (other than with respect to clause (g) below) the same would constitute indebtedness or a liability in accordance with GAAP, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (c) the deferred purchase price of assets or services that in accordance with GAAP would be required to be shown as a liability on the balance sheet of such Person (other than (i) any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and (ii) obligations resulting under firm transportation contracts or take or pay contracts entered into in the ordinary course of business), (d) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (e) the principal component of all Capitalized Lease Obligations of such Person, (f) net Hedging Obligations of such Person, (g) all indebtedness (excluding prepaid interest thereon) of any other Person secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (h) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase in respect of Disqualified Stock (excluding accrued dividends that have not increased the liquidation preference of such Disqualified Stock), (i) the undischarged balance of any - 31- 727670773 12335469

 
production payment created by such Person or for the creation of which such Person directly or indirectly received payment and (j) without duplication, all Guarantee Obligations of such Person; provided that Indebtedness shall not include (i) trade and other ordinary-course payables and accrued expenses arising in the ordinary course of business, (ii) deferred or prepaid revenues, (iii) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the respective seller, (iv) in the case of the Borrower and its Restricted Subsidiaries, (A) all intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (B) intercompany liabilities in connection with the cash management, tax and accounting operations of the Borrower and the Restricted Subsidiaries, (v) obligations under the Purchase and Sale Agreement and any other agreements or instruments contemplated thereby, in each case, as amended, restated supplemented or otherwise modified from time to time, (vi) Production Payments and Reserve Sales, (vii) in-kind obligations relating to net oil, natural gas liquids or natural gas balancing positions arising in the ordinary course of business and (viii) any obligation in respect of a farm-in agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an oil or gas property. For purposes hereof, the amount of any net Hedging Obligations on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of Indebtedness of any Person for purposes of clause (g) above shall be deemed to be equal to the lesser of (i) the aggregate unpaid amount of such Indebtedness and (ii) the Fair Market Value of the property encumbered thereby as determined by such Person in good faith. “Indemnified Liabilities” shall have the meaning provided in Section 13.5. “Indemnified Taxes” shall mean all Taxes imposed on or with respect to or measured by, any payment by or on account of any obligation of any Credit Party hereunder or under any other Credit Document other than (a) Excluded Taxes and (b) Other Taxes. “Industry Investment” shall mean Investments and/or expenditures made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business as a means of actively engaging therein through agreements, transactions, interests or arrangements that permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of Oil and Gas Business jointly with third parties, including: (1) ownership interests (directly or through equity) in oil and gas properties or gathering, transportation, processing, or related systems; and (2) Investments and/or expenditures in the form of or pursuant to operating agreements, processing agreements, farm-in agreements, farm-out agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), and other similar agreements (including for limited liability companies) with third parties. - 32- 727670773 12335469

 
“Ineligible Institution” shall mean, subject to the provisions of Section 13.6(i), the persons identified in writing to the Lead ArrangersAdministrative Agent by the Borrower on or prior to the Closing Date, which list may be updated from time to time after the Closing Date with the consent of the Administrative Agent (not to be unreasonably withheld or delayed) to add any operational competitors of the Borrower. “Information” shall have the meaning provided in Section 8.8(a). “Information Memorandum” shall mean the Confidential Information Memorandum in respect of the Facility dated March 2012, as modified or supplemented prior to the Closing Date. “Initial Loans” shall have the meaning provided in Section 2.1(a). “Initial Maturity Date” shall mean the seventh anniversary of the Closing Date,November 23, 2021, or, if such anniversarydate is not a Business Day, the Business Day immediately following such anniversary; provided that if, (i) on the Term Loan Early Maturity Test Date, the aggregate principal amount of Senior Secured Term Loans that mature 180 days after the Term Loan Early Maturity Test Date exceeds $25.0 million, the Initial Maturity Date shall be the Term Loan Early Maturity Test Date (or, if such date is not a Business Day, the Business Day immediately following such date) and (ii) on the Secured Notes Early Maturity Test Date, the aggregate principal amount of Senior Secured Notes that mature 180 days after the Secured Notes Early Maturity Test Date exceeds $25.0 million, the Initial Maturity Date shall be the Secured Notes Early Maturity Test Date (or, if such date is not a Business Day, the Business Day immediately following such date)date. “Initial Reserve Report” shall mean the reserve engineers’ report, as of December 31, 2011, internally prepared by the Acquired EP Business and audited by Ryder Scott Company, L.P., with respect to the Oil and Gas Properties of the Credit Parties. “Intercompany Note” shall mean the Intercompany Subordinated Note, dated as of the Closing Date, substantially in the form of Exhibit I executed by the Borrower and each other Subsidiary of the Borrower. “Interest Expense” shall mean, with respect to any Person for any period, the sum of (a) gross interest expense of such Person for such period on a consolidated basis (including (i) the amortization of debt discounts, (ii) the amortization of all fees (including fees with respect to any Hedge AgreementsTransaction) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any payments or accruals with respect to Capitalized Lease Obligations allocable to interest expense) and (b) capitalized interest of such Person. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received and costs incurred by the Borrower and the Restricted Subsidiaries with respect to any interest rate Hedge AgreementsTransaction, and interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Borrower to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. - 33- 727670773 12335469

 
“Interest Period” shall mean, with respect to any Loan, the interest period applicable thereto, as determined pursuant to Section 2.9. “Interim Redetermination” shall have the meaning provided in Section 2.14. “Interim Redetermination Date” shall mean the date on which a Borrowing Base that has been redetermined pursuant to an Interim Redetermination becomes effective as provided in Section 2.14. “Investment” shall have the meaning provided in Section 10.5. “ISP” shall mean, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance). “Issuer Documents” shall mean, with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the applicable Issuing Bank and the Borrower (or any Restricted Subsidiary) or in favor of the applicable Issuing Bank and relating to such Letter of Credit. “Issuing Bank” shall mean (a) JPMorgan Chase Bank, N.A., any of its Affiliates or any replacement or successor appointed pursuant to Section 3.6, (b) Citibank, N.A. and any of its Affiliates, and (c) if requested by the Borrower and reasonably acceptable to the Administrative Agent, any other Person who is a Lender at the time of such request and who accepts such appointment (it being understood that, if any such Person ceases to be a Lender hereunder, such Person will remain an Issuing Bank with respect to any Letter of Credit issued by such Person that remained outstanding as of the date such Person ceased to be a Lender). If the Borrower requests JPMorgan Chase Bank, N.A. to issue a Letter of Credit, JPMorgan Chase Bank, N.A. may, in its discretion, arrange for such Letter of Credit to be issued by Affiliates of the Administrative Agent or any Lender, and in each such case the term “Issuing Bank” shall include any such Affiliate or Lender with respect to Letters of Credit issued by such Affiliate or Lender. References herein and in the other Credit Documents to an Issuing Bank shall be deemed to refer to the Issuing Bank in respect of the applicable Letter of Credit or to all Issuing Banks, as the context requires. “Joint Bookrunners” shall mean J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., BMO Capital Markets Corp., RBC Capital Markets, the investment banking division of Royal Bank of Canada, RBC Capital Markets, UBS Securities LLC and Nomura Securities International, Inc., each in its capacity as joint bookrunner in respect of the Facility. “Junior Liens” means Liens on the Collateral (other than Liens securing the Obligations) that (i) with respect to the RBL Priority Collateral (as defined in the Senior Lien Inter-creditor Agreement), are subordinated to the Liens granted under the Credit Documents and (ii) with respect to the Term/Notes Priority Collateral, are junior to, pari passu with or senior to the Liens granted under the Credit Documents, in each case pursuant to the Senior Lien Intercreditor Agreement or another intercreditor agreement that is not materially less favorable to the Lenders than the Senior Lien Intercreditor Agreement (it being understood that Junior Liens - 34- 727670773 12335469

 
are not required to be pari passu with other Junior Liens, and that Indebtedness secured by Junior Liens may have Liens that are senior in priority to, or pari passu with, or junior in priority to, other Liens constituting Junior Liens). “Latest Maturity Date” shall mean, at any date of determination, the latest Maturity Date applicable to any Class of Commitments or Loans that is outstanding hereunder on such date of determination. “L/C Borrowing” shall mean an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Borrowing. All L/C Borrowings shall be denominated in Dollars. “L/C Maturity Date” shall mean the date that is five Business Days prior to the Maturity Date. “L/C Obligations” shall mean, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unpaid Drawings, including all L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn. “L/C Participant” shall have the meaning provided in Section 3.3(a). “L/C Participation” shall have the meaning provided in Section 3.3(a). “Lead Arrangers” shall mean J.P. Morgan Securities LLC and Citigroup Global Markets Inc., each in its capacity as a lead arranger in respect of the Facility. “Lender” shall have the meaning provided in the preamble to this Agreement. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender. “Lender Default” shall mean (i) the refusal or failure of any Lender to make available its portion of any incurrence of Loans or participations in Letters of Credit or Swingline Loans, which refusal or failure is not cured within two Business Days after the date of such refusal or failure; (ii) the failure of any Lender to pay over to the Administrative Agent, any Issuing Bank, any Swingline Lender or any other Lender any other amount required to be paid by it hereunder within two Business Days of the date when due, unless the subject of a good faith dispute; (iii) a Lender has notified the Borrower or the Administrative Agent that it does not intend or expect to comply with any of its funding obligations or has made a public statement to that effect with respect to its funding obligations under the Facility, (iv) the failure by a Lender to confirm in a manner reasonably satisfactory to the Administrative Agent that it will comply with its obligations under the Facility, which failure is not cured after the date of such failure, (v) a Distressed Person has admitted in writing that it is insolvent or such Distressed Person becomes subject to a Lender-Related Distress Event or (vi) a Lender or any Person that directly or indirectly controls such Lender, as the case may be, is or becomes the subject of a Bail-In Action. - 35- 727670773 12335469

 
“Lender-Related Distress Event” shall mean, with respect to any Lender, that such Lender or any Person that directly or indirectly controls such Lender (each, a “Distressed Person”), as the case may be, is or becomes subject to a voluntary or involuntary case with respect to such Distressed Person under any debt relief law, or a custodian, conservator, receiver or similar official is appointed for such Distressed Person or any substantial part of such Distressed Person’s assets, or such Distressed Person or any Person that directly or indirectly controls such Distressed Person is subject to a forced liquidation, or such Distressed Person makes a general assignment for the benefit of creditors or is otherwise adjudicated as, or determined by any Governmental Authority having regulatory authority over such Distressed Person or its assets to be, insolvent or bankrupt; provided that a Lender-Related Distress Event shall not be deemed to have occurred solely by virtue of (i) the ownership or acquisition of any equity interests in any Lender or any Person that directly or indirectly controls such Lender by a Governmental Authority or an instrumentality thereof so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender or (ii) an undisclosed administration pursuant to the laws of the Netherlands. “Letter of Credit” shall have the meaning provided in Section 3.1 and shall include the Existing Letters of Credit and any Alternate Currency Letters of Credit. “Letter of Credit Application” shall have the meaning provided in Section 3.2. “Letter of Credit Commitment” shall mean $250,000,000, as the same may be reduced from time to time pursuant to Section 3.1 (or the equivalent thereof in an Alternate Currency). “Letter of Credit Exposure” shall mean, with respect to any Lender, at any time, the sum of (a) the principal amount of any Unpaid Drawings in respect of which such Lender has made (or is required to have made) payments to the applicable Issuing Bank pursuant to Section 3.4(a) at such time (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof) and (b) such Lender’s Commitment Percentage of the Letters of Credit Outstanding at such time (excluding the portion thereof consisting of Unpaid Drawings in respect of which the Lenders have made (or are required to have made) payments to the applicable Issuing Bank pursuant to Section 3.4(a)) minus the amount of cash or deposit account balances held by the Administrative Agent to Cash Collateralize outstanding Letters of Credit and Unpaid Drawings under Section 3.8. “Letter of Credit Fee” shall have the meaning provided in Section 4.1(b). “Letters of Credit Outstanding” shall mean, at any time, the sum of, without duplication, (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the aggregate principal amount of all Unpaid Drawings in respect of all Letters of Credit. - 36- 727670773 12335469

 
“LIBOR Loan” shall mean any Loan bearing interest at a rate determined by reference to the LIBOR Rate (other than an ABR Loan bearing interest by reference to the LIBOR Rate by virtue of clause (c) of the definition of ABR). “LIBOR Rate” shall mean, for any Interest Period with respect to any Borrowing of a LIBOR Loan, the interest rate per annum appearing on Reuters Screen LIBOR01 Page (or on any successor page or any successor service, or any substitute page or substitute for such service, providing rate quotations comparable to those currently provided on Reuters Screen LIBOR01 Page, 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; provided that if the quoted interest rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. In the event that such rate is not available at such time for any reason, then the “LIBOR Rate” with respect to such Borrowing of such LIBOR Loan for such Interest Period shall be determined by the Administrative Agent by reference to such other comparable publicly available service for displaying the offered rate for dollar deposits in the London interbank market as may be selected by the Administrative Agent and, in the absence of availability, then such rate shall be the rate at which dollar deposits of an amount comparable to the Borrowing of such LIBOR Loan and for a maturity comparable to such Interest Period are offered by the principal 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” shall mean, with respect to any asset, (a) any mortgage, preferred mortgage, deed of trust, lien, notice of claim of lien, hypothecation, pledge, charge, security interest or similar encumbrance in or on 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 or (c) Production Payments and Reserve Sales and the like payable out of Oil and Gas Properties; provided that in no event shall an operating lease be deemed to be a Lien. “Liquidity” shall mean, as of any date of determination, the sum of (a) the Available Commitment on such date and (b) the aggregate amount of Unrestricted Cash of the Borrower and the Restricted Subsidiaries at such date, less the amount of any Borrowing Base Deficiency existing on such date of determination. “Loan” shall mean any Initial Loan, Extended Loan or Swingline Loan made by any Lender hereunder. “Loan Limit” shall mean, at any time, the lesser of (a) the Total Commitment at such time and (b) the Borrowing Base at such time (including as it may be reduced pursuant to Section 2.14(h)). “Majority Lenders” shall mean, at any date, (a) Non-Defaulting Lenders having or holding a majority of the Adjusted Total Commitment at such date, or (b) if the Total Commitment has been terminated or for the purposes of acceleration pursuant to Section 11, - 37- 727670773 12335469

 
Non-Defaulting Lenders having or holding a majority of the outstanding principal amount of the Loans, the Swingline Exposure and Letter of Credit Exposure (excluding the Loans, Swingline Exposure and Letter of Credit Exposure of Defaulting Lenders) in the aggregate at such date. “Mandatory Borrowing” shall have the meaning provided in Section 2.1(c). “Material Adverse Effect” shall mean a circumstance or condition affecting the business, assets, operations, properties or financial condition of the Borrower and the Subsidiaries, taken as a whole, that would, individually or in the aggregate, materially adversely affect (a) the ability of the Borrower and the other Credit Parties, taken as a whole, to perform their payment obligations under this Agreement or any of the other Credit Documents or (b) the rights and remedies of the Agents and the Lenders under this Agreement or under any of the other Credit Documents. “Material Indebtedness” shall mean Indebtedness (other than Loans and Letters of Credit) of any one or more of the Borrower or any Restricted Subsidiary in an aggregate principal amount exceeding $125,000,000. “Material Subsidiary” shall mean, at any date of determination, each Restricted Subsidiary of the Borrower (a) whose Total Assets (when combined with the assets of such Subsidiary’s Subsidiaries, after eliminating intercompany obligations) at the last day of the Test Period were equal to or greater than 5% of the Consolidated Total Assets of the Borrower and the Restricted Subsidiaries at such date or (b) whose revenues (when combined with the revenues of such Subsidiary’s Subsidiaries, after eliminating intercompany obligations) during such Test Period were equal to or greater than 5% of the consolidated revenues of the Borrower and the Restricted Subsidiaries for such period, in each case determined in accordance with GAAP; provided that if, at any time and from time to time after the Closing Date, Restricted Subsidiaries that are not Material Subsidiaries have, in the aggregate, (i) Total Assets (when combined with the assets of such Subsidiary’s Subsidiaries, after eliminating intercompany obligations) at the last day of such Test Period equal to or greater than 10.0% of the Consolidated Total Assets of the Borrower and the Restricted Subsidiaries at such date or (ii) revenues (when combined with the revenues of such Subsidiary’s Subsidiaries, after eliminating intercompany obligations) during such Test Period equal to or greater than 10.0% of the consolidated revenues of the Borrower and the Restricted Subsidiaries for such period, in each case determined in accordance with GAAP, then the Borrower shall, on the date on which financial statements for such quarter are delivered pursuant to this Agreement, designate in writing to the Administrative Agent one or more of such Restricted Subsidiaries as “Material Subsidiaries.” “Maturity Date” shall mean, as to the applicable Loan, the Initial Maturity Date, any maturity date related to any Extension Series of Extended Commitments, or the Swingline Maturity Date, as applicable. “Maximum Total Commitment” shall mean $629,420,912.00. “Minimum Borrowing Amount” shall mean, with respect to any Borrowing of Loans, $500,000 (or, if less, the entire remaining Commitments at the time of such Borrowing). - 38- 727670773 12335469

 
“Minimum Equity Amount” shall have the meaning provided in the recitals to this Agreement. “Minority Investment” shall mean any Person (other than a Subsidiary) in which the Borrower or any Restricted Subsidiary owns Equity Interests. “Moody’s” shall mean Moody’s Investors Service, Inc. or any successor by merger or consolidation to its business. “Mortgage” shall mean a mortgage or a deed of trust, deed to secure debt, trust deed, assignment of as-extracted collateral, fixture filing or other security document entered into by the owner of a Mortgaged Property and the Collateral Agent for the benefit of the Secured Parties in respect of that Mortgaged Property, substantially in the form of Exhibit D (with such changes thereto as may be necessary to account for local law matters) or otherwise in such form as agreed between the Borrower and the Collateral Agent. “Mortgaged Property” shall mean, initially, each parcel of real estate and improvements thereto owned by a Credit Party and identified on Schedule 1.1(g), and each other parcel of real property and improvements thereto with respect to which a Mortgage is required to be granted pursuant to Section 9.11. the Oil and Gas Properties and other assets appertaining thereto that are encumbered by a Mortgage and such other Oil and Gas Properties and other assets appertaining thereto with respect to which a Mortgage is granted pursuant to Section 9.11; provided that, notwithstanding any provision in any Mortgage to the contrary, in no event shall any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) located on the Mortgaged Properties (as defined in the applicable Mortgage) within an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of 1968 be included in the definition of “Mortgaged Property” or “Mortgaged Properties” and no such Building or Manufactured (Mobile) Home shall be encumbered by any Mortgage. As used herein, “Flood Insurance Regulations” shall mean (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder. “Multiemployer Plan” shall mean a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. “Net Income” shall mean, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends. “Net Working Capital” shall mean (a) all current assets of the Borrower and its Restricted Subsidiaries, except current assets from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business less (b) all current liabilities of the Borrower and its Restricted Subsidiaries, except current liabilities (i) associated with asset - 39- 727670773 12335469

 
retirement obligations relating to Oil and Gas Properties, (ii) included in Indebtedness and (iii) any current liabilities from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, in each case as set forth in the consolidated financial statements of the Borrower prepared in accordance with GAAP. “New Borrowing Base Notice” shall have the meaning provided in Section 2.14(d). “New Facility” means each plant or facility which is either a new plant or facility or an expansion of an existing plant or facility owned by the Borrower or its Restricted Subsidiaries which receives a certificate of completion or occupancy and all relevant licenses, and in fact commences operations. “Non-Consenting Lender” shall have the meaning provided in Section 13.7(b). “Non-Defaulting Lender” shall mean and include each Lender other than a Defaulting Lender. “Non-Extension Notice Date” shall have the meaning provided in Section 3.2(b). “Non-U.S. Lender” shall mean any Lender (a) that is not disregarded as separate from its owner for U.S. federal income tax purposes and that is not a “United States person” as defined by Section 7701(a)(30) of the Code. or (b) that is disregarded as separate from its owner for U.S. federal income tax purposes and whose regarded owner is not a “United States person” as defined by Section 7701(a)(30) of the Code. “Notice of Borrowing” shall mean a request of the Borrower in accordance with the terms of Section 2.3(a) and substantially in the form of Exhibit B or such other form as shall be approved by the Administrative Agent (acting reasonably). “Notice of Conversion or Continuation” shall have the meaning provided in Section 2.6(a). “NYMEX” shall mean the New York Mercantile Exchange. “Obligations” shall mean all advances to, and debts, liabilities, obligations, covenants and duties of, any Credit Party arising under any Credit Document or otherwise with respect to any Loan or Letter of Credit or under any Secured Cash Management Agreement or Secured Hedge AgreementTransaction, in each case, entered into with the Borrower or any of its Restricted Subsidiaries, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Credit Party or any Affiliate thereof in any proceeding under any bankruptcy or insolvency law naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the generality of the foregoing, the Obligations of the Credit Parties under the Credit Documents (and any of their Restricted Subsidiaries to the extent they have obligations under the Credit Documents) include the obligation (including Guarantee Obligations) to pay principal, interest, charges, expenses, fees, attorney costs, indemnities and - 40- 727670773 12335469

 
other amounts payable by any Credit Party under any Credit Document. Notwithstanding the foregoing, (a) the obligations of the Borrower or any Restricted Subsidiary under any Secured Hedge AgreementTransaction and under any Secured Cash Management Agreement that has been secured at the option of the Borrower (such option shall be deemed exercised as reflected in the documents related to any such Secured Hedge AgreementTransaction or Secured Cash Management Agreement among the Borrower and the applicable Hedge Bank or Cash Management Bank) shall be secured and guaranteed pursuant to the Security Documents and the Guarantee only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (b) any release of Collateral or Guarantors effected in the manner permitted by this Agreement and the other Credit Documents shall not require the consent of the holders of Hedge Obligations under Secured Hedge AgreementsTransactions or of the holders of Cash Management Obligations under Secured Cash Management Agreements. Notwithstanding the foregoing, Excluded Swap Obligations shall not be an Obligation of any Guarantor that is not a Qualified ECP Guarantor. “Oil and Gas Business” shall mean: (a) the business of acquiring, exploring, exploiting, developing, producing, operating and disposing of interests in oil, natural gas, natural gas liquids, liquefied natural gas and other Hydrocarbons and mineral properties or products produced in association with any of the foregoing; (b) the business of gathering, marketing, distributing, treating, processing, storing, refining, selling and transporting of any production from such interests or properties and products produced in association therewith and the marketing of oil, natural gas, other Hydrocarbons and minerals obtained from unrelated Persons; (c) any other related energy business, including power generation and electrical transmission business, directly or indirectly, from oil, natural gas and other Hydrocarbons and minerals produced substantially from properties in which Holdings or its Restricted Subsidiaries, directly or indirectly, participate; (d) any business relating to oil field sales and service; and (e) any business or activity relating to, arising from, or necessary, appropriate, incidental or ancillary to the activities described in the foregoing clauses (a) through (d) of this definition. “Oil and Gas Properties” shall mean (a) Hydrocarbon Interests, (b) the properties now or hereafter pooled or unitized with Hydrocarbon Interests, (c) 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, (d) all operating agreements, contracts and other agreements, including production sharing contracts and 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, (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the - 41- 727670773 12335469

 
Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests, (f) all tenements, hereditaments, appurtenances and properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) 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, rental 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, gas processing plants and pipeline systems and any related infrastructure to any thereof, 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. “Ongoing Hedges” shall have the meaning provided in Section 10.10(a). “Other Currency” shall have the meaning provided in Section 3.13. “Other Taxes” shall mean any and all present or future stamp, registration, documentary, intangible, recording, filing or any other excise, property or similar Taxes (including interest, fines, penalties, additions to tax and related reasonable out-of-pocket expenses with regard thereto) arising from any payment made hereunder or made under any other Credit Document or from the execution or delivery of, registration or enforcement of, consummation or administration of, or otherwise with respect to, this Agreement or any other Credit Document; provided that such term shall not include any of the foregoing Taxes (i) that result from an assignment, grant of a participation pursuant to Section 13.6(c) or transfer or assignment to or designation of a new lending office or other office for receiving payments under any Credit Document (“Assignment Taxes”) to the extent such Assignment Taxes are imposed as a result of a connection between the assignor/participating Lender and/or the assignee/Participant and the taxing jurisdiction (other than a connection arising solely from any Credit Documents or any transactions contemplated thereunder), except to the extent that any such action described in this proviso is requested or required by the Borrower, or (ii) that are Excluded Taxes. “Overnight Rate” shall mean, for any day, the greater of (a) the Federal Funds Effective Rate and (b) an overnight rate determined by the Administrative Agent or the applicable Issuing Bank, as the case may be, in accordance with banking industry rules on interbank compensation. “Parent Entity” shall mean any Person that is a direct or indirect parent company (which may be organized as a partnership) of Holdings and/or the Borrower, as applicable. “Participant” shall have the meaning provided in Section 13.6(c). “Participant Register” shall have the meaning provided in Section 13.6(c). - 42- 727670773 12335469

 
“Participating Member States” means, together, each member state of the European Union that adopts or has adopted the Euro as its lawful currency in accordance with legislation of the European Union relating to the Economic and Monetary Union (as amended or reenacted from time to time). “Patriot Act” shall have the meaning provided in Section 13.18. “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. “Pension Act” shall mean the Pension Protection Act of 2006, as it presently exists or as it may be amended from time to time. “Permitted Acquisition” shall mean the acquisition, by merger or otherwise, by the Borrower or any of the Restricted Subsidiaries of assets (including any assets constituting a business unit, line of business or division) or Equity Interests, so long as (a) such acquisition and all transactions related thereto shall be consummated in all material respects in accordance with Requirements of Law; (b) if such acquisition involves the acquisition of Equity Interests of a Person that upon such acquisition would become a Subsidiary, such acquisition shall result in the issuer of such Equity Interests becoming a Restricted Subsidiary and, to the extent required by Section 9.11, a Guarantor; (c) such acquisition shall result in the Collateral Agent, for the benefit of the Secured Parties, being granted a security interest in any Equity Interests or any assets so acquired to the extent required by Section 9.11; (d) after giving effect to such acquisition, no Default or Event of Default shall have occurred and be continuing; (e) after giving effect to such acquisition, the Borrower and its Restricted Subsidiaries shall be in compliance with Section 9.16; and (f) the Borrower shall be in Pro Forma Compliance after giving effect to such acquisition (including any Indebtedness assumed or permitted to exist pursuant to Section 10.1(k)). “Permitted Acquisition Consideration” shall mean in connection with any Permitted Acquisition, the aggregate amount (as valued at the Fair Market Value of such Permitted Acquisition at the time such Permitted Acquisition is made) of, without duplication: (a) the purchase consideration paid or payable in cash for such Permitted Acquisition, whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and including any and all payments representing the purchase price and any assumptions of Indebtedness and/or Guarantee Obligations, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any Person or business and (b) the aggregate amount of Indebtedness incurred or assumed in connection with such Permitted Acquisition; provided, in each case, that any such future payment that is subject to a contingency shall be considered Permitted Acquisition Consideration only to the extent of the reserve, if any, required under GAAP (as determined at the time of the consummation of such Permitted Acquisition) to be established in respect thereof for the Borrower or its Restricted Subsidiaries. - 43- 727670773 12335469

 
“Permitted Additional Debt” shall mean any senior, senior subordinated or subordinated Indebtedness issued by the Borrower or a Guarantor, (a) the terms of which do not provide for any scheduled repayment, mandatory redemption or sinking fund obligation prior to the 91st day after the Latest Maturity Date as in effect on the date of determination (other than customary offers to purchase upon a change of control, asset sale or casualty or condemnation event and customary acceleration rights after an event of default), (b) the covenants, events of default, guarantees and other terms of which (other than interest rate, fees, funding discounts and redemption or prepayment premiums determined by the Borrower to be “market” rates, fees, discounts and premiums at the time of issuance or incurrence of any such Indebtedness), taken as a whole, are determined by the Borrower to be “market” terms on the date of issuance or incurrence and in any event are not materially adverse to the interests of the Lenders, taken as a whole, relative to the terms of the Senior Unsecured Notes Indenture, taken as a whole, and do not require the maintenance or achievement of any financial performance standards other than as a condition to taking specified actions; provided that a certificate of an Authorized Officer of the Borrower delivered to the Administrative Agent at least three Business Days prior to the incurrence or issuance of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the relevant criteria set forth above, as applicable, shall be conclusive evidence that such terms and conditions satisfy such relevant standard, (c) if such Indebtedness is subordinated in right of payment to the Obligations, the terms of such Indebtedness provide for customary subordination of such Indebtedness to the Obligations and (d) no Subsidiary of the Borrower (other than a Guarantor) is an obligor under such Indebtedness. “Permitted Holders” shall mean (i) the Co-Investors (and each Person to whom any Co-Investor transfers Equity Interests of the Borrower or any Parent Entity in connection with the primary equity syndication following the Closing Date), (ii) officers, directors, employees and other members of management of the Borrower (or any of its Parent Entities) or any of its Restricted Subsidiaries who are or become holders of Equity Interests of the Borrower (or any Parent Entity), (iii) any Person that has no material assets other than the capital stock of the Borrower and that, directly or indirectly, holds or acquires beneficial ownership of 100% on a fully diluted basis of the voting Equity Interests of the Borrower, and of which no other Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date), other than any of the other Permitted Holders specified in clauses (i) and (ii), beneficially owns more than 50% (or, following a Qualifying IPO, the greater of 35% and the percentage beneficially owned by the Permitted Holders specified in clauses (i) and (ii)) on a fully diluted basis of the voting Equity Interests thereof and (iv) any “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date) the members of which include any of the other Permitted Holders specified in clauses (i) and (ii) and that, directly or indirectly, hold or acquire beneficial ownership of the voting Equity Interests of the Borrower (a “Permitted Holder Group”), so long as (1) each member of the Permitted Holder Group has voting rights proportional to the percentage of ownership interests held or acquired by such member and (2) no Person or other “group” (other than the other Permitted Holders specified in clauses (i) and (ii)) beneficially owns more than 50% (or, following a Qualifying IPO, the greater of 35% and the percentage beneficially owned by the Permitted Holders specified in clauses (i) and (ii)) on a fully diluted basis of the voting Equity Interests held by the Permitted Holder Group. - 44- 727670773 12335469

 
“Permitted Investments” shall mean: (a) securities issued or unconditionally guaranteed by the United States government or any agency or instrumentality thereof, in each case having maturities and/or reset dates of not more than 24 months from the date of acquisition thereof; (b) securities issued by any state, territory or commonwealth of the United States of America or any political subdivision of any such state, territory or commonwealth or any public instrumentality thereof or any political subdivision of any such state, territory or commonwealth or any public instrumentality thereof having maturities of not more than 24 months from the date of acquisition thereof and, at the time of acquisition, having an investment grade rating generally obtainable from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, then from another nationally-recognized rating service); (c) commercial paper maturing no more than 12 months after the date of acquisition thereof and, at the time of acquisition, having a rating of at least A-2 or P-2 from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally-recognized rating service); (d) time deposits with, or domestic and LIBOR certificates of deposit or bankers’ acceptances maturing no more than two years after the date of acquisition thereof issued by, any Lender or any other bank or trust company having combined capital, surplus and undivided profits of not less than $500,000,000 in the case of domestic banks and $100,000,000 (or the Dollar equivalent thereof) in the case of foreign banks; (e) repurchase agreements with a term of not more than 180 days for underlying securities of the type described in clauses (a), (b) and (d) above entered into with any bank meeting the qualifications specified in clause (d) above or securities dealers of recognized national standing; (f) marketable short-term money market and similar funds (i) either having assets in excess of $500,000,000 or (ii) having a rating of at least A-2 or P-2 from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally-recognized rating service); (g) shares of investment companies that are registered under the Investment Company Act of 1940 and substantially all the investments of which are one or more of the types of securities described in clauses (a) through (f) above; and (h) in the case of Investments by any Restricted Foreign Subsidiary or Investments made in a country outside the United States of America, other customarily utilized high-quality Investments in the country where such Restricted Foreign Subsidiary is located or in which such Investment is made. “Permitted Junior Amount”, at any time, shall mean an amount equal to (i) the greatest of (1) $3,000,000,000, (2) the sum of (x) $500,000,000 and (y) 30% of Adjusted Consolidated Net Tangible Assets (measured at such time based upon the financial statements - 45- 727670773 12335469

 
most recently available prior to such date) and (3) the Formula Amount in effect at such time, minus (ii) the amount of the Total Commitment in effect at such time. “Permitted Liens” shall mean: (a) Liens for taxes, assessments or governmental charges or claims not yet overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings for which appropriate reserves have been established to the extent required by and in accordance with GAAP (or in the case of any Foreign Subsidiary, the comparable accounting principles in the relevant jurisdiction), or for property taxes on property that the Borrower or one of its Subsidiaries has determined to abandon if the sole recourse for such tax, assessment, charge or claim is to such property; (b) Liens in respect of property or assets of the Borrower or any of the Restricted Subsidiaries imposed by law, such as landlords’, vendors’, suppliers’, carriers’, warehousemen’s, repairmen’s, construction contractors’, workers’ and mechanics’ Liens and other similar Liens arising in the ordinary course of business or incident to the exploration, development, operation or maintenance of Oil and Gas Properties, in each case so long as such Liens arise in the ordinary course of business and do not individually or in the aggregate have a Material Adverse Effect; (c) Liens arising from judgments or decrees in circumstances not constituting an Event of Default under Section 11.9; (d) Liens incurred or pledges or deposits made in connection with workers’ compensation, unemployment insurance and other types of social security, old age pension, public liability obligations or similar legislation, and deposits securing liabilities to insurance carriers under insurance or self-insurance arrangements in respect of such obligations, or to secure (or secure the Liens securing) liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any Subsidiary; (e) deposits and other Liens securing (or securing the bonds or similar instruments securing) the performance of tenders, statutory obligations, plugging and abandonment obligations, surety, stay, customs and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (including letters of credit issued in lieu of such bonds or to support the issuance thereof) incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business, or otherwise constituting Investments permitted by Section 10.5; (f) ground leases, subleases, licenses or sublicenses in respect of real property on which facilities owned or leased by the Borrower or any of its Restricted Subsidiaries are located; (g) easements, rights-of-way, licenses, restrictions (including zoning restrictions), title defects, exceptions, deficiencies or irregularities in title, encroachments, protrusions, - 46- 727670773 12335469

 
servitudes, permits, conditions and covenants and other similar charges or encumbrances (including in any rights-of-way or other property of the Borrower or its Restricted Subsidiaries for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil or other minerals or timber, and other like purposes, or for joint or common use of real estate, rights of way, facilities and equipment) not interfering in any material respect with the business of the Borrower and its Restricted Subsidiaries, taken as a whole and, to the extent reasonably agreed by the Administrative Agent, any exception on the title reports issued in connection with any Borrowing Base Property; (h) (i) any interest or title of a lessor, sublessor, licensor or sublicensor under any lease, liens reserved in oil, gas or other Hydrocarbons, minerals, leases for bonus, royalty or rental payments and for compliance with the terms of such lease and (ii) any interest or title of a lessor, sublessor, licensor or sublicensor or secured by a lessor’s, sublessor’s, licensor’s or sublicensor’s interest under any lease, sublease, license or sublicense entered into by the Borrower or any Restricted Subsidiary in the ordinary course of business or otherwise permitted by this Agreement; (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (j) Liens on goods or inventory the purchase, shipment or storage price of which is financed by a documentary letter of credit or bankers’ acceptance issued for the account of the Borrower or any of its Restricted Subsidiaries; provided that such Lien secures only the obligations of the Borrower or such Restricted Subsidiaries in respect of such letter of credit or bankers’ acceptance to the extent permitted under Section 10.1; (k) leases, licenses, subleases or sublicenses granted to others not interfering in any material respect with the business of the Borrower and its Restricted Subsidiaries, taken as a whole; (l) Liens arising from precautionary Uniform Commercial Code financing statement or similar filings made in respect of operating leases entered into by the Borrower or any of its Restricted Subsidiaries; (m) Liens created in the ordinary course of business in favor of banks and other financial institutions over credit balances of any bank accounts of the Borrower and the Restricted Subsidiaries held at such banks or financial institutions, as the case may be, to facilitate the operation of cash pooling and/or interest set-off arrangements in respect of such bank accounts in the ordinary course of business; (n) Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or - 47- 727670773 12335469

 
deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements that are usual or customary in the oil and gas business and are for claims which are not delinquent or that are being contested in good faith and by appropriate proceedings for which appropriate reserves have been established to the extent required by and in accordance with GAAP; provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Restricted Subsidiary; (o) Liens on pipelines and pipeline facilities that arise by operation of law or other like Liens arising by operation of law in the ordinary course of business and incident to the exploration, development, operation and maintenance of Oil and Gas Properties, each of which is in respect of obligations that do not constitute Indebtedness for borrowed money and are not yet overdue for a period of more than 30 days or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; and (p) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property that does not materially interfere with the ordinary conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole. “Permitted Refinancing Indebtedness” shall mean, with respect to any Indebtedness (the “Refinanced Indebtedness”), any Indebtedness issued or incurred in exchange for, or the net proceeds of which are used to modify, extend, refinance, renew, replace or refund (collectively to “Refinance” or a “Refinancing” or “Refinanced”), such Refinanced Indebtedness (or previous refinancing thereof constituting Permitted Refinancing Indebtedness); provided that (A) the principal amount (or accreted value, if applicable) of any such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Refinanced Indebtedness outstanding immediately prior to such Refinancing except by an amount equal to the unpaid accrued interest and premium thereon plus other amounts paid and fees and expenses incurred in connection with such Refinancing plus an amount equal to any existing commitment unutilized and letters of credit undrawn thereunder, (B) if the Indebtedness being Refinanced is Indebtedness permitted by Section 10.1(i) or 10.1(k), the direct and contingent obligors with respect to such Permitted Refinancing Indebtedness immediately prior to such Refinancing are not changed as a result of such Refinancing (except that a Credit Party may be added as an additional obligor), (C) other than with respect to a Refinancing in respect of Indebtedness permitted pursuant to Section 10.1(h), such Permitted Refinancing Indebtedness shall have a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Refinanced Indebtedness, and (D) if the Indebtedness being Refinanced is Indebtedness permitted by Section 10.1(i) or 10.1(k), terms and conditions of any such Permitted Refinancing Indebtedness, taken as a whole, are not materially less favorable to the Lenders than the terms and conditions of the Refinanced Indebtedness being Refinanced (including, if applicable, as to collateral priority and subordination, but excluding as to interest rates, fees, floors, funding discounts and redemption or prepayment premiums); provided that a certificate of - 48- 727670773 12335469

 
an Authorized Officer of the Borrower delivered to the Administrative Agent at least three Business Days prior to the incurrence or issuance of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement. “Person” shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any Governmental Authority. “Petroleum Industry Standards” shall mean the Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question. “Plan” shall mean any multiemployer or single-employer plan, as defined in Section 4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding six plan years maintained or contributed to by (or to which there is or was an obligation to contribute or to make payments to) the Borrower or an ERISA Affiliate (other than any Multiemployer Plan). “Plan Asset Regulations” shall mean 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA, as amended from time to time. “Pledge Agreement” shall mean the Pledge Agreement of even date herewith by and among the Borrower, the other pledgors party thereto and the Collateral Agent, for the benefit of the Secured Parties, substantially in the form of Exhibit F hereto. “Prime Rate” shall mean the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective. “Pro Forma Basis” shall mean, as to any Person, for any events as described below that occur subsequent to the commencement of a period for which the financial effect of such events is being calculated, and giving effect to the events for which such calculation is being made, such calculation as will give pro forma effect to such events as if such events occurred on the first day of the four consecutive fiscal quarter period ended on or before the occurrence of such event (the “Reference Period”): (i) in making any determination of EBITDAX, effect shall be given to any Disposition, any acquisition, Investment, capital expenditure, construction, repair, replacement, improvement, development, disposition, merger, amalgamation, consolidation (including the Transactions or any similar transaction or transactions not otherwise permitted under Section 10.3 or Section 10.5 that require a waiver or consent of the Majority Lenders and such waiver or consent has been obtained), any dividend, - 49- 727670773 12335469

 
distribution or other similar payment, any designation of any Restricted Subsidiary as an Unrestricted Subsidiary and any Subsidiary Redesignation, and any restructurings of the business of the Borrower or any Restricted Subsidiary that the Borrower or any of the Restricted Subsidiaries has determined to make and/or made and are expected to have a continuing impact and are factually supportable, which would include cost savings resulting from head count reduction, closure of facilities and similar operational and other cost savings, which adjustments the Borrower determines are reasonable as set forth in a certificate of a Financial Officer of the Borrower (the foregoing, together with any transactions related thereto or in connection therewith, the “relevant transactions”), in each case that occurred during the Reference Period (or, in the case of determinations made pursuant to the definition of the term “Pro Forma Compliance” or pursuant to Sections 10.1, 10.2, 10.510.5, 10.6 and 10.6,10.7 occurring during the Reference Period or thereafter and through and including the date upon which the respective Permitted Acquisition or relevant transaction is consummated), (ii) in making any determination on a Pro Forma Basis, (x) all Indebtedness (including Indebtedness issued, incurred or assumed as a result of, or to finance, any relevant transactions and for which the financial effect is being calculated, whether incurred under this Agreement or otherwise, but excluding normal fluctuations in revolving Indebtedness incurred for working capital purposes) issued, incurred, assumed or permanently repaid during the Reference Period (or, in the case of determinations made pursuant to the definition of the term “Pro Forma Compliance” or pursuant to Sections 10.1, 10.2, 10.5 , 10.6 and 10.6,10.7, occurring during the Reference Period or thereafter and through and including the date upon which the respective Permitted Acquisition or relevant transaction is consummated) shall be deemed to have been issued, incurred, assumed or permanently repaid at the beginning of such period, (y) Interest Expense of such person attributable to interest on any Indebtedness, for which pro forma effect is being given as provided in preceding clause (x), bearing floating interest rates shall be computed on a pro forma basis as if the rates that would have been in effect during the period for which pro forma effect is being given had been actually in effect during such periods, and (z) with respect to each New Facility which commences operations and records not less than one full fiscal quarter’s operations during the Reference Period, the operating results of such New Facility shall be annualized on a straight line basis during such period, and (iii) (A) any Subsidiary Redesignation then being designated, effect shall be given to such Subsidiary Redesignation and all other Subsidiary Redesignations after the first day of the relevant Reference Period and on or prior to the date of the respective Subsidiary Redesignation then being designated, collectively, and (B) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary, effect shall be given to such designation and all other designations of Restricted Subsidiaries as Unrestricted Subsidiaries after the first day of the relevant Reference Period and on or prior to the date of the then applicable designation of a Restricted Subsidiary as an Unrestricted Subsidiary, collectively. Pro forma calculations made pursuant to the definition of the term “Pro Forma Basis” shall be determined in good faith by a Financial Officer of the Borrower and may include, (i) for any fiscal period ending on or prior to the third anniversary of any relevant pro forma event (but not for any fiscal period ending after such third anniversary), adjustments to reflect (1) operating expense reductions and other operating improvements, synergies or cost savings reasonably expected to result from such relevant pro forma event (including, to the extent applicable, the Transactions) and (2) all adjustments of the type used in connection with the calculation of Adjusted EBITDA as set forth in the “Summary Historical and Pro Forma Consolidated Financial and Other Operating Data” under “Summary” in the Senior Notes - 50- 727670773 12335469

 
Offering Memorandum to the extent such adjustments, without duplication, continue to be applicable. For purposes of this definition, any amount in a currency other than Dollars will be converted to Dollars based on the average exchange rate for such currency for the most recent twelve month period immediately prior to the date of determination in a manner consistent with that used in calculating EBITDAX for the applicable period. “Pro Forma Compliance” shall mean, at any date of determination, that the Borrower and the Restricted Subsidiaries shall be in compliance, on a Pro Forma Basis after giving effect on a Pro Forma Basis to the relevant transactions (including the assumption, the issuance, incurrence and permanent repayment of Indebtedness), with theeach Financial Performance Covenant recomputed as at the last day of the most recently ended fiscal quarter of the Borrower and the Restricted Subsidiaries for which the financial statements and certificates required pursuant to Section 9.1(a) or Section 9.1(b) have been or were required to have been delivered. “Production Payments and Reserve Sales” shall mean the grant or transfer by the Borrower or any of its Restricted Subsidiaries to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar-denominated), partnership or other interest in Oil and Gas Properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers. “Proposed Acquisition” shall have the meaning provided in Section 10.10(a). “Proposed Borrowing Base” shall have the meaning provided in Section 2.14(c)(i). “Proposed Borrowing Base Notice” shall have the meaning provided in Section 2.14(c)(ii). “Proved Developed Producing Reserves” shall mean oil and gas reserves that, in accordance with Petroleum Industry Standards, are classified as both “Proved Reserves” and “Developed Producing Reserves.” “Proved Developed Reserves” shall mean oil and gas reserves that, in accordance with Petroleum Industry Standards, are classified as both “Proved Reserves” and one of the following: (a) “Developed Producing Reserves” or (b) “Developed Non-Producing Reserves.” “Proved Reserves” shall mean oil and gas reserves that, in accordance with Petroleum Industry Standards, are classified as both “Proved Reserves” and one of the following: (a) “Developed Producing Reserves”, (b) “Developed Non-Producing Reserves” or (c) “Undeveloped Reserves”. - 51- 727670773 12335469

 
“PTE” shall mean a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time. “Public Company Compliance” shall mean compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, the provisions of the Securities Act and the Exchange Act, and the rules of national securities exchange listed companies (in each case, as applicable to companies with equity or debt securities held by the public), including procuring directors’ and officers’ insurance, legal and other professional fees, and listing fees. “Purchase and Sale Agreement” shall have the meaning provided in the recitals to this Agreement. “PV-9” shall mean, with respect to any Proved Reserves expected to be produced from any Borrowing Base Properties, the net present value, discounted at 9% per annum, of the future net revenues expected to accrue to the Borrower’s and the Credit Parties’ collective interests in such reserves during the remaining expected economic lives of such reserves, calculated in accordance with the most recent Bank Price Deck provided to the Borrower by the Administrative Agent pursuant to Section 2.14(i). “PV-10” shall mean, with respect to any Proved Reserves expected to be produced from any Borrowing Base Properties, the net present value, discounted at 10% per annum, of the future net revenues expected to accrue to the Borrower’s and the Credit Parties’ collective interests in such reserves during the remaining expected economic lives of such reserves, calculated in accordance with the most recent Bank Price Deck provided to the Borrower by the Administrative Agent pursuant to Section 2.14(i). “Qualified ECP Guarantor” means, in respect of any Secured Hedge AgreementTransaction, each Credit Party that has total assets exceeding $10,000,000 at the time such Secured Hedge AgreementTransaction is incurred or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act of 1936, as amended, or any regulation promulgated thereunder. “Qualified Equity Interests” means any Equity Interests of Holdings or the Borrower or any Parent Entity other than Disqualified Stock. “Qualifying IPO” shall mean the issuance by the Borrower or any direct or indirect parent of the Borrower of its Equity Interests generating (individually or in the aggregate together with any prior initial public offering) gross proceeds exceeding $100,000,000, in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (whether alone or in connection with a secondary public offering). “Redetermination Date” shall mean, with respect to any Scheduled Redetermination or any Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes effective pursuant to Section 2.14(d). - 52- 727670773 12335469

 
“Refinance” shall have the meaning provided in the definition of “Permitted Refinancing Indebtedness.” “Register” shall have the meaning provided in Section 13.6(b)(iv). “Regulation T” shall mean Regulation T of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. “Regulation U” shall mean Regulation U of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. “Regulation X” shall mean Regulation X of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. “Reimbursement Date” shall have the meaning provided in Section 3.4(a). “Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the directors, officers, employees, agents, advisors, representatives and members of such Person or such Person’s Affiliates and any Person that possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of such Person, whether through the ability to exercise voting power, by contract or otherwise. “Reportable Event” shall mean an event described in Section 4043 of ERISA and the regulations thereunder, other than any event as to which the 30-day notice period has been waived. “Required Cash Collateral Amount” shall have the meaning provided in Section 3.8(c). “Required Lenders” shall mean, at any date, (a) Non-Defaulting Lenders having or holding at least 66-⅔% of the Adjusted Total Commitment at such date or (b) if the Total Commitment has been terminated, Non-Defaulting Lenders having or holding at least 66-%% of the outstanding principal amount of the Loans, the Swingline Exposure and Letter of Credit Exposure (excluding the Loans, Swingline Exposure and Letter of Credit Exposure of Defaulting Lenders) in the aggregate at such date. “Requirement of Law” shall mean, as to any Person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority, in each case applicable to or binding upon such Person or any of its property or assets or to which such Person or any of its property or assets is subject. “Reserve Report” shall mean the Initial Reserve Report and any other subsequent report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each June 30th or December 31st (or such other date in the event of certain Interim Redeterminations) the Proved Reserves and the Proved Developed Reserves attributable to the Borrowing Base Properties of the Borrower and the Credit Parties, together with a projection of - 53- 727670773 12335469

 
the rate of production and future net revenues, operating expenses (including production taxes and ad valorem expenses) and capital expenditures with respect thereto as of such date, based upon the most recent Bank Price Deck provided to the Borrower by the Administrative Agent pursuant to Section 2.14(i); provided that in connection with any Interim Redeterminations of the Borrowing Base pursuant to the last sentence of Section 2.14(b), (i.e., as a result of the Borrower having acquired Oil and Gas Properties with Proved Reserves which are to be Borrowing Base Properties having a PV-10 (calculated at the time of acquisition) in excess of 5% of the Borrowing Base in effect immediately prior to such acquisition), the Borrower shall be required, for purposes of updating the Reserve Report, to set forth only such additional Proved Reserves and related information as are the subject of such acquisition. “Reserve Report Certificate” shall mean a certificate of an Authorized Officer in substantially the form of Exhibit A certifying as to the matters set forth in Section 9.14(c). “Restricted Foreign Subsidiary” shall mean a Foreign Subsidiary that is a Restricted Subsidiary. “Restricted Payments” shall have the meaning provided in Section 10.6. “Restricted Subsidiary” shall mean any Subsidiary of the Borrower other than an Unrestricted Subsidiary. “Revaluation Date” means, with respect to any Alternate Currency Letter of Credit, each of the following: (i) each date of issuance of an Alternate Currency Letter of Credit, (ii) each date of an amendment of any Alternate Currency Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (iii) each date of any payment by an Issuing Bank under any Alternate Currency Letter of Credit, and (iv) such additional dates as the Administrative Agent or the applicable Issuing Bank shall determine or the Majority Lenders shall require. “S&P” shall mean Standard & Poor’s Ratings Services or any successor by merger or consolidation to its business. “Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of thisthe Fifth Amendment Effective Date, Crimea, Cuba, Iran, North Korea, Sudan and Syria). “Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union or, any European Union member state, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b). “Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or - 54- 727670773 12335469

 
the U.S. Department of State, or ((b) the United Nations Security Council, the European Union, any European Union member state or, Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority. “Scheduled Dispositions” shall have the meaning provided in Section 10.4(i). “Scheduled Redetermination” shall have the meaning provided in Section 2.14(b). “Scheduled Redetermination Date” shall mean the date on which a Borrowing Base that has been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section 2.14. “SEC” shall mean the Securities and Exchange Commission or any successor thereto. “Section 2.17 Additional Amendment” shall have the meaning provided in Section 2.17(c). “Section 9.1 Financials” shall mean the financial statements delivered, or required to be delivered, pursuant to Section 9.1(a) or (b), together with the accompanying Authorized Officer’s certificate delivered, or required to be delivered, pursuant to Section 9.1(c). “Secured Cash Management Agreement” shall mean any agreement related to Cash Management Services by and between the Borrower or any of its Restricted Subsidiaries and any Cash Management Bank. “Secured Hedge AgreementTransaction” shall mean any Hedge AgreementTransaction by and between the Borrower or any of its Restricted Subsidiaries and any Hedge Bank.“Secured Notes Early Maturity Test Date” shall mean the date that is 180 days prior to the final maturity of the Senior Secured Notes as in effect on the Amendment Effective Date. “Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral Agent, each Issuing Bank, each Lender, each Hedge Bank that is party to any Secured Hedge AgreementTransaction, each Cash Management Bank that is a party to any Secured Cash Management Agreement and each sub-agent pursuant to Section 12.2 appointed by the Administrative Agent with respect to matters relating to the Credit Documents or by the Collateral Agent with respect to matters relating to any Security Document. “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Security Agreements” shall mean (a) the Collateral Agreement and (b) the Pledge Agreement. “Security Documents” shall mean, collectively, (a) the Security Agreements, (b) the Mortgages, (c) the Control Agreements, and (cd) each other security agreement or other instrument or document executed and delivered pursuant to Section 9.11 or 9.13 or pursuant to - 55- 727670773 12335469

 
any other such Security Documents or otherwise to secure or perfect the security interest in any or all of the Obligations. “Seller” shall have the meaning provided in the recitals to this Agreement. “Senior Lien Intercreditor Agreement” shall mean the Senior Lien Intercreditor Agreement of even date herewith among the Agents, Citibank N.A., Wilmington Trust, National Association, the Borrower, the Subsidiary Grantors and the other parties party thereto from time to time, as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, and any replacement of the foregoing on terms not materially adverse to the Lenders, taken as a whole, than the relevant replaced intercreditor agreement. “Senior Managing Agents” shall mean Compass Bank, Capital One, National Association, CIBC World Markets Corp., Comerica Bank, DNB Markets, Inc., ING Financial Markets LLC, Lloyds Securities Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Union Bank, N.A., Mizuho Corporate Bank, Ltd., The Royal Bank of Scotland plc, The Bank of Nova Scotia, Sumitomo Mitsui Banking Corporation, Société Générale, SunTrust Bank and TD Securities (USA) LLC. “Senior Notes Offering Memorandum” shall mean the offering memorandum, dated April 10, 2012, in respect of the Senior Unsecured Notes and the Senior Secured Notes. “Senior Secured Notes” shall mean the $750,000,000 in aggregate principal amount of the Borrower’s Senior Secured Notes due 2019 having terms substantially as set forth in the Senior Notes Offering Memorandum issued pursuant to the Senior Secured Notes Indenture and any notes issued by the Borrower in exchange for, and as contemplated by, the Senior Secured Notes and the related registration rights agreement with substantially identical terms as the Senior Secured Notes. “Senior Secured Notes Indenture” shall mean the Indenture, dated as of April 24, 2012, under which the Senior Secured Notes were issued, among the Borrower and certain of the Subsidiaries party thereto and the trustee named therein from time to time, as amended, restated, supplemented or otherwise modified from time to time in accordance with the requirements thereof and of this Agreement. “Senior Secured Term Loan Facility” shall mean the term loan agreement, dated as of April 24, 2012, by and among the Borrower, the lenders party thereto in their capacities as lenders thereunder and Citibank, N.A., as administrative agent and collateral agent, including any guarantees, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications or restatements thereof. “Senior Secured Term Loans” shall mean the loans in an aggregate principal amount of $750,000,000 made under the Senior Secured Term Loan Facility. “Senior Unsecured Notes” shall mean the $2,000,000,000 in aggregate principal amount of the Borrower’s Senior Unsecured Notes due 2020 having terms substantially as set forth in the Senior Notes Offering Memorandum issued pursuant to the Senior Unsecured Notes Indenture and any notes issued by the Borrower in exchange for, and as contemplated by, the - 56- 727670773 12335469

 
Senior Unsecured Notes and the related registration rights agreement with substantially identical terms as the Senior Unsecured Notes. “Senior Unsecured Notes Indenture” shall mean the Indenture, dated as of April 24, 2012, under which the Senior Unsecured Notes were issued, among the Borrower and certain of the Subsidiaries party thereto and the trustee named therein from time to time, as amended, restated, supplemented or otherwise modified from time to time in accordance with the requirements thereof and of this Agreement. “Solvent” shall mean, with respect to any Person, that as of the Closing Date, the fair value of the assets of such Person and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of such Person and its Subsidiaries on a consolidated basis; (ii) the present fair saleable value of the property of such Person and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of such Person and its Subsidiaries on a consolidated basis on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) such Person and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) such Person and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date. “Specified Asset Sale” shall mean (a) the termination or creation of any off-setting positions in respect of any commodity hedge positions (whether evidenced by a floor, put or Hedge Agreement) by the Borrower or any Restricted Subsidiary or (b) the disposition by the Borrower or any Restricted Subsidiary of any Oil and Gas Property or of any Equity Interests in any Restricted Subsidiary or Minority Investment owning any Oil and Gas Property. “Specified Asset Sale Amount” shall mean, with respect to any Specified Asset Sale, an amount equal to (i) 100% of the amount of cash proceeds received by the Borrower or any Restricted Subsidiary in respect of such Specified Asset Sale on or after the Fifth Amendment Effective Date minus (ii) the amount, if any, by which the Borrowing Base is reduced pursuant to Section 2.14(f) or Section 2.14(g) after the Fifth Amendment Effective Date as a result of such Specified Asset Sale. “Specified Capital Amount” shall mean (i) 100% of the amount of cash proceeds received by the Borrower or any Restricted Subsidiary after the Fifth Amendment Effective Date in respect of (a) the incurrence of any unsecured Indebtedness, (b) the incurrence of any Indebtedness secured by Junior Liens, (c) any sale or issuance of Equity Interests of the Borrower, Holdings or any Parent Entity (including upon exercise of warrants or options), which proceeds in the case of any sale or issuance by Holdings or any Parent Entity have been contributed as common equity to the capital of the Borrower or (d) any contributions as common equity to the capital of the Borrower, in the case of each of clause (c) and (d), solely to the extent that such cash proceeds are not applied in connection with any Cure Right, minus (ii) the amount of such cash proceeds, if any, used (or required to be used) by the Borrower pursuant to Section 5.2(b)(ii) to repay any Borrowing Base Deficiency that results from a reduction of the Borrowing - 57- 727670773 12335469

 
Base pursuant to Section 2.14(e) after the Fifth Amendment Effective Date as a result of the incurrence of unsecured Indebtedness or Indebtedness secured by a Junior Lien. “Specified Debt Payment Cap” shall mean, at any time, an amount equal to the sum of (a) $350,000,000 plus (b) the aggregate Specified Asset Sale Amount with respect to each Specified Asset Sale consummated on or prior to such time plus (c) the aggregate Specified Capital Amount with respect to each incurrence of Indebtedness, sale or issuance of Equity Interests or contributions to capital of the types described in the definition of “Specified Capital Amount” consummated on or prior to such time minus (d) the aggregate amount of Restricted Payments made pursuant to Section 10.6(j) duringafter the Fifth Amendment PeriodEffective Date. “Specified Existing Commitment” shall mean any Existing Commitments belonging to a Specified Existing Commitment Class. “Specified Existing Commitment Class” shall have the meaning provided in Section 2.17(a). “Specified Representations” shall mean the representations and warranties with respect to the Borrower set forth in Sections 8.2, 8.3(c), 8.5, 8.7, 8.16 and 8.21 of this Agreement and in Section 3.02(c) of the Collateral Agreement. “Specified Subsidiary” shall mean, at any date of determination any Restricted Subsidiary (i) whose Total Assets at the last day of the applicable Test Period were equal to or greater than 15% of the Consolidated Total Assets of the Borrower and the Restricted Subsidiaries at such date, or (ii) whose revenues during such Test Period were equal to or greater than 15% of the consolidated revenues of the Borrower and the Restricted Subsidiaries for such period, in each case determined in accordance with GAAP. “Sponsors” shall mean (a) Apollo Global Management, LLC, (b) Access Industries, Inc., (c) Riverstone Holdings, L.P., (d) Korea National Oil Corporation, and (e) the respective Affiliates of the Persons described in the foregoing clauses (a) through (d), excluding in each case any of their respective operating portfolio companies. “SPV” shall have the meaning provided in Section 13.6(g). “Stated Amount” of any Letter of Credit shall mean the maximum amount from time to time available to be drawn thereunder (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof), determined without regard to whether any conditions to drawing could then be met. “Subagent” shall have the meaning provided in Section 12.2. “Subsidiary” of any Person shall mean and include (a) any corporation more than 50% of whose Equity Interests of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time Equity Interests of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such - 58- 727670773 12335469

 
Person directly or indirectly through Subsidiaries and (b) any limited liability company, partnership, association, joint venture or other entity of which such Person directly or indirectly through Subsidiaries has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower. “Subsidiary Guarantor” shall mean each Subsidiary that is a Guarantor. “Subsidiary Redesignation” shall have the meaning provided in the definition of “Unrestricted Subsidiary” contained in this Section 1.1(a). “Successor Borrower” shall have the meaning provided in Section 10.3(a). “Swap Termination Value” shall mean, in respect of any one or more Hedge AgreementsTransactions, after taking into account the effect of any legally enforceable netting agreement relating to any Hedge Agreements under which such Hedge AgreementsTransactions were entered into, (a) for any date on or after the date such Hedge Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedge AgreementsTransactions, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedge AgreementsTransactions (which may include a Lender or any Affiliate of a Lender). “Swingline Commitment” shall mean the obligation of the Swingline Lender to make Swingline Loans pursuant to Section 2.1 in an aggregate principal amount at any one time outstanding not to exceed $25,000,000. “Swingline Exposure” shall mean at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Lender at any time shall equal its Commitment Percentage of the aggregate Swingline Exposure at such time. “Swingline Lender” shall mean JPMorgan Chase Bank, N.A., in its capacity as the lender of Swingline Loans hereunder. “Swingline Loan” shall have the meaning provided in Section 2.1(b). “Swingline Maturity Date” shall mean, with respect to any Swingline Loan, the date that is five Business Days prior to the Maturity Date. “Taxes” shall mean any and all present or future taxes, duties, levies, imposts, assessments, deductions, withholdings or other similar charges imposed by any Governmental Authority whether computed on a separate, consolidated, unitary, combined or other basis and any interest, fines, penalties or additions to tax with respect to the foregoing. “Term Loan Early Maturity Test Date” shall mean the date that is 180 days prior to the final maturity of the Senior Secured Term Loans as in effect on the April 6, 2015. “Termination Date” shall mean the earlier to occur of (a) the Maturity Date and (b) the date on which the Total Commitment shall have terminated. - 59- 727670773 12335469

 
“Term/Notes Priority Collateral” shall have the meaning provided in the Senior Lien Intercreditor Agreement as in effect on the date hereof. “Test Period” shall mean, as of any date of determination, the four consecutive fiscal quarters of the Borrower then last ended and for which Section 9.1 Financials have been delivered to the Administrative Agent. “Total Assets” shall mean, as of any date of determination with respect to any Person, the amount that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like caption) on a balance sheet of such Person at such date. “Total Commitment” shall mean the sum of the Commitments of the Lenders.; provided that the Total Commitment shall not at any time exceed the Maximum Total Commitment. The Total Commitment as of the Eighth Amendment Effective Date is $629,420,912.00. “Total Exposure” shall mean, with respect to any Lender at any time, the sum of (a) the aggregate principal amount of the Loans of such Lender then outstanding, (b) such Lender’s Letter of Credit Exposure at such time and (c) such Lender’s Swingline Exposure at such time. “Transaction Expenses” shall mean any fees or expenses incurred or paid by the Borrower or any of its Subsidiaries or any of their Affiliates (including the Co-Investors, the Acquired EP Business and its Subsidiaries) in connection with the Transactions, this Agreement and the other Credit Documents, the Purchase and Sale Agreement, the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loan Facility and the transactions contemplated hereby and thereby. “Transactions” shall mean, collectively, the Acquisition and the consummation of the other transactions contemplated by the Purchase and Sale Agreement or related thereto, this Agreement, the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loan Facility, the Equity Investment, the Debt Repayment, the payment of Transaction Expenses and the other transactions contemplated by this Agreement and the Credit Documents (including the Closing Date Loans). “Transferee” shall have the meaning provided in Section 13.6(e). “Type” shall mean, as to any Loan, its nature as an ABR Loan or a LIBOR Loan. “UCC” shall mean the Uniform Commercial Code of the State of New York or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any Collateral. “Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the Accumulated Benefit Obligation (as defined under Statement of Financial Accounting Standards No. 87 (“SFAS 87”)) under the Plan as of the close of its most recent plan year, determined in accordance with SFAS 87 as in effect on the date hereof, exceeds the Fair Market Value of the assets allocable thereto. - 60- 727670773 12335469

 
“Uniform Customs” shall mean, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits as approved by the International Chamber of Commerce, commencing on July 1, 2007 (or such later version thereof as may be in effect at the time of issuance). “Unpaid Drawing” shall have the meaning provided in Section 3.4(a). “Unrestricted Cash” shall mean cash or cash equivalents of the Borrower or any of its Restricted Subsidiaries that would not appear as “restricted” on a consolidated balance sheet of the Borrower or any of its Restricted Subsidiaries. “Unrestricted Subsidiary” shall mean (a) any Subsidiary of the Borrower that is formed or acquired after the Closing Date if, at such time or promptly thereafter, the Borrower designates such Subsidiary as an “Unrestricted Subsidiary” in a written notice to the Administrative Agent, (b) any Restricted Subsidiary designated as an Unrestricted Subsidiary by the Borrower in a written notice to the Administrative Agent; provided that in the case of each of (a) and (b), (i) such designation shall be deemed to be an Investment (or reduction in an outstanding Investment, in the case of a designation of an Unrestricted Subsidiary as a Restricted Subsidiary) on the date of such designation in an amount equal to the Fair Market Value of the Borrower’s investment therein on such date and such designation shall be permitted only to the extent such Investment is permitted under Section 10.5 on the date of such designation, (ii) in the case of clause (b), such designation shall be deemed to be a Disposition pursuant to which the provisions of Section 2.14(g) will apply to the extent contemplated thereby and (iii) no Default or Event of Default would result from such designation immediately after giving effect thereto and (c) each Subsidiary of an Unrestricted Subsidiary. No Subsidiary may be designated as an Unrestricted Subsidiary if, after such designation, it would be a “Restricted Subsidiary” for the purpose of any Permitted Additional Debt or any Permitted Refinancing Indebtedness in respect of any of the foregoing. The Borrower may, by written notice to the Administrative Agent, re-designate any Unrestricted Subsidiary as a Restricted Subsidiary (each, a “Subsidiary Redesignation”), and thereafter, such Subsidiary shall no longer constitute an Unrestricted Subsidiary, but only if (A) to the extent such Subsidiary has outstanding Indebtedness on the date of such designation, immediately after giving effect to such designation, the Borrower shall be in Pro Forma Compliance and (B) no Default or Event of Default would result from such Subsidiary Redesignation. “U.S. Lender” shall mean any Lender other than a Non-U.S. Lender. “Volumetric Production Payments” shall mean production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith. “Voting Stock” shall mean, with respect to any Person, such Person’s Equity Interests having the right to vote for the election of directors of such Person under ordinary circumstances. “Weighted Average Life to Maturity” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products - 61- 727670773 12335469

 
obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness. “Wholly owned Domestic Subsidiary” of any person shall mean a Domestic Subsidiary of such person that is a Wholly owned Subsidiary. “Wholly owned Foreign Subsidiary” of any person shall mean a Foreign Subsidiary of such person that is a Wholly owned Subsidiary. “Wholly owned Subsidiary” of any person shall mean a subsidiary of such person, all of the Equity Interests of which (other than directors’ qualifying shares or nominee or other similar shares required pursuant to applicable law) are owned by such person or another Wholly owned Subsidiary of such person. “Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule. 1.2 Other Interpretive Provisions. With reference to this Agreement and each other Credit Document, unless otherwise specified herein or in such other Credit Document: (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import when used in any Credit Document shall refer to such Credit Document as a whole and not to any particular provision thereof. (c) Article, Section, Exhibit and Schedule references are to the Credit Document in which such reference appears. (d) The term “including” is by way of example and not limitation. (e) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form. (f) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including”. (g) Section headings herein and in the other Credit Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Credit Document. - 62- 727670773 12335469

 
(h) Any reference to any Person shall be constructed to include such Person’s successors or assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all of the functions thereof. (i) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. (j) The word “will” shall be construed to have the same meaning as the word “shall”. (k) The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 1.3 Accounting Terms. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP, applied in a manner consistent with that used in preparing the Historical Financial Statements, except as otherwise specifically prescribed herein; provided, however, 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 Closing Date 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. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein, and (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof. 1.4 Rounding. Any financial ratios required to be maintained or complied with by the Borrower pursuant to this Agreement (or required to be satisfied in order for a specific action to be permitted under this Agreement) shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number). - 63- 727670773 12335469

 
1.5 References to Agreements, Laws, Etc. Unless otherwise expressly provided herein, (a) references to organizational documents, agreements (including the Credit Documents) and other Contractual Requirements shall be deemed to include all subsequent amendments, restatements, amendment and restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, amendment and restatements, extensions, supplements and other modifications are permitted by any Credit Document and (b) references to any Requirement of Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Requirement of Law. 1.6 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to New York City (daylight saving or standard, as applicable). 1.7 Timing of Payment or Performance. When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment (other than as described in Section 2.9) or performance shall extend to the immediately succeeding Business Day. 1.8 Currency Equivalents Generally. (a) For purposes of any determination under Section 9, Section 10 (other than Section 10.11) or Section 11 or any determination under any other provision of this Agreement requiring the use of a current exchange rate, all amounts incurred, outstanding or proposed to be incurred or outstanding in currencies other than Dollars shall be translated into Dollars at the Exchange Rate then in effect on the date of such determination; provided, however, that (w) the Administrative Agent shall determine the Exchange Rate as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Alternate Currency Letters of Credit. Such Exchange Rate shall become effective as of such Revaluation Date and shall be the Exchange Rate employed in converting any amounts between Dollars and each Alternate Currency until the next Revaluation Date to occur, (x) for purposes of determining compliance with Section 10 with respect to the amount of any Indebtedness, Investment, Disposition, Restricted Payment or payment under Section 10.7 in a currency other than Dollars, no Default or Event of Default shall be deemed to have occurred solely as a result of changes in rates of exchange occurring after the time such Indebtedness or Investment is incurred or Disposition, Restricted Payment or payment under Section 10.7 is made, (y) for purposes of determining compliance with any Dollar-denominated restriction on the incurrence of Indebtedness, if such Indebtedness is incurred to Refinance other Indebtedness denominated in a foreign currency, and such Refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such Refinancing, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such Refinanced Indebtedness does not exceed the principal amount of such Indebtedness being Refinanced and (z) for the avoidance of doubt, the foregoing provisions of this Section 1.8 shall otherwise apply to such Sections, including with respect to determining whether any Indebtedness or Investment may be incurred or Disposition, Restricted Payment or payment under Section 10.7 may be made at any time under such Sections. For purposes of Section 10.11, amounts in currencies other than Dollars shall be translated into Dollars at the - 64- 727670773 12335469

 
applicable exchange rates used in preparing the most recently delivered financial statements pursuant to Section 9.1(a) or (b). (b) Wherever in this Agreement in connection with an Alternate Currency Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, such amount shall be the Dollar Equivalent of such Dollar amount (rounded to the nearest unit of such Alternate Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent. (c) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify with the Borrower’s consent (such consent not to be unreasonably withheld) to appropriately reflect a change in currency of any country and any relevant market conventions or practices relating to such change in currency. 1.9 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., an “Extended Loan”) or by Type (e.g., a “LIBOR Loan”) or by Class and Type (e.g., a “LIBOR Extended Loan”). SECTION 2. Amount and Terms of Credit 2.1 Commitments. (a) (i) Subject to and upon the terms and conditions herein set forth, each Lender severally, but not jointly, agrees to make a loan or loans denominated in Dollars (each an “Initial Loan” and, collectively, the “Initial Loans”) to the Borrower, which Loans (i) shall be made at any time and from time to time on and after the Closing Date and prior to the Termination Date, (ii) may, at the option of the Borrower, be incurred and maintained as, and/or converted into, ABR Loans or LIBOR Loans; provided that all Loans made by each of the Lenders pursuant to the same Borrowing shall, unless otherwise specifically provided herein, consist entirely of Loans of the same Type, (iii) may be repaid and reborrowed in accordance with the provisions hereof, (iv) shall not, for any Lender at any time, after giving effect thereto and to the application of the proceeds thereof, result in such Lender’s Total Exposure at such time exceeding such Lender’s Commitment Percentage at such time of the Loan Limit and (v) shall not, after giving effect thereto and to the application of the proceeds thereof, result in the aggregate amount of all Lenders’ Total Exposures at such time exceeding the Loan Limit. (ii) Each Lender may at its option make any LIBOR Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that (i) any exercise of such option shall not affect the obligation of the Borrower to repay such Loan and (ii) in exercising such option, such Lender shall use its reasonable efforts to minimize any increased costs to the Borrower resulting therefrom (which obligation of the Lender shall not require it to take, or refrain from taking, actions that it determines would result in increased costs for which it will not be compensated hereunder or that it determines would be otherwise disadvantageous to it and in the event of such request for costs for which compensation is provided under this Agreement, the provisions of Section 2.10 shall apply). - 65- 727670773 12335469

 
(b) Subject to and upon the terms and conditions herein set forth, the Swingline Lender in its individual capacity agrees, at any time and from time to time on and after the Closing Date and prior to the Swingline Maturity Date, to make a loan or loans (each a “Swingline Loan” and, collectively, the “Swingline Loans”) to the Borrower in Dollars, which Swingline Loans (i) shall be ABR Loans, (ii) shall have the benefit of the provisions of Section 2.1(c), (iii) shall not exceed at any time outstanding the Swingline Commitment, (iv) shall not, after giving effect thereto and to the application of the proceeds thereof, result at any time in the aggregate amount of the Lenders’ Total Exposure at such time exceeding the Total Commitment then in effect and (v) may be repaid and reborrowed in accordance with the provisions hereof. Each outstanding Swingline Loan shall be repaid in full on the earlier of (a) 15 Business Days after such Swingline Loan is initially borrowed and (b) the Swingline Maturity Date. The Swingline Lender shall not make any Swingline Loan after receiving a written notice from the Borrower, the Administrative Agent or any Lender stating that an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice of (i) rescission of all such notices from the party or parties originally delivering such notice or (ii) the waiver of such Event of Default in accordance with the provisions of Section 13.1. (c) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to each Lender that all then-outstanding Swingline Loans shall be funded with a Borrowing of Loans, in which case Loans constituting ABR Loans (each such Borrowing, a “Mandatory Borrowing”) shall be made on the immediately succeeding Business Day by each Lender pro rata based on each Lender’s Commitment Percentage, and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline Lender for such outstanding Swingline Loans. Each Lender hereby irrevocably agrees to make such Loans upon one Business Days’ notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified to it in writing by the Swingline Lender notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum amount for each Borrowing specified in Section 2.2, (ii) whether any conditions specified in Section 7 are then satisfied, (iii) whether a Default or an Event of Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing or (v) any reduction in the Total Commitment after any such Swingline Loans were made. In the event that, in the sole judgment of the Swingline Lender, any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each Lender hereby agrees that it shall forthwith purchase from the Swingline Lender (without recourse or warranty) such participation of the outstanding Swingline Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably based upon their respective Commitment Percentages; provided that all principal and interest payable on such Swingline Loans shall be for the account of the Swingline Lender until the date the respective participation is purchased and, to the extent attributable to the purchased participation, shall be payable to such Lender purchasing same from and after such date of purchase. 2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. The aggregate principal amount of each Borrowing shall be in a minimum amount of at least the Minimum Borrowing Amount for such Type of Loans and in a multiple of $100,000 in excess thereof and Swingline Loans shall be in a minimum amount of $100,000 and in a multiple of - 66- 727670773 12335469

 
$10,000 in excess thereof (except that Mandatory Borrowings shall be made in the amounts required by Section 2.1(c) and Loans to reimburse the applicable Issuing Bank with respect to any Unpaid Drawing shall be made in the amounts required by Section 3.3 or Section 3.4, as applicable). More than one Borrowing may be incurred on any date; provided, that at no time shall there be outstanding more than ten Borrowings of LIBOR Loans under this Agreement. 2.3 Notice of Borrowing. (a) Whenever the Borrower desires to incur Loans (other than Swingline Loans, Mandatory Borrowings or borrowings to repay Unpaid Drawings), the Borrower shall give the Administrative Agent at the Administrative Agent’s Office, (i) prior to 1:00 p.m. (New York City time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Loans if such Loans are to be initially LIBOR Loans (or prior to 12:00 p.m. noon (New York City time) two Business Days’ prior written notice in the case of a Borrowing of Loans to be made on the Closing Date initially as LIBOR Loans) and (ii) written notice (or telephonic notice promptly confirmed in writing) prior to 11:00 a.m. (New York City time) on the date of each Borrowing of Loans that are to be ABR Loans. Such notice (together with each notice of a Borrowing of Swingline Loans pursuant to Section 2.3(b), a “Notice of Borrowing”) shall specify (A) the aggregate principal amount of the Loans to be made pursuant to such Borrowing, (B) the date of the Borrowing (which shall be a Business Day) and (C) whether the respective Borrowing shall consist of ABR Loans and/or LIBOR Loans and, if LIBOR Loans, the Interest Period to be initially applicable thereto (if no Interest Period is selected, the Borrower shall be deemed to have selected an Interest Period of one month’s duration). The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing of Loans, of such Lender’s Commitment Percentage thereof and of the other matters covered by the related Notice of Borrowing. (b) Whenever the Borrower desires to incur Swingline Loans hereunder, it shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Swingline Loans prior to 3:00 p.m. (New York City time) on the date of such Borrowing. Each such notice shall specify (i) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing and (ii) the date of Borrowing (which shall be a Business Day). The Administrative Agent shall promptly give the Swingline Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing of Swingline Loans and of the other matters covered by the related Notice of Borrowing. (c) Mandatory Borrowings shall be made upon the notice specified in Section 2.1(c), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set forth in such Section. (d) Borrowings to reimburse Unpaid Drawings shall be made upon the notice specified in Section 3.4(a). (e) Without in any way limiting the obligation of the Borrower to confirm in writing any notice it may give hereunder by telephone, the Administrative Agent may act prior to - 67- 727670773 12335469

 
receipt of written confirmation without liability upon the basis of such telephonic notice believed by the Administrative Agent in good faith to be from an Authorized Officer of the Borrower. 2.4 Disbursement of Funds. (a) No later than 1:00 p.m. (New York City time) on the date specified in each Notice of Borrowing (including Mandatory Borrowings), each Lender will make available its pro rata portion of each Borrowing requested to be made on such date in the manner provided below; provided that on the Closing Date, such funds shall be made available by 10:00 a.m. (New York City time) or such earlier time as may be agreed among the Lenders, the Borrower and the Administrative Agent for the purpose of consummating the Transactions; provided, further, that all Swingline Loans shall be made available in the full amount thereof by the Swingline Lender no later than 3:30 p.m. (New York City time) on the date requested. (b) Each Lender shall make available all amounts it is to fund to the Borrower under any Borrowing in immediately available funds to the Administrative Agent at the Administrative Agent’s Office in Dollars, and the Administrative Agent will (except in the case of Mandatory Borrowings and Borrowings to repay Unpaid Drawings) make available to the Borrower, by depositing or wiring to an account as designated by the Borrower in the Borrowing Notice to the Administrative Agent the aggregate of the amounts so made available in Dollars. Unless the Administrative Agent shall have been notified by any Lender prior to the date of any such Borrowing (or, with respect to an ABR Loan, the date of such Borrowing prior to 1:00 p.m. (New York City time)) that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available such amount to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent in Dollars. The Administrative Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if paid by such Lender, the Overnight Rate or (ii) if paid by the Borrower, the then-applicable rate of interest or fees, calculated in accordance with Section 2.8, for the respective Loans. (c) Nothing in this Section 2.4 shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to fulfill its commitments hereunder). - 68- 727670773 12335469

 
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower agreeshereby promises to repaypay to the Administrative Agent, for the benefit of the applicable Lenders, (i) on the Initial Maturity Date, the then outstanding Initial Loans, (ii) on the relevant maturity date for any Extension Series of Extended Commitments, all then outstanding Extended Loans in respect of such Extension Series and (iii) on the Swingline Maturity Date, the then outstanding Swingline Loans. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender resulting from each Loan made by such lending office from time to time, including the amounts of principal and interest payable and paid to such lending office from time to time under this Agreement. (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 13.6(b), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder (whether such Loan is an Initial Loan, an Extended Loan or Swingline Loan, as applicable), the Type of each Loan made 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 or the Swingline Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof. (d) The entries made in the Register and accounts and subaccounts maintained pursuant to clauses (b) and (c) of this Section 2.5 shall, to the extent permitted by applicable Requirements of Law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note substantially in the form of Exhibit H-1 hereto. In such event, the Borrower shall execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 13.6) be represented by one or more promissory notes in such form payable to the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.6 Conversions and Continuations. (a) Subject to the penultimate sentence of this clause (a), (i) the Borrower shall have the option on any Business Day to convert all or a portion equal to at least the Minimum Borrowing Amount (and in multiples of $100,000 in excess thereof) of the outstanding principal amount of Loans of one Type into a Borrowing or Borrowings of another Type and (ii) - 69- 727670773 12335469

 
the Borrower shall have the option on any Business Day to continue the outstanding principal amount of any LIBOR Loans as LIBOR Loans for an additional Interest Period; provided that (A) no partial conversion of LIBOR Loans shall reduce the outstanding principal amount of LIBOR Loans made pursuant to a single Borrowing to less than the Minimum Borrowing Amount, (B) ABR Loans may not be converted into LIBOR Loans if an Event of Default is in existence on the date of the conversion and the Administrative Agent has or the Majority Lenders have determined in its or their sole discretion not to permit such conversion, (C) LIBOR Loans may not be continued as LIBOR Loans for an additional Interest Period if an Event of Default is in existence on the date of the proposed continuation and the Administrative Agent has or the Majority Lenders have determined in its or their sole discretion not to permit such continuation, and (D) Borrowings resulting from conversions pursuant to this Section 2.6 shall be limited in number as provided in Section 2.2. Each such conversion or continuation shall be effected by the Borrower by giving the Administrative Agent at the Administrative Agent’s Office prior to 1:00 p.m. (New York City time) at least (1) three Business Days’, in the case of a continuation of or conversion to LIBOR Loans or (2) the date of conversion, in the case of a conversion into ABR Loans, prior written notice (or telephonic notice promptly confirmed in writing) (each, a “Notice of Conversion or Continuation”) specifying the Loans to be so converted or continued, the Type of Loans to be converted into or continued and, if such Loans are to be converted into or continued as LIBOR Loans, the Interest Period to be initially applicable thereto (if no Interest Period is selected, the Borrower shall be deemed to have selected an Interest Period of one month’s duration). The Administrative Agent shall give each applicable Lender notice as promptly as practicable of any such proposed conversion or continuation affecting any of its Loans. (b) If any Event of Default is in existence at the time of any proposed continuation of any LIBOR Loans and the Administrative Agent has or the Majority Lenders have determined in its or their sole discretion not to permit such continuation, such LIBOR Loans shall be automatically converted on the last day of the current Interest Period into ABR Loans. If upon the expiration of any Interest Period in respect of LIBOR Loans, the Borrower has failed to elect a new Interest Period to be applicable thereto as provided in clause (a) above, the Borrower shall be deemed to have elected to convert such Borrowing of LIBOR Loans into a Borrowing of ABR Loans, effective as of the expiration date of such current Interest Period. (c) Notwithstanding anything to the contrary herein, the Borrower may deliver a Notice of Conversion or Continuation pursuant to which the Borrower elects to irrevocably continue the outstanding principal amount of any Loan subject to an interest rate Hedge AgreementTransaction as LIBOR Loans for each Interest Period until the expiration of the term of such applicable Hedge AgreementTransaction; provided that any Notice of Conversion or Continuation delivered pursuant to this Section 2.6(c) shall include a schedule attaching the relevant interest rate Hedge AgreementTransaction or related trade confirmation. 2.7 Pro Rata Borrowings. Each Borrowing of Initial Loans under this Agreement shall be made by the Lenders pro rata on the basis of their then applicable Commitment Percentages with respect to the applicable Class. Each Borrowing of Extended Loans under this Agreement shall be granted by the Lenders of the relevant Extension Series thereof pro rata on the basis of their then-applicable Extended Commitments for the applicable Extension Series. It is understood that (a) no Lender shall be responsible for any default by any - 70- 727670773 12335469

 
other Lender in its obligation to make Loans hereunder and that each Lender severally but not jointly shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder and (b) failure by a Lender to perform any of its obligations under any of the Credit Documents shall not release any Person from performance of its obligation under any Credit Document. 2.8 Interest. (a) The unpaid principal amount of each ABR Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum that shall at all times be the Applicable Margin plus the ABR, in each case, in effect from time to time. (b) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the Borrowing thereof until maturity thereof (whether by acceleration or otherwise) at a rate per annum that shall at all times be the Applicable Margin plus the relevant LIBOR Rate, in each case, in effect from time to time. (c) If all or a portion of (i) the principal amount of any Loan or (ii) any interest payable thereon shall not be paid when due (whether at stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is (the “Default Rate”) (A) in the case of overdue principal, the rate that would otherwise be applicable thereto plus 2% or (B) in the case of any overdue interest, to the extent permitted by applicable Requirements of Law, the rate described in Section 2.8(a) plus 2% from the date of such nonpayment to the date on which such amount is paid in full (after as well as before judgment). (d) Interest on each Loan shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable in Dollars; provided that any Loan that is repaid on the same date on which it is made shall bear interest for one day. Except as provided below, interest shall be payable (i) in respect of each ABR Loan, quarterly in arrears on the last Business Day of each March, June, September and December, (ii) in respect of each LIBOR Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three-month intervals after the first day of such Interest Period, (iii) in respect of each Loan, (A) on any prepayment (on the amount prepaid), (B) at maturity (whether by acceleration or otherwise) and (C) after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with Section 5.5. (f) The Administrative Agent, upon determining the interest rate for any Borrowing of LIBOR Loans, shall promptly notify the Borrower and the relevant Lenders thereof. Each such determination shall, absent clearly demonstrable error, be final and conclusive and binding on all parties hereto. 2.9 Interest Periods. At the time the Borrower gives a Notice of Borrowing or Notice of Conversion or Continuation in respect of the making of, or conversion into or continuation as, a Borrowing of LIBOR Loans in accordance with Section 2.6(a), the Borrower - 71- 727670773 12335469

 
shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower be (i) a one-, two-, three- or six- or (if available to all the Lenders making such LIBOR Loans as determined by such Lenders in good faith based on prevailing market conditions) a nine- or twelve-month period or (ii) any period shorter than one month (if available to all the Lenders making such LIBOR Loans as determined by such Lenders in good faith based on prevailing market conditions) as requested by the Borrower. Notwithstanding anything to the contrary contained above: (a) the initial Interest Period for any Borrowing of LIBOR Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of ABR Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (b) if any Interest Period relating to a Borrowing of LIBOR Loans begins on the last Business Day of a calendar month or begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; (c) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period in respect of a LIBOR Loan would otherwise expire on a day that is not a Business Day, but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; and (d) the Borrower shall not be entitled to elect any Interest Period in respect of any LIBOR Loan if such Interest Period would extend beyond the Maturity Date. 2.10 Increased Costs, Illegality, Etc. (a) In the event that (x) in the case of clause (i) below, the Majority Lenders or (y) in the case of clauses (ii) and (iii) below, any Lender, shall have reasonably determined (which determination shall, absent clearly demonstrable error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the LIBOR Rate for any Interest Period that (A) deposits in the principal amounts of the Loans comprising such LIBOR Borrowing are not generally available in the relevant market or, (B) by reason of any changes arising on or after the Closing Date affecting the interbank LIBOR market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR Rate (including, without limitation, because the LIBOR Rate is not available or published on a current basis) or (C) the LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of - 72- 727670773 12335469

 
making or maintaining their Loans included in such Borrowing for such Interest Period; or (ii) that, due to a Change in Law occurring at any time after the Closing Date, which Change in Law shall (A) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender, (B) subject any Lender to any Tax with respect to any Credit Document or any LIBOR Loan made by it (other than (i) Taxes indemnifiable under Section 5.4, or (ii) Excluded Taxes), or (C) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or LIBOR Loans made by such Lender, which results in the cost to such Lender of making, converting into, continuing or maintaining LIBOR Loans or participating in Letters of Credit (in each case hereunder) increasing by an amount which such Lender reasonably deems material or the amounts received or receivable by such Lender hereunder with respect to the foregoing shall be reduced; or (iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful as a result of compliance by such Lender in good faith with any Requirement of Law (or would conflict with any such Requirement of Law not having the force of law even though the failure to comply therewith would not be unlawful); then, and in any such event, such Lenders (or the Administrative Agent, in the case of clause (i) above) shall within a reasonable time thereafter give notice (if by telephone, confirmed in writing) to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, LIBOR Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist (which notice the Administrative Agent agrees to give at such time when such circumstances no longer exist), and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to LIBOR Loans that have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, promptly (but no later than fifteen days) after receipt of written demand therefor such additional amounts as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (it being agreed that a written notice as to the additional amounts owed to such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent clearly demonstrable error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 2.10(b) as promptly as possible and, in any event, within the time period required by applicable Requirements of Law. (b) At any time that any LIBOR Loan is affected by the circumstances described in Section 2.10(a)(ii) or (iii), the Borrower may (and in the case of a LIBOR Loan affected pursuant to Section 2.10(a)(iii) shall) either (i) if the affected LIBOR Loan is then being made pursuant to a Borrowing, cancel such Borrowing by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 2.10(a)(ii) or (iii) or (ii) if the affected LIBOR Loan is - 73- 727670773 12335469

 
then outstanding, upon at least three Business Days’ notice to the Administrative Agent, require the affected Lender to convert each such LIBOR Loan into an ABR Loan; provided that if more than one Lender areis affected at any time, then all affected Lenders must be treated in the same manner pursuant to this Section 2.10(b). (c) If, after the Closing Date, any Change in Law relating to capital adequacy or liquidity requirements of any Lender or compliance by any Lender or its parent with any Change in Law relating to capital adequacy or liquidity requirements occurring after the Closing Date, has or would have the effect of reducing the rate of return on such Lender’s or its parent’s capital or assets as a consequence of such Lender’s commitments or obligations hereunder to a level below that which such Lender or its parent could have achieved but for such Change in Law (taking into consideration such Lender’s or its parent’s policies with respect to capital adequacy or liquidity requirements), then from time to time, promptly (but in any event no later than fifteen days) after written demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its parent for such reduction, it being understood and agreed, however, that a Lender shall not be entitled to such compensation as a result of such Lender’s compliance with, or pursuant to any request or directive to comply with, any applicable Requirement of Law as in effect on the Closing Date (except as otherwise set forth in the definition of Change in Law). Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this Section 2.10(c), will give prompt written notice thereof to the Borrower, which notice shall set forth in reasonable detail the basis of the calculation of such additional amounts, although the failure to give any such notice shall not, subject to Section 2.13, release or diminish the Borrower’s obligations to pay additional amounts pursuant to this Section 2.10(c) upon receipt of such notice. (d) Notwithstanding anything to the contrary set forth in the foregoing clause (a), if at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(i)(B) have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in clause (a)(i)(B) have not arisen but the supervisor for the administrator of the service providing LIBOR Rate quotations or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the reference screen used to determine the LIBOR Rate shall no longer be used for determining interest rates for loans, then the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest to the LIBOR Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable. Notwithstanding anything to the contrary in Section 13.1, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this clause (d) (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 2.10(d), only to the extent the LIBOR Rate for such Interest Period is not available or published at such time on a current basis), (x) any Notice of Conversion - 74- 727670773 12335469

 
or Continuation that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a LIBOR Rate Borrowing shall be ineffective, and (y) if any Notice of Borrowing requests a LIBOR Rate Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that, if such alternate rate of interest shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. 2.11 Compensation. If (a) any payment of principal of any LIBOR Loan is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such LIBOR Loan as a result of a payment or conversion pursuant to Section 2.5, 2.6, 2.10, 5.1, 5.2 or 13.7, as a result of acceleration of the maturity of the Loans pursuant to Section 11 or for any other reason, (b) any Borrowing of LIBOR Loans is not made on the date specified in a Notice of Borrowing, (c) any ABR Loan is not converted into a LIBOR Loan on the date specified in a Notice of Conversion or Continuation, (d) any LIBOR Loan is not continued as a LIBOR Loan on the date specified in a Notice of Conversion or Continuation or (e) any prepayment of principal of any LIBOR Loan is not made as a result of a withdrawn notice of prepayment pursuant to Section 5.1 or 5.2, the Borrower shall after the Borrower’s receipt of a written request by such Lender (which request shall set forth in reasonable detail the basis for requesting such amount), pay to the Administrative Agent (within fifteen days after such request) for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that such Lender may reasonably incur as a result of such payment, failure to convert, failure to continue or failure to prepay, including any loss, cost or expense (excluding loss of anticipated profits) actually incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such LIBOR Loan. 2.12 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.10(a)(ii), 2.10(a)(iii), 2.10(c), 3.5 or 5.4 with respect to such Lender, it will, if requested by the Borrower use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event; provided that such designation does not cause such Lender or its lending office to suffer any economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 2.12 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 2.10, 3.5 or 5.4. 2.13 Notice of Certain Costs. Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 2.10, 2.11, 3.5 or 5.4 is given by any Lender more than 180 days after such Lender has knowledge (or should have had knowledge) of the occurrence of the event giving rise to the additional cost, reduction in amounts, loss, tax or other additional amounts described in such Sections, such Lender shall not be entitled to compensation under Section 2.10, 2.11, 3.5 or 5.4, as the case may be, for any such amounts incurred or accruing prior to the 181st day prior to the giving of such notice to the Borrower; provided that if the circumstance giving rise to such claim is retroactive, then such 180-day period referred to above shall be extended to include the period of retroactive effect thereof. - 75- 727670773 12335469

 
2.14 Borrowing Base. (a) Initial Borrowing Base. For the period from and including the ClosingEighth Amendment Effective Date to but excluding the firstnext Redetermination Date, the amount of the Borrowing Base shall be $2,000,000,000.1,359,235,400. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 2.14(e), (f), (g) and (h). (b) Scheduled and Interim Redeterminations. The Borrowing Base shall be redetermined semi-annually in accordance with this Section 2.14 (a “Scheduled Redetermination”), and, subject to Section 2.14(d), such redetermined Borrowing Base shall become effective and applicable to the Borrower, the Administrative Agent, the Issuing Banks and the Lenders on April 30th (or April 1, 2013 with respect to the first Scheduled Redetermination) and October 31st of each year (or as promptly as possible thereafter), commencing 2013. In addition, the Borrower may at any time (including prior to the first Scheduled Redetermination date of April 1, 2013), by notifying the Administrative Agent thereof not more than twice during any period of 12 consecutive calendar months, and the Administrative Agent, following the first Scheduled Redetermination date of April 1, 2013, may, at the direction of the Required Lenders, by notifying the Borrower thereof, one time during any period of 12 consecutive calendar months, in each case elect to cause the Borrowing Base to be redetermined between Scheduled Redeterminations (an “Interim Redetermination”) in accordance with this Section 2.14; provided that the Required Lenders may direct the Administrative Agent to initiate an Interim Redetermination prior to the first Scheduled Redetermination of April 1, 2013 in the event that the Hedging Condition is not satisfied (in which case, such Interim Redetermination shall not count against the first such Interim Redetermination otherwise permitted to be initiated pursuant to this Section 2.14(b) by the Administrative Agent). In addition to, and not including and/or limited by the annual Interim Redeterminations allowed above, the Borrower may, by notifying the Administrative Agent thereof, at any time between Scheduled Redeterminations, request additional Interim Redeterminations of the Borrowing Base in the event it acquires Oil and Gas Properties with Proved Reserves which are to be Borrowing Base Properties having a PV-10 (calculated at the time of acquisition) in excess of 5% of the Borrowing Base in effect immediately prior to such acquisition. (c) Scheduled and Interim Redetermination Procedure. (i) Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows: Upon receipt by the Administrative Agent of (A) the Reserve Report and the Reserve Report Certificate, and (B) such other reports, data and supplemental information, including the information provided pursuant to Section 9.14(c), as may, from time to time, be reasonably requested by the Required Lenders (the Reserve Report, such Reserve Report Certificate and such other reports, data and supplemental information being the “Engineering Reports”), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall in good faith propose a new Borrowing Base (the “Proposed Borrowing Base”) based upon such information and such other information (including the status of title information with respect to the Borrowing Base Properties as described in the Engineering Reports - 76- 727670773 12335469

 
and the existence of any Hedge AgreementsTransactions or any other Indebtedness) as the Administrative Agent deems appropriate in good faith in accordance with its usual and customary oil and gas lending criteria as they exist at the particular time. (ii) The Administrative Agent shall notify the Borrower and the Lenders of the Proposed Borrowing Base (the “Proposed Borrowing Base Notice”): (A) in the case of a Scheduled Redetermination, (1) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Sections 9.14(a) and (c) in a timely manner, then on or before the April 15th and October 15th of such year following the date of delivery or (2) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Sections 9.14(a) and (c) in a timely manner, then promptly after the Administrative Agent has received complete Engineering Reports from the Borrower and has had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.14(c)(i); and (B) in the case of an Interim Redetermination, promptly, and in any event, within 15 days after the Administrative Agent has received the required Engineering Reports. (iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by the Borrowing Base Required Lenders in each such Lender’s sole discretion and consistent with each such Lender’s normal and customary oil and gas lending criteria as they exist at the particular time as provided in this Section 2.14(c)(iii) and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by Lenders constituting at least the Required Lenders in each such Lender’s sole discretion and consistent with each such Lender’s normal and customary oil and gas lending criteria as they exist at the particular time as provided in this Section 2.14(c)(iii). Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have 15 days to agree with the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the end of such 15-day period, any Lender has not communicated its approval or disapproval in writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base. If, at the end of such 15-day period, the Borrowing Base Required Lenders, in the case of a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.14(d). If, however, at the end of such 15-day period, the Borrowing Base Required Lenders or the Required Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the Administrative Agent shall promptly thereafter poll the Lenders to ascertain the highest Borrowing Base then acceptable to the Borrowing Base Required Lenders (in the case of any increase to the Borrowing Base) or a number of Lenders sufficient to constitute the Required Lenders (in any other case) and - 77- 727670773 12335469

 
such amount shall become the new Borrowing Base, effective on the date specified in Section 2.14(d). (d) Effectiveness of a Redetermined Borrowing Base. Subject to Section 2.14(h), after a redetermined Borrowing Base is approved or is deemed to have been approved by the Borrowing Base Required Lenders or the Required Lenders, as applicable, pursuant to Section 2.14(c)(iii), the Administrative Agent shall promptly thereafter notify the Borrower and the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing Base Notice”), and such amount shall become the new Borrowing Base, effective and applicable to the Borrower, the Administrative Agent, the Issuing Banks and the Lenders: (i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrower pursuant to Sections 9.14(a) and (c) in a timely and complete manner, on the April 30th or October 31st, as applicable, following such notice, or (B) if the Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrower pursuant to Sections 9.14(a) and (c) in a timely and complete manner, then on the Business Day next succeeding delivery of such New Borrowing Base Notice; and (ii) in the case of an Interim Redetermination, on the Business Day next succeeding delivery of such New Borrowing Base Notice. Subject to Section 2.14(h), such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section 2.14(e), (f), (g) or (h), whichever occurs first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New Borrowing Base Notice related thereto is received by the Borrower. (e) Reduction of Borrowing Base Upon Incurrence of Permitted Additional Debt. (i) Upon the issuance or incurrence of any Permitted Additional Debt in accordance with Section 10.1(p) (other than (x) Permitted Additional Debt constituting Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness, but only to the extent that the aggregate principal amount of Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness does not result in an increase in the principal amount thereof above the principal amount originally incurred or issued up to the original principal amount of the Refinanced Indebtedness and (y) Permitted Additional Debt that is secured by a Junior Lien on the Collateral pursuant to Section 10.2(x) or (z)), the Borrowing Base then in effect shall be reduced by an amount equal to the product of 0.25 multiplied by the stated principal amount of such Permitted Additional Debt (without regard to any original issue discount), and the Borrowing Base as so reduced shall become the new Borrowing Base immediately upon the date of such issuance or incurrence, effective and applicable to the Borrower, the Administrative Agent, the - 78- 727670773 12335469

 
Issuing Banks and the Lenders on such date until the next redetermination or modification thereof hereunder. (ii) Upon the issuance or incurrence of any Indebtedness (including any Permitted Additional Debt) that is secured by Junior Liens on the Collateral pursuant to Section 10.2(x) or (z) (other than Indebtedness constituting Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness, but only to the extent that the aggregate principal amount of Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness does not result in an increase in the principal amount thereof above the principal amount originally incurred or issued up to the original principal amount of the Refinanced Indebtedness), the Borrowing Base then in effect shall be reduced by an amount equal to the product of 0.30 multiplied by the stated principal amount of such Indebtedness (without regard to any original issue discount), and the Borrowing Base as so reduced shall become the new Borrowing Base immediately upon the date of such issuance or incurrence, effective and applicable to the Borrower, the Administrative Agent, the Issuing Banks and the Lenders on such date until the next redetermination or modification thereof hereunder. (f) Reduction of Borrowing Base Upon Termination of Hedge Positions. If (x) the Borrower or any Restricted Subsidiary shall terminate or create any off-setting positions in respect of any commodity hedge positions (whether evidenced by a floor, put or Hedge Agreement) upon which (i) the Lenders relied in determining the Borrowing Base and (iiy) the Borrowing Base Value of such terminated and/or offsetting positions (after taking into account any other Hedge AgreementTransaction, executed contemporaneously with the taking of such actions), together with the aggregate Borrowing Base Value of all other terminated or off-setting hedge positions contemplated by this Section 2.14(f) and the aggregate Borrowing Base Value of all Oil and Gas Properties or Equity Interests in any Restricted Subsidiary or Minority Investment owning Oil and Gas Properties comprising Borrowing Base Properties Disposed of, in each case, since the later of (A) the last Redetermination Date and (B) the last adjustment of the Borrowing Base made pursuant to this Section 2.14(f) or Section 2.14(g), exceeds 10% of the then-effective Borrowing Base, then, the Required Lenders shall have the right to adjust the Borrowing Base in an amount equal tonot exceeding the aggregate Borrowing Base Value, if any, attributable to all such terminated or off-setting hedge positions and all such Dispositions of Borrowing Base Properties (or Equity Interests in any Restricted Subsidiary or Minority Investment owning Oil and Gas Properties) in the calculation of the then-effective Borrowing Base and (if the Required Lenders in fact make any such adjustment) the Administrative Agent shall promptly notify the Borrower in writing of thesuch aggregate Borrowing Base Value, if any, attributable to such hedge positions in the calculation of the then-effective Borrowing Base and, upon receipt of such notice, the Borrowing Base shall be simultaneously reduced by such amount. (g) Reduction of Borrowing Base Upon Asset Dispositions. If (i) the Borrower or one of the other Credit Parties Disposes of any Oil and Gas Properties, or Disposes of any Equity Interests in any Restricted Subsidiary or Minority Investment owning any Oil and Gas Properties and none of the foregoing Dispositions is a Scheduled Disposition, (ii) such Disposition described in clause (i) involves, comprising Borrowing Base Properties included in the most recently delivered Reserve Report and (iiiii) the aggregate Borrowing Base Value of all such Borrowing Base Properties Disposed of (except in connection with a Scheduled - 79- 727670773 12335469

 
Disposition), together with the aggregate Borrowing Base Value of all terminated or off-setting hedge positions contemplated by Section 2.14(f) and the aggregate Borrowing Base Value of all Oil and Gas Properties or Equity Interests in any Restricted Subsidiary or Minority Investment owning Oil and Gas Properties comprising Borrowing Base Properties Disposed of, in each case, since the later of (A) the last Scheduled Redetermination Date and (B) the last adjustment of the Borrowing Base made pursuant to Section 2.14(f) or this Section 2.14(g), exceeds 10% of the then-effective Borrowing Base, then, no later than two Business Days’ after the date on which the Administrative Agent has received the notice required to be delivered by the Borrower pursuant to Section 10.4(b), no later than two Business Days’ after the date of consummation of any such Disposition, the Required Lenders shall have the right to adjust the Borrowing Base in an amount equal tonot exceeding the aggregate Borrowing Base Value, if any, attributable to such Disposedall such terminated or off-setting hedge positions and all such Dispositions of Borrowing Base Properties in the calculation of the then-effective Borrowing Base and, if the Required Lenders in fact make any such adjustment, the Administrative Agent shall promptly notify the Borrower in writing of thesuch aggregate Borrowing Base Value, if any, attributable to such Disposed of Borrowing Base Properties in the calculation of the then-effective Borrowing Base and, upon receipt of such notice, the Borrowing Base shall be simultaneously reduced by such amount. (h) Borrower’s Right to Elect Reduced Borrowing Base. Within three Business Days of its receipt of a New Borrowing Base Notice, the Borrower may provide written notice to the Administrative Agent and the Lenders that specifies for the period from the effective date of the New Borrowing Base Notice until the next succeeding Scheduled Redetermination Date, the Borrowing Base will be a lesser amount than the amount set forth in such New Borrowing Base Notice, whereupon such specified lesser amount will become the new Borrowing Base. The Borrower’s notice under this Section 2.14(h) shall be irrevocable, but without prejudice to its rights to initiate Interim Redeterminations. (i) Administrative Agent Data. The Administrative Agent hereby agrees to provide, promptly, and in any event within 3 Business Days, following its receipt of a request by the Borrower, an updated Bank Price Deck. In addition, the Administrative Agent and the Lenders agree, upon request, to meet with the Borrower to discuss their evaluation of the reservoir engineering of the Oil and Gas Properties included in the Reserve Report and their respective methodologies for valuing such properties and the other factors considered in calculating the Borrowing Base. 2.15 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender: (a) Commitment Fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 4.1(a); (b) The Commitment and Total Exposure of such Defaulting Lender shall not be included in determining whether all Lenders, the Majority Lenders or the Required Lenders or Borrowing Base Required Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 13.1); - 80- 727670773 12335469

 
provided that (i) any waiver, amendment or modification requiring the consent of all Lenders pursuant to Section 13.1 (other than Section 13.1(x)) or requiring the consent of each affected Lender pursuant to Section 13.1(i) or (ix) shall require the consent of such Defaulting Lender (which for the avoidance of doubt would include any change to the Maturity Date applicable to such Defaulting Lender, decreasing or forgiving any principal or interest due to such Defaulting Lender, any decrease of any interest rate applicable to Loans made by such Defaulting Lender (other than the waiving of post-default interest rates) and any increase in such Defaulting Lender’s Commitment) and (ii) any redetermination, whether an increase, decrease or affirmation, of the Borrowing Base shall occur without the participation of a Defaulting Lender, but the Commitment (i.e., the Commitment Percentage of the Borrowing Base) of a Defaulting Lender may not be increased without the consent of such Defaulting Lender; (c) If any Swingline Exposure or Letter of Credit Exposure exists at the time a Lender becomes a Defaulting Lender, then all or any part of such Swingline Exposure and Letter of Credit Exposure of such Defaulting Lender will, subject to the limitation in the first proviso below, automatically be reallocated (effective on the day such Lender becomes a Defaulting Lender) among the Non-Defaulting Lenders pro rata in accordance with their respective Commitment Percentages; provided that (A) each Non-Defaulting Lender’s Total Exposure may not in any event exceed the Commitment Percentage of the Loan Limit of such Non-Defaulting Lender as in effect at the time of such reallocation and (B) neither such reallocation nor any payment by a Non-Defaulting Lender pursuant thereto will constitute a waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Banks or any other Lender may have against such Defaulting Lender or cause such Defaulting Lender to be a Non-Defaulting Lender, to the extent that all or any portion (the “unreallocated portion”) of the Defaulting Lender’s Swingline Exposure or Letter of Credit Exposure cannot, or can only partially, be so reallocated to Non-Defaulting Lenders, whether by reason of the first proviso in Section 2.15(c)(i) or otherwise, the Borrower shall within two Business Days following notice by the Administrative Agent (x) first, prepay such Swingline Exposure and (y) second, Cash Collateralize for the benefit of the applicable Issuing Bank only the Borrower’s obligations corresponding to such Defaulting Lender’s Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (i) above), in accordance with the procedures set forth in Section 3.8 for so long as such Letter of Credit Exposure is outstanding, if the Borrower Cash Collateralizes any portion of such Defaulting Lender’s Letter of Credit Exposure pursuant to this Section 2.15(c), the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 4.1(b) with respect to such Defaulting Lender’s Letter of Credit Exposure during the period such Defaulting Lender’s Letter of Credit Exposure is Cash Collateralized, if the Letter of Credit Exposure of the Non-Defaulting Lenders is reallocated pursuant to this Section 2.15(c), then the Letter of Credit Fees payable for the account of the Lenders pursuant to Section 4.1(b) shall be adjusted in accordance with such Non-Defaulting Lenders’ Commitment Percentages and the Borrower shall not be required to pay any Swingline Loan fees (if any) or Letter of Credit Fees to the Defaulting Lender pursuant to Section 4.1(b) with respect to such Defaulting Lender’s Letter of Credit Exposure during the period that such Defaulting Lender’s Letter of Credit Exposure is reallocated, or if any Defaulting Lender’s Letter of Credit Exposure is neither Cash Collateralized nor reallocated pursuant - 81- 727670773 12335469

 
to this Section 2.15(c), then, without prejudice to any rights or remedies of any Issuing Bank or any Lender hereunder, all Letter of Credit Fees payable under Section 4.1(b) with respect to such Defaulting Lender’s Letter of Credit Exposure shall be payable to such Issuing Bank until such Letter of Credit Exposure is Cash Collateralized and/or reallocated; (d) So long as any Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan and no Issuing Bank will be required to issue any new Letter of Credit or amend any outstanding Letter of Credit to increase the Stated Amount thereof, alter the drawing terms thereunder or extend the expiry date thereof, unless each Issuing Bank is reasonably satisfied that any exposure that would result from the exposure to such Defaulting Lender is eliminated or fully covered by the Commitments of the Non-Defaulting Lenders or by Cash Collateralization or a combination thereof in accordance with clause (c) above or otherwise in a manner reasonably satisfactory to such Issuing Bank, and participating interests in any such newly issued or increased Letter of Credit or newly made Swingline Loan shall be allocated among Non-Defaulting Lenders in a manner consistent with Section 2.15(c)(i) (and Defaulting Lenders shall not participate therein); and (e) If the Borrower, the Administrative Agent, the Swingline Lender and each Issuing Bank agree in writing in their discretion that a Lender that is a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon, as of the effective date specified in such notice and subject to any conditions set forth therein, such Lender will cease to be a Defaulting Lender and will be a Non-Defaulting Lender and any applicable Cash Collateral shall be promptly returned to the Borrower and any Letter of Credit Exposure of such Lender reallocated pursuant to Section 2.15(c) shall be reallocated back to such Lender; provided that, except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender. (f) Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 11 or otherwise, and including any amounts made available to the Administrative Agent by that Defaulting Lender pursuant to Section 13.8), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by that Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by that Defaulting Lender to each Issuing Bank and the Swingline Lender hereunder; third, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fourth, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting Lender to fund Loans under this Agreement; fifth, to the payment of any amounts owing to the Lenders, each Issuing Bank or the Swingline - 82- 727670773 12335469

 
Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, such Issuing Bank or the Swingline Lender against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; sixth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; and seventh, to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if such payment is a payment of the principal amount of any Loans or Unpaid Drawings, such payment shall be applied solely to pay the relevant Loans of, and Unpaid Drawings owed to, the relevant non-Defaulting Lenders on a pro rata basis prior to being applied in the manner set forth in this Section 2.15(f). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to Section 3.8 shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto. 2.16 Increase of Total Commitment. (a) Subject to the conditions set forth in Section 2.16(b), the Borrower may increase the Total Commitment then in effect (any such increase an “Incremental Increase”) by increasing the Commitment of a Lender (an “Increasing Lender”) or by causing a Person that at such time is not a Lender to become a Lender (an “Additional Lender”). (b) Any increase in the Total Commitment shall be subject to the following additional conditions: (i) such increase shall not be less than $10,000,000 (and increments of $1,000,000 above that minimum) unless the Administrative Agent otherwise consents, and no such increase shall be permitted if after giving effect thereto the Total Commitment would exceed $4,000,000,000the lesser of (A) the Maximum Total Commitment and (B) the Borrowing Base then in effect (after giving effect to any concurrent increase in the Borrowing Base); (ii) no Event of Default shall have occurred and be continuing after giving effect to such increase; (iii) no Lender’s Commitment may be increased without the consent of such Lender; (iv) the Administrative Agent, the Swingline Lender and each Issuing Bank must consent to the increase in Commitments of an Increasing Lender and the addition of any Additional Lender, in each case, such consent not to be unreasonably withheld or delayed; (v) the maturity date of such increase shall be the same as the Maturity Date; and - 83- 727670773 12335469

 
(vi) the increase shall be on the exact same terms and pursuant to the exact same documentation applicable to this Agreement (other than with respect to any arrangement, structuring, upfront or other fees or discounts payable in connection with such Incremental Increase) (provided that the Applicable Margin of the Facility may be increased to be consistent with that for such Incremental Increases). (c) Any increase in the Total Commitment shall be implemented using customary documentation (any such documentation, an “Incremental Agreement”). 2.17 Extension Offers. (a) The Borrower may at any time and from time to time request that all or a portion of the Commitments of any Class, existing at the time of such request (each, an “Existing Commitment” and any related revolving credit loans under any such facility, “Existing Loans”; each Existing Commitment and related Existing Loans together being referred to as an “Existing Class”) be converted to extend the termination date thereof and the scheduled maturity date(s) of any payment of principal with respect to all or a portion of any principal amount of Existing Loans related to such Existing Commitments (any such Existing Commitments which have been so Extended, “Extended Commitments” and any related revolving credit loans, “Extended Loans”) and to provide for other terms consistent with this Section 2.17. Prior to entering into any Extension Amendment with respect to any Extended Commitments, the Borrower shall provide a notice to the Administrative Agent (who shall provide a copy of such notice to each of the Lenders of the applicable Class of Existing Commitments and which such request shall be offered equally to all Lenders under such Class) (an “Extension Request”) setting forth the proposed terms of the Extended Commitments to be established thereunder, which terms shall be substantially similar to those applicable to the Existing Commitments from which they are to be Extended (the “Specified Existing Commitment Class”), except that (w) all or any of the final maturity dates of such Extended Commitments may be delayed to later dates than the final maturity dates of the Existing Commitments of the Specified Existing Commitment Class, (x)(A) the interest rates, interest margins, rate floors, upfront fees, funding discounts, original issue discounts and premiums with respect to the Extended Commitments may be different from those for the Existing Commitments of the Specified Existing Commitment Class and/or (B) additional fees and/or premiums may be payable to the Lenders providing such Extended Commitments in addition to or in lieu of any of the items contemplated by the preceding clause (A), (y)(l) the undrawn revolving credit commitment fee rate with respect to the Extended Commitments may be different from such rate for Existing Commitments of the Specified Existing Commitment Class and (2) the Extension Amendment may provide for other covenants and terms that apply to any period after the Latest Maturity Date in effect at such time; provided that, notwithstanding anything to the contrary in this Section 2.17 or otherwise, (1) the borrowing and repayment (other than in connection with a permanent repayment and termination of commitments (which shall be governed by clause (3) below)) of the Extended Loans under any Extended Commitments shall be made on a pro rata basis with any borrowings and repayments of the Existing Loans of the Specified Existing Commitment Class (the mechanics for which may be implemented through the applicable Extension Amendment and may include technical changes related to the borrowing and replacement procedures of the Specified Existing Commitment Class), (2) assignments and participations of Extended Commitments and Extended Loans shall be governed by the assignment and participation provisions set forth in Section 13.6 and (3) subject to the applicable - 84- 727670773 12335469

 
limitations set forth in Section 4.2, permanent repayments of Extended Loans (and corresponding permanent reduction in the related Extended Commitments) shall be permitted as may be agreed upon between the Borrower and the Lenders thereof. No Lender shall have any obligation to agree to have any of its Loans or Commitments of any Existing Class converted into Extended Loans or Extended Commitments pursuant to any Extension Request. Any Extended Commitments of any Extension Series shall constitute a separate Class of revolving credit commitments from Existing Commitments of the Specified Existing Commitment Class and from any other Existing Commitments (together with any other Extended Commitments so established on such date). (b) The Borrower shall provide the applicable Extension Request at least five (5) Business Days (or such shorter period as the Administrative Agent may determine in its reasonable discretion) prior to the date on which Lenders under the Existing Class are requested to respond, and shall agree to such procedures, if any, as may be established by, or acceptable to, the Administrative Agent, in each case acting reasonably, to accomplish the purpose of this Section 2.17. Any Lender (an “Extending Lender”) wishing to have all or a portion of its Commitments (or any earlier Extended Commitments) of an Existing Class subject to such Extension Request converted into Extended Commitments shall notify the Administrative Agent (an “Extension Election”) on or prior to the date specified in such Extension Request of the amount of its Commitments (and/or any earlier Extended Commitments) which it has elected to convert into Extended Commitments (subject to any minimum denomination requirements imposed by the Extension Request). In the event that the aggregate amount of Commitments (and any earlier Extended Commitments) subject to Extension Elections exceeds the amount of Extended Commitments requested pursuant to the Extension Request, Commitments and (and any earlier Extended Commitments) subject to Extension Elections shall be converted to Extended Commitments on a pro rata basis based on the amount of Commitments (and any earlier Extended Commitments) included in each such Extension Election or as may be otherwise agreed to in the applicable Extension Amendment and in the event that the aggregate amount of Commitments (and any earlier Extended Commitments) subject to Extension Elections is less than the amount of Extended Commitments requested pursuant to the Extension Request, the Borrower may cause Additional Lenders to become Extending Lenders hereunder with Extended Commitments by executing an Extension Amendment on the terms specified in such Extension Request in an amount agreed to by such Additional Lenders (the “Additional Lender Extended Amount”) (and in such case the Borrower will either (i) reduce Commitments hereunder (other than Commitments that are subject to Extension Elections pursuant to such Extension Request) by an aggregate amount equal to the Additional Lender Extended Amount, (ii) increase Commitments hereunder by an amount equal to the Additional Lender Extended Amount (up to an aggregate amount not to exceed the amount that would be permitted in an Incremental Increase pursuant to Section 2.16 at such time) or (iii) implement a combination of Commitment reductions under the foregoing clause (i) and Commitment increases under the foregoing clause (ii) in an aggregate amount equal to Additional Lender Extended Amount. Notwithstanding the conversion of any Existing Commitment into an Extended Commitment, such Extended Commitment shall be treated identically to all Existing Commitments of the Specified Existing Commitment Class for purposes of the obligations of a Lender in respect of Swingline Loans under Section 2.1(c) and Letters of Credit under Section 3, except that the applicable Extension Amendment may provide that the Swingline Maturity Date and/or the last day for issuing Letters of Credit may be extended and the related obligations to make Swingline Loans and issue Letters - 85- 727670773 12335469

 
of Credit may be continued (pursuant to mechanics to be specified in the applicable Extension Amendment) so long as the applicable Swingline Lender and/or the applicable Issuing Bank, as applicable, have consented to such extensions (it being understood that no consent of any other Lender shall be required in connection with any such extension). (c) Extended Commitments shall be established pursuant to an amendment (an “Extension Amendment”) to this Agreement (which, notwithstanding anything to the contrary set forth in Section 13.1, shall not require the consent of any Lender other than the Extending Lenders with respect to the Extended Commitments established thereby) executed by the Credit Parties, the Administrative Agent and the Extending Lenders. It is understood and agreed that each Lender hereunder has consented, and shall at the effective time thereof be deemed to consent to each amendment to this Agreement and the other Credit Documents authorized by this Section 2.17 (and approved by the applicable Extending Lenders with respect to the Extended Commitments established thereby) and the arrangements described above in connection therewith. No Extension Amendment shall provide for any tranche of Extended Commitments in an aggregate principal amount that is less than $200,000,000 (or such lesser amount as the Administrative Agent may agree in its reasonable discretion). Notwithstanding anything to the contrary in this Section 2.17(c) and without limiting the generality or applicability of Section 13.1 to any Section 2.17 Additional Amendments (as defined below), any Extension Amendment may provide for additional terms and/or additional amendments other than those referred to or contemplated above (any such additional amendment, a “Section 2.17 Additional Amendment”) to this Agreement and the other Credit Documents; provided that such Section 2.17 Additional Amendments are within the requirements of Section 2.17(a) and do not become effective prior to the time that such Section 2.17 Additional Amendments have been consented to (including, without limitation, pursuant to consents applicable to holders of any Extended Loans provided for in any Extension Amendment) by such of the Lenders, Credit Parties and other parties (if any) as may be required in order for such Section 2.17 Additional Amendments to become effective in accordance with Section 13.1. (d) Notwithstanding anything to the contrary contained in this Agreement, (A) on any date on which any Class of Existing Commitments is converted to extend the related scheduled maturity date(s) in accordance with paragraph (a) above (an “Extension Date”), in the case of the Existing Commitments of each Extending Lender under any Specified Existing Commitment Class, the aggregate principal amount of such Existing Commitments shall be deemed reduced by an amount equal to the aggregate principal amount of Extended Commitments so converted by such Lender on such date, and such Extended Commitments shall be established as a separate Class of revolving credit commitments from the Specified Existing Commitment Class and from any other Existing Commitments (together with any other Extended Commitments so established on such date) and (B) if, on any Extension Date, any Existing Loans of any Extending Lender are outstanding under the Specified Existing Commitment Class, such Existing Loans (and any related participations) shall be deemed to be allocated as Extended Loans (and related participations) in the same proportion as such Extending Lender’s Specified Existing Commitments to Extended Commitments. (e) No exchange of Loans or Commitments pursuant to any Extension Amendment in accordance with this Section 2.17 shall constitute a voluntary or mandatory payment or prepayment for purposes of this Agreement. - 86- 727670773 12335469

 
SECTION 3. Letters of Credit 3.1 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, at any time and from time to time on and after the Closing Date and prior to the L/C Maturity Date, each Issuing Bank agrees, in reliance upon the agreements of the Lenders set forth in this Section 3, to issue upon the request of the Borrower and for the direct or indirect benefit of the Borrower and the Restricted Subsidiaries, a letter of credit or letters of credit (the “Letters of Credit” and each, a “Letter of Credit”) in such form and with such Issuer Documents as may be approved by the applicable Issuing Bank in its reasonable discretion; provided that the Borrower shall be a co-applicant of, and jointly and severally liable with respect to, each Letter of Credit issued for the account of a Restricted Subsidiary. (b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letters of Credit Outstanding at such time, would exceed the Letter of Credit Commitment then in effect, (ii) no Letter of Credit shall be issued the Stated Amount of which would cause the aggregate amount of all Lenders’ Total Exposures at such time to exceed the Loan Limit then in effect, (iii) each Letter of Credit shall have an expiration date occurring no later than one year after the date of issuance or such longer period of time as may be agreed by the applicable Issuing Bank, unless otherwise agreed upon by the Administrative Agent and the applicable Issuing Bank or as provided under Section 3.2(b); provided that any Letter of Credit may provide for automatic renewal thereof for additional periods of up to 12 months or such longer period of time as may be agreed upon by the applicable Issuing Bank, subject to the provisions of Section 3.2(b); provided, further, that in no event shall such expiration date occur later than the L/C Maturity Date unless arrangements which are reasonably satisfactory to the applicable Issuing Bank to Cash Collateralize (or backstop) such Letter of Credit have been made (and, in any event, no Lender shall have any obligation to fund any L/C Participation in respect of any Unpaid Drawing after the L/C Maturity Date), (iv) no Alternate Currency Letter of Credit shall be issued if,unless (A) except in the case of Brazilian Reais, the Administrative Agent and the applicable Issuing Bank agree to such issuance of such Alternate Currency Letter of Credit (it being understood that there shall be no obligation to so agree except in the case of Brazilian Reais) and (B) after giving effect thereto, the aggregate amount of the Letter of Credit Exposure with respect to all Alternate Currency Letters of Credit would exceed $37,500,000, (v) no Letter of Credit shall be issued if it would be illegal under any applicable Requirement of Law for the beneficiary of the Letter of Credit to have a Letter of Credit issued in its favor, (vi) no Letter of Credit shall be issued by an Issuing Bank after it has received a written notice from any Credit Party or the Administrative Agent or the Majority Lenders stating that a Default or Event of Default has occurred and is continuing until such time as such Issuing Bank shall have received a written notice (A) of rescission of such notice from the party or parties originally delivering such notice, (B) of the waiver of such Default or Event of Default in accordance with the provisions of Section 13.1 or (C) that such Default or Event of Default is no longer continuing, and (vii) no Letter of Credit shall be issued by an Issuing Bank the Stated Amount of which, when added to the Letters of Credit Outstanding issued by such Issuing Bank, would exceed $125,000,000 (or such greater amount agreed to by such Issuing Bank in its sole discretion from time to time), and (viii) no Issuing Bank shall have an obligation to issue a Letter of Credit the proceeds of which would be available to any Person in any manner - 87- 727670773 12335469

 
that would result in a violation of one or more policies of such Issuing Bank applicable to letters of credit generally. (c) Upon at least one Business Day’s prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent and the applicable Issuing Bank (which notice the Administrative Agent shall promptly transmit to each of the applicable Lenders), the Borrower shall have the right, on any day, permanently to terminate or reduce the Letter of Credit Commitment in whole or in part; provided that, after giving effect to such termination or reduction, the Letters of Credit Outstanding shall not exceed the Letter of Credit Commitment. 3.2 Letter of Credit Applications. (a) Whenever the Borrower desires that a Letter of Credit be issued, amended or renewed for its account on its own behalf, or on behalf of its Restricted Subsidiaries, the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to the applicable Issuing Bank and the Administrative Agent a Letter of Credit application, amendment request or any such document as may be approved by the applicable Issuing Bank (each, a “Letter of Credit Application”). Upon receipt of any Letter of Credit Application or amendment request, (i) in the case of Letters of Credit denominated in Dollars, (A) the applicable Issuing Bank will use its best efforts to process such Letter of Credit Application on the Business Day on which such Letter of Credit Application is received, provided that such Letter of Credit Application is received no later than 12:00 p.m. (New York City time) on such Business Day, or (B) otherwise, the first Business Day next succeeding receipt of such Letter of Credit Application, and (ii) in the case of Letters of Credit denominated in an Alternate Currency, (A) the applicable Issuing Bank will use its best efforts to process such Letter of Credit Application on the second Business Day after the day on which such Letter of Credit Application is received, or (B) otherwise, the fifth Business Day after the day on which such Letter of Credit Application is received. No Issuing Bank shall issue any Letters of Credit unless such Issuing Bank shall have received notice from the Administrative Agent that the conditions to such issuance have been met. (b) If the Borrower so requests in any applicable Letter of Credit Application, the applicable Issuing Bank may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit such Issuing Bank to prevent any such extension at least once in each 12-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such 12-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable Issuing Bank, the Borrower shall not be required to make a specific request to such Issuing Bank for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the applicable Issuing Bank to permit the extension of such Letter of Credit at any time to an expiry date not later than the L/C Maturity Date; provided, however, that such Issuing Bank shall not permit any such extension if (i) such Issuing Bank has determined that it would not be permitted, or would have no obligation, at such - 88- 727670773 12335469

 
time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (b) of Section 3.1 or otherwise), or (ii) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (A) from the Administrative Agent that the Majority Lenders have elected not to permit such extension or (B) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 7 are not then satisfied, and in each such case directing such Issuing Bank not to permit such extension. (c) Each Issuing Bank (other than the Administrative Agent or any of its Affiliates) shall, at least once each week, provide the Administrative Agent with a list of all Letters of Credit issued by it that are outstanding at such time; provided that, upon written request from the Administrative Agent, such Issuing Bank shall thereafter notify the Administrative Agent in writing on each Business Day of all Letters of Credit issued on the prior Business Day by such Issuing Bank; provided further that the notification requirements of this Section 3.2(c) shall not apply with respect to any Existing Letter of Credit. (d) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that the Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 3.1(b). 3.3 Letter of Credit Participations. (a) Immediately upon the issuance by an Issuing Bank of any Letter of Credit (and on the Closing Date, with respect to the Existing Letters of Credit), such Issuing Bank shall be deemed to have sold and transferred to each Lender (each such Lender, in its capacity under this Section 3.3, an “L/C Participant”), and each such L/C Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation (each an “L/C Participation”), to the extent of such L/C Participant’s Commitment Percentage, in each Letter of Credit, each substitute therefor, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto. (b) In determining whether to pay under any Letter of Credit, the relevant Issuing Bank shall have no obligation relative to the L/C Participants other than to confirm that (i) any documents required to be delivered under such Letter of Credit have been delivered, (ii) such Issuing Bank has examined the documents with reasonable care and (iii) the documents appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by the relevant Issuing Bank under or in connection with any Letter of Credit issued by it, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability. (c) In the event that an Issuing Bank makes any payment under any Letter of Credit issued by it and the Borrower shall not have repaid such amount (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof) in full to such Issuing Bank pursuant to Section 3.4(a), such Issuing Bank shall promptly notify the Administrative Agent and each L/C Participant of such failure, and each such L/C Participant - 89- 727670773 12335469

 
shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuing Bank, the amount of such L/C Participant’s Commitment Percentage of such unreimbursed payment in Dollars and in immediately available funds; provided, however, that no L/C Participant shall be obligated to pay to the Administrative Agent for the account of such Issuing Bank its Commitment Percentage of such unreimbursed amount arising from any wrongful payment made by such Issuing Bank under any such Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Issuing Bank. Each L/C Participant shall make available to the Administrative Agent for the account of the relevant Issuing Bank such L/C Participant’s Commitment Percentage of the amount of such payment no later than 1:00 p.m. (New York City time) on the first Business Day after the date notified by such Issuing Bank in immediately available funds. If and to the extent such L/C Participant shall not have so made its Commitment Percentage of the amount of such payment available to the Administrative Agent for the account of the relevant Issuing Bank, such L/C Participant agrees to pay to the Administrative Agent for the account of such Issuing Bank, forthwith on demand, such amount, together with interest thereon for each day from such date until the date such amount is paid to the Administrative Agent for the account of such Issuing Bank at a rate per annum equal to the Overnight Rate from time to time then in effect, plus any administrative, processing or similar fees customarily charged by such Issuing Bank in connection with the foregoing. The failure of any L/C Participant to make available to the Administrative Agent for the account of any Issuing Bank its Commitment Percentage of any payment under any Letter of Credit shall not relieve any other L/C Participant of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Bank its Commitment Percentage of any payment under such Letter of Credit on the date required, as specified above, but no L/C Participant shall be responsible for the failure of any other L/C Participant to make available to the Administrative Agent such other L/C Participant’s Commitment Percentage of any such payment. (d) Whenever an Issuing Bank receives a payment in respect of an unpaid reimbursement obligation as to which the Administrative Agent has received for the account of such Issuing Bank any payments from the L/C Participants pursuant to clause (c) above, such Issuing Bank shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each L/C Participant that has paid its Commitment Percentage of such reimbursement obligation, in Dollars and in immediately available funds, an amount equal to such L/C Participant’s share (based upon the proportionate aggregate amount originally funded by such L/C Participant to the aggregate amount funded by all L/C Participants) of the principal amount so paid in respect of such reimbursement obligation and interest thereon accruing after the purchase of the respective L/C Participations at the Overnight Rate. (e) The obligations of the L/C Participants to make payments to the Administrative Agent for the account of an Issuing Bank with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including under any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; - 90- 727670773 12335469

 
(ii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Issuing Bank, any Lender or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default; provided, however, that no L/C Participant shall be obligated to pay to the Administrative Agent for the account of any Issuing Bank its Commitment Percentage of any unreimbursed amount arising from any wrongful payment made by such Issuing Bank under a Letter of Credit as a result of acts or omissions constituting willful misconduct, bad faith or gross negligence on the part of such Issuing Bank. 3.4 Agreement to Repay Letter of Credit Drawings. (a) The Borrower hereby agrees to reimburse the relevant Issuing Bank by making payment in Dollars or, in the case of Alternate Currency Letters of Credit, in the applicable Alternate Currency to such Issuing Bank or to the Administrative Agent for the account of such Issuing Bank (whether with its own funds or with proceeds of the Loans) in immediately available funds, for any payment or disbursement made by such Issuing Bank under any Letter of Credit issued by it (each such amount so paid until reimbursed, an “Unpaid Drawing” (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof)) (i) within one Business Day of the date of such payment or disbursement if such Issuing Bank provides notice to the Borrower of such payment or disbursement prior to 11:00 a.m. (New York City time) on such next succeeding Business Day (from the date of such payment or disbursement or (ii) if such notice is received after such time, on the next Business Day following the date of receipt of such notice (such required date for reimbursement under clause (i) or (ii), as applicable, on such Business Day (the “Reimbursement Date”)), with interest on the amount so paid or disbursed by such Issuing Bank, from and including the date of such payment or disbursement to but excluding the Reimbursement Date, at the per annum rate for each day equal to the rate described in Section 2.8(a); provided that, notwithstanding anything contained in this Agreement to the contrary, with respect to any Letter of Credit, (i) unless the Borrower shall have notified the Administrative Agent and such Issuing Bank prior to 11:00 a.m. (New York City time) on the Reimbursement Date that the Borrower intends to reimburse such Issuing Bank for the amount of such drawing with funds other than the proceeds of Loans, the Borrower shall be deemed to have given a Notice of Borrowing requesting that the Lenders make Loans (which shall be ABR Loans) on the Reimbursement Date in an amount - 91- 727670773 12335469

 
equal to the amount at such drawing (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof), and (ii) the Administrative Agent shall promptly notify each L/C Participant of such drawing and the amount of its Loan to be made in respect thereof, and each L/C Participant shall be irrevocably obligated to make a Loan to the Borrower in the manner deemed to have been requested in the amount of its Commitment Percentage of the applicable Unpaid Drawing by 12:00 noon (New York City time) on such Reimbursement Date by making the amount of such Loan available to the Administrative Agent. Such Loans made in respect of such Unpaid Drawing on such Reimbursement Date shall be made without regard to the Minimum Borrowing Amount and without regard to the satisfaction of the conditions set forth in Section 7. The Administrative Agent shall use the proceeds of such Loans solely for purpose of reimbursing the relevant Issuing Bank for the related Unpaid Drawing. In the event that the Borrower fails to Cash Collateralize any Letter of Credit that is outstanding on the L/C Maturity Date, the full amount of the Letters of Credit Outstanding in respect of such Letter of Credit shall be deemed to be an Unpaid Drawing subject to the provisions of this Section 3.4 except that such Issuing Bank shall hold the proceeds received from the Lenders as contemplated above as cash collateral for such Letter of Credit to reimburse any Drawing under such Letter of Credit and shall use such proceeds first, to reimburse itself for any Drawings made in respect of such Letter of Credit following the L/C Maturity Date, second, to the extent such Letter of Credit expires or is returned undrawn while any such cash collateral remains, to the repayment of obligations in respect of any Loans that have not paid at such time and third, to the Borrower or as otherwise directed by a court of competent jurisdiction. Nothing in this Section 3.4(a) shall affect the Borrower’s obligation to repay all outstanding Loans when due in accordance with the terms of this Agreement. (b) The obligations of the Borrower under this Section 3.4 to reimburse the relevant Issuing Bank with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment that the Borrower or any other Person may have or have had against such Issuing Bank, the Administrative Agent or any Lender (including in its capacity as an L/C Participant), including any defense based upon (i) the failure of any drawing under a Letter of Credit (each a “Drawing”) to conform to the terms of the Letter of Credit, (ii) any non-application or misapplication by the beneficiary of the proceeds of such Drawing, (iii) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (iv) 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 or (v, (v) 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 (vi) 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;. None of the Administrative Agent, the Lenders or 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 - 92- 727670773 12335469

 
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 relevant Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to special, indirect, consequential or punitive 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 such 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 Borrower agrees that any action taken or omitted to be taken by an Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if doneparties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), shall be binding on the Borrower and shall not result in any liability of such Issuing Bank to the Borrower; provided that the foregoing shall not be construed to excuse such Issuing Bank from liability to the Borrower to the extent of any direct damages suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care, when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereofthe 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 hereto agree that, with 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 that issued such Letter of Credit may in its sole discretion, either accept or 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 (unless the Borrower shall consent to payment thereon not withstanding such lack of strict compliance). 3.5 Increased Costs. If, after the Closing Date, the adoption of any Change in Law shall either (a) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by any Issuing Bank, or any L/C Participant’s L/C Participation therein, or (b) impose on any Issuing Bank or any L/C Participant any other conditions, costs or expenses affecting its obligations under this Agreement in respect of Letters of Credit or L/C Participations therein or any Letter of Credit or such L/C Participant’s L/C Participation therein, and the result of any of the foregoing is to increase the cost to such Issuing Bank or such L/C Participant of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Issuing Bank or such L/C Participant hereunder (other than (i) Taxes indemnifiable under Section 5.4, or (ii) Excluded Taxes) in respect of Letters of Credit or L/C Participations therein, then, promptly (and in any event no later than 15 days) after receipt of written demand to the Borrower by such Issuing Bank or such L/C Participant, as the case may be (a copy of which notice shall be sent by such Issuing Bank or such L/C Participant to the Administrative Agent), the Borrower shall pay to such Issuing Bank or such L/C Participant such additional amount or amounts as will compensate such Issuing Bank or such L/C Participant for such increased cost or reduction, it being understood and agreed, however, that no Issuing Bank or L/C Participant shall be entitled to such compensation as a result of such Person’s compliance with, or pursuant to any request or directive to comply with, any such Requirement of Law as in effect on the Closing Date. A certificate submitted to the Borrower by the relevant Issuing Bank or an L/C Participant, as the case may be (a copy of which certificate shall be sent by such Issuing Bank or such L/C - 93- 727670773 12335469

 
Participant to the Administrative Agent), setting forth in reasonable detail the basis for the determination of such additional amount or amounts necessary to compensate such Issuing Bank or such L/C Participant as aforesaid shall be conclusive and binding on the Borrower absent clearly demonstrable error. 3.6 New or Successor Issuing Bank. (a) Any Issuing Bank may resign as an Issuing Bank upon 30 days’ prior written notice to the Administrative Agent, the Lenders and the Borrower. The Borrower may replace any Issuing Bank for any reason upon written notice to such Issuing Bank and the Administrative Agent and may add Issuing Banks at any time upon notice to the Administrative Agent. If an Issuing Bank shall resign or be replaced, or if the Borrower shall decide to add a new Issuing Bank under this Agreement, then the Borrower may appoint from among the Lenders a successor issuer of Letters of Credit or a new Issuing Bank, as the case may be, or, with the consent of the Administrative Agent (such consent not to be unreasonably withheld) and such new Issuing Bank, another successor or new issuer of Letters of Credit, whereupon such successor issuer shall succeed to the rights, powers and duties of the replaced or resigning Issuing Bank under this Agreement and the other Credit Documents, or such new issuer of Letters of Credit shall be granted the rights, powers and duties of an Issuing Bank hereunder, and the term “Issuing Bank” shall mean such successor or such new issuer of Letters of Credit effective upon such appointment. The acceptance of any appointment as an Issuing Bank hereunder whether as a successor issuer or new issuer of Letters of Credit in accordance with this Agreement, shall be evidenced by an agreement entered into by such new or successor issuer of Letters of Credit, in a form reasonably satisfactory to the Borrower and the Administrative Agent and, from and after the effective date of such agreement, such new or successor issuer of Letters of Credit shall become an “Issuing Bank” hereunder. After the resignation or replacement of an Issuing Bank hereunder, the resigning or 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 and the other Credit Documents with respect to Letters of Credit issued by it prior to such resignation or replacement, but shall not be required to issue additional Letters of Credit. In connection with any resignation or replacement pursuant to this clause (a) (but, in case of any such resignation, only to the extent that a successor issuer of Letters of Credit shall have been appointed), either (i) the Borrower, the resigning or replaced Issuing Bank and the successor issuer of Letters of Credit shall arrange to have any outstanding Letters of Credit issued by the resigning or replaced Issuing Bank replaced with Letters of Credit issued by the successor issuer of Letters of Credit or (ii) the Borrower shall cause the successor issuer of Letters of Credit, if such successor issuer is reasonably satisfactory to the replaced or resigning Issuing Bank, to issue “back-stop” Letters of Credit naming the resigning or replaced Issuing Bank as beneficiary for each outstanding Letter of Credit issued by the resigning or replaced Issuing Bank, which new Letters of Credit shall have a Stated Amount equal to the Letters of Credit being back-stopped and the sole requirement for drawing on such new Letters of Credit shall be a drawing on the corresponding back- stopped Letters of Credit. After any resigning or replaced Issuing Bank’s resignation or replacement as Issuing Bank, the provisions of this Agreement relating to an Issuing Bank shall inure to its benefit as to any actions taken or omitted to be taken by it (A) while it was an Issuing Bank under this Agreement or (B) at any time with respect to Letters of Credit issued by such Issuing Bank. - 94- 727670773 12335469

 
(b) To the extent that there are, at the time of any resignation or replacement as set forth in clause (a) above, any outstanding Letters of Credit, nothing herein shall be deemed to impact or impair any rights and obligations of any of the parties hereto with respect to such outstanding Letters of Credit (including any obligations related to the payment of fees or the reimbursement or funding of amounts drawn), except that the Borrower, the resigning or replaced Issuing Bank and the successor issuer of Letters of Credit shall have the obligations regarding outstanding Letters of Credit described in clause (a) above. 3.7 Role of Issuing Bank. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, no Issuing Bank shall have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the Issuing Banks, the Administrative Agent, any of their respective affiliates nor any correspondent, participant or assignee of any Issuing Bank shall be liable to any Lender for (a) any action taken or omitted in connection herewith at the request or with the approval of the Majority Lenders, (b) any action taken or omitted in the absence of gross negligence or willful misconduct or (c) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the Issuing Banks, the Administrative Agent, any of their respective affiliates nor any correspondent, participant or assignee of any Issuing Bank shall be liable or responsible for any of the matters described in Section 3.3(e); provided that anything in such Section to the contrary notwithstanding, the Borrower may have a claim against an Issuing Bank, and such Issuing Bank may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such Issuing Bank’s willful misconduct or gross negligence or such Issuing Bank’s unlawful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, any Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and no Issuing Bank shall be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.8 Cash Collateral. (a) Upon the request of the Majority Lenders if, as of the L/C Maturity Date, there are any Letters of Credit Outstanding, the Borrower shall immediately Cash Collateralize the then Letters of Credit Outstanding. (b) If any Event of Default shall occur and be continuing, the Majority Lenders may require that the L/C Obligations be Cash Collateralized; provided that, upon the occurrence of an Event of Default referred to in Section 11.5 with respect to the Borrower, the - 95- 727670773 12335469

 
Borrower shall immediately Cash Collateralize the Letters of Credit then outstanding and no notice or request by or consent from the Majority Lenders shall be required. (c) For purposes of this Agreement, “Cash Collateralize” shall mean to (i) pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Issuing Banks and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances in an amount equal to the amount of the Letters of Credit Outstanding required to be Cash Collateralized (the “Required Cash Collateral Amount”) or (ii) if the relevant Issuing Bank benefiting from such collateral shall agree in its reasonable discretion, other forms of credit support (including any backstop letter of credit) in a face amount equal to 105% of the Required Cash Collateral Amount from an issuer reasonably satisfactory to such Issuing Bank, in each case under clause (i) and (ii) above pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the relevant Issuing Bank (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby grants to the Administrative Agent, for the benefit of the Issuing Banks and the L/C Participants, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Such cash Collateral shall be maintained in blocked, interest bearing deposit accounts established by and in the name of the Borrower, but under the “control” (as defined in Section 9-104 of the UCC) of the Administrative Agentsubject at all times, in each case, to a Control Agreement. 3.9 Existing Letters of Credit. Subject to the terms and conditions hereof, each Existing Letter of Credit that is outstanding on the Closing Date, listed on Schedule 3.9 shall, effective as of the Closing Date and without any further action by the Borrower, be continued as a Letter of Credit hereunder and from and after the Closing Date shall be deemed a Letter of Credit for all purposes hereof and shall be subject to and governed by the terms and conditions hereof. 3.10 Applicability of ISP and UCP. Unless otherwise expressly agreed to by the relevant Issuing Bank and the Borrower when a Letter of Credit is issued, (a) the rules of the ISP or the Uniform Customs and Practice for Documentary Credits shall apply to each standby Letter of Credit and (b) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance, shall apply to each commercial Letter of Credit. 3.11 Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control. 3.12 Letters of Credit Issued for Restricted Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Restricted Subsidiary, the Borrower shall be obligated to reimburse the relevant Issuing Bank hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Restricted Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Restricted Subsidiaries. - 96- 727670773 12335469

 
3.13 Alternate Currency. If any amounts received or owing hereunder in connection with Alternate Currency Letters of Credit are paid in a currency other than the applicable Alternate Currency (the “Other Currency”), the applicable Issuing Bank may convert (actually or notionally) such Other Currency into the applicable Alternate Currency and such conversion shall be effected at the Exchange Rate for the time being for obtaining such Alternate Currency and the Borrower shall indemnify such Issuing Bank on demand in respect of any resulting loss in respect of such conversion. The Borrower waives any right it may have in any jurisdiction to pay any amount under this Section 3.13 in a currency or currency unit other than that in which it is expressed to be payable. SECTION 4. Fees; Commitments. 4.1 Fees. (a) The Borrower agrees to pay to the Administrative Agent in Dollars, for the account of each Lender (in each case pro rata according to the respective Commitment Percentages of the Lenders), a commitment fee (the “Commitment Fee”) for each day from the Closing Date until but excluding the Termination Date. Each Commitment Fee shall be payable by the Borrower quarterly in arrears on the last Business Day of each March, June, September and December (for the three-month period (or portion thereof) ended on such day for which no payment has been received) and on the Termination Date (for the period ended on such date for which no payment has been received pursuant to clause (i) above), and shall be computed for each day during such period at a rate per annum equal to the Commitment Fee Rate in effect on such day on the Available Commitment (assuming for this purpose that there is no reference to “Swingline Exposure” in the definition of Total Exposure) in effect on such day. (b) The Borrower agrees to pay to the Administrative Agent in Dollars for the account of the Lenders pro rata on the basis of their respective Letter of Credit Exposure, a fee in respect of each Letter of Credit (the “Letter of Credit Fee”), for the period from the date of issuance of such Letter of Credit until the termination or expiration date of such Letter of Credit computed at the per annum rate for each day equal to the Applicable Margin for LIBOR Loans on the average daily Stated Amount of such Letter of Credit. Such Letter of Credit Fees shall be due and payable (i) quarterly in arrears on the last Business Day of each March, June, September and December and (ii) on the Termination Date (for the period for which no payment has been received pursuant to clause (i) above). (c) The Borrower agrees to pay to each Issuing Bank a fee in respect of each Letter of Credit issued by it (the “Fronting Fee”), for the period from the date of issuance of such Letter of Credit to the termination or expiration date of such Letter of Credit, computed at the rate for each day equal to 0.125% per annum (or such other amount as may be agreed in a separate writing between the Borrower and the relevant Issuing Bank) on the average daily Stated Amount of such Letter of Credit (or at such other rate per annum as agreed in writing between the Borrower and the relevant Issuing Bank). Such Fronting Fees shall be due and payable by the Borrower (i) quarterly in arrears on the last Business Day of each March, June, September and December and (ii) on the Termination Date (for the period for which no payment has been received pursuant to clause (i) above). - 97- 727670773 12335469

 
(d) The Borrower agrees to pay directly to each Issuing Bank upon each issuance of, drawing under, and/or amendment of, a Letter of Credit issued by it such amount as the relevant Issuing Bank and the Borrower shall have agreed upon for issuances of, drawings under or amendments of, letters of credit issued by it. (e) The Borrower agrees to pay to the Administrative Agent the administrative agent fees in the amounts and on the dates as set forth in writing from time to time between the Administrative Agent and the Borrower. 4.2 Voluntary Reduction of Commitments. (a) Upon at least two Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent at the Administrative Agent’s Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, without premium or penalty, on any day, permanently to terminate or reduce the Commitments of any Class, as determined by the Borrower, in whole or in part; provided that (a) with respect to the Commitments, any such termination or reduction shall apply proportionately and permanently to reduce the Commitments of each of the Lenders of such Class, except that, notwithstanding the foregoing, (1) the Borrower may allocate any termination or reduction of Commitments among classes of Commitments either (A) ratably among Classes or (B) first to the Commitments with respect to any Existing Commitments and second to any Extended Commitments and (2) in connection with the establishment on any date of any Extended Commitments pursuant to Section 2.17, (i) the Existing Commitments of each Lender providing any such Extended Commitments on such date shall be reduced in an amount equal to the amount of Specified Existing Commitments so extended on such date by such Lender and (ii) the Existing Commitments of any Lender not providing such Extended Commitments shall be reduced, solely to the extent elected to be reduced by the Borrower pursuant to Section 2.17, among the Class or Classes of Commitments elected by the Borrower (provided that (x) after giving effect to any such reduction and to the repayment of any Loans made on such date, the Total Exposure of any such Lender does not exceed the Commitment of such Lender (such Total Exposure and Commitment in the case of an Extending Lender being determined for purposes of this proviso, for the avoidance of doubt, exclusive of such Extending Lender’s Extended Commitment and any exposure in respect thereof) and (y) for the avoidance of doubt, any such repayment of Loans contemplated by the preceding clause shall be made in compliance with the requirements of Section 5.3(a) with respect to the ratable allocation of payments hereunder, with such allocation being determined after giving effect to any conversion pursuant to Section 2.17 of Existing Commitments and Existing Loans into Extended Commitments and Extended Loans respectively, and prior to any reduction being made to the Commitment of any other Lender), (b) any partial reduction pursuant to this Section 4.2 shall be in the amount of at least $1,000,000 and (c) after giving effect to such termination or reduction and to any prepayments of Loans or cancellation or Cash Collateralization of Letters of Credit made on the date thereof in accordance with this Agreement, the aggregate amount of the Lenders’ Total Exposures shall not exceed the Loan Limit. (b) The Borrower may terminate the unused amount of the Commitment of a Defaulting Lender upon not less than two (2) Business Days’ prior notice to the Administrative Agent (which will promptly notify the Lenders thereof), and in such event the provisions of - 98- 727670773 12335469

 
Section 2.15(f) will apply to all amounts thereafter paid by the Borrower for the account of such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts), provided that such termination will not be deemed to be a waiver or release of any claim the Borrower, the Administrative Agent, any Issuing Bank, the Swingline Lender or any Lender may have against such Defaulting Lender. 4.3 Mandatory Termination of Commitments. (a) The Total Commitment shall terminate at 5:00 p.m. (New York City time) on the Termination Date. (b) The Swingline Commitment shall terminate at 5:00 p.m. (New York City time) on the earlier of (x) the Swingline Maturity Date and (y) the Termination Date. SECTION 5. Payments. 5.1 Voluntary Prepayments. The Borrower shall have the right to prepay Loans and Swingline Loans, in each case, without premium or penalty, in whole or in part from time to time on the following terms and conditions: (a) the Borrower shall give the Administrative Agent at the Administrative Agent’s Office written notice (or telephonic notice promptly confirmed in writing) of its intent to make such prepayment, the amount of such prepayment and (in the case of LIBOR Loans) the specific Borrowing(s) being prepaid, which notice shall be given by the Borrower no later than 1:00 p.m. (New York City time) (i) in the case of LIBOR Loans, three Business Days prior to and (ii) in the case of ABR Loans on the date of such prepayment and shall promptly be transmitted by the Administrative Agent to each of the Lenders; (b) each partial prepayment of (i) LIBOR Loans shall be in a minimum amount of $500,000 and in multiples of $100,000 in excess thereof, and (ii) any ABR Loans shall be in a minimum amount of $500,000 and in multiples of $100,000 in excess thereof; provided that no partial prepayment of LIBOR Loans made pursuant to a single Borrowing shall reduce the outstanding LIBOR Loans made pursuant to such Borrowing to an amount less than the applicable Minimum Borrowing Amount for such LIBOR Loans; and (c) any prepayment of LIBOR Loans pursuant to this Section 5.1 on any day other than the last day of an Interest Period applicable thereto shall be subject to compliance by the Borrower with the applicable provisions of Section 2.11. Each such notice shall specify the date and amount of such prepayment and the Type of Loans to be prepaid. At the Borrower’s election in connection with any prepayment pursuant to this Section 5.1, such prepayment shall not be applied to any Loans of a Defaulting Lender. Notwithstanding the foregoing (and as provided in clause (1) of the proviso to Section 2.17(a)), the Borrower may not prepay Extended Loans of any Extension Series unless such prepayment, to the extent any such Existing Loans are outstanding, is accompanied by a pro - 99- 727670773 12335469

 
rata repayment of Existing Loans of the Specified Existing Commitment Class of the Existing Class from which such Extended Loans and Extended Commitments were converted (or such Loans and Commitments of the Existing Class have otherwise been repaid and terminated in full). 5.2 Mandatory Prepayments. (a) Repayment following Optional Reduction of Commitments. If, after giving effect to any termination or reduction of the Commitments pursuant to Section 4.2(a), the aggregate Total Exposures of all Lenders exceeds the Loan Limit (as reduced), then the Borrower shall on the same Business Day (i) prepay the Swingline Loans and, after all Swingline Loans have been paid in full, the remaining Loans on the date of such termination or reduction in an aggregate principal amount equal to such excess and (ii) if any excess remains after prepaying all of the Loans as a result of any Letter of Credit Exposure, pay to the Administrative Agent on behalf of the Issuing Banks and the L/C Participants an amount in cash or otherwise Cash Collateralize an amount equal to such excess as provided in Section 3.8. (b) Repayment of Loans Following Redetermination or Adjustment of Borrowing Base. (i) Upon any redetermination of the Borrowing Base in accordance with Section 2.14(b), if the aggregate Total Exposures of all Lenders exceeds the redetermined Borrowing Base, then the Borrower shall, within 10 Business Days after its receipt of a New Borrowing Base Notice indicating such Borrowing Base Deficiency, inform the Administrative Agent of the Borrower’s election to: (A) within 30 days following such election prepay the Loans in an aggregate principal amount equal to such excess, (B) prepay the Loans in six equal monthly installments, commencing on the 30th day following such election with each payment being equal to l/6th of the aggregate principal amount of such excess, (C) within 30 days following such election, provide additional Collateral in the form of additional Oil and Gas Properties not evaluated in the most recently delivered Reserve Report or other Collateral reasonably acceptable to the Administrative Agent having a Borrowing Base Value (as proposed by the Administrative Agent and approved by the Required Lenders in good faith in accordance with their respective usual and customary oil and gas lending criteria as they exist at the particular time) sufficient, after giving effect to any other actions taken pursuant to this Section 5.2(b)(i) to eliminate any such excess or (D) undertake a combination of clauses (A), (B) and (C); provided that if, because of Letter of Credit Exposure, a Borrowing Base Deficiency remains after prepaying all of the Loans, the Borrower shall Cash Collateralize such remaining Borrowing Base Deficiency as provided in Section 3.8; provided further, that all payments required to be made pursuant to this Section 5.2(b)(i) must be made on or prior to the Termination Date. (ii) Upon any adjustment to the Borrowing Base pursuant to Section 2.14(e), (f) or (g), if the aggregate Total Exposures of all Lenders exceeds the Borrowing Base, as adjusted, then the Borrower shall (A) prepay the Loans in an aggregate principal amount equal to such excess and (B) if any excess remains after prepaying all of the Loans as a result of any Letter of Credit Exposure, Cash Collateralize such excess as -100- 727670773 12335469

 
provided in Section 3.8. The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral no later than two Business Days following the date it receives written notice from the Administrative Agent of the adjustment of the Borrowing Base and the resulting Borrowing Base Deficiency; provided that all payments required to be made pursuant to this clause must be made on or prior to the Termination Date. (c) Application to Loans. With respect to each prepayment of Loans elected under Section 5.1 or required by Section 5.2, the Borrower may designate (i) the Types of Loans that are to be prepaid and the specific Borrowing(s) being repaid and (ii) the Loans to be prepaid; provided that (A) each prepayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans, (B) notwithstanding the provisions of the preceding clause (A), no prepayment of Loans shall be applied to the Loans of any Defaulting Lender unless otherwise agreed to in writing by the Borrower and (C) notwithstanding the foregoing (as provided in clause (1) of the proviso to Section 2.17(a)), the Borrower may not prepay Extended Loans of any Extension Series unless such prepayment, to the extent any such Existing Loans are outstanding, is accompanied by a pro rata repayment of Existing Loans of the Specified Existing Commitment Class of the Existing Class from which such Extended Loans and Extended Commitments were converted (or such Loans and Commitments of the Existing Class have otherwise been repaid and terminated in full). In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its reasonable discretion with a view, but no obligation, to minimize breakage costs owing under Section 2.11. (d) LIBOR Interest Periods. In lieu of making any payment pursuant to this Section 5.2 in respect of any LIBOR Loan, other than on the last day of the Interest Period therefor so long as no Event of Default shall have occurred and be continuing, the Borrower at its option may deposit, on behalf of the Borrower, with the Administrative Agent an amount equal to the amount of the LIBOR Loan to be prepaid and such LIBOR Loan shall be repaid on the last day of the Interest Period therefor in the required amount. Such deposit shall be held by the Administrative Agent in a corporate time deposit account established on terms reasonably satisfactory to the Administrative Agent, earning interest at the then customary rate for accounts of such type. The Borrower hereby grants to the Administrative Agent, for the benefit of the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Such deposit shall constitute cash collateral for the LIBOR Loans to be so prepaid; provided that the Borrower may at any time direct that such deposit be applied to make the applicable payment required pursuant to this Section 5.2. (e) Application of Proceeds. The application of proceeds pursuant to this Section 5.2 shall not reduce the aggregate amount of Commitments under the Facility and amounts prepaid may be reborrowed subject to the Available Commitment. 5.3 Method and Place of Payment. (a) Except as otherwise specifically provided herein, allAll payments under this Agreement shall be made by the Borrower without set-off, counterclaim or deduction of any kind,. Unless otherwise specifically provided herein, all such payments shall be made to the Administrative Agent for the ratable account of the Lenders entitled thereto or the Issuing Banks -101- 727670773 12335469

 
or the Swingline Lender entitled thereto, as the case may be, not later than 2:00 p.m. (New York City time), in each case, on the date when due and shall be made in immediately available funds at the Administrative Agent’s Office or at such other office as the Administrative Agent shall specify for such purpose by notice to the Borrower, it being understood that written or facsimile notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower’s account at the Administrative Agent’s Office shall constitute the making of such payment to the extent of such funds held in such account. All repayments or prepayments of any Loans (whether of principal, interest or otherwise) hereunder and all other payments under each Credit Document shall be made in Dollars. The Administrative Agent will thereafter cause to be distributed on the same day (if payment was actually received by the Administrative Agent prior to 2:00 p.m. (New York City time) or, otherwise, on the next Business Day in the sole discretion of the Administrative Agent) like funds relating to the payment of principal or interest or fees ratably to the Lenders or the Issuing Banks, as applicable, entitled thereto. (b) For purposes of computing interest or fees, any payments under this Agreement that are made later than 2:00 p.m. (New York City time) shall be deemed to have been made on the next succeeding Business Day in the sole discretion of the Administrative Agent. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 5.4 Net Payments. (a) Any and all payments made by or on behalf of the Borrower or any Guarantor under this Agreement or any other Credit Document shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes; provided that if the Borrower, any Guarantor, the Administrative Agent or any other applicable withholding agent shall be required by applicable Requirements of Law to deduct or withhold any Taxes from such payments, then (i) the applicable withholding agent shall make such deductions or withholdings as are reasonably determined by the applicable withholding agent to be required by any applicable Requirement of Law, (ii) the applicable withholding agent shall timely pay the full amount deducted or withheld to the relevant Governmental Authority within the time allowed and in accordance with applicable Requirements of Law, and (iii) to the extent withholding or deduction is required to be made on account of Indemnified Taxes or Other Taxes, the sum payable by the Borrower or such Guarantor shall be increased as necessary so that after all required deductions and withholdings have been made (including deductions or withholdings applicable to additional sums payable under this Section 5.4) the Administrative Agent, the Collateral Agent, or the applicable Issuing Bank or Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made. Whenever any Indemnified Taxes or Other Taxes are payable by the Borrower or such Guarantor, as promptly as possible thereafter, the Borrower or Guarantor shall send to the Administrative Agent for its own account or for the account of such Issuing Bank or Lender, as the case may be, a certified copy of an official receipt (or other evidence acceptable to such Issuing Bank or Lender, acting reasonably) received by the Borrower or such Guarantor showing payment thereof. Without duplication, after any payment of Taxes by any Credit Party or the Administrative Agent to a Governmental Authority as provided in this -102- 727670773 12335469

 
Section 5.4, the Borrower shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower, as the case may be, a copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by laws to report such payment or other evidence of such payment reasonably satisfactory to the Borrower or the Administrative Agent, as the case may be. (b) The Borrower shall timely pay and shall indemnify and hold harmless the Administrative Agent, the Collateral Agent and each Lender with regard to any Other Taxes (whether or not such Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority). (c) The Borrower shall indemnify and hold harmless the Administrative Agent, the Collateral Agent and each Lender within 15 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes imposed on the Administrative Agent, the Collateral Agent or such Lender, as the case may be (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 5.4), and any 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 setting forth in reasonable detail the basis and calculation of the amount of such payment or liability delivered to the Borrower by a Lender, the Administrative Agent or the Collateral Agent (as applicable) on its own behalf or on behalf of a Lender shall be conclusive absent manifest error. (d) Each Lender shall deliver to the Borrower and the Administrative Agent, at such time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law and such other reasonably requested information as will permit the Borrower or the Administrative Agent, as the case may be, to determine (A) whether or not any payments made hereunder or under any other Credit Document are subject to Taxes, (B) if applicable, the required rate of withholding or deduction, and (C) such Lender’s entitlement to any available exemption from, or reduction of, applicable Taxes in respect of any payments to be made to such Lender by any Credit Party pursuant to any Credit Document or otherwise to establish such Lender’s status for withholding tax purposes in the applicable jurisdiction. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. (e) Without limiting the generality of Section 5.4(d), each Non-U.S. Lender with respect to any Loan made to the Borrower shall, to the extent it is legally eligible to do so: (i) deliver to the Borrower and the Administrative Agent, prior to the date on which the first payment to the Non-U.S. Lender is due hereunder, two copies of (A) in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, United States Internal Revenue Service Form W-8BEN (or any applicable successor form) (together with a certificate (substantially in the form of -103- 727670773 12335469

 
Exhibit K hereto) representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a “10-percent shareholder” (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower, is not a CFC related to the Borrower (within the meaning of Section 864(d)(4) of the Code) and the interest payments in question are not effectively connected with the conduct by such Lender of a trade or business within the United States), (B) Internal Revenue Service Form W-8BEN or Form W-8ECI (or any applicable successor form), in each case properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. federal withholding tax on payments by the Borrower under this Agreement, (C) Internal Revenue Service Form W-8IMY (or any applicable successor form) and all necessary attachments (including the forms described in clauses (A) and (B) above, provided that if the Non-U.S. Lender is a partnership and not a participating Lender, and one or more of the partners is claiming portfolio interest treatment, the Non-Bank Tax Certificate may be provided by such Non-U.S. Lender on behalf of such partners) or (D) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made; and (ii) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification (or any applicable successor form) on or before the date that any such form or certification expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent. Any Non-U.S. Lender that becomes legally ineligible to update any form or certification previously delivered shall promptly notify the Borrower and the Administrative Agent in writing of such Non-U.S. Lender’s inability to do so. Each Person that shall become a Participant pursuant to Section 13.6 or a Lender pursuant to Section 13.6 shall, upon the effectiveness of the related transfer, be required to provide all the forms and statements required pursuant to this Section 5.4(e); provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Person from which the related participation shall have been purchased. In addition, to the extent it is legally eligible to do so, each Agent shall deliver to the Borrower (x)(I) prior to the date on which the first payment by the Borrower is due hereunder or (II) prior to the first date on or after the date on which such Agent becomes a successor Agent pursuant to Section 12.9 on which payment by the Borrower is due hereunder, as applicable, two copies of a properly completed and executed IRS Form W-9 certifying its exemption from U.S. Federal backup withholding or a properly completed and executed applicable IRS Form W-8 certifying its non-U.S. status and its entitlement to any treaty benefits, and (y) on or before the date on which any such previously delivered documentation expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent documentation previously delivered by it to the Borrower, and from time to time if reasonably requested by the Borrower, two further copies of such documentation. -104- 727670773 12335469

 
(f) If any Lender, any Issuing Bank, the Administrative Agent or the Collateral Agent, as applicable, determines, in its sole discretion, that it had received a refund of an Indemnified Tax or Other Tax for which a payment has been made by the Borrower or any Guarantor pursuant to this Agreement or any other Credit Document, which refund in the good faith judgment of such Lender, such Issuing Bank, the Administrative Agent or the Collateral Agent, as the case may be, is attributable to such payment made by the Borrower or any Guarantor, then the Lender, the Issuing Bank, the Administrative Agent or the Collateral Agent, as the case may be, shall reimburse the Borrower or such Guarantor for such amount (net of all reasonable out-of-pocket expenses of such Lender, such Issuing Bank, the Administrative Agent or the Collateral Agent, as the case may be, and without interest other than any interest received thereon from the relevant Governmental Authority with respect to such refund) as the Lender, the Issuing Bank, Administrative Agent or the Collateral Agent, as the case may be, determines in its sole discretion to be the proportion of the refund as will leave it, after such reimbursement, in no better or worse position (taking into account expenses or any taxes imposed on the refund) than it would have been in if the payment had not been required; provided that the Borrower or such Guarantor, upon the request of the Lender, the Issuing Bank, the Administrative Agent or the Collateral Agent, agrees to repay the amount paid over to the Borrower or such Guarantor (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender, the Issuing Bank, the Administrative Agent or the Collateral Agent in the event the Lender, the Issuing Bank, the Administrative Agent or the Collateral Agent is required to repay such refund to such Governmental Authority. In such event, such Lender, the Issuing Bank, the Administrative Agent or the Collateral Agent, as the case may be, shall, at the Borrower’s request, provide the Borrower with a copy of any notice of assessment or other evidence of the requirement to repay such refund received from the relevant Governmental Authority (provided that such Lender, such Issuing Bank, the Administrative Agent or the Collateral Agent may delete any information therein that it deems confidential). A Lender, an Issuing Bank, the Administrative Agent or the Collateral Agent shall claim any refund that it determines is available to it, unless it concludes in its sole discretion that it would be adversely affected by making such a claim. No Lender nor any Issuing Bank nor the Administrative Agent nor the Collateral Agent shall be obliged to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Credit Party in connection with this clause (f) or any other provision of this Section 5.4. (g) If the Borrower determines that a reasonable basis exists for contesting an Indemnified Tax or Other Tax for which a Credit Party has paid additional amounts or indemnification payments, each Lender or Agent, as the case may be, shall use reasonable efforts to cooperate with the Borrower as the Borrower may reasonably request in challenging such Tax. The Borrower shall indemnify and hold each Lender and Agent harmless against any out-of-pocket expenses incurred by such Person in connection with any request made by the Borrower pursuant to this Section 5.4(g). Nothing in this Section 5.4(g) shall obligate any Lender or Agent to take any action that such Person, in its sole judgment, determines may result in a material detriment to such Person. (h) Each U.S. Lender shall deliver to the Borrower and the Administrative Agent two Internal Revenue Service Forms W-9 (or substitute or successor form), properly completed and duly executed, certifying that such U.S. Lender is exempt from United States federal backup withholding (i) on or prior to the Closing Date (or on or prior to the date it -105- 727670773 12335469

 
becomes a party to this Agreement), (ii) on or before the date that such form expires or becomes obsolete or invalid, (iii) after the occurrence of a change in the U.S. Lender’s circumstances requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and (iv) from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent. Any U.S. Lender that becomes legally ineligible to update any form or certification previously delivered shall promptly notify the Borrower and the Administrative Agent in writing of such U.S. Lender’s inability to do so. (i) If a payment made to any Lender or any Agent under this Agreement or any other Credit Document would be subject to U.S. federal withholding tax imposed by FATCA if such Lender or such Agent were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender or such Agent shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA, to determine whether such Lender has or has not complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this Section 5.4(i), “FATCA” shall include any amendments made to FATCA after the date of this Agreement. For purposes of determining withholding taxes imposed under FATCA, from and after the effective date of the Fifth Amendment, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Credit Agreement as not qualifying as a “grandfathered obligation” within the meaning of Section 1.1471-2(b)(2)(i) of the of the United States Treasury Regulations. (j) For the avoidance of doubt, for purposes of this Section 5.4, the term “Lender” includes any Issuing Bank and any Swingline Lender. (k) The agreements in this Section 5.4 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 5.5 (l) Computations of Interest and Fees. (a) (m) Except as provided in the next succeeding sentence, Interest on LIBOR Loans and ABR Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. Interest on ABR Loans in respect of which the rate of interest is calculated on the basis of the Administrative Agent’s prime ratePrime Rate and interest on overdue interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. (b) (n) Fees and the average daily Stated Amount of Letters of Credit shall be calculated on the basis of a 360-day year for the actual days elapsed. -106- 727670773 12335469

 
5.6 5.5 Limit on Rate of Interest. (a) No Payment Shall Exceed Lawful Rate. Notwithstanding any other term of this Agreement, the Borrower shall not be obligated to pay any interest or other amounts under or in connection with this Agreement or otherwise in respect to any of the Obligations in excess of the amount or rate permitted under or consistent with any applicable law, rule or regulation. (b) Payment at Highest Lawful Rate. If the Borrower is not obliged to make a payment that it would otherwise be required to make, as a result of Section 5.6(a), the Borrower shall make such payment to the maximum extent permitted by or consistent with applicable laws, rules and regulations. (c) Adjustment if Any Payment Exceeds Lawful Rate. If any provision of this Agreement or any of the other Credit Documents would obligate the Borrower or any other Credit Party to make any payment of interest or other amount payable to any Lender in an amount or calculated at a rate that would be prohibited by any applicable Requirement of Law, then notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by applicable Requirements of Law, such adjustment to be effected, to the extent necessary, by reducing the amount or rate of interest required to be paid by the Borrower to the affected Lender under Section 2.8. (d) Rebate of Excess Interest. Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if any Lender shall have received from the Borrower an amount in excess of the maximum permitted by any applicable Requirement of Law, then the Borrower shall be entitled, by notice in writing to the Administrative Agent to obtain reimbursement from that Lender in an amount equal to such excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that Lender to the Borrower. SECTION 6. Conditions Precedent to Initial Borrowing. The initial Borrowing under this Agreement is subject to the satisfaction of the following conditions precedent, except as otherwise agreed or waived pursuant to Section 13.1. (a) The Administrative Agent (or its counsel) 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, on behalf of itself and the Secured Parties on the Closing Date, a written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to the Credit Parties, and (ii) each local counsel specified on Schedule 6(b), in each case (A) dated the Closing Date, (B) addressed to the Administrative Agent, the Collateral Agent, the Lenders and each Issuing Bank and (C) in form and substance reasonably satisfactory to the Administrative Agent. The Borrower, the other Credit Parties and the Administrative Agent hereby instruct such counsels to deliver such legal opinions. -107- 727670773 12335469

 
(c) The Administrative Agent shall have received, in the case of each Credit Party, each of the items referred to in subclauses (i), (ii) and (iii) below: (i) a copy of the certificate or articles of incorporation, certificate of limited partnership or certificate of formation, including all amendments thereto, of each Credit Party, in each case, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization, and a certificate as to the good standing (to the extent such concept or a similar concept exists under the laws of such jurisdiction) of each such Credit Party as of a recent date from such Secretary of State (or other similar official); (ii) a certificate of the Secretary or Assistant Secretary or similar officer of each Credit Party dated the Closing Date and certifying: (A) that attached thereto is a true and complete copy of the bylaws (or partnership agreement, limited liability company agreement or other equivalent governing documents) of such Credit Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or managing general partner, managing member or equivalent) of such Credit Party authorizing the execution, delivery and performance of the Credit Documents to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Closing Date, (C) that the certificate or articles of incorporation, certificate of limited partnership, articles of incorporation or certificate of formation of such Credit Party has not been amended since the date of the last amendment thereto disclosed pursuant to subclause (i) above, (D) as to the incumbency and specimen signature of each officer executing any Credit Document or any other document delivered in connection herewith on behalf of such Credit Party, and (E) as to the absence of any pending proceeding for the dissolution or liquidation of such Credit Party; and a certificate of a director or an officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary or similar officer executing the certificate pursuant to subclause (ii) above. (d) The Guarantee shall be in full force and effect. (e) Except for any items referred to on Schedule 9.13(b): -108- 727670773 12335469

 
(i) All documents and instruments, including Uniform Commercial Code or other applicable personal property and financing statements, reasonably requested by the Collateral Agent to be filed, registered or recorded to create the Liens intended to be created by any Security Document and perfect such Liens to the extent required by, and with the priority required by, such Security Document shall have been delivered to the Collateral Agent for filing, registration or recording and none of the Collateral shall be subject to any other pledges, security interests or mortgages, except for Liens permitted under Section 10.2. (ii) All Equity Interests of the Borrower and all Equity Interests of each Material Subsidiary directly owned by the Borrower or any Subsidiary Guarantor, in each case as of the Closing Date, shall have been pledged pursuant to the Security Agreements (except that such Credit Parties shall not be required to pledge any Excluded Equity Interests) and the Collateral Agent (or, in respect of the Term/Notes Priority Collateral, the collateral agent under the Senior Secured Term Loan Facility) shall have received all certificates, if any, representing such securities pledged under the Security Agreements, accompanied by instruments of transfer and/or undated powers endorsed in blank. (iii) Except with respect to intercompany Indebtedness, all evidences of Indebtedness for borrowed money in a principal amount in excess of $10,000,000 (individually) that is owing to the Borrower or any Subsidiary Guarantor shall be evidenced by a promissory note and shall have been pledged pursuant to the Security Agreements, and the Collateral Agent shall have received all such promissory notes, together with undated instruments of transfer with respect thereto endorsed in blank. (iv) All Indebtedness of the Borrower and each of the Restricted Subsidiaries that is owing to any Credit Party shall be evidenced by the Intercompany Note, which shall be executed and delivered by the Borrower and each of the Restricted Subsidiaries and shall have been pledged pursuant to the Security Agreements, and the Collateral Agent shall have received such Intercompany Note, together with undated instruments of transfer with respect thereto endorsed in blank. (f) The Acquisition shall, substantially concurrently with the initial borrowing under this Agreement, be consummated in all material respects in accordance with the terms of the Purchase and Sale Agreement, without giving effect to any modification, consent or waiver thereto that is materially adverse to the interests of the Lenders without the consent of the Lead Arrangers (not to be unreasonably withheld or delayed). (g) Equity Investments in an aggregate amount not less than the Minimum Equity Amount shall have been made. (h) The Lead Arrangers shall have received (i) true, correct and complete copies of the Historical Financial Statements and (ii) a pro forma balance sheet as of December 31, 2011, and pro forma related statement of income for the last 12 months ended December 31, 2011, in each case prepared after giving effect to the Transactions as if the Transactions had -109- 727670773 12335469

 
occurred as of such dates (in the case of such balance sheet) or at the beginning of such periods (in the case of such other income statement). (i) Substantially concurrently with the initial Borrowing under the Facility, the Debt Repayment shall have been made. (j) On the Closing Date, the Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit J hereto and signed by a Financial Officer of the Borrower. (k) The Agents shall have received all fees payable thereto or to any Lender (including any agent and arranger in respect of this Facility) on or prior to the Closing Date and, to the extent invoiced, all other amounts due and payable pursuant to the Credit Documents on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses (including reasonable fees, charges and disbursements of Cahill Gordon and Reindel LLP and Mayer Brown LLP) required to be reimbursed or paid by the Credit Parties hereunder or under any Credit Document. (l) The Administrative Agent, the other Joint Bookrunners and the Senior Managing Agents shall have received at least three (3) Business Days prior to the Closing Date all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act that has been requested not less than five (5) Business Days prior to the Closing Date. (m) Since December 31, 2010, no change, event, circumstance, development, state of facts, or condition has occurred (or existed, as applicable) that would, individually or in the aggregate, be reasonably expected to have a Company Material Adverse Effect. (n) On the Closing Date, the Acquired Business Representations and the Specified Representations shall be true and correct in all material respects. (o) The Administrative Agent shall have received, in the case of a Borrowing, a Borrowing Request as required by Section 2.3(a)(i) or, in the case of a Letter of Credit Extension, the applicable Issuing Bank and the Administrative Agent shall have received a Letter of Credit Application as required by Section 3.2(a). (p) The Administrative Agent shall have received (i) the Collateral Agreement, executed and delivered by the Borrower and each Subsidiary Guarantor and (ii) the Pledge Agreement, executed and delivered by the Borrower and each Guarantor. SECTION 7. Conditions Precedent to All Subsequent Credit Events. The agreement of each Lender to make any Loan requested to be made by it on any date after the Closing Date (excluding Mandatory Borrowings and Loans required to be made by the Lenders in respect of Unpaid Drawings pursuant to Sections 3.3 and 3.4), and the obligation of any Issuing Bank to issue Letters of Credit on any date (other than any Existing -110- 727670773 12335469

 
Letter of Credit) after the Closing Date, is subject to the satisfaction of the following conditions precedent: (a) At the time of each such Credit Event and also after giving effect thereto, (i) no Default or Event of Default shall have occurred and be continuing and (bii) all representations and warranties made by any Credit Party contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Credit Event (except where such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date). (b) Prior to the making of each Loan (other than any Loan made pursuant to Section 3.4(a)) and each Swingline Loan, the Administrative Agent shall have received a Notice of Borrowing (whether in writing or by telephone) meeting the requirements of Section 2.3(a). (c) Prior to the issuance of each Letter of Credit (other than any Existing Letter of Credit), the Administrative Agent and the applicable Issuing Bank shall have received a Letter of Credit Application meeting the requirements of Section 3.2(a). The acceptance of the benefits of each Credit Event after the Closing Date shall constitute a representation and warranty by each Credit Party to each of the Lenders that all the applicable conditions specified in Section 7 above have been satisfied as of that time. SECTION 8. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement, to make the Loans and issue or participate in Letters of Credit as provided for herein, the Borrower makes, on the date of each Credit Event, the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit: 8.1 Corporate Status. Each of the Borrower and each Material Subsidiary is a duly organized and validly existing corporation or other entity in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of such jurisdiction of organization outside the United States) under the laws of the jurisdiction of its organization and has the corporate or other organizational power and authority to own its property and assets and to transact its business as now conducted and (b) has duly qualified and is authorized to do business and is in good standing (if applicable) in all jurisdictions where it is required to be so qualified, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. 8.2 Corporate Power and Authority; Enforceability. Each Credit Party has the corporate or other organizational power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is a party and has taken all necessary corporate or other organizational action to authorize the execution, delivery and performance of the Credit Documents to which it is a party. Each Credit Party has duly executed and delivered -111- 727670773 12335469

 
each Credit Document to which it is a party and each such Credit Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization and other similar laws relating to or affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding in equity or law). 8.3 No Violation. None of the execution, delivery or performance by any Credit Party of the Credit Documents to which it is a party or the compliance with the terms and provisions thereof will contravene any Requirement of Law except to the extent such contravention would not reasonably be expected to result in a Material Adverse Effect, result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Credit Party or any of the Restricted Subsidiaries (other than Liens created under the Credit Documents and Permitted Liens) pursuant to the terms of any indenture, loan agreement, lease agreement, mortgage, deed of trust, agreement or other instrument to which such Credit Party or any of the Restricted Subsidiaries is a party or by which it or any of its property or assets is bound (any such term, covenant, condition or provision, a “Contractual Requirement”) except to the extent such breach, default or Lien that would not reasonably be expected to result in a Material Adverse Effect or violate any provision of the certificate of incorporation, by-laws or other organizational documents of such Credit Party or any of the Restricted Subsidiaries. 8.4 Litigation. Except as set forth on Schedule 8.4, there are no actions, suits or proceedings (including Environmental Claims) pending or, to the knowledge of the Borrower, threatened with respect to the Borrower or any of its Restricted Subsidiaries that would reasonably be expected to result in a Material Adverse Effect. 8.5 Margin Regulations. Neither the making of any Loan hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, Regulation U or Regulation X of the Board. 8.6 Governmental Approvals. The execution, delivery and performance of each Credit Document do not require any consent or approval of, registration or filing with, or other action by, any Governmental Authority, except for (a) such as have been obtained or made and are in full force and effect, (b) filings and recordings in respect of the Liens created pursuant to the Security Documents and (c) such consents, approvals, registrations, filings or actions the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect. 8.7 Investment Company Act. No Credit Party is required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended. 8.8 True and Complete Disclosure. (a) All written information (other than the Budget, estimates and information of a general economic nature or general industry nature) (the “Information”) concerning -112- 727670773 12335469

 
Holdings, the Borrower, the Subsidiaries, the Transactions and any other transactions contemplated hereby included in the Information Memorandum or otherwise prepared by or on behalf of the foregoing or their representatives and made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby, when taken as a whole, was true and correct in all material respects, as of the date such Information was furnished to the Lenders and as of the Closing Date (with respect to Information provided prior to the Closing Date) and did not, taken as a whole, contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein, taken as a whole, not materially misleading in light of the circumstances under which such statements were made. (b) The Budget and estimates and information of a general economic nature or general industry nature prepared by or on behalf of the Borrower or any of its representatives and that have been made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby have been prepared in good faith based upon assumptions believed by the Borrower to be reasonable as of the date thereof (it being understood that actual results may vary materially from the Budget), as of the date such Budget and estimates were furnished to the Lenders (with respect to any such Budget, estimates or information of a general economic nature or general industry nature provided prior to the Closing Date) and as of the Closing Date. 8.9 Financial Condition; Financial Statements. (a) The Historical Financial Statements present fairly in all material respects the consolidated financial position of the Acquired EP Business and its consolidated Subsidiaries at the date of such information and for the period covered thereby and have been prepared in accordance with GAAP consistently applied except to the extent provided in the notes thereto, if any, subject, in the case of the unaudited financial information, to changes resulting from audit, normal year end audit adjustments and to the absence of footnotes. Since the Closing Date, there has been no Material Adverse Effect. (b) As of the Closing Date, neither the Borrower nor any Restricted Subsidiary has any material Indebtedness (including Disqualified Stock), any material guarantee obligations, contingent liabilities, off balance sheet liabilities, partnership liabilities for taxes or unusual forward or long-term commitments that, in each case, are not reflected or provided for in the Historical Financial Statements, except as would not reasonably be expected to result in a Material Adverse Effect. 8.10 Tax Matters. Except where the failure of which would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect, (a) each of the Borrower and the Subsidiaries has filed all federal income Tax returns and all other Tax returns, domestic and foreign, required to be filed by it (including in its capacity as withholding agent) and has paid all Taxes payable by it that have become due, other than those (i) not yet delinquent or (ii) being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided to the extent required by and in accordance with GAAP (or in the case of a Foreign Subsidiary, the comparable accounting principles in the relevant jurisdiction) and (b) the Borrower and each of the Subsidiaries have provided adequate reserves in accordance with -113- 727670773 12335469

 
GAAP (or in the case of a Foreign Subsidiary, the comparable accounting principles in the relevant jurisdiction) for all Taxes of the Borrower and the Subsidiaries not yet due and payable. 8.11 Compliance with ERISA. (a) Each Plan is in compliance with ERISA, the Code and any applicable Requirement of Law; no Reportable Event has occurred (or is reasonably likely to occur) with respect to any Plan; no Plan is “insolvent” (within the meaning of Section 4245 of ERISA) or in “reorganization” (within the meaning of Section 4245 of ERISA) (or is reasonably likely to be insolvent or in reorganization) or; no Multiemployer Plan is in “endangered” or “critical” status (within the meaning of Section 432 of the Code or Section 305 of ERISA), and no written notice of any such insolvency, reorganization, or endangered or critical status has been given to the Borrower or, to the knowledge of the Borrower, any ERISA Affiliate; each Plan that is subject to Title IV of ERISA has satisfied the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, and there has been no determination that any such Plan is, or is expected to be, in “at risk” status (within the meaning of Section 303(i)(4) of ERISA); none of the Borrower or any ERISA Affiliate has incurred (or is reasonably likely to incur) any liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code nor has the Borrower or, to the knowledge of the Borrower, any ERISA Affiliate, been notified in writing that it will incur any liability under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted (or are reasonably likely to be instituted) to terminate or to reorganize any Plan or to appoint a trustee to administer any Plan, and no written notice of any such proceedings has been given to the Borrower or, to the knowledge of the Borrower, any ERISA Affiliate; and no lien imposed under the Code or ERISA on the assets of the Borrower or any ERISA Affiliate exists (or is reasonably likely to exist) nor has the Borrower or, to the knowledge of the Borrower, any ERISA Affiliate been notified in writing that such a lien will be imposed on the assets of the Borrower or any ERISA Affiliate on account of any Plan, except to the extent that a breach of any of the representations or warranties in this Section 8.11(a) would not result, individually or in the aggregate, in an amount of liability that would be reasonably likely to have a Material Adverse Effect. No Plan (other than a Multiemployer Plan) has an Unfunded Current Liability that would, individually or when taken together with any other liabilities referenced in this Section 8.11(a), be reasonably likely to have a Material Adverse Effect. With respect to Plans that areany Multiemployer Plans, the representations and warranties in this Section 8.11(a), other than any made with respect to (i) liability under Section 4201 or 4204 of ERISA or (ii) liability for “termination” or “reorganization” (within the meaning of Title IV of ERISA) of such Plansplans under ERISA, are made to the best knowledge of the Borrower. (b) All Foreign Plans are in compliance with, and have been established, administered and operated in accordance with, the terms of such Foreign Plans and applicable law, except for any failure to so comply, establish, administer or operate the Foreign Plans as would not reasonably be expected to have a Material Adverse Effect. All contributions or other payments which are due with respect to each Foreign Plan have been made in full and there are no funding deficiencies thereunder, except to the extent any such events would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. -114- 727670773 12335469

 
8.12 Subsidiaries. Schedule 8.12 lists each Subsidiary of the Borrower (and the direct and indirect ownership interest of the Borrower therein), in each case existing on the Closing Date (after giving effect to the Transactions)Eighth Amendment Effective Date. Each Guarantor, Material Subsidiary and Unrestricted Subsidiary as of the ClosingEighth Amendment Effective Date has been so designated on Schedule 8.12. 8.13 Intellectual Property. The Borrower and each of the Restricted Subsidiaries own or have obtained valid rights to use all intellectual property, free from any burdensome restrictions, that is necessary for the operation of their respective businesses as currently conducted and as proposed to be conducted, except where the failure to obtain any such rights would not reasonably be expected to have a Material Adverse Effect. The operation of the respective businesses of the Borrower and each of the Restricted Subsidiaries, as currently conducted and as proposed to be conducted, do not infringe, misappropriate, violate or otherwise conflict with the proprietary rights of any third party have obtained all intellectual property, except as would not reasonably be expected to have a Material Adverse Effect. 8.14 Environmental Laws. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (a) (i) the Borrower and each of the Subsidiaries and all Oil and Gas Properties are in compliance with all Environmental Laws; (ii) neither the Borrower nor any Subsidiary has received written notice of any Environmental Claim or any other liability under any Environmental Law; (iii) neither the Borrower nor any Subsidiary is conducting any investigation, removal, remedial or other corrective action pursuant to any Environmental Law at any location; and (iv) no underground storage tank or related piping, or any impoundment or disposal area containing Hazardous Materials has been used by the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, is located at, on or under any Oil and Gas Properties currently owned or leased by the Borrower or any of its Subsidiaries. (b) Neither the Borrower nor any of the Subsidiaries has treated, stored, transported, released or disposed or arranged for disposal or transport for disposal of Hazardous Materials at, on, under or from any currently or formerly owned or leased Oil and Gas Properties or facility in a manner that would reasonably be expected to give rise to liability of the Borrower or any Subsidiary under Environmental Law. 8.15 Properties. (a) Each Credit Party has good and defensible title to the Borrowing Base Properties evaluated in the most recently delivered Reserve Report (other than those (i) disposed of in compliance with Section 10.4 since delivery of such Reserve Report, (ii) leases that have expired in accordance with their terms and (iii) with title defects disclosed in writing to the Administrative Agent), and valid title to all its material personal properties, in each case, free and clear of all Liens other than Liens permitted by Section 10.2, except in each case where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. After giving full effect to the Liens permitted by Section -115- 727670773 12335469

 
10.2, the Borrower or the Restricted Subsidiary specified as the owner owns the working interests and net revenue interests attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such properties shall not in any material respect obligate the Borrower or such Restricted Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such property in an amount in excess of the working interest of each property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower’s or such Restricted Subsidiary’s net revenue interest in such property. (b) All material leases and agreements necessary for the conduct of the business of the Borrower and the Restricted Subsidiaries are valid and subsisting, in full force and effect, except to the extent that any such failure to be valid or subsisting would not reasonably be expected to have a Material Adverse Effect. (c) The rights and properties presently owned, leased or licensed by the Credit Parties including all easements and rights of way, include all rights and properties necessary to permit the Credit Parties to conduct their respective businesses as currently conducted, except to the extent any failure to have any such rights or properties would not reasonably be expected to have a Material Adverse Effect. (d) All of the properties of the Borrower and the Restricted Subsidiaries that are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards, except to the extent any failure to satisfy the foregoing would reasonably be expected to have a Material Adverse Effect. 8.16 Solvency. On the Closing Date (after giving effect to the consummation of the Transactions (including the execution and delivery of this Agreement, the making of the Closing Date Loans and the use of proceeds of such Closing Date Loans on the Closing Date)), (i) the Borrower on a consolidated basis with its Restricted Subsidiaries will be Solvent and (ii) the Borrower does not intend to, and the Borrower does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it or any such Subsidiary and the timing and amounts of cash to be payable on or in respect of its debt or the debt of any such Subsidiary. 8.17 Insurance. The properties of the Borrower and the Restricted Subsidiaries are insured in the manner contemplated by Section 9.3. 8.18 Gas Imbalances, Prepayments. On the ClosingEighth Amendment Effective Date, except as set forth on Schedule 8.18, on a net basis, there are no gas imbalances, take or pay or other prepayments exceeding 2.5 Bcfe of Hydrocarbon volumes (stated on a gas equivalent basis) in the aggregate, with respect to the Credit Parties’ Oil and Gas Properties that would require any Credit Party to deliver Hydrocarbons either generally or produced from their Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor. -116- 727670773 12335469

 
8.19 Marketing of Production. On the ClosingEighth Amendment Effective Date, except as set forth on Schedule 8.19, no material agreements exist (which are not cancelable on 60 days’ notice or less without penalty or detriment) for the sale of production of the Credit Parties’ Hydrocarbons at a fixed non-index price (including calls on, or other rights to purchase, production, whether or not the same are currently being exercised) that (i) represent in respect of such agreements 2.5% or more of the Borrower’s average monthly production of Hydrocarbon volumes and (ii) have a maturity or expiry date of longer than six months from the ClosingEighth Amendment Effective Date. 8.20 Hedge AgreementsTransactions. Schedule 8.20 sets forth, as of the ClosingEighth Amendment Effective Date, a true and complete list of all material commodity Hedge Agreements of each Credit Party, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof (as of the last Business Day of the most recent fiscal quarter preceding the ClosingEighth Amendment Effective Date and for which a mark to market value is reasonably available), all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. 8.21 Patriot Act; OFACSanctions. (a) On the ClosingEighth Amendment Effective Date, each Credit Party is in compliance in all material respects with the material provisions of the Patriot Act, and the Borrower has provided to the Administrative Agent all information related to the Credit Parties (including but not limited to names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Administrative Agent and mutually agreed to be required by the Patriot Act to be obtained by the Administrative Agent or any Lender. (b) The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and directors and to the knowledge of the Borrower its employees and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower or such Subsidiary any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will violate any Anti-Corruption Law or applicable Sanctions. 8.22 No Material Adverse Effect. After the Closing Date, there has been no event or circumstance that has had or would reasonably be expected to have a Material Adverse Effect. 8.23 Foreign Corrupt Practices Act. None of the Borrower or any of the Restricted Subsidiaries, nor, to the knowledge of the Borrower or any of the Restricted -117- 727670773 12335469

 
Subsidiaries, or any of their directors, officers, agents or employees has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any government official or employee from corporate funds, (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977 or the Bribery Act 2010 of the United Kingdom or similar law of the European Union or any European Union Member State or similar law of a jurisdiction in which the Borrower or any of the Restricted Subsidiaries conduct their business and to which they are lawfully subject or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. 8.24 Deposit Accounts; Securities Accounts; Commodities Accounts. Schedule 8.24 sets forth, as of the Eighth Amendment Effective Date, a true and complete list of all deposit accounts, securities accounts and commodities accounts of any Credit Party (including any Excluded Accounts on the Eighth Amendment Effective Date, which have been identified as such on Schedule 8.24). 8.25 Prohibited Transactions. To the best knowledge of the Borrower, neither the execution, delivery or performance of the transactions contemplated under this Agreement, including the making of any Loan and the issuance of any Letter of Credit hereunder, will give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. SECTION 9. Affirmative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the Total Commitment and each Letter of Credit have terminated (unless such Letters of Credit have been collateralized on terms and conditions reasonably satisfactory to each applicable Issuing Bank following the termination of the Total Commitment) and the Loans, the Swingline Loans and Unpaid Drawings, together with interest, fees and all other Obligations incurred hereunder (other than Hedging Obligations under Secured Hedge AgreementsTransactions, Cash Management Obligations under Secured Cash Management Agreements or contingent indemnification obligations not then due and payable), are paid in full: 9.1 Information Covenants. The Borrower will furnish (or in the case of Section 9.1(k), use commercially reasonable efforts to prepare and furnish) to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice): (a) Annual Financial Statements. Within five days after the date on which such financial statements are required to be filed with the SEC (after giving effect to any permitted extensions) (or, if such financial statements are not required to be filed with the SEC, on or before the date that is 105 days after the end of each such fiscal year (120 days in the case of the fiscal year ending December 31, 2012)), the audited consolidated balance sheets of the Borrower and the Subsidiaries and, if different, the Borrower and the Restricted Subsidiaries, in each case as at the end of such fiscal year, and the related consolidated statements of operations, shareholders’ equity and cash flows for such fiscal year, setting forth comparative consolidated figures for the preceding fiscal years (or, in -118- 727670773 12335469

 
lieu of such audited financial statements of the Borrower and the Restricted Subsidiaries, a detailed reconciliation, reflecting such financial information for the Borrower and the Restricted Subsidiaries, on the one hand, and the Borrower and the Subsidiaries, on the other hand, reflecting adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements) prepared in accordance with GAAP, and, except with respect to such reconciliation, certified by independent certified public accountants of recognized national standing whose opinion shall not be materially qualified with a “going concern” or like qualification or exception (other than with respect to, or resulting from, (x) the occurrence of the Maturity Date within one year from the date such opinion is delivered or (y) any potential inability to satisfy the Financial Performance Covenant on a future date or in a future period), together in any event, if the accounting firm is not restricted from providing such a certificate by its policies, with a certificate of such accounting firm stating that in the course of either (i) its regular audit of the business of the Borrower and its consolidated Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards or (ii) performing certain other procedures permitted by professional standards, such accounting firm has obtained no knowledge of any Event of Default relating to the Financial Performance Covenant that has occurred and is continuing or, if in the opinion of such accounting firm such an Event of Default has occurred and is continuing, a statement as to the nature thereof. Notwithstanding the foregoing, the obligations in this Section 9.1(a) may be satisfied with respect to financial information of the Borrower and its consolidated Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent of the Borrower or (B) the Borrower’s (or any direct or indirect parent thereof), as applicable, Form 10-K filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to a Parent Entity of the Borrower, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Parent Entity and its consolidated Subsidiaries, on the one hand, and the information relating to the Borrower and its consolidated Subsidiaries and the Borrower and its consolidated Restricted Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under the first sentence of this Section 9.1(a), such materials are accompanied by an opinion of an independent registered public accounting firm of recognized national standing, which opinion shall not be materially qualified with a “going concern” or like qualification or exception (other than with respect to, or resulting from, (x) the occurrence of the Maturity Date within one year from the date such opinion is delivered or (y) any potential inability to satisfy the Financial Performance Covenant on a future date or in a future period). (b) Quarterly Financial Statements. Within five days after the date on which such financial statements are required to be filed with the SEC (after giving effect to any permitted extensions) with respect to each of the first three quarterly accounting periods in each fiscal year of the Borrower (or, if such financial statements are not required to be filed with the SEC, on or before the date that is 60 days after the end of each such quarterly accounting period (or, in the case of any fiscal quarter ending after the Closing Date and prior to December 31, 2012, 75 days)), the consolidated balance sheets of the Borrower and the Subsidiaries and, if different, the Borrower and the Restricted Subsidiaries, in each case as at the end of such quarterly period and the related -119- 727670773 12335469

 
consolidated statements of operations, shareholders’ equity and cash flows for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and setting forth comparative consolidated figures for the related periods in the prior fiscal year or, in the case of such consolidated balance sheet, for the last day of the prior fiscal year (or, in lieu of such unaudited financial statements of the Borrower and the Restricted Subsidiaries, a detailed reconciliation reflecting such financial information for the Borrower and the Restricted Subsidiaries, on the one hand, and the Borrower and the Subsidiaries, on the other hand, reflecting adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements), all of which shall be certified by a Financial Officer of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows, of the Borrower and its consolidated Subsidiaries in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments and the absence of footnotes. Notwithstanding the foregoing, the obligations in this Section 9.1(b) may be satisfied with respect to financial information of the Borrower and its consolidated Subsidiaries by furnishing (A) the applicable financial statements of any direct or indirect parent of the Borrower or (B) the Borrower’s (or any direct or indirect parent thereof), as applicable, Form 10-Q filed with the SEC; provided that, with respect to each of clauses (A) and (B), to the extent such information relates to a parent of the Borrower, such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such parent and its consolidated Subsidiaries, on the one hand, and the information relating to the Borrower and its consolidated Subsidiaries and the Borrower and its consolidated Restricted Subsidiaries on a standalone basis, on the other. (c) Officer’s Certificates. At the time of the delivery of the financial statements provided for in Section 9.1(a) and Section 9.1(b), a certificate of a Financial Officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate shall set forth (i) beginning with the fiscal quarter ending September 30, 2012, the calculations required to establish whether the Borrower and its Restricted Subsidiaries were in compliance with the Financial Performance Covenant as at the end of such fiscal year or period, as the case may be, and (ii) a specification of any change in the identity of the Restricted Subsidiaries, Guarantors and Unrestricted Subsidiaries as at the end of such fiscal year or period, as the case may be, from the Restricted Subsidiaries, Guarantors and Unrestricted Subsidiaries, respectively, provided to the Lenders on the Closing Date or the most recent fiscal year or period, as the case may be. (d) Notice of Default; Litigation. Promptly after an Authorized Officer of the Borrower or any of the Restricted Subsidiaries obtains actual knowledge thereof, notice of (i) the occurrence of any Default or Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and (ii) any litigation or governmental proceeding pending against the Borrower or any of the Subsidiaries that would reasonably be expected to be determined adversely and, if so determined, to result in a Material Adverse Effect. -120- 727670773 12335469

 
(e) Environmental Matters. Promptly after obtaining actual knowledge of any one or more of the following environmental matters, unless such environmental matters would not, individually, or when aggregated with all other such matters, be reasonably expected to result in a Material Adverse Effect, notice of: (i) any pending or threatened Environmental Claim against any Credit Party or any Oil and Gas Properties; (ii) any condition or occurrence on any Oil and Gas Properties that (A) would reasonably be expected to result in noncompliance by any Credit Party with any applicable Environmental Law or (B) would reasonably be anticipated to form the basis of an Environmental Claim against any Credit Party or any Oil and Gas Properties; (iii) any condition or occurrence on any Oil and Gas Properties that would reasonably be anticipated to cause such Oil and Gas Properties to be subject to any restrictions on the ownership, occupancy, use or transferability of such Oil and Gas Properties under any Environmental Law; and (iv) the conduct of any investigation, or any removal, remedial or other corrective action in response to the actual or alleged presence, release or threatened release of any Hazardous Material on, at, under or from any Oil and Gas Properties. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the response thereto. (f) Other Information. (i) Promptly upon filing thereof, copies of any filings (including on Form 10-K, 10-Q or 8-K) or registration statements with, and reports to, the SEC or any analogous Governmental Authority in any relevant jurisdiction by the Borrower or any of the Subsidiaries (other than amendments to any registration statement (to the extent such registration statement, in the form it becomes effective, is delivered to the Administrative Agent), exhibits to any registration statement and, if applicable, any registration statements on Form S-8), (ii) copies of all financial statements, proxy statements, notices and reports that the Borrower or any of the Subsidiaries shall send to the holders of any publicly issued debt of the Borrower and/or any of the Subsidiaries, in each case in their capacity as such holders, lenders or agents (in each case to the extent not theretofore delivered to the Administrative Agent pursuant to this Agreement) and, (iii) with reasonable promptness, but subject to the limitations set forth in the last sentences of Section 9.2(a) and Section 13.6, such other information regarding the operations, business affairs and the financial condition of the Borrower or the Restricted Subsidiaries as the Administrative Agent on its own behalf or on behalf of any Lender (acting through the Administrative Agent) may reasonably request in writing from time to time. (g) Certificate of Authorized Officer – Hedge AgreementsTransactions. Concurrently with any delivery of each Reserve Report, a certificate of an Authorized Officer of the Borrower, setting forth as of the last Business Day of the most recently ended fiscal year or period, as applicable, a true and complete list of all material -121- 727670773 12335469

 
commodity Hedge AgreementsTransactions of the Borrower and each Credit Party, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark-to-market value thereof (as of the last Business Day of such fiscal year or period, as applicable and for which a mark-to-market value is reasonably available), any new credit support agreements relating thereto not listed on Schedule 8.20 or on any previously delivered certificate delivered pursuant to this clause (g), any margin required or supplied under any credit support document and the counterparty to each such agreement. (h) Certificate of Authorized Officer – Gas Imbalances. Concurrently with any delivery of each Reserve Report, a certificate of an Authorized Officer of the Borrower, certifying that as of the last Business Day of the most recently ended fiscal year or period, as applicable, except as specified in such certificate, on a net basis, there are no gas imbalances, take or pay or other prepayments exceeding 2.5 Befe of Hydrocarbon volumes (stated on a gas equivalent basis) in the aggregate, with respect to the Credit Parties’ Oil and Gas Properties that would require any Credit Party to deliver Hydrocarbons either generally or produced from their Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor. (i) Certificate of Authorized Officer – Production Report and Lease Operating Statement. Concurrently with any delivery of each Reserve Report in connection with a Scheduled Redetermination, a certificate of an Authorized Officer of the Borrower, setting forth, for each calendar month during the then current fiscal year to date, the volume of production of Hydrocarbons and sales attributable to production of Hydrocarbons (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Borrowing Base Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto for each such calendar month. (j) Lists of Purchasers. At the time of the delivery of the financial statements provided for in Section 9.1(a), a certificate of an Authorized Officer of the Borrower setting forth a list of Persons purchasing Hydrocarbons from the Borrower or any other Credit Party who collectively account for at least 85% of the revenues resulting from the sale of all Hydrocarbons from the Borrower and such other Credit Parties during the fiscal year for which such financial statements relate. (k) Budget. Within 105 days after the end of each fiscal year (beginning with (and 120 days in the case of) the fiscal year ending on or about December 31, 2012) of the Borrower or, if not delivered by the Borrower and requested in writing by the Administrative Agent and any Lender, as soon thereafter as is commercially reasonable, a reasonably detailed consolidated budget for the following fiscal year as customarily prepared by management of the Borrower (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, the related consolidated statements of projected cash flow and projected income and a summary of the material underlying assumptions applicable thereto) (collectively, the “Budget”), which Budget shall in each case be accompanied by a certificate of an Authorized Officer stating that such Budget has been prepared in good faith on the basis -122- 727670773 12335469

 
of the assumptions stated therein, which assumptions were believed to be reasonable at the time of preparation of such Budget, it being understood that actual results may vary from such Budget. (l) Certificate of Authorized Officer – Marketing Agreements. Concurrently with any delivery of each Reserve Report, a certificate of an Authorized Officer of the Borrower, setting forth as of the last Business Day of the most recently ended fiscal year or period, as applicable, a true and complete list of all material marketing agreements (which are not cancellable on 60 days’ notice or less without penalty or detriment) for the sale of production of the Credit Parties’ Hydrocarbons at a fixed non-index price (including calls on, or other parties rights to purchase, production, whether or not the same are currently being exercised) that (i) represent in respect of such agreements 2.5% or more of the Borrower’s average monthly production of Hydrocarbon volumes and (ii) have a maturity or expiry date of longer than six months from the last day of such fiscal year or period, as applicable. It is understood that (A) in the event that in respect of the Senior Unsecured Notes, the Senior Secured Notes or any Permitted Refinancing Indebtedness with respect thereto, the rules and regulations of the SEC permit the Borrower, Holdings or any Parent Entity to report at Holdings’ or such Parent Entity’s level on a consolidated basis, such consolidated reporting at Holdings’ or such Parent Entity’s level in a manner consistent with that described in clauses (a) and (b) of this Section 9.1 for the Borrower (together with a reconciliation showing the adjustments necessary to determine compliance by the Borrower and its Restricted Subsidiaries with theeach Financial Performance Covenant) will satisfy the requirements of Section 9.1(a) or Section 9.1(b), as applicable, and (B) documents required to be delivered pursuant to Sections 9.1(a), Section 9.1(b) and Section 9.1(f) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 13.2 or (ii) on which such documents are transmitted by electronic mail to the Administrative Agent; provided that: (i) upon written request by the Administrative Agent, the Borrower shall deliver paper copies of such documents delivered pursuant to Sections 9.1(a), 9.1(b), 9.1(c) and 9.1(f) to the Administrative Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Administrative Agent of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Each Lender shall be solely responsible for timely accessing posted documents or requesting delivery of paper copies of such documents from the Administrative Agent and maintaining its copies of such documents. 9.2 Books, Records and Inspections. (a) The Borrower will, and will cause each Restricted Subsidiary to, permit officers and designated representatives of the Administrative Agent or officers and designated representatives of the Majority Lenders (as accompanied by the Administrative Agent), to visit and inspect any of the properties or assets of the Borrower or such Restricted Subsidiary in whomsoever’s possession to the extent that it is within such party’s control to permit such inspection (and shall use commercially reasonable efforts to cause such inspection to be -123- 727670773 12335469

 
permitted to the extent that it is not within such party’s control to permit such inspection), and to examine the financial records of the Borrower and any such Restricted Subsidiary and discuss the affairs, finances, accounts and condition of the Borrower or any such Restricted Subsidiary with its and their officers and independent accountants therefor, in each case of the foregoing upon reasonable advance notice to the Borrower, all at such reasonable times and intervals during normal business hours and to such reasonable extent as the Administrative Agent or the Majority Lenders may desire (and subject, in the case of any such meetings or advice from such independent accountants, to such accountants’ customary policies and procedures); provided that, excluding any such visits and inspections during the continuation of an Event of Default (i) only the Administrative Agent on behalf of the Majority Lenders may exercise rights of the Administrative Agent and the Lenders under this Section 9.2, and (ii) only one such visit per fiscal year shall be at the Borrower’s expense; provided, further, that when an Event of Default exists, the Administrative Agent (or any of its representatives or independent contractors) or any representative of the Majority Lenders may do any of the foregoing at the expense of the Borrower at any time during normal business hours and upon reasonable advance notice. The Administrative Agent and the Majority Lenders shall give the Borrower the opportunity to participate in any discussions with the Borrower’s independent public accountants. Notwithstanding anything to the contrary in Section 9.1(f)(iii) or this Section 9.2, neither the Borrower nor any Restricted Subsidiary will be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter (i) that constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives or contractors) is prohibited by any Requirement of Law or any binding agreement or (iii) that is subject to attorney-client or similar privilege or constitutes attorney work product. (b) The Borrower will, and will cause each of the Restricted Subsidiaries to, maintain financial records in accordance with GAAP. 9.3 Maintenance of Insurance. The Borrower will, and will cause each Restricted Subsidiary to, at all times maintain in full force and effect, pursuant to self-insurance arrangements or with insurance companies that the Borrower believes (in the good faith judgment of the management of the Borrower) are financially sound and reputable at the time the relevant coverage is placed or renewed, insurance in at least such amounts (after giving effect to any self-insurance which the Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and prudent in light of the size and nature of its business) and against at least such risks (and with such risk retentions) as the Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and prudent in light of the size and nature of its business; and will furnish to the Administrative Agent, upon written request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Secured Parties shall be the additional insureds on any such liability insurance as their interests may appear and, if property insurance is obtained, the Collateral Agent shall be the loss payee under any such property insurance; provided that, so long as no Event of Default has occurred and is then continuing, the Secured Parties will provide any proceeds of such property insurance to the Borrower to the extent that the Borrower undertakes to apply such proceeds to the reconstruction, replacement or repair of the property insured thereby. The Borrower shall deliver to the Administrative Agent within 45 Business Days following the Closing Date (or such -124- 727670773 12335469

 
later date as the Administrative Agent may reasonably agree), copies of insurance certificates evidencing the insurance required to be maintained by the Borrower and the Subsidiaries pursuant to this Section 9.3. 9.4 Payment of Taxes. The Borrower shall, and shall cause each Restricted Subsidiary to, pay its obligations in respect of all Tax liabilities, assessments and governmental charges, before the same shall become delinquent or in default, except where (i) the amount or validity thereof is being contested in good faith by appropriate proceedings and the Borrower or a Subsidiary thereof has set aside on its books adequate reserves therefor in accordance with GAAP or (ii) the failure to make payment could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. 9.5 Consolidated Corporate Franchises. The Borrower will do, and will cause each Restricted Subsidiary to do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence, corporate rights and authority, except to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect; provided, however, that the Borrower and its Restricted Subsidiaries may consummate any transaction permitted under Section 10.3, 10.4 or 10.5. 9.6 Compliance with Statutes, Regulations, Etc. The Borrower will, and will cause each Restricted Subsidiary to, comply with all Requirements of Law applicable to it or its property, including all governmental approvals or authorizations required to conduct its business, and to maintain all such governmental approvals or authorizations in full force and effect, in each case except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions. 9.7 ERISA. (a) Promptly after the Borrower knows or has reason to know of the occurrence of any of the following events that, individually or in the aggregate (including in the aggregate such events previously disclosed or exempt from disclosure hereunder, to the extent the liability therefor remains outstanding), would be reasonably likely to have a Material Adverse Effect, the Borrower will deliver to the Administrative Agent a certificate of an Authorized Officer or any other senior officer of the Borrower setting forth details as to such occurrence and the action, if any, that the Borrower or such ERISA Affiliate is required or proposes to take, together with any notices (required, proposed or otherwise) given to or filed with or by the Borrower, such ERISA Affiliate, the PBGC, a Plan participant (other than notices relating to an individual participant’s benefits) or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency has been incurred or an application is to be made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; that a Plan having an Unfunded Current Liability has been or is to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA (including the giving of written notice thereof); that a Plan has an Unfunded Current Liability that has or will result in a lien under ERISA or the Code; that -125- 727670773 12335469

 
proceedings will be or have been instituted to terminate a Plan having an Unfunded Current Liability (including the giving of written notice thereof); that a proceeding has been instituted against the Borrower or an ERISA Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the PBGC has notified the Borrower or any ERISA Affiliate of its intention to appoint a trustee to administer any Plan; that the Borrower or any ERISA Affiliate has failed to make a required installment or other payment pursuant to Section 412 of the Code with respect to a Plan; or that the Borrower or any ERISA Affiliate has incurred or will incur (or has been notified in writing that it will incur) any liability (including any contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code. (b) Promptly following any request therefor, on and after the effectiveness of the Pension Act, the Borrower will deliver to the Administrative Agent copies of (i) any documents described in Section 101(k) of ERISA that the Borrower and any of its Subsidiaries may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l) of ERISA that the Borrower and any of its Subsidiaries may request with respect to any Multiemployer Plan; provided that if the Borrower or any of its Subsidiaries has not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan, the Borrower or the applicable Subsidiaries shall promptly make a request for such documents or notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof. 9.8 Maintenance of Properties. The Borrower will, and will cause each of the Restricted Subsidiaries to, except in each case, where the failure to so comply would not reasonably be expected to result in a Material Adverse Effect (it being understood that this Section 9.8 shall not restrict any transaction otherwise permitted by Section 10.3, 10.4 or 10.5): (a) operate its Oil and Gas Properties and other material properties or cause such Oil and Gas Properties and other material properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable Contractual Requirements and all applicable Requirements of Law, including applicable proration requirements and Environmental Laws, and all applicable Requirements of Law of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom; (b) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas Properties and other material properties, including all equipment, machinery and facilities; and (c) to the extent a Credit Party is not the operator of any property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 9.8. -126- 727670773 12335469

 
9.9 Transactions with Affiliates. The Borrower will conduct, and cause each of the Restricted Subsidiaries to conduct, all transactions involving aggregate payments or consideration in excess of $20,000,000 with any of its Affiliates (other than the Borrower and the Restricted Subsidiaries or any entity that becomes a Restricted Subsidiary as a result of such transaction) on terms that are substantially as favorable to the Borrower or such Restricted Subsidiary as it would obtain at the time in a comparable arm’s-length transaction with a Person that is not an Affiliate, as determined by the board of directors or managers of the Borrower or such Restricted Subsidiary in good faith; provided that the foregoing restrictions shall not apply to: (a) the consummation of the Transactions, including the payment of Transaction Expenses; (b) the issuance of Equity Interests of the Borrower (or any Parent Entity thereof) to the Co-Investors or the management of the Borrower (or any Parent Entity thereof) or any of its Subsidiaries; (c) equity issuances, repurchases, retirements, redemptions or other acquisitions or retirements of Equity Interests by the Borrower (or any Parent Entity thereof) permitted under Section 10.6; (d) the payment of indemnities and reasonable expenses incurred by the Co-Investors and their Affiliates in connection with management or monitoring or the provision of other services rendered to the Borrower (or any parent entity thereof) or any of its Subsidiaries; (e) loans, advances and other transactions between or among the Borrower, any Subsidiary or any joint venture (regardless of the form of legal entity) in which the Borrower or any Subsidiary has invested (and which Subsidiary or joint venture would not be an Affiliate of the Borrower or such Subsidiary, but for the Borrower’s or such Subsidiary’s ownership of Equity Interests in such joint venture or such Subsidiary) to the extent permitted under Section 10; (f) employment and severance arrangements and health, disability and similar insurance or benefit plans between the Borrower (or any direct or indirect parent thereof) and the Subsidiaries and their respective directors, officers, employees or consultants (including management and employee benefit plans or agreements, subscription agreements or similar agreements pertaining to the repurchase of Equity Interests pursuant to put/call rights or similar rights with current or former employees, officers, directors or consultants and equity option or incentive plans and other compensation arrangements) in the ordinary course of business or as otherwise approved by the board of directors or managers of the Borrower (or any direct or indirect parent thereof); (g) any one or more agreements in respect of payments of monitoring, consulting, management, transaction, advisory or similar fees to the Co-Investors that are approved by the majority of the members of the board of directors or managers of the Borrower (or any direct or indirect parent thereof), in good faith, and payments pursuant -127- 727670773 12335469

 
thereto which shall consist of (i) payments of management fees not to exceed $25,000,000 in the aggregate in any fiscal year plus reimbursements of reasonable out-of-pocket costs and expenses in connection therewith, (ii) any deferred management fees (to the extent such fees were within such amount described in the foregoing subclause (i) originally); (iii) 1.0% of the value of transactions with respect to which the Sponsors and/or any other Co-Investor provides any transaction, advisory or other services to the Borrower or any Restricted Subsidiary and (iv) so long as, after giving effect thereto on a Pro Forma Basis, no Event of Default under Section 11.1 or Borrowing Base Deficiency shall have occurred and be continuing, in the event of a Qualifying IPO, the present value of all future amounts payable pursuant to any agreement referred to in subclause (i) above in connection with the termination of any such agreement with the Co-Investors; provided that, if any such payment pursuant to this subclause (iv) is not permitted to be paid as a result of an Event of Default or a Borrowing Base Deficiency, such payment shall accrue and may be payable when no Event of Default under Section 11.1 or Borrowing Base Deficiency, as the case may be, is continuing; (h) transactions pursuant to agreements in existence on the Closing Date and to the extent involving aggregate consideration in excess of $1,000,000 individually, set forth on Schedule 9.9 or any amendment thereto or arrangement similar thereto to the extent such an amendment or arrangement is not adverse, taken as a whole, to the Lenders in any material respect (as determined by the Borrower in good faith); (i) Restricted Payments, redemptions, repurchases and other actions permitted under Section 10.6, and Section 10.7; (j) without duplicating any payments made pursuant to Section 9.9(g) above, customary payments (including reimbursement of fees and expenses) by the Borrower and any of its Restricted Subsidiaries to the Co-Investors made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities (including in connection with acquisitions or divestitures, whether or not consummated), which payments are approved by the majority of the members of the board of directors or managers or a majority of the disinterested members of the board of directors or managers of the Borrower (or any direct or indirect parent thereof), in good faith; (k) any issuance of Equity Interests or other payments, awards or grants in cash, securities, Equity Interests or otherwise pursuant to, or the funding of, employment arrangements, equity options and equity ownership plans approved by the board of directors or board of managers of the Borrower (or any direct or indirect parent thereof); (l) transactions with joint ventures for the purchase or sale of goods, equipment and services entered into in the ordinary course of business and in a manner consistent with prudent business practice followed by companies in the industry of the Borrower and its Subsidiaries; (m) sales or conveyances of net profits interests for cash at Fair Market Value allowed under Section 10.4, -128- 727670773 12335469

 
(n) the issuance, sale or transfer of Equity Interests of the Borrower to Holdings (or another Parent Entity) in connection with capital contributions by Holdings or such other Parent Entity to the Borrower; (o) any transaction in respect of which the Borrower delivers to the Administrative Agent a letter addressed to the board of directors or managers of the Borrower from an accounting, appraisal or investment banking firm, in each case of nationally-recognized standing that is in the good faith determination of the Borrower qualified to render such letter, which letter states that such transaction is (i) fair, from a financial point of view, to the Borrower or such Restricted Subsidiary or (ii) on terms, taken as a whole, that are no less favorable to the Borrower or such Restricted Subsidiary, as applicable, than would be obtained in a comparable arm’s length transaction with a person that is not an Affiliate; (p) transactions undertaken in good faith (as certified by a responsible financial or accounting officer of the Borrower) for the purpose of improving the consolidated tax efficiency of the Borrower, Holdings and the Subsidiaries and not for the purpose of circumventing any covenant set forth in this Agreement; and (q) customary agreements and arrangements with oil and gas royalty trusts and master limited partnership agreements that comply with the affiliate transaction provisions of such royalty trust or master limited partnership agreement. 9.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting purposes, cause each of its, and each of its Restricted Subsidiaries’, fiscal years and fiscal quarters to end on dates consistent with past practice; provided, however, that the Borrower may, upon written notice to the Administrative Agent change the financial reporting convention specified above to any other financial reporting convention reasonably acceptable to the Administrative Agent, in which case the Borrower and the Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary in order to reflect such change in financial reporting. 9.11 Additional Guarantors, Grantors and Collateral. (a) Subject to any applicable limitations set forth in the Guarantee or the Security Documents, the Borrower will cause (i) any direct or indirect Domestic Subsidiary (other than any Excluded Subsidiary) formed or otherwise purchased or acquired after the Closing Date (including pursuant to a Permitted Acquisition) and (ii) any Domestic Subsidiary of the Borrower that ceases to be an Excluded Subsidiary, in each case within 30 days from the date of such formation, acquisition or cessation, as applicable (or such longer period as the Administrative Agent may agree in its reasonable discretion) to execute (A) a supplement to the Guarantee, substantially in the form of Exhibit I thereto, in order to become a Guarantor, (B) a supplement to the Collateral Agreement, substantially in the form of Exhibit I thereto, in order to become a grantor and a pledgerpledgor thereunder, (C) a supplement to the Pledge Agreement, substantially in the form of Exhibit I thereto, in order to become a pledgerpledgor thereunder and (D) a joinder to the Intercompany Note. -129- 727670773 12335469

 
(b) Subject to any applicable limitations set forth in the Security Agreements, the Borrower will pledge, and, if applicable, will cause each other Subsidiary Guarantor (or Person required to become a Subsidiary Guarantor pursuant to Section 9.11(a)) to pledge, to the Collateral Agent, for the benefit of the Secured Parties, (i) all of the Equity Interests (other than any Excluded Equity Interests) of each Subsidiary directly owned by the Borrower or any Subsidiary Guarantor (or Person required to become a Guarantor pursuant to Section 9.11(a)), in each case, formed or otherwise purchased or acquired after the Closing Date, pursuant to supplements to the applicable Security Agreements substantially in the form of Exhibit I, thereto and, (ii) except with respect to intercompany Indebtedness, all evidences of Indebtedness for borrowed money in a principal amount in excess of $10,000,000 (individually) that is owing to the Borrower or any Guarantor (or Person required to become a Guarantor pursuant to Section 9.11(a)) (which shall be evidenced by a promissory note), in each case pursuant to supplements to the applicable Security Agreements substantially in the form of Exhibit I thereto. (c) The Borrower agrees that all Indebtedness of the Borrower and each of its Restricted Subsidiaries that is owing to any Credit Party (or a Person required to become a Subsidiary Guarantor pursuant to Section 9.11(a)) shall be evidenced by the Intercompany Note, which promissory note shall be required to be pledged to the Collateral Agent, for the benefit of the Secured Parties, pursuant to the Security Agreements. (d) In connection with each redetermination (but not any adjustment) of the Borrowing Base, the Borrower shall review the applicable Reserve Report, if any, and the list of current Mortgaged Properties (as described in Section 9.14(c)), to ascertain whether the PV-10 of the Mortgaged Properties (calculated at the time of redetermination) meets the Collateral Coverage Minimum after giving effect to exploration and production activities, acquisitions, Dispositions and production. In the event that the PV-10 of the Mortgaged Properties (calculated at the time of redetermination) does not meet the Collateral Coverage Minimum, then the Borrower shall, and shall cause its Credit Parties to, grant, within 75 days of delivery of the certificate required under Section 9.14(c) (or such longer period as the Administrative Agent may agree in its reasonable discretion), to the Collateral Agent as security for the Obligations a first-priority Lien interest (subject to Liens permitted by Section 10.2) on additional Oil and Gas Properties not already subject to a Lien of the Security Documents such that, after giving effect thereto, the PV-10 of the Mortgaged Properties (calculated at the time of redetermination) meets the Collateral Coverage Minimum. All such Liens will be created and perfected by and in accordance with the provisions of the Security Documents, including, if applicable, any additional Mortgages. In order to comply with the foregoing, if any Restricted Subsidiary places a Lien on its property and such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with the provisions of Sections 9.11(a), (b) and (c). (e) (i) Within 15 days after the Eighth Amendment Effective Date (or such longer period as the Administrative Agent may agree in its reasonable discretion), each Credit Party shall enter into a Control Agreement with respect to each deposit account, securities account and commodities account held by it as of the Eighth Amendment Effective Date (other than Excluded Accounts). The Borrower will promptly (but in any event, within five (5) Business Days) notify the Administrative Agent if the Borrower or any other Credit Party establishes a deposit account, securities account or commodities account in the name of the Borrower or any other Credit Party (other than any Excluded Accounts) after the Eighth -130- 727670773 12335469

 
Amendment Effective Date (or if any deposit account, securities account or commodities account in the name of the Borrower or any other Credit Party that was previously an Excluded Account ceases to be an Excluded Account), and the Borrower will, and will cause each other Credit Party to, in connection with any such deposit account, securities account or commodities account established by a Credit Party (other than Excluded Accounts, but only for so long as it is an Excluded Account) promptly, but in any event on or before the earlier of (x) 30 days after the establishment of such deposit account, securities account or commodities account (or by such later date as the Administrative Agent shall reasonably agree) or (y) the first date on which the funds in such deposit account, securities account or commodities account would exceed $2,500,000, enter into a Control Agreement with the Administrative Agent and the depositary bank, securities intermediary or commodities intermediary for such deposit account, securities account or commodities account, respectively (other than an Excluded Account). (ii) At any time after the occurrence and during the continuance of a Event of Default, the Collateral Agent shall have the right to deliver an Activation Notice (or similar term, as defined in each Control Agreement) with respect to each account subject thereto. After delivery of an Activation Notice (or similar term, as defined in each Control Agreement), the Collateral Agent shall comply with the written instructions of the Administrative Agent with respect to credits and transfers from the applicable accounts subject thereto. (iii) So long as no Event of Default has occurred and is continuing, each Credit Party may direct the manner of disposition of funds in all accounts subject to any Control Agreement. (iv) The Borrower shall not, and shall not permit any other Credit Party, to (A) deposit its respective cash funds (or direct any other Person to deposit cash funds belonging to or otherwise payable to the Borrower or such other Credit Party) into, or maintain such cash funds in, any deposit account, or (B) make or hold any Permitted Investment in, by or through, any securities account, that is not a deposit account or securities account (as applicable) legally owned by the Borrower or another Credit Party, unless any such deposit account or securities account (as applicable) is (1) an Excluded Account (including after giving effect to any such deposit or the making or holding of any such Permitted Investment in such deposit account or securities account) or (2) an account subject to a Control Agreement. 9.12 Use of Proceeds. (a) The Borrower will use the proceeds of the Closing Date Loans, together with the net proceeds of the Senior Unsecured Notes, the Senior Secured Notes, the loans under the Senior Secured Term Loan Facility and the net proceeds of the Equity Investments, on the Closing Date to consummate the Transactions, including the Acquisition, the Debt Repayments and the payments of Transaction Expenses. Following the Closing Date, the Borrower will use the proceeds of Loans for the acquisition, development and exploration of Oil and Gas Properties and for working capital and other general corporate purposes of the Borrower and its Subsidiaries (including Permitted Acquisitions). -131- 727670773 12335469

 
(b) The Borrower will use Swingline Loans and Letters of Credit for general corporate purposes and to support deposits required under purchase agreements pursuant to which the Borrower or its Subsidiaries may acquire Oil and Gas Properties and other assets. 9.13 Further Assurances. (a) Subject to the applicable limitations set forth in the Security Documents, the Borrower will, and will cause each other Credit Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture, filings, assignments of as-extracted collateral, mortgages, deeds of trust and other documents) that the Collateral Agent or the Required Lenders may reasonably request, in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the applicable Security Documents, all at the expense of the Borrower and the Restricted Subsidiaries. (b) The Borrower agrees that it will, or will cause its relevant Subsidiaries to, complete each of the actions described on Schedule 9.13(b) as soon as commercially reasonable and by no later than the date set forth in Schedule 9.13(b) with respect to such action or such later date as the Administrative Agent may reasonably agree. (c) Notwithstanding anything herein to the contrary, if the Collateral Agent and the Borrower reasonably determine in writing that the cost of creating or perfecting any Lien on any property is excessive in relation to the benefits afforded to the Lenders thereby, then such property may be excluded from the Collateral for all purposes of the Credit Documents. In addition, notwithstanding anything to the contrary in this Agreement, any Security Agreement, or any other Credit Document, (i) the Administrative Agent may grant extensions of time for or waivers of the requirements of the creation or perfection of security interests in or the obtaining of title opinions or other title information, legal opinions, appraisals, flood insurance and surveys with respect to particular assets (including extensions beyond the Closing Date for the perfection of security interests in the assets of the Credit Parties on such date) where it reasonably determines, in consultation with the Borrower, that perfection or obtaining of such items is not required by law or cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement or the other Credit Documents, (ii) Liens required to be granted from time to time pursuant to this Agreement and the Security Documents shall be subject to exceptions and limitations set forth in the Security Documents and, to the extent appropriate in any applicable jurisdiction, as otherwise agreed between the Administrative Agent and the Borrower and (iii) the Administrative Agent and the Borrower may make such modifications to the Security Documents, and execute and/or consent to such easements, covenants, rights of way or similar instruments (and Administrative Agent may agree to subordinate the lien of any mortgage to any such easement, covenant, right of way or similar instrument or record or may agree to recognize any tenant pursuant to an agreement in a form and substance reasonably acceptable to the Administrative Agent), as are reasonable or necessary and otherwise permitted by this Agreement and the other Credit Documents. -132- 727670773 12335469

 
9.14 Reserve Reports. (a) On or before March 31st (or March 1st in the case of the Reserve Report in respect of December 31, 2012) and September 30th of each year, commencing March 2013, the Borrower shall furnish to the Administrative Agent a Reserve Report evaluating, as of the immediately preceding December 31st and June 30th, the Proved Reserves of the Borrower and the Credit Parties located within the geographic boundaries of the United States of America (or the Outer Continental Shelf adjacent to the United States of America) that the Borrower desires to have included in any calculation of the Borrowing Base, together with such other reports, data and supplemental information, as may, from time to time, be reasonably requested by the Required Lenders. Each Reserve Report as of December 31 and June 30 shall be prepared, at the sole election of the Borrower, (x) by one or more Approved Petroleum Engineers or (y) by or under the supervision of the chief engineer of the Borrower or a Restricted Subsidiary; provided that Reserve Reports as of December 31 of each year that are prepared by or under the supervision of the chief engineer of the Borrower or a Restricted Subsidiary shall in each case be accompanied by an audit letter issued by the applicable Approved Petroleum Engineer that has audited at least 80% of the Proved Reserves attributable to the Borrowing Base Properties of the Credit Parties by value, so long as such Approved Petroleum Engineer is not restricted from providing such a letter, or having such a letter provided, by its internal policies. (b) In the event of an Interim Redetermination, the Borrower shall furnish to the Administrative Agent a Reserve Report prepared by one or more Approved Petroleum Engineers or prepared under the supervision of the chief engineer of the Borrower or a Restricted Subsidiary. For any Interim Redetermination pursuant to Section 2.14(b), the Borrower shall provide such Reserve Report with an “as of” date as required by the Administrative Agent, as soon as possible, but in any event no later than 30 days, in the case of any Interim Redetermination requested by the Borrower or 45 days, in the case of any Interim Redetermination requested by the Administrative Agent or the Lenders, following the receipt of such request. (c) With the delivery of each Reserve Report, the Borrower shall provide to the Administrative Agent a Reserve Report Certificate from an Authorized Officer of the Borrower certifying that in all material respects: (i) in the case of Reserve Reports prepared by or under the supervision of the chief engineer of the Borrower or a Restricted Subsidiary (other than December 31 Reserve Reports), such Reserve Report has been prepared, except as otherwise specified therein, in accordance with the procedures used in the immediately preceding December 31 Reserve Report or the Initial Reserve Report, if no December 31 Reserve Report has been delivered; (ii) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct in all material respects; (iii) except as set forth in an exhibit to such certificate, the Borrower or another Credit Party has good and defensible title to the Borrowing Base Properties evaluated in such Reserve Report (other than those (x) Disposed of in compliance with -133- 727670773 12335469

 
Section 10.4 since delivery of such Reserve Report, (y) leases that have expired in accordance with their terms and (z) with title defects disclosed in writing to the Administrative Agent) and such Borrowing Base Properties are free of all Liens except for Liens permitted by Section 10.2; (iv) except as set forth on an exhibit to such certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 8.18 with respect to the Credit Parties’ Oil and Gas Property evaluated in such Reserve Report that would require the Borrower or any other Credit Party to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor; (v) none of the Borrowing Base Properties have been Disposed of since the date of the last Borrowing Base determination except those Borrowing Base Properties listed on such certificate as having been Disposed of; and (vi) the certificate shall also attach, as schedules thereto, a list of (1) all material marketing agreements (which are not cancellable on 60 days’ notice or less without penalty or detriment) entered into subsequent to the later of the Closing Date and the most recently delivered Reserve Report for the sale of production of the Credit Parties’ Hydrocarbons at a fixed non-index price (including calls on, or other parties rights to purchase, production, whether or not the same are currently being exercised) that represent in respect of such agreements 2.5% or more of the Borrower’s average monthly production of Hydrocarbon volumes and that have a maturity date or expiry date of longer than six months from the last day of such fiscal year or period, as applicable and (2) all Borrowing Base Properties evaluated by such Reserve Report that are Collateral and demonstrating that the PV-10 of the Collateral (calculated at the time of delivery of such Reserve Report) meets the Collateral Coverage Minimum. 9.15 Title Information. On or before the date of delivery to the Administrative Agent of each Reserve Report required by Section 9.14(a), the Borrower will use commercially reasonable efforts to deliver, if requested by the Administrative Agent, title information consistent with usual and customary standards for the geographic regions in which the Borrowing Base Properties are located, taking into account the size, scope and number of leases and wells of the Borrower and its Restricted Subsidiaries. 9.16 Change in Business. The Borrower and its Restricted Subsidiaries, taken as a whole, will not fundamentally and substantively alter the character of their business, taken as a whole, from the business conducted by them on the Closing Date, the business of Industry Investments by the Borrower and its Restricted Subsidiaries and other business activities incidental, reasonably related or ancillary to any of the foregoing. 9.17 Holdings Covenant. Holdings covenants and agrees that on the Closing Date and thereafter, until the Total Commitment and each Letter of Credit have terminated (unless such Letters of Credit have been collateralized on terms and conditions reasonably satisfactory to the relevant Issuing Banks following the termination of the Total Commitment) and the Loans, the Swingline Loans and Unpaid Drawings, together with interest, fees and all -134- 727670773 12335469

 
other Obligations incurred hereunder (other than Hedging Obligations under Secured Hedge AgreementsTransactions, Cash Management Obligations under Secured Cash Management Agreements or contingent indemnification obligations not then due and payable), are paid in full, unless the Majority Lenders shall otherwise consent in writing, Holdings will not engage at any time in any business or business activity other than (i) ownership of the Equity Interests in the Borrower, together with activities related thereto, (ii) performance of its obligations under and in connection with the Credit Documents, the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loan Facility and the incurrence and performance of Indebtedness not prohibited by Section 10.1, (iii) issuing, selling and redeeming its Equity Interests, (iv) paying taxes, (v) holding directors’ and shareholders’ meetings, preparing corporate and similar records and other activities (including the ability to incur fees, costs and expenses relating to such maintenance) required to maintain its corporate or other legal structure or to participate in tax, accounting or other administrative matters as a member of the consolidated group of the Credit Parties, (vi) preparing reports to, and preparing and making notices to and filings with, Governmental Authorities and to its holders of Equity Interests, (vii) receiving, and holding proceeds of, Restricted Payments from the Borrower and the Subsidiaries and distributing the proceeds thereof to the extent not prohibited by Section 9.9 or Section 10.6, (viii) activities in connection with the formation and maintenance of the existence of any Parent Entity (it being understood that notwithstanding anything to the contrary herein or in any Credit Document, there shall be no restriction on the formation of any Parent Entity), (ix) providing indemnification to officers and directors, (x) activities permitted hereunder or as otherwise required by Requirements of Law and (xi) activities incidental to the business or activities described in each foregoing clause of this Section 9.17. SECTION 10. Negative Covenants. The Borrower hereby covenants and agrees that on the Closing Date and thereafter, until the Total Commitment and each Letter of Credit have terminated (unless such Letters of Credit have been collateralized on terms and conditions reasonably satisfactory to the relevant Issuing Banks following the termination of the Total Commitment) and the Loans, the Swingline Loans and Unpaid Drawings, together with interest, fees and all other Obligations incurred hereunder (other than Hedging Obligations under Secured Hedge AgreementsTransactions, Cash Management Obligations under Secured Cash Management Agreements or contingent indemnification obligations not then due and payable), are paid in full: 10.1 Limitation on Indebtedness. The Borrower will not, and will not permit any of the Restricted Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness other than the following: (a) Indebtedness arising under the Credit Documents (including pursuant to Sections 2.16 and 2.17 and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness); (b) Indebtedness (including Guarantee Obligations thereunder) (meeting the definition of Permitted Additional Debt) including in respect of the Senior Unsecured Notes and any fees, underwriting discounts, premiums and other costs and expenses incurred in connection with the foregoing and in an aggregate principal amount -135- 727670773 12335469

 
outstanding not to exceed $2,000,000,000 and any Permitted Refinancing Indebtedness issued or incurred to Refinance such Indebtedness; (c) Indebtedness (including Guarantee Obligations thereunder) (meeting the definition of Permitted Additional Debt) including in respect of the Senior Secured Notes and the Senior Secured Term Loan Facility (and any fees, underwriting discounts, premiums and other costs and expenses incurred in connection with the foregoing) in an aggregate principal amount outstanding not in excess of $1,500,000,000 and any Permitted Refinancing Indebtedness issued or incurred to Refinance such Indebtedness; (d) Indebtedness of (i) the Borrower or any Guarantor owing to the Borrower or any Subsidiary; provided that any such Indebtedness owing by a Credit Party to a Subsidiary that is not a Guarantor shall (x) be evidenced by the Intercompany Note or (y) otherwise be outstanding on the Closing Date so long as such Indebtedness is evidenced by an intercompany note substantially in the form of Exhibit I or otherwise subject to subordination terms substantially identical to the subordination terms set forth in Exhibit I, in each case, to the extent permitted by Requirements of Law and not giving rise to material adverse tax consequences, (ii) any Subsidiary that is not a Guarantor owing to any other Subsidiary that is not a Guarantor and (iii) to the extent permitted by Section 10.5, any Subsidiary that is not a Guarantor owing to the Borrower or any Guarantor; (e) Indebtedness in respect of any bankers’ acceptance, bank guarantees, letter of credit, warehouse receipt or similar facilities entered into in the ordinary course of business or consistent with past practice or industry practice (including in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers compensation claims); (f) subject to compliance with Section 10.5, Guarantee Obligations incurred by (i) Restricted Subsidiaries in respect of Indebtedness of the Borrower or other Restricted Subsidiaries that is permitted to be incurred under this Agreement (except that a Restricted Subsidiary that is not a Credit Party may not, by virtue of this Section 10.1(f) guarantee Indebtedness that such Restricted Subsidiary could not otherwise incur under this Section 10.1) and (ii) the Borrower in respect of Indebtedness of Restricted Subsidiaries that is permitted to be incurred under this Agreement; provided that (A) if the Indebtedness being guaranteed under this Section 10.1(f) is subordinated to the Obligations, such Guarantee Obligations shall be subordinated to the Guarantee of the Obligations on terms at least as favorable to the Lenders as those contained in the subordination of such Indebtedness and (B) no guarantee by any Restricted Subsidiary of any Permitted Additional Debt (or Indebtedness under clause (b) or clause (c) above) shall be permitted unless such Restricted Subsidiary shall have also provided a guarantee of the Obligations substantially on the terms set forth in the Guarantee; (g) Guarantee Obligations (i) incurred in the ordinary course of business in respect of obligations of (or to) suppliers, customers, franchisees, lessors, licensees or sub-licensees or (ii) otherwise constituting Investments permitted by Sections 10.5(d), (g), (h), (i), (q), (r) and (s); -136- 727670773 12335469

 
(h) (i) Indebtedness (including Indebtedness arising under Capital Leases) incurred prior to or within 270 days following the acquisition, construction, lease, repair, replacement, expansion or improvement of assets (real or personal, and whether through the direct purchase of property or the Equity Interests of a Person owning such property) to finance the acquisition, construction, lease, repair, replacement expansion, or improvement of such assets; (ii) Indebtedness arising under Capital Leases, other than (A) Capital Leases in effect on the Closing Date and (B) Capital Leases entered into pursuant to subclause (i) above (provided that, in the case of each of the foregoing subclauses (i) and (ii), the Borrower shall be in Pro Forma Compliance immediately after giving effect to the incurrence of such Indebtedness (and the use of proceeds thereof); and (iii) any Permitted Refinancing Indebtedness issued or incurred to Refinance any such Indebtedness; (i) Indebtedness outstanding on the date hereof (provided that any Indebtedness that is in excess of $1,000,000 individually shall only be permitted under this clause (i) to the extent such Indebtedness is set forth on Schedule 10.1) and any Permitted Refinancing Indebtedness issued or incurred to Refinance such Indebtedness; (j) Indebtedness in respect of Hedge AgreementsTransactions, subject to the limitations set forth in Section 10.10; (k) (i) Indebtedness of a Person or Indebtedness attaching to the assets of a Person that, in either case, becomes a Restricted Subsidiary (or is a Restricted Subsidiary that survives a merger with such Person or any of its Subsidiaries) or Indebtedness attaching to the assets that are acquired by the Borrower or any Restricted Subsidiary, in each case after the Closing Date as the result of a Permitted Acquisition; provided that: (A) such Indebtedness existed at the time such Person became a Restricted Subsidiary or at the time such assets were acquired and, in each case, was not created in anticipation thereof, (B) such Indebtedness is not guaranteed in any respect by the Borrower or any Restricted Subsidiary (other than any such Person that so becomes a Restricted Subsidiary or is the survivor of a merger with such Person or any of its Subsidiaries), (C) (1) the Equity Interests of such Person is pledged to the Collateral Agent to the extent required under Section 9.11(b) and (2) such Person executes a supplement to each of the Guarantee, the Security Agreement and the Pledge Agreement and a joinder to the Intercompany Note, in each case to the extent required under Section 9.11; provided that the assets covered by such pledges and security interests may, at the option of the Borrower, to the extent permitted by Section 10.2, equally and ratably secure such Indebtedness assumed with the Secured Parties subject to inter-creditor arrangements in form and substance reasonably satisfactory to the Administrative Agent; provided, further, that the requirements of this clause C shall not -137- 727670773 12335469

 
apply to any Indebtedness of the type that could have been incurred under Section 10.1(g), and (D) immediately after giving effect to the assumption of any such Indebtedness, such acquisition and any related transactions, the Borrower shall be in Pro Forma Compliance; (i) any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness; (l) (i) Indebtedness incurred to finance a Permitted Acquisition; provided that: (A) (1) the Equity Interests of such Person acquired in such Permitted Acquisition, if any, is pledged to the Collateral Agent to the extent required under Section 9.11(b) and (2) such Person executes supplements to each of the Guarantee and the applicable Security Agreements and a joinder to the Intercompany Note, in each case to the extent required under Section 9.11; (B) immediately after giving effect to the incurrence of any such Indebtedness, such acquisition and any related transactions, the Borrower shall be in Pro Forma Compliance; (C) the maturity of such Indebtedness is not earlier than, and no mandatory repayment or redemption (other than customary change of control or asset sale offers or upon any event of default) is required prior to, 91 days after the Latest Maturity Date of any Facility hereunder (determined at the time of issuance or incurrence); and (D) such Indebtedness is not guaranteed in any respect by the Borrower or any Subsidiary Guarantor except to the extent (1) such guarantee is permitted under Section 10.5 and (2) that after giving effect to the incurrence of any such Indebtedness, such acquisition and any related transactions, the Borrower shall be in Pro Forma Compliance; (i) any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness; (m) Indebtedness of a Foreign Subsidiary or a Domestic Subsidiary that is not a Subsidiary Guarantor; provided that no Credit Party’s assets are used to secure any such Indebtedness; (n) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and completion guarantees and similar obligations not in connection with money borrowed, in each case provided in the ordinary course of business or consistent with past practice, including those incurred to secure health, safety and environmental obligations in the ordinary course of business or consistent with past practice; -138- 727670773 12335469

 
(o) (i) other additional Indebtedness and (ii) any Permitted Refinancing Indebtedness issued or incurred to Refinance such Indebtedness, provided that the aggregate principal amount of Indebtedness outstanding at any time pursuant to this Section 10.1(o) shall not at the time of incurrence thereof and immediately after giving effect thereto and the use of proceeds thereof on a Pro Forma Basis, exceed the greater of $500,000,000 and 7% of Adjusted Consolidated Net Tangible Assets (measured as of the date of incurrence of such Indebtedness based upon the financial statements most recently available prior to such date); (p) Indebtedness in respect of Permitted Additional Debt and any Permitted Refinancing Indebtedness issued or incurred to Refinance such Indebtedness; provided that (x) after giving effect to the incurrence or issuance thereof and the use of proceeds therefrom, the Borrower shall be in Pro Forma Compliance and (y) the Borrowing Base shall be adjusted as set forth in Section 2.14(e); (q) Cash Management Obligations, Cash Management Services and other Indebtedness in respect of netting services, automatic clearing house arrangements, employees’ credit or purchase cards, overdraft protections and similar arrangements in each case incurred in the ordinary course of business; (r) Indebtedness incurred in the ordinary course of business in respect of obligations of the Borrower or any Restricted Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; (s) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations (including earn-outs), in each case assumed or entered into in connection with the Transactions, any Permitted Acquisitions, other Investments and the Disposition of any business, assets or Equity Interests not prohibited hereunder; (t) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (i) obligations to pay insurance premiums or (ii) obligations contained in firm transportation or supply agreements or other take or pay contracts, in each case arising in the ordinary course of business; (u) Indebtedness representing deferred compensation to employees, consultants or independent contractors of the Borrower (or, to the extent such work is done for the Borrower or its Subsidiaries, any direct or indirect parent thereof) and the Restricted Subsidiaries incurred in the ordinary course of business; (v) Indebtedness consisting of promissory notes issued by the Borrower or any Guarantor to current or former officers, managers, consultants, directors and employees (or their respective spouses, former spouses, successors, executors, administrators, heirs, legatees or distributees) to finance the purchase or redemption of Equity Interests of the Borrower (or any direct or indirect parent thereof) permitted by Section 10.6; -139- 727670773 12335469

 
(w) Indebtedness consisting of obligations of the Borrower and the Restricted Subsidiaries under deferred compensation or other similar arrangements incurred by such Person in connection with the Transactions, Permitted Acquisitions or any other Investment permitted hereunder; (x) Indebtedness associated with bonds or surety obligations required by Requirements of Law or by Governmental Authorities in connection with the operation of Oil and Gas Properties in the ordinary course of business; (y) Indebtedness consisting of the undischarged balance of any Production Payment, subject to adjustment of the Borrowing Base as set forth in Section 2.14(g) to the extent required under Section 10.4(b); (z) Indebtedness of the Borrower or any Restricted Subsidiary to any joint venture (regardless of the form of legal entity) that is not a Subsidiary arising in the ordinary course of business in connection with the Cash Management Services (including with respect to intercompany self-insurance arrangements) of the Borrower and its Restricted Subsidiaries; (aa) Indebtedness incurred on behalf of, or Guarantee Obligations in respect of the Indebtedness of, joint ventures (regardless of the form of legal entity) that are not Subsidiaries in principal amount, when aggregated with the outstanding principal amount of Indebtedness incurred pursuant to this clause (aa), not to exceed, at the time of incurrence thereof, the greater of $150,000,000 and 2% of Adjusted Consolidated Net Tangible Assets (measured as of the date of incurrence of such Indebtedness based on the financial statements most recently available prior to such date); and (bb) all premiums (if any), interest (including post-petition interest), fees, expenses, charges, and additional or contingent interest on obligations described in clauses (a) through (z) above. 10.2 Limitation on Liens. The Borrower will not, and will not permit any of the Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any Restricted Subsidiary, whether now owned or hereafter acquired, except: (a) Liens arising under the Credit Documents to secure the Obligations (including Liens contemplated by Section 3.8) or permitted in respect of any Mortgaged Property by the terms of the applicable Mortgage; (b) Permitted Liens; (c) (x) Liens (including liens arising under Capital Leases to secure Capital Lease Obligations) securing Indebtedness permitted pursuant to Section 10.1(h); provided that (i) such Liens attach concurrently with or within 270 days after the acquisition, lease, repair, replacement, construction, expansion or improvement (as applicable) financed thereby, (ii) other than the property financed by such Indebtedness, such Liens do not at any time encumber any property, except for replacements thereof and accessions and -140- 727670773 12335469

 
additions to such property and the proceeds and the products thereof and customary security deposits and (iii) with respect to Capital Leases, such Liens do not at any time extend to or cover any assets (except for accessions and additions to such assets, replacements and products thereof and customary security deposits) other than the assets subject to such Capital Leases; provided that in each case individual financings provided by one lender may be cross collateralized to other financings provided by such lender (and its Affiliates), and (y) Liens on the assets of a Restricted Subsidiary that is not a Credit Party securing Indebtedness permitted pursuant to Section 10.1; (d) Liens existing on the date hereof; provided that any Lien securing Indebtedness in excess of $5,000,000 individually or $10,000,000 in the aggregate (when taken together with all other Liens securing obligations outstanding in reliance on this clause (d) that are not listed on Schedule 10.2(d)) shall only be permitted to the extent such Lien is listed on Schedule 10.2(d); (e) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien permitted by this Section 10.2; provided, however, that (x) such new Lien shall be limited to all or part of the same type of property that secured the original Lien (plus improvements on and accessions to such property), (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the applicable Indebtedness at the time the original Lien became a Lien permitted hereunder, and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement and (z) on the date of the incurrence of the Indebtedness secured by such Liens, the grantors of any such Liens shall not be any different than the grantors of the Liens securing the debt being refinanced, refunded, extended, renewed or replaced; (f) Liens existing on the assets of any Person that becomes a Subsidiary, or existing on assets acquired, pursuant to a Permitted Acquisition; provided that (1) if the Liens on such assets secure Indebtedness, such Indebtedness is permitted under Section 10.1(k) and (2) such Liens attach at all times only to the same assets that such Liens (or upon or in after-acquired property that is (i) affixed or incorporated into the property covered by such Lien, (ii) after-acquired property subject to a Lien securing Indebtedness permitted under Section 10.1(k), the terms of which Indebtedness require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (iii) the proceeds and products thereof) attached to, and to the extent such Liens secure Indebtedness, secure only the same Indebtedness (or any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness) that such Liens secured, immediately prior to such Permitted Acquisition; (g) Liens on the Equity Interests of any Person that becomes a Restricted Subsidiary pursuant to a Permitted Acquisition, or the assets of such a Restricted Subsidiary, in each case, to secure Indebtedness incurred pursuant to Section 10.1(l); -141- 727670773 12335469

 
provided that such Liens attach at all times only to the Equity Interests or assets of such Restricted Subsidiary and its Subsidiaries; (h) Liens securing Indebtedness or other obligations (i) of the Borrower or a Restricted Subsidiary in favor of a Credit Party and (ii) of any Restricted Subsidiary that is not a Credit Party in favor of any Restricted Subsidiary that is not a Credit Party; (i) Liens (i) of a collecting bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business and (iii) in favor of a banking institution arising as a matter of law encumbering deposits (including the right of set-off); (j) Liens (i) on cash advances in favor of the seller of any property to be acquired in an Investment permitted pursuant to Section 10.5 to be applied against the purchase price for such Investment, and (ii) consisting of an agreement to Dispose of any property in a transaction permitted under Section 10.4, in each case, solely to the extent such Investment or Disposition, as the case may be, would have been permitted on the date of the creation of such Lien; (k) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale or purchase of goods entered into by the Borrower or any of the Restricted Subsidiaries in the ordinary course of business permitted by this Agreement; (l) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 10.5; (m) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to brokerage accounts incurred in the ordinary course of business and not for speculative purposes; (n) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance or incurrence of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Borrower or any Restricted Subsidiary in the ordinary course of business; (o) Liens solely on any cash earnest money deposits made by the Borrower or any of the Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder; (p) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto; (q) Liens in respect of Production Payments and Reserve Sales, subject to adjustment of the Borrowing Base as set forth in Section 2.14(g) to the extent required -142- 727670773 12335469

 
under Section 10.4(b); provided that such Liens attach at all times only to the Oil and Gas Properties from which the Production Payments and Reserve Sales have been conveyed; (r) the prior right of consignees and their lenders under consignment arrangements entered into in the ordinary course of business; (s) agreements to subordinate any interest of the Borrower or any Restricted Subsidiary in any accounts receivable or other proceeds arising from inventory consigned by the Borrower or any Restricted Subsidiary pursuant to an agreement entered into in the ordinary course of business; (t) Liens on Equity Interests in a joint venture securing obligations of such joint venture so long as the assets of such joint venture do not constitute Collateral; (u) (i) Liens securing any Indebtedness permitted by Section 10.1(c) (provided that any Liens on the Collateral pursuant to this Section 10.2(u)(i) shall be Junior Liens) and (ii) Section 10.1(m); (v) Liens arising pursuant to Section 107(l) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9607(l), or other Environmental Law, unless such Lien (i) by action of the lienholder, or by operation of law, takes priority over any Liens arising under the Credit Documents on the property upon which it is a Lien, and (ii) such Lien materially impairs the use of the property covered by such Lien for the purposes for which such property is held; (w) Liens on not more than $50,000,000 of deposits securing Hedging Obligations in respect of Hedge AgreementsTransactions with counterparties other than Hedge Banks that were not entered into for speculative purposes; (x) Junior Liens on the Collateral so long as the outstanding principal amount of the Indebtedness secured thereby, when aggregated with the outstanding principal amount of other Indebtedness secured by Liens permitted under this clause (x), at the time of the incurrence thereof and immediately after giving effect thereto and the use of proceeds thereof on a Pro Forma Basis, does not exceed an amount equal to the Permitted Junior Amount at the time of incurrence. (y) any amounts held by a trustee under any indenture or other debt agreement issued in escrow pursuant to customary escrow arrangements pending the release thereof, or under any indenture or other debt agreement pursuant to customary discharge, redemption or defeasance provisions; and (z) additional Liens on property not constituting Borrowing Base Properties and/or Junior Liens on Collateral so long as the outstanding principal amount of the obligations secured thereby, when aggregated with the outstanding principal amount of other obligations secured by Liens permitted under this clause (z), at the time of the incurrence thereof and immediately after giving effect thereto and the use of proceeds thereof on a Pro Forma Basis, does not exceed the greater of $850,000,000 and 7% of Adjusted Consolidated Net Tangible Assets (measured as of the date on which such Lien -143- 727670773 12335469

 
or the Indebtedness secured is incurred based upon the financial statements most recently available prior to such date).$500,000,000. 10.3 Limitation on Fundamental Changes. Except as permitted by Section 10.4 or 10.5, the Borrower will not, and will not permit any of the Restricted Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of, all or substantially all its business units, assets or other properties, except that: (a) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or consolidated with or into the Borrower; provided that (i) the Borrower shall be the continuing or surviving Person or, in the case of a merger, amalgamation or consolidation with or into the Borrower, the Person formed by or surviving any such merger, amalgamation or consolidation (if other than the Borrower) shall be an entity organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof (the Borrower or such Person, as the case may be, being herein referred to as the “Successor Borrower”), (ii) the Successor Borrower (if other than the Borrower) shall expressly assume all the obligations of the Borrower under this Agreement and the other Credit Documents pursuant to a supplement hereto or thereto in form reasonably satisfactory to the Administrative Agent, (iii) no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing at the date of such merger, amalgamation or consolidation or would result from such consummation of such merger, amalgamation or consolidation, and (iv) if such merger, amalgamation or consolidation involves the Borrower and a Person that, prior to the consummation of such merger, amalgamation or consolidation, is not a Subsidiary of the Borrower (A) the Successor Borrower shall be in Pro Forma Compliance after giving effect to such merger, amalgamation or consolidation, (B) each Guarantor, unless it is the other party to such merger, amalgamation or consolidation or unless the Successor Borrower is the Borrower, shall have by a supplement to the Guarantee confirmed that its Guarantee shall apply to the Successor Borrower’s obligations under this Agreement, (C) each Subsidiary grantor and each Subsidiary pledgor, unless it is the other party to such merger, amalgamation or consolidation or unless the Successor Borrower is the Borrower, shall have by a supplement to the Credit Documents confirmed that its obligations thereunder shall apply to the Successor Borrower’s obligations under this Agreement, (D) each mortgagor of a Mortgaged Property, unless it is the other party to such merger or consolidation or unless the Successor Borrower is the Borrower, shall have by an amendment to or restatement of the applicable Mortgage confirmed that its obligations thereunder shall apply to the Successor Borrower’s obligations under this Agreement, (E) the Borrower shall have delivered to the Administrative Agent an officer’s certificate stating that such merger, amalgamation or consolidation and any supplements to the Credit Documents preserve the enforceability of the Guarantee and the perfection and priority of the Liens under the Security Documents, (F) if reasonably requested by the Administrative Agent, an opinion of counsel shall be required to be provided to the effect that such merger, amalgamation or consolidation does not violate this Agreement or any other Credit Document; provided, further, that if the foregoing are satisfied, the Successor Borrower (if other than the Borrower) will succeed to, and be substituted for, the Borrower under this Agreement and (G) such merger, amalgamation or consolidation shall comply with all the conditions set -144- 727670773 12335469

 
forth in the definition of the term “Permitted Acquisition” or is otherwise permitted under Section 10.5; (b) any Subsidiary of the Borrower or any other Person may be merged, amalgamated or consolidated with or into any one or more Subsidiaries of the Borrower; provided that (i) in the case of any merger, amalgamation or consolidation involving one or more Restricted Subsidiaries, (A) a Restricted Subsidiary shall be the continuing or surviving Person or (B) the Borrower shall take all steps necessary to cause the Person formed by or surviving any such merger, amalgamation or consolidation (if other than a Restricted Subsidiary) to become a Restricted Subsidiary, (ii) in the case of any merger, amalgamation or consolidation involving one or more Guarantors, a Guarantor shall be the continuing or surviving Person or the Person formed by or surviving any such merger, amalgamation or consolidation (if other than a Guarantor) shall execute a supplement to the Guarantee, each applicable Security Agreement and any applicable Mortgage, and a joinder to the Intercompany Note, each in form and substance reasonably satisfactory to the Collateral Agent in order for the surviving Person to become a Guarantor, and pledgor, mortgagor and grantor of Collateral for the benefit of the Secured Parties and to acknowledge and agree to the terms of the Intercompany Note, (iii) no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing on the date of such merger, amalgamation or consolidation or would result from the consummation of such merger, amalgamation or consolidation and (iv) if such merger, amalgamation or consolidation involves a Subsidiary and a Person that, prior to the consummation of such merger, amalgamation or consolidation, is not a Restricted Subsidiary of the Borrower, (A) the Borrower shall be in Pro Forma Compliance after giving effect to such merger, amalgamation or consolidation, (B) the Borrower shall have delivered to the Administrative Agent an officer’s certificate stating that such merger, amalgamation or consolidation and such supplements to any Credit Document preserve the enforceability of the Guarantee and the perfection and priority of the Liens under the Security Agreements and (C) such merger, amalgamation or consolidation shall comply with all the conditions set forth in the definition of the term “Permitted Acquisition” or is otherwise permitted under Section 10.5; (c) any Restricted Subsidiary that is not a Guarantor may (i) merge, amalgamate or consolidate with or into any other Restricted Subsidiary and (ii) Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower, a Guarantor or any other Restricted Subsidiary of the Borrower; (d) any Subsidiary Guarantor may (i) merge, amalgamate or consolidate with or into any other Subsidiary Guarantor, (ii) merge, amalgamate or consolidate with or into any other Subsidiary which is not a Guarantor or Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to any other Subsidiary that is not a Guarantor; provided that if such Subsidiary Guarantor is not the surviving entity, such merger, amalgamation or consolidation shall be deemed to be, and any such Disposition shall be, (A) an “Investment” and subject to the limitations set forth in Section 10.5 and (B) a “Disposition” and subject to the limitations set forth in Section 10.4; and (iii) Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any other Guarantor; -145- 727670773 12335469

 
(e) any Restricted Subsidiary may liquidate or dissolve if (i) 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 (ii) to the extent such Restricted Subsidiary is a Credit Party, any assets or business of such Restricted Subsidiary not otherwise Disposed of or transferred in accordance with Section 10.4 or 10.5, in the case of any such business, discontinued, shall be transferred to, or otherwise owned or conducted by, a Credit Party after giving effect to such liquidation or dissolution; (f) the Borrower and its Restricted Subsidiaries may consummate the Transactions; and (g) to the extent that no Borrowing Base Deficiency, Default or Event of Default would result from the consummation of such Disposition, the Borrower and the Restricted Subsidiaries may consummate a merger, dissolution, liquidation, consolidation or Disposition, the purpose of which is to effect a Disposition permitted pursuant to Section 10.4. 10.4 Limitation on Sale of Assets. The Borrower will not, and will not permit any of the Restricted Subsidiaries to, (x) convey, sell, lease, sell and leaseback, assign, farm-out, transfer or otherwise dispose (each of the foregoing a “Disposition”) of any of its property, business or assets (including receivables and leasehold interests), whether now owned or hereafter acquired, or terminate, unwind or create any off-setting positions in respect of any commodity hedge positions or any other Hedge Transaction, whether now in effect or hereafter created or entered into, or (y) sell to any Person (other than the Borrower or a Guarantor) any shares owned by it of any Restricted Subsidiary’s Equity Interests, except that: (a) the Borrower and the Restricted Subsidiaries may Dispose of (i) inventory and other goods held for sale, including Hydrocarbons, obsolete, worn out, used or surplus equipment, vehicles and other assets (other than accounts receivable) in the ordinary course of business (including equipment that is no longer necessary for the business of the Borrower or its Restricted Subsidiaries or is replaced by equipment of at least comparable value and use), (ii) Permitted Investments, and (iii) assets for the purposes of charitable contributions or similar gifts to the extent such assets are not material to the ability of the Borrower and its Restricted Subsidiaries, taken as a whole, to conduct its business in the ordinary course; (b) the Borrower and the Restricted Subsidiaries may Dispose of any Oil and Gas Properties or any interest therein or the Equity Interests of any Restricted Subsidiary or of any Minority Investment owning Oil and Gas Properties (and including, but without limitation, Dispositions in respect of Production Payments and Reserve Sales and in connection with net profits interests, operating agreements, farm-ins, joint exploration and development agreements and other agreements customary in the oil and gas industry for the purpose of developing such Oil and Gas Properties); provided that such Disposition is for Fair Market Value; provided, further, that if such Disposition of Oil and Gas Properties or of any Equity Interests of any Restricted Subsidiary or Minority Investment owning Oil and Gas Properties involves Borrowing Base Properties included -146- 727670773 12335469

 
in the most recently delivered Reserve Report and the aggregate Borrowing Base Value of all such Borrowing Base Properties Disposed of, together with the aggregate Borrowing Base Value of all terminations or creations of any off-setting positions in respect of any commodity hedge positions or any other Hedge Transaction, in each case, since the later of (i) the last Scheduled Redetermination Date and (ii) the last adjustment of the Borrowing Base made pursuant to Section 2.14(f) or Section 2.14(g) exceeds 10% of the then-effective Borrowing Base, then no later than two Business Days after the date of consummation of any such Disposition, the Borrower shall provide notice to the Administrative Agent of such Disposition and the Borrowing Base Properties so Disposed and the Borrowing Base shall be adjusted in accordance with the provisions of Section 2.14(g); provided, further, that to the extent that the Borrower is notified by the Administrative Agent that a Borrowing Base Deficiency could result from an adjustment to the Borrowing Base resulting from such Disposition, after the consummation of such Disposition(s), the Borrower shall have received net cash proceeds, or shall have cash on hand, sufficient to eliminate any such potential Borrowing Base Deficiency; (c) the Borrower and the Restricted Subsidiaries may Dispose of property or assets to the Borrower or to a Restricted Subsidiary; provided that if the transferor of such property is a Credit Party (i) the transferee thereof must either be a Credit Party or (ii) such transaction is permitted under Section10.5; (d) the Borrower and any Restricted Subsidiary may affect any transaction permitted by Section 10.2, 10.3, 10.5 or 10.6; (e) the Borrower and the Restricted Subsidiaries may lease, sublease, license or sublicense (on a non-exclusive basis with respect to any intellectual property) real, personal or intellectual property in the ordinary course of business; (f) Dispositions (including like-kind exchanges) of property (other than Borrowing Base Properties) to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are applied to the purchase price of such replacement property, in each case under Section 1031 of the Code or otherwise; (g) Dispositions of Hydrocarbon Interests to which no Proved Reserves are attributable and farm-outs of undeveloped acreage to which no Proved Reserves are attributable and assignments in connection with such farm-outs; (h) Dispositions of Investments in joint ventures (regardless of the form of legal entity) to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture parties set forth in joint venture arrangements and similar binding arrangements to the extent the same would be permitted under Section 10.5(i); (i) Dispositions listed on Schedule 10.4(i) (each, a “Scheduled Disposition” and collectively, the “Scheduled Dispositions”); -147- 727670773 12335469

 
(j) transfers of property (i) subject to a Casualty Event or in connection with any condemnation proceeding with respect to Collateral; provided that the net cash proceeds of such Casualty Event or condemnation proceeding, if any, are received by the Borrower or a Subsidiary Guarantor or (ii) in connection with any Casualty Event or any condemnation proceeding, in each case with respect to property that does not constitute Collateral; (k) Dispositions of accounts receivable (i) in connection with the collection or compromise thereof or (ii) to the extent the proceeds thereof are used to prepay any Loans then outstanding; (l) the unwinding of any Hedge Agreement (subject to the terms of Section 2.14(f));termination or unwinding of, or creation of any off-setting positions in respect of, any commodity hedge positions or any other Hedge Transaction, provided that if such termination or unwinding of, or creation of any off-setting positions, will result in adjustment of the Borrowing Base in accordance with the provisions of Section 2.14(f), the Borrower shall give the Administrative Agent written notice thereof in reasonable detail not later than 2 Business Days after the date on which any such commodity hedge position or other Hedge Transaction was terminated or unwound, or for which off-setting positions were created and, thereafter, the Borrowing Base shall be adjusted in accordance the provisions of Section 2.14(f)); (m) Dispositions of Oil and Gas Properties that are not Borrowing Base Properties and other assets not included in the Borrowing Base; and (n) Disposition of any asset between or among the Borrower and/or its Restricted Subsidiaries as a substantially concurrent interim Disposition in connection with an Investment otherwise permitted pursuant to Section 10.5 or a Disposition otherwise permitted pursuant to clauses (a) through (m) above. 10.5 Limitation on Investments. The Borrower will not, and will not permit any of the Restricted Subsidiaries, to (i) purchase or acquire (including pursuant to any merger, consolidation or amalgamation with a person that is not a Wholly owned Subsidiary immediately prior to such merger, consolidation or amalgamation) any Equity Interests, evidences of Indebtedness or other securities of any other Person, (ii) make any loans or advances to or guarantees of the Indebtedness of any other person, or (iii) purchase or otherwise acquire (in one transaction or a series of related transactions) (x) all or substantially all of the property and assets or business of another Person or (y) assets constituting a business unit, line of business or division of such Person (each, an “Investment”), except: (a) extensions of trade credit and purchases of assets and services (including purchases of inventory, supplies and materials) in the ordinary course of business; (b) Investments in assets that constituted Permitted Investments at the time such Investments were made; (c) loans and advances to officers, directors, employees and consultants of the Borrower (or any direct or indirect parent thereof) or any of its Restricted Subsidiaries (i) -148- 727670773 12335469

 
for reasonable and customary business-related travel, entertainment, relocation and analogous ordinary business purposes (including employee payroll advances), (ii) in connection with such Person’s purchase of Equity Interests of the Borrower (or any direct or indirect parent thereof; provided that, to the extent such loans and advances are made in cash, the amount of such loans and advances used to acquire such Equity Interests shall be contributed to the Borrower in cash) and (iii) for purposes not described in the foregoing subclauses (i)and (ii); provided that the aggregate principal amount outstanding pursuant to subclause (iii) shall not exceed $25,000,000; (d) (i) Investments existing on, or made pursuant to legally binding written commitments in existence on, the Closing Date as set forth on Schedule 10.5(d), (ii) Investments existing on the Closing Date of the Borrower or any Subsidiary in any other Subsidiary and (iii) any extensions, renewals or reinvestments thereof, so long as the amount of any Investment made pursuant to this clause (d) is not increased at any time above the amount of such Investment set forth on Schedule 10.5(d) (other than pursuant to an increase as required by the terms of any such Investment as in existence on the Closing Date and set forth on Schedule 10.5(d) as of the Closing Date); (e) Investments received in connection with the bankruptcy or reorganization of suppliers or customers and in settlement of delinquent obligations of, and other disputes with, customers arising in the ordinary course of business or upon foreclosure with respect to any secured Investment or other transfer of title with respect to any secured Investment; (f) Investments to the extent that payment for such Investments is made with Qualified Equity Interests; (g) Investments (i) by the Borrower in any Guarantor or by any Guarantor in the Borrower, (ii) by any Restricted Subsidiary that is not a Guarantor in the Borrower or any other Restricted Subsidiary, and (iii) by the Borrower or any Guarantor in any Restricted Subsidiary that is not a Guarantor, valued at the Fair Market Value (determined by the Borrower in good faith) of such Investment at the time each such Investment is made, in an aggregate amount outstanding pursuant to this Section 10.5(g)(iii) that, at the time such Investment is made, would not exceed the sum of (A) the greater of $100,000,000 and 1.5% of Adjusted Consolidated Net Tangible Assets (measured as of the date such Investment is made based upon the financial statements most recently available prior to such date), (B) the Applicable Equity Amount at such time and (C) to the extent not otherwise included in the determination of the Applicable Equity Amount, an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the Fair Market Value of such Investment at the time such Investment was made) (it being understood that to the extent any Investment made pursuant to this Section 10.5(g)(iii) was made by using the Applicable Equity Amount, then the amounts referred to in clause (C) shall, to the extent of the original usage of the Applicable Equity Amount, be deemed to reconstitute such amounts); -149- 727670773 12335469

 
(h) Investments constituting Permitted Acquisitions; provided that the aggregate amount of Permitted Acquisition Consideration of such Permitted Acquisitions made or provided by the Borrower or any Subsidiary Guarantor to acquire any Restricted Subsidiary that does not become a Subsidiary Guarantor or merge, consolidate or amalgamate into the Borrower or a Subsidiary Guarantor or any assets that shall not, immediately after giving effect to such Permitted Acquisition, be owned by the Borrower or a Subsidiary Guarantor, shall not exceed the sum of (i) the greater of $350,000,000 and 5% of Adjusted Consolidated Net Tangible Assets after giving effect to such Permitted Acquisitions, (ii) the Applicable Equity Amount at such time and (iii) to the extent not otherwise included in the determination of the Applicable Equity Amount, an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the Fair Market Value of such Investment at the time such Investment was made) (it being understood that to the extent any Investment made pursuant to this Section 10.5(h) was made by using the Applicable Equity Amount, then the amounts referred to in this clause (iii) shall, to the extent of the original usage of the Applicable Equity Amount, be deemed to reconstitute such amounts); (i) Investments (including but not limited to (i) Minority Investments and Investments in Unrestricted Subsidiaries, (ii) Investments in joint ventures (regardless of the form of legal entity) or similar Persons that do not constitute Restricted Subsidiaries, (iii) Investments in Subsidiaries that are not Credit Parties, (iv) Permitted Acquisitions and (v) Investments in respect of royalty trusts and master limited partnerships), in each case valued at the Fair Market Value (determined by the Borrower acting in good faith) of such Investment at the time each such Investment is made, in an aggregate amount outstanding pursuant to this Section 10.5(i) not to exceed the sum of (A) the greater of (1) $250,000,000 and (2) 3.5% of Adjusted Consolidated Net Tangible Assets (measured as of the date such Investment is made based upon the financial statements most recently available prior to such date) plus (B) the Applicable Equity Amount at such time plus (C) to the extent not otherwise included in the determination of the Applicable Equity Amount, an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the Fair Market Value of such Investment at the time such Investment was made) (it being understood that to the extent any Investment made pursuant to this Section 10.5(i) was made by using the Applicable Equity Amount, then the amounts referred to in the clause (C) shall, to the extent of the original usage of the Applicable Equity Amount, be deemed to reconstitute such amounts); provided that intercompany current liabilities incurred in the ordinary course of business and consistent with past practices, in connection with the cash management operations of the Borrower and the Subsidiaries shall not be included in calculating any limitations in this paragraph at any time; (j) Investments made at any such time during which, after giving effect to the making of any such Investment on a Pro Forma Basis, (i) no Event of Default shall have occurred and be continuing and (ii) Liquidity is not less than 10% of the lesser of the Total Commitments and the then effective Borrowing Base, provided that with respect to -150- 727670773 12335469

 
all Investments made in reliance on this Section 10.5(j) at any time when the Consolidated Total Debt to EBITDAX Ratio as of the last day of the most recent Test Period is not less than or equal to 5.00 to 1.00 on a Pro Forma Basis after giving effect to the making of any such Investment, the aggregate amount outstanding of all such Investments, valued at the Fair Market Value (determined by the Borrower in good faith) of each such Investment at the time made, shall not exceed $250,000,000; (k) Investments constituting non-cash proceeds of Dispositions of assets to the extent permitted by Section 10.4; (l) Investments made to repurchase or retire Equity Interests of the Borrower or any direct or indirect parent thereof owned by the Co-Investors or its Affiliates or any employee or any stock ownership plan or key employee stock ownership plan of the Borrower (or any direct or indirect parent thereof); (m) Investments consisting of Restricted Payments permitted under Section 10.6; (n) loans and advances to any direct or indirect parent of the Borrower in lieu of, and not in excess of the amount of, Restricted Payments to the extent permitted to be made to such parent in accordance with Section 10.6; (o) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors and other credits to suppliers in the ordinary course of business; (p) Investments in the ordinary course of business consisting of endorsements for collection or deposit and customary trade arrangements with customers consistent with past practices; (q) advances of payroll payments to employees, consultants or independent contractors or other advances of salaries or compensation to employees, consultants or independent contractors, in each case in the ordinary course of business; (r) guarantee obligations of the Borrower or any Restricted Subsidiary of leases (other than Capital Leases) or of other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business; (s) Investments held by a Person acquired (including by way of merger or consolidation) after the Closing Date otherwise in accordance with this Section 10.5 to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation and were in existence on the date of such acquisition, merger or consolidation; (t) Investments in Industry Investments and in interests in additional Oil and Gas Properties and gas gathering systems related thereto or Investments related to -151- 727670773 12335469

 
farm-out, farm-in, joint operating, joint venture, joint development or other area of mutual interest agreements, other similar industry investments, gathering systems, pipelines or other similar oil and gas exploration and production business arrangements whether through direct ownership or ownership through a joint venture or similar arrangement; (u) to the extent constituting Investments, the Transactions; (v) Investments in Hedge AgreementsTransactions permitted by Section 10.1 and Section 10.10; (w) Investments consisting of Indebtedness, fundamental changes, Dispositions and Restricted Payments permitted under Sections 10.1, 10.3, 10.4 and 10.6 (other than 10.6(c)); (x) in the case of the Borrower and its Restricted Subsidiaries, Investment consisting of (i) intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (ii) intercompany current liabilities in connection with the cash management, tax and accounting operations of the Borrower and the Restricted Subsidiaries; (y) Investments resulting from pledges and deposits under clauses (c), (d) and (e) of the definition of “Permitted Liens” and clauses (j), (o), (w) and (x) of SectionsSection 10.2; (z) advances in the form of a prepayment of expenses, so long as such expenses are being paid in accordance with customary trade terms of the Borrower or the relevant Restricted Subsidiary; (aa) Investments consisting of licensing of intellectual property pursuant to joint marketing arrangements with other Persons in the ordinary course of business; and (bb) any Investment constituting a Disposition or transfer of any asset between or among the Borrower and/or its Restricted Subsidiaries as a substantially concurrent interim Disposition or transfer in connection with an Investment otherwise permitted pursuant to clauses (a) through (aa) above or in connection with a Disposition permitted pursuant to Section 10.4. 10.6 Limitation on Restricted Payments. The Borrower will not directly or indirectly pay any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests (other than dividends and distributions on Equity Interests payable solely by the issuance of additional Qualified Equity Interests) or redeem, purchase, retire or otherwise acquire for value any of its Equity Interests or the Equity Interests of any Parent Entity or set aside any amount for any such purpose (other than through the issuance of additional Qualified Equity Interests), or permit any Restricted Subsidiary to purchase or otherwise acquire for consideration (except in connection with an Investment permitted under Section 10.5) any Equity Interests of -152- 727670773 12335469

 
the Borrower or any Parent Entity, now or hereafter outstanding (all of the foregoing, “Restricted Payments”); except that: (a) the Borrower may (or may pay Restricted Payments to permit any Parent Entity thereof to) redeem in whole or in part any of its or a Parent Entity’s Equity Interests in exchange for another class of its (or such parent’s) Equity Interests or with proceeds from substantially concurrent equity contributions or issuances of new Equity Interests; provided that such new Equity Interests contain terms and provisions at least as advantageous to the Lenders in all material respects to their interests as those contained in the Equity Interests redeemed thereby, and the Borrower may pay Restricted Payments payable solely in the Equity Interests (other than Disqualified Stock not otherwise permitted by Section 10.1) of the Borrower; (b) the Borrower may (i) (or may make Restricted Payments to permit any Parent Entity thereof to) redeem, acquire, retire or repurchase shares of its (or such Parent Entity’s) Equity Interests held by any present or former officer, manager, consultant, director or employee (or their respective Affiliates, estates, spouses, former spouses, successors, executors, administrators, heirs, legatees, distributees or immediate family members) of the Borrower and its Subsidiaries or any Parent Entity thereof, upon the death, disability, retirement or termination of employment of any such Person or otherwise in accordance with any equity option or equity appreciation rights plan, any management, director and/or employee equity ownership, benefit or incentive plan or agreement, equity subscription plan, employment termination agreement or any other employment agreements or equity holders’ agreement; provided that, non-discretionary repurchases, acquisitions, retirements or redemptions pursuant to the terms of any equity option or equity appreciation rights plan, any management, director and/or employee equity ownership, benefit or incentive plan or agreement, equity subscription plan, employment termination agreement or any other employment agreements or equity holders’ agreement, the aggregate amount of all cash paid in respect of all such Equity Interests so redeemed, acquired, retired or repurchased in any calendar year does not exceed the sum of (A) $50,000,000 (which shall increase to $100,000,000 subsequent to the consummation of Qualifying IPO) (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum of $75,000,000 in any calendar year (which shall increase to $150,000,000 subsequent to the consummation of a Qualifying IPO) plus (B) all net cash proceeds obtained by or contributed to the Borrower during such calendar year from the sales of Equity Interests to other present or former officers, consultants, employees, directors and managers in connection with any permitted compensation and incentive arrangements plus (C) all net cash proceeds obtained from any key-man life insurance policies received during such calendar year plus (D) the amount of any cash bonuses otherwise payable to members of management, directors or consultants of Holdings, any Parent Entity, the Borrower or its Subsidiaries in connection with the Transactions that are foregone in return for the receipt of Equity Interests; notwithstanding the foregoing, 100% of the unused amount of payments in respect of Section 10.6(b)(i) (before giving effect to any carry-forward described in clause (A) of the foregoing proviso) may be carried forward to the two immediately succeeding fiscal years (but not any other) and utilized to make payments pursuant to this Section 10.6(b)(i); and provided, further, that cancellation of Indebtedness owing to the Borrower or any -153- 727670773 12335469

 
Restricted Subsidiary from members of management of Holdings, any Parent Entity, the Borrower or its Restricted Subsidiaries in connection with a repurchase of Equity Interests of Holdings or any other Parent Entity will not be deemed to constitute a Restricted Payment for purposes of this Section 10.6; and (ii) pay Restricted Payments in an amount equal to withholding or similar Taxes payable or expected to be payable by any present or former employee, director, manager or consultant (or their respective Affiliates, estates or immediate family members) and any repurchases of Equity Interests in consideration of such payments including deemed repurchases in connection with the exercise of stock options so long as the amount of such payments does not exceed $25,000,000 in the aggregate; (c) to the extent constituting Restricted Payments, the Borrower may make Investments permitted by Section 10.5; (d) to the extent constituting Restricted Payments, the Borrower may enter into and consummate transactions expressly permitted by Section 10.3; (e) the Borrower may repurchase Equity Interests of the Borrower (or any Parent Entity thereof) upon exercise of stock options or warrants if such Equity Interests represents all or a portion of the exercise price of such options or warrants; (f) the Borrower may make and pay Restricted Payments to Holdings or any other Parent Entity of the Borrower: (i) the proceeds of which will be used to pay (or to make Restricted Payments to allow Holdings or any other Parent Entity to pay): (A) with respect to any taxable period for which the Borrower and/or any of its Subsidiaries are members of a consolidated, combined, affiliated, unitary or similar income tax group for U.S. federal and/or applicable state or local income tax purposes of which a Parent Entity is the common parent, or for which the Borrower is a partnership or disregarded entity for U.S. federal income tax purposes that is wholly owned (directly or indirectly) by a C corporation for U.S. federal and/or applicable state or local income tax purposes, distributions to any Parent Entity of the Borrower in an amount not to exceed the amount of any U.S. federal, state and/or local income taxes that the Borrower and/or its Subsidiaries, as applicable, would have paid for such taxable period had the Borrower and/or its Subsidiaries, as applicable, been a stand-alone corporate taxpayer or a stand-alone corporate group, and (B) with respect to any taxable period ending after the Closing Date for which the Borrower is a partnership or disregarded entity for U.S. federal income tax purposes (other than a partnership or disregarded entity described in subclause (1A)), distributions to any Parent Entity in an amount necessary to permit such Parent Entity to make a pro rata distribution to its equity holders such that each such equity holder receives an amount from such pro rata distribution sufficient to enable such equity holder to pay its U.S. federal, state and/or local income taxes (as applicable) attributable to its direct or indirect ownership of the Borrower and its Subsidiaries with respect to such taxable period (assuming that each such equity holder is subject to tax at the highest combined marginal federal, state, and/or local income tax rate applicable to any such equity holder for such taxable period and taking into account the deductibility of -154- 727670773 12335469

 
state and local income taxes for U.S. federal income tax purposes (and any limitations thereon), the alternative minimum tax, any cumulative net taxable loss of the Borrower for prior taxable periods ending after the Closing Date to the extent such loss is of a character that would allow such loss to be available to reduce taxes in the current taxable period (taking into account any limitations on the utilization of such loss to reduce such taxes and assuming such loss had not already been utilized) and the character (e.g., long-term or short-term capital gain or ordinary or exempt) of the applicable income); (ii) the proceeds of which shall be used to allow any Parent Entity to pay its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including administrative, legal, accounting and other professional costs and expenses) to the extent attributable to the ownership or operation of the Borrower, it being understood that 100% of the foregoing costs and expenses shall be deemed attributable to the ownership and operation of the Borrower at all times when Holdings owns no material assets other than the Equity Interests of the Borrower; (iii) the proceeds of which shall be used by such Parent Entities to pay Restricted Payments contemplated by Section 10.6(b); (iv) the proceeds of which shall be used to make Restricted Payments to allow any Parent Entity to pay fees and expenses related to any equity issuance or offering or debt issuance, incurrence or offering, Disposition or acquisition or investment transaction permitted by this Agreement, whether or not consummated; (v) the proceeds of which shall be used to pay fees and expenses (including franchise or similar taxes) required to maintain its corporate existence, customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers, employees and consultants of any Parent Entity, to the extent such salaries, bonuses, other benefits and indemnities are attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, it being understood that 100% of the foregoing costs and expenses shall be deemed attributable to the ownership and operation of the Borrower at all times when Holdings owns no material assets other than the Equity Interests of the Borrower; and (vi) in the form of Equity Interests of the Borrower (other than Disqualified Stock not otherwise permitted by Section 10.1); (g) the Borrower or any of the Restricted Subsidiaries may (i) pay cash in lieu of fractional shares in connection with any dividend, split or combination thereof or any Permitted Acquisition and (ii) so long as, after giving effect thereto on a Pro Forma Basis, (A) no Default or Event of Default shall have occurred and be continuing and (B) no Borrowing Base Deficiency exists, honor any conversion request by a holder of convertible Indebtedness and make cash payments in lieu of fractional shares in connection with any such conversion and may make payments on convertible Indebtedness in accordance with its terms; -155- 727670773 12335469

 
(h) the Borrower may pay any dividends or distributions within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of this Agreement; (i) at any time after the Amendment Period,that the Consolidated Total Debt to EBITDAX Ratio as of the last date of the most recent Test Period after giving effect thereto on a Pro Forma Basis is less than or equal to 4.0 to 1.0, and so long as, after giving effect thereto on a Pro Forma Basis, together with any concurrent Restricted Payments being paid under Sections 10.6(i) and (j), (i) no Event of Default shall have occurred and be continuing, and (ii) Liquidity is not less than 10% of the lesser of the Total Commitments and the then effective Borrowing Base (on a Pro Forma Basis after giving effect to such Restricted Payment), the Borrower may declare and pay additional Restricted Payments without limit in cash or otherwise to the holders of its or any Parent Entity’s Equity Interests; provided, that, in the case of any Restricted Payment in the form of assets other than cash, no such Restricted Payment shall be made if a Borrowing Base Deficiency would result from an adjustment to the Borrowing Base resulting from such Restricted Payment (unless the Borrower shall have cash on hand sufficient to eliminate any such potential Borrowing Base Deficiency); (j) in addition to the foregoing Restricted Payments and so long as no Event of Default shall have occurred and be continuing or would result therefrom and after giving effect to the making of any such Restricted Payment, together with any concurrent Restricted Payments being paid under Section 10.6(i) and Section 10.6(j), the Borrower shall be in Pro Forma Compliance (with theeach Financial Performance Covenant recomputed as of the last day of the most recently ended Test Period as if (i) such Restricted Payment had been paid on the first day of such Test Period and (ii) the amount of any Cure Amount made during such Test Period were not made to the extent (A) the amount of the Applicable Equity Amount after making the proposed Restricted Payment is less than or equal to the amount of such Cure Amount and (B) such Cure Amount was necessary for the Borrower to be in Pro Forma Compliance), the Borrower may declare and pay Restricted Payments in an aggregate amount not to exceed the Applicable Equity Amount at the time such Restricted Payment is paid; provided that, during the Amendment Period, at any time that the Consolidated Total Debt to EBITDAX Ratio as of the last date of the most recent Test Period after giving effect thereto on a Pro Forma Basis is not less than or equal to 4.0 to 1.0, (1) the Borrower shall not be permitted to declare or pay any Restricted Payments pursuant to this clause (j) utilizing any portion of the Applicable Equity Amount accrued on or prior to the Fifth Amendment Effective Date; and further provided, that as of any date during the Amendment Period, the(2) any Applicable Equity Amount that has otherwise accrued on or after the Fifth Amendment Effective Date shall be reduced by an amount equal to the aggregate amount of payments made in accordance with Section 10.7(a) duringafter the Fifth Amendment PeriodEffective Date in excess of the sum of (x) the Specified Debt Payment Cap as of such date minus (y) any amounts included therein on such date pursuant to clauses (c) or (d) of the definition of Specified Capital Amount; and -156- 727670773 12335469

 
(k) the Borrower may consummate the Transactions (and pay fees and expenses in connection therewith on or following the Closing Date) and make payments described in Sections 9.9(a), (f), (g), (h), (j) and (l) (subject to the conditions set out therein). 10.7 Limitations on Debt Payments and Amendments. (a) The Borrower will not, and will not permit any Restricted Subsidiary to prepay, repurchase or redeem or otherwise defease the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loans (or any Permitted Refinancing Indebtedness in respect of any of the foregoing) or any Permitted Additional Debt comprising senior subordinated or subordinated Indebtedness (it being understood that payments of regularly-scheduled cash interest in respect of the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loans (or any Permitted Refinancing Indebtedness in respect of any of the foregoing) or such Permitted Additional Debt shall be permitted); provided, however, that the Borrower or any Restricted Subsidiary may prepay, repurchase, redeem or defease the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loans (or any Permitted Refinancing Indebtedness in respect of any of the foregoing) or any such Permitted Additional Debt (A) in exchange for or with the proceeds of any Permitted Refinancing Indebtedness, (B) by converting or exchanging the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loans (or any Permitted Refinancing Indebtedness in respect of any of the foregoing) or any such Permitted Additional Debt to Qualified Equity Interests of the Borrower or any Parent Entity or (C) so long as, after giving effect thereto on a Pro Forma Basis, (1) no Event of Default has occurred and is continuing and (2) Liquidity is not less than 10% of the lesser of the Total Commitments and the then effective Borrowing Base (on a Pro Forma Basis after giving effect to such prepayment, repurchase, redemption or defeasance) (provided that, during the Amendment Period,at any time that the Consolidated Total Debt to EBITDAX Ratio as of the last date of the most recent Test Period after giving effect thereto on a Pro Forma Basis is not less than or equal to 4.5 to 1.0, the aggregate amount of payments and distributions in respect of such prepayments, repurchases, redemptions and defeasances in respect of principal payments made pursuant to this clause (C) shall not exceed the Specified Debt Payment Cap), provided, further, that, after giving effect to any adjustment of the Borrowing Base made pursuant to Section 2.14(g) and any repayment of the Loans required in connection therewith, the Borrower or any Restricted Subsidiary may make mandatory prepayments in respect of the Senior Secured Term Loans or the Senior Secured Notes (or any Permitted Refinancing Indebtedness in respect thereof that is secured by a Lien on the assets the disposition of which are the subject of the mandatory prepayment) with the proceeds of the disposition of any assets that have been pledged to secure such Senior Secured Term Loans or the Senior Secured Notes (or such Permitted Refinancing Indebtedness, if applicable); (b) The Borrower will not amend or modify the Senior Unsecured Notes Indenture, the Senior Secured Notes Indenture, the documentation governing the Senior Secured Term Loan Facility, the documentation governing any Permitted Refinancing Indebtedness in respect of the Senior Unsecured Notes, the Senior Secured Notes or the Senior Secured Term Loans or the documentation governing any senior subordinated or subordinated Permitted Additional Debt that constitutes Material Indebtedness or the terms applicable thereto, other than amendments or modifications that (A) would not be materially adverse to the Lenders (as -157- 727670773 12335469

 
determined in good faith by the Borrower), taken as a whole, or (B) otherwise comply with the definition of “Permitted Refinancing Indebtedness” that may be incurred to Refinance any such Indebtedness; and (c) Notwithstanding the foregoing and for the avoidance of doubt, nothing in this Section 10.7 shall prohibit (i) the repayment or prepayment of intercompany subordinated Indebtedness owed among the Borrower and/or the Restricted Subsidiaries, in either case unless an Event of Default has occurred and is continuing and the Borrower has received a notice from the Collateral Agent instructing it not to make or permit the Borrower and/or the Restricted Subsidiaries to make any such repayment or prepayment, (ii) substantially concurrent transfers of credit positions in connection with intercompany debt restructurings so long as such Indebtedness is permitted by Section 10.1 after giving effect to such transfer or (iii) at any time after the Amendment Period,that the Consolidated Total Debt to EBITDAX Ratio as of the last date of the most recent Test Period after giving effect thereto on a Pro Forma Basis is less than or equal to 4.5 to 1.0, the prepayment, repurchase, redemption or other defeasance of the Senior Unsecured Notes, the Senior Secured Notes, the Senior Secured Term Loans (or any Permitted Refinancing Indebtedness in respect of any of the foregoing) or any Permitted Additional Debt comprising senior subordinated or subordinated Indebtedness with an aggregate amount not to exceed the Applicable Equity Amount (with the Applicable Equity Amount being recomputed as of the last day of the most recently ended Test Period as if (i) such prepayment, repurchase, redemption or other defeasance had occurred on the first day of such Test Period and (ii) the amount of any Cure Amount made during such Test Period were not made to the extent (A) the amount of the Applicable Equity Amount after making the proposed prepayment, repurchase, redemption or other defeasance is less than or equal to the amount of such Cure Amount and (B) such Cure Amount was necessary for the Borrower to be in compliance on a Pro Forma Basis with the applicable Financial Performance Covenant) at the time of such prepayment, repurchase, redemption or defeasance. 10.8 Negative Pledge Agreements. The Borrower will not, and will not permit any of the Restricted Subsidiaries to, enter into or permit to exist any Contractual Requirement (other than this Agreement or any other Credit Document or any documentation in respect of secured Indebtedness otherwise permitted hereunder) that limits the ability of the Borrower or any Guarantor to create, incur, assume or suffer to exist Liens on property of such Person for the benefit of the Secured Parties with respect to the Obligations or under the Credit Documents; provided that the foregoing shall not apply to each of the following Contractual Requirements that: (a) (i) exist on the Closing Date and (to the extent not otherwise permitted by this Section 10.8) are listed on Schedule 10.8 and (ii) to the extent Contractual Requirements permitted by subclause (i) are set forth in an agreement evidencing Indebtedness or other obligations, are set forth in any agreement evidencing any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness or obligation so long as such Permitted Refinancing Indebtedness does not expand the scope of such Contractual Requirement; (b) are binding on a Restricted Subsidiary at the time such Restricted Subsidiary first becomes a Restricted Subsidiary of the Borrower, so long as such -158- 727670773 12335469

 
Contractual Requirements were not entered into solely in contemplation of such Person becoming a Restricted Subsidiary of the Borrower; (c) represent Indebtedness permitted under Section 10.1 of a Restricted Subsidiary of the Borrower that is not a Guarantor so long as such Contractual Requirement applies only to such Subsidiary and its Subsidiaries; (d) arise pursuant to agreements entered into with respect to any sale, transfer, lease or other Disposition permitted by Section 10.4 and applicable solely to assets under such sale, transfer, lease or other Disposition; (e) are customary provisions in joint venture agreements and other similar agreements permitted by Section 10.5 and applicable to joint ventures or otherwise arise in agreements which restrict the Disposition or distribution of assets or property in oil and gas leases, joint operating agreements, joint exploration and/or development agreements, participation agreements and other similar agreements entered into in the ordinary course of the oil and gas exploration and development business; (f) are negative pledges and restrictions on Liens in favor of any holder of Indebtedness permitted under Section 10.1, but solely to the extent any negative pledge relates to the property financed by or the subject of such Indebtedness; (g) are customary restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto; (h) comprise restrictions imposed by any agreement relating to secured Indebtedness permitted pursuant to Section 10.1 to the extent that such restrictions apply only to the property or assets securing such Indebtedness; (i) are customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary; (j) are customary provisions restricting assignment of any agreement entered into in the ordinary course of business; (k) restrict the use of cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; (l) are imposed by Requirements of Law; (m) exist under any documentation governing any Permitted Refinancing Indebtedness incurred to Refinance any Indebtedness but only to the extent such Contractual Requirement is not materially more restrictive, taken as a whole, than the Indebtedness being refinanced; (n) customary net worth provisions contained in real property leases entered into by any Restricted Subsidiary of the Borrower, so long as the Borrower has -159- 727670773 12335469

 
determined in good faith that such net worth provisions would not reasonably be expected to impair the ability of the Borrower and the Restricted Subsidiaries to meet their ongoing obligation; (o) are customary restrictions and conditions contained in the document relating to any Lien, so long as (i) such Lien is a Permitted Lien and such restrictions or conditions relate only to the specific asset subject to such Lien and (ii) such restrictions and conditions are not created for the purpose of avoiding the restrictions imposed by this Section 10.8; (p) are restrictions imposed by any agreement relating to Indebtedness incurred pursuant to Section 10.1 or Permitted Refinancing Indebtedness in respect thereof, to the extent such restrictions are not materially more restrictive, taken as a whole, than the restrictions contained in the Credit Documents or documentation with respect to the Senior Unsecured Notes, the Senior Secured Notes or the Senior Secured Term Loan Facility as determined by the Borrower in good faith; (q) are restrictions regarding licenses or sublicenses by the Borrower and the Restricted Subsidiaries of intellectual property in the ordinary course of business (in which case such restriction shall relate only to such intellectual property); (r) are encumbrances or restrictions contained in an agreement or other instrument of a Person acquired by or merged or consolidated with or into the Borrower or any Restricted Subsidiary, or of an Unrestricted Subsidiary that is designated a Restricted Subsidiary, or that is assumed in connection with the acquisition of assets from such Person, in each case that is in existence at the time of such transaction (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired or designated; and (s) are encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (r) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Borrower’s board of directors, no more restrictive in any material respect with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. 10.9 Limitation on Subsidiary Distributions. The Borrower will not, and will not permit any of its Restricted Subsidiaries that are not Guarantors to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to pay dividends or make any other distributions to the Borrower or any Restricted Subsidiary on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits or transfer any -160- 727670773 12335469

 
property to the Borrower or any Restricted Subsidiary except (in each case) for such encumbrances or restrictions existing under or by reason of: (a) contractual encumbrances or restrictions in effect on the Closing Date, including pursuant to the Credit Documents and any Hedging Obligations; (b) the Senior Unsecured Notes Indenture, the Senior Unsecured Notes and related guarantees, the Senior Secured Notes Indenture, the Senior Secured Notes, the Senior Secured Term Loan Facility and related guarantees and any related collateral documents; (c) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on transferring the property so acquired; (d) any applicable Requirement of Law; (e) any agreement or other instrument of a Person acquired by or merged or consolidated with or into the Borrower or any Restricted Subsidiary, or of an Unrestricted Subsidiary that is designated a Restricted Subsidiary, or that is assumed in connection with the acquisition of assets from such Person, in each case that is in existence at the time of such transaction (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired or designated; (f) contracts for the sale of assets, including customary restrictions with respect to a Subsidiary of the Borrower pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Equity Interests or assets of such Subsidiary; (g) secured Indebtedness otherwise permitted to be incurred pursuant to Section 10.1 and Section 10.2 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (h) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (i) other Indebtedness, Disqualified Stock or preferred stock of (i) Restricted Subsidiaries permitted to be incurred subsequent to the Closing Date pursuant to Section 10.1 so long as either (A) the provisions relating to such encumbrance or restriction contained in such Indebtedness are no less favorable to the Borrower, taken as a whole, as determined by the board of directors of the Borrower in good faith, than the provisions contained in this Agreement as in effect on the Closing Date or (B) any such encumbrance or restriction contained in such Indebtedness does not prohibit (except upon a default or an event of default thereunder) the payment of dividends in an amount sufficient, as determined by the board of directors of the Borrower in good faith, to impair the ability of the Borrower to make scheduled payments of cash interest on the Loans -161- 727670773 12335469

 
when due or (ii) Foreign Subsidiaries as to such Foreign Subsidiaries and their Subsidiaries; (j) customary provisions in joint venture agreements or agreements governing property held with a common owner and other similar agreements or arrangements relating solely to such joint venture or property; (k) customary provisions contained in leases, sub-leases, licenses, sub-licenses or similar agreements, in each case, entered into in the ordinary course of business; and (l) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (k) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Borrower’s board of directors, no more restrictive in any material respect with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. 10.10 Hedge AgreementsTransactions. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Hedge AgreementsTransaction with any Person other than: (a) Hedge AgreementsTransactions in respect of commodities entered into not for speculative purposes the net notional volumes for which (when aggregated with other commodity Hedge AgreementsTransactions then in effect, other than puts, floors and basis differential swaps on volumes already hedged pursuant to other Hedge AgreementsTransactions) do not exceed, as of the date the latest hedging transaction is entered into under a Hedge Agreement, 85% of the reasonably anticipated Hydrocarbon production from the Credit Parties’ total Proved Reserves (as forecast based upon the Initial Reserve Report or the most recent Reserve Report delivered pursuant to Section 9.14(a), as applicable) for the sixty-six (66) month period from the date of creation of such hedging arrangement (the “Ongoing Hedges”). In addition to the Ongoing Hedges, in connection with a proposed Permitted Acquisition (a “Proposed Acquisition”), the Credit Parties may also enter into incremental hedging contracts with respect to the Credit Parties’ reasonably anticipated projected production from the total Proved Reserves of the Borrower and its Restricted Subsidiaries as forecast based upon the most recent Reserve Report having notional volumes not in excess of 15% of the Credit Parties’ existing projected production prior to the consummation of such Proposed Acquisition for a period not exceeding 36 months from the date such hedging arrangement is created during the period between (i) the date on which such Credit Party signs a definitive acquisition agreement in connection with a Proposed Acquisition and (ii) the earliest of (A) the date of consummation of such Proposed Acquisition, (B) the date of termination of such Proposed Acquisition and (C) 90 days after the date of execution of such definitive acquisition agreement (or such longer period as to which the Administrative Agent may agree). However, all such incremental hedging contracts -162- 727670773 12335469

 
entered into with respect to a Proposed Acquisition must be terminated or unwound within 90 days following the date of termination of such Proposed Acquisition. It is understood that commodity Hedge AgreementsTransactions which may, from time to time, “hedge” the same volumes, but different elements of commodity risk thereof, shall not be aggregated together when calculating the foregoing limitations on notional volumes. (b) Other Hedge AgreementsTransactions (other than any Hedge AgreementsTransaction in respect of equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions) entered into not for speculative purposes. (c) It is understood that for purposes of this Section 10.10, the following Hedge AgreementsTransactions shall not be deemed speculative or entered into for speculative purposes: (i) any commodity Hedge AgreementTransaction intended, at inception of execution, to hedge or manage any of the risks related to existing and or forecasted Hydrocarbon production of the Borrower or its Restricted Subsidiaries (whether or not contracted) and (ii) any Hedge AgreementTransaction intended, at inception of execution, (A) to hedge or manage the interest rate exposure associated with any debt securities, debt facilities or leases (existing or forecasted) of the Borrower or its Restricted Subsidiaries, (B) for foreign exchange or currency exchange management, (C) to manage commodity portfolio exposure associated with changes in interest rates or (D) to hedge any exposure that the Borrower or its Restricted Subsidiaries may have to counterparties under other Hedge AgreementsTransactions such that the combination of such Hedge AgreementsTransactions is not speculative taken as a whole. (d) For purposes of entering into or maintaining Ongoing Hedges under Section 10.10(a), forecasts of reasonably projected Hydrocarbon production volumes and reasonably anticipated Hydrocarbon production from the Credit Parties’ total Proved Reserves based upon the Initial Reserve Report or the most recent Reserve Report delivered pursuant to Section 9.14(a), as applicable, shall be revised to account for any increase or decrease therein anticipated because of information obtained by Borrower or any other Credit Party subsequent to the publication of such Reserve Report including the Borrower’s or any other Credit Party’s internal forecasts of production decline rates for existing wells and additions to or deletions from anticipated future production from new wells and acquisitions coming on stream or failing to come on stream. 10.11 Financial Performance Covenants. (a) 10.11 Consolidated TotalFirst Lien Debt to EBITDAX Ratio. The Borrower will not permit the Consolidated TotalFirst Lien Debt to EBITDAX Ratio for any Test Period ending on each date set forth belowthe last day of each fiscal quarter of the Borrower to be greater than the ratio set forth below opposite such date:2.25 to 1.00. Test Period Ending Ratio September 30, 2012 5.00 to 1.00 December 31, 2012 5.00 to 1.00 March 31, 2013 5.00 to 1.00 -163- 727670773 12335469

 
June 30, 2013 5.00 to 1.00 September 30, 2013 4.75 to 1.00 December 31, 2013 4.75 to 1.00 March 31, 2014 4.75 to 1.00 June 30, 2014 4.75 to 1.00 September 30, 2014 4.50 to 1.00 December 31, 2014 4.50 to 1.00 March 31, 2015 4.50 to 1.00 June 30, 2015 4.50 to 1.00 September 30, 2015 4.50 to 1.00 December 31, 2015 4.50 to 1.00 March 31, 2016 4.50 to 1.00 June 30, 2016 4.50 to 1.00 September 30, 2016 4.50 to 1.00 December 31, 2016 4.50 to 1.00 March 31, 2017 4.50 to 1.00 June 30, 2017 4.50 to 1.00 September 30, 2017 4.50 to 1.00 December 31, 2017 4.50 to 1.00 March 31, 2018 4.50 to 1.00 June 30, 2018 4.50 to 1.00 September 30, 2018 4.50 to 1.00 December 31, 2018 4.50 to 1.00 March 31, 2019 4.50 to 1.00 Maturity Date 4.50 to 1.00 Notwithstanding the foregoing paragraph, the Borrower shall not be required to comply with the foregoing paragraph during the period from (and including) the Fifth Amendment Effective Date until (and including) March 31, 2019 (such period, the “Amendment Period”). During the Amendment Period, the (b) Current Ratio. The Borrower will not permit the Consolidated First Lien Debt to EBITDAX Ratio forCurrent Ratio as of the last day of any Test Period ending on the last day of each fiscal quarter of the Borrower ending during the Amendment Period to be greaterless than 3.00 to 1.00. From and after the fiscal quarter ending June 30, 2019, the Borrower shall be required to comply with the preceding paragraph once again.1.00 to 1.00. 10.12 Accounts. Other than Excluded Accounts and amounts permitted to be maintained therein from time to time, no Credit Party shall (i) establish or maintain or (ii) deposit proceeds into, a deposit account, securities account or commodities account that is not subject to a Control Agreement. 10.13 10.12 Use of Credit Extensions in Violation of Sanctions. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, -164- 727670773 12335469

 
or in any Sanctioned Country, to the extent such activities, business or transaction would be prohibited by Sanctions if conducted by a corporation incorporated in the United States or in a European Union member state, or (C) in any manner that would result in the violation of any Sanctions applicable to any party hereto. SECTION 11. Events of Default Upon the occurrence of any of the following specified events (each an “Event of Default”): 11.1 Payments. The Borrower shall (a) default in the payment when due of any principal of the Loans or (b) default, and such default shall continue for five or more days, in the payment when due of any interest on the Loans or any Unpaid Drawings, fees or of any other amounts owing hereunder or under any other Credit Document (other than any amount referred to in clause (a) above). 11.2 Representations, Etc. Any representation, warranty or statement made or deemed made by any Credit Party herein or in any other Credit Document or any certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; provided that the failure of any representation or warranty made by any Credit Party (other than the Acquired Business Representations and the Specified Representations) to be true and correct in any material respect on the Closing Date will not constitute an Event of Default hereunder. 11.3 Covenants. Any Credit Party shall: (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 9.1(d)(i), 9.5 (solely with respect to the Borrower) or Section 10; or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 11.1 or 11.2 or clause (a) of this Section 11.3) contained in this Agreement or any Security Document and such default shall continue unremedied for a period of at least 30 days after receipt of written notice thereof by the Borrower from the Administrative Agent. 11.4 Default Under Other Agreements. (a) The Borrower or any of the Restricted Subsidiaries shall (i) default in any payment with respect to any Material Indebtedness (other than the Indebtedness described in Section 11.1) beyond the period of grace, if any, provided in the instrument of agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist (other than, (1) with respect to Indebtedness in respect of any Hedge AgreementsTransaction, termination events or equivalent events pursuant to the terms of the corresponding Hedge Agreements under which such Hedge AgreementsTransaction is entered into and (2) secured Indebtedness that becomes due as a result of a Disposition (including as a -165- 727670773 12335469

 
result of Casualty Event) of the property or assets securing such Indebtedness permitted under this Agreement), the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such Indebtedness to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, unless, in the case of each of the foregoing, such holder or holders shall have (or through its or their trustee or agent on its or their behalf) waived such default in a writing to the Borrower, or (b) Without limiting the provisions of clause (a) above, any such default under any such Material Indebtedness shall cause such Material Indebtedness to be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (and, (i) with respect to Indebtedness consistingin respect of any Hedge AgreementsHedging Obligations, other than due to a termination event or equivalent event pursuant to the terms of suchthe Hedge Agreements under which the applicable Hedge Transaction was entered into and (ii) other than secured Indebtedness that becomes due as a result of a Disposition (including as a result of Casualty Event) of the property or assets securing such Indebtedness permitted under this Agreement), prior to the stated maturity thereof. 11.5 Bankruptcy, Etc. The Borrower or any Specified Subsidiary shall commence a voluntary case, proceeding or action concerning itself under (a) Title 11 of the United States Code entitled “Bankruptcy” or any other applicable insolvency, debtor relief, or debt adjustment law; or (b) in the case of any Foreign Subsidiary that is a Specified Subsidiary, any domestic or foreign law relating to bankruptcy, judicial management, insolvency, reorganization, administration or relief of debtors in effect in its jurisdiction of incorporation, in each case as now or hereafter in effect, or any successor thereto (collectively, the “Bankruptcy Code”); or an involuntary case, proceeding or action is commenced against the Borrower or any Specified Subsidiary and the petition is not dismissed or stayed within 60 days after commencement of the case, proceeding or action, the Borrower or the applicable Specified Subsidiary consents to the institution of such case, proceeding or action prior to such 60-day period, or any order of relief or other order approving any such case, proceeding or action is entered; or a custodian (as defined in the Bankruptcy Code), receiver, receiver manager, trustee, conservator, liquidator, examiner, rehabilitator, administrator, or similar person is appointed for, or takes charge of, the Borrower or any Specified Subsidiary or all or any substantial portion of the property or business thereof; or the Borrower, any Guarantor or any Specified Subsidiary suffers any appointment of any custodian, receiver, receiver manager, trustee, conservator, liquidator, examiner, rehabilitator, administrator, or the like for it or any substantial part of its property or business to continue undischarged or unstayed for a period of 60 days; or the Borrower or any Specified Subsidiary makes a general assignment for the benefit of creditors. 11.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code; any Plan is or shall have been terminated or is the subject of termination proceedings under ERISA (including the giving of written notice thereof); an event shall have occurred or a condition shall exist in either case entitling the PBGC -166- 727670773 12335469

 
to terminate any Plan or to appoint a trustee to administer any Plan (including the giving of written notice thereof); any Plan shall have an accumulated funding deficiency (whether or not waived); the Borrower or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code (including the giving of written notice thereof); and (b) there would result from any event or events set forth in clause (a) of this Section 11.6 the imposition of a lien, the granting of a security interest, or a liability, or the reasonable likelihood of incurring a lien, security interest or liability; and (c) such lien, security interest or liability will or would be reasonably likely to have a Material Adverse Effect. 11.7 Guarantee. The Guarantee or any material provision thereof shall cease to be in full force or effect (other than pursuant to the terms hereof and thereof) or any Guarantor or any other Credit Party shall assert in writing that any such Guarantor’s obligations under the Guarantee are not to be in effect or are not to be legal, valid and binding obligations (other than pursuant to the terms hereof or thereof). 11.8 Security Documents. The Security Agreements, Mortgage or any other Security Document pursuant to which assets of the Borrower and the Credit Parties with an aggregate fair market value in excess of $125,000,000 are pledged as Collateral or any material provision thereof shall cease to be in full force or effect (other than pursuant to the terms hereof or thereof) or any grantor thereunder or any other Credit Party shall assert in writing that any grantor’s obligations under the Security Agreements, the Mortgage or any other Security Document are not in effect or not legal, valid and binding obligations (other than pursuant to the terms hereof or thereof). 11.9 Judgments. One or more monetary judgments or decrees shall be entered against the Borrower or any of the Restricted Subsidiaries involving a liability of $125,000,000 or more in the aggregate for all such judgments and decrees for the Borrower and the Restricted Subsidiaries (to the extent not paid or covered by insurance provided by a carrier not disputing coverage), which judgments are not discharged or effectively waived or stayed for a period of 60 consecutive days. 11.10 Change of Control. A Change of Control shall have occurred, then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent may and, upon the written request of the Majority Lenders, shall, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower or any other Credit Party, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified in Section 11.5 shall occur with respect to the Borrower, the result that would occur upon the giving of written notice by the Administrative Agent as specified in clauses (a), (b) and (c) below shall occur automatically without the giving of any such notice): (a) declare the Total Commitment and Swingline Commitment terminated, whereupon the Commitment of each Lender and the Swingline Lender, as the case may be, shall -167- 727670773 12335469

 
forthwith terminate immediately and any fees theretofore accrued shall forthwith become due and payable without any other notice of any kind; (b) declare the principal of and any accrued interest and fees in respect of any or all Loans and any or all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and/or (c) demand cash collateral in respect of any outstanding Letter of Credit pursuant to Section 3.8(b) in an amount equal to the aggregate Stated Amount of all Letters of Credit issued and then outstanding. In addition, after the occurrence and during the continuance of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity. 11.11 Application of Proceeds. Any amount received by the Administrative Agent or the Collateral Agent from any Credit Party (or from proceeds of any Collateral) following any acceleration of the Obligations under this Agreement or any Event of Default with respect to the Borrower under Section 11.5 shall be applied: First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, disbursements and other charges of counsel payable under Section 12.7 and amounts payable under Article II) payable to the Administrative Agent and/or Collateral Agent in such Person’s capacity as such; Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the Issuing Banks (including fees, disbursements and other charges of counsel payable under Section 12.7) arising under the Credit Documents and amounts payable under Article II, ratably among them in proportion to the respective amounts described in this clause Second payable to them; Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans and Unpaid Drawings, ratably among the Lenders and the Issuing Banks in proportion to the respective amounts described in this clause Third payable to them; Fourth, (i) to payment of that portion of the Obligations constituting unpaid principal of the Loans, the Unpaid Drawings and Obligations then owing under Secured Hedge AgreementsTransactions and the Secured Cash Management Agreements and (ii) to Cash Collateralize that portion of Letters of Credit Outstanding comprising the aggregate undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrower pursuant to Section 3.8, ratably among the Lenders, the Issuing Banks, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them; provided that (x) any such amounts applied pursuant to the foregoing clause (ii) shall be paid to the Administrative Agent for the ratable account of the applicable Issuing Bank to Cash Collateralize such Letters of Credit Outstanding, (y) subject to Section 3.8, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to this clause Fourth shall be applied to satisfy drawings under such Letters of Credit as they occur and (z) upon the expiration of any Letter of Credit, the pro rata share of Cash -168- 727670773 12335469

 
Collateral attributable to such expired Letter of Credit shall be distributed in accordance with this clause Fourth; Fifth, to the payment of all other Obligations of the Credit Parties owing under or in respect of the Credit Documents that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably based upon the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date; and Last, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by Requirements of Law. Subject to Section 3.8, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above. 11.12 Equity Cure. (a) Notwithstanding anything to the contrary contained in this Section 11 or in any Credit Document, in the event that the Borrower fails to comply with theeither Financial Performance Covenant, then until the expiration of the tenth Business Day subsequent to the date the compliance certificate for calculating such Financial Performance Covenant is required to be delivered pursuant to Section 9.1(c) (the “Cure Deadline”), the Borrower shall have the right to cure such failure (the “Cure Right”) by receiving cash proceeds from an issuance of common Equity Interests (other than Disqualified Stock) as a cash capital contribution, and upon receipt by the Borrower of such cash proceeds (such cash amount being referred to as the “Cure Amount”) pursuant to the exercise of such Cure Right, thesuch Financial Performance Covenant shall be recalculated giving effect to the following pro forma adjustments: (i) EBITDAX or Current Assets, as applicable, shall be increased, solely for the purpose of determining the existence of an Event of Default resulting from a breach of thesuch Financial Performance Covenant with respect to any Test Period that includes the fiscal quarter for which the Cure Right was exercised and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; (ii) Consolidated Total Debt for such Test Period shall be decreased solely to the extent proceeds of the Cure Amount, if any, are actually applied to prepay any Indebtedness (provided that any such Indebtedness so prepaid shall be a permanent repayment of such Indebtedness and termination of commitments thereunder) included in the calculation of Consolidated Total Debt; and (iii) if, after giving effect to the foregoing recalculations, the Borrower shall then be in compliance with the requirements of theeach Financial Performance Covenant, the Borrower shall be deemed to have satisfied the requirements of the -169- 727670773 12335469

 
Financial Performance CovenantCovenants as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of the Financial Performance Covenant that had occurred shall be deemed cured for the purposes of this Agreement; provided that (iA) in each period of four consecutive fiscal quarters there shall be at least two fiscal quarters in which no Cure Right is exercised, (iiB) Cure Rights shall not be exercised more than five times during the term of this Agreement, (iiiC) each Cure Amount shall be no greater than the amount required to cause the Borrower to be in compliance with the applicable Financial Performance Covenant with respect to which the breach or default occurred (such amount, the “Necessary Cure Amount”); provided that if the Cure Right is exercised prior to the date financial statements are required to be delivered for such fiscal quarter, then the Cure Amount shall be equal to the amount reasonably determined by the Borrower in good faith that is required for purposes of complying with thesuch Financial Performance Covenant for such fiscal quarter (such amount, the “Expected Cure Amount”),(iv) (D) all Cure Amounts shall be disregarded for the purposes of any financial ratio determination under the Credit Documents other than for determining compliance with the Financial Performance Covenant and, (vE) no Lender or Issuing Bank shall be required to make any extension of credit hereunder during the 10 Business Day period referred to above, unless the Borrower shall have received the Cure Amount, and (F) to the extent the Borrower exercises more than one Cure Right in any single fiscal quarter, such exercises shall be deemed to be a single exercise of a Cure Right. (b) Expected Cure Amount. Notwithstanding anything herein to the contrary, to the extent that the Expected Cure Amount is (i) greater than the Necessary Cure Amount, then such difference may be used for the purposes of determining the Applicable Equity Amount and (ii) less than the Necessary Cure Amount, then not later than the applicable Cure Deadline, the Borrower must receive cash proceeds from issuance of Equity Interests (other than Disqualified Stock) or a cash capital contribution, which cash proceeds received by Borrower shall be equal to the shortfall between such Expected Cure Amount and such Necessary Cure Amount. SECTION 12. The Agents 12.1 Appointment. (a) Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Credit Documents and irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The provisions of this Section 12 (other than Section 12.1(c) with respect to the Lead Arrangers and the Joint Bookrunners and Section 12.9 with respect to the Borrower) are solely for the benefit of the Agents and the Lenders, and the Borrower shall not have rights as third party beneficiary of any such provision. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, (except those expressly set forth herein, or any fiduciary relationship with any Lenderthe Collateral Agent, the Swingline Lender, any Issuing Bank, any -170- 727670773 12335469

 
Lender, any Bookrunner or any Lead Arranger (regardless of whether a Default has occurred and is continuing), and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Administrative Agent. (b) The Administrative Agent, the Swingline Lender, each Lender and each Issuing Bank hereby irrevocably designate and appoint the Collateral Agent as the agent with respect to the Collateral, and each of the Administrative Agent, the Swingline Lender, each Lender and each Issuing Bank irrevocably authorizes the Collateral Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Collateral Agent shall not have any duties or responsibilities (except those expressly set forth herein,) or any fiduciary relationship with any of the Administrative Agent, the Swingline Lender, the Lenders or the Issuing Banksany Issuing Bank, any Lender, any Bookrunner or any Lead Arranger (regardless of whether a Default has occurred and is continuing), and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Collateral Agent. Without limiting the generality of the foregoing, the Collateral Agent shall not be subject to any fiduciary or other implied duties. (c) Each of the Lead Arrangers, the Joint Bookrunners and the Senior Managing Agents, each in its capacity as such, shall not have any obligations, duties or responsibilities under this Agreement but shall be entitled to all benefits of this Section 12. 12.2 Delegation of Duties. The Administrative Agent and the Collateral Agent may each execute any of its duties under this Agreement and the other Credit Documents by or through agents, sub-agents, employees or attorneys-in-fact (each, a “Subagent”) and shall be entitled to advice of counsel concerning all matters pertaining to such duties; provided, however, that no such Subagent shall be authorized to take any action with respect to any Collateral unless and except to the extent expressly authorized in writing by the Administrative Agent. If any Subagent, or successor thereto, shall die, become incapable of acting, resign or be removed, all rights, powers, privileges and duties of such Subagent, to the extent permitted by law, shall automatically vest in and be exercised by the Administrative Agent until the appointment of a new Subagent. Neither the Administrative Agent nor the Collateral Agent shall be responsible for the negligence or misconduct of any Subagents selected by it in the absence of gross negligence or willful misconduct (as determined in the final judgment of a court of competent jurisdiction). 12.3 Exculpatory Provisions. No Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by any of them under or in connection with this Agreement or any other Credit Document (except for its or such Person’s own gross negligence or willful misconduct, as determined in the final judgment of a court of competent jurisdiction, in connection with its duties expressly set forth herein) or (b) responsible in any manner to any of the Lenders or any participant for any recitals, statements, representations or warranties made by any of the -171- 727670773 12335469

 
Borrower, any other Credit Party or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by such Agent under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document, or, except with respect to any physical certificate or instrument representing Pledged Securities (as defined in the Collateral Agreement) in the possession of the Agent, the perfection or priority of any Lien or security interest created or purported to be created under the Security Documents or for any failure of the Borrower or any other Credit Party to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the properties, books or records of any Credit Party or any Affiliate thereof. The Collateral Agent shall not be under any obligation to the Administrative Agent, any Lender, the Swingline Lender or any Issuing Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the properties, books or records of any Credit Party. The Administrative Agent does not warrant or accept responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “LIBOR Rate” or with respect to any comparable or successor rate thereto, or replacement rate therefor. 12.4 Reliance by Agents. The Administrative Agent and the Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or instruction believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent or the Collateral Agent. The Administrative Agent may deem and treat the Lender specified in the Register with respect to any amount owing hereunder as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent and the Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent and the Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans; provided that the Administrative Agent and Collateral Agent shall not be required to take any action that, in its opinion or in the opinion of its counsel, may expose it to liability or that is contrary to any Credit Document or applicable Requirements of Law. For purposes of determining compliance with the conditions specified in Section 6 and Section 7 on the Closing Date, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the -172- 727670773 12335469

 
Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. 12.5 Notice of Default. Neither the Administrative Agent nor the Collateral Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent or Collateral Agent, as applicable, has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, it shall give notice thereof to the Lenders and the Collateral Agent. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders except to the extent that this Agreement requires that such action be taken only with the approval of the Majority Lenders, the Required Lenders or each individual lender, as applicable. 12.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor the Collateral Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent or Collateral Agent hereinafter taken, including any review of the affairs of the Borrower or any other Credit Party, shall be deemed to constitute any representation or warranty by the Administrative Agent or Collateral Agent to any Lender, the Swingline Lender or any Issuing Bank. Each Lender, the Swingline Lender and each Issuing Bank represents to the Administrative Agent and the Collateral Agent that it has, independently and without reliance upon the Administrative Agent, Collateral Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and each other Credit Party and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, Collateral Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and any other Credit Party. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent nor the Collateral Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, assets, operations, properties, financial condition, prospects or creditworthiness of the Borrower or any other Credit Party that may come into the possession of the Administrative Agent or Collateral Agent any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. -173- 727670773 12335469

 
12.7 Indemnification. The Lenders severally agree to indemnify the Administrative Agent and the Collateral Agent, each in its capacity as such (to the extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit Parties to do so), ratably according to their respective portions of the Commitments or Loans, as applicable, outstanding in effect on the date on which indemnification is sought (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their respective portions of the Total Exposure in effect immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time occur (including at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent or the Collateral Agent in any way relating to or arising out of the Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent or the Collateral Agent under or in connection with any of the foregoing; provided that no Lender shall be liable to the Administrative Agent or the Collateral Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Administrative Agent’s or the Collateral Agent’s, as applicable, gross negligence, bad faith or willful misconduct as determined by a final judgment of a court of competent jurisdiction; provided, further, that no action taken in accordance with the directions of the Majority Lenders (or such other number or percentage of the Lenders as shall be required by the Credit Documents) shall be deemed to constitute gross negligence, bad faith or willful misconduct for purposes of this Section 12.7. In the case of any investigation, litigation or proceeding giving rise to any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time occur (including at any time following the payment of the Loans), this Section 12.7 applies whether any such investigation, litigation or proceeding is brought by any Lender or any other Person. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent and the Collateral Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including attorneys’ fees) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice rendered in respect of rights or responsibilities under, this Agreement, any other Credit Document, or any document contemplated by or referred to herein, to the extent that such Agent is not reimbursed for such expenses by or on behalf of the Borrower; provided that such reimbursement by the Lenders shall not affect the Borrower’s continuing reimbursement obligations with respect thereto. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender’s pro rata portion thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement resulting from such Agent’s gross negligence, bad faith or willful -174- 727670773 12335469

 
misconduct. The agreements in this Section 12.7 shall survive the paymenttermination of this Agreement and the repayment of the Loans and payment of all other amounts payable hereunder. 12.8 Agents in Its Individual Capacities. Each Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and any other Credit Party as though such Agent were not an Agent hereunder and under the other Credit Documents. With respect to the Loans made by it, each Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity. 12.9 Successor Agents. Each of the Administrative Agent and Collateral Agent may at any time give notice of its resignation to the Lenders, the Swingline Lender, the Issuing Banks and the Borrower. If the Administrative Agent, Swingline Lender and/or Collateral Agent becomes a Defaulting Lender, then such Administrative Agent, Swingline Lender or Collateral Agent, may be removed as the Administrative Agent, Swingline Lender or Collateral Agent, as the case may be, at the reasonable request of the Borrower and the Required Lenders. Upon receipt of any such notice of resignation or removal, as the case may be, the Majority Lenders shall have the right, subject to the consent of the Borrower (not to be unreasonably withheld or delayed) so long as no Default under Section 11.1 or 11.5 is continuing, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If, in the case of a resignation of a retiring Agent, no such successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may on behalf of the Lenders, the Swingline Lender and the Issuing Banks, appoint a successor Agent meeting the qualifications set forth above. Upon the acceptance of a successor’s appointment as the Administrative Agent or Collateral Agent, as the case may be, hereunder, and upon the execution and filing or recording of such financing statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Majority Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Security Documents, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder or under the other Credit Documents (if not already discharged therefrom as provided above in this Section 12.9). The fees payable by the Borrower (following the effectiveness of such appointment) to such Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Agent’s resignation hereunder and under the other Credit Documents, the provisions of this Section 12 (including Section 12.7) and Section 13.5 shall continue in effect for the benefit of such retiring Agent, its Subagents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as an Agent. Any resignation of any Person as Administrative Agent pursuant to this Section 12.9 shall also constitute its resignation as Issuing Bank and Swingline Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Issuing Bank, (b) the retiring Issuing Bank shall be discharged from all of their respective -175- 727670773 12335469

 
duties and obligations hereunder or under the other Credit Documents, and (c) the successor Issuing Bank shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring Issuing Bank to effectively assume the obligations of the retiring Issuing Bank with respect to such Letters of Credit. 12.10 Withholding Tax. To the extent required by any applicable Requirement of Law, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender for any reason (including because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding tax ineffective), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by any applicable Credit Party and without limiting the obligation of any applicable Credit Party to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as Tax or otherwise, including penalties, additions to Tax and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Credit Document against any amount due to the Administrative Agent under this Section 12.10. For the avoidance of doubt, for purposes of this Section 12.10, the term “Lender” includes any Issuing Bank and any Swingline Lender. 12.11 Security Documents and Collateral Agent under Security Documents and Guarantee. Each Secured Party hereby further authorizes the Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of Secured Parties, to be the agent for and representative of the Secured Parties with respect to the Collateral and the Security Documents. Subject to Section 13.1, without further written consent or authorization from any Secured Party, the Administrative Agent or Collateral Agent, as applicable, may (a) execute any documents or instruments necessary in connection with a Disposition of assets permitted by this Agreement, (b) release any Lien encumbering any item of Collateral that is the subject of such Disposition of assets or with respect to which Majority Lenders (or such other Lenders as may be required to give such consent under Section 13.1) have otherwise consented or (c) release any applicable Guarantor from the Guarantee in connection with such Disposition or with respect to which Majority Lenders (or such other Lenders as may be required to give such consent under Section 13.1) have otherwise consented. The Lenders and the Issuing Banks (including in their capacities as potential Cash Management Banks and potential Hedge Banks) irrevocably agree that (x) the Collateral Agent may, without any further consent of any Lender, enter into or amend the Senior Lien Intercreditor Agreement or any other intercreditor agreement with the collateral agent or other representatives of the holders of Indebtedness that is permitted to be secured by a Lien on the Collateral that is permitted under this Agreement, (y) the Collateral Agent may rely exclusively on a certificate of an Authorized Officer of the Borrower as to whether any such other Liens are permitted and (z) the Senior Lien Intercreditor Agreement or any such intercreditor agreement referred to in clause (x) above, entered into by the Collateral Agent, shall be binding on the Secured Parties. Furthermore, the Lenders and the Issuing Banks -176- 727670773 12335469

 
(including in their capacities as potential Cash Management Bank and potential Hedge Banks) hereby authorize the Administrative Agent and the Collateral Agent to subordinate any Lien on any property granted to or held by the Administrative Agent or Collateral Agent under any Credit Document to the holder of any Lien on such property that is permitted by clause (j) of the definition of “Permitted Liens” and clauses (c), (e) (with respect to Liens securing Indebtedness permitted under Section 10.1), (f), (j), (o), (p) and (t) of Section 10.2 or otherwise permitted to be senior to the Liens of Administrative Agent or Collateral Agent on such property; provided that prior to any such request, the Borrower shall have in each case delivered to the Administrative Agent a certificate of an Authorized Officer of the Borrower certifying that such subordination is permitted under this Agreement. 12.12 Right to Realize on Collateral and Enforce Guarantee. (a) Anything contained in any of the Credit Documents to the contrary notwithstanding, the Borrower, the Agents and each Secured Party hereby agree that (a) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guarantee, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Administrative Agent, on behalf of the Secured Parties in accordance with the terms hereof and all powers, rights and remedies under the Security Documents may be exercised solely by the Collateral Agent, and (b) in the event of a foreclosure by the Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Collateral Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Collateral Agent, as agent for and representative of the Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless the Majority Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Collateral Agent at such sale or other disposition. (b) The Secured Parties hereby irrevocably authorize the Collateral Agent to credit bid all or any portion of the Obligations (including by accepting some or all of the Collateral in satisfaction of some or all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (i) at any sale thereof conducted under the provisions of the Bankruptcy Code, including under Sections 363, 1123 or 1129 of the Bankruptcy Code, or any similar laws in any other jurisdictions, or (ii) at any other sale, foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Collateral Agent (whether by judicial action or otherwise) in accordance with any applicable law. In connection with any such credit bid and purchase, the Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid by the Collateral Agent at the direction of the Majority Lenders on a ratable basis (with Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that shall vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) for the asset or assets so purchased (or for the equity interests or debt instruments of the acquisition vehicle or vehicles that are issued in connection with such purchase). In connection with any -177- 727670773 12335469

 
such bid (i) the Collateral Agent shall be authorized to form one or more acquisition vehicles and to assign any successful credit bid to such acquisition vehicle or vehicles, (ii) each of the Secured Parties’ ratable interests in the Obligations that were credit bid shall be deemed without any further action under this Agreement to be assigned to such vehicle or vehicles for the purpose of closing such sale, (iii) the Collateral Agent shall be authorized to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or equity interests thereof, shall be governed, directly or indirectly, by, and the governing documents shall provide for, control by the vote of the Majority Lenders or their permitted assignees under the terms of this Agreement or the governing documents of the applicable acquisition vehicle or vehicles, as the case may be, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Majority Lenders contained in Section 13.1 of this Agreement), (iv) the Collateral Agent on behalf of such acquisition vehicle or vehicles shall be authorized to issue to each of the Secured Parties, ratably on account of the relevant Obligations that were credit bid, interests, whether as equity, partnership, limited partnership interests or membership interests, in any such acquisition vehicle and/or debt instruments issued by such acquisition vehicle, all without the need for any Secured Party or acquisition vehicle to take any further action, and (v) to the extent that Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Obligations assigned to the acquisition vehicle exceeds the amount of Obligations credit bid by the acquisition vehicle or otherwise), such Obligations shall automatically be reassigned to the Secured Parties pro rata and the equity interests and/or debt instruments issued by any acquisition vehicle on account of such Obligations shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action. Notwithstanding that the ratable portion of the Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in clause (ii) above, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party that will receive interests in or debt instruments issued by such acquisition vehicle) as the Administrative Agent may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid. 12.13 Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding, constituting an Event of Default under Section 11.5, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the -178- 727670773 12335469

 
Administrative Agent and their respective agents and counsel, to the extent due under Section 13.5) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, to the extent due under Section 13.5. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. 12.14 Certain ERISA Matters. (a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and its respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that at least one of the following is and will be true: (i) such Lender is not using “plan assets” (within the meaning of the Plan Asset Regulations) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments, (ii) the transaction exemption set forth in one or more PTEs, such as PTE 84 14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, and the conditions for exemptive relief thereunder are and will continue to be satisfied in connection therewith, (iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the -179- 727670773 12335469

 
Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or (iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender. (b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and its Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that: (i) none of the Administrative Agent or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto), (ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is independent (within the meaning of 29 CFR § 2510.3-21, as amended from time to time) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E), (iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the obligations), (iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Letters of Credit, the Commitments and this Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and (v) no fee or other compensation is being paid directly to the Administrative Agent or any its Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this Agreement. -180- 727670773 12335469

 
(c) The Administrative Agent hereby informs the Lenders that it is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Credit Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing. SECTION 13. Miscellaneous 13.1 Amendments, Waivers and Releases. (a) Except as expressly set forth in this Agreement, neither this Agreement nor any other Credit Document, nor any terms hereof or thereof, may be amended, supplemented or modified except in accordance with the provisions of this Section 13.1. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent and/or the Collateral Agent shall, from time to time, (a) enter into with the relevant Credit Party or Credit Parties written amendments, supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit Parties hereunder or thereunder or (b) waive in writing, on such terms and conditions as the Majority Lenders or the Administrative Agent and/or Collateral Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; provided, however, that each such waiver and each such amendment, supplement or modification shall be effective only in the specific instance and for the specific purpose for which given; provided, further, that no such waiver and no such amendment, supplement or modification shall (i) forgive or reduce any portion of any Loan or reduce the stated rate (it being understood that only the consent of the Majority Lenders shall be necessary to waive any obligation of the Borrower to pay interest at the Default Rate or amend Section 2.8(e)), or forgive any portion of, or extend the Maturity Date or the date for the payment, of the Loans or any interest or fee payable hereunder (other than as a result of waiving the applicability of any post-default increase in interest rates and any change due to a change in the Borrowing Base or Available Commitment), or extend the final expiration date of any Lender’s Commitment (provided that (1) any Lender, upon the request of the Borrower, may extend the final expiration date of its Commitment without the consent of any other Lender, including the Majority Lenders and (2) it is being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitments of any Lender), and (3) the Maturity Date may be extended in accordance with Section 2.17) or extend the final expiration date of any Letter of Credit beyond the L/C Maturity Date, or increase the amount of the Commitment of any Lender (provided that, any -181- 727670773 12335469

 
Lender, upon the request of the Borrower, may increase the amount of its Commitment without the consent of any other Lender, including the Majority Lenders, so long as the Total Commitments after giving effect to such increase do not exceed the Maximum Total Commitment in effect at such time (after giving effect to any increase in the Maximum Total Commitments otherwise permitted at such time)), or make any Loan, interest, fee or other amount payable in any currency other than Dollars, in each case without the written consent of each Lender directly and adversely affected thereby, or (ii) amend, modify or waive any provision of this Section 13.1 in a manner that would reduce the voting rights of any Lender, or reduce the percentages specified in the definitions of the terms “Majority Lenders”, “Required Lenders” or “Borrowing Base Required Lenders” (it being understood that, with the consent of the Majority Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Lenders, Required Lenders and Borrowing Base Required Lender on substantially the same basis as the Loans and Commitments are included on the Closing Date), or amend any other provision of this Agreement that expressly provides that the consent of all Lenders or all affected Lenders is required, or consent to the assignment or transfer by the Borrower of its rights and obligations under any Credit Document to which it is a party (except as permitted pursuant to Section 10.3), in each case without the written consent of each Lender directly and adversely affected thereby, or (iii) amend the provisions of Section 11.11 or any analogous provision of any Security Document, in a manner that would by its terms alter the pro rata sharing of payments required thereby, without the prior written consent of each Lender directly and adversely affected thereby, or (iv) amend, modify or waive any provision of Section 12 without the written consent of the then-current Administrative Agent and Collateral Agent, as applicable, or any other former or current Agent to whom Section 12 then applies in a manner that directly and adversely affects such Person, or (v) amend, modify or waive any provision of Section 3 with respect to any Letter of Credit without the written consent of each Issuing Bank to whom Section 3 then applies in a manner that directly and adversely affects such Person, or (vi) amend, modify or waive any provisions hereof relating to Swingline Loans without the written consent of the Swingline Lender, or (vii) release all or substantially all of the Guarantors under the Guarantee (except as expressly permitted by the Guarantee or this Agreement) without the prior written consent of each Lender, or (viii) release all or substantially all of the Collateral under the Security Documents (except as expressly permitted by the Security Documents or this Agreement) without the prior written consent of each Lender, or (ix) amend Section 2.9 so as to permit Interest Period intervals greater than six months without regard to availability to Lenders, without the written consent of each Lender directly and adversely affected thereby, or (x) increase the Maximum Total Commitment or the Borrowing Base without the written consent of the Borrowing Base Required Lenders (other than Defaulting Lenders), decrease or maintain the Borrowing Base without the written consent of the Required Lenders or otherwise modify Section 2.14(b), (c), (d), (e), (f) or (g) if such modification would have the effect of increasing the Borrowing Base without the written consent of Borrowing Base Required Lenders (other than Defaulting Lenders); provided that a Scheduled Redetermination may be postponed by the Majority Lenders, or (xi) affect the rights or duties of, or any fees or other amounts payable to, any Agent under this Agreement or any other Credit Document without the prior written consent of such Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the affected Lenders and shall be binding upon the Borrower, such Lenders, the Administrative Agent and all future holders of the affected Loans. In the case of any waiver, the Borrower, the Lenders and the Administrative -182- 727670773 12335469

 
Agent shall be restored to their former positions and rights hereunder and under the other Credit Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; it being understood that no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. In connection with the foregoing provisions, the Administrative Agent may, but shall have no obligations to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender whose consent is required hereunder. (b) Without the consent of any Lender or Issuing Bank, the Credit Parties and the Administrative Agent or Collateral Agent may (in their respective sole discretion, or shall, to the extent required by any Credit Document) enter into any amendment, modification or waiver of any Credit Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable law or this Agreement or in each case to otherwise enhance the rights or benefits of any Lender under any Credit Document. (c) Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Majority Lenders, the Administrative Agent and the Borrower (a) to add one or more additional credit or debt facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Credit Documents with the Loans and the Commitments and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit or debt facilities in any determination of the Majority Lenders, the Required Lenders and the Borrowing Base Required Lenders on substantially the same basis as the Lenders prior to such inclusion. (d) Notwithstanding the foregoing, technical and conforming modifications to the Credit Documents may be made with the consent of the Borrower and the Administrative Agent (i) if such modifications are not adverse to the Lenders or (ii) to the extent necessary (A) to integrate any Incremental Increase or Extended Commitment contemplated by Sections 2.16 and 2.17 or (B) to cure any ambiguity, omission, defect or inconsistency so long as, in each case with respect to this clause (B), the Lenders shall have received at least five Business Days’ prior written notice thereof and the Administrative Agent shall not have received, within five Business Days of the date of such notice to the Lenders, a written notice from the Majority Lenders stating that the Majority Lenders object to such amendment. 13.2 Notices. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder or under any other Credit Document shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered to the applicable address, facsimile number or electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: -183- 727670773 12335469

 
(a) if to the Borrower, the Administrative Agent, the Collateral Agent, the Swingline Lender or any Issuing Bank, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 13.2 or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and (b) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrower, the Administrative Agent, the Collateral Agent, the Swingline Lender and the Issuing Banks. All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii)(A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, three Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail, when delivered; provided that notices and other communications to the Administrative Agent or the Lenders pursuant to Sections 2.3, 2.6, 2.9, 4.2 and 5.1 shall not be effective until received. 13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Collateral Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Requirements of Law. 13.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Credit Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 13.5 Payment of Expenses; Indemnification. The Borrower agrees (a) to pay or reimburse the Agents for all their reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation and execution and delivery of, and any amendment, waiver, supplement or modification to, this Agreement and the other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees, disbursements and other charges of Cahill Gordon & Reindel LLP and Mayer Brown LLP, in theirits capacity as counsel to the Lead Arrangers, the Joint Bookrunners and the Senior Managing Agents, and one counsel in each appropriate local jurisdiction (excluding any allocated costs of in-house counsel), (b) to pay or reimburse each Issuing Bank and Agent for all its reasonable and documented out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, -184- 727670773 12335469

 
the other Credit Documents and any such other documents, in each case, whether before or after the occurrence of an Event of Default, including the reasonable fees, disbursements and other charges of one counsel, and one counsel in each appropriate local jurisdiction to the Administrative Agent, Collateral Agent and the other Agents (unless there is an actual or perceived conflict of interest in which case each such Person may, with the Borrower’s consent (not to be unreasonably withheld or delayed), retain its own counsel), (c) to pay, indemnify, and hold harmless each Lender, Issuing Bank and Agent from, any and all recording and filing fees and (d) to pay, indemnify, and hold harmless each Lender, Issuing Bank and Agent and their respective Related Parties from and against any and all other liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, whether or not such proceedings are brought by the Borrower, any of its Related Parties or any other third Person, including reasonable and documented fees, disbursements and other charges of one primary counsel for all such Persons, taken as a whole, and, if necessary, by a single firm of local counsel in each appropriate jurisdiction for all such Persons, taken as a whole (unless there is an actual or perceived conflict of interest in which case each such Person may, with the consent of the Borrower (not to be unreasonably withheld or delayed), retain its own counsel), with respect (i) the execution, delivery, enforcement, performance and administration of this Agreement, the other Credit Documents and any such other documents and (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by any 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), including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law (other than by such indemnified person or any of its Related Parties (other than any trustee or advisor)) or to any actual or alleged presence, release or threatened release of Hazardous Materials involving or attributable to the Borrower, any of its Subsidiaries or any of the Oil and Gas Properties (all the foregoing in this clause (d), collectively, the “Indemnified Liabilities”); provided that the Borrower shall have no obligation hereunder to any Agent or any Lender or any of their respective Related Parties with respect to Indemnified Liabilities to the extent to have resulted from (i) the gross negligence, bad faith or willful misconduct of the party to be indemnified or any of its Related Parties as determined by a final non-appealable judgment of a court of competent jurisdiction, (ii) any material breach of any Credit Document by the party to be indemnified or (iii) disputes, claims, demands, actions, judgments or suits not arising from any act or omission by the Borrower or its Affiliates, brought by an indemnified Person against any other indemnified Person (other than disputes, claims, demands, actions, judgments or suits involving claims against any Agent in its capacity as such). No Person entitled to indemnification under clause (d) of this Section 13.5 shall be liable for any damages arising from the use by others of any information or other materials obtained through internet, electronic, telecommunications or other information transmission systems (including IntraLinks or SyndTrak Online) in connection with this Agreement, except to the extent that such damages have resulted from the willful misconduct, bad faith or gross negligence of the party to be indemnified or any of its Related Parties (as determined by a court of competent jurisdiction in a final and non-appealable decision), nor (except solely as a result of the indemnification obligations of the Borrower or any of its Subsidiaries set forth above) shall any such Person, the Borrower or any of its Subsidiaries have any liability for any special, punitive, indirect or consequential damages (including, without limitation, any loss of profits, business or anticipated -185- 727670773 12335469

 
savings) relating to this Agreement or any other Credit Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date). All amounts payable under this Section 13.5 shall be paid within 10 Business Days of receipt by the Borrower of an invoice relating thereto setting forth such expense in reasonable detail, accompanied, if requested by the Borrower, by reasonable supporting documentation. The agreements in this Section 13.5 shall survive repayment of the Loans and payment of all other amounts payable hereunder. This Section 13.5 shall not apply with respect to any Taxes other than Taxes that represent liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever resulting from a non-Tax claim, which shall be governed exclusively by Section 5.4 and, to the extent set forth therein, Sections 2.10 and 3.5. 13.6 Successors and Assigns; Participations and Assignments. (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 each Issuing Bank that issues any Letter of Credit), except that (i) except as expressly permitted by Section 10.3, the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and 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 13.6. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of each Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in clause (c) of this Section 13.6) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Collateral Agent, each Issuing Bank and the Lenders and each other Person entitled to indemnification under Section 13.5) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) (i) Subject to the conditions set forth in clause (b)(ii) below, any Lender may at any time assign to one or more assignees (other than Holdings, the Borrower, its Subsidiaries, any natural person, any Ineligible Institution or any Defaulting Lender) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans (including participations in L/C Obligations or Swingline Loans) at the time owing to it) with the prior written consent of: (A) the Borrower (not to be unreasonably withheld or delayed); provided that no consent of the Borrower shall be required for an assignment if an Event of Default under Section 11.1 or Section 11.5 has occurred and is continuing or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund; and (B) the Administrative Agent, the Swingline Lender and each Issuing Bank (in each case, not to be unreasonably withheld or delayed). (i) Assignments shall be subject to the following additional conditions: -186- 727670773 12335469

 
(A) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund 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 Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 and increments of $1,000,000 in excess thereof, unless each of the Borrower, each Issuing Bank and the Administrative Agent otherwise consents (which consents shall not be unreasonably withheld or delayed); provided that no such consent of the Borrower shall be required if an Event of Default under Section 11.1 or Section 11.5 has occurred and is continuing; provided, further, that contemporaneous assignments to a single assignee made by Affiliates of Lenders and related Approved Funds shall be aggregated for purposes of meeting the minimum assignment amount requirements stated above; (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 Acceptance, together with a processing and recordation fee in the amount of $3,500; provided that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment; and (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire and applicable Tax forms (including those described in Sections 5.4(d), (e), (h) and (i), as applicable. (ii) Subject to acceptance and recording thereof pursuant to clause (b)(iv) of this Section 13.6, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, 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 Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance 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 2.10, 2.11, 3.5, 5.4 and 13.5). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 13.6 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 clause (c) of this Section 13.6. (iii) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount (and stated interest amounts) of the Loans and L/C Obligations and any payment made -187- 727670773 12335469

 
by each Issuing Bank under any applicable Letter of Credit owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). Further, the Register shall contain the name and address of the Administrative Agent and the lending office through which each such Person acts under this Agreement. The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent, the Collateral Agent, each Issuing Bank and the Lenders shall 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 Collateral Agent, each Issuing Bank, the Swingline Lender and, solely with respect to itself, each other Lender, at any reasonable time and from time to time upon reasonable prior notice. (iv) Upon its receipt of a duly completed Assignment and Acceptance 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 clause (b) of this Section 13.6 (unless waived) and any written consent to such assignment required by clause (b) of this Section 13.6, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. (c) (i) Any Lender may, without the consent of the Borrower, the Administrative Agent, any Swingline Lender or any Issuing Bank, sell participations to one or more banks, credit insurers or other entities other than any Defaulting Lender, any Ineligible Institution (to the extent that the list of Ineligible Institutions has been made available to all Lenders), the Borrower or any Subsidiary of the Borrower (each, a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments 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, each 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 or any other Credit Document; 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 clause (i) or (ii) of the second proviso of the second sentence of Section 13.1(a) that affects such Participant, provided that the Participant shall have no right to consent to any modification to the percentages specified in the definitions of the terms “Majority Lenders”, “Required Lenders” or “Borrowing Base Required Lenders”. Subject to clause (c)(ii) of this Section 13.6, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.10, 2.11, 3.5 and 5.4 to the same extent as if it were a Lender (subject to the limitations and requirements of those Sections and Sections 2.12 and 13.7) as though it were a Lender and had acquired its interest by assignment pursuant to clause (b) of this Section 13.6). To the extent permitted by Requirements of Law, each Participant also shall be entitled to the benefits of Section 13.8(b) as though it were a Lender; provided such Participant agrees to be subject to Section 13.8(a) as though it were a Lender. -188- 727670773 12335469

 
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.10, 2.11, 3.5 or 5.4 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 (which consent shall not be unreasonably withheld); provided that the Participant shall be subject to the provisions in Section 2.12 as if it were an assignee under clauses (a) and (b) of this Section 13.6. Each Lender that sells a participation shall, acting solely for this purpose as a nonfiduciary agent of the Borrower, maintain a register on which it enters the name and address of each participant and the principal amounts (and related interest amounts) of each participant’s interest in the Loans or other obligations under this Agreement (the “Participant Register”). The entries in the Participant Register shall be conclusive, absent manifest error, and each party hereto shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. No Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Credit Document) except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. (d) Any Lender may, without the consent of the Borrower, the Swingline Lender, any Issuing Bank or the Administrative Agent, 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 any pledge or assignment to secure obligations to a Federal Reserve Bank or any central bank having jurisdiction over such Lender, and this Section 13.6 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or 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. In order to facilitate such pledge or assignment or for any other reason, the Borrower hereby agrees that, upon request of any Lender at any time and from time to time after the Borrower has made its initial borrowing hereunder, the Borrower shall provide to such Lender, at the Borrower’s own expense, a promissory note, substantially in the form of Exhibit H-1 or H-2, as the case may be, evidencing the Loans and Swingline Loans, respectively, owing to such Lender. (e) Subject to Section 13.16, the Borrower authorizes each Lender to disclose to any Participant, secured creditor of such Lender or assignee (each, a “Transferee”) and any prospective Transferee this Agreement and the other Loan Documents, information regarding the Loans and the Letters of Credit, and any and all financial information in such Lender’s possession concerning the Borrower and its Affiliates that has been delivered to such Lender by or on behalf of the Borrower and its Affiliates pursuant to this Agreement or that has been delivered to such Lender by or on behalf of the Borrower and its Affiliates in connection with such Lender’s credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement. (f) The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Acceptance shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or -189- 727670773 12335469

 
enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. (g) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (a “SPV”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPV to make any Loan and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it shall not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 13.6, any SPV may (A) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (B) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPV. This Section 13.6(g) may not be amended without the written consent of the SPV. Notwithstanding anything to the contrary in this Agreement, subject to the following sentence, each SPV shall be entitled to the benefits of Sections 2.10, 2.11, 3.5 and 5.4 to the same extent as if it were a Lender (subject to the limitations and requirements of Sections 2.10, 2.11, 3.5 and 5.4 as though it were a Lender, and Sections 2.12 and 13.7, and has acquired its interest by assignment pursuant to clause (b) of this Section 13.6. Notwithstanding the prior sentence, an SPV shall not be entitled to receive any greater payment under Section 2.10, 2.11, 3.5 or 5.4 than its Granting Lender would have been entitled to receive absent the grant to such SPV, unless such grant to such SPV is made with the Borrowers’ prior written consent (which consent shall not be unreasonably withheld or delayed). (h) Notwithstanding anything to the contrary contained herein, any Lender may, at any time, assign all or a portion of its rights and obligations under this Agreement in respect of its Loans to an Affiliated Lender; provided that, by its acquisition of Loans, an Affiliated Lender shall be deemed to have acknowledged and agreed that an Affiliated Lender shall make a representation and warranty to the assigning Lender that at the time of the -190- 727670773 12335469

 
assignment, the Affiliated Lender is not in possession of any material non-public information (within the meaning of United States securities laws) with respect to the Borrower and its Subsidiaries that has not been disclosed to such assigning Lender or the Lenders generally (other than because any such Lender has elected not to receive such material non-public information); provided further that: (i) it shall not have any right to (A) attend (including by telephone) any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender to which representatives of the Borrower are not then present, (B) receive any information or material prepared by the Administrative Agent, the Collateral Agent or any Lender or any communication by or among Administrative Agent, the Collateral Agent and one or more Lenders, except to the extent such information or materials have been made available to the Borrower or its representatives (and in any case, other than the right to receive notices of prepayments and other administrative notices in respect of its Loans required to be delivered to Lenders pursuant to Section 2), or (C) make or bring (or participate in, other than as a passive participant in or recipient of its pro rata benefits of) any claim, in its capacity as a Lender, against the Administrative Agent, the Collateral Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of such Agent or any other such Lender under the Credit Documents; (ii) except with respect to any amendment, modification, waiver, consent or other action described in clause (i) of the second proviso of the second sentence of Section 13.1(a) or that alters an Affiliated Lender’s pro rata share of any payments given to all Lenders, the Loans held by an Affiliated Lender shall be disregarded in both the numerator and denominator in the calculation of any Lender vote (and shall be deemed to have been voted in the same percentage as all other applicable Lenders that are not Affiliated Lenders voted if necessary to give legal effect to this paragraph) under any Credit Document; (iii) the aggregate principal amount of Loans held at any one time by Affiliated Lenders may not exceed 30% of the aggregate principal amount of all Loans outstanding at such time under this Agreement; and (iv) any such Loans acquired by an Affiliated Lender may, with the consent of the Borrower, be contributed to the Borrower and exchanged for debt or equity securities that are otherwise permitted to be issued at such time (and such contribution and/or exchange shall be permitted hereunder notwithstanding the non-pro rata reduction and repayment of such Lender’s Loans and Commitments hereunder as a result thereof). For the avoidance of doubt, assignments to Affiliated Institutional Lenders will be permitted hereunder and the foregoing limitations in this clause (h) shall not be applicable to Affiliated Institutional Lenders. (i) Ineligible Institutions. The Borrower has delivered to the Administrative Agent on or prior to the Closing Date a list of Ineligible Institutions, which list may be updated from to time by the Borrower in order to add one or more operational competitors of the Borrower to such list; provided that (A) in order to be effective, any such update must be -191- 727670773 12335469

 
provided in writing to the Administrative Agent at JPMDQ_Contact@jpmorgan.com (or such other address as the Administrative Agent (including any successor Administrative Agent) shall designate in writing to the Borrower) with confirmation of receipt requested, (B) such update shall not be effective until three (3) Business Days after receipt of written confirmation from the Administrative Agent, (C) notwithstanding anything to the contrary included in the original list of Ineligible Institutions or any such update to such list, no Affiliate of any specified Ineligible Institution shall be considered an Ineligible Institution unless Affiliates are expressly indicated in the original list or any such update and then only to the extent any such Affiliate is clearly identifiable solely on the basis of the similarity of its name to the specified Ineligible Institution, and (D) in no event shall any updates to the list of Ineligible Institutions provide for retroactive effect (and any statement to the contrary contained in any such update shall be disregarded and have no effect). In the event that a Lender proposes in good faith to assign all or a portion of its Commitments and Loans in accordance with clause (b) of this Section 13.6 to a bona fide assignee, such Lender may request in writing to the Borrower (with a copy to the Administrative Agent) that the Borrower confirm in writing that the specified proposed assignee is not an Ineligible Institution, and the Borrower will either respond to such request in good faith promptly following receipt, but in any event with three (3) Business Days or, if the Borrower does not so respond, such Lender may deem such proposed assignee as not constituting an Ineligible Institution. The Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Ineligible Institutions. Without limiting the generality of the foregoing, the Administrative Agent shall not (i) be obligated to ascertain, monitor or inquire as to whether any assignee Lender or Participant or prospective assignee Lender or Participant is an Ineligible Institution or (ii) have any liability with respect to or arising out of any assignment or participation of Commitments or Loans, or disclosure of confidential information, to any Ineligible Institution. 13.7 Replacements of Lenders under Certain Circumstances. (a) The Borrower shall be permitted to replace any Lender that (i) requests reimbursement for amounts owing pursuant to Section 2.10, 3.5 or 5.4 (other than Section 5.4(b)), (ii) is affected in the manner described in Section 2.10(a)(iii) and as a result thereof any of the actions described in such Section is required to be taken or (iii) becomes a Defaulting Lender, with a replacement bank, lending institution or other financial institution; provided that (A) such replacement does not conflict with any Requirement of Law, (B) no Event of Default under Section 11.1 or 11.5 shall have occurred and be continuing at the time of such replacement, (C) the replacement bank or institution shall purchase, at par, all Loans and the Borrower shall pay all other amounts (other than any disputed amounts), pursuant to Section 2.10, 3.5 or 5.4, as the case may be) owing to such replaced Lender prior to the date of replacement, (D) the replacement bank or institution, if not already a Lender, and the terms and conditions of such replacement, shall be reasonably satisfactory to the Administrative Agent, (E) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 13.6(b) (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein) and (F) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. -192- 727670773 12335469

 
(b) If any Lender (such Lender, a “Non-Consenting Lender”) has failed to consent to a proposed amendment, waiver, discharge or termination that pursuant to the terms of Section 13.1 requires the consent of all of the Lenders affected or the Required Lenders and with respect to which the Majority Lenders shall have granted their consent, then provided no Event of Default then exists, the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) to replace such Non-Consenting Lender by requiring such Non-Consenting Lender to assign its Loans and its Commitments hereunder to one or more assignees reasonably acceptable to the Administrative Agent; provided that: (i) all Obligations of the Borrower owing to such Non-Consenting Lender being replaced (other than principal and interest) shall be paid in full to such Non-Consenting Lender concurrently with such assignment, and (ii) the replacement Lender shall purchase the foregoing by paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued and unpaid interest thereon. In connection with any such assignment, the Borrower, Administrative Agent, such Non-Consenting Lender and the replacement Lender shall otherwise comply with Section 13.6. (c) Notwithstanding anything herein to the contrary, each party hereto agrees that any assignment pursuant to the terms of this Section 13.7 may be effected pursuant to an Assignment and Acceptance executed by the Borrower, the Administrative Agent and the assignee and that the Lender making such assignment need not be a party thereto. 13.8 Adjustments; Set-off. (a) If any Lender (a “benefited Lender”) shall at any time receive any payment in respect of any principal of or interest on all or part of the Loans made by it, or the participations in Letter of Credit Obligations held by it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 11.5, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender entitled thereto, if any, in respect of such other Lender’s Loans, or interest thereon, such benefited Lender shall (i) notify the Administrative Agent of such fact, and (ii) purchase for cash at face value from the other Lenders a participating interest in such portion of each such other Lender’s Loans, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably in accordance with the aggregate principal of and accrued interest on their respective Loans and other amounts owing them; provided, however, that, (A) if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest and (B) the provisions of this paragraph shall not be construed to apply to (1) any payment made by the Borrower or any other Credit Party pursuant to and in accordance with the terms of this Agreement and the other Credit Documents, (2) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans, Commitments or participations in Drawings to any assignee or participant or (3) any disproportionate payment obtained by a Lender as a result of the extension by Lenders of the maturity date or expiration date of some but not all Loans or Commitments or any increase in the Applicable Margin in respect of Loans or Commitments of Lenders that have consented to any such extension. Each Credit Party consents to the foregoing and agrees, to the extent it may effectively do so under Requirements of Law, that any Lender acquiring a participation pursuant -193- 727670773 12335469

 
to the foregoing arrangements may exercise against such Credit Party rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Credit Party in the amount of such participation. (b) After the occurrence and during the continuance of an Event of Default, in addition to any rights and remedies of the Lenders provided by Requirements of Law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable Requirements of Law, upon any amount becoming due and payable by the Borrower hereunder or under any Credit Document (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower.; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.15(f) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Collateral Agent, the Issuing Banks, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of set-off. Each Lender agrees promptly to notify the Borrower (and the Credit Parties, if applicable) and the Administrative Agent after any such set-off and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. 13.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile or other electronic transmission, i.e. a “pdf’ or a “tif’), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 13.10 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.11 Integration. This Agreement and the other Credit Documents represent the agreement of the Borrower, the Guarantors, the Collateral Agent, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Borrower, the Guarantors, any Agent nor any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. 13.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND -194- 727670773 12335469

 
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 13.13 Submission to Jurisdiction; Waivers. Each party hereto hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Credit Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York and the courts of the United States of America for the Southern District of New York, in each case located in New York County, and appellate courts from any thereof; (b) consents that any such action or proceeding shall be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Person at its address set forth on Schedule 13.2 at such other address of which the Administrative Agent shall have been notified pursuant to Section 13.2; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Requirements of Law or shall limit the right to sue in any other jurisdiction; (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 13.13 any special, exemplary, punitive or consequential damages; and (f) agrees that a final judgment in any 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. 13.14 Acknowledgments. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Credit Documents; (b) (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Credit Document) are an arm’s-length commercial transaction between the Borrower and the other Credit Parties, on the one hand, and the Administrative Agent, the Issuing Banks, the Lenders and the other Agents on the other hand, and the Borrower and the other Credit Parties are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the -195- 727670773 12335469

 
transactions contemplated hereby and by the other Credit Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each of the Administrative Agent, the other Agents, the Issuing Banks, and the Lenders, is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary for any of the Borrower, any other Credit Parties or any of their respective Affiliates, equity holders, creditors or employees or any other Person; (iii) neithernone of the Administrative Agent, any other Agent, any Joint Bookrunner, any Lead Arranger, any Senior Managing Agent, norIssuing Bank or any Lender has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower or any other Credit Party with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Credit Document (irrespective of whether the Administrative Agent or any other Agent, any Joint Bookrunner, any Lead Arranger, any Senior Managing AgentIssuing Bank, or any Lender has advised or is currently advising any of the Borrower, the other Credit Parties or their respective Affiliates on other matters) and none of the Administrative Agent, any Agent, any Joint Bookrunner, any Senior Managing Agent, any Lead Arranger, any Issuing Bank or any Lender has any obligation to any of the Borrower, the other Credit Parties or their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Credit Documents; (iv) the Administrative Agent and its Affiliates, each other Agent and each of its Affiliates, each Issuing Bank and each of its Affiliates and each Lender and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its respective Affiliates, and none of the Administrative Agent, any other Agent, any Issuing Bank or any Lender has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) neither it nor any of it Subsidiaries will assert any claim against the Administrative Agent, any Agent, any Joint Bookrunner, any Lead Arranger, any Issuing Bank or any Lender based on an alleged breach of fiduciary duty by any such Person in connection with this Agreement and the transactions contemplated hereby; and (vi) none of the Administrative Agent, any Agent, any Issuing Bank or any Lender has provided and none will provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Credit Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent and each Agent with respect to any breach or alleged breach of agency or fiduciary duty; and (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower, on the one hand, and any Lender, on the other hand. 13.15 WAIVERS OF JURY TRIAL. THE BORROWER, EACH AGENT, EACH ISSUING BANK AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR -196- 727670773 12335469

 
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 13.16 Confidentiality. The Administrative Agent, each other Agent, any Issuing Bank, the Swingline Lender and each other Lender shall hold all information not marked as “public information” and furnished by or on behalf of the Borrower or any of its Subsidiaries in connection with such Lender’s evaluation of whether to become a Lender hereunder or obtained by such Lender, the Swingline Lender, the Administrative Agent, any Issuing Bank or such other Agent pursuant to the requirements of this Agreement (“Confidential Information”), confidential in accordance with its customary procedure for handling confidential information of this nature and in any event may make disclosure (a) as required or requested by any Governmental Authority, self-regulatory agency or representative thereof or pursuant to legal process or applicable Requirements of Law, (b) to such Lender’s or the Administrative Agent’s, any Issuing Bank’s or such other Agent’s attorneys, professional advisors, financial or business consultants, accountants, independent auditors, trustees, agents or Affiliates (and any Affiliate’s attorneys, professional advisors, independent auditors, trustees or agents), in each case who need to know such information in connection with the administration of the Credit Documents and are informed of the confidential nature of such information, (c) to an investor or prospective investor in a securitization that agrees its access to information regarding the Credit Parties, the Loans and the Credit Documents is solely for purposes of evaluating an investment in a securitization and who agrees to treat such information as confidential, (d) to a trustee, collateral manager, servicer, backup servicer, noteholder or secured party in connection with the administration, servicing and reporting on the assets serving as collateral for a securitization and who agrees to treat such information as confidential, (e) to a nationally recognized ratings agency that requires access to information regarding the Credit Parties, the Loans and Credit Documents in connection with ratings issued with respect to a securitization, and (f) to the extent such Confidential Information becomes public other than by reason of disclosure by such Person in breach of this Agreement; (g) to any other party to this Agreement, (h) in connection with the exercise of any remedies hereunder or under any other Credit Document or any action or proceeding relating to this Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder, or (i) subject to an agreement containing provisions substantially the same as those of this Section 13.16, to (1) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, or (2) any actual or prospective party (or its advisors) to any swap, derivative or other transaction relating to the Borrower and its obligations; provided that unless specifically prohibited by applicable Requirements of Law, each Lender, the Administrative Agent, the Swingline Lender, any Issuing Bank and each other Agent shall endeavor to notify the Borrower (without any liability for a failure to so notify the Borrower) of any request made to such Lender, the Administrative Agent, any Issuing Bank or such other Agent, as applicable, by any governmental, regulatory or self-regulatory agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; provided further that in no event shall any Lender, the Administrative Agent, any Issuing Bank or any other Agent be obligated or required to return any materials furnished by the Borrower or any Subsidiary. In addition, each Lender, the Administrative Agent and each other Agent may provide Confidential Information to prospective Transferees or to any pledgee referred to in Section 13.6 or to prospective direct or indirect contractual counterparties in Hedge Agreements -197- 727670773 12335469

 
to be entered into in connection with Loans made hereunder as long as such Person is advised of and agrees to be bound by the provisions of this Section 13.16 or confidentiality provisions at least as restrictive as those set forth in the Section 13.16. 13.17 Release of Collateral and Guarantee Obligations. (a) The Lenders hereby irrevocably agree that the Liens granted to the Collateral Agent by the Credit Parties on any Collateral shall be automatically released (i) in full, as set forth in clause (b) below, (ii) upon the Disposition of such Collateral (including as part of or in connection with any other Disposition permitted hereunder) to any Person other than another Credit Party (other than Holdings), to the extent such Disposition is made in compliance with the terms of this Agreement (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Credit Party upon its reasonable request without further inquiry), (iii) to the extent such Collateral is comprised of property leased to a Credit Party, upon termination or expiration of such lease, (iv) if the release of such Lien is approved, authorized or ratified in writing by the Majority Lenders (or such other percentage of the Lenders whose consent may be required in accordance with Section 13.1), (v) to the extent the property constituting such Collateral is owned by any Guarantor, upon the release of such Guarantor from its obligations under the Guarantee in accordance with the second succeeding sentence and Section 5(g) of the Guarantee) and (vi) as required by the Collateral Agent to effect any Disposition of Collateral in connection with any exercise of remedies of the Collateral Agent pursuant to the Security Documents. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those being released) upon (or obligations (other than those being released) of the Credit Parties in respect of) all interests retained by the Credit Parties, including the proceeds of any Disposition, all of which shall continue to constitute part of the Collateral except to the extent otherwise released in accordance with the provisions of the Credit Documents. Additionally, the Lenders hereby irrevocably agree that the Guarantors shall be released from the Guarantees upon consummation of any transaction permitted hereunder resulting in such Subsidiary ceasing to constitute a Restricted Subsidiary or otherwise becoming an Excluded Subsidiary. The Lenders hereby authorize the Administrative Agent and the Collateral Agent, as applicable, to execute and deliver any instruments, documents, and agreements necessary or desirable to evidence and confirm the release of any Guarantor or Collateral pursuant to the foregoing provisions of this paragraph, all without the further consent or joinder of any Lender. Any representation, warranty or covenant contained in any Credit Document relating to any such Collateral or Guarantor shall no longer be deemed to be repeated. In connection with any release hereunder, the Administrative Agent and Collateral Agent shall promptly (and the Lenders hereby authorize the Administrative Agent and Collateral Agent to) take such action and execute any such documents as may be reasonably requested by the Borrower and at the Borrower’s expense in connection with the release of any Liens created by any Credit Document in respect of such Subsidiary, property or asset (including the termination of any Control Agreement). (b) Notwithstanding anything to the contrary contained herein or any other Credit Document, when all Obligations (other than (i) Hedging Obligations in respect of any Secured Hedge AgreementsTransaction, (ii) Cash Management Obligations in respect of any Secured Cash Management Agreements and (iii) any contingent or indemnification obligations not then due) have been paid in full in cash or equivalents thereof, all Commitments have -198- 727670773 12335469

 
terminated or expired and no Letter of Credit shall be outstanding that is not Cash Collateralized or back-stopped, upon request of the Borrower, the Administrative Agent and/or Collateral Agent, as applicable, shall (without notice to, or vote or consent of, any Secured Party) take such actions as shall be required to release its security interest in all Collateral, and to release all obligations under any Credit Document, whether or not on the date of such release there may be any (i) Hedging Obligations in respect of any Secured Hedge AgreementsTransaction, (ii) Cash Management Obligations in respect of any Secured Cash Management Agreements and (iii) any contingent or indemnification obligations not then due. Any such release of Obligations shall be deemed subject to the provision that such Obligations shall be reinstated if after such release any portion of any payment in respect of the Obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made. 13.18 USA PATRIOT Act. The Agents and each Lender hereby notify 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 “Patriot Act”), it is required to obtain, verify and record information that identifies each Credit Party, which information includes the name and address of each Credit Party and other information that will allow such Agent and such Lender to identify each Credit Party in accordance with the Patriot Act. 13.19 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to any Agent or any Lender, or any Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by any Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the applicable Overnight Rate from time to time in effect. 13.20 Reinstatement. This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made. 13.21 Disposition of Proceeds. The Security Documents contain an assignment by the Borrower and/or the Guarantors unto and in favor of the Collateral Agent for the benefit of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to their as-extracted -199- 727670773 12335469

 
collateral in the form of production and all proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property. The Security Documents further provide in general for the application of such proceeds to the satisfaction of the Obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Documents, until the occurrence of an Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and its Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrower and/or such Subsidiaries. 13.22 Collateral Matters; Hedge Agreements. The benefit of the Security Documents and of the provisions of this Agreement relating to any Collateral securing the Obligations shall also extend to and be available on a pro rata basis pursuant to terms agreed upon in the Credit Documents to any Person (a) under any Secured Hedge AgreementTransaction, in each case, after giving effect to all netting arrangements relating to suchin any Hedge Agreements under which such Secured Hedge Transaction was entered into or (b) under any Secured Cash Management Agreement. provided that, with respect to any Secured Hedge Transaction or Secured Cash Management Agreement that remains secured after the Hedge Bank thereto or the Cash Management Bank thereunder is no longer a Lender or an Affiliate of a Lender, the provisions of Section 12 shall also continue to apply to such Hedge Bank or Cash Management Bank in consideration of its benefits hereunder and each such Hedge Bank or Cash Management Bank, as applicable, shall, if requested by the Administrative Agent, promptly execute and deliver to the Administrative Agent all such other documents, agreements and instruments reasonably requested by the Administrative Agent to evidence the continued applicability of the provisions of Section 12. No Person shall have any voting rights under any Credit Document solely as a result of the existence of obligations owed to it under any such Secured Hedge AgreementTransaction or Secured Cash Management Agreement. 13.23 Agency of the Borrower for the Other Credit Parties. Each of the other Credit Parties hereby appoints the Borrower as its agent for all purposes relevant to this Agreement and the other Credit Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto. 13.24 Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Credit Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Credit Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by: (a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and -200- 727670773 12335469

 
(b) the effects of any Bail-In Action on any such liability, including, if applicable: (i) a reduction in full or in part or cancellation of any such liability; (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Credit Document; or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority. [Signature Pages Follow.] -201- 727670773 12335469

 
Annex I Exiting Lenders UBS AG-Stamford Branch Canadian Imperial Bank of Commerce-New York Capital One, National Association Banc of America Credit Products, Inc. Wells Fargo Bank, National Association Compass Bank Société Générale - New York SunTrust Bank Bank of America, N.A. Citizens Bank, National Association ING Capital LLC Scotiabanc Inc. The Bank of Nova Scotia-New York Agency Comerica Bank Nomura Corporate Funding Americas, LLC Citigroup Financial Products Inc. Annex I 727682070 12335469

 
Annex II Selected Updated Schedules Annex II 727682070 12335469

 
Schedule 1.1(a) Commitments Lender Commitment Commitment Percentage JPMorgan Chase Bank, N.A. $85,000,000.00 13.5044766355% Citibank, N.A. $85,000,000.00 13.5044766355% BMO Harris Financing, Inc. $75,000,000.00 11.9157146784% Credit Suisse AG, Cayman Islands Branch $74,000,000.00 11.7568384827% Credit Suisse Loan Funding LLC $11,000,000.00 1.7476381528% Deutsche Bank AG New York Branch $75,000,000.00 11.9157146784% Royal Bank of Canada $85,000,000.00 13.5044766355% UBS AG-Stamford Branch $0.00 0.0000000000% Canadian Imperial Bank of Commerce, New York Branch $0.00 0.0000000000% Capital One, National Association $0.00 0.0000000000% Banc of America Credit Products, Inc. $0.00 0.0000000000% Wells Fargo Bank, National Association $0.00 0.0000000000% Compass Bank $0.00 0.0000000000% Societe Generale $0.00 0.0000000000% SunTrust Bank $0.00 0.0000000000% Toronto Dominion (New York) LLC $46,947,275.00 7.4588044510% Sumitomo Mitsui Banking Corporation $21,000,000.00 3.3364001099% DNB Capital LLC $28,000,000.00 4.4485334799% Bank Of America, N.A. $0.00 0.0000000000% Citizens Bank, National Association $0.00 0.0000000000% ING Capital LLC $0.00 0.0000000000% Mizuho Bank, Ltd. $20,000,000.00 3.1775239142% Goldman Sachs Bank USA $23,473,637.00 3.7294021461% Scotiabanc Inc. $0.00 0.0000000000% The Bank of Nova Scotia $0.00 0.0000000000% Comerica Bank $0.00 0.0000000000% Nomura Corporate Funding Americas, LLC $0.00 0.0000000000% Citigroup Financial Products Inc. $0.00 0.0000000000% TOTAL $629,420,912.00 100.00% 727682070 12335469

 

 

 

 

 

 

 

 

 

 
Exhibit 10.54

EMPLOYMENT AGREEMENT

This Employment Agreement (this “ Agreement ”) is made and entered into by and between Everest Acquisition LLC, a Delaware limited liability company (the “ Company ”), and Kyle A. McCuen (“ Employee ”) as of the date set forth on the signature page hereto. El Paso Exploration & Production Management, Inc. (“ EPEPM ”) also joins this Agreement for the limited purpose of acknowledging the provisions of Section 17 below.

W I T N E S S E T H:

WHEREAS , Employee is currently employed by EPEPM, a wholly owned subsidiary of EP Energy, L.L.C. (f/k/a EP Energy Corporation) (“ EP Energy ”);

WHEREAS , in connection with the consummation of the transactions contemplated by that certain Purchase and Sale Agreement (the “ Purchase Agreement ”) dated as of February 24, 2012 by and among EP Energy, the Company and the other parties thereto, all of the issued and outstanding membership interests of EP Energy will be sold to EPE Acquisition, LLC, a Delaware limited liability company (“ EPE Acquisition ”);

WHEREAS , effective as of the Closing Date (as such term is defined in the Purchase Agreement, the “ Effective Date ”), the Company desires for the Company to employ Employee on the terms and conditions, and for the consideration, hereinafter set forth and Employee desires to be employed by the Company on such terms and conditions and for such consideration;

WHEREAS , Employee has participated in the El Paso Corporation 2004 Key Executive Severance Protection Plan, as amended from time to time (the “ 2004 Severance Plan ”); and

WHEREAS , the parties wish for this Agreement to set forth the entirety of Employee’s rights to, and with regard to, severance pay and benefits from EPEPM, the Company and their respective Affiliates (as such term is defined below) upon and after the Effective Date.

NOW, THEREFORE , in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:

1. Employment . The Company agrees to employ Employee and Employee agrees to be employed by the Company beginning as of the Effective Date and continuing for the period of time set forth in Section 3 below, subject to the terms and conditions of this Agreement. Notwithstanding the foregoing, (a) at any time and from time to time, the Company may, with the consent of Employee, cause any subsidiary or Affiliate of the Company to be Employee’s employer so long as the requirements of Section 20 are satisfied, and (b) the Company and Employee agree that Employee’s employer commencing as of the Effective Date shall be EPEPM until such time as such employer may be changed in accordance with clause (a) of this sentence. From and after the Effective Date, Employee shall serve as Vice President, Planning & Treasury of the Company and its primary domestic operating subsidiaries or in such other position(s) as the Company may designate from time to time with the consent of Employee.



2.
Duties and Responsibilities of Employee .

(a)      During the Employment Period, Employee shall devote substantially all of Employee’s business time and attention to the business of the Company and its Affiliates, will act in a manner that Employee reasonably believes is consistent with the best interests of the Company and its Affiliates and will perform with due care Employee’s duties and responsibilities. Employee’s duties will include those normally incidental to the position(s) set forth in Section 1 above of as well as whatever additional duties may be assigned to Employee, with Employee’s consent, by any senior officers or by the Board of Managers of EPE Acquisition (the “ Board ”) from time to time. Employee agrees not to engage in any activity that materially interferes with the performance of Employee’s duties hereunder. Without limiting the foregoing, during the Employment Period, Employee will not hold any type of outside employment, engage in any type of consulting or otherwise render services to or for any other person, entity or business concern without the advance written approval of the Board. Notwithstanding the foregoing, the parties acknowledge and agree that Employee may (i) serve on corporate boards or committees (A) listed on Schedule 2(a) hereto or (B) approved by the Board, (ii) serve on civic, educational, religious, public interest, or charitable boards or committees, (iii) manage Employee’s personal and family investments, provided that such activity is not expressly prohibited by Section 10 and (iv) engage in passive investments (the activities referred to in the immediately preceding clauses (i), (ii), (iii) and (iv) being “ Permitted Activities ”); provided, however , that such activities shall be permitted so long as such activities do not materially interfere with the performance of Employee’s duties and responsibilities under this Agreement or conflict with the business and affairs of the Company.

(b)      Employee expressly represents and covenants to the Company that Employee is not subject or a party to any employment agreement, noncompetition covenant, nondisclosure agreement, or any other agreement, covenant, understanding, or restriction that would prohibit Employee from executing this Agreement and fully performing Employee’s duties and responsibilities hereunder.

3. Term of Employment . The initial term of this Agreement shall be for the period beginning on the Effective Date and ending on the third anniversary thereof (the “ Initial Term ”). On the last day of the Initial Term and each anniversary thereafter (each such date being referred to as a “ Renewal Date ”), provided that this Agreement has not been earlier terminated, this Agreement shall automatically renew and extend for a period of 12 months (each a “ Renewal Term ”) unless either party delivers written notice of its intention not to renew or extend the term at least 60 days prior to the Renewal Date. Notwithstanding any other provision of this Agreement, this Agreement may be terminated at any time during the Initial Term or the Renewal Term (if any) in accordance with Section 6.     The period from the Effective Date through the date of termination of this Agreement, regardless of the time or reason for such termination, shall be referred to herein as the “ Employment Period .”

4.
Compensation .

(a)      During the Employment Period, the Company shall pay to Employee an annualized base salary of $275,000 (“ Base Salary ”) (less applicable taxes and withholdings) in consideration for Employee’s services under this Agreement, payable in accordance with the




Company’s customary payroll practices for employee salaries as in effect from time to time. Employee’s Base Salary shall be reviewed at least annually by the Board and, in the sole discretion of the Board, Employee’s Base Salary may be increased (but not decreased) effective as of any date determined by the Board.

(b)      The Company shall establish, and Employee shall be entitled to participate in, an annual performance bonus plan under which Employee will be eligible for an annual bonus payable in a single lump sum (the “ Annual Performance Bonus ”) based on the achievement of performance targets established by the Board for a calendar year. Employee’s target annual bonus will be at least 45% of Employee’s Base Salary (the “ Target Annual Bonus ”), but the actual amount of the Annual Performance Bonus may range from 0% to 200% of Employee’s Target Annual Bonus depending on performance. Notwithstanding the foregoing and subject to the last sentence of this Section 4(b) , (i) the Annual Performance Bonus payable with respect to calendar year 2012, if any (the “ 2012 Annual Performance Bonus ”), will be paid from a bonus pool that will be funded at a minimum of 100% of the “target” level under the annual performance bonus plan and (ii) at the same time as the 2012 Annual Performance Bonus, if any, is paid to Employee (or would have been paid had the 2012 Annual Performance Bonus been earned), the Company will pay to Employee an additional bonus (the “ 2012 Guaranteed Bonus ”) consisting of a lump sum cash payment equal to $137,500. Bonus determinations will be made by the Board within 60 days of the end of each calendar year and any Annual Performance Bonus will be payable in accordance with the Company’s customary payroll practices for employee bonuses, but in no event later than March 15th of the calendar year following the calendar year to which it relates. Subject to the provisions of Section 7 below, Employee will not be entitled to receive payment of an Annual Performance Bonus or the 2012 Guaranteed Bonus unless Employee is employed by the Company on the date that such bonus is paid.

5. Benefits . Subject to the terms and conditions of this Agreement, Employee shall be entitled to the following benefits during the Employment Period:

(a)      Reimbursement of Business Expenses . The Company agrees to reimburse Employee for reasonable, documented business-related expenses actually incurred by Employee in the performance of Employee’s duties under this Agreement, in accordance with the Company’s expense reimbursement policies as in effect from time to time.

(b)      Benefit Plans and Programs . During the Employment Period, to the extent permitted by applicable law and subject to the terms and eligibility requirements of any such plan or program, Employee will be eligible to participate in all benefit plans, arrangements, programs and practices (each a “ Benefit Plan ”), including improvements or modifications of the same, that are available to other senior executives of the Company and its Affiliates from time to time, subject to the eligibility requirements and other terms and conditions of such Benefit Plans, which Benefit Plans shall (at all times during the Employment Period) provide benefits to Employee that are substantially comparable in the aggregate to those provided to Employee by EPEPM as of the day immediately preceding the Effective Date; provided, however , that (i) such comparability shall be determined without regard to any equity-based incentive compensation, defined benefit pension plan, any retiree medical or other post-retirement welfare plan, or benefits under any frozen employee benefit plan and (ii) such benefits shall be subject to market




adjustment to reflect, among other things, the addition of a company medical insurance subsidy and the absence of benefit accruals under any defined benefit plan or supplemental executive retirement plan. The Company will establish a 401(k) plan with a dollar-for-dollar match up to 6% of eligible compensation plus a profit-sharing contribution in an amount sufficient so that the retirement benefits provided to Employee are substantially comparable in the aggregate to those provided as of the date immediately preceding the Effective Date (provided that in no event will the profit sharing contribution exceed 5% of eligible compensation) and will continue to provide long-term disability, life and travel accident benefits. The Company will not, however, by reason of this Section 5(b) be obligated either (i) to institute, maintain, or refrain from changing, amending, or discontinuing any such Benefit Plan, or (ii) to provide Employee with all benefits provided to any other person or individual employed by the Company or any of its Affiliates, in each case so long as the Company provides Employee with benefits that are substantially comparable in the aggregate to the benefits described pursuant to this paragraph.

(c)      Vacation. During the Employment Period, Employee shall be eligible to take up to five weeks of paid vacation per calendar year, which such vacation shall accrue and be taken in accordance with the Company’s vacation policies as may exist from time to time, provided that such policies are no less favorable than those policies in effect as of the day immediately preceding the Effective Date and, for purposes of vacation entitlements, Employee shall be given credit for prior service with EP Energy, EPEPM and their Affiliates.

(d)      Management Incentive Units.     On the Effective Date, EPE Employee Holdings, LLC (“ Employee Holdings ”) shall issue to Employee 18,488 Class B Units in Employee Holdings as of the Effective Date (the “ Management Incentive Units ”). The Management Incentive Units will be subject to, and governed by, the terms and conditions set forth in the Second Amended and Restated Limited Liability Company Agreement of Employee Holdings, as amended from time to time (the “ Employee Holdings LLC Agreement ”) and an award agreement between Employee Holdings and Employee.

(e)      Investment Units. On or before the 60th day following the Effective Date (the “ Management Class A Funding Date ”), Employee shall purchase 275 Class A Units (the “ Investment Units ”) in EPE Management Investors, LLC (“ EMI ”) in exchange for a cash payment equal to $275,000, subject to and in accordance with the terms of the Second Amended and Restated Limited Liability Company Agreement of EMI, as amended from time to time (the “ EMI LLC Agreement ”). Conditioned on the acquisition by Employee of the Investment Units on or before the Management Class A Funding Date and subject to the terms and conditions set forth in the LLC Agreement, Employee shall be entitled to receive 138 additional Class A Units (the “ Matching Units ”); provided, however , that the issuance of such Matching Units to Employee will be subject to Employee’s prior remittance to the Company of funds necessary to satisfy all taxes required to be withheld in connection with the receipt by Employee of such Matching Units. The Investment Units and the Matching Units will be subject to, and governed by, the terms and conditions set forth in the EMI LLC Agreement.

(f)      Indemnification. Without limiting the applicability of Section 5.17 of the Purchase Agreement (which shall remain applicable to Employee in accordance with the provisions thereof), in the event that Employee is made a party or threatened to be made a party to any action, suit, or proceeding (a “ Proceeding ”), other than any Proceeding initiated by



Employee or the Company related to any contest or dispute between Employee and the Company or any of its subsidiaries, by reason of the fact that Employee is or was a director or officer of, or was otherwise acting on behalf of, the Company, any Affiliate of the Company, or any other entity at the request of the Company, Employee shall be indemnified and held harmless by the Company, to the maximum extent permitted under applicable law, from and against any and all liabilities, costs, claims and expenses, including any and all costs and expenses incurred in defense of any Proceeding, and all amounts paid in settlement thereof after consultation with, and receipt of approval from, the Company, which approval shall not be unreasonably withheld, conditioned or delayed. Costs and expenses incurred by Employee in defense of such Proceeding shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of: (i) a written request for payment; (ii) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (iii) an undertaking adequate under applicable law made by or on behalf of Employee to repay the amounts so paid if it shall ultimately be determined that Employee is not entitled to be indemnified by the Company under this Agreement. The rights to indemnification and advancement of costs and expenses provided in this Section 5(f) are not and will not be deemed exclusive of any other rights or remedies to which Employee may at any time be entitled under applicable law, the organizational documents of the Company or any of its subsidiaries, any agreement or otherwise, and each such right under this Section 5(f) will be cumulative with all such other rights, if any.

(g)      Directors’ and Officers’ Insurance. During the Employment Period, the Company or any successor to the Company hereunder shall purchase and maintain, at its own expense, directors’ and officers’ liability insurance providing coverage to Employee on terms that are no less favorable than the coverage provided to other similarly situated directors and senior officers of the Company as of the Effective Date.

6.
Termination of Employment .

(a)      Company’s Right to Terminate . In addition to terminating this Agreement upon the expiration of the Initial Term or a Renewal Term after issuance of a notice of non- renewal as contemplated in Section 3, the Company shall have the right to terminate this Agreement and Employee’s employment with the Company at any time for any of the following reasons:

(i)      Upon Employee’s death;

(ii)      Upon the determination of the Chief Executive Officer of the Company that Employee is totally disabled, whether due to physical or mental condition, so as to be prevented from substantially performing Employee’s essential duties and responsibilities under this Agreement for a period of at least 180 consecutive days or 270 days during any 12-month period (Employee’s “ Disability ”);

(iii)
For Cause (as defined in Section 7) ; or

(iv)      For any other reason whatsoever, in the sole and complete discretion of the Company.




(b)      Employee’s Right to Terminate .     Employee will have the right to terminate this Agreement and Employee’s employment with the Company at any time for:

(i)      Good Reason (as defined in Section 7) ; or

(ii)      For any other reason whatsoever, in the sole and complete discretion of Employee, by providing the Company with a Notice of Termination (as defined in Section 6(c) below). In the case of a termination of employment by Employee pursuant to this Section 6(b)(ii) , the Termination Date (as defined in Section 6(c) below) specified in the Notice of Termination shall not be less than 30 nor more than 60 days, respectively, from the date such Notice of Termination is given, and the Company may require a Termination Date earlier than the Termination Date specified in the Notice of Termination (and, if such earlier Termination Date is so required, it shall not change the basis for Employee’s termination nor be construed or interpreted as a termination of employment pursuant to Section 3 or Section 6(a)(iv)) .

(c)      Notice of Termination. Any termination of Employee’s employment hereunder by the Company or by Employee (other than termination pursuant to Section 6(a)(i) on account of Employee’s death) shall be communicated by written notice of termination (“ Notice of Termination ”) to the other party hereto in accordance with Section 21. The Notice of Termination shall specify (i) the termination provision of this Agreement being relied upon, (ii) to the extent applicable, the facts and circumstances claimed to provide a basis for termination of Employee’s employment under the provision so indicated and (iii) the applicable Termination Date (as defined below). No action by either party hereto pursuant to this Section 6(c) shall alter or amend any other provisions hereof or rights arising hereunder, including, without limitation, the provisions of Sections 8, 9, 10 and 11 hereof.

(d)      Date of Termination.     Subject to Section 22(b) , the effective date of Employee’s termination (the “ Termination Date ”) will be as follows: (i) if Employee’s employment is terminated by Employee’s death, the date of such death; (ii) if Employee’s employment is terminated as a result of a Disability or by the Company with or without Cause, then the date specified in the Notice of Termination delivered to Employee; (iii) if Employee’s employment is terminated by Employee pursuant to Section 6(b) above, then the date specified in the Notice of Termination delivered to Company by Employee; and (iv) if Employee’s employment terminates due to the giving of a non-renewal notice pursuant to Section 3 above, the last day of the Initial Term or Renewal Term, as applicable.

(e)      Deemed Resignations.     Unless otherwise agreed to in writing by the Company and Employee prior to the termination of Employee’s employment, any termination of Employee’s employment shall, without changing the basis for termination of employment or the impact of such termination on Employee’s rights, if any, under Section 7, constitute (i) an automatic resignation of Employee from any position held as an officer of the Company and each Affiliate of the Company and (ii) an automatic resignation of Employee from the Board (if applicable), from the board of directors or similar governing body of any Affiliate of the Company and from the board of directors or similar governing body of any corporation, limited liability entity or other entity in which the Company or any Affiliate holds an equity interest and




with respect to which board or similar governing body Employee serves as the Company’s or such Affiliate’s designee or other representative.

(f)      Accrued Compensation . Upon termination, Employee shall be entitled to receive a lump-sum amount equal to the sum of (i) Employee’s accrued and unpaid salary as of the Termination Date, (ii) Employee’s accrued and unpaid bonus amounts from years prior to the year in which the Termination Date occurs, and (iii) subject to the penultimate sentence of this Section 6(f) the cash out value of Employee’s accrued and unpaid vacation time as of the Termination Date, which lump-sum amount shall be paid as promptly as practicable, and in any event within 10 days of the Termination Date. Notwithstanding the foregoing or anything to the contrary in any vacation policy adopted by the Company or any of its Affiliates, for purposes of clause (iii) of the preceding sentence, except as otherwise provided in the Purchase Agreement, in no event shall Employee be entitled to receive the cash out value of any accrued and unused vacation time in excess of (A) the amount of vacation time Employee is entitled to accrue in a single calendar year plus (B) the amount of vacation days Employee is allowed to carry over from year to year (up to 5 days), in either case as in effect under the vacation policy applicable to Employee immediately prior to the Termination Date. Employee shall also be entitled to payment of any vested benefits provided under the terms of any employee benefit plan in accordance with the terms of such plan.

7.
Severance Payments .

(a)      Termination without Cause or for Good Reason . If prior to the occurrence of a Threshold Capital Transaction (as such term is defined in the Second Amended and Restated Limited Liability Company Agreement of EPE Acquisition, as amended from time to time) or within two years thereafter, (A) the Company terminates Employee’s employment with the Company and, if applicable, its Affiliates, without Cause or by failing to renew the term of this Agreement in accordance with Section 3, or (B) Employee terminates Employee’s employment pursuant to Section 6(b)(i), and before the 60th day following the Termination Date, Employee has signed and not revoked in the time provided to do so a termination of employment agreement acceptable to the Company and substantially in the form set forth in Exhibit A that contains a complete release of all claims against the Company, its Affiliates, and their designees from the claims specified in Exhibit A (a “ Release ”) and such Release has become effective and irrevocable, the Company shall pay Employee severance in accordance with Section 7(b) . Notwithstanding the foregoing, the Company will not be required to pay Employee severance if the Company terminates Employee’s employment after receiving a Notice of Termination from Employee, provided that such Notice of Termination specifies that Employee’s termination is not for Good Reason. For the avoidance of doubt, Section 7(b) shall not apply if: (1) the Company terminates Employee’s employment for Cause pursuant to Section 6(a)(iii) above; (2) the Company terminates Employee’s employment due to Disability or Employee’s employment terminates due to Employee’s death pursuant to Sections 6(a)(i) or 6(a)(ii) above or (3) Employee’s employment is terminated by Employee pursuant to Section 6(b)(ii) above.




(b)      Severance Amount .     If the Company is required to pay Employee severance by the express terms of Section 7(a), Employee shall be entitled to receive the following as severance:

(i)      a lump-sum amount equal to one times the sum of Employee’s Base Salary and Target Annual Bonus as of the Termination Date, which amount shall be paid on the date that is sixty days following the Termination Date;

(ii)      a lump-sum amount equal to Employee’s target bonus amount for the year in which the Termination Date occurs, determined as if Employee had continued in employment until the end of such fiscal year and as if the Company and Employee had fully met all performance targets and goals, prorated by multiplying the full bonus amount by a fraction, the numerator of which is the number of days of the year prior to and including the Termination Date and the denominator of which is 365, which lump- sum amount shall be paid as promptly as practicable, and in any event within 10 days of the Termination Date; and

(iii)      for a period of 12 months after the Termination Date, the basic life insurance, medical and dental benefits, at Company expense, which were being provided to Employee immediately prior to the Termination Date. The benefits provided in this Section 7(b)(iii) shall be no less favorable to Employee, in terms of amounts and deductibles and costs to him or her, than the coverage provided Employee under the plans providing such benefits at the time Notice of Termination is given. The Company’s obligation hereunder to provide the foregoing benefits shall terminate to the extent Employee obtains replacement coverage under a subsequent employer’s benefit plans at an equal or higher level. Nothing in this Section 7(b)(iii) shall require the Company or any of its Affiliates to be responsible for, or have any liability or obligation with respect to, any additional income tax payable by Employee attributable to the benefits provided under this Section 7(b)(iii).

Any payments paid under this Section 7(b) shall be in lieu of any severance benefits otherwise due to Employee under any severance pay plan or program maintained by the Company that covers its employees or Employees generally; provided, however , the effects of any termination of Employee’s employment with the Company on the Management Incentive Units shall be as provided in the Employee Holdings LLC Agreement.

(c)      Cause.     “ Cause ” means the occurrence or existence of any of the following events:

(i)      Employee’s willful failure to perform Employee’s material duties (other than any such failure resulting from Employee’s incapacity due to physical or mental illness), including a willful failure to satisfy Employee’s fiduciary duties to the Company, that remains uncured 30 days after written notice thereof from the Company to Employee;

(ii)      Employee’s willful and material breach of this Agreement that remains uncured 30 days after written notice thereof from the Company to Employee;




(iii)      Employee’s conviction of, or Employee’s plea of guilty or no contest to, any felony (or state law equivalent) or any crime involving moral turpitude; or

(iv)      Employee’s engaging in actual fraud or willful, material misconduct in the performance of Employee’s duties under this Agreement;

provided , however , that no termination of Employee’s employment shall be for Cause as set forth in clauses (i), (ii) or (iv) above until (A) there shall have been delivered to Employee a copy of a written notice setting forth that Employee was guilty of the conduct set forth in clause (i), (ii) or
(iv) and specifying the particulars thereof in detail, and (B) Employee shall have been provided an opportunity to be heard by the Board (with the assistance of Employee’s counsel if Employee so desires) and (C) the Board shall have determined, as set forth in a written resolution adopted by at least a majority of the members of the whole Board, that Cause exists. No act, nor failure to act, on Employee’s part shall be considered “willful” unless Employee has acted, or failed to act, in bad faith or without a reasonable belief that Employee’s action or failure to act was in the best interests of the Company or its Affiliates. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Employee after a Notice of Termination is given by Employee shall constitute Cause.

(d)      Good Reason .     “ Good Reason ” means the occurrence of any of the following events without Employee’s consent:

(i)      any decrease in Employee’s Base Salary other than a reduction of not more than 5% in connection with a general reduction in base salaries that affects all similarly situated executives in substantially the same proportions which is implemented in response to a material downturn in the U.S. domestic oil and natural gas exploration and development industry;

(ii)      a failure of the Company to cause Employee to be eligible under Benefit Plans that provide benefits that are substantially comparable in the aggregate to those provided to Employee as of the Effective Date;

(iii)
any material breach by the Company of this Agreement;

(iv)      a material diminution in Employee’s title, authority, duties, or responsibilities, without Employee’s prior written consent, or the assignment to Employee without Employee’s prior written consent of duties inconsistent in any substantial respect with Employee’s then-current title, authority, duties or responsibilities or any other action by the Company that results in a diminution in Employee’s authority, duties or responsibilities;

(v)      any relocation of Employee’s principal place of employment to a location that is more than 35 miles from the then-current location of such employment, without Employee’s prior written consent; or




(vi)      any purported termination of Employee’s employment for Cause by the Company that does not otherwise comply with the terms of this Agreement (other than any purported termination of Employee’s employment for Cause by the Company

acting in good faith, regardless of whether such purported termination complies with the terms of this Agreement).

Employee’s Termination Date shall not be considered to be on account of Good Reason unless
(A)      within 60 days after the date on which Employee knows, or should reasonably be expected to know, that one of the events set forth in Section 7(d) has occurred, Employee provides written notice to the Board of the applicable facts and circumstances, (B) the Company does not remedy, cure or rectify the event within 30 days from the date on which written notice is received from Employee, and (C) Employee terminates his employment within 120 days after the initial existence of the condition specified in such notice.

8. Conflicts of Interest . Employee agrees that Employee shall promptly disclose to the Board any material conflict of interest involving Employee after Employee becomes aware of such conflict.

9. Confidentiality . Employee acknowledges and agrees that he has been provided Confidential Information (as defined below) regarding EPE Acquisition and the Company and that EPE Acquisition and the Company will provide Employee new and valuable Confidential Information of EPE Acquisition and the Company and it may also provide Employee confidential information of third parties who have supplied such information to EPE Acquisition and/or the Company. For purposes of this Section 9, the term “Company” shall include EPE Acquisition and each of its subsidiaries. In consideration of such Confidential Information and other valuable consideration provided hereunder, and in order to protect the Company’s legitimate business interests, Employee agrees to comply with this Section 9.

(a)      Confidential Information.     “ Confidential Information ” means, without limitation and regardless of whether such information or materials are expressly identified as confidential or proprietary, (i) any and all non-public, confidential or proprietary information of the Company, (ii) any information of the Company that gives the Company a competitive business advantage or the opportunity of obtaining such advantage, (iii) any information of the Company the disclosure or improper use of which would reasonably be expected to be detrimental to the interests of the Company and (iv) any trade secrets of the Company. Confidential Information also includes any non-public, confidential or proprietary information about, or belonging to, any third party that has been entrusted to the Company. Notwithstanding the foregoing, Confidential Information does not include any information which is or becomes generally known by the public other than as a result of Employee’s actions or inactions.

(b)      Protection.     Except as may otherwise be required by applicable law or legal process, Employee promises (i) to keep the Confidential Information, and all documentation, materials and information relating thereto, strictly confidential, except to the extent that disclosure thereof is necessary or appropriate in the performance of Employee’s duties for the benefit of the Company, (ii) not to use the Confidential Information for any purpose other than as required in connection with fulfilling Employee’s duties for the benefit of the Company, and (iii) to return to



the Company all Confidential Information in Employee’s possession and control upon separation from the Company for any reason, other than death. For the avoidance of doubt, Employee specifically acknowledges and agrees that any use by Employee of such Confidential Information other than as required in connection with fulfilling



his duties on behalf of, or for the benefit of, the Company will be a material breach of this Agreement.

(c)      Scope .    Employee    understands    and    agrees    that    all    Confidential Information, in whatever medium (verbal, written, electronic or other), is subject to this Agreement whether provided directly to Employee or not, whether provided to Employee prior to the Effective Date of this Agreement or not, and whether inadvertently disclosed to Employee or not. Confidential Information that was or is available to Employee or to which Employee had or has access will be deemed to have been provided to Employee.

(d)      Value and Security.     Employee understands and agrees that all Confidential Information, and every portion thereof, constitutes the valuable intellectual property of the Company and/or third parties, and Employee further acknowledges the importance of maintaining the security and confidentiality of the Confidential Information and of not misusing the Confidential Information.

(e)      Disclosure Required By Law. If Employee is legally required to disclose any Confidential Information, Employee shall, to the extent permitted by applicable law or legal process, promptly notify the Company in writing of such request or requirement so that the Company may seek an appropriate protective order or other relief or waive compliance with this Agreement. To the extent permitted by applicable law, Employee agrees to cooperate with and not to oppose any effort by the Company to resist or narrow such request or to seek a protective order or other appropriate remedy. In any such case, Employee will (A) disclose only that portion of the Confidential Information that, according to the advice of Employee’s counsel, is required to be disclosed, (B) use reasonable efforts to obtain assurances that such Confidential Information will be treated confidentially, and (C) to the extent permitted by applicable law, promptly notify the Company in writing of the items of Confidential Information so disclosed.

(f)      Survival. The covenants made by Employee in this Section 9 will survive termination of this Agreement, and Employee’s employment for a period of three years; provided, however , that any covenants with regard to the non-use or disclosure of trade secrets established by applicable law shall remain in effect for so long as provided by applicable law.

10.
Agreement Not to Compete .

(a)      Covenants . For purposes of this Section 10, the term “Company” shall include EPE Acquisition and each of its subsidiaries. In order to protect the Company’s legitimate business interests, including the preservation of the Confidential Information and the goodwill developed by Employee on behalf of Company, and as an express incentive for Company to enter into this Agreement, Employee agrees that, except in the ordinary course and scope of Employee’s employment hereunder, Employee shall not, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor, stockholder, partner, member, joint venturer, owner or in any other individual or representative capacity whatsoever, whether paid or unpaid, either for Employee’s own benefit or for the benefit of any other person or entity, directly or indirectly:




(i)      during the Coverage Period, engage or carry on in Competitive Duties within the Restricted Area (including, without limitation, by engaging or carrying on in any of the activities set forth in Section 10(a)(ii) through Section 10(a)(v) below);

(ii)      during the Coverage Period, form or otherwise provide services to a Competing Business within the Restricted Area or directly or indirectly acquire any 5% or greater equity ownership, voting interest or profit participation interest in, any Competing Business within the Restricted Area;

(iii)      during the Coverage Period with respect to any Restricted Prospects, directly or indirectly (A) acquire, attempt to acquire, or assist a third person in acquiring, any interest in or rights to such Restricted Prospects, (B) acquire, attempt to acquire or assist a third party in acquiring any equity or other interest or right in any company, business, joint venture or other enterprise owning or controlling or seeking to own or control any interest in or rights to such Restricted Prospects, or (C) otherwise divert, take away, interfere with or compete for any acquisition by the Company of such Restricted Prospects or any other transaction or arrangement contemplated by the Company (and of which Employee was aware as of the Termination Date) relating to such Restricted Prospects (or attempt to do any of the foregoing);

(iv)      during the Coverage Period, directly or indirectly, recruit or otherwise solicit or induce any employee of the Company to terminate his or her employment with the Company; provided , however , that this restriction shall not extend to prohibit or otherwise limit general employment advertising or solicitation not specifically targeting any specific employee or the hiring of any employee who responds to such advertising or solicitation or who approaches Employee for employment; or

(v)      at any time, use the name of the Company in connection with any business that is or would be in competition in any manner whatsoever with the Company.

Notwithstanding the foregoing, this Section 10 shall not be deemed to restrict or prohibit Employee’s engaging in any Permitted Activities.

(b)      Disclosure and Authorization.     For a period of 12 months immediately following the termination of Employee’s employment for any reason, Employee promises to disclose to the Company any employment, consulting, or other service relationship Employee enters into after the Termination Date. Such disclosure shall be made within 30 days of Employee entering into such employment, consulting or other service relationship. Employee expressly consents to and authorizes the Company to disclose both the existence and terms of this Agreement to any future employer or user of Employee’s services and to take any steps the Company reasonably deems necessary to enforce this Agreement.

(c)      Value and Reasonableness. Employee understands and acknowledges that the Company has made substantial investments to develop its business interests, goodwill, and Confidential Information. Employee expressly acknowledges and agrees that Employee has been provided, and may in the future be provided, Confidential Information. Employee agrees that the preservation of the Company’s Confidential Information and goodwill are business



interests worthy of protection, and that the Company’s need for the protection afforded by this Section 10 is greater than any hardship Employee might experience by complying with its terms and that the restrictions contained herein are no greater than necessary to protect the Company’s legitimate business interests. Employee further agrees that the restrictions set forth in this Section 10 are ancillary to an otherwise enforceable agreement and that the limitations as to time, geographic area, and scope of activity to be restrained contained in this Agreement are reasonable and are not greater than necessary to protect the Confidential Information and/or the goodwill or other business interests of the Company.

(d)      Reformation. The Company and Employee believe the limitations as to time, geographic area, and scope of activity contained in this Section 10 are reasonable and do not impose a greater restraint than necessary to protect Confidential Information, goodwill, and other legitimate business interests of the Company. However, in the event an arbitrator or court of competent jurisdiction determines that the limitations agreed upon are not appropriate, the parties agree to, and hereby do, request that the court reform the limitations to the satisfaction of the arbitrator or court. It is the express intent of the Company and Employee that the terms of this Competition Agreement be enforced to the full extent permitted by applicable law and not to any greater extent.

(e)      Right to Injunction. Employee acknowledges that Employee’s violation of Sections 9 and/or 10 of this Agreement could cause irreparable harm to the Company for which damages may not adequately be measured, and Employee agrees that the Company shall be entitled as a matter of right to specific performance of Employee’s obligations under Sections 9 and 10 and an injunction, from any court of competent jurisdiction, restraining any violation or further violation of such agreements by Employee or others acting on Employee’s behalf, without any showing of irreparable harm and without any showing that the Company does not have an adequate remedy at law. The Company’s right to injunctive relief shall be cumulative and in addition to any other remedies provided by law or equity.

(f)      Definitions. As used in this Section 10, the following terms shall have the following meanings:

(i)      “ Competing Business ” means any individual, sole proprietorship, business, firm, company, partnership, joint venture, organization, or other person, entity or arrangement that competes, or has material plans to compete of which Employee is aware, or that owns or controls a significant interest in any entity that competes, or has material plans to compete of which Employee is aware, with the Company, with respect to the Hydrocarbons exploration and production business in which the Company is engaged.

(ii)
“ Competitive Duties ” means duties for a Competing Business that:
(A) are the same as, similar to, or substantially related to the duties that Employee had during the last 12 months of Employee’s employment with the Company; (B) are performed in the capacity of a director, executive officer, member or partner of a Competing Business; (C) involve the formation, management, operation, or control of such Competing Business or any recognized subdivision or department thereof; or
(D) constitute the management or supervision of personnel engaged in any activity which




is the same as, similar to or substantially related to any activity with which Employee had direct involvement during the last 12 months of Employee’s employment with the Company.

(iii)      “ Coverage Period ” means the period of time beginning on the Effective Date of this Agreement and ending 12 months following the Termination Date.

(iv)      “ Hydrocarbons ” means oil, condensate gas, casinghead gas and other liquid or gaseous hydrocarbons.

(v)      “ Oil and Gas Interests ” means: (A) direct and indirect interests in and rights with respect to oil and natural gas properties (including revenues or net revenues therefrom) of any kind and nature, direct or indirect, including without limitation working, royalty and overriding royalty interests, mineral interests, leasehold interests, production payments, operating rights, net profits interests, other non-working interests and non-operating interests; and (B) interests in and rights with respect to oil and natural gas or revenues therefrom.

(vi)      “ Restricted Area ” means those oil and gas fields, shales, plays and other geographic areas set forth in Exhibit B hereto and any other oil and gas fields, shales, plays and geographic areas with respect to which: (A) Employee provides services on behalf of the Company during Employee’s employment hereunder; and (B) the Company has material operations or specific plans to conduct any material business as of the Termination Date (provided that Employee has material responsibilities, or has obtained Confidential Information, with respect to such operations or plans).

(vii)      “ Restricted Prospects ” includes any Oil and Gas Interests within the Restricted Area.

(g)      This Section 10 shall survive any termination of this Agreement for the periods stated herein.

11.
Parachute Taxes .

(a)      Gross-Up Payment. In the event it shall be determined that any vesting, payment or distribution of any type by the Company or any of its Affiliates or any other party in a transaction involving the Company or its Affiliates or a party to the transactions contemplated by the Purchase Agreement or the Kinder Morgan Merger Agreement (as defined in the Purchase Agreement) to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “ Payments ”) on or prior to the second anniversary of the Effective Date and that is “contingent” (within the meaning of Treasury Regulation Section 1.280G-1) on the consummation of the transactions contemplated by the Purchase Agreement would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “ Excise Tax ”), then Employee shall be entitled to receive an additional payment (a “ Gross-Up Payment ”) in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any income taxes, employment taxes and Excise Tax, imposed



upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All determinations required to be made under this Section 11(a) (including, without limitation, whether any vesting, payment or distribution
(i) constitutes a “parachute payment” within the meaning of Section 280G of the Code and (ii) is contingent on the consummation of the transactions contemplated by the Purchase Agreement) shall be made by the Board acting in good faith and in accordance with commonly accepted practices, including, to the extent appropriate, the engagement of an independent public accounting firm. Payment of the Gross-Up Payment shall be made at the time that withholding is required in connection with any Payment, provided that the payment of any Gross-Up Payment shall be made prior to the date Employee is to remit the Excise Tax as provided under of the Internal Revenue Code of 1986, as amended (the “ Code ”) or pursuant to any judgment or agreement with any taxing authority.

(b)      Determination by Accountant.     Except as otherwise provided in Section 11(a), all determinations required to be made under this Section 11, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the independent accounting firm retained by the Company on the date of Change in Control (the “ Accounting Firm ”), which shall provide detailed supporting calculations both to the Company and Employee within 15 business days of the date of termination, if applicable, or such earlier time as is requested by the Company. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with an opinion that he or she has substantial authority not to report any Excise Tax on his or her federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up payments which will not have been made by the Company should have been made (“ Underpayment ”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee.

(c)      Notification Required. Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall:

(i)      give the Company any information reasonably requested by the Company relating to such claim,




(ii)      take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii)      cooperate with the Company in good faith in order to effectively contest such claim, and

(iv)      permit the Company to participate in any proceedings relating to such claim; provided, however , that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however , that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee (unless otherwise prohibited by applicable law), on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d)      Repayment. If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 11(c), Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company’s complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to Section 11(c), a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof the amount of Gross-Up Payment required to be paid.




(e)      Shareholder Approval. With respect to events from and after the second anniversary of the Effective Date, notwithstanding anything to the contrary in this Agreement, if
(a) Employee is a “disqualified individual” (as defined in Section 280G(c) of the Code), (b) the payments and benefits provided for in this Agreement, together with any other payments and benefits that Employee has the right to receive from the Company or any of its Affiliates, would constitute an “excess parachute payment” (as defined in Section 280G(b)(2) of the Code, a “ Excess Parachute Payment ”)) and (c) shareholder approval (obtained in a manner that satisfies the requirements of Section 280G(b)(5) of the Code) of a payment or benefit to be provided to Employee by the Company or any other person (whether under this Agreement or otherwise) would result in the payment or benefit not being treated as an Excess Parachute Payment, then, upon the request of Employee and Employee’s agreement (to the extent necessary) to subject Employee’s entitlement to the receipt of such payment or benefit to shareholder approval, the Company shall use its reasonable best efforts to seek and obtain such approval in a manner that satisfies the requirements of Section 280G of the Code and the regulations thereunder with the least amount of risk to Employee not receiving such payment or benefit.

12. Withholdings . The Company may withhold and deduct from any payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling and (b) to the extent permissible under Section 409A (as hereinafter defined), any deductions consented to in writing by Employee.

13. Severability . It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by applicable law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator, the parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by applicable law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement.

14. Title and Headings; Construction . Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Any and all Exhibits referred to in this Agreement are, by such reference, incorporated herein and made a part hereof for all purposes. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision hereof.

15.
Arbitration; Injunctive Relief; Attorneys’ Fees.

(a)      Subject to Section 15(b) , any dispute, controversy or claim between Employee and the Company arising out of or relating to this Agreement, Employee’s employment, or the termination of either will be finally settled by arbitration in Houston, Texas before, and in accordance with the then-existing rules for the resolution of employment disputes then obtaining of, the American Arbitration Association. The arbitrator’s award shall be reasoned, final and binding on all parties and may be enforced in a court of competent jurisdiction.




(b)      Notwithstanding Section 15(a), an application for emergency, temporary or preliminary injunctive relief by either party (including, without limitation, pursuant to Section 10(g) ) shall not be subject to arbitration under this Section 15; provided, however , that the remainder of any such dispute (beyond the application for emergency, temporary or preliminary injunctive relief) shall be subject to arbitration under this Section 15.

(c)      Each of Employee and the Company shall share equally the cost of the arbitrator and bear its own costs and attorneys’ fees incurred in connection with any arbitration, unless a statutory claim authorizing the award of attorneys’ fees is at issue, in which event the arbitrator may award a reasonable attorneys’ fee in accordance with the jurisprudence of that statute; provided, however , that if Employee institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action the validity or enforceability of, any right to severance provided by this Agreement, the Company, subject to Section 22(d) , will reimburse Employee for all reasonable legal fees and expenses incurred (including, without limitation, attorneys’ fees, arbitration fees and the costs of experts) promptly after receipt from Employee of an invoice and supporting documentation reasonably satisfactory to the Company with respect to such fees and expenses. Notwithstanding the preceding sentence, (i) the Company shall not be responsible for reimbursing any such fees and expenses to the extent they are incurred in connection with a claim made by Employee that the trier of fact finds to be frivolous or if Employee is determined to have breached Employee’s obligations under Sections 8, 9 or 10 of this Agreement and (ii) if, after the receipt by Employee of an amount reimbursed by the Company pursuant to this Section 15(c) in connection with a claim made by Employee that the trier of fact finds to be frivolous or if Employee is determined to have breached Employee’s obligations under Sections 8, 9 or 10 of this Agreement, then Employee shall promptly repay to the Company all amounts reimbursed in connection with such claim pursuant to this Section 15(c).

(d)
Nothing in this Section 15 shall prohibit a party to this Agreement from
(i) instituting litigation to enforce any arbitration award or (ii) joining another party to this Agreement in a litigation initiated by a person which is not a party to this Agreement. IN ENTERING THIS AGREEMENT, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.

16. Governing Law .    THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ANY PRINCIPLES OF CONFLICT OF LAWS THEREOF THAT WOULD RESULT IN THE APPLICABLE OF THE LAWS OF ANY OTHER JURISDICTION. THE EXCLUSIVE VENUE FOR THE RESOLUTION OF ANY DISPUTE RELATING TO THIS AGREEMENT OR EMPLOYEE’S EMPLOYMENT (THAT IS NOT SUBJECT TO ARBITRATION UNDER SECTION 15 FOR ANY REASON) SHALL BE IN THE STATE AND FEDERAL COURTS LOCATED IN HARRIS, COUNTY TEXAS AND THE PARTIES HEREBY EXPRESSLY CONSENT TO THE JURISDICTION OF THOSE COURTS.

17. Entire Agreement and Amendment .    This Agreement contains the entire agreement between the Company and any of its Affiliates (including, without limitation, EPE




Acquisition) with respect to Employee’s employment and the other matters covered herein (except the Purchase Agreement and any other agreements specifically referenced herein); moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between Employee on the one hand and the Company and any of its Affiliates on the other hand concerning the subject matters hereof. For the avoidance of doubt, Employee expressly acknowledges and agrees that, notwithstanding any provision within the 2004 Severance Plan that purports to restrict Employee’s rights to waive severance rights under the 2004 Severance Plan, effective as of the Effective Date, Employee is knowingly, voluntarily and permanently waiving any and all rights that Employee has under the 2004 Severance Plan on and after the Effective Date , as this Agreement and the other agreements being contemporaneously executed by Employee and the Company set forth the entirety of severance rights that Employee has, or in the future may have, with respect to, or arising out of, Employee’s employment with the Company or its Affiliates and the 2004 Severance Plan is hereby superseded in its entirety with respect to Employee. This Agreement may be amended, waived or terminated only by a written instrument executed by both the Company and Employee.

18. Survival of Certain Provisions . Wherever appropriate to the intention of the parties hereto and except as otherwise provided herein, the respective rights and obligations of said parties, including, but not limited to, the rights and obligations set forth in Section 6 through Section 11 hereof, shall survive any termination or expiration of this Agreement for any reason.

19. Waiver of Breach . No waiver by either party hereto of a breach of any provision of this Agreement by the other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time while such breach continues.

20. Assignment . Neither this Agreement nor any rights nor obligations hereunder shall be assignable or otherwise subject to hypothecation by Employee (except, by will or by operation of the laws of intestate succession). The Company may assign its rights and obligations under this Agreement, including to an Affiliate or any successor and any such assignment may take effect at any time without the consent of Employee, provided that (a) such Affiliate or successor has the financial wherewithal to perform all obligations of the Company hereunder and
(b) such assignment does not, without Employee’s prior written consent, result in “Good Reason” within the meaning of Section 7(d)(iv) with respect to (x) the Company and its Affiliates or (y) all or substantially all of the assets of the Company and its Affiliates. The fact that any such assignment may be permitted under this Section 20 shall not affect the determination of whether such assignment or any related transaction constitutes a Threshold Capital Transaction. The Company will require any successor permitted under this Section 20 , including any acquirer of substantially all of its assets, to assume its obligations under this Agreement. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.




21. Notices . Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person, (b) on the first business day after such notice is sent by air express overnight courier service, or (c) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid, in each case addressed to the following address, as applicable:

If to the Company, addressed to:

Everest Acquisition LLC
c/o Apollo Global Management, LLC 9 West 59th Street, 43rd Floor
New York, New York 10019 Attention: Mr. Sam Oh
If to Employee, addressed to: Kyle A. McCuen
13315 Taylorcrest
Houston, Texas 77079

22.
Section 409A .

(a)      General. The intent of the parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A of the Code and the regulations and interpretive guidance promulgated thereunder (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. The Company and Employee shall take commercially reasonable efforts to reform or amend any provision hereof to the extent that either of them reasonably determine that such provision would or could reasonably be expected to cause Employee to incur any additional tax or interest under Section 409A to try to comply with or be exempt from Section 409A through good faith modifications, in any case, to the minimum extent reasonably appropriate to conform with Section 409A, provided that any such modifications shall not increase the cost or liability to the Company. To the extent that any provision hereof is modified in order to comply with or be exempt from Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to Employee and the Company of the applicable provision without violating the provisions of Section 409A.

(b)      Separation from Service . Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is designated under this Agreement as payable upon Employee’s termination of employment shall be payable only upon Employee’s “separation from service” with the Company within the meaning of Section 409A (a “ Separation from Service ”).

(c)      Specified Employee . Notwithstanding anything in this Agreement to the contrary, if Employee is deemed by the Company at the time of Employee’s Separation from Service to be a “specified employee” for purposes of Section 409A, to the extent delayed



commencement of any portion of the benefits to which Employee is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Employee’s benefits shall not be provided to Employee prior to the earlier of (i) the expiration of the six-month period measured from the date of Employee’s Separation from Service or (ii) the date of Employee’s death. Upon the first business day following the expiration of the delay period described in the preceding sentence, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Employee (or Employee’s estate or beneficiaries), and any remaining payments due to Employee under this Agreement shall be paid as otherwise provided herein.

(d)      Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Employee shall be paid to Employee no later than December 31 of the year following the year in which the expense was incurred; provided, that Employee submits Employee’s reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Employee’s right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

(e)      Installments . Employee’s right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.

23. Affiliates . For purposes of this Agreement, “ Affiliate ” means, with respect to any person, any other person directly or indirectly controlling, controlled by, or under common control with such specified person; provided, however , that an Affiliate shall not include any portfolio company of any person. For purposes of the definition of “Affiliate”, “ control ” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings.

24. Employee Acknowledgement . Employee acknowledges that Employee has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Employee’s own judgment after having had the opportunity to consult with advisors of Employee’s choosing.

25. Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party, but together signed by both parties hereto.




26. Company Name Change . It is intended that the Company will change its name to EP Energy LLC on or immediately after the Effective Date. Upon such change becoming effective, all references in this Agreement to “the Company” shall refer to EP Energy LLC, a Delaware limited liability company, unless the context requires otherwise.

27. Provisions Regarding Effective Date . As indicated in Section 1, this Agreement is effective as of the Effective Date and, accordingly, in connection therewith and notwithstanding any other provision of this Agreement, the parties agree that this Agreement shall be null and void and of no force or effect if (a) Employee ceases to be employed by either EPEPM or one of its Affiliates at any time prior to the Effective Date and/or (b) the Effective Date does not occur on or prior to the End Date (as defined in the Purchase Agreement).

[Signature Page Follows]





IN WITNESS WHEREOF, the parties have executed this Agreement this 24th day of May 2012, effective for all purposes as provided above.         
                    
 
EVEREST ACQUISITION LLC
 
 
 
 
 
 
 
By:
/s/ Sam Oh
 
 
Sam Oh
 
 
Authorized Person
 
 
 
 
 
 
 
EMPLOYEE
 
 
 
 
 
 
 
Kyle A. McCuen
 
 
 
 
For the limited purpose of acknowledging
 
Section 17:
 
 
 
 
 
 
 
EL PASO EXPLORATION & PRODUCTION
 
MANAGEMENT, INC.
 
 
 
 
 
 
 
By:
 
 
 
Clayton A. Carrell
 
 
Senior Vice President





















SIGNATURE PAGE
TO
EMPLOYMENT AGREEMENT (KYLE A. MCCUEN)





IN WITNESS WHEREOF, the parties have executed this Agreement this 24 day of May, 2012, effective for all purposes as provided above.

    
 
EVEREST ACQUISITION LLC
 
 
 
 
 
 
 
By:
 
 
 
Sam Oh
 
 
Authorized Person
 
 
 
 
 
 
 
EMPLOYEE
 
 
 
 
 
/s/ Kyle A. McCuen
 
Kyle A. McCuen
 
 
 
 
For the limited purpose of acknowledging
 
Section 17:
 
 
 
 
 
 
 
EL PASO EXPLORATION & PRODUCTION
 
MANAGEMENT, INC.
 
 
 
 
 
 
 
By:
/s/ Clayton A. Carrell
 
 
Clayton A. Carrell
 
 
Senior Vice President
                        

                        
















SIGNATURE PAGE TO
EMPLOYMENT AGREEMENT
(KYLE A. MCCUEN)



SCHEDULE 2(a)

PERMITTED CORPORATE BOARD AND COMMITTEE MEMBERSHIPS


None



























































S CHEDULE 2(a)




EXHIBIT A

TERMINATION OF EMPLOYMENT AGREEMENT

This Termination of Employment Agreement (this “ Agreement ”) is between EP Energy LLC, a Delaware limited liability company (“ Company ”), and Kyle A. McCuen (“ Employee ”) pursuant to that Amended and Restated Employment Agreement between Employee and Company dated      , 2012 (the “ Employment Agreement ”).

The parties hereby agree to terminate their employment relationship on the following terms and conditions.

1. Termination of Employment.     Company and Employee agree that Employee’s employment with Company has been terminated, or shall be terminated, as of [•] (the “ Termination Date ”), and Employee is eligible to receive certain severance benefits pursuant to Section 7 of the Employment Agreement.

2. Complete Release and Other Consideration from Employee .    Subject to Employee’s timely receipt of the severance benefits payable to Employee pursuant to the Employment Agreement, in exchange for Company’s obligations under this Agreement, Employee agrees as follows:

(a)      Release of Claims. Employee, on Employee’s own behalf and on behalf of Employee’s heirs, family members, executors, agents, and assigns, hereby and forever releases Company, its direct and indirect subsidiaries and Affiliates (as defined in the Employment Agreement), and each of their respective current and former officers, directors, equity holders, members, managers, benefit plans, and plan administrators (collectively, the “ Releasees ”) from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to:

(i)      any and all claims relating to or arising from Employee’s employment or service relationship with Company or any of its direct or indirect subsidiaries or permitted assigns and the termination of that relationship;

(ii)      with respect to Employee’s employment or service relationship with Company or any of its direct or indirect subsidiaries or permitted assigns: any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;

(iii)      with respect to Employee’s employment or service relationship with Company or any of its direct or indirect subsidiaries or permitted assigns: any and

EXHIBIT A-1

all claims for violation of any federal, state, local or foreign law, including, but not limited to the following statutes (each as amended, if applicable), Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Labor Standards Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the Sarbanes-Oxley Act of 2002;

(iv)      any and all claims arising out of any other laws and regulations relating to Employee’s employment or service relationship with, or affiliation with, the Company or any of its direct or indirect subsidiaries or employment discrimination with respect thereto;

(v)      any and all claims arising out of any other federal, state, local or foreign law relating to Employee’s employment or service relationship with, or affiliation with, the Company or any of its direct or indirect subsidiaries or employment discrimination with respect thereto;

(vi)      any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Employee with respect to Employee’s employment or service relationship with, or affiliation with, the Company or any of its direct or indirect subsidiaries or permitted assigns or as a result of this Agreement; and


(vii)
any and all claims for attorneys’ fees and costs with respect to the foregoing.
Employee agrees that the release set forth in this section shall be and remain in effect in all respects as a complete release as to the matters released. Notwithstanding the foregoing, this Agreement does not release (i) Employee’s current ownership of, or claims in respect of future rights or claims arising out of, (A) any direct or indirect equity interest in the Company or any of its Affiliates or (B) any options or other contingent rights thereto (including, without limitation, rights in respect of the Company’s Class B Units or any successor rights), (ii) any future rights under equity or equity incentives or (iii) claims that cannot be released as a matter of law, including, but not limited to, Employee’s right to file a charge with, or participate in a charge by, the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against Company (with the understanding that Employee’s release of claims herein bars Employee from recovering monetary or other personal relief from Company or any other Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of Company’s group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Employee’s employment, pursuant to written terms of any employee benefit plan of Company or its Affiliates. Further, this Agreement does not release Employee’s rights, including under applicable law and Company’s

EXHIBIT A-2



D&O policy, to seek indemnity for acts committed, or omissions, within the course and scope of Employee’s employment duties.

(b)      Acknowledgment of Waiver of Claims under the ADEA. Employee understands and acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 (“ ADEA ”), and that this waiver and release is knowing and voluntary. Employee understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Employee understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Employee was already entitled. Employee further understands and acknowledges that Employee has been advised by this writing that: (a) Employee should consult with an attorney prior to executing this Agreement;
(b) Employee has [21/45] days within which to consider this Agreement; (c) Employee has 7 days following Employee’s execution of this Agreement to revoke this Agreement, which Employee may do by providing written notice of revocation to Company as provided in Section 21 of the Employment Agreement; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Employee signs this Agreement and returns it to Company in less than the [21/45] day period identified above, Employee hereby acknowledges that he has freely and voluntarily chosen to waive the complete time period allotted for considering this Agreement.

3. Confidentiality. Except as may be required by applicable law or court order or as may be necessary in an action arising out of this Agreement, Employee agrees not to disclose the existence or terms of this Agreement to anyone other than Employee’s immediate family, attorneys, tax advisors, and financial counselors, provided that Employee first informs them of this confidentiality clause and secures their agreement to be bound by it.

4. Employee’s Representations .    Employee acknowledges, agrees and expressly represents that, as of the date Employee executes this Agreement: (i) Employee has received all compensation and other sums that Employee is owed by the Releasees (other than sums owed pursuant to this Agreement); and (ii) Employee has received all leaves (paid and unpaid) that Employee was owed through the Termination Date.

5. Release and Other Consideration from Company. In exchange for Employee’s obligations under this Agreement, Company shall pay Employee those severance payments described in Section 7(b) of the Employment Agreement, on the terms provided in the Employment Agreement. Employee acknowledges that these severance payments are conditioned on Employee’s compliance with Sections 9 and 10 of the Employment Agreement. Company may withhold from any severance payments all federal, state, local, and other taxes and withholdings as may be required pursuant to any law or governmental regulation or ruling.

6. Right to Consult an Attorney; Period of Review.     Employee is encouraged to consult with an attorney before signing this Agreement. From the date this Agreement is first


EXHIBIT A-3

presented to Employee, Employee will have [21/45] days in which to review this Agreement. Employee may use as little or much of this [21/45] -day review period as Employee chooses.

7. Amendment; Continuing Obligations. This Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the parties hereto concerning the subject matter hereof and thereof. This Agreement may be amended, waived or terminated only by a written instrument executed by both parties hereto. Employee hereby reaffirms and agrees to continue to abide by the terms set forth in Sections 9 and 10 of the Employment Agreement and expressly acknowledges the enforceability and continuing effect of those terms.

8. Revocation. Upon signing this Agreement, Employee will have 7 days to revoke the Agreement. To properly revoke the Agreement, Company must receive written notice of revocation from Employee by the close of business on the 7th day after the date the Agreement is signed by Employee.    Written notice must be delivered pursuant to Section 21 of the Employment Agreement.

9. Choice of Law . This Agreement will be governed in all respects by the laws of the State of Texas, without regard to its choice of law principles. This Agreement is subject to the arbitration provisions in Section 15 of the Employment Agreement.

10. Effectiveness of Agreement. This Agreement will be effective, and the payments described above will be made, only if Employee executes the Agreement within [21/45] days of receiving it and only if Employee does not revoke the Agreement under Section 8 above.



[Signature Page Follows]


EXHIBIT A-4

IN WITNESS WHEREOF, the parties have executed this Agreement, effective for all purposes as provided above.



                        
 
EP ENERGY LLC
 
 
 
 
By:
 
 
 
Sam Oh
 
 
Authorized Person
 
 
 
 
EMPLOYEE
 
 
 
 
 
 
Kyle A. McCuen











EXHIBIT A-5

EXHIBIT B

RESTRICTED AREAS

Eagle Ford La Salle County, Texas
Eagle Ford Dimmit County, Texas
Eagle Ford Webb County, Texas
Eagle Ford Atascosa County, Texas
Eagle Ford McMullen County, Texas
Altamont Duchesne County, Utah
Altamont Uintah County, Utah
Wolfcamp Reagan County, Texas
Wolfcamp Irion County, Texas
Wolfcamp Crockett County, Texas
Wolfcamp Upton County, Texas
Wilcox Beauregard Parish, Louisiana
Wilcox Newton County, Texas
Haynesville/Arklatex De Soto Parish, Louisiana
Haynesville/Arklatex Bossier Parish, Louisiana
Haynesville/Arklatex Webster Parish, Louisiana
Haynesville/Arklatex Bienville Parish, Louisiana
Haynesville/Arklatex Robertson County, Texas
Haynesville/Arklatex Panola County, Texas
Haynesville/Arklatex Caddo Parish, Louisiana
Black Warrior Jefferson County, Alabama
Black Warrior Tuscaloosa County, Alabama
Black Warrior Fayette County, Alabama
Black Warrior Walker County, Alabama
Raton Colfax County, New Mexico
Raton Las Animas County, Colorado
Gulf Coast Starr County, Texas
Gulf Coast Zapata County, Texas
Gulf Coast Lavaca County, Texas
Gulf Coast Hidalgo County, Texas
Arkoma Le Flore County, Oklahoma
Arkoma Haskell County, Oklahoma

  

 
     
   
 
   

EXHIBIT B-1
Exhibit 21.1

Subsidiaries of EP Energy Corporation
As of March 18, 2019
 
Subsidiary
 
Jurisdiction
 
% Owned
EPE Acquisition, LLC
 
Delaware
 
100
%
EP Energy LLC
 
Delaware
 
100
%
EP Energy Global LLC
 
Delaware
 
100
%
EP Energy Management, L.L.C.
 
Delaware
 
100
%
EP Energy Resale Company, L.L.C.
 
Delaware
 
100
%
EP Energy E&P Company, L.P. 1
 
Delaware
 
99
%
Everest Acquisition Finance Inc.
 
Delaware
 
100
%
EPE Employee Holdings II, LLC
 
Delaware
 
100
%
 
1 1% held by EP Energy Management, L.L.C., as general partner



Exhibit 23.1



Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:           
(1) Registration Statement (Form S-3 No. 333-215486) of EP Energy Corporation and in the related Prospectuses,
(2) Registration Statements (Form S-8 No. 333-193531 and 333-212897) pertaining to the 2014 Omnibus Incentive Plan of EP Energy Corporation, and
(3) Registration Statement (Form S-8 No. 333-221277) pertaining to the EP Energy Corporation Employment Inducement Plan;
of our reports dated March 18, 2019, with respect to the consolidated financial statements of EP Energy Corporation and the effectiveness of internal control over financial reporting of EP Energy Corporation included in this Annual Report (Form 10-K) of EP Energy Corporation for the year ended December 31, 2018.    
 
/s/ Ernst & Young LLP
Houston, Texas
March 18, 2019



Exhibit 23.2

RYDERSCOTTLOGOA09.JPG RYDERSCOTTNAMEA08.JPG
TBPE REGISTERED ENGINEERING FIRM F-1580        FAX (713) 651-0849
1100 LOUISIANA SUITE 4600    HOUSTON, TEXAS 77002-5294    TELEPHONE (713) 651-9191




CONSENT OF RYDER SCOTT COMPANY, L.P.



As independent petroleum engineers, Ryder Scott Company, L.P. hereby consents to the incorporation by reference in the Registration Statement (Forms S-3 No. 333-215486) and the related Prospectuses, and Registration Statements (Forms S-8 No. 333-193531 and 333-212897 pertaining to the 2014 Omnibus Incentive Plan and Form S-8 No. 333-221277 pertaining to the Employment Inducement Plan) of EP Energy Corporation of the reference to us and our report under the captions “Part I. Business – Oil and Natural Gas Properties” and “Part II. Item 8. Financial Statements and Supplementary Data – Supplemental Oil and Natural Gas Operations (Unaudited)” and the inclusion of our reserve report as Exhibit 99.1 in the Annual Report on Form 10-K of EP Energy Corporation for the year ended December 31, 2018.

/s/ Ryder Scott Company, L.P.


RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580





Houston, Texas
March 18, 2019



SUITE 800, 7TH AVENUE, S.W.    CALGARY, ALBERTA T2P 39N    TEL (403) 262-2799    FAX (403) 262-2790
621 17TH STREET, SUITE 1550    DENVER, COLORADO 80293-1501    TEL (303) 623-9147    FAX (303) 623-4258


Exhibit 31.1
 
CERTIFICATION
 
I, Russell E. Parker, certify that:
 
1.                                       I have reviewed this Annual Report on Form 10-K of EP Energy Corporation;
 
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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d 15(f)) for the registrant and have:
 
(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
 
(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:
March 18, 2019
 
 
 
 
 
 
 
/s/ Russell E. Parker
 
 
Russell E. Parker
 
 
President and Chief Executive Officer
 
 
EP Energy Corporation





Exhibit 31.2
 
CERTIFICATION
 
I, Kyle A. McCuen, certify that:
 
1.                                       I have reviewed this Annual Report on Form 10-K of EP Energy Corporation;
 
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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d 15(f)) for the registrant and have:
 
(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
 
(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:
March 18, 2019
 
 
 
 
 
 
 
/s/ Kyle A. McCuen
 
 
Kyle A. McCuen
 
 
Senior Vice President, Chief Financial Officer and Treasurer
 
 
EP Energy Corporation




Exhibit 32.1
 
CERTIFICATION 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 Annual Report on Form 10-K for the period ending December 31, 2018 , of EP Energy Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Russell E. Parker, President and Chief Executive Officer, certify (i) that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
/s/ Russell E. Parker
 
Russell E. Parker
 
President and Chief Executive Officer
 
EP Energy Corporation
 
 
 
Date:
March 18, 2019
 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.





Exhibit 32.2
 
CERTIFICATION 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 Annual Report on Form 10-K for the period ending December 31, 2018 , of EP Energy Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kyle A. McCuen, Senior Vice President, Chief Financial Officer and Treasurer certify (i) that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
/s/ Kyle A. McCuen
 
Kyle A. McCuen
 
Senior Vice President, Chief Financial
 
Officer and Treasurer
 
EP Energy Corporation
 
 
 
Date:
March 18, 2019
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.





Exhibit 99.1







EP ENERGY CORPORATION






Estimated

Future Reserves and Income

Attributable to Certain

Leasehold and Royalty Interests





SEC Parameters





As of

December 31, 2018







\s\ Val Rick Robinson
 
\s\ Marsha E. Wellmann
Val Rick Robinson, P.E.
 
Marsha E. Wellmann, P.E.
TBPE License No. 105137
 
TBPE License No. 116149
Managing Senior Vice President
 
Vice President
[SEAL]                          [SEAL]
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580


RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 1



RYDERSCOTTLOGOA09.JPG RYDERSCOTTNAMEA08.JPG
TBPE REGISTERED ENGINEERING FIRM F-1580        FAX (713) 651-0849
1100 LOUISIANA SUITE 4600    HOUSTON, TEXAS 77002-5294    TELEPHONE (713) 651-9191



March 1, 2019



EP Energy Corporation
1001 Louisiana
Houston, Texas 77002


Gentlemen:

At your request, Ryder Scott Company, L.P. (Ryder Scott) has prepared an estimate of the proved reserves, future production, and income attributable to certain leasehold and royalty interests of EP Energy Corporation (EP Energy) as of December 31, 2018. The subject properties are located in the Eagle Ford shale and Permian Basin in the state of Texas and the Uinta Basin in the state of Utah. The reserves and income data were estimated based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). Our third party study, completed on March 1, 2019 and presented herein, was prepared for public disclosure by EP Energy in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations.

The properties evaluated by Ryder Scott represent 100 percent of the total net proved liquid hydrocarbon reserves and 100 percent of the total net proved gas reserves of EP Energy as of December 31, 2018.

The estimated reserves and future net income amounts presented in this report, as of December 31, 2018 are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this report are based on the average prices during the 12-month period prior to the “as of date” of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Actual future prices may vary considerably from the prices required by SEC regulations. The recoverable reserves volumes and the income attributable thereto have a direct relationship to the hydrocarbon prices actually received; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of this study are summarized as follows.

SUITE 800, 350 7TH AVENUE, S.W.    CALGARY, ALBERTA T2P 3N9    TEL (403) 262-2799    FAX (403) 262-2790
621 17TH STREET, SUITE 1550    DENVER, COLORADO 80293-1501    TEL (303) 623-9147    FAX (303) 623-4258
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 2




SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
EP Energy Corporation
As of December 31, 2018

 
 
Proved
 
 
Developed
 
 
 
Total
 
 
Producing
 
Non-Producing
 
Undeveloped
 
Proved
Net Reserves
 
 
 
 
 
 
 
 
Oil/Condensate – MBBL
 
105,587

 
5,614

 
57,456

 
168,657

Plant Products – MBBL
 
49,942

 
0

 
10,112

 
60,054

Gas – MMCF
 
423,146

 
11,245

 
140,116

 
574,507

MBOE
 
226,053

 
7,488

 
90,921

 
324,462

 
 
 
 
 
 
 
 
 
Income Data (M$)
 
 
 
 
 
 
 
 
Future Gross Revenue
 

$8,260,435

 

$338,539

 

$3,990,995

 

$12,589,969

Deductions
 
3,447,376

 
110,904

 
2,164,389

 
5,722,669

Future Net Income (FNI)
 

$4,813,059

 

$227,635

 

$1,826,606

 
$
6,867,300

 
 
 
 
 
 
 
 
 
Discounted FNI @ 10%
 

$2,716,656

 
$
95,337

 
$
645,443

 
$
3,457,436



Liquid hydrocarbons are expressed in standard 42 U.S. gallon barrels and shown herein as thousands of barrels (MBBL). All gas volumes are reported on an “as sold basis” expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas in which the gas reserves are located. The net reserves are also shown herein on an equivalent unit basis wherein natural gas is converted to oil equivalent using a factor of 6,000 cubic feet of natural gas per one barrel of oil equivalent. MBOE means thousand barrels of oil equivalent. In this report, the revenues, deductions, and income data are expressed as thousands of U.S. dollars (M$).

The estimates of the reserves, future production, and income attributable to properties in this report were prepared using the economic software package ARIES TM Petroleum Economics and Reserves Software, a copyrighted program of Halliburton. The program was used at the request of EP Energy. Ryder Scott has found this program to be generally acceptable, but notes that certain summaries and calculations may vary due to rounding and may not exactly match the sum of the properties being summarized. Furthermore, one line economic summaries may vary slightly from the more detailed cash flow projections of the same properties, also due to rounding. The rounding differences are not material.

The future gross revenue is after the deduction of production taxes. The deductions incorporate the normal direct costs of operating the wells, ad valorem taxes, recompletion costs, development costs, certain gas transportation and processing fees which are shown as “Other” deductions in the cash flow and certain abandonment costs net of salvage. The future net income is before the deduction of U.S. state and federal income taxes and general administrative overhead, and has not been adjusted for outstanding loans that may exist nor does it include any adjustment for cash on hand or undistributed income.

Liquid hydrocarbon reserves account for approximately 91 percent and gas reserves account for the remaining 9 percent of total future gross revenue from proved reserves.


RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 3



The discounted future net income shown above was calculated using a discount rate of 10 percent per annum compounded monthly. Future net income was discounted at four other discount rates which were also compounded monthly. These results are shown in summary form as follows.
 
 
Discounted Future Net Income (M$)
 
 
As of December 31, 2018
Discount Rate
 
Total
 
Percent
 
Proved
 
 
 
 
 
5
 
$4,649,111
 
9
 
$3,647,362
 
15
 
$2,735,085
 
20
 
$2,257,229
 


The results shown above are presented for your information and should not be construed as our estimate of fair market value.

Reserves Included in This Report

The proved reserves included herein conform to the definition as set forth in the Securities and Exchange Commission’s Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled “PETROLEUM RESERVES DEFINITIONS” is included as an attachment to this report.

The various reserves status categories are defined under the attachment entitled “PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES” in this report. The proved developed non-producing reserves included herein consist only of the behind pipe category.

No attempt was made to quantify or otherwise account for any accumulated gas production imbalances that may exist. The proved gas volumes presented herein do not include volumes of gas consumed in operations as reserves.

Reserves are “estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations.” All reserves estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. At EP Energy’s request, this report addresses only the proved reserves attributable to the properties evaluated herein.

Proved oil and gas reserves are “those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward.” The proved reserves included herein were estimated using deterministic methods. The SEC has defined reasonable certainty for proved reserves, when based on deterministic methods, as a “high degree of confidence that the quantities will be recovered.”

Proved reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For proved reserves, the SEC states that “as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and

RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 4



economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.” Moreover, estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered, the revenues therefrom, and the actual costs related thereto, could be more or less than the estimated amounts.

EP Energy’s operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.

The estimates of proved reserves presented herein were based upon a detailed study of the properties in which EP Energy owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included for potential liabilities to restore and clean up damages, if any, caused by past operating practices.

Estimates of Reserves

The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions set forth by the Securities and Exchange Commission’s Regulations Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods, (2) volumetric-based methods and (3) analogy. These methods may be used individually or in combination by the reserves evaluator in the process of estimating the quantities of reserves. Reserves evaluators must select the method or combination of methods which in their professional judgment is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate, the established or anticipated performance characteristics of the reservoir being evaluated, and the stage of development or producing maturity of the property.

In many cases, the analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the reserves quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by the reserves category assigned by the evaluator. Therefore, it is the categorization of reserves quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the “quantities actually recovered are much more likely than not to be achieved.” The SEC states that “probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.” The SEC states that “possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves.” All quantities of reserves within the same reserves category must meet the SEC definitions as noted above.


RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 5



Estimates of reserves quantities and their associated reserves categories may be revised in the future as additional geoscience or engineering data become available. Furthermore, estimates of reserves quantities and their associated reserves categories may also be revised due to other factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or geopolitical or economic risks as previously noted herein.

The proved reserves for the properties included herein were estimated by performance methods, the volumetric method, analogy, or a combination of methods. The proved producing reserves were estimated by performance methods alone or a combination of methods where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as the sole basis for the reserve estimates was considered to be inappropriate. Decline curve analysis was used as the primary methodology for all of the proved producing reserves.

The data utilized in this analysis, available through December 2018, were furnished to Ryder Scott by EP Energy or obtained from public data sources and were considered sufficient for the purpose thereof.

The proved developed non-producing and undeveloped reserves included herein utilized the volumetric method, analogy, or a combination of methods. The volumetric analysis utilized pertinent well and seismic data furnished to Ryder Scott by EP Energy for our evaluation or which we have obtained from public data sources that were available through December 2018. The data utilized from the analogues in conjunction with well data incorporated into the volumetric analysis were considered sufficient for the purpose thereof. Analogy was used as the primary methodology in all of the proved non-producing and undeveloped reserves.

To estimate economically recoverable proved oil and gas reserves and related future net cash flows, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.

EP Energy has informed us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data required for this investigation. In preparing our forecast of future proved production and income, we have relied upon data furnished by EP Energy with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating the wells or leases, other costs such as transportation and/or processing fees, ad valorem and production taxes, recompletion and development costs, development plans, abandonment costs after salvage, product prices based on the SEC regulations, adjustments or differentials to product prices, geological structural and isochore maps, well logs, core analyses, and pressure measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data furnished by EP Energy. We consider the factual data used in this report appropriate and sufficient for the purpose of preparing the estimates of reserves and future net revenues herein.

In summary, we consider the assumptions, data, methods and analytical procedures used in this report appropriate for the purpose hereof, and we have used all such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves herein. The proved reserves included herein were determined in conformance with the United States Securities and Exchange Commission (SEC) Modernization of Oil and Gas Reporting; Final Rule, including all references to

RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 6



Regulation S-X and Regulation S-K, referred to herein collectively as the “SEC Regulations.” In our opinion, the proved reserves presented in this report comply with the definitions, guidelines and disclosure requirements as required by the SEC regulations.

Future Production Rates

For wells currently on production, our forecasts of future production rates are based on historical performance data. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates.

Test data and other related information were used to estimate the anticipated initial production rates for those wells or locations that are not currently producing. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by EP Energy. Wells or locations that are not currently producing may start producing earlier or later than anticipated in our estimates due to unforeseen factors causing a change in the timing to initiate production. Such factors may include delays due to weather, the availability of rigs, the sequence of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.

The future production rates from wells currently on production or wells or locations that are not currently producing may be more or less than estimated because of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowables or other constraints set by regulatory bodies.

Hydrocarbon Prices

The hydrocarbon prices used herein are based on SEC price parameters using the average prices during the 12-month period prior to the “as of date” of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract, the contract prices, including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously described.

EP Energy furnished us with the above mentioned average prices in effect on December 31, 2018. These initial SEC hydrocarbon prices were determined using the 12-month average first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons are sold. These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the “benchmark prices” and “price reference” used for the geographic area included in the report. In certain geographic areas, the price reference and benchmark prices may be defined by contractual arrangements.

The product prices which were actually used to determine the future gross revenue for each property reflect adjustments to the benchmark prices for gravity, quality, local conditions, and/or distance from market, referred to herein as “differentials.” The differentials used in the preparation of this report were furnished to us by EP Energy. The differentials furnished by EP Energy were reviewed by us for their reasonableness using information furnished by EP Energy for this purpose.

In addition, the table below summarizes the net volume weighted benchmark prices adjusted for differentials and referred to herein as the “average realized prices.” The average realized prices shown in the table below were determined from the total future gross revenue before production taxes and the total net reserves for the geographic area and presented in accordance with SEC disclosure requirements for each of the geographic areas included in the report.

RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 7





Geographic Area
Product
Price
Reference
Average
Benchmark
Prices
Average Realized
Prices
North America
 
 
 
 
 
Oil/Condensate
WTI Cushing
$65.56/BBL
$63.31/BBL
United States
NGLs
WTI Cushing
$65.56/BBL
$23.60/BBL
 
Gas
Henry Hub
$3.10/MMBTU
$2.06/MCF


The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in our individual property evaluations.

Costs

Operating costs for the leases and wells in this report are based on the operating expense reports of EP Energy and include only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative costs allocated directly to the leases and wells. For operated properties, the operating costs include an appropriate level of corporate general administrative and overhead costs. The operating costs for non-operated properties include the COPAS overhead costs that are allocated directly to the leases and wells under terms of operating agreements. The operating costs used in the preparation of this report were estimated by us based on information furnished by EP Energy. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the leases or wells.

Development costs were furnished to us by EP Energy and are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The development costs furnished by EP Energy were reviewed by us for their reasonableness using information furnished by EP Energy for this purpose. The estimated net cost of abandonment after salvage was included for properties where abandonment costs net of salvage were material. The estimates of the net abandonment costs furnished by EP Energy were accepted without independent verification.

The proved developed non-producing and undeveloped reserves in this report have been incorporated herein in accordance with EP Energy’s plans to develop these reserves as of December 31, 2018. The implementation of EP Energy’s development plans as presented to us and incorporated herein is subject to the approval process adopted by EP Energy’s management. As the result of our inquiries during the course of preparing this report, EP Energy has informed us that the development activities included herein have been subjected to and received the internal approvals required by EP Energy’s management at the appropriate local, regional and/or corporate level. In addition to the internal approvals as noted, certain development activities may still be subject to specific partner AFE processes, Joint Operating Agreement (JOA) requirements or other administrative approvals external to EP Energy. EP Energy has provided written documentation supporting their commitment to proceed with the development activities as presented to us . Additionally, EP Energy has informed us that they are not aware of any legal, regulatory, or political obstacles that would significantly alter their plans. While these plans could change from those under existing economic conditions as of December 31, 2018, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.

Current costs used by EP Energy were held constant throughout the life of the properties.

Standards of Independence and Professional Qualification


RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 8



Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world since 1937. Ryder Scott is employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have approximately eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any privately-owned or publicly-traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.

Ryder Scott actively participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.

Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineer’s license or a registered or certified professional geoscientist’s license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization. Regulating agencies require that, in order to maintain active status, a certain amount of continuing education hours be completed annually, including an hour of ethics training. Ryder Scott fully supports this technical and ethics training with our internal requirement mentioned above.

We are independent petroleum engineers with respect to EP Energy. Neither we nor any of our employees have any financial interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.

The results of this study, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing the evaluation of the reserves information discussed in this report, are included as an attachment to this letter.

Terms of Usage

The results of our third party study, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by EP Energy.

EP Energy makes periodic filings on Form 10-K with the SEC under the 1934 Exchange Act. Furthermore, EP Energy has certain registration statements filed with the SEC under the 1933 Securities Act into which any subsequently filed Form 10-K is incorporated by reference. We have consented to the incorporation by reference in the registration statements on Forms S-3 and S-8 of EP Energy, of the references to our name, as well as to the references to our third party report for EP Energy, which appears in the December 31, 2018 annual report on Form 10-K of EP Energy. Our written consent for such use is included as a separate exhibit to the filings made with the SEC by EP Energy.

We have provided EP Energy with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version included in filings made by EP Energy and the original signed report letter, the original signed report letter shall control and supersede the digital version.

The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.

RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
EP Energy Corporation (Eagle Ford, Permian and Uinta)
March 1, 2019
Page 9




Very truly yours,

RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580


\s\ Val Rick Robinson

Val Rick Robinson, P.E.
TBPE License No. 105137
Managing Senior Vice President     [SEAL]



\s\ Marsha E. Wellmann

Marsha E. Wellmann, P.E.
TBPE License No. 116149
Vice President                 [SEAL]


VRR-MEW (FWZ)/pl



RYDER SCOTT COMPANY PETROLEUM CONSULTANTS










Professional Qualifications of Primary Technical Engineer

The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Mr. Val Rick Robinson was the primary technical person responsible for the estimate of the reserves, future production and income presented herein.

Mr. Robinson, an employee of Ryder Scott Company, L.P. (Ryder Scott) since 2006, is a Managing Senior Vice President responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Robinson served in a number of engineering positions with ExxonMobil Corporation. For more information regarding Mr. Robinson’s geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com .

Mr. Robinson earned a Bachelor of Science degree in Chemical Engineering from Brigham Young University in 2003 and is a licensed Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers.

In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Robinson fulfills. As part of his 2018 continuing education hours, Mr. Robinson attended 21 hours of formalized training including the 2018 RSC Reserves Conference and various professional society presentations covering such topics as the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register, the SPE/WPC/AAPG/SPEE Petroleum Resources Management System, reservoir engineering, overviews of the various productive basins of North America, computer software, and professional ethics.

Based on his educational background, professional training and more than 15 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Robinson has attained the professional qualifications as a Reserves Estimator set forth in Article III of the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers as of February 19, 2007.






RYDER SCOTT COMPANY PETROLEUM CONSULTANTS






PETROLEUM RESERVES DEFINITIONS

As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)


PREAMBLE

On January 14, 2009, the United States Securities and Exchange Commission (SEC) published the “Modernization of Oil and Gas Reporting; Final Rule” in the Federal Register of National Archives and Records Administration (NARA). The “Modernization of Oil and Gas Reporting; Final Rule” includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The “Modernization of Oil and Gas Reporting; Final Rule”, including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the “SEC regulations”. The SEC regulations take effect for all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state law as noted in §229.1202 Instruction to Item 1202.

Reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change.

Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.

Reserves may be attributed to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior to sale. Examples

RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
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of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale.

Reserves do not include quantities of petroleum being held in inventory.

Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.


RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:

Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir ( i.e. , absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources ( i.e. , potentially recoverable resources from undiscovered accumulations).


PROVED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves as follows:

Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes:

(A) The area identified by drilling and limited by fluid contacts, if any, and

(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

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PETROLEUM RESERVES DEFINITIONS
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(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

(B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.






RYDER SCOTT COMPANY PETROLEUM CONSULTANTS






PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES

As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)

and

2018 PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE)
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)
SOCIETY OF EXPLORATION GEOPHYSICISTS (SEG)
SOCIETY OF PETROPHYSICISTS AND WELL LOG ANALYSTS (SPWLA)
EUROPEAN ASSOCIATION OF GEOSCIENTISTS & ENGINEERS (EAGE)


Reserves status categories define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).


DEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:

Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Developed Producing (SPE-PRMS Definitions)

While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.

Developed Producing Reserves
Developed Producing Reserves are expected quantities to be recovered from completion intervals that are open and producing at the effective date of the estimate.


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PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES
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Improved recovery reserves are considered producing only after the improved recovery project is in operation.

Developed Non-Producing
Developed Non-Producing Reserves include shut-in and behind-pipe Reserves.

Shut-In
Shut-in Reserves are expected to be recovered from:
(1)
completion intervals that are open at the time of the estimate but which have not yet started producing;
(2)
wells which were shut-in for market conditions or pipeline connections; or
(3)
wells not capable of production for mechanical reasons.

Behind-Pipe
Behind-pipe Reserves are expected to be recovered from zones in existing wells that will require additional completion work or future re-completion before start of production with minor cost to access these reserves.

In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.


UNDEVELOPED RESERVES (SEC DEFINITIONS)

Securities and Exchange Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i)
Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.





RYDER SCOTT COMPANY PETROLEUM CONSULTANTS