UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 

FORM 10-K 

x  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
For the fiscal year ended December 31, 2003 
Commission file number 1-9735 

BERRY PETROLEUM COMPANY 
(Exact name of registrant as specified in its charter) 

DELAWARE 	77-0079387 	
(State of incorporation or organization) 	(I.R.S. Employer Identification Number) 	
5201 Truxtun Avenue, Suite 300 
Bakersfield, California 93309 
(Address of principal executive offices, including zip code) 

Registrant's telephone number, including area code: (661) 616-3900 

(Former name, former address and former fiscal year, if changed since last report) 

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, $.01 par value 	
New York Stock Exchange 	
(including associated stock purchase rights) 	 	

Securities registered pursuant to Section 12(g) of the Act: None 

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 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. o 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). 
YES x    NO o 

As of June 30, 2003, the aggregate market value of the voting stock held by non-affiliates was $285,032,394. As of February 9, 2004, the registrant had 20,915,746 shares of Class A Common Stock outstanding. The registrant also had 898,892 shares of Class B Stock outstanding on February 9, 2004, all of which is held by an affiliate of the registrant. 

DOCUMENTS INCORPORATED BY REFERENCE 

Part III is incorporated by reference from the registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be filed, pursuant to Regulation 14A, no later than 120 days after the close of the registrant's fiscal year. 

 	

 	
 
BERRY PETROLEUM COMPANY 
TABLE OF CONTENTS 

PART I 
 	 	Page 	
			
Items 1 and 2. 	Business and Properties 	3 	
 	General 	3 	
 	Crude Oil and Natural Gas Marketing 	4 	
 	Steaming Operations 	6 	
 	Electricity Generation 	7 	
 	Electricity Sales Contracts 	7 	
 	Environmental and Other Regulations 	8 	
 	Competition 	9 	
 	Employees 	9 	
 	Oil and Gas Properties 	9 	
 	Enhanced Oil Recovery Tax Credits 	12 	
 	Oil and Gas Reserves 	12 	
 	Production 	12 	
 	Acreage and Wells 	13 	
 	Drilling Activity 	13 	
 	Title and Insurance 	13 	
 	 	 	
Item 3. 	Legal Proceedings 	14 	
Item 4. 	Submission of Matters to a Vote of Security Holders 	14 	
 	Executive Officers 	14 	
 	 	 	
PART II 	
 	 	 	
Item 5. 	Market for the Registrant's Common Equity and Related Shareholder Matters 	15 	
Item 6. 	Selected Financial Data 	16 	
Item 7. 	Management's Discussion and Analysis of Financial Condition and Results of Operations 	17 	
Item 7A. 	Quantitative and Qualitative Disclosures About Market Risk 	21 	
Item 8. 	Financial Statements and Supplementary Data 	23 	
Item 9. 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 	43 	
Item 9A 	Controls and Procedures 	43 	
 	 	 	
PART III 	
 	 	 	
Item 10. 	Directors and Executive Officers of the Registrant 	43 	
Item 11. 	Executive Compensation 	43 	
Item 12. 	Security Ownership of Certain Beneficial Owners and Management 	43 	
Item 13. 	Certain Relationships and Related Transactions 	43 	
Item 14. 	Principal Accounting Fees and Services 	43 	
 	 	 	
PART IV 	
 	 	 	
Item 15. 	Exhibits, Financial Statement Schedules and Reports on Form 8-K 	44 	

 	
 	2 	 	

 
PART I 
Items 1 and 2. Business and Properties 

Company Website 

The Company has a website located at http:\\www.bry.com. The website can be used to access recent news releases and Securities and Exchange Commission filings, crude oil price postings, the Company’s Annual Report, Proxy Statement, Board committee charters, the code of ethics for senior financial officers  and other items of interest. 

General 

Berry Petroleum Company, (Berry or Company), is an independent energy company engaged in the production, development, acquisition, exploitation and exploration of crude oil and natural gas. While the Company was incorporated in Delaware in 1985 and has been a publicly traded company since 1987, it can trace its roots in California oil production back to 1909. Currently, Berry's principal reserves and producing properties are located in the San Joaquin Valley, Los Angeles and Ventura basins in California and the Uinta Basin in northeastern Utah. The Company’s corporate headquarters are located in Bakersfield, California. The Company also opened an office in Denver, Colorado in 2003 to pursue opportunities in the Rocky Mountain region. Management believes that these facilities are adequate for its current operations and anticipated growth. Information contained in this report on Form 10-K reflects the business of the Company during the year ended December 31, 2003. 

The Company's mission is to increase shareholder returns, primarily through maximizing the value and cash flow of the Company's assets. To achieve this, Berry's corporate strategy is to, at a minimum, increase its net proved reserves annually, grow production annually and, in the process, increase both net income and cash flow in total and per share. To increase proved reserves and production, the Company will compete to acquire oil and gas properties with principally proved reserves and exploitation potential or sizeable acreage positions that the Company believes can ultimately contain substantial reserves which can be developed at reasonable costs. Additionally, the Company will continue to focus on the further development of its properties through developmental drilling, well completions, remedial work and by application of enhanced oil recovery (EOR) methods, as applicable. In conjunction with the goals of maximizing profitability and the exploitation and development of its substantial heavy crude oil base, the Company owns three cogeneration facilities which are intended to provide an efficient and secure long-term supply of steam which is necessary for the economic production of heavy oil. Berry views these assets as a key part of its long-term success. Berry believes that its primary strengths are its ability to maintain a cost-efficient operation, its flexibility in acquiring attractive producing properties which have significant exploitation and enhancement potential, its strong financial position and its experienced management team and staff. While the Company continues to seek investment opportunities in California, the Company has identified the Rocky Mountain region as a primary area of interest for growth. The Company believes that it can be successful in growing its reserve base and production in a profitable manner by investing in certain assets in the region. Additio nally, it provides substantial opportunity for the Company to diversify its existing predominantly heavy crude oil base into light oil and natural gas. Strategically, the Company desires to increase its natural gas reserves and production as the Company consumes approximately 37,000 MMBtu daily as fuel for steam generation which is utilized in its California heavy oil operations. During the year, the Company opened an office in Denver and completed the purchase of the Brundage Canyon properties in the Uinta Basin in northeastern Utah. This acquisition and its ongoing development and operations are assisting Berry in achieving its strategies in the near term. The Company has an unsecured credit facility with a current borrowing base of $200 million (at year-end 2003, $150 million is available) which may be utilized in adding reserves and production through acquisitions. 

Proved Reserves 

As of December 31, 2003, the Company's estimated proved reserves were 110 million barrels of oil equivalent, (BOE), of which 91% are heavy crude oil, 6% light crude oil and 3% natural gas. A significant portion of these proved reserves are owned in fee. Geographically, 91% of the Company’s reserves are located in California and 9% in the Rocky Mountain region. Production in 2003 was 6 million BOE, up 15% from 2002 production of 5.3 million BOE. For the five years 1999 through 2003, the Company's average annual reserve replacement rate was 163% and the acquisition, finding and development cost was $4.13 per BOE. Based on average daily fourth quarter production for each year, the Company’s reserves-to-production ratio was 16.2 years at year-end 2003, reduced from 18.3 years at year-end 2002. 

Acquisitions 

The Company actively pursued its growth strategy, completing two acquisitions during the year. In August 2003, the Company completed the acquisition of the Brundage Canyon properties, in the Uinta Basin of Utah, for approximately $45 million. Brundage Canyon is Berry’s first acquisition of a Company operated core asset outside of California, and is consistent with the Company’s goal of building a strong asset portfolio in the Rocky Mountain region. This acquisition was financed utilizing the Company’s revolving credit facility. At year-end, proved reserves for this property were approximately 9.2 million BOE or 8% of total reserves. In addition, the Company added to its California assets through the purchase of certain properties in the Poso Creek field in March, 2003 for $2.6 million. This acquisition added approximately 2.5 million BOE of proved reserves. 

 	
 	 3	 	

 
Operations 

Berry operates all of its principal oil producing properties. In California, the Midway-Sunset and Placerita fields contain predominantly heavy crude oil which requires heat, supplied in the form of steam, injected into the oil producing formations to reduce the oil viscosity which allows the oil to flow to the well-bore for production. Berry utilizes cyclic steam and steam flood recovery methods in the Midway-Sunset and Placerita fields and primary recovery methods at its Montalvo field. Berry is able to produce its heavy oil at its Montalvo field without steam since the majority of the producing reservoir is at a depth in excess of 11,000 feet and thus the reservoir temperature is high enough to produce the oil without the assistance of additional heat from steam. In Utah, the Brundage Canyon field consists of light gravity crude and associated natural gas produced from a depth o f approximately 6,000 feet. Company-wide field operations include the initial recovery of the crude oil and its transport through treating facilities into storage tanks. After the treating process is completed, which includes removal of water and solids by mechanical, thermal and chemical processes, the crude oil is metered through lease automatic custody transfer units or gauged before sale and subsequently transferred into crude oil pipelines owned by other companies or transported via truck. Crude oil produced from the Brundage Canyon field is transported by truck, while its gas production, net of field usage, is transported by feeder pipelines to two main shipper pipelines. 

Revenues 

Total revenues for 2003 increased by $50 million or 38% over 2002. Total revenues and the percentage of revenues by source for the prior three years are as follows: 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Total revenues (in millions) 	 	$	181 	 	$	131 	 	$	138 	 	
Sales of oil and gas 	 	 	75 	% 	 	78 	% 	 	72 	% 	
Sales of electricity 	 	 	24 	% 	 	21 	% 	 	26 	% 	
Other 	 	 	1 	% 	 	1 	% 	 	2 	% 	
 
Crude Oil and Natural Gas Marketing 

The global and California crude oil markets continue to remain strong. The Organization of Petroleum Exporting Countries (OPEC) has successfully managed crude oil prices despite petroleum product demand weakness due to worldwide economic slowdowns and political instability during 2001 and 2002. Product prices began to rise in 2002 and continued to exhibit an overall-strengthening trend during 2003. The NYMEX settlement price for West Texas Intermediate (WTI), the U.S. benchmark crude oil, averaged $30.99 for 2003 compared to $26.15 for 2002 and $25.95 in 2001. The range for the year 2003 was a low of $25.24 and a high of $37.83. The average posted price for the Company’s 13º API heavy crude oil was $25.27 for 2003 compared to $20.67 for 2002 and $18.70 for 2001. The range of posted prices for the Company’s heavy crude oil in 2003 included a low of $18.81 and a high o f $32.44. 

While crude oil price differentials between WTI and California’s heavy crude widened during 2001, the trend reversed in 2002 and continued to stay below $6 per barrel during 2003. The crude price differential between WTI and California’s heavy crude oil has averaged $5.73, $5.48 and $7.25 for 2003, 2002 and 2001, respectively. A price-sensitive royalty burdens one of the Company’s California properties which produces approximately 4,000 barrels per day. This royalty is 75% of the amount of the heavy oil posted price above a base price which was $14.59 in 2003. This base price escalates at 2% annually, thus the threshold price is $14.88 per barrel in 2004. 

Berry markets its crude oil production to competing buyers including independent marketers but primarily to major oil refining companies. Because of the Company’s ability to deliver significant volumes of crude oil over a multi-year period, the Company was able to secure a three-year sales agreement, beginning in April 2000, with a major California refiner whereby the Company sold in excess of 80% of its California production under a negotiated pricing mechanism. This contract was renegotiated during 2002 and extended through 2005. Over 90% of the Company’s current California production is subject to this new contract. Pricing in the new agreement is based upon the higher of the average of the local field posted prices plus a fixed premium, or WTI minus a fixed differential. Both methods are calculated using a monthly determination. In addition to providing a premium abov e field postings, the agreement effectively eliminates the Company’s exposure to the risk of widening WTI to California heavy crude price differentials and allows the Company to effectively hedge its production based on WTI pricing. The Brundage Canyon crude oil, which is approximately 40 degree API gravity, is priced at WTI less a fixed differential. 

 	
 	 4	 	

 
Berry markets produced natural gas from Utah, Wyoming and California. In October 2003, the Company began marketing produced gas from the Brundage Canyon field. The majority of the natural gas from Brundage Canyon is sold in the Salt Lake City market at a Questar monthly index related price with an adjustment for transportation. Brundage Canyon volume in excess of Berry’s firm pipeline transportation volume is sold at the field at a Questar daily spot related price. The Company owns a non-operated working interest in the South Joe Creek field in the Powder River Basin in Wyoming. Berry started marketing its working interest share of production in-kind from South Joe Creek in December 2002, at Glenrock, Wyoming at monthly Colorado Interstate Gas (CIG) index related prices. Additionally, produced gas from the West Montalvo field near Oxnard, CA is exchanged and valued at a daily SoCal Border spot related price. 

For 2003, SoCal Border first-of-month indices averaged $5.05 per MMBtu and the Rockies CIG indices averaged $4.19 per MMBtu. The average monthly index price for the Questar price point was $4.07 per MMBtu in the fourth quarter of 2003. The closing price for the NYMEX prompt month natural gas contract averaged $5.84, $3.37 and $4.05 for years 2003, 2002 and 2001 respectively. The weighted average price the Company received per Mcf during these years was $5.03, $2.31 and $4.06 respectively. 
  
The Company has physical access to interstate gas pipelines, such as the Kern River Pipeline and the Questar Pipeline, as well as California intrastate systems owned by Southern California Gas Company and Pacific Gas & Electric (PG&E), to move gas to or from market.  To avoid negative financial impacts to the Company should California pipeline capacity become constrained, the Company entered into a long-term gas transportation contract with Kern River Gas Transmission Company for 12,000 MMBtu/D. This is a ten year contract which began in May 2003. The Company also holds two firm transportation contracts on the Questar Pipeline system in Utah. 
 
From time to time, the Company enters into crude oil and natural gas hedge contracts, the terms of which depend on various factors, including Management’s view of future crude oil prices and the Company’s future financial commitments. This price protection program is designed to moderate the effects of a severe price downturn while allowing Berry to participate in the upside after a maximum per barrel payment. Currently, the hedges are in the form of swaps or options; however, the Company is considering using a variety of hedge instruments for use in the future. The Company has utilized bracketed zero-cost collars as they meet the Company’s objectives of retaining significant upside while being adequately protected on a significant downside price movement. These price protection activities resulted in a net cost or (benefit)/BOE to the Company of $1.96 in 2003, $.72 in 2002 and ($.16) in 2001. 

 	
 	5 	 	

 
The following table summarizes the hedge position of the Company as of February 9, 2004: 

Crude Oil and Natural Gas Hedges 	 	 	 	 	 	 	
(Based on NYMEX Pricing) 	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	 	 	Floor	 	 	Ceiling	 	
 	 	   Barrels	 		 		 	
Term 	 	 	Per Day 	 	 	Sell Put	 	 	Buy Put 	 	 	Sell Call 	 	 	Buy Call 	 	
	 		 		 		 		 		 	
Crude Oil Hedges 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 03/31/2004 	 	 	2,500 	 	$	18.25 	 	$	22.10 	 	$	25.40 	 	$	30.10 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 03/31/2004 	 	 	2,500 	 	$	18.25 	 	$	22.10 	 	$	25.45 	 	$	30.10 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
04/01/2004 – 12/31/2004 	 	 	1,000 	 	$	19.00 	 	$	22.00 	 	$	25.50 	 	$	29.40 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
04/01/2004 – 12/31/2004 	 	 	1,000 	 	$	19.50 	 	$	23.00 	 	$	26.00 	 	$	29.75 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
04/01/2004 – 12/31/2004 	 	 	1,000 	 	$	19.50 	 	$	23.00 	 	$	26.00 	 	$	29.50 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
04/01/2004 – 12/31/2004 	 	 	1,000 	 	$	19.50 	 	$	23.00 	 	$	26.25 	 	$	29.85 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 04/30/2004 	 	 	1,000 	 	$	- 	 	$	25.00 	 	$	25.00 	 	$	- 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 12/31/2004 	 	 	1,500 	 	$	- 	 	$	29.25 	 	$	29.25 	 	$	- 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 12/31/2004 	 	 	1,500 	 	$	- 	 	$	29.00 	 	$	29.00 	 	$	- 	 	

Natural Gas Hedges 	 	 	MMBtu 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Per Day	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 06/30/2006 	 	 	2,500 	 	$	- 	 	$	4.85 	 	$	4.85 	 	$	- 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
01/01/2004 – 06/30/2006 	 	 	2,500 	 	$	- 	 	$	4.85 	 	$	4.85 	 	$	- 	 	
 
Payments to our counterparties are triggered when NYMEX monthly average prices are between the Ceiling Sell Call and Buy Call prices. Conversely, payments from our counterparties are received when the NYMEX monthly average prices are between the Floor Sell Put and Buy Put prices. Management regularly monitors the crude oil markets and the Company’s financial commitments to determine if, when, and at what level some form of crude oil hedging or other price protection is appropriate. 

Steaming Operations 

Cogeneration Steam Supply 

As of December 31, 2003, approximately 86% of the Company's proved reserves, or 94 million barrels, consisted of heavy crude oil produced from depths shallower than 2,000 feet. The Company, in pursuing its goal of being a cost-efficient heavy oil producer, has remained focused on minimizing its steam cost. One of the main methods of keeping steam costs low is through the ownership and efficient operation of cogeneration facilities. Two of these cogeneration facilities, a 38 megawatt (MW) and an 18 MW facility are located in the Company’s South Midway-Sunset field. The Company also owns a 42 MW rated cogeneration facility located at the Company’s Placerita field. Steam generation from these facilities, with a total steam capacity of approximately 38,000 barrels of steam per day (BSPD), is more efficient than conventional steam generation as both steam and electricity are c oncurrently produced from a common fuel stream. The Company purchases approximately 2,000 BSPD under contract on favorable terms from a non-Company owned cogeneration facility 

 	
 	 6	 	

 
Conventional Steam Generation 

In addition to these cogeneration plants, the Company owns sixteen conventional boilers. The number which are operated at any one time is dependent on the quantity needed to meet peak steam demands. The total rated capacity of the conventional boilers is also approximately 38,000 BSPD. 

Blending Sources for an Advantage 

The Company believes it has a distinct advantage over other operators by the ownership of these varied steam generation facilities and sources, allowing for maximum control over the steam supply, location, and to some extent the aggregated cost. The Company’s steam supply and flexibility are crucial for the maximization of oil production, cost control and ultimate reserve recovery. 

High natural gas prices have persisted throughout 2003. The cost of natural gas purchased per MMBtu averaged $4.88, $3.13, and $5.76 for 2003, 2002 and 2001, respectively. Many of the Company’s conventional steam generators were run in 2003 to achieve the Company’s goal of increasing heavy oil production to record levels. 

The Company believes that it may become necessary to add additional steam capacity for its future development projects at South Midway-Sunset and Placerita to allow for full development of its properties. While the Company vigorously pursued the possibility of constructing additional cogeneration facilities in 2001 and tested the market in 2002, the regulatory environment and operating and financial conditions for new cogeneration facilities in California remain uncertain. The Company regularly reviews its most economical source for obtaining additional steam to achieve its growth objectives. 

Electricity Generation 

The total annual average electrical generation of the Company’s three cogeneration facilities is approximately 93 MW, of which the Company consumes approximately 8 MW for use in its operations. The three facilities can also supply approximately 38,000 BSPD. Each facility is centrally located on an oil producing property such that the steam generated by the facility is capable of being delivered to the wells that require steam for the enhanced oil recovery process. The Company’s investment in its cogeneration facilities have been for the express purpose of lowering the steam costs in its heavy oil operations and securing operating control of the respective steam generation. Expenses of operating the cogeneration plants are analyzed monthly on a Company-wide basis. Any profits from cogeneration operations are considered profits from electricity generation. If expenses excee d electricity revenues, the excess expenses are recorded as oil and gas operating costs. 

Electricity Sales Contracts 

Historically, the Company has sold electricity produced by its cogeneration facilities to Southern California Edison Company (Edison) and PG&E under long-term contracts. These contracts are referred to as Standard Offer (SO) contracts under which the Company is paid an energy payment that reflects the utility’s avoided short-term variable cost to produce electricity (SRAC) plus a capacity payment that reflects a recovery of capital expenditures that would otherwise have been made by the utility. The capacity payments are either fixed throughout the term of the agreement or can be adjusted from time to time by the California Public Utilities Commission (CPUC). The SRAC energy price is determined by a formula that reflects the utility’s marginal fuel cost and a conversion efficiency that represents a hypothetical utility resource to generate electricity in the absence o f the cogenerator. Natural gas is now the marginal fuel for California Investor Owned Utilities (IOUs) so this formula provides a hedge against the Company’s cost of gas to produce electricity and steam in its cogeneration facilities. 

As the California energy crisis worsened in 2000, neither utility paid the Company for electricity delivered under the contracts from late 2000 through March 2001. PG&E filed for bankruptcy on April 6, 2001 and Edison operated on the brink of bankruptcy for an extended period. The Company was forced to shut down its cogeneration facilities and to terminate its SO contracts with PG&E in order to seek a creditworthy buyer for its electricity. Berry sold electricity from its Cogen 18 and Cogen 38 facilities to a creditworthy, non-utility buyer from June 2001 through December 2002. In June 2001, the CPUC approved an agreement under which Berry resumed operation of its Placerita cogeneration facilities, Edison agreed to amend the SRAC payment terms and resume payments to Berry under its original SO contracts, and Edison agreed to pay all past due amounts owed Berry since Novembe r 2000. The original SO contract for Placerita Unit 1 continues in effect through March 2009. The modified SRAC pricing terms reflect a fixed energy price of 5.37 cents/kilowatt per hour (KWh) until June 2006, at which time the energy price reverts to the SRAC pricing methodology then approved by the CPUC. Edison continued to purchase electricity under the SO contract for Placerita Unit 2 until its scheduled expiration in May 2002. From June 2002 through January 2003, the Company sold electricity from that facility to a creditworthy, non-utility buyer. On August 22, 2002, the CPUC ordered the California IOUs to offer SO contracts to certain cogeneration facilities with expired SO contracts (Qualifying Facilities or QFs) for a maximum term of one year. The Company met these requirements and entered into new SO contracts with Edison for its Placerita Unit 2 and with PG&E for its Cogen 38 and Cogen 18 facilities effective January 2003. These three new SO contracts resulted in improved electrical pricing, wh ich in turn contributed to lower operating costs for the Company’s crude oil production operations during 2003. All three SO contracts terminated on December 31, 2003, as originally ordered by the CPUC. 

 	
 	7 	 	

 
On December 18, 2003, the CPUC ordered the California IOUs to continue to offer SO contracts to certain QFs with expired SO contracts, such as Berry, for a one year term beginning January 1, 2004. In the same decision, the CPUC also directed its staff to initiate a comprehensive review and revision of the SRAC pricing methodology. Edison has appealed the legality of the December 18, 2003 CPUC decision that ordered the additional one-year extension of SO contracts. They also contend the term of the agreement could be less than one year. The Company disputes Edison’s claims and opposes Edison’s appeal of the decision. The Company executed a one year extension of its SO contract with Edison for the Placerita Unit 2 facility, that is subject to early termination if Edison is successful in their appeal. The Company also executed one year extensions of its SO contracts with PG& amp;E. 

On January 22, 2004, the CPUC issued a decision that establishes the rules under which the California IOUs will produce or procure energy for their customers for at least the next 5-10 years. Among other things, this decision ordered the California IOUs to offer SO contracts to certain QFs whose SO contracts will terminate prior to December 31, 2005, such as Berry, for a term of 5 years. The SRAC price paid under these SO contracts is subject to the same prospective adjustments that were required in the prior CPUC decision that ordered the one-year extension. The Company is carefully reviewing the options available in the recent CPUC order. 

Facility and Contract Summary 

Location and Facility 	 	 	Type of Contract 	 	 	Purchaser 	 	 	Contract Expiration 	 	 	Approximate Megawatts Available for Sale 	 	 	Approximate Megawatts Consumed in Operations 	 	 	Approximate Barrels of Steam Per Day 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Placerita 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
    Placerita Unit 1 	 	 	SO2 	 	 	Edison 	 	 	Mar-09 	 	 	20 	 	 	- 	 	 	6,600 	 	
    Placerita Unit 2 	 	 	SO1 	 	 	Edison 	 	 	Dec-04 	 	 	16 	 	 	4 	 	 	6,700 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
South Midway-Sunset 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
    Cogen 18 	 	 	SO1 	 	 	PG&E 	 	 	Dec-04 	 	 	12 	 	 	4 	 	 	6,600 	 	
    Cogen 38 	 	 	SO1 	 	 	PG&E 	 	 	Dec-04 	 	 	37 	 	 	- 	 	 	18,000 	 	
 
Environmental and Other Regulations 

Berry Petroleum Company is committed to responsible management of the environment, health and safety, as these areas relate to the Company’s operations. The Company strives to achieve the long-term goal of sustainable development within the framework of sound environmental, health and safety practices and standards. Berry makes environmental, health and safety protection an integral part of all business activities, from the acquisition and management of its resources through the decommissioning and reclamation of its wells and facilities. 

The oil and gas production business in which Berry participates is complex. All facets of the Company's operations are affected by a myriad of federal, state, regional and local laws, rules and regulations. Berry is further affected by changes in such laws and by constantly changing administrative regulations. Furthermore, government agencies may impose substantial liabilities if the Company fails to comply with such regulations or for any contamination resulting from the Company's operations. 

Therefore, Berry has programs in place to identify and manage known risks, to train employees in the proper performance of their duties and to incorporate viable new technologies into its operations. The costs incurred to ensure compliance with environmental, health and safety laws and other regulations are inextricably connected to normal operating expenses such that the Company is unable to separate the expenses related to these matters. 

 	
 	 8	 	

 
Currently, California environmental laws and regulations are being revised to lower emissions from stationary sources. Although these requirements do have a substantial impact upon the energy industry, generally these requirements do not appear to affect the Company any differently, or to any greater or lesser extent, than other companies in California. Berry believes that compliance with environmental laws and regulations will not have a material adverse effect on the Company's operations or financial condition. There can be no assurances, however, that changes in, or additions to, laws and regulations regarding the protection of the environment will not have such an impact in the future. 

Berry maintains insurance coverage that it believes is customary in the industry although it is not fully insured against all environmental or other risks. The Company is not aware of any environmental claims existing as of December 31, 2003 that would have a material impact upon the Company's financial position, results of operations, or liquidity. 

Competition 

The oil and gas industry is highly competitive. As an independent producer, the Company does not own any refining or retail outlets and, therefore, it has little control over the price it receives for its crude oil. As such, higher costs, fees and taxes assessed at the producer level cannot necessarily be passed on to the Company's customers. In acquisition activities, significant competition exists as integrated and independent companies and individual producers and operators are active bidders for desirable oil and gas properties. Although many of these competitors have greater financial and other resources than the Company, Management believes that Berry is in a position to compete effectively due to its low cost structure, transaction flexibility, strong financial position, experience and determination. 

Employees 

On December 31, 2003, the Company had 129 full-time employees, up from 113 full-time employees on December 31, 2002. 

Oil and Gas Properties 

Development 

Unless otherwise noted, gross acreage, net wells, fourth quarter production, and year-end reserves are used in the property descriptions below. 

California 

Midway-Sunset - Berry owns and operates working interests in 38 properties consisting of 4,559 acres located in the Midway-Sunset field. The Company estimates these properties account for approximately 67% of the Company's proved oil and gas reserves and approximately 64% of its current daily production. Of these properties, 18 are owned in fee. The wells produce from an average depth of approximately 1,200 feet, and rely on thermal EOR methods, primarily cyclic steaming. 

During 2003, the primary focus at Midway-Sunset was on the Formax properties. Of the 83 wells drilled in the Midway-Sunset field in 2003, 13 were horizontal wells, and 31 were on the Formax properties. The objectives of using horizontal drilling are to improve ultimate recovery of original oil-in-place, reduce the development and operating costs of the properties and to accelerate production. In 2004, the Company plans to drill an additional 42 wells in the Midway-Sunset field, including 2 horizontals. 

Placerita – The Company’s assets in the Placerita field consist of six leases and three fee properties totaling approximately 1,030 acres. The average depth of these wells is 1,800 feet and the properties rely extensively on thermal recovery methods, primarily steam flooding. The property accounts for approximately 17% of proved reserves and 19% of current daily production. 

During 2003, the Company drilled eleven development wells at Placerita in continuation of a major development campaign at the north end of the field. Included in the Company's 2004 development plan is the drilling of three new wells to begin the redevelopment of the Castruccio property the Company acquired several years ago. 

Montalvo – Berry owns a 100% working interest in six leases totaling 8,563 acres in the Ventura Basin comprising the entire Montalvo field. The State of California is the lessor for two of the six leases. The Company estimates current proved reserves from Montalvo account for approximately 5% of Berry’s proved oil and gas reserves and approximately 4% of Berry's current daily production. The wells produce from an average depth of approximately 11,500 feet. No new wells were drilled in 2003, however several wells were remediated and returned to production. There are no plans at this time to drill any new wells in 2004, however two idle wells are scheduled to be returned to production and one major workover will be completed. 

 	
 	 9	 	

 
McVan – In March 2003, the Company purchased a 100% working interest in the McVan property located in the Poso Creek field. The property consists of 560 acres with a total of 71 wells. Year-end 2003 proved reserves comprise 2% of Berry’s proved oil and gas reserves while production is minimal. Plans for 2004 include drilling one well, working over 10 wells and reinitiating steam injection on the property. 

Rockies and Mid-Continent 

Brundage Canyon, Utah - On August 28, 2003, Berry closed the acquisition of and assumed operations of the Brundage Canyon field, Duchesne County, Utah. The Brundage Canyon leasehold consists of federal, tribal and private leases totaling 45,380 gross acres. The Company estimates that the Brundage Canyon properties account for approximately 8% of proved oil and gas reserves and approximately 12% of current daily production. There are 110 wells in the Brundage Canyon field, producing oil and associated natural gas with an average well depth of 6,000 feet. 

Berry initiated a twenty-six well, two rig drilling program in early September, 2003, immediately following the closing of the acquisition, and twenty-two of the new wells were producing by year-end. The field is currently being developed on eighty-acre spacing with substantial undeveloped acreage. The Company’s objectives for 2004 include the drilling of 44 additional wells and the recompletion of twenty existing wells. 

South Joe Creek, Wyoming - The Company holds a 15.83% non-operated working interest in the South Joe Creek coalbed methane gas field which represents interests in federal, state and private leases totaling 5,266 acres in the northeastern portion of the Powder River Basin in Wyoming. The property has 84 wells (13 net). At year-end, the net production rate was 1,200 Mcf per day, or approximately 1% of daily production and net reserves were less than 1%. We anticipate the drilling of 15 wells (2.4 net) in 2004. 

Mickelson Creek, Wyoming – In June 2003, the Company purchased three federal leases located in the Mickelson Creek field in Sublette County, Wyoming. There are currently five wells on the 2,800 acre property. While production and reserves are minimal at this time, the Company plans to drill two wells and recomplete two wells in 2004. 

Kansas and Illinois Coalbed Methane (CBM) Projects – In mid-2002, the Company began to build a significant acreage position in both Eastern Kansas (208,000 acres) and Central Illinois (54,000 acres) to develop natural gas production and reserves from known coalbeds. The Company drilled a five-spot production pilot in each state in late 2002. In 2003, the Company determined both these pilots were non-commercial. As such, the Company has no reserves in either state as of December 31, 2003. The Company sold its interest in 43,000 acres in Kansas in mid-2003 while retaining an overriding royalty interest. The Company’s objectives in 2004 include the continued evaluation of CBM activities in Illinois and further delineation of our CBM acreage in Kansas. 

 	
 	10 	 	

 
The following is a summary of the Company's capital expenditures incurred during 2003 and 2002 and budgeted capital expenditures for 2004. 
 
CAPITAL EXPENDITURES SUMMARY 
(in thousands) 

 	 	 	2004 	 	 	2003 	 	 	2002 	 	
 	 		 		 		 	
 	 	 	(Budgeted) (1)	 	 	 	 	 	 	 	
CALIFORNIA 	 	 	 	 	 	 	 	 	 	 	
Midway-Sunset Field 	 	 	 	 	 	 	 	 	 	 	
New wells 	 	$	6,885 	 	$	10,710 	 	$	10,224 	 	
Remedials/workovers 	 	 	2,045 	 	 	1,718 	 	 	1,981 	 	
Facilities - oil & gas 	 	 	2,385 	 	 	3,136 	 	 	1,340 	 	
Facilities - cogeneration (2) 	 	 	150 	 	 	231 	 	 	898 	 	
General 	 	 	1,682 	 	 	187 	 	 	- 	 	
 	 		 		 		 	
 	 	 	13,147 	 	 	15,982 	 	 	14,443 	 	
 	 		 		 		 	
Placerita 	 	 	 	 	 	 	 	 	 	 	
New wells 	 	 	322 	 	 	6,509 	 	 	5,278 	 	
Remedials/workovers 	 	 	1,233 	 	 	154 	 	 	174 	 	
Facilities - oil & gas 	 	 	1,590 	 	 	916 	 	 	2,480 	 	
Facilities - cogeneration (2) 	 	 	150 	 	 	370 	 	 	4,382 	 	
 	 		 		 		 	
 	 	 	3,295 	 	 	7,949 	 	 	12,314 	 	
 	 		 		 		 	
Montalvo 	 	 	 	 	 	 	 	 	 	 	
Remedials/workovers 	 	 	1,180 	 	 	928 	 	 	909 	 	
Facilities 	 	 	425 	 	 	94 	 	 	179 	 	
 	 		 		 		 	
 	 	 	1,605 	 	 	1,022 	 	 	1,088 	 	
 	 		 		 		 	
McVan 	 	 	 	 	 	 	 	 	 	 	
New Wells 	 	 	150 	 	 	- 	 	 	- 	 	
Remedials/workovers 	 	 	650 	 	 	2 	 	 	- 	 	
Facilities 	 	 	540 	 	 	666 	 	 	- 	 	
 	 		 		 		 	
 	 	 	1,340 	 	 	668 	 	 	- 	 	

Total California 	 	 	19,387 	 	 	25,621 	 	 	27,845 	 	

ROCKIES AND MID-CONTINENT 	 	 	 	 	 	 	 	 	 	 	
Brundage Canyon 	 	 	 	 	 	 	 	 	 	 	
New Wells 	 	 	26,203 	 	 	14,298 	 	 	- 	 	
Remedials/workovers 	 	 	2,332 	 	 	234 	 	 	- 	 	
Facilities 	 	 	1,930 	 	 	146 	 	 	- 	 	
 	 		 		 		 	
 	 	 	30,465 	 	 	14,678 	 	 	- 	 	
 	 		 		 		 	
Mickelson Creek 	 	 	 	 	 	 	 	 	 	 	
New Wells 	 	 	1,500 	 	 	- 	 	 	- 	 	
Remedials/workovers 	 	 	300 	 	 	- 	 	 	- 	 	
Facilities 	 	 	175 	 	 	- 	 	 	- 	 	
 	 		 		 		 	
 	 	 	1,975 	 	 	- 	 	 	- 	 	
 	 		 		 		 	
Kansas and Illinois (CBM) (3) 	 	 	 	 	 	 	 	 	 	 	
New wells 	 	 	300 	 	 	392 	 	 	1,185 	 	
Facilities 	 	 	- 	 	 	346 	 	 	47 	 	
Remedials/workovers 	 	 	- 	 	 	3 	 	 	- 	 	
 	 		 		 		 	
 	 	 	300 	 	 	741 	 	 	1,232 	 	
 	 		 		 		 	
South Joe Creek  (3) (4) 	 	 	 	 	 	 	 	 	 	 	
New wells 	 	 	332 	 	 	8 	 	 	355 	 	
Facilities 	 	 	- 	 	 	5 	 	 	216 	 	
 	 		 		 		 	
 	 	 	332 	 	 	13 	 	 	571 	 	
 	 		 		 		 	
Total Rocky Mountain and 	 	 	 	 	 	 	 	 	 	 	
Mid-Continent 	 	 	33,072 	 	 	15,432 	 	 	1,803 	 	

Other 	 	 	450 	 	 	502 	 	 	984 	 	

Totals 	 	$	52,909 	 	$	41,555 	 	$	30,632 	 	

(1)   Budgeted capital expenditures may be adjusted for numerous reasons including, but not limited to, oil, natural gas and electricity price levels. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 
(2)   Cogeneration facility costs are excluded in the Company’s calculation of its finding and development costs. 
(3)   Represents coalbed methane (CBM) development activity. 
(4)   Represents Berry's net share, or 15.83%, of the total expenditures. 

 	
 	 11	 	

 
Exploration 

The Company considered its pilot wells in both Kansas and Illinois to be exploratory in nature as there was no proven production near those areas; however, these were relatively inexpensive shallow wells. In recent years, the Company has concentrated on growth through development of existing assets and strategic acquisitions. The Company is pursuing an acquisition strategy which may include some exploratory drilling in the future. 

Enhanced Oil Recovery Tax Credits 

The Revenue Reconciliation Act of 1990 included a tax credit for certain costs associated with extracting high-cost, capital-intensive marginal oil or gas and which utilizes at least one of nine designated "enhanced" or tertiary recovery methods. Cyclic steam and steam flood recovery methods for heavy oil, which Berry utilizes extensively, are qualifying EOR methods. In 1996, California conformed to the federal law, thus, on a combined basis, the Company is able to achieve credits approximating 12% of its qualifying costs. The credit is earned only for qualified EOR projects by investing in one of three types of expenditures: 1) drilling development wells, 2) adding facilities that are integrally related to qualified EOR production, or 3) utilizing a tertiary injectant, such as steam, to produce oil. The credit may be utilized to reduce the Company's tax liability down to, but not below, its alternative minimum tax liability. This credit is significant in reducing the Company's income tax liabilities and effective tax rate. 

Oil and Gas Reserves 

The Company continued to engage DeGolyer and MacNaughton (D&M) to appraise the extent and value of its proved oil and gas reserves and the future net revenues to be derived from properties of the Company for the year ended December 31, 2003. D&M is an independent oil and gas consulting firm located in Dallas, Texas. In preparing their reports, D&M reviewed and examined geologic, economic, engineering and other data considered applicable to properly determine the reserves of the Company. They also examined the reasonableness of certain economic assumptions regarding forecasted operating and development costs and recovery rates in light of the economic environment on December 31, 2003. For the Company's operated properties, such reserve estimates are filed annually with the U.S. Department of Energy. See the Supplemental Information About Oil & Gas Producing Activitie s (Unaudited) for the Company's oil and gas reserve disclosures. 

Production 

The following table sets forth certain information regarding production for the years ended December 31, as indicated: 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Net annual production: (1) 	 	 	 	 	 	 	 	 	 	 	
Oil (Mbbls) 	 	 	5,827 	 	 	5,123 	 	 	4,996 	 	
Gas (Mmcf) 	 	 	1,277 	 	 	769 	 	 	288 	 	
Total equivalent barrels (2) 	 	 	6,040 	 	 	5,251 	 	 	5,044 	 	
 	 	 	 	 	 	 	 	 	 	 	
Average sales price: 	 	 	 	 	 	 	 	 	 	 	
Oil (per Bbl) before hedging 	 	$	24.41 	 	$	20.27 	 	$	19.53 	 	
Oil (per Bbl) after hedging 	 	 	22.37 	 	 	19.54 	 	 	19.70 	 	
Gas (per mcf) before hedging 	 	 	4.40 	 	 	2.22 	 	 	5.09 	 	
Gas (per mcf) after hedging 	 	 	4.43 	 	 	2.22 	 	 	5.09 	 	
Per BOE before hedging 	 	 	24.48 	 	 	20.11 	 	 	19.63 	 	
Per BOE after hedging 	 	 	22.52 	 	 	19.39 	 	 	19.79 	 	
Average operating cost – oil and gas production (per BOE) (3) 	 	 	10.05 	 	 	8.49 	 	 	7.99 	 	
 
Mbbls – Thousands of Barrels 
Mmcf – Million Cubic Feet 
BOE – Barrels of Oil Equivalent 
(1)   Net production represents that owned by Berry and produced to its interest, less royalty and other similar interests. 
(2)   Equivalent oil and gas information is at a ratio of 6 thousand cubic feet (mcf) of natural gas to 1 barrel (Bbl) of oil. A barrel of oil (Bbl) is equivalent to 42 U.S. gallons. 
(3)   Includes monthly expenses in excess of monthly revenues from cogeneration operations (per BOE) of $2.08, $1.72 and $1.31 for 2003, 2002 and 2001, respectively. See Note 2 to the financial statements. 

 	
 	 12	 	

 
Acreage and Wells 

As of December 31, 2003, the Company's properties accounted for the following developed and undeveloped acres: 

 	 	 	Developed Acres   	 	 	Undeveloped Acres	 	 	Total   	 	
 	 		 		 		 		 		 		 	
 	 	 	Gross 	 	 	Net 	 	 	Gross 	 	 	Net 	 	 	Gross 	 	 	Net 	 	

California 	 	 	7,786 	 	 	7,786 	 	 	7,404 	 	 	7,404 	 	 	15,190 	 	 	15,190 	 	
Utah 	 	 	9,520 	 	 	9,360 	 	 	35,860 	 	 	34,140 	 	 	45,380 	 	 	43,500 	 	
Wyoming 	 	 	3,800 	 	 	750 	 	 	4,266 	 	 	2,250 	 	 	8,066 	 	 	3,000 	 	
Illinois 	 	 	- 	 	 	- 	 	 	54,306 	 	 	54,306 	 	 	54,306 	 	 	54,306 	 	
Kansas 	 	 	- 	 	 	- 	 	 	163,993 	 	 	163,993 	 	 	163,993 	 	 	163,993 	 	
Other 	 	 	80 	 	 	17 	 	 	- 	 	 	- 	 	 	80 	 	 	17 	 	

 	 	 	21,186 	 	 	17,913 	 	 	265,829 	 	 	262,093 	 	 	287,015 	 	 	280,006 	 	

Gross acres represent acres in which Berry has a working interest; net acres represent Berry's aggregate working interests in the gross acres. 

Berry currently has 2,757 gross oil wells (2,752 net) and 84 gross gas wells (13 net). Gross wells represent the total number of wells in which Berry has a working interest. Net wells represent the number of gross wells multiplied by the percentages of the working interests owned by Berry. One or more completions in the same bore hole are counted as one well. Any well in which one of the multiple completions is an oil completion is classified as an oil well. 

Drilling Activity 

The following table sets forth certain information regarding Berry's drilling activities for the periods indicated: 

 	 	 	2003	 	 	2002	 	 	2001	 	
 	 	 	Gross 	 	 	Net 	 	 	Gross 	 	 	Net 	 	 	Gross 	 	 	Net 	 	
 	 		 		 		 		 		 		 	
Exploratory wells drilled: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Productive 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	
Dry (1) 	 	 	- 	 	 	- 	 	 	11 	 	 	11 	 	 	- 	 	 	- 	 	
Development wells drilled: (2) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Productive 	 	 	121 	 	 	119 	 	 	81 	 	 	76 	 	 	103 	 	 	47 	 	
Dry (1) 	 	 	1 	 	 	1 	 	 	- 	 	 	- 	 	 	1 	 	 	- 	 	
Total wells drilled: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Productive 	 	 	121 	 	 	119 	 	 	81 	 	 	76 	 	 	103 	 	 	47 	 	
Dry (1) 	 	 	1 	 	 	1 	 	 	11 	 	 	11 	 	 	1 	 	 	- 	 	
 
(1)    A dry well is a well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well. The 11 wells drilled in 2002 were determined to be dry holes in 2003. 

(2)    Wells drilled include 2 wells gross, .3 wells net for 2003, 6 wells gross, 1 well net for 2002 and 67 wells gross, 11 wells net for 2001 at South Joe Creek where the Company holds a 15.83% working interest. 
 
As of December 31, 2003, one well was being drilled on the Brundage Canyon property. 

Title and Insurance 

To the best of the Company's knowledge, there are no defects in the title to any of its principal properties including related facilities. Notwithstanding the absence of a recent title opinion or title insurance policy on all of its properties, the Company believes it has satisfactory title to its properties, subject to such exceptions as the Company believes are customary and usual in the oil and gas industry and which the Company believes will not materially impair its ability to recover the proved oil and gas reserves or to obtain the resulting economic benefits. 

 	
 	13 	 	

 
The oil and gas business can be hazardous, involving unforeseen circumstances such as blowouts or environmental damage. Although it is not insured against all risks, the Company maintains a comprehensive insurance program to address the hazards inherent in operating its oil and gas business. 

Item 3.  Legal Proceedings 

While the Company is, from time to time, a party to certain lawsuits in the ordinary course of business, the Company does not believe any of such existing lawsuits will have a material adverse effect on the Company's operations, financial condition, or liquidity. 

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

None. 

Executive Officers 

Listed below are the names, ages (as of December 31, 2003) and positions of the executive officers of Berry and their business experience during at least the past five years. All officers of the Company are appointed in May of each year at an organizational meeting of the Board of Directors. There are no family relationships between any of the executive officers and members of the Board of Directors. 

JERRY V. HOFFMAN, 54, Chairman of the Board, President and Chief Executive Officer. Mr. Hoffman has been President and Chief Executive Officer since May 1994 and President and Chief Operating Officer from March 1992 until May 1994. Mr. Hoffman was added to the Board of Directors in March 1992 and named Chairman in March 1997. Mr. Hoffman held the Senior Vice President and Chief Financial Officer positions from January 1988 until March 1992 and was Chief Financial Officer from December 1985 until January 1988. 

RALPH J. GOEHRING, 47, Senior Vice President and Chief Financial Officer. Mr. Goehring has been Senior Vice President since April 1997, Chief Financial Officer since March 1992 and was Manager of Taxation from September 1987 until March 1992. Mr. Goehring is also an Assistant Secretary for the Company. 

GEORGE T. CRAWFORD, 43, has been Vice President of Production since December 2000 and was Manager of Production, from January 1999 to December 2000. Mr. Crawford, a petroleum engineer, was previously the Production Engineering Supervisor for ARCO Western Energy, a subsidiary of Atlantic Richfield Corp. (ARCO). Mr. Crawford was employed by ARCO from 1989 to 1998 in numerous engineering and operational assignments including Production Engineering Supervisor, Planning and Evaluation Consultant and Operations Superintendent. 

MICHAEL DUGINSKI, 37, has been Vice President of Corporate Development since February 2002. Mr. Duginski, a mechanical engineer, was previously with Texaco, Inc. from 1988 to 2002 where his positions included Director of New Business Development, Production Manager and Gas and Power Operations Manager. Mr. Duginski is also an Assistant Secretary for the Company. 

LOGAN MAGRUDER, 47, has been Vice President of Rocky Mountain and Mid-Continent Region since August 2003 and was a consultant for the Company from February until August 2003. Mr. Magruder was previously Vice President of U.S. Operations for Calpine Natural Gas Company during 2001. Prior to Calpine, Mr. Magruder was employed by Barrett Resources as Vice President of Engineering and Operations from 1996 to 2001. 

BRIAN L. REHKOPF, 56, has been Vice President of Engineering since March 2000 and was Manager of Engineering from September 1997 to March 2000. Mr. Rehkopf, a registered petroleum engineer, joined the Company’s engineering department in June 1997 and was previously a Vice President and Asset Manager with ARCO Western Energy since 1992 and an Operations Engineering Supervisor with ARCO from 1988 to 1992. Mr. Rehkopf is also an Assistant Secretary for the Company. 

DONALD A. DALE, 57, has been Controller since December 1985. 

KENNETH A. OLSON, 48, has been Corporate Secretary since December 1985 and Treasurer since August 1988. 

 	
 	 14	 	

PART II 

Item 5.  Market for the Registrant’s Common Equity and Related Shareholder Matters 

Shares of Class A Common Stock (Common Stock) and Class B Stock, referred to collectively as the "Capital Stock," are each entitled to one vote and 95% of one vote, respectively. Each share of Class B Stock is entitled to a $1.00 per share preference in the event of liquidation or dissolution. Further, each share of Class B Stock is convertible into one share of Common Stock at the option of the holder. 

In November 1999, the Company adopted a Shareholder Rights Agreement and declared a dividend distribution of one such Right for each outstanding share of Capital Stock on December 8, 1999. Each share of Capital Stock issued after December 8, 1999 includes one Right. The Rights expire on December 8, 2009. See Note 7 of Notes to the Financial Statements. 

Berry's Class A Common Stock is listed on the New York Stock Exchange under the symbol (NYSE:BRY). The Class B Stock is not publicly traded. The market data and dividends for 2003 and 2002 are shown below: 

 	 	 	2003	 	 	2002	 	
 	 		 		 	
 	 	 	Price Range	 	 	Dividends 	 	 	Price Range	 	 	Dividends 	 	
 	 	 	High 	 	 	Low 	 	 	Per Share 	 	 	High 	 	 	Low 	 	 	Per Share 	 	
 	 		 		 		 		 		 		 	
First Quarter 	 	$	17.01 	 	$	14.65 	 	$	0.10 	 	$	16.90 	 	$	13.25 	 	$	0.10 	 	
Second Quarter 	 	 	18.38 	 	 	14.40 	 	 	0.15 	 	 	17.58 	 	 	15.45 	 	 	0.10 	 	
Third Quarter 	 	 	19.17 	 	 	16.96 	 	 	0.11 	 	 	18.25 	 	 	14.52 	 	 	0.10 	 	
Fourth Quarter 	 	 	20.95 	 	 	17.90 	 	 	0.11 	 	 	17.50 	 	 	15.60 	 	 	0.10 	 	

The closing price per share of Berry's Common Stock, as reported on the New York Stock Exchange Composite Transaction Reporting System for February 9, 2004, December 31, 2003 and December 31, 2002 was $19.07, $20.25 and $17.05, respectively. 
The number of holders of record of the Company's Common Stock was 705 as of February 9, 2004. There was one Class B Shareholder of record as of February 9, 2004. 

In August 2001, the Board of Directors authorized the Company to repurchase $20 million of Common Stock in the open market. As of December 31, 2001, the Company had repurchased 308,075 shares for approximately $5.1 million. All shares repurchased were retired. No additional shares were repurchased in 2002 or 2003. 

The Company paid a special dividend of $.04 per share on May 2, 2003 and increased its regular quarterly dividend by 10%, from $.10 to $.11 per share beginning with the June 2003 dividend. 

Since Berry Petroleum Company's formation in 1985 through December 31, 2003, the Company has paid dividends on its Common Stock for 57 consecutive quarters and previous to that for eight consecutive semi-annual periods. The Company intends to continue the payment of dividends, although future dividend payments will depend upon the Company's level of earnings, operating cash flow, capital commitments, financial covenants and other relevant factors. 
 
As of December 31, 2003, dividends declared on 4,000,894 shares of certain Common Stock are restricted, whereby 37.5% of the dividends declared on these shares are paid by the Company to the surviving member of a group of individuals, the B group, for as long as this remaining member shall live. 

 	
 	 15	 	

 
Item 6.  Selected Financial Data 

The following table sets forth certain financial information with respect to the Company and is qualified in its entirety by reference to the historical financial statements and notes thereto of the Company included in Item 8, “Financial Statements and Supplementary Data.” The statement of operations and balance sheet data included in this table for each of the five years in the period ended December 31, 2003 were derived from the audited financial statements and the accompanying notes to those financial statements (in thousands, except per share, per BOE and % data): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	 	2000 	 	 	1999 	 	
 	 		 		 		 		 		 	
Statement of Operations Data : 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales of oil and gas 	 	$	135,848 	 	$	102,026 	 	$	100,146 	 	$	118,801 	 	$	66,615 	 	
Sales of electricity 	 	 	44,200 	 	 	27,691 	 	 	35,133 	 	 	51,420 	 	 	33,011 	 	
Operating costs – oil and gas production 	 	 	60,705 	 	 	44,604 	 	 	40,281 	 	 	44,837 	 	 	27,829 	 	
Operating costs – electricity generation 	 	 	44,200 	 	 	27,360 	 	 	34,722 	 	 	49,221 	 	 	27,210 	 	
General and administrative expenses (G&A) 	 	 	9,586 	 	 	7,928 	 	 	7,174 	 	 	7,754 	 	 	6,269 	 	
Depreciation, depletion & amortization 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(DD&A) 	 	 	20,514 	 	 	16,452 	 	 	16,520 	 	 	14,030 	 	 	12,294 	 	
Net income 	 	 	34,332 	 	 	30,024 	 	 	21,938 	 	 	37,183 	 	 	18,006 	 	
Basic net income per share 	 	 	1.58 	 	 	1.38 	 	 	1.00 	 	 	1.69 	 	 	0.82 	 	
Diluted net income per share 	 	 	1.56 	 	 	1.37 	 	 	0.99 	 	 	1.67 	 	 	0.82 	 	
Weighted average number of shares outstanding (basic) 	 	 	21,772 	 	 	21,741 	 	 	21,973 	 	 	22,029 	 	 	22,010 	 	
Weighted average number of shares outstanding (diluted) 	 	 	22,020 	 	 	21,939 	 	 	22,110 	 	 	22,240 	 	 	22,049 	 	
Balance Sheet Data : 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Working capital 	 	$ 	(5,366 	) 	$ 	(3,689 	) 	$	5,837 	 	$ 	(1,154 	) 	$	8,435 	 	
Total assets 	 	 	338,192 	 	 	258,073 	 	 	237,973 	 	 	238,359 	 	 	207,649 	 	
Long-term debt 	 	 	50,000 	 	 	15,000 	 	 	25,000 	 	 	25,000 	 	 	52,000 	 	
Shareholders' equity 	 	 	195,718 	 	 	172,058 	 	 	153,153 	 	 	145,224 	 	 	116,213 	 	
Cash dividends per share 	 	 	0.47 	 	 	0.40 	 	 	0.40 	 	 	0.40 	 	 	0.40 	 	
Operating Data : 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow from operations 	 	 	64,825 	 	 	57,895 	 	 	35,433 	 	 	65,934 	 	 	24,809 	 	
Capital expenditures (excluding acquisitions) 	 	 	41,545 	 	 	30,632 	 	 	14,895 	 	 	25,253 	 	 	9,122 	 	
Property/facility acquisitions 	 	 	48,626 	 	 	5,880 	 	 	2,273 	 	 	3,182 	 	 	33,605 	 	
Oil and gas producing operations (per BOE): 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average sales price before hedging 	 	$	24.48 	 	$	20.11 	 	$	19.63 	 	$	23.01 	 	$	14.15 	 	
Average sales price after hedging 	 	 	22.52 	 	 	19.39 	 	 	19.79 	 	 	21.72 	 	 	13.07 	 	
Average operating costs (1) 	 	 	10.05 	 	 	8.49 	 	 	7.99 	 	 	8.20 	 	 	5.47 	 	
G&A 	 	 	1.59 	 	 	1.51 	 	 	1.42 	 	 	1.42 	 	 	1.23 	 	
DD&A 	 	 	3.40 	 	 	3.13 	 	 	3.28 	 	 	2.57 	 	 	2.42 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Production (BOE) 	 	 	6,040 	 	 	5,251 	 	 	5,044 	 	 	5,467 	 	 	5,090 	 	
Production (MWh) 	 	 	767 	 	 	748 	 	 	483 	 	 	764 	 	 	728 	 	
Proved Reserves Information: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total BOE 	 	 	109,920 	 	 	101,719 	 	 	102,855 	 	 	107,361 	 	 	112,541 	 	
Standardized measure (2) 	 	$	528,220 	 	$	449,857 	 	$	278,453 	 	$	501,694 	 	$	494,952 	 	
Present value (PV10) of estimated future net 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
cash flow before income taxes 	 	 	683,124 	 	 	599,826 	 	 	358,653 	 	 	719,882 	 	 	712,856 	 	
Year-end average BOE price for PV10 purposes 	 	 	25.89 	 	 	24.91 	 	 	14.13 	 	 	21.13 	 	 	19.37 	 	
Other: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average shareholders' equity 	 	 	18.70 	% 	 	18.50 	% 	 	14.70 	% 	 	28.50 	% 	 	16.50 	% 	
Return on average total assets 	 	 	11.90 	% 	 	12.50 	% 	 	8.70 	% 	 	16.80 	% 	 	9.00 	% 	
Total debt/total debt plus equity 	 	 	20.3 	% 	 	8.0 	% 	 	14.0 	% 	 	14.7 	% 	 	30.9 	% 	
Year-end stock price 	 	$	20.25 	 	$	17.05 	 	$	15.70 	 	$	13.38 	 	$	15.13 	 	
Year-end market capitalization 	 	$	441,516 	 	$	370,865 	 	$	341,192 	 	$	294,699 	 	$	332,920 	 	
 
(1)    Including monthly expenses in excess of monthly revenues from cogeneration operations of $2.08, $1.72, $1.31, $.53, and $0 for the years 2003, 2002, 2001, 2000, and 1999, respectively. 
(2)   See Supplemental Information About Oil & Gas Producing Activities. 

 	
 	 16	 	

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

The following discussion provides information on the results of operations for each of the three years ended December 31, 2003, 2002 and 2001 and the financial condition, liquidity and capital resources as of December 31, 2003 and 2002. The financial statements and the notes thereto contain detailed information that should be referred to in conjunction with this discussion. 

The profitability of the Company's operations in any particular accounting period will be directly related to the average realized prices of oil, gas and electricity sold, the type and volume of oil and gas produced and electricity generated and the results of acquisition, development, exploitation and exploration activities. The average realized prices for natural gas and electricity will fluctuate from one period to another due to regional market conditions and other factors, while oil prices will be predominantly influenced by world supply and demand. The aggregate amount of oil and gas produced may fluctuate based on the success of development and exploitation of oil and gas reserves pursuant to current reservoir management. The cost of natural gas used in the Company's steaming operations and electrical generation, production rates, labor, maintenance expenses and production t axes are expected to be the principal influences on operating costs. Accordingly, the results of operations of the Company may fluctuate from period to period based on the foregoing principal factors, among others. 

Results of Operations 

In 2003, the Company achieved a record year for revenues and its second highest net income. The Company earned $34 million, or $1.56 per share (diluted), in 2003 on revenues of $181 million, up 13% from $30 million, or $1.37 per share (diluted), on revenues of $131 million in 2002, and up from $22 million, or $.99 per share (diluted), on revenues of $138 million earned in 2001. 

The following table presents certain operating data for the years ended December 31: 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	

Oil and Gas 	 	 	 	 	 	 	 	 	 	 	
Net production – BOE/D 	 	 	16,549 	 	 	14,387 	 	 	13,820 	 	
Per BOE: 	 	 	 	 	 	 	 	 	 	 	
Average sales price before hedging 	 	$	24.48 	 	$	20.11 	 	$	19.63 	 	
Average sales price after hedging 	 	 	22.52 	 	 	19.39 	 	 	19.79 	 	
Operating costs (1) 	 	 	9.41 	 	 	7.94 	 	 	7.50 	 	
Production taxes 	 	 	0.64 	 	 	0.55 	 	 	0.49 	 	
 	 		 		 		 	
Total operating costs 	 	$	10.05 	 	$	8.49 	 	$	7.99 	 	

DD&A 	 	$	3.40 	 	$	3.13 	 	$	3.28 	 	
G&A 	 	 	1.59 	 	 	1.51 	 	 	1.42 	 	
Interest expense 	 	 	0.23 	 	 	0.20 	 	 	0.74 	 	
 	 	 	 	 	 	 	 	 	 	 	
Electricity 	 	 	 	 	 	 	 	 	 	 	
Electric power produced - MWh/D 	 	 	2,100 	 	 	2,050 	 	 	1,325 	 	
Electric power sold – MWh/D 	 	 	1,925 	 	 	1,848 	 	 	1,245 	 	
Average sales price/MWh before hedging 	 	$	62.91 	 	$	40.06 	 	$	79.14 	 	
Average sales price/MWh after hedging 	 	$	61.95 	 	$	39.64 	 	$	79.14 	 	
Fuel gas cost/MMBtu 	 	$	4.88 	 	$	3.13 	 	$	5.76 	 	
 
(1)   Including monthly expenses in excess of monthly revenues from cogeneration operations of $2.08, $1.72 and $1.31 in 2003, 2002 and 2001 respectively.
 	 	 	 	 	 	
BOE/D = Barrels of oil equivalent per day 	 	 	 	 	 	
MWh/D = Megawatt hours per day 	 	 	 	 	 	
MMBtu = Million British Thermal Units 	 	 	 	 	 	
 
In August 2003, the Company completed the acquisition of the Brundage Canyon properties, for approximately $45 million. The Company believes that this property presents a significant opportunity for growth due to the considerable amount of underexploited acreage. At year-end, proved reserves for this property were approximately 9.2 million BOE, or 8% of total reserves. Subsequent to the acquisition, the Company pursued a drilling program which included the drilling of 26 wells, 22 of which were producing at year end. As a result, current production has increased to nearly 3,000 barrels per day for Brundage Canyon. 

 	
 	 17	 	

 
The Company’s oil and gas production reached record levels in 2003 due primarily to the success of the Company’s development activities on its California properties, the acquisition of leases in the Brundage Canyon field in Utah in August 2003 and the drilling activities on these Utah properties in the last four months of 2003. Oil and gas production (BOE/D) for 2003 was 16,549, up 15% and 20%, respectively, from 14,387 in 2002 and 13,820 in 2001. 

The Company primarily is at risk to reductions in operating income as a result of declines in crude oil and electricity prices and increases in natural gas prices. To assist in mitigating these risks, the Company periodically enters into various types of commodity hedges. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk”. 

The 2003 average sales price per BOE of the Company’s oil and gas, net of hedging, was $22.52, up 16% and 14.7% from $19.39 and $19.79 received in 2002 and 2001, respectively. Approximately 96% of the Company’s sales volumes in 2003 were crude oil, with 86% of the crude oil being heavy oil produced in California which is sold under a long-term contract based on the higher of WTI minus a fixed differential or the Company’s average posted price plus a premium. The Brundage Canyon crude oil is priced at WTI less a fixed differential. During 2003, WTI prices per barrel reached a high of $37.83, a low of $25.24 and averaged $30.99 for the year compared to an average of $26.15 and $25.95 in 2002 and 2001, respectively. 

The Company produced 2,100 MWh/D of electricity in 2003, comparable to 2,050 MWh/D in 2002, but up 58% from 1,325 MWh/D produced in 2001. The Company’s cogeneration facilities were shut in for a number of months in 2001 due to non-payment by the utilities that were contractually obligated to purchase the Company’s electricity. 

During 2003, the Company received an average sales price for its electricity per MWh of $62.91 compared to $40.06 in 2002 and $79.14 in 2001. During 2003, electricity prices were, relative to the cost of natural gas to generate electricity, improved from 2002. In January 2003, three Standard Offer contract terms were reinstated on certain generating capacity of which the output had been sold by the Company on the open market during all of 2002 and the majority of 2001. This volume represented approximately 76% of the Company’s electricity sales output. Under the terms of the Standard Offer contracts, the price received for the electricity is based on the cost of natural gas. The Company consumes approximately 37,000 MMBtu of natural gas per day for use in generating steam and of this total, approximately 72% is consumed in the Company’s cogeneration operations. By maintai ning a correlation between electricity and natural gas prices, the Company is able to better control its cost of producing steam. 

Three of the Standard Offer 1 contracts expired on December 31, 2003. However, by order of the California Public Utilities Commission (CPUC), in December 2003 the respective utilities offered extensions of the Standard Offer 1 contracts for up to one year. The CPUC issued a decision in January 2004 that establishes rules under which the California utilities are required to offer Standard Offer 1 contracts to certain qualifying facilities (QF), such as Berry, for a term of five years. In January 2004, the Company accepted one-year extensions of these contracts and is evaluating its options beyond the revised termination dates. 

Operating costs from oil and gas operations were $60.7 million in 2003, up 36% and 51% from $44.6 million and $40.3 million in 2002 and 2001, respectively. On a per barrel basis, operating costs cost were $10.05 in 2003 compared to $8.49 and $7.99 in 2002 and 2001, respectively. Steam costs were higher in 2003 as the cost for natural gas per MMBtu increased to $4.88 from $3.13 in 2002. Although natural gas prices in 2001 of $5.76 were higher than the 2003 prices, the Company had shut-in its cogeneration operations for a portion of 2001 due to the California electricity crisis resulting in reduced steam injection volumes and lower total operating costs in 2001. The Company also injected an average of 63,300 BSPD in 2003, up 5% from 60,060 BSPD in 2002 and 33,574 BSPD in 2001. This increase in injected steam volumes also contributed to higher operating costs in 2003. The Company anti cipates operating costs to average between $9.50 and $10.50 per BOE in 2004. 

DD&A in 2003 was $20.5 million, or $3.40 per BOE, up from $16.5 million, or $3.13 per BOE, in 2002 and $16.5 million, or $3.28 per BOE, in 2001. DD&A in 2003 was higher due to the acquisition of the Brundage Canyon properties in Utah and the cumulative effect of development activities in recent years. The Company anticipates its total DD&A charges for 2004 will approximate $28 million or range from $3.75 to $4.00 per BOE. 

G&A expenses in 2003 were $9.6 million, or $1.59 per BOE, up 22% from $7.9 million, or $1.51 per BOE in 2002 and up 33% from $7.2 million, or $1.42 per BOE in 2001. Contributing to the increase in 2003 was higher compensation expenses, the expansion into the Rocky Mountain region, and a higher level of acquisition activity. For 2004, the Company anticipates that its G&A expenses will approximate $10.5 million or range from $1.35 to $1.45 per BOE. 

 	
 	18 	 	

 
Interest expense in 2003 was $1.4 million, or $.23 per BOE, up from $1.0 million, or $.20 per BOE, in 2002 but down from $3.7 million, or $.74 per BOE, in 2001. The Company’s borrowings at year-end 2003 were $50 million, up from $15 million in 2002 due to the acquisition of its Brundage Canyon properties in August 2003. 

In 2002, the Company recorded income of $3.6 million, which represented the recovery of a portion of the $6.6 million of the receivables from electricity sales that were written off in 2001 due to non-payment by utilities contractually obligated to purchase the Company’s electricity. 

The Company experienced an effective tax rate of 15% in 2003, down from the 20% and 19% reported in 2002 and 2001, respectively. The low effective tax rate is primarily a result of significant EOR tax credits earned by the Company’s continued investment in the development of its thermal EOR projects, both through capital expenditures and continued steam injection. This is the sixth consecutive year that the Company has achieved an effective tax rate below 30% versus the combined federal and state statutory rate of 40%. The Company believes it will continue to earn significant EOR tax credits and have an effective tax rate in the 20% to 30% range in 2004, based on WTI prices averaging between $26.50 and $35.50. 

During 2002 and early 2003, the Company leased a total of approximately 208,000 acres in Kansas and 54,000 acres in Illinois to explore for economic concentrations of coalbed methane gas at a total lease cost of approximately $6 million. A five-well pilot was drilled in the Wabaunsee County portion of the Kansas acreage in the fourth quarter of 2002. Initial water production was less than expected with no resulting gas pressure buildup and the gas content of the coals was later determined to be significantly lower than anticipated. The Company concluded that this pilot will not produce commercial quantities of natural gas and, therefore, wrote off the cost to drill these wells and the associated acreage in 2003 for a pre-tax charge to operations of $2.6 million. 

In August 2003, the Company completed the sale of approximately 43,000 leased acres in Jackson County, Kansas for approximately $1.7 million, while retaining an overriding royalty interest in the property. The Company recovered its cost in the property. 

The Company also drilled a second five-well pilot in Jasper County, Illinois in the fourth quarter of 2002. The wells were subsequently re-fractured in the third quarter of 2003 in an attempt to more efficiently dewater the coal seam and reduce the reservoir pressure to increase eventual gas production. Although reservoir pressure decreased over time, it was determined near year-end 2003 that gas volumes are not likely to be sufficient to realize commercial production; therefore, the costs to drill these wells and an impairment of the acreage was recorded in the fourth quarter of 2003, which resulted in a pre-tax charge of $1.7 million. The Company‘s objectives in 2004 include the continued evaluation of CBM activities in Illinois and further delineation of our CBM acreage in Kansas. 

Financial Condition, Liquidity and Capital Resources 

Working capital as of December 31, 2003 was negative ($5.4) million, greater than a negative ($3.7) million at December 31, 2002 and $5.8 million at December 31, 2001. Net cash provided by operating activities increased to $64.8 million, up 12% from $57.9 million in 2002 and up 83% from $35.4 million in 2001. The Company’s net increase in borrowings on its credit line was $35 million in 2003. Cash was used to fund $48.6 million in property acquisitions, for capital expenditures of $41.5 million and to pay dividends of $10.2 million. 

Total capital expenditures in 2003, excluding acquisitions, were $41.5 million and included the drilling of 94 new wells and completing 30 workovers on its California properties and the drilling of 27 new wells and completion of one workover on its Brundage Canyon properties in Utah. 

Excluding any future acquisitions in 2004, the Company plans to spend approximately $50 million on capital projects including $17 million to drill 44 new wells and perform 63 workovers in California and $33 million to drill 51 new wells and perform 22 workovers in the Rocky Mountain and Mid-Continent regions. With this increased development and a full year of production from Brundage Canyon, the Company anticipates that production will average between 20,000 and 21,000 BOE per day in 2004, up over 20% from an average 16,549 BOE per day in 2003. 

The Company successfully completed a new $200 million unsecured three-year credit facility in July 2003. The facility replaced the previous $150 million unsecured facility which was due to mature in January 2004. The new facility recognizes the Company’s strong financial position and should provide significant low-cost capital for the Company to meet its growth objectives. In August 2003, the Company drew upon this facility to finance the $45 million purchase of the Brundage Canyon, Utah assets. As of December 31, 2003, the Company had $150 million available under the facility. 

At year-end, the Company had no subsidiaries, no special purpose entities and no off-balance sheet debt. The Company did not enter into any significant related party transactions in 2003. 

 	
 	19 	 	

 
Contractual Obligations 

The Company's contractual obligations as of December 31, 2003 are as follows (in thousands):	
 	 	 	 	 	 	 	 	 	
Contractual Obligations 	 	 	2004 	 	 	2005 	 	 	2006 	 	 	2007 	 	 	2008 	 	 	Thereafter 	 	 	Total 	 	

Long-term debt 	 	$	- 	 	$	- 	 	$	50,000 	 	$	- 	 	$	- 	 	$	- 	 	$	50,000 	 	
Operating lease obligations 	 	 	528 	 	 	562 	 	 	487 	 	 	107 	 	 	107 	 	 	90 	 	 	1,881 	 	
Firm natural gas 
transportation contract 	 	 	3,066 	 	 	3,066 	 	 	3,066 	 	 	3,066 	 	 	3,066 	 	 	13,280 	 	 	28,610 	 	
 	 		 		 		 		 		 		 		 	
Total 	 	$	3,594 	 	$	3,628 	 	$	53,553 	 	$	3,173 	 	$	3,173 	 	$	13,370 	 	$	80,491 	 	

Critical Accounting Policies 

The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions for the reporting period and as of the financial statement date. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from those amounts. 

A critical accounting policy is one that is important to the portrayal of the Company's financial condition and results, and requires Management to make difficult subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. The Company believes the following accounting policies are critical policies; accounting for oil and gas reserves, environmental liabilities, income taxes and asset retirement obligations. 

Oil and gas reserves include proved reserves that represent estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The oil and gas reserves are based on estimates prepared by independent engineering consultants and are used to calculate DD&A and determine if any potential impairment exists related to the recorded value of the Company's oil and gas properties. 

The Company reviews, on a quarterly basis, its estimates of costs of the cleanup of various sites including sites in which governmental agencies have designated the Company as a potentially responsible party. When it is probable that obligations have been incurred and where a minimum cost or a reasonable estimate of the cost of remediation can be determined, the applicable amount is accrued. Actual costs can differ from estimates due to changes in laws and regulations, discovery and analysis of site conditions and changes in technology. 

The Company makes certain estimates in determining its provision for income taxes. These estimates in determining taxable income, among other things, may include various tax planning strategies, the timing of deductions and the utilization of tax attributes. 

Management is required to make judgments based on historical experience and future expectations on the future abandonment cost of its oil and gas properties and equipment. The Company reviews its estimate of the future obligation quarterly and accrues the estimated obligation monthly based on SFAS No. 143, “Accounting for Asset Retirement Obligations”. 

Recent Accounting Developments 

In the fourth quarter of 2002, the Company adopted the supplemental disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, which amended SFAS No. 123, “Accounting for Stock-Based Compensation.” The Company continues to record compensation related to employee stock options based on the intrinsic value method per APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148 encourages companies to voluntarily elect to record the compensation based on market value either prospectively, as defined in SFAS No. 123, or retroactively or in a modified prospective method. The Company uses the Black-Scholes model to calculate and disclose the market value of its options granted. The Company does not advocate nor does it believe that the Black-Scholes model can properly determine the val ue of a stock option, like Berry’s, that vest over a period of time and is not freely tradable upon grant. Therefore, the Company has delayed the potential transition to recording stock compensation based on fair market value until required by accounting standards in 2005. 

 	
 	20 	 	

 
In November 2002 the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45")." This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on the Company's Financial Statements. 

In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." The Company has adopted, effective January 1, 2003, the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. SFAS No. 146 did not have a material impact on the Company's financial statements. 

In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FIN 45, and amends certain other existing pronouncements. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on the Company's financial statements. 

During January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires the consolidation of certain entities that are determined to be variable interest entities (“VIE’s”). An entity is considered to be a VIE when either (i) the entity lacks sufficient equity to carry on its principal operations, (ii) the equity owners of the entity cannot make decisions about the entity’s activities or (iii) the entity’s equity neither absorbs losses or benefits from gains. The Company has reviewed its financial arrangements and has not identified any material VIE’s that should be consolidated by the Company in accordance with FIN 46. 

Impact of Inflation 

The impact of inflation on the Company has not been significant in recent years because of the relatively low rates of inflation experienced in the United States. 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk 

The Company enters into various financial contracts to hedge its exposure to commodity price risk associated with its crude oil production, electricity production and net natural gas volumes purchased for its steaming operations. These contracts related to crude oil and natural gas have historically been in the form of zero-cost collars and swaps, however, the Company is considering a variety of hedge instruments going forward. The Company generally attempts to hedge between 25% and 50% of its anticipated crude oil production and up to 30% of its anticipated net natural gas purchased each year. All of these hedges have historically been deemed to be cash flow hedges with the mark-to-market valuations of the collars provided by external sources, based on prices that are actually quoted. 

 	
 	21 	 	

 
Based on NYMEX futures prices at December 31, 2003, (WTI $30.64; Henry Hub (HH) $5.21) the Company would expect to make pre-tax future cash payments over the remaining term of its crude oil and natural gas hedges in place as follows: 

 	 	 	 	 	 	Impact of percent change in futures prices	 	
 	 	 	12/31/03 	 	 on earnings (in thousands)	 	
 	 	 	NYMEX	 		 	
 	 	 	 Futures 	 	 	-20% 	 	 	-10% 	 	 	+10% 	 	 	+20% 	 	
 	 		 		 		 		 		 	
Average WTI Price 	 	$	30.64 	 	$	24.51 	 	$	27.57 	 	$	33.70 	 	$	36.77 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Crude Oil gain/(loss) 	 	 	(8,400 	) 	 	4,730 	 	 	(1,710 	) 	 	(12,420 	) 	 	(16,160 	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Average HH Price 	 	 	5.21 	 	 	4.17 	 	 	4.69 	 	 	5.73 	 	 	6.25 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Natural Gas gain/(loss) 	 	 	410 	 	 	(3,720 	) 	 	(1,650 	) 	 	2,470 	 	 	4,530 	 	
 
The Company sells 100% of its electricity production, net of electricity used in its oil and gas operations, under SO contracts to major utilities. Three of the four SO contracts representing approximately 77% of the Company’s electricity for sale originally expired on December 31, 2003. However, as ordered by CPUC, the utilities offered and the Company accepted one-year extensions on these contracts in January 2004 and is evaluating its options beyond the revised termination dates. Among other things, the CPUC issued a decision in January 2004 that establishes rules whereby the California utilities are required to offer Standard Offer contracts to certain qualified facilities, such as Berry, for a term of 5 years. However, the sales price under this contract may not be linked to natural gas prices. The Company sells the remaining 20 MWh to a utility at $53.70 per MWh plus cap acity through a long-term sales contract. 

The Company attempts to minimize credit exposure to counter parties through monitoring procedures and diversification. 

The Company’s exposure to changes in interest rates results primarily from long-term debt. Total debt outstanding at December 31, 2003 and 2002 was $50 million and $15 million, respectively. Interest on amounts borrowed is charged at LIBOR plus 1.25% to 2.0%. Based on year-end 2003 borrowings, a 1% change in interest rates would not have a material impact on the Company’s financial statements. 

Forward Looking Statements 
 
“Safe harbor under the Private Securities Litigation Reform Act of 1995:” With the exception of historical information, the matters discussed in this Form 10-K are forward-looking statements that involve risks and uncertainties. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, the timing and extent of changes in commodity prices for oil, gas and electricity, a limited marketplace for electricity sales within California, counterparty risk, competition, environmental and weather risks, litigation uncertainties, drilling, development and operating risks, uncertainties about the estimates of reserves, th e availability of drilling rigs and other support services, legislative and/or judicial decisions and other government regulations. 

 	
 	 22	 	

 
Item 8.  Financial Statements and Supplementary Data 

BERRY PETROLEUM COMPANY 
Index to Financial Statements and 
Supplementary Data 

 	Page 	

Report of PricewaterhouseCoopers LLP, Independent Auditors 	24 	
 	 	
Balance Sheets at December 31, 2003 and 2002 	25 	
 	 	
Statements of Income for the 	 	
Years Ended December 31, 2003, 2002 and 2001 	26 	
 	 	
Statements of Comprehensive Income for the 	 	
Years Ended December 31, 2003, 2002 and 2001 	26 	
 	 	
Statements of Shareholders' Equity for the 	 	
Years Ended December 31, 2003, 2002 and 2001 	27 	
 	 	
Statements of Cash Flows for the 	 	
Years Ended December 31, 2003, 2002 and 2001 	28 	
 	 	
Notes to the Financial Statements 	29 	
 	 	
Supplemental Information About Oil & Gas Producing Activities (unaudited) 	41 	
 	 	
Financial statement schedules have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements and related notes. 	

 	
 	 23	 	

REPORT OF INDEPENDENT AUDITORS 

To the Shareholders and Board of Directors 
Berry Petroleum Company 

In our opinion, the accompanying balance sheets and the related statements of income, comprehensive income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Berry Petroleum Company at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about wheth er the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 

/s/ PricewaterhouseCoopers LLP 

Los Angeles, California 
February 20, 2004 

 	
 	24 	 	

 
BERRY PETROLEUM COMPANY 
Balance Sheets 
December 31, 2003 and 2002 
(In Thousands, Except Share Information) 

 	 	 	2003 	 	 	2002 	 	
 	 		 		 	
ASSETS 	 	 	 	 	 	 	 	
Current assets: 	 	 	 	 	 	 	 	
Cash and cash equivalents 	 	$	10,658 	 	$	9,866 	 	
Short-term investments available for sale 	 	 	663 	 	 	660 	 	
Accounts receivable 	 	 	23,506 	 	 	15,582 	 	
Deferred income taxes 	 	 	4,410 	 	 	844 	 	
Prepaid expenses and other 	 	 	2,049 	 	 	1,753 	 	
 	 		 		 	
Total current assets 	 	 	41,286 	 	 	28,705 	 	
 	 	 	 	 	 	 	 	
Oil and gas properties (successful efforts basis), 	 	 	 	 	 	 	 	
buildings and equipment, net 	 	 	295,151 	 	 	228,475 	 	
Other assets 	 	 	1,755 	 	 	893 	 	
 	 		 		 	
 	 	$	338,192 	 	$	258,073 	 	

LIABILITIES AND SHAREHOLDERS' EQUITY 	 	 	 	 	 	 	 	
Current liabilities: 	 	 	 	 	 	 	 	
Accounts payable 	 	$	32,490 	 	$	19,189 	 	
Accrued liabilities 	 	 	4,214 	 	 	6,470 	 	
Income taxes payable 	 	 	4,238 	 	 	2,612 	 	
Fair value of derivatives 	 	 	5,710 	 	 	4,123 	 	
 	 		 		 	
Total current liabilities 	 	 	46,652 	 	 	32,394 	 	
 	 	 	 	 	 	 	 	
    Long-term liabilities: 	 	 	 	 	 	 	 	
Deferred income taxes 	 	 	38,168 	 	 	33,866 	 	
Long-term debt 	 	 	50,000 	 	 	15,000 	 	
Abandonment obligation 	 	 	7,311 	 	 	4,596 	 	
Fair value of derivatives 	 	 	343 	 	 	159 	 	
 	 		 		 	
 	 	 	95,822 	 	 	53,621 	 	
Commitments and contingencies (Notes 10 and 11) 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Shareholders' equity: 	 	 	 	 	 	 	 	
Preferred stock, $.01 par value, 2,000,000 shares authorized; 	 	 	 	 	 	 	 	
no shares outstanding 	 	 	- 	 	 	- 	 	
Capital stock, $.01 par value: 	 	 	 	 	 	 	 	
Class A Common Stock, 50,000,000 shares authorized; 	 	 	 	 	 	 	 	
20,904,372 shares issued and outstanding (20,852,695 in 2002) 	 	 	209 	 	 	209 	 	
Class B Stock, 1,500,000 shares authorized; 	 	 	 	 	 	 	 	
898,892 shares issued and outstanding (liquidation preference of $899) 	 	 	9 	 	 	9 	 	
Capital in excess of par value 	 	 	49,798 	 	 	49,052 	 	
Deferred stock option compensation 	 	 	(120 	) 	 	- 	 	
Accumulated other comprehensive loss 	 	 	(3,632 	) 	 	(2,569 	) 	
Retained earnings 	 	 	149,454 	 	 	125,357 	 	
 	 		 		 	
Total shareholders' equity 	 	 	195,718 	 	 	172,058 	 	

 	 	$	338,192 	 	$	258,073 	 	

The accompanying notes are an integral part of these financial statements. 

 	
 	 25	 	

 
BERRY PETROLEUM COMPANY 
Statements of Income 
Years ended December 31, 2003, 2002 and 2001 
(In Thousands, Except Per Share Data) 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Revenues: 	 	 	 	 	 	 	 	 	 	 	
Sales of oil and gas 	 	$	135,848 	 	$	102,026 	 	$	100,146 	 	
Sales of electricity 	 	 	44,200 	 	 	27,691 	 	 	35,133 	 	
Interest and dividend income 	 	 	236 	 	 	536 	 	 	2,150 	 	
Other income 	 	 	580 	 	 	1,116 	 	 	328 	 	
 	 		 		 		 	
 	 	 	180,864 	 	 	131,369 	 	 	137,757 	 	
Expenses: 	 	 	 	 	 	 	 	 	 	 	
Operating costs – oil and gas production 	 	 	60,705 	 	 	44,604 	 	 	40,281 	 	
Operating costs – electricity generation 	 	 	44,200 	 	 	27,360 	 	 	34,722 	 	
Depreciation, depletion & amortization 	 	 	20,514 	 	 	16,452 	 	 	16,520 	 	
General and administrative 	 	 	9,586 	 	 	7,928 	 	 	7,174 	 	
Interest 	 	 	1,414 	 	 	1,042 	 	 	3,719 	 	
Dry hole, abandonment and impairment 	 	 	4,195 	 	 	- 	 	 	- 	 	
(Recovery) write-off of electricity receivable 	 	 	- 	 	 	(3,631 	) 	 	6,645 	 	
Loss on termination of derivative contracts 	 	 	- 	 	 	- 	 	 	1,458 	 	

 	 	 	140,614 	 	 	93,755 	 	 	110,519 	 	

Income before income taxes 	 	 	40,250 	 	 	37,614 	 	 	27,238 	 	
Provision for income taxes 	 	 	5,918 	 	 	7,590 	 	 	5,300 	 	

Net income 	 	$	34,332 	 	$	30,024 	 	$	21,938 	 	
 	 		 		 		 	
Basic net income per share 	 	$	1.58 	 	$	1.38 	 	$	1.00 	 	
 	 		 		 		 	
Diluted net income per share 	 	$	1.56 	 	$	1.37 	 	$	0.99 	 	

Weighted average number of shares of capital stock outstanding (used to calculate basic net income per share)	 	 	21,772 	 	 	21,741 	 	 	21,973 	 	
 	 	 	 	 	 	 	 	 	 	 	
Effect of dilutive securities: 	 	 	 	 	 	 	 	 	 	 	
Stock options 	 	 	204 	 	 	156 	 	 	113 	 	
Other 	 	 	44 	 	 	42 	 	 	24 	 	

 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of shares of capital stock used to calculate diluted net income per share	 	 	22,020 	 	 	21,939 	 	 	22,110 	 	

Statements of Comprehensive Income	
Years Ended December 31, 2003, 2002 and 2001  	
(In Thousands)	
 	 	 	 	 	
Net income 	 	$	34,332 	 	$	30,024 	 	$	21,938 	 	
Unrealized gains (losses) on derivatives, net of income taxes 	 	 	(3,632 	)	 	(2,569 	)	 	-		
Reclassification of unrealized gains included in net income 	 	 	2,569 	 	 	- 	 	 	(441 	) 	
 	 		 		 		 	
Comprehensive income 	 	$	33,269 	 	$	27,455 	 	$	21,497 	 	

The accompanying notes are an integral part of these financial statements.

 	
 	 26	 	

 
BERRY PETROLEUM COMPANY 
Statements of Shareholders’ Equity 
Years Ended December 31, 2003, 2002 and 2001 
(In Thousands, Except Per Share Data) 

 	 	 	Class A 	 	 	Class B 	 	 	Capital in Excess of Par Value 	 	 	Deferred Stock Based Compen-sation 	 	 	Retained Earnings 	 	 	Accum-ulated Other Compre-hensive Income (Loss) 	 	 	Share-holders’ Equity 	 	
 	 		 		 		 		 		 		 		 	
Balances at January 1, 2001 	 	$	211 	 	$	9 	 	$	53,686 	 	$	- 	 	$	90,877 	 	$	441 	 	$	145,224 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock options exercised 	 	 	- 	 	 	- 	 	 	172 	 	 	- 	 	 	- 	 	 	- 	 	 	172 	 	
Deferred director fees – stock 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
compensation 	 	 	- 	 	 	- 	 	 	156 	 	 	- 	 	 	- 	 	 	- 	 	 	156 	 	
Common stock repurchases 	 	 	(3 	) 	 	- 	 	 	(5,109 	) 	 	- 	 	 	- 	 	 	- 	 	 	(5,112 	) 	
Cash dividends declared - 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$.40 per share 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(8,784 	) 	 	- 	 	 	(8,784 	) 	
Unrealized losses on derivatives 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(441 	) 	 	(441 	) 	
Net income 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	21,938 	 	 	- 	 	 	21,938 	 	
 	 		 		 		 		 		 		 		 	
Balances at December 31, 2001 	 	 	208 	 	 	9 	 	 	48,905 	 	 	- 	 	 	104,031 	 	 	- 	 	 	153,153 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock options exercised 	 	 	1 	 	 	- 	 	 	57 	 	 	- 	 	 	- 	 	 	- 	 	 	58 	 	
Deferred director fees – stock 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
compensation 	 	 	- 	 	 	- 	 	 	190 	 	 	- 	 	 	- 	 	 	- 	 	 	190 	 	
Retirement of warrants 	 	 	- 	 	 	- 	 	 	(100 	) 	 	- 	 	 	- 	 	 	- 	 	 	(100 	) 	
Cash dividends declared - 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$.40 per share 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(8,698 	) 	 	- 	 	 	(8,698 	) 	
Unrealized losses on derivatives 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(2,569 	) 	 	(2,569 	) 	
Net income 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	30,024 	 	 	- 	 	 	30,024 	 	
 	 		 		 		 		 		 		 		 	
Balances at December 31, 2002 	 	 	209 	 	 	9 	 	 	49,052 	 	 	- 	 	 	125,357 	 	 	(2,569 	) 	 	172,058 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock options exercised 	 	 	- 	 	 	- 	 	 	446 	 	 	- 	 	 	- 	 	 	- 	 	 	446 	 	
Deferred director fees – stock 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
compensation 	 	 	- 	 	 	- 	 	 	169 	 	 	- 	 	 	- 	 	 	- 	 	 	169 	 	
Deferred stock option compensation 	 	 	- 	 	 	- 	 	 	131 	 	 	(131 	) 	 	- 	 	 	- 	 	 	- 	 	
Amortization of deferred stock option compensation 	 	 	- 	 	 	- 	 	 	- 	 	 	11 	 	 	- 	 	 	- 	 	 	11 	 	
Cash dividends declared - 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
$.47 per share 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(10,235 	) 	 	- 	 	 	(10,235 	) 	
Unrealized losses on derivatives 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(1,063 	) 	 	(1,063 	) 	
Net income 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	34,332 	 	 	- 	 	 	34,332 	 	
 	 		 		 		 		 		 		 		 	
Balances at December 31, 2003 	 	$	209 	 	$	9 	 	$	49,798 	 	$ 	(120 	) 	$	149,454 	 	$ 	(3,632 	) 	$	195,718 	 	

The accompanying notes are an integral part of these financial statements. 

 	
 	 27	 	

 
BERRY PETROLEUM COMPANY 
Statements of Cash Flows 
Years Ended December 31, 2003, 2002 and 2001 
(In Thousands) 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Cash flows from operating activities: 	 	 	 	 	 	 	 	 	 	 	
Net income 	 	$	34,332 	 	$	30,024 	 	$	21,938 	 	
Depreciation, depletion and amortization 	 	 	20,514 	 	 	16,452 	 	 	16,520 	 	
Dry hole, abandonment and impairment 	 	 	3,756 	 	 	- 	 	 	- 	 	
Deferred income taxes 	 	 	1,371 	 	 	3,842 	 	 	(50 	) 	
Other, net 	 	 	400 	 	 	(184 	) 	 	(505 	) 	
Decrease (increase) in current assets other than cash, 	 	 	 	 	 	 	 	 	 	 	
cash equivalents and short-term investments 	 	 	(8,220 	) 	 	1,854 	 	 	11,241 	 	
Increase (decrease) in current liabilities other than notes payable 	 	 	12,672 	 	 	5,907 	 	 	(13,711 	) 	

Net cash provided by operating activities 	 	 	64,825 	 	 	57,895 	 	 	35,433 	 	

Cash flows from investing activities: 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures, excluding property acquisitions 	 	 	(41,555 	) 	 	(30,632 	) 	 	(14,895 	) 	
Property acquisitions 	 	 	(48,579 	) 	 	(5,880 	) 	 	(2,273 	) 	
Proceeds from sale of assets 	 	 	1,890 	 	 	- 	 	 	- 	 	
Purchase of short-term investments 	 	 	(3 	) 	 	(660 	) 	 	(1,183 	) 	
Maturities of short-term investments 	 	 	- 	 	 	594 	 	 	1,171 	 	
Other, net 	 	 	524 	 	 	52 	 	 	151 	 	

Net cash used in investing activities 	 	 	(87,723 	) 	 	(36,526 	) 	 	(17,029 	) 	
 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities: 	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt 	 	 	40,000 	 	 	5,000 	 	 	45,000 	 	
Payment of long-term debt 	 	 	(5,000 	) 	 	(15,000 	) 	 	(45,000 	) 	
Dividends paid 	 	 	(10,235 	) 	 	(8,698 	) 	 	(8,784 	) 	
Share repurchase program 	 	 	- 	 	 	- 	 	 	(5,112 	) 	
Other, net 	 	 	(1,075 	) 	 	(43 	) 	 	(1 	) 	

Net cash provided by (used in) financing activities 	 	 	23,690 	 	 	(18,741 	) 	 	(13,897 	) 	
 	 	 	 	 	 	 	 	 	 	 	
Net increase in cash and cash equivalents 	 	 	792 	 	 	2,628 	 	 	4,507 	 	
Cash and cash equivalents at beginning of year 	 	 	9,866 	 	 	7,238 	 	 	2,731 	 	

Cash and cash equivalents at end of year 	 	$	10,658 	 	$	9,866 	 	$	7,238 	 	

Supplemental disclosures of cash flow information: 	 	 	 	 	 	 	 	 	 	 	
Interest paid 	 	$	2,125 	 	$	1,321 	 	$	3,532 	 	
 	 		 		 		 	
Income taxes paid 	 	$	2,510 	 	$	5,420 	 	$	5,635 	 	

Supplemental non-cash activity: 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Decrease in fair value of derivatives: 	 	 	 	 	 	 	 	 	 	 	
Current (net of income taxes of $635 and $1,649) 	 	$	952 	 	$	2,474 	 	$	- 	 	
Non-current (net of income taxes of $74 and $63) 	 	 	111 	 	 	95 	 	 	- 	 	
 	 		 		 		 	
Net decrease to accumulated other comprehensive income 	 	$	1,063 	 	$	2,569 	 	$	- 	 	

The accompanying notes are an integral part of these financial statements. 

 	
 	28 	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

1.  General 

The Company is an independent energy company engaged in the production, development, acquisition, exploitation and exploration of crude oil and natural gas. The Company has 91% of its oil and gas reserves in California and 9% in the Rocky Mountain Region. Approximately 87% of the Company's production is in California, most of which is heavy crude oil, which is principally sold to a refiner. The Company has invested in cogeneration facilities which provide steam required for the extraction of heavy oil and which generates electricity for sale. Production of light crude oil and natural gas in the Rocky Mountain region accounts for approximately 13% of the Company’s production. 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 

2.  Summary of Significant Accounting Policies 

Cash and cash equivalents 

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. 

Short-term investments 

All short-term investments are classified as available for sale. Short-term investments consist principally of United States treasury notes and corporate notes with remaining maturities of more than three months at date of acquisition and are carried at fair value. The Company utilizes specific identification in computing realized gains and losses on investments sold. 

Oil and gas properties, buildings and equipment 

The Company accounts for its oil and gas exploration and development costs using the successful efforts method. Under this method, costs to acquire and develop proved reserves and to drill and complete exploratory wells that find proved reserves are capitalized and depleted over the remaining life of the reserves using the units-of-production method. Exploratory dry hole costs and other exploratory costs, including geological and geophysical costs, are charged to expense when incurred. In certain cases, such as coalbed methane gas exploration plays, the drilling costs may be capitalized until it is known whether proved economic reserves have been discovered. At that point, if unsuccessful, the costs will be expensed as exploratory dry hole costs. 

The FASB is currently evaluating the application of certain provisions of SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” to companies in the extractive industries, including oil and gas companies. The FASB is considering whether the provisions of SFAS No. 141 and SFAS No. 142 require registrants to classify costs associated with mineral rights, including both proved and unproved lease acquisition costs, as intangible assets in the balance sheet, apart from other oil and gas property costs, and provide specific footnote disclosures. At the present time, the Company continues to include these intangible assets in its oil and gas properties. 

Depletion of oil and gas producing properties is computed using the units-of-production method. Depreciation of lease and well equipment, including cogeneration facilities and other steam generation equipment and facilities, is computed using the units-of-production method or on a straight-line basis over estimated useful lives ranging from 10 to 20 years. Buildings and equipment are recorded at cost. Depreciation is provided on a straight-line basis over estimated useful lives ranging from 5 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. Prior to 2002, the estimated costs of plugging and abandoning wells and related facilities were accrued using the units-of-production method and were considered in determining DD&A expense. However, in 2002 the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” Unde r this standard, the Company records the fair value of the future abandonment as capitalized abandonment costs in Oil and Gas Properties with an offsetting abandonment liability. The capitalized abandonment costs are amortized with other property costs using the units-of-production method. The Company increases the liability monthly by recording accretion expense using the Company’s credit adjusted interest rate. Accretion expense is included in depreciation, depletion and amortization (DD&A) in the Company’s financial statements. 

 	
 	29 	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 
 
2.    Summary of Significant Accounting Policies (cont'd) 

Assets are grouped at the field level and if it is determined that the book value of long-lived assets cannot be recovered by estimated future undiscounted cash flows, they are written down to fair value. When assets are sold, the applicable costs and accumulated depreciation and depletion are removed from the accounts and any gain or loss is included in income. Expenditures for maintenance and repairs are expensed as incurred. 

Environmental Expenditures 

The Company reviews, on a quarterly basis, its estimates of costs of the cleanup of various sites, including sites in which governmental agencies have designated the Company as a potentially responsible party. When it is probable that obligations have been incurred and where a minimum cost or a reasonable estimate of the cost of compliance or remediation can be determined, the applicable amount is accrued. For other potential liabilities, the timing of accruals coincides with the related ongoing site assessments. Any liabilities arising hereunder are not discounted. 

Hedging 

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires that all derivative instruments subject to the requirements of the statement be measured at fair value and recognized as assets or liabilities in the balance sheet. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation is generally established at the inception of a derivative. For derivatives designated as cash flow hedges and meeting the effectiveness guidelines of SFAS No. 133, changes in fair value, to the extent effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time, or in the case of o ptions based on the change in intrinsic value. Any change in fair value of a derivative resulting from ineffectiveness or an excluded component of the gain/loss, such as time value for option contracts, is recognized immediately as operating costs in the statement of operations. See Note 3 - Fair Value of Financial Instruments. 

Cogeneration Operations 

The Company operates cogeneration facilities to help minimize the cost of producing steam, which is a necessity in its thermal oil and gas producing operations. Such cogeneration operations produce electricity as a by-product from the production of steam. In each monthly accounting period, the cost of operating the cogeneration facilities, up to the amount of the electricity sales, is considered operating costs from electricity generation. Costs in excess of electricity revenue during each period, if any, are considered cost of producing steam and are reported in operating costs – oil and gas production. Also, electricity revenue represents sales to customers only. It does not include the value of the electricity utilized as power to run the Company’s field operations. 

Conventional Steam Costs 

The costs of producing conventional steam are included in “Operating costs – oil and gas production.” 

Revenue Recognition 

Revenues associated with sales of crude oil, natural gas, and electricity are recognized when title passes to the customer, net of royalties, discounts and allowances, as applicable. Electricity and natural gas produced by the Company and used in the Company’s operations are not included in revenues. Revenues from crude oil and natural gas production from properties in which the Company has an interest with other producers are recognized on the basis of the Company's net working interest (entitlement method). 

Shipping and Handling Costs 

Shipping and handling costs, which consist primarily of natural gas transportation costs, are included in both "Operating costs - oil and gas production" or "Operating costs - electricity generation,” as applicable. Natural gas transportation costs included in these categories were $4.0 million, $1.4 million, and $1.2 million for 2003, 2002 and 2001, respectively. 

 	
 	 30	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 
 
2.    Summary of Significant Accounting Policies (cont'd) 

Stock-Based Compensation 

As allowed in SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company continues to apply Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees,” and related interpretations in recording compensation related to its plan. Under SFAS 123, compensation is determined at the date of grant based on an estimated fair value using an economic model, such as the Black-Scholes method. Under APB 25, compensation expense is based upon the difference between the market price at date of grant and the grant price. 

Under SFAS No. 123, compensation cost would be recognized for the fair value of the employee's option rights. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Yield 	 	 	2.87 	% 	 	2.55 	% 	 	2.72 	% 	
Expected option life – years 	 	 	7.0 	 	 	7.5 	 	 	7.5 	 	
Volatility 	 	 	27.87 	% 	 	33.45 	% 	 	38.71 	% 	
Risk-free interest rate 	 	 	3.86 	% 	 	4.09 	% 	 	4.65 	% 	
 
Had compensation cost for the Company’s stock based compensation plan (see Note 12) been based upon the fair value at the grant dates for awards under the plan consistent with the method of SFAS No. 123, the Company’s compensation cost, net of related tax effects, net income and earnings per share would have been recorded as the pro forma amounts indicated below (in thousands, except per share data): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Compensation cost, net of income taxes: 	 	 	 	 	 	 	 	 	 	 	
As reported 	 	$	366 	 	$	33 	 	$	92 	 	
Pro forma 	 	 	975 	 	 	726 	 	 	678 	 	
 	 	 	 	 	 	 	 	 	 	 	
Net income: 	 	 	 	 	 	 	 	 	 	 	
As reported 	 	 	34,332 	 	 	30,024 	 	 	21,938 	 	
Pro forma 	 	 	33,723 	 	 	29,331 	 	 	21,352 	 	
 	 	 	 	 	 	 	 	 	 	 	
Basic net income per share: 	 	 	 	 	 	 	 	 	 	 	
As reported 	 	 	1.58 	 	 	1.38 	 	 	1.00 	 	
Pro forma 	 	 	1.55 	 	 	1.35 	 	 	0.97 	 	
 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share: 	 	 	 	 	 	 	 	 	 	 	
As reported 	 	 	1.56 	 	 	1.37 	 	 	0.99 	 	
Pro forma 	 	 	1.53 	 	 	1.34 	 	 	0.97 	 	
 
Income Taxes 

Income taxes are provided based on the liability method of accounting. The provision for income taxes is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future expected tax consequences of temporary differences between income tax and financial reporting, and principally relate to differences in the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which differences are expected to reverse. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. 

 	
 	 31	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 
 
2.    Summary of Significant Accounting Policies (cont’d) 

Net Income Per Share 

Basic net income per share is computed by dividing income available to common shareholders (the numerator) by the weighted average number of shares of capital stock outstanding (the denominator). The Company’s Class B stock is included in the denominator of basic and diluted net income. The computation of diluted net income per share is similar to the computation of basic net income per share except that the denominator is increased to include the dilutive effect of the additional common shares that would have been outstanding if all convertible securities had been converted to common shares during the period. 

Recent Accounting Developments 

In the fourth quarter of 2002, the Company adopted the supplemental disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amended SFAS No. 123, “Accounting for Stock-Based Compensation.” The Company continues to record compensation related to employee stock options based on the intrinsic value method per APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 148 encourages companies to voluntarily elect to record the compensation based on market value either prospectively, as defined in SFAS No. 123, or retroactively or in a modified prospective method. The Company uses the Black-Scholes model to calculate and disclose the market value of its options granted. The Company does not advocate nor does it believe that the Black-Scholes model can properly determine the val ue of a stock option, like Berry’s, that vest over a period of time and is not freely tradable upon grant. Therefore, the Company has delayed the potential transition to recording stock compensation based on fair market value until required by accounting standards in 2005. 

In November 2002 the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”).” This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on the Company’s Financial Statements. 

In June 2002 the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” The Company has adopted, effective January 1, 2003, the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of commitment to an exit plan. SFAS No. 146 also establishes that the liability should in itially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. SFAS No. 146 did not have a material impact on the Company’s Financial Statements. 

In April 2003 the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FIN 45, and amends certain other existing pronouncements. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial statements. 

 	
 	 32	 	

BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 
 
2.    Summary of Significant Accounting Policies (cont’d) 

During January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires the consolidation of certain entities that are determined to be variable interest entities (“VIE’s”). An entity is considered to be a VIE when either (i) the entity lacks sufficient equity to carry on its principal operations, (ii) the equity owners of the entity cannot make decisions about the entity’s activities or (iii) the entity’s equity neither absorbs losses or benefits from gains. The Company has reviewed its financial arrangements and has not identified any material VIE’s that should be consolidated by the Company in accordance with FIN 46. 

Reclassifications 

Certain reclassifications have been made to the 2002 and 2001 financial statements to conform with the 2003 presentation. 
 
3.    Fair Value of Financial Instruments 

Cash equivalents consist principally of commercial paper investments. Cash equivalents of $10.6 million and $9.8 million at December 31, 2003 and 2002, respectively, are stated at cost, which approximates market. 

The Company’s short-term investments available for sale at December 31, 2003 and 2002 consist of United States treasury notes that mature in less than one year and are carried at fair value. For the three years ended December 31, 2003, realized and unrealized gains and losses were insignificant to the financial statements. A United States treasury note with a market value of $.6 million is pledged as collateral to the California State Lands Commission as a performance bond on the Company’s Montalvo properties. The carrying value of the Company’s long-term debt approximates its fair value since it is carried at current interest rates. 

In 2001, the Company established an oil price hedge on 3,000 barrels per day for a one-year period beginning on June 1; and a natural gas price hedge on 5,000 MMBtu/D for a three-year period beginning on August 1. Both of these hedges were with Enron as the counterparty. On December 10, 2001, after Enron filed for bankruptcy, the Company elected to terminate all contracts with Enron and agreed with Enron as to the value of the contracts as of the termination date. Based on this agreed value, the Company recorded a pre-tax charge of $1.5 million in the fourth quarter of 2001 and recorded a liability of $1.3 million, which was remitted upon the approval of the termination agreement in the Enron bankruptcy proceedings. The Company had a signed International Swap Dealer’s Association master agreement with Enron, which allowed for the netting of any receivables and liabilities aris ing thereunder. 

To protect the Company’s revenues from potential price declines, the Company periodically enters into hedge contracts covering up to 50% of production. As a result of hedging activities, the Company’s revenue was reduced by $11.8 million, $3.8 million, and $0 in 2003, 2002 and 2001, respectively, which was reported in “Sales of oil and gas” in the Company’s financial statements. 
 
4.   Concentration of Credit Risks 

The Company sells oil, gas and natural gas liquids to pipelines, refineries and major oil companies and electricity to major utility companies. Credit is extended based on an evaluation of the customer’s financial condition and historical payment record. Primarily due to the Company’s ability to deliver significant volumes of crude oil over a multi-year period, the Company was able to secure a three-year sales agreement, beginning in April 2000, whereby the Company sold in excess of 80% of its production under a negotiated pricing mechanism. This contract was renegotiated during 2002 and extended through December 31, 2005. Over 90% of the Company’s current California production is subject to this new contract. Pricing in the new agreement is based upon the higher of the average of the local field posted prices plus a premium, or WTI minus a fixed differential. Both m ethods are calculated using a monthly determination. In addition to providing a premium above field postings, the agreement effectively eliminates the Company’s exposure to the risk of widening WTI-heavy crude price differentials. 

 	
 	33 	 	

BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

4.    Concentration of Credit Risks (Cont’d) 

For the three years ended December 31, 2003, the Company has experienced no credit losses on the sale of oil, gas and natural gas liquids. However, the Company did experience a loss on its electricity sales in 2001. The Company assigned all of its rights, title and interest in its $12.1 million past due receivables from Pacific Gas and Electric Company to an unrelated party for $9.3 million, resulting in a pre-tax loss of $2.8 million. In addition, at December 31, 2001, the Company was owed $13.5 million from Southern California Edison (Edison) for past due electricity sales. The Company wrote off $3.6 million of this balance in March 2001. In March 2002, the Company was paid the total amount due from Edison plus interest resulting in pre-tax income of $4.2 million recorded in the first quarter of 2002. 

The Company places its temporary cash investments with high quality financial institutions and limits the amount of credit exposure to any one financial institution. For the three years ended December 31, 2003, the Company has not incurred losses related to these investments. With respect to the Company’s hedging activities, the Company utilizes more than one counterparty on its hedges and monitors each counterparty’s credit rating. 
 
The following summarizes the accounts receivable balances at December 31, 2003 and 2002 and sales activity with significant customers for each of the years ended December 31, 2003, 2002 and 2001 (in thousands). The Company does not believe that the loss of any one customer would impact the marketability of its oil, gas, natural gas liquids or electricity sold. However, the Company can make no assurances regarding the pricing of any new sales agreement. 

 	 	 	 	Sales	 	
 	 	Accounts Receivable	 	For the Year Ended December 31,	 	
 	 		 		 	
Customer 	 	 	December 31, 2003 	 	 	December 31, 2002 	 	 	2003 	 	 	2002     	 	 	2001 	 	
	 		 		 		 		 		 	
Oil & Gas Sales: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
A 	 	$	12,887 	 	$	10,714 	 	$	142,422 	 	$	94,870 	 	$	83,336 	 	
B 	 	 	- 	 	 	621 	 	 	680 	 	 	5,463 	 	 	4,858 	 	
C 	 	 	- 	 	 	- 	 	 	- 	 	 	10,188 	 	 	14,962 	 	
D 	 	 	2,256 	 	 	- 	 	 	5,566 	 	 	- 	 	 	- 	 	
E 	 	 	625 	 	 	- 	 	 	6,524 	 	 	- 	 	 	- 	 	
 	 		 		 		 		 		 	
 	 	$	15,768 	 	$	11,335 	 	$	155,192 	 	$	110,521 	 	$	103,156 	 	
 	 		 		 		 		 		 	
Electricity Sales: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
F 	 	$	2,970 	 	$	- 	 	$	24,616 	 	$	- 	 	$	6,859 	 	
G 	 	 	2,156 	 	 	1,795 	 	 	20,334 	 	 	15,199 	 	 	21,257 	 	
H 	 	 	- 	 	 	1,573 	 	 	265 	 	 	12,317 	 	 	6,279 	 	
 	 		 		 		 		 		 	
 	 	$	5,126 	 	$	3,368 	 	$	45,215 	 	$	27,516 	 	$	34,395 	 	

Sales amounts will not agree to the Statements of Income due primarily to the effects of hedging and a revenue sharing royalty paid on a portion of the Company’s Midway-Sunset crude oil sales, which is netted in “Sales of oil and gas” on the Statements of Income. 

 	
 	 34	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

5.   Oil and Gas Properties, Buildings and Equipment 

Oil and gas properties, buildings and equipment consist of the following at December 31 (in thousands): 

 	 	 	2003 	 	 	2002 	 	
 	 		 		 	
Oil and gas: 	 	 	 	 	 	 	 	
Proved properties: 	 	 	 	 	 	 	 	
Producing properties, including intangible drilling costs 	 	$	238,303 	 	$	180,942 	 	
Lease and well equipment (1) 	 	 	191,664 	 	 	160,264 	 	
 	 		 		 	
 	 	 	429,967 	 	 	341,206 	 	
Unproved properties 	 	 	 	 	 	 	 	
Properties, including intangible drilling costs 	 	 	2,925 	 	 	6,725 	 	
Lease and well equipment 	 	 	10 	 	 	653 	 	
 	 		 		 	
 	 	 	2,935 	 	 	7,378 	 	
 	 		 		 	
 	 	 	432,902 	 	 	348,584 	 	
Less accumulated depreciation, depletion and amortization 	 	 	139,514 	 	 	121,695 	 	
 	 		 		 	
 	 	 	293,388 	 	 	226,889 	 	
 	 		 		 	
Commercial and other: 	 	 	 	 	 	 	 	
Land 	 	 	333 	 	 	173 	 	
Buildings and improvements 	 	 	3,703 	 	 	3,838 	 	
Machinery and equipment 	 	 	4,266 	 	 	3,922 	 	
 	 		 		 	
 	 	 	8,302 	 	 	7,933 	 	
Less accumulated depreciation 	 	 	6,539 	 	 	6,347 	 	
 	 		 		 	
 	 	 	1,763 	 	 	1,586 	 	
 	 		 		 	
 	 	$	295,151 	 	$	228,475 	 	
 	 		 		 	
(1) Includes cogeneration facility costs. 
 
The following sets forth costs incurred for oil and gas property acquisition, development and exploration activities, whether capitalized or expensed (in thousands): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Property acquisitions 	 	 	 	 	 	 	 	 	 	 	
Proved properties 	 	$	50,822 	 	$	186 	 	$	2,273 	 	
Unproved properties 	 	 	379 	 	 	5,694 	 	 	- 	 	
Development (1) 	 	 	41,369 	 	 	29,133 	 	 	15,875 	 	
Exploration 	 	 	788 	 	 	1,684 	 	 	- 	 	
 	 		 		 		 	
 	 	$	93,358 	 	$	36,697 	 	$	18,148 	 	
 	 		 		 		 	
(1)  Development costs include $.9 million, $.5 million and $1.0 million that were charged to expense during 2003, 2002 and 2001, respectively. 

In 2003, the Company purchased leases totaling 45,380 acres in the Brundage Canyon field in Utah for approximately $45 million and the McVan property totaling 560 acres in the Poso Creek field in Kern County, California for approximately $2.6 million. Approximately 14 million equivalent barrels of proved reserves were added by 2003 acquisitions and property development. The Company capitalized approximately $2.6 million in future abandonment obligations related to the 2003 acquisitions. 

In 2002, the Company acquired approximately 262,000 acres for the potential development of CBM natural gas production in Kansas and Illinois for approximately $6 million. The Company has written off two pilot projects and impaired the acreage for a total pre-tax write off of $4.2 million in 2003 and recovered part of the cost through the sale of approximately 43,000 acres in Kansas in 2003 for $1.7 million at minimal gain to the Company. No reserves were recorded at year-end associated with the CBM related acreage. However, the Company added 4.2 MMBOE of proved reserves through its 2002 development expenditures, principally on its California properties. 

 	
 	 35	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

5.  Oil and Gas Properties, Buildings and Equipment (Cont’d) 

In 2001, the Company acquired a 15.8% non-operated working interest in CBM natural gas properties in Wyoming for $2.2 million and a producing property adjacent to Berry's core Midway-Sunset properties for $.1 million. In 2001, approximately 1.1 million equivalent barrels of proved reserves were added by these acquisitions and property development. 

Results of operations from oil and gas producing
and exploration activities (in thousands):	 	 	2003 	 	 	2002 	 	 	2001 	 	

Sales to unaffiliated parties 	 	$	135,848 	 	$	102,026 	 	$	100,146 	 	
Production costs 	 	 	(60,705 	) 	 	(44,604 	) 	 	(40,281 	) 	
Depreciation, depletion and amortization 	 	 	(20,215 	) 	 	(16,124 	) 	 	(16,175 	) 	
Dry hole, abandonment and impairment 	 	 	(4,195 	) 	 	- 	 	 	- 	 	
 	 		 		 		 	
 	 	 	50,733 	 	 	41,298 	 	 	43,690 	 	
Income tax expenses 	 	 	(8,246 	) 	 	(7,933 	) 	 	(10,740 	) 	
 	 		 		 		 	
Results of operations from producing and 	 	 	 	 	 	 	 	 	 	 	
exploration activities 	 	$	42,487 	 	$	33,365 	 	$	32,950 	 	

6.    Debt Obligations 

 	 	 	2003 	 	 	2002 	 	
 	 		 		 	
Long-term debt for the years ended December 31 (in thousands): 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Revolving bank facility 	 	$	50,000 	 	$	15,000 	 	

On July 10, 2003, the Company entered into a new Credit Agreement (the Agreement) with a banking syndicate, replacing an existing credit agreement which was due to expire in January 2004. The Agreement is a revolving credit facility for up to $200 million with ten banks. At December 31, 2003 and 2002, the Company had $50 and $15 million, respectively, outstanding under the Agreement and the predecessor agreement. In addition to the $50 million in borrowings under the Agreement, the Company has $.3 million of outstanding Letters of Credit and the remaining credit available under the Agreement is therefore, $149.7 million at December 31, 2003. The maximum amount available is subject to an annual redetermination of the borrowing base in accordance with the lender's customary procedures and practices. Both the Company and the banks have bilateral rights to one additional redeterminatio n each year. The agreement matures on July 10, 2006. Interest on amounts borrowed is charged at LIBOR plus a margin of 1.25% to 2.00%, or the higher of the lead bank’s prime rate or the federal funds rate plus 50 basis points plus a margin of 0.0% to 0.75%, with margins on the various rate options based on the ratio of credit outstanding to the borrowing base. The Company pays a commitment fee of 30 to 50 basis points on the unused portion, which is also based on the ratio of credit outstanding to the borrowing base. 

The weighted average interest rate on outstanding borrowings at December 31, 2003 was 2.58%. The Agreement contains restrictive covenants which, among other things, requires the Company to maintain a certain tangible net worth and minimum EBITDA, as defined. The Company was in compliance with all such covenants as of December 31, 2003. 

7.  Shareholders' Equity 

Shares of Class A Common Stock (Common Stock) and Class B Stock, referred to collectively as the “Capital Stock,” are each entitled to one vote and 95% of one vote, respectively. Each share of Class B Stock is entitled to a $1.00 per share preference in the event of liquidation or dissolution. Further, each share of Class B Stock is convertible into one share of Common Stock at the option of the holder. 

In November 1999, the Company adopted a Shareholder Rights Agreement and declared a dividend distribution of one Right for each outstanding share of Capital Stock on December 8, 1999. Each Right, when exercisable, entitles the holder to purchase one one-hundredth of a share of a Series B Junior Participating Preferred Stock, or in certain cases other securities, for $38.00. The exercise price and number of shares issuable are subject to adjustment to prevent dilution. The Rights would become exercisable, unless earlier redeemed by the Company, 10 days following a public announcement that a person or group has acquired, or obtained the right to acquire, 20% or more of the outstanding shares of Common Stock or 10 business days following the commencement of a tender or exchange offer for such outstanding shares which would result in such person or group acquiring 20% or more of the ou tstanding shares of Common Stock, either event occurring without the prior consent of the Company. 

 	
 	 36	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

7.    Shareholders' Equity (Cont’d) 

The Rights will expire on December 8, 2009 or may be redeemed by the Company at $.01 per Right prior to that date unless they have theretofore become exercisable. The Rights do not have voting or dividend rights, and until they become exercisable, have no diluting effect on the earnings of the Company. A total of 250,000 shares of the Company’s Preferred Stock has been designated Series B Junior Participating Preferred Stock and reserved for issuance upon exercise of the Rights. This Shareholder Rights Agreement replaced the previous Shareholder Rights Agreement approved in December 1989 which expired on December 8, 1999. 

In August 2001, the Board of Directors authorized the Company to repurchase $20 million of Common Stock in the open market. As of December 31, 2001, the Company had repurchased 308,075 shares for approximately $5.1 million. All shares repurchased were retired. No additional shares were repurchased in 2002 or 2003. 

The Company issued 51,683, 19,717, and 6,529 shares in 2003, 2002, and 2001, respectively, through its stock option plan. 

The Company paid a special dividend of $.04 per share on May 2, 2003 and increased its regular quarterly dividend by 10%, from $.10 to $.11 per share beginning with the June 2003 dividend. 

As of December 31, 2003, dividends declared on 4,000,894 shares of certain Common Stock are restricted, whereby 37.5% of the dividends declared on these shares are paid by the Company to the surviving member of a group of individuals, the B Group, as long as this remaining member shall live. 

8.    Asset Retirement Obligations 

In 2002, the Company implemented SFAS No. 143, “Accounting for Asset Retirement Obligations” for recording future site restoration costs related to its oil and gas properties. Prior to its implementation, the Company had recorded the future obligation per SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” Under SFAS No. 143, the following table summarizes the change in our abandonment obligation for the year ended December 31, 2003 (in thousands): 

 	 	 	2003 	 	

Beginning abandonment obligation December 31, 2002 	 	$	4,596 	 	
Liabilities incurred 	 	 	2,623 	 	
Liabilities settled 	 	 	(439 	) 	
Accretion expense 	 	 	531 	 	

Ending abandonment obligation December 31, 2003 	 	$	7,311 	 	

9.   Income Taxes 
The Provision for income taxes consists of the following (in thousands): 

 	 	 	2003   	 	 	2002   	 	 	2001   	 	
 	 		 		 		 	
Current: 	 	 	 	 	 	 	 	 	 	 	
Federal 	 	$	3,652 	 	$	2,700 	 	$	3,108 	 	
State 	 	 	907 	 	 	1,032 	 	 	1,119 	 	
 	 		 		 		 	
 	 	 	4,559 	 	 	3,732 	 	 	4,227 	 	
 	 		 		 		 	
Deferred: 	 	 	 	 	 	 	 	 	 	 	
Federal 	 	 	1,841 	 	 	4,258 	 	 	1,755 	 	
State 	 	 	(482 	) 	 	(400 	) 	 	(682 	) 	
 	 		 		 		 	
 	 	 	1,359 	 	 	3,858 	 	 	1,073 	 	
 	 		 		 		 	
Total 	 	$	5,918 	 	$	7,590 	 	$	5,300 	 	

 	
 	 37	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

9.   Income Taxes (cont’d) 

The current deferred tax assets and liabilities are offset and presented as a single amount in the financial statements. Similarly, the non-current deferred tax assets and liabilities are presented in the same manner. The following table summarizes the components of the total deferred tax assets and liabilities before such financial statement offsets. The components of the net deferred tax liability consist of the following at December 31 (in thousands): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Deferred tax asset: 	 	 	 	 	 	 	 	 	 	 	
Federal benefit of state taxes 	 	$	318 	 	$	350 	 	$	392 	 	
Credit/deduction carryforwards 	 	 	23,440 	 	 	15,454 	 	 	11,599 	 	
Derivatives 	 	 	2,421 	 	 	1,712 	 	 	- 	 	
Other, net 	 	 	1,488 	 	 	(1,187 	) 	 	579 	 	
 	 		 		 		 	
 	 	 	27,667 	 	 	16,329 	 	 	12,570 	 	
 	 		 		 		 	
Deferred tax liability: 	 	 	 	 	 	 	 	 	 	 	
Depreciation and depletion 	 	 	(61,425 	) 	 	(49,458 	) 	 	(43,608 	) 	
Other, net 	 	 	138 	 	 	173 	 	 	210 	 	
 	 		 		 		 	
 	 	 	(61,287 	) 	 	(49,285 	) 	 	(43,398 	) 	
 	 		 		 		 	
Net deferred tax liability 	 	$ 	(33,620 	) 	$ 	(32,956 	) 	$ 	(30,828 	) 	

Reconciliation of the statutory federal income tax rate to the effective income tax rate follows. 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	

Tax computed at statutory federal rate 	 	 	35 	% 	 	35 	% 	 	35 	% 	
 	 	 	 	 	 	 	 	 	 	 	
State income taxes, net of federal benefit 	 	 	1 	 	 	1 	 	 	1 	 	
Tax credits 	 	 	(21 	) 	 	(15 	) 	 	(16 	) 	
Other 	 	 	- 	 	 	(1 	) 	 	(1 	) 	
 	 		 		 		 	
Effective tax rate 	 	 	15 	% 	 	20 	% 	 	19 	% 	

The Company has approximately $20 million of federal and $11 million of state (California) EOR tax credit carryforwards available to reduce future income taxes. The EOR credits will begin to expire in 2020 and 2014 for federal and California, respectively. 

10.   Commitments 
 
Operating Leases – Office Space 

The Company leases corporate and field offices in California and the Rocky Mountain region. The total minimum rental payments, on a combined basis, for these leases are as follows (in thousands): 

Year ending December 31, 	 	 	
	 	 	
2004 	 	$	528 	 	
2005 	 	 	562 	 	
2006 	 	 	487 	 	
2007 	 	 	107 	 	
2008 	 	 	107 	 	
2009 	 	 	90 	 	
 	 		 	
Total 	 	$	1,881 	 	

 	
 	 38	 	

 
BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 

10.  Commitments (Cont’d) 

Firm Transportation-Natural Gas Purchases 

The Company entered into a 12,000 MMBtu/D ten-year firm transportation agreement on the Kern River pipeline with gas deliveries commencing in May 2003. This firm transportation provides the Company additional flexibility in securing its natural gas supply and allows the Company to potentially benefit from discounted natural gas prices in the Rockies. As of December 31, 2003, this take-or-pay commitment was approximately $29 million over the remaining term of the contract. 

11.  Contingencies 

The Company has accrued environmental liabilities for all sites, including sites in which governmental agencies have designated the Company as a potentially responsible party, where it is probable that a loss will be incurred and the minimum cost or amount of loss can be reasonably estimated. However, because of the uncertainties associated with environmental assessment and remediation activities, future expense to remediate the currently identified sites, and sites identified in the future, if any, could be higher than the liability currently accrued. Amounts currently accrued are not significant to the consolidated financial position of the Company and Management believes, based upon current site assessments, that the ultimate resolution of these matters will not require substantial additional accruals. The Company is involved in various other lawsuits, claims and inquiries, most of which are routine to the nature of its business. In the opinion of Management, the resolution of these matters will not have a material effect on the Company’s financial position, results of operations or liquidity. 

12.  Stock Option Plan 

On December 2, 1994, the Board of Directors of the Company adopted the Berry Petroleum Company 1994 Stock Option Plan which was restated and amended in December 1997 and December 2001 (the 1994 Plan) and approved by the shareholders in May 1998 and May 2002, respectively. The 1994 Plan provides for the granting of stock options to purchase up to an aggregate of 3,000,000 shares of Common Stock. All options, with the exception of the formula grants to non-employee Directors, will be granted at the discretion of the Compensation Committee of the Board of Directors. The term of each option may not exceed ten years from the date the option is granted. 

The options vest 25% per year for four years. The 1994 Plan also allows for option grants to the Board of Directors under a formula plan whereby all non-employee Directors receive 5,000 options annually on December 2 nd at the fair value on the date of grant. The options granted to the non-employee Directors vest immediately. 

The following is a summary of stock-based compensation activity for the years 2003, 2002 and 2001. 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 	 	Options 	 	 	Options 	 	 	Options 	 	
 	 		 		 		 	
Balance outstanding, January 1 	 	 	1,604,575 	 	 	1,474,962 	 	 	1,407,837 	 	
Granted 	 	 	411,500 	 	 	241,200 	 	 	239,500 	 	
Exercised 	 	 	(294,150 	) 	 	(95,837 	) 	 	(65,125 	) 	
Canceled/expired 	 	 	(20,000 	) 	 	(15,750 	) 	 	(107,250 	) 	
 	 		 		 		 	
Balance outstanding, December 31 	 	 	1,701,925 	 	 	1,604,575 	 	 	1,474,962 	 	

Balance exercisable at December 31 	 	 	1,037,275 	 	 	1,153,000 	 	 	1,010,712 	 	

Available for future grant 	 	 	615,600 	 	 	1,007,100 	 	 	232,550 	 	

Exercise price-range 	 	$	15.10 	 	$	16.56 	 	$	14.40 	 	
 	 	 	to 20.30	 	 	to 18.05 	 	 	to 16.96 	 	
Weighted average remaining contractual life (years) 	 	 	7 	 	 	7 	 	 	7 	 	
Weighted average fair value per option granted during the year based on the Black-Scholes pricing model 	 	$	5.11 	 	$	5.25 	 	$	5.87 	 	

 	
 	 39	 	

BERRY PETROLEUM COMPANY 
Notes to the Financial Statements 
12.  Stock Option Plan (Cont’d) 

Weighted average option exercise price information for the years 2003, 2002 and 2001 as follows. 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	
 	 		 		 		 	
Outstanding at January 1 	 	$	15.17 	 	$	14.80 	 	$	14.58 	 	
Granted during the year 	 	 	19.31 	 	 	16.14 	 	 	16.16 	 	
Exercised during the year 	 	 	13.15 	 	 	11.87 	 	 	13.12 	 	
Cancelled/expired during the year 	 	 	16.55 	 	 	15.92 	 	 	16.01 	 	
Outstanding at December 31 	 	 	16.50 	 	 	15.17 	 	 	14.80 	 	
Exercisable at December 31 	 	 	15.62 	 	 	14.81 	 	 	14.55 	 	
 
13.  Retirement Plan 

The Company sponsors a 401(k) defined contribution thrift plan to assist all eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 6% of earnings) are matched by the Company dollar for dollar. Effective November 1, 1992, the 401(k) Plan was modified to provide for increased Company matching of employee contributions whereby the monthly Company matching contributions will range from 6% to 9% of eligible participating employee earnings, if certain financial targets are achieved. The Company's contributions to the 401(k) Plan were $.5 million in 2003, $.4 million in 2002, and $.4 million in 2001. On average, approximately 96% of eligible employees participate in the plan. 

14.  Quarterly Financial Data (unaudited) 

The following is a tabulation of unaudited quarterly operating results for 2003 and 2002 (in thousands, except per share data): 

2003 	 	 	Operating Revenues 	 	 	Gross 
Profit 	 	 	Net Income 	 	 	Basic Net Income Per Share 	 	 	Diluted Net Income Per Share 	 	
	 		 		 		 		 		 	
First Quarter 	 	$	46,766 	 	$	16,790 	 	$	9,177 	 	$	0.42 	 	$	0.42 	 	
Second Quarter 	 	 	39,372 	 	 	9,187 	 	 	6,510 	 	 	0.30 	 	 	0.30 	 	
Third Quarter 	 	 	44,108 	 	 	11,842 	 	 	8,035 	 	 	0.37 	 	 	0.36 	 	
Fourth Quarter 	 	 	49,802 	 	 	17,110 	 	 	10,610 	 	 	0.49 	 	 	0.48 	 	
 	 		 		 		 		 		 	
 	 	$	180,048 	 	$	54,929 	 	$	34,332 	 	$	1.58 	 	$	1.56 	 	
 	 		 		 		 		 		 	
2002 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter 	 	$	26,807 	 	$	8,014 	 	$	8,620 	 	$	0.40 	 	$	0.40 	 	
Second Quarter 	 	 	31,765 	 	 	10,482 	 	 	6,827 	 	 	0.31 	 	 	0.31 	 	
Third Quarter 	 	 	34,933 	 	 	12,599 	 	 	7,587 	 	 	0.35 	 	 	0.35 	 	
Fourth Quarter 	 	 	36,212 	 	 	10,534 	 	 	6,990 	 	 	0.32 	 	 	0.32 	 	
 	 		 		 		 		 		 	
 	 	$	129,717 	 	$	41,629 	 	$	30,024 	 	$	1.38 	 	$	1.37 	 	

 	
 	40 	 	

 
BERRY PETROLEUM COMPANY 

Supplemental Information About Oil & Gas Producing Activities (Unaudited) 

The following estimates of proved oil and gas reserves, both developed and undeveloped, represent interests owned by the Company located solely within the United States. Proved reserves represent estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells for which relatively major expenditures are required for completion. 

Disclosures of oil and gas reserves which follow are based on estimates prepared by independent engineering consultants as of December 31, 2003, 2002 and 2001. Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. These estimates do not include probable or possible reserves. The information provided does not represent Management's estimate of the Company's expected future cash flows or value of proved oil and gas reserves. 

Changes in estimated reserve quantities 

The net interest in estimated quantities of proved developed and undeveloped reserves of crude oil and natural gas at December 31, 2003, 2002 and 2001, and changes in such quantities during each of the years then ended were as follows (in thousands): 

 	 	 	2003	 	 	2002	 	 	2001	 	
 	 		 		 		 	
 	 	 	Oil 	 	 	Gas 	 	 	 	 	 	Oil 	 	 	Gas 	 	 	 	 	 	Oil 	 	 	Gas 	 	 	 	 	
 	 	 	Mbbls 	 	 	Mmcf 	 	 	BOE 	 	 	Mbbls 	 	 	Mmcf 	 	 	BOE 	 	 	Mbbls 	 	 	Mmcf 	 	 	BOE 	 	
 	 		 		 		 		 		 		 		 		 		 	
Proved developed and 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Undeveloped reserves: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning of year 	 	 	100,744 	 	 	5,850 	 	 	101,719 	 	 	101,701 	 	 	6,926 	 	 	102,855 	 	 	106,664 	 	 	4,184 	 	 	107,361 	 	
Revision of previous estimates 	 	 	(82 	) 	 	293 	 	 	(33 	) 	 	(30 	) 	 	(307 	) 	 	(81 	) 	 	33 	 	 	153 	 	 	58 	 	
Improved recovery 	 	 	1,271 	 	 	- 	 	 	1,271 	 	 	752 	 	 	- 	 	 	752 	 	 	- 	 	 	- 	 	 	- 	 	
Extensions and discoveries 	 	 	1,853 	 	 	2,005 	 	 	2,187 	 	 	3,444 	 	 	- 	 	 	3,444 	 	 	- 	 	 	- 	 	 	- 	 	
Production 	 	 	(5,827 	) 	 	(1,277 	) 	 	(6,040 	) 	 	(5,123 	) 	 	(769 	) 	 	(5,251 	) 	 	(4,996 	) 	 	(288 	) 	 	(5,044 	) 	
Purchase of reserves in place 	 	 	8,681 	 	 	12,809 	 	 	10,816 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	2,877 	 	 	480 	 	

End of year 	 	 	106,640 	 	 	19,680 	 	 	109,920 	 	 	100,744 	 	 	5,850 	 	 	101,719 	 	 	101,701 	 	 	6,926 	 	 	102,855 	 	

Proved developed reserves: 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning of year 	 	 	72,889 	 	 	3,252 	 	 	73,431 	 	 	79,317 	 	 	3,518 	 	 	79,903 	 	 	81,132 	 	 	1,635 	 	 	81,405 	 	

End of year 	 	 	78,145 	 	 	12,207 	 	 	80,180 	 	 	72,889 	 	 	3,252 	 	 	73,431 	 	 	79,317 	 	 	3,518 	 	 	79,903 	 	

 	
 	 41	 	

BERRY PETROLEUM COMPANY 

Supplemental Information About Oil & Gas Producing Activities (Unaudited)(Cont'd) 

The standardized measure has been prepared assuming year end sales prices adjusted for fixed and determinable contractual price changes, current costs and statutory tax rates (adjusted for tax credits and other items), and a ten percent annual discount rate. No deduction has been made for depletion, depreciation or any indirect costs such as general corporate overhead or interest expense. Cash outflows for future production and development costs include cash flows associated with the ultimate settlement of the asset retirement obligation. 

Standardized measure of discounted future net cash flows from estimated production of proved oil and gas reserves (in thousands): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	

Future cash inflows 	 	$	2,845,767 	 	$	2,533,410 	 	$	1,452,946 	 	
Future production and development costs 	 	 	(1,444,619 	) 	 	(1,313,866 	) 	 	(730,311 	) 	
Future income tax expenses 	 	 	(324,097 	) 	 	(305,485 	) 	 	(171,741 	) 	
 	 		 		 		 	
Future net cash flows 	 	 	1,077,051 	 	 	914,059 	 	 	550,894 	 	
 	 	 	 	 	 	 	 	 	 	 	
10% annual discount for estimated timing of cash flows 	 	 	(548,831 	) 	 	(464,202 	) 	 	(272,441 	) 	

Standardized measure of discounted future net cash flows 	 	$	528,220 	 	$	449,857 	 	$	278,453 	 	

Average sales prices at December 31 (net of the effect of hedges): 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
Oil ($/Bbl) 	 	$	25.77 	 	$	24.92 	 	$	14.16 	 	
Gas ($/Mcf) 	 	$	4.94 	 	$	3.94 	 	$	1.87 	 	
BOE Price 	 	$	25.89 	 	$	24.91 	 	$	14.13 	 	
 
Changes in standardized measure of discounted future net cash flows from proved oil and gas reserves (in thousands): 

 	 	 	2003 	 	 	2002 	 	 	2001 	 	

Standardized measure - beginning of year 	 	$	449,857 	 	$	278,453 	 	$	501,694 	 	

Sales of oil and gas produced, net of production costs 	 	 	(75,143 	) 	 	(57,422 	) 	 	(59,865 	) 	
Revisions to estimates of proved reserves: 	 	 	 	 	 	 	 	 	 	 	
Net changes in sales prices and production costs 	 	 	45,292 	 	 	276,417 	 	 	(422,515 	) 	
Revisions of previous quantity estimates 	 	 	(229 	) 	 	(550 	) 	 	222 	 	
Improved recovery 	 	 	9,400 	 	 	5,063 	 	 	- 	 	
Extensions and discoveries 	 	 	16,171 	 	 	23,189 	 	 	- 	 	
Change in estimated future development costs 	 	 	(75,841 	) 	 	(74,566 	) 	 	48,689 	 	
Purchases of reserves in place 	 	 	47,700 	 	 	- 	 	 	2,606 	 	
Development costs incurred during the period 	 	 	41,461 	 	 	30,632 	 	 	14,895 	 	
Accretion of discount 	 	 	59,983 	 	 	35,865 	 	 	72,177 	 	
Income taxes 	 	 	(8,896 	) 	 	(62,531 	) 	 	136,303 	 	
Other 	 	 	18,465 	 	 	(4,693 	) 	 	(15,753 	) 	
 	 		 		 		 	
Net increase (decrease) 	 	 	78,363 	 	 	171,404 	 	 	(223,241 	) 	
 	 		 		 		 	
Standardized measure - end of year 	 	$	528,220 	 	$	449,857 	 	$	278,453 	 	

 	
 	 42	 	

 
BERRY PETROLEUM COMPANY 

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

None. 

Item 9A.         Controls and Procedures 
 
The Company’s Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. No change in the Company’s internal control over financial reporting occurred during the Company& #146;s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 

PART III 

Item 10.         Directors and Executive Officers of the Registrant 

The information called for by Item 10 is incorporated by reference from information under the captions “Corporate Governance and Board Matters” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. Information regarding Executive Officers is contained in this report in Part I, Item 1 titled “Business and Properties”. 

Item 11.         Executive Compensation 

The information called for by Item 11 is incorporated by reference from information under the caption "Executive Compensation" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 

Item 12.         Security Ownership of Certain Beneficial Owners and Management 

The information called for by Item 12 is incorporated by reference from information under the captions "Security Ownership of Directors and Management" and "Principal Shareholders" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 

Item 13.         Certain Relationships and Related Transactions 

The information called for by Item 13 is incorporated by reference from information under the caption "Certain Relationships and Related Transactions" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 

Item 14.         Principal Accounting Fees and Services 

The information called for by Item 14 is incorporated by reference from the information under the caption “Fees to Independent Accountants for 2003 and 2002” in the Company’s definitive proxy statement to be filed pursuant to Regulation 14A no later than 120 days after the close of its fiscal year. 

 	
 	43 	 	

 
BERRY PETROLEUM COMPANY 

Item 15         Exhibits, Financial Statement Schedules and Reports on Form 8-K 

A.   Financial Statements and Schedules 

See Index to Financial Statements and Supplementary Data in Item 8. 

B.   Reports on Form 8-K 

During the three months ended December 31, 2003, the Company filed one Current Report on Form 8-K dated November 6, 2003. The Company’s November 6, 2003 Form 8-K provided, under Items 7 and 12, including the Company’s news release and attached schedules dated November 6, 2003 that announced the Company’s financial and operating results for the three and nine month periods ended September 30, 2003. 

C. Exhibits	
 	 	
Exhibit No. 	Description of Exhibit 	
 	 	
3.1* 	Registrant's Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 filed on June 7, 1989, File No. 33-29165) 	
3.2* 	Registrant's Restated Bylaws (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 on June 7, 1989, File No. 33-29165) 	
3.3* 	Registrant's Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock (filed as Exhibit A to the Registrant's Registration Statement on Form 8-A12B on December 7, 1999, File No. 778438-99-000016) 	
3.4* 	Registrant's First Amendment to Restated Bylaws dated August 31, 1999 (filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-9735) 	
4.1* 	Rights Agreement between Registrant and ChaseMellon Shareholder Services, L.L.C. dated as of December 8, 1999 (filed by the Registrant on Form 8-A12B on December 7, 1999, File No. 778438-99-000016) 	
10.1* 	Description of Cash Bonus Plan of Berry Petroleum Company (filed as Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-9735). 	
10.2* 	Salary Continuation Agreement dated as of December 5, 1997, by and between Registrant and Jerry V. Hoffman (filed as Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, File No.1-9735) 	
10.3* 	Form of Salary Continuation Agreement dated as of December 5, 1997, by and between Registrant and Ralph J. Goehring (filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-9735) 	
10.4* 	Form of Salary Continuation Agreements dated as of March 20, 1987, as amended August 28, 1987, by and between Registrant and selected employees of the Company (filed as Exhibit 10.12 to the Registration Statement on Form S-1 filed on June 7, 1989, File No. 33-29165) 	
10.5* 	Instrument for Settlement of Claims and Mutual Release by and among Registrant, Victory Oil Company, the Crail Fund and Victory Holding Company effective October 31, 1986 (filed as Exhibit 10.13 to Amendment No. 1 to the Registrant's Registration Statement on Form S-4 filed on May 22, 1987, File No. 33-13240) 	
10.7 	Credit Agreement, dated as of July 10, 2003, by and between the Registrant and Wells Fargo Bank, N.A. and other financial institutions. 	
10.8* 	Amended and Restated 1994 Stock Option Plan (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed on August 20, 2002, File No. 333-98379) 	
10.9** 	Crude oil purchase contract, dated as of August 1, 2002, by and between the Registrant and Equiva Trading Company (filed as Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-9735). 	

 	
 	44 	 	

Exhibits (cont'd) 	
 	 	
Exhibit No. 	Description of Exhibit 	
 	 	
10.10* 	Amended and Restated Non-Employee Director Deferred Stock and Compensation Plan (filed as Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-9735). 	
10.11 	Purchase and sale agreement between the Registrant and Willliams Production Company 	
23.1 	Consent of PricewaterhouseCoopers LLP 	
23.2 	Consent of DeGolyer and MacNaughton 	
31.1 	Certification of Chief Executive Officer pursuant to SEC Rule 13(a)-14(a) 	
31.2 	Certification of Chief Financial Officer pursuant to SEC Rule 13(a)-14(a) 	
32.1 	Certification of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code 	
32.2 	Certification of Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code 	
99.1 	Undertaking for Form S-8 Registration Statements 	
99.2* 	Form of Indemnity Agreement of Registrant (filed as Exhibit 28.2 in Registrant's Registration Statement on Form S-4 filed on April 7, 1987, File No. 33-13240) 	
99.3* 	Form of "B" Group Trust (filed as Exhibit 28.3 to Amendment No. 1 to Registrant's Registration Statement on Form S-4 filed on May 22, 1987, File No. 33-13240) 	
*      Incorporated by reference 
**   Pursuant to 17CFR240.24b-2, confidential information has been omitted and has been filed separately with the Securities and Exchange Commission, pursuant to a Confidential Treatment Request filed with the Commission. 	

 	
 	45 	 	

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on March 5, 2004. 

BERRY PETROLEUM COMPANY 

JERRY V. HOFFMAN 	RALPH J. GOEHRING 	DONALD A. DALE 	
Chairman of the Board, Director, 	Senior Vice President and 	Controller 	
President and Chief 	Chief Financial Officer 	(Principal Accounting Officer) 	
Executive Officer 	(Principal Financial Officer) 	 	

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates so indicated. 

Name 	Office 	Date 	
 	 	 	
/s/ Jerry V. Hoffman 	Chairman of the Board, Director, President and 	March 5, 2004 	
Jerry V. Hoffman 	Chief Executive Officer	 	
 	 	 	
/s/ William F. Berry 	Director 	March 5, 2004 	
William F. Berry 	 	 	
 	 	 	
/s/ Ralph B. Busch, III 	Director 	March 5, 2004 	
Ralph B. Busch, III 	 	 	
 	 	 	
/s/ William E. Bush, Jr. 	Director 	March 5, 2004 	
William E. Bush, Jr. 	 	 	
 	 	 	
/s/ Stephen L. Cropper 	Director 	March 5, 2004 	
Stephen L. Cropper 	 	 	
 	 	 	
/s/ J. Herbert Gaul, Jr. 	Director 	March 5, 2004 	
J. Herbert Gaul, Jr. 	 	 	
 	 	 	
/s/ John A. Hagg 	Director 	March 5, 2004 	
John A. Hagg 	 	 	
 	 	 	
/s/ Robert F. Heinemann 	Director 	March 5, 2004 	
Robert F. Heinemann 	 	 	
 	 	 	
/s/ Thomas J. Jamieson 	Director 	March 5, 2004 	
Thomas J. Jamieson 	 	 	
 	 	 	
/s/ Martin H. Young, Jr. 	Director 	March 5, 2004 	
Martin H. Young, Jr. 	 	 	

 	
 	 46	 	

 
                                 CREDIT AGREEMENT
                              BERRY PETROLEUM COMPANY

                                      and

                      WELLS FARGO BANK, NATIONAL ASSOCIATION
         as Administrative Agent, Co-Lead Arranger and Sole Book Runner

                              BANK OF AMERICA, N.A.
                     as Co-Lead Arranger and Co-Syndication Agent

                         UNION BANK OF CALIFORNIA, N.A.
                             as Co-Syndication Agent

                              FLEET NATIONAL BANK
                            as Co-Documentation Agent

                                    BNP PARIBAS
                              as Co-Documentation Agent

                                        and

                         CERTAIN FINANCIAL INSTITUTIONS
                                    as Lenders

                                   $200,000,000

                                   July 10, 2003

TABLE OF CONTENTS
                                                            Page
CREDIT AGREEMENT.............................................1
ARTICLE I - Definitions and References.......................1
Section 1.1. Defined
Terms........................................................1
Section 1.2. Exhibits and Schedules; Additional Definitions.16
Section 1.3. Amendment of Defined Instruments...............16
Section 1.4. References and Titles..........................16
Section 1.5. Calculations and Determinations................17
Section 1.6. Joint Preparation; Construction of Indemnities
and Releases................................................17
ARTICLE II - The Loans and Letters of Credit............... 17
Section 2.1. Commitments to Lend; Notes.....................17
Section 2.2. Requests for New Loans.........................18
Section 2.3. Continuations and Conversions of Existing
Loans.......................................................19
Section 2.4. Use of Proceeds................................20
Section 2.5. Interest Rates and Fees........................20
Section 2.6. Optional Prepayments...........................21
Section 2.7. Mandatory Prepayments..........................21
Section 2.8. Initial Borrowing Base.........................21
Section 2.9. Subsequent Determinations of Borrowing Base....21
Section 2.10. Changes in Amount of Aggregate
Commitment..................................................22
Section 2.11. Letters of Credit.............................23
Section 2.12. Requesting Letters of Credit..................24
Section 2.13. Reimbursement and
Participations..............................................24
Section 2.14. Letter of Credit Fees.........................26
Section 2.15. No Duty to Inquire............................26
Section 2.16. LC Collateral.................................27
ARTICLE III - Payments to Lenders...........................28
Section 3.1. General Procedures.............................28
Section 3.2. Capital Reimbursement..........................29
Section 3.3. Increased Cost of Eurodollar Loans or Letters
of Credit ..................................................29
Section 3.4. Availability...................................30
Section 3.5. Funding Losses.................................30
Section 3.6. Reimbursable Taxes.............................31
Section 3.7. Change of Applicable Lending Office............32
Section 3.8. Replacement of Lenders.........................32
ARTICLE IV - Conditions Precedent to Lending................32
Section 4.1. Documents to be Delivered......................32
Section 4.2. Additional Conditions Precedent................33
ARTICLE V - Representations and Warranties..................34
Section 5.1. No Default.....................................34
Section 5.2. Organization and Good Standing.................34
Section 5.3. Authorization..................................35
Section 5.4. No Conflicts or Consents.......................35
Section 5.5. Enforceable Obligations........................35
Section 5.6. Initial Financial Statements...................35
Section 5.7. Other Obligations and Restrictions.............35
Section 5.8. Full Disclosure................................36
Section 5.9. Litigation.....................................36
Section 5.10. Labor Disputes and Acts of God................36
Section 5.11. ERISA Plans and Liabilities...................36
Section 5.12. Environmental and Other Laws..................37
Section 5.13. Names and Places of Business..................37
Section 5.14. Borrower's Subsidiaries.......................37
Section 5.15. Government Regulation.........................38
Section 5.16. Insider.......................................38
Section 5.17. Solvency......................................38
Section 5.18. Title to Properties; Licenses.................38
Section 5.19. Tax Shelter Regulations.......................38
ARTICLE VI - Affirmative Covenants of Borrower..............39
Section 6.1. Payment and Performance........................39
Section 6.2. Books, Financial Statements and Reports........39
Section 6.3. Other Information and Inspections..............41
Section 6.4. Notice of Material Events and Change of
Address.....................................................41
Section 6.5. Maintenance of Properties......................42
Section 6.6. Maintenance of Existence and Qualifications....42
Section 6.7. Payment of Trade Liabilities, Taxes, etc.......42
Section 6.8. Insurance......................................42
Section 6.9. Performance on Borrower's Behalf...............42
Section 6.10. Interest......................................43
Section 6.11. Compliance with Agreements and Law............43
Section 6.12. Environmental Matters; Environmental Reviews..43
Section 6.13. Evidence of Compliance........................43
Section 6.14. Bank Accounts; Offset.........................44
ARTICLE VII - Negative Covenants of Borrower................44
Section 7.1. Indebtedness...................................44
Section 7.2. Limitation on Liens............................45
Section 7.3. Hedging Contracts..............................45
Section 7.4. Limitation on Mergers, Issuances of Securities.46
Section 7.5. Limitation on Sales of Property................46
Section 7.6. Limitation on Dividends and Stock Repurchases..47
Section 7.7. Limitation on Acquisitions, Investments; and
New Businesses .............................................47
Section 7.8. Limitation on Credit Extensions................47
Section 7.9. Transactions with Affiliates...................47
Section 7.10. Prohibited Contracts..........................47
Section 7.11. Current Ratio.................................48
Section 7.12. EBITDA to Total Funded Debt Ratio.............48
ARTICLE VIII - Events of Default and Remedies...............48
Section 8.1. Events of Default..............................48
Section 8.2. Remedies.......................................50
ARTICLE IX - Administrative Agent...........................50
Section 9.1. Appointment and Authority......................50
Section 9.2. Exculpation, Administrative Agent's Reliance,
Etc. .......................................................51
Section 9.3. Credit Decisions...............................52
Section 9.4. Indemnification................................52
Section 9.5. Rights as Lender...............................52
Section 9.6. Sharing of Set-Offs and Other Payments.........53
Section 9.7. Investments....................................53
Section 9.8. Benefit of Article IX..........................53
Section 9.9. Resignation....................................54
ARTICLE X - Miscellaneous...................................54
Section 10.1. Waivers and Amendments; Acknowledgments.......54
Section 10.2. Survival of Agreements; Cumulative Nature.....55
Section 10.3. Notices.......................................56
Section 10.4. Payment of Expenses; Indemnity................56
Section 10.5. Parties in Interest; Assignments..............58
Section 10.6. Confidentiality...............................59
Section 10.7. Governing Law; Submission to Process..........60
Section 10.8. Limitation on Interest........................60
Section 10.9. Termination; Limited Survival.................60
Section 10.10. Severability.................................61
Section 10.11. Counterparts; Fax............................61
SECTION 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC..61

Schedules and Exhibits:

Schedule 1 - Lenders Schedule
Schedule 2 - Insurance Schedule

Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Opinion of Counsel for Restricted Persons
Exhibit F - Assignment and Assumption Agreement

CREDIT AGREEMENT

        THIS CREDIT AGREEMENT is made as of July 10, 2003, by and among BERRY
PETROLEUM COMPANY, a Delaware corporation (herein called "Borrower"), WELLS
FARGO BANK, NATIONAL ASSOCIATION, individually and as Administrative Agent
(herein called "Administrative Agent") and the Lenders referred to below. In
consideration of the mutual covenants and agreements contained herein the
parties hereto agree as follows:

                                ARTICLE I - Definitions and References

        Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given to such term in this Section 1.1 or in
the sections and subsections referred to below:

"Adjusted Base Rate" means the Base Rate plus the Base Rate Margin, provided
that the Adjusted Base Rate charged by any Person shall never exceed the
Highest Lawful Rate.

"Adjusted EBITDA" means, for any period, EBITDA for such period adjusted (a)
as permitted and in accordance with Article 11 of Regulation S-X promulgated
by the Securities and Exchange Commission, and (b) to give effect to any
acquisition or divestiture made by the Borrower or any of its Consolidated
subsidiaries during such period as if such transactions had occurred on the
first day of such period, regardless of whether the effect is positive or
negative.

"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum equal to the sum of (a) the Eurodollar
Margin plus (b) the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by Administrative Agent to be equal to the
quotient obtained by dividing (i) the Eurodollar Rate for such Eurodollar
Loan for such Interest Period by (ii) 1 minus the Reserve Requirement for
such Eurodollar Loan for such Interest Period, provided that no Adjusted
Eurodollar Rate charged by any Person shall ever exceed the Highest Lawful
Rate. The Adjusted Eurodollar Rate for any Eurodollar Loan shall change
whenever the Eurodollar Margin or the Reserve Requirement changes.

"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall
be deemed to be "controlled by" any other Person if such other Person
possesses, directly or indirectly, power (a) to vote 10% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners; or (b) to direct or cause
the direction of the management and policies of such Person whether by
contract or otherwise.

"Administrative Agent" means Wells Fargo, as Administrative Agent hereunder,
and its successors in such capacity.
"Aggregate Commitment" means the aggregate amount of the Commitments of the
Lenders; provided that in no event shall the Aggregate Commitment exceed the
Maximum Credit Amount.

"Agreement" means this Credit Agreement.

"Applicable Lending Office" means, with respect to each Lender, such Lender's
Domestic Lending Office in the case of Base Rate Loans and such Lender's
Eurodollar Lending Office in the case of Eurodollar Loans.

"Availability" means on any day during the Commitment Period, the unused
portion of the Aggregate Commitment, determined for such day by deducting
from the amount of the Aggregate Commitment at the end of such day the
Facility Usage.

"Base Rate" means, for any day, the rate per annum equal to the higher of (a)
the Federal Funds Rate for such day plus one-half of one percent (.5%) and
(b) the Prime Rate for such day. Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Rate shall be effective on the
effective date of such change in the Prime Rate or Federal Funds Rate. As
used in this definition, "Prime Rate" means the per annum rate of interest
most recently announced within Wells Fargo as its "Prime Rate", with the
understanding that Wells Fargo's Prime Rate is one of its base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording
thereof after its announcement in such internal publication or publications
as Wells Fargo may designate. Each change in the Prime Rate will be effective
on the day the change is announced within Wells Fargo.

"Base Rate Loan" means a Loan which does not bear interest at the Adjusted
Eurodollar Rate.

"Base Rate Margin" means, on any day, the following percentages per annum
based on the Utilization Percentage as set forth below:

                        Utilization Percentage  Base Rate Margin
        Level 1                  < 50%                  0.00%
        Level 2                 >= 50%                  0.25%
        Level 3                 >= 75%                  0.50%
        Level 4                 >= 90%                  0.75%

"Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a Continuation or Conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.

"Borrowing Base" means, at the particular time in question, either the amount
provided for in Section 2.8 or the amount determined by Administrative Agent
and Majority Lenders in accordance with the provisions of Section 2.9;
provided, however, that in no event shall the Borrowing Base ever exceed the
Maximum Credit Amount.

"Borrowing Base Deficiency" has the meaning given to such term in Section
2.7(a).

"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.

"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Denver, Colorado.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Administrative Agent, significant transactions in dollars are
carried out in the interbank eurocurrency market.

"Cash Equivalents" means Investments in:
        (a) marketable obligations, maturing within twelve months
after acquisition thereof, issued or unconditionally guaranteed by the United
States of America or an instrumentality or agency thereof and entitled to the
full faith and credit of the United States of America;
        (b) demand deposits, and time deposits (including certificates of
deposit) maturing within twelve months from the date of deposit thereof, with
any office of any Lender or with a domestic office of any national or state
bank or trust company which is organized under the Laws of the United States
of America or any state therein, which has capital, surplus and undivided
profits of at least 500,000,000, and whose long term certificates of deposit
are rated at least A2 by Moody's or A by S & P;
        (c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in subsection (a) above entered
into with any commercial bank meeting the specifications of subsection (b)
above;
        (d) open market commercial paper, maturing within 270 days after
acquisition thereof, which are rated at least P-1 by Moody's or A-1 by S& P;
and
        (e) money market or other mutual funds substantially all of whose
assets comprise securities of the types described in subsections (a) through
(d) above.

"Change of Control" means the occurrence of either of the following events:
(a) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and
including holding proxies to vote for the election of directors other than
proxies held by Borrower's management or their designees to be voted in favor
of Persons nominated by Borrower's Board of Directors) of 30% or more of the
outstanding voting securities of Borrower, measured by voting power
(including both common stock and any preferred stock or other equity
securities entitling the holders thereof to vote with the holders of common
stock in elections for directors of Borrower) or (b)one-third or more of the
directors of Borrower shall consist of Persons not nominated by Borrower's
Board of Directors (not including as Board nominees any directors which the
Board is obligated to nominate pursuant to shareholders agreements, voting
trust arrangements or similar arrangements).

"Commitment" means for each Lender, the amount set forth as its Commitment in
the Lenders Schedule.

"Commitment Fee Rate" means, on any day, the following percentages per annum
based on the Utilization Percentage set forth below:

                        Utilization Percentage  Commitment Fee
        Level 1                  < 50%            0.30%
        Level 2                 >=  50%           0.375%
        Level 3                 >= 75%            0.375%
        Level 4                 >= 90%            0.50%

"Commitment Period" means the period from and including the date hereof
untilMaturity Date (or, if earlier, the day on which the obligations of
Lenders to make Loans hereunder or the obligations of LC Issuer to issue
Letters of Credit hereunder have been terminated or the Notes first become
due and payable in full).

"Consolidated" refers to the consolidation of any Person, in accordance with
GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.

"Continuation" shall refer to the continuation pursuant to Section 2.3 hereof
of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the
next Interest Period.

"Continuation/Conversion Notice" means a written or telephonic request, or a
written confirmation, made by Borrower which meets the requirements of
Section 2.3.

"Conversion" shall refer to a conversion pursuant to Section 2.3 or ARTICLE
III of one Type of Loan into another Type of Loan.

"Core Acquisitions and Investments" means (i) acquisitions of Mineral
Interests and (ii) acquisitions of or Investments in Persons engaged
primarily in the business of acquiring, developing and producing Mineral
Interests; provided that with respect to any acquisition or Investment
described in this clause (ii), either (A) immediately after making such
acquisition or Investment, Borrower shall own at least fifty-one percent
(51%) of the Equity Interests of such Person, measured by voting power, or
(B) such Person shall not be a publicly traded entity and such acquisition or
Investment shall be related to the business and operations of Borrower or one
of its Subsidiaries.

"Current Assets" means the sum of the current assets of Borrower and its
Consolidated Subsidiaries at such time, plus the Availability at such time in
an amount not to exceed $10,000,000, but excluding, for purposes of this
definition any non-cash gains for any Hedging Contract resulting from the
requirements of SFAS 133 at such time.

"Current Liabilities" means the current liabilities of Borrower and its
Consolidated Subsidiaries at such time, but excluding for purposes of this
definition, (i) any non-cash losses or charges on any Hedging Contract
resulting from the requirement of SFAS 133 at such time and (ii) current
maturities of the Obligations.

"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.

"Default Rate" means, at the time in question (a) with respect to any Base
Rate Loan, the rate per annum equal to three percent (3%) above the Adjusted
Base Rate then in effect and (b) with respect to any Eurodollar Loan, the
rate per annum equal to three percent (3%) above the Adjusted Eurodollar Rate
then in effect for such Loan, provided in each case that no Default Rate
charged by any Person shall ever exceed the Highest Lawful Rate.

"Determination Date" has the meaning given to such term in Section 2.9.
"Disclosure Report" means either a notice given by Borrower under Section 6.4
or a certificate given by Borrower's Chief Financial Officer under Section
6.2(a).

"Disclosure Letter" means the letter of even date with the Agreement from the
Borrower to the Agent.

"Dividend" means any dividend or other distribution made by a Restricted
Person on or in respect of any stock, partnership interest, or other equity
interest in such Restricted Person or any other Restricted Person (including
any option or warrant to buy such an equity interest), excluding Stock
Repurchases.

"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" below its name on the
Lenders Schedule, or such other office as such Lender may from time to time
specify to Borrower and Administrative Agent; with respect to LC Issuer, the
office, branch, or agency through which it issues Letters of Credit; and,
with respect to Administrative Agent, the office, branch, or agency through
which it administers this Agreement.

"EBITDA" means, for any period, the sum of (1) Net Income during such period,
plus (2) all interest paid or accrued during such period on Indebtedness
(including amortization of original issue discount and the interest component
of any deferred payment obligations and capital lease obligations) which was
deducted in determining such Net Income, plus (3) all income taxes which were
deducted in determining such Net Income, plus (4) all depreciation,
amortization (including mortization of good will and debt issue costs),
depletion, accretion and other non-cash charges (including any provision for
the reduction in the carrying value of assets recorded in accordance with
GAAP) which were deducted in determining such Net Income, minus (5) all non-
cash items of income which were included in determining such Net Income.

"Eligible Transferee" means a Person which either (a) is a Lender or an
Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by
Administrative Agent and, so long as no Default is continuing, by Borrower,
which consents in each case will not be unreasonably withheld (provided that
no Person organized outside the United States may be an Eligible Transferee
if Borrower would be required to pay withholding taxes on interest or
principal owed to such Person).

"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2.

"Environmental Laws" means any and all Laws relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
wastes into the environment including ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.

"Equity Interest" means (i) with respect to any corporation, the capital
stock of such corporation, (ii) with respect to any limited liability
company, the membership interests in such limited liability company, (iii)
with respect to any partnership or joint venture, the partnership or joint
venture interests therein, and (iv) with respect to any other legal entity,
the ownership interests in such entity.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statutes or statute, together with all
rules and regulations promulgated with respect thereto.

"ERISA Affiliate" means Borrower and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with Borrower, are treated as a single employer
under Section 414 of the Internal Revenue Code.

"ERISA Plan" means any employee pension benefit plan subject to Title IV of
ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.

"Eurodollar Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Eurodollar Lending Office" below its name on
the Lenders Schedule (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender as such Lender may from
time to time specify to Borrower and Administrative Agent.

"Eurodollar Loan" means a Loan that bears interest at the Adjusted Eurodollar
Rate.

"Eurodollar Margin" means, on any day, the following percentages per annum
based on the Utilization Percentage as set forth below:

                                Utilization Percentage  Eurodollar Margin
        Level 1                         <  50%             1.25%
        Level 2                         >= 50%             1.50%
        Level 3                         >= 75%             1.75%
        Level 4                         >= 90%             2.00%

"Eurodollar Rate" means, for any Eurodollar Loan within a Borrowing and with
respect to the related Interest Period therefor, (a) the interest rate per
annum (carried out to the fifth decimal place) equal to the rate determined
by the Administrative Agent to be the offered rate that appears on the page
of the Telerate Screen that displays an average British Bankers Association
Interest Settlement Rate (such page currently being page number 3750) for
deposits in U.S. dollars (for delivery on the first day of such Interest
Period) with a term equivalent to such Interest Period, determined as of
approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, or (b) in the event the rate referenced in the
preceding subsection (a) does not appear on such page or service or such page
or service shall cease to be available, the rate per annum (carried out to
the fifth decimal place) equal to the rate determined by the Administrative
Agent to be the offered rate on such other page or other service that
displays an average British Bankers Association Interest Settlement Rate for
deposits in U.S. dollars (for delivery on the first day of such Interest
Period) with a term equivalent to such Interest Period, determined as of
approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, or (c) in the event the rates referenced in the
preceding subsections (a) and (b) are not available, the rate per annum
determined by the Administrative Agent as the rate of interest at which
deposits in U.S. dollars (for delivery on the first day of such Interest
Period) in same day funds in the approximate amount of the applicable
Eurodollar Loan and with a term equivalent to such Interest Period would be
offered by Wells Fargo or one of its Affiliate banks to major banks in the
offshore U.S. dollar market at their request at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest
Period.

"Event of Default" has the meaning given to such term in Section 8.1.

"Existing Credit Documents" means that certain Amended and Restated Credit
Agreement dated as of July 22, 1999 among Borrower and NationsBank of Texas,
N.A., now known as Bank of America, N.A., together with the promissory notes
made by Borrower thereunder.

"Facility Usage" means, at the time in question, the aggregate amount of
outstanding Loans and existing LC Obligations at such time.

"Federal Funds Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100th of one percent) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the  Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a)if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the
average rate quoted to Administrative Agent on such day on such transactions
as determined by Administrative Agent.

"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.

"Fiscal Year" means a twelve-month period ending on December 31 of any year.

"Four-Quarter Period" means any period of four consecutive Fiscal Quarters.

"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or
any generally recognized successor) and which, in the case of Borrower and
its Consolidated Subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements. If any
change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or
practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with
respect to Borrower or with respect to Borrower and its Consolidated
Subsidiaries shall be prepared in accordance with such change, which change
shall be disclosed to Administrative Agent on the next date on which
financial statements are required to be delivered to Lenders pursuant to
Section 6.2(a); provided that, unless the Majority Lenders shall otherwise
agree in writing, no such change shall modify or affect the manner in which
compliance with the covenants contained in Article VII are computed such that
all such computations shall be conducted utilizing financial information
presented consistently with prior periods.

"Hazardous Materials" means any substances regulated under any Environmental
Law, whether as pollutants, contaminants, or chemicals, or as industrial,
toxic or hazardous substances or wastes, or otherwise.

"Hedging Contract" means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or
indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or
other similar agreement or arrangement.

"Highest Lawful Rate" means, with respect to each Lender Party to whom
Obligations are owed, the maximum nonusurious rate of interest that such
Lender Party is permitted under applicable Law to contract for, take, charge,
or receive with respect to such Obligations. All determinations herein of the
Highest Lawful Rate, or of any interest rate determined by reference to the
Highest Lawful Rate, shall be made separately for each Lender Party as
appropriate to assure that the Loan Documents are not construed to obligate
any Person to pay interest to any Lender Party at a rate in excess of the
Highest Lawful Rate applicable to such Lender Party.

"Indebtedness" of any Person means Liabilities in any of the following
categories:
        (a) Liabilities for borrowed money,
        (b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
        (c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
        (d) Liabilities which (i) would under GAAP be shown on such Person's
balance sheet as a liability, and (ii) are payable more than one year from
the date of creation thereof (other than reserves for taxes and reserves for
contingent obligations),
        (e) Liabilities arising under Hedging Contracts,
        (f) Liabilities constituting principal under leases capitalized in
accordance with GAAP,
        (g) Liabilities arising under conditional sales or other title
retention agreements,
        (h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or otherwise constituting obligations to
purchase or acquire or to otherwise protect or insure a creditor against loss
in respect of Liabilities of any other Person (such as obligations under
working capital maintenance agreements, agreements to keep-well, or
agreements to purchase Liabilities, assets, goods, securities or services),
but excluding endorsements in the ordinary course of business of negotiable
instruments in the course of collection,
        (i) Liabilities (for example, repurchase agreements, mandatorily
redeemable preferred stock and sale/leaseback agreements) consisting of an
obligation to purchase or redeem securities or other property, if such
Liabilities arises out of or in connection with the sale or issuance of the
same or similar securities or property,
        (j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
        (k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas
in return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), or
        (l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor; provided, however,
that the "Indebtedness" of any Person shall not include Liabilities that were
incurred by such Person on ordinary trade terms to vendors, suppliers, or
other Persons providing goods and services for use by such Person in the
ordinary course of its business which are paid as required by Section 6.7.

"Initial Engineering Report" means the engineering report concerning oil and
gas properties of Restricted Persons dated February 14, 2003, prepared by
DeGolyer & MacNaughton as of December 31, 2002.

"Initial Financial Statements" means (a) the audited annual Consolidated
financial statements of Borrower dated as of December 31, 2002, and (b) the
unaudited quarterly Consolidated financial statements of Borrower dated as of
March 31, 2003.

"Insurance Schedule" means Schedule 3 attached hereto.

"Interest Payment Date" means (a) with respect to each Base Rate Loan, the
last day of each Fiscal Quarter, and (b) with respect to each Eurodollar
Loan, the last day of the Interest Period that is applicable thereto and, if
such Interest Period is six, nine or twelve months in length, each date
specified by Administrative Agent which is approximately three, six or nine
months after such Interest Period begins.

"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended from time to time and any  successor statute or statutes,
together with all rules and regulations promulgated with respect thereto.
"Interest Period" means, with respect to each particular Eurodollar Loan in a
Borrowing, the period specified in the Borrowing Notice or
Continuation/Conversion Notice applicable thereto, beginning on and including
the date specified in such Borrowing Notice or Continuation/Conversion Notice
(which must be a Business Day), and ending one, two, three, or six months
and, if available, nine or twelve months thereafter, as Borrower may elect in
such notice; provided that: (a) any Interest Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in
which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period which beginson the last Business Day in a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day in a calendar month; and (c) notwithstanding the foregoing, any
Interest Period which would otherwise end after the last day of the
Commitment Period shall end on the last day of the Commitment Period (or, if
the last day of the Commitment Period is not a Business Day, onthe next
preceding Business Day).

"Investment" means any investment, made directly or indirectly, in any Person
or any property, whether by purchase, acquisition of shares of capital stock,
indebtedness or other obligations or securities or by loan, advance, capital
contribution or otherwise and whether made in cash, by the transfer of
property, or by any other means.

"Law" means any statute, law, regulation, ordinance, rule, treaty, judgment,
order, decree, permit, concession, franchise, license, agreement or other
governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof. Any reference to a Law includes any
amendment or modification to such Law, and all regulations, rulings, and
other Laws promulgated under such Law.

"LC Application" means any application for a Letter of Credit hereafter made
by Borrower to LC Issuer.

"LC Collateral" has the meaning given to such term in Section 2.16(a).

"LC Issuer" means Wells Fargo in its capacity as the issuer of Letters of
Credit hereunder, and its successors in such capacity. Administrative Agent
may, with the consent of Borrower and the Lender in question, appoint any
Lender hereunder as an LC Issuer in place of or in addition to Wells Fargo.

"LC Obligations" means, at the time in question, the sum of all Matured LC
Obligations plus the maximum amounts which LC Issuer might then or thereafter
be called upon to advance under all Letters of Credit then outstanding.

"LC Sublimit" means $20,000,000.

"Lender Parties" means Administrative Agent, LC Issuer, and all Lenders.

"Lenders" means each signatory hereto (other than Borrower and any Restricted
Person that is a party hereto), including Wells Fargo in its capacity as a
Lender hereunder rather than as Administrative Agent or LC Issuer, and the
successors of each such party as holder of a Note.

"Lenders Schedule" means Schedule 1 hereto.

"Letter of Credit" means any standby letter of credit issued by LC Issuer
hereunder at the application of Borrower.

"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.

"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to it or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows such creditor to
have such Liabilities satisfied out of such property or assets prior to the
general creditors of any owner thereof, including any lien, mortgage,
security interest, pledge, deposit,
production payment, rights of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent thereto, tax
lien, mechanic's or materialman's lien, or any other charge or encumbrance
for security purposes, whether arising by Law or agreement or otherwise, but
excluding any right of offset which arises without agreement in the ordinary
course of business. "Lien" also means any filed financing statement, any
registration of a pledge (such as
with an issuer of uncertificated securities), or any other arrangement or
action which would serve to perfect a Lien described in the preceding
sentence, regardless of whether such financing statement is filed, such
registration is made, or such arrangement or action is undertaken before or
after such Lien exists.

"Loan Documents" means this Agreement, the Notes, the Letters of Credit, the
LC Applications, and all other agreements, certificates, documents,
instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets and commitment letters).

"Loans" has the meaning given to such term in Section 2.1.

"Majority Lenders" means two or more Lenders whose aggregate Percentage
Shares equal or exceed sixty-six and two-thirds percent (66.%).

"Material Adverse Change" means a material and adverse change, from the state
of affairs presented in the Initial Financial Statements or as represented or
warranted in any Loan Document, to (a) Borrower's Consolidated financial
condition, (b) Borrower's Consolidated operations, properties or prospects,
considered as a whole, (c) Borrower's ability to timely pay the Obligations,
or (d) the enforceability of the material terms of any Loan Documents.

"Matured LC Obligations" means all amounts paid by LC Issuer on drafts or
demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or  otherwise).

"Maturity Date" means three years after the date hereof.

"Maximum Drawing Amount" means at the time in question the sum of the maximum
amounts which LC Issuer might then or thereafter be called upon to advance
under all Letters of Credit which are then outstanding.

"Maximum Credit Amount" means $200,000,000.

"Mineral Interests" means rights, estates, titles, and interests in and to
oil, gas, sulphur, or other mineral leases and any mineral interests, royalty
and overriding royalty interest, production payment, net profits interests,
mineral fee interests, and other rights therein, including, without
limitation, any reversionary or carried interests relating to the foregoing,
together with rights, titles, and interests created by or arising under the
terms of any unitization, communization, and pooling agreements or
arrangements, and all properties, rights and interests covered thereby,
whether arising by contract, by order, or by operation of Law, which now or
hereafter include all or any part of the foregoing.

"Moody's" means Moody's Investors Service, Inc. or its successor.

"Net Income" means, for any period, the net income (or loss) of the Borrower
and its properly consolidated Subsidiaries for such period, calculated on a
consolidated basis.

"Non-Core Acquisitions and Investments" means (i) acquisitions of assets used
in the transportation, processing, refining or marketing of petroleum
products which are not used in connection with Borrower's producing Mineral
Interests, (ii) acquisitions of or Investments in Persons engaged primarily
in the transportation, processing, refining or marketing of petroleum
products which are not related to Borrower's producing Mineral Interests or
(iii) Investments in Persons engaged primarily in the business of acquiring,
developing and producing Mineral Interests that are not Core Acquisitions and
Investments.

"Note" has the meaning given to such term in Section 2.1.

"Obligations" means all Liabilities from time to time owing by any Restricted
Person to any Lender Party under or pursuant to any of the Loan Documents,
including all LC Obligations. "Obligation" means any part of the Obligations.

"Percentage Share" means, with respect to any Lender (a) when used in Section
2.1, Section 2.2 or Section 2.5(d) in any Borrowing Notice or when no Loans
are outstanding hereunder, the percentage set forth below such Lender's name
on Lenders Schedule, and (b) when used otherwise, the percentage obtained by
dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question plus the Matured LC Obligations which such Lender has
funded pursuant to Section 2.13(c) plus the portion of the Maximum Drawing
Amount which such Lender might be obligated to fund under Section 2.13(c), by
(ii) the sum of the aggregate unpaid principal balance of all Loans at such
time plus the aggregate amount of LC Obligations outstanding at such time.

"Permitted Investments" means (a) Cash Equivalents, (b) property used in the
ordinary course of business of the Restricted Persons, (c) current assets
arising from the sale or lease of goods and services in the ordinary course
of business by the Restricted Persons or from sales permitted under Section
7.5.

"Permitted Liens" means: (a) statutory Liens for taxes, assessments or other
governmental charges or levies which are not yet delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (b) landlords',
operators', carriers', warehousemen's, repairmen's, mechanics',
materialmen's, or other like Liens which do not secure Indebtedness, in each
case only to the extent arising in the ordinary course of business and only
to the extent securing obligations which are not delinquent or which are
being contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP;(c) minor
defects and irregularities in title to any property, so long as such defects
and irregularities neither secure Indebtedness nor materially impair the
value of such property or the use of such property for the purposes for which
such property is held; and  (d) deposits of cash or securities to secure the
performance of bids, acquisition agreements, trade contracts, leases,
statutory obligations and other obligations of a like nature (excluding
appeal bonds) incurred in the ordinary course of business.

"Person" means an individual, corporation, partnership, limited liability
company, association, joint stock company, trust or trustee thereof, estate
or executor thereof, unincorporated organization or joint venture, Tribunal,
or any other legally recognizable entity.

"Prescribed Forms" means such duly executed forms or statements, and in such
number of copies, which may, from time to time, be prescribed by Law and
which, pursuant to applicable provisions of (a) an income tax treaty between
the United States and the country of residence of the Lender Party providing
the forms or statements, (b) the Internal Revenue Code, or (c) any applicable
rules or regulations thereunder, permit Borrower to make payments hereunder
for the account of such Lender Party free of such deduction or withholding of
income or similar taxes. "Rating Agency" means either S & P or Moody's.

"Redetermination" means a Scheduled Redetermination or a Special
Redetermination.

"Regulation D" means Regulation D of the Board of Governorsof the Federal
Reserve System as from time to time in effect.

"Reserve Requirement" means, at any time, the maximum rate at which reserves
(including any marginal, special, supplemental, or emergency reserves) are
required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required
to be maintained by such member banks with respect to (a) any category of
liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (b) any category of extensions of
credit or other assets which include Eurodollar Loans.

"Restricted Person" means any of Borrower and each Subsidiary of Borrower.

"S & P" means Standard & Poor's Ratings Services (a division of The McGraw
Hill Companies), or its successor.

"Scheduled Redetermination" means any redetermination of the Borrowing Base
pursuant to Section 2.9(a).

"Special Redetermination" means any redetermination of the Borrowing Base
pursuant to Section 2.9(b) or Section 2.9(c).

"Stock Repurchase" means any payment made by a Restricted Person to purchase,
redeem, acquire or retire any Equity Interest in such Restricted Person or
any other Restricted Person (including any option or warrant to purchase such
an Equity Interest).

"Subsidiary" means, with respect to any Person, any corporation, association,
partnership, limited liability company, joint venture, or other business or
corporate entity, enterprise or organization which is directly or indirectly
(through one or more intermediaries) controlled by or owned fifty percent or
more by such Person, provided that associations, joint ventures or other
relationships (a) which are established pursuant to a standard form operating
agreement or similar agreement or which are partnerships for purposes of
federal income taxation only, (b) which are not corporations or partnerships
(or subject to the Uniform Partnership Act) under applicable state Law, and
(c) whose businesses are limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned directly by
the parties in such associations, joint ventures or relationships, shall not
be deemed to be "Subsidiaries" of such Person.

"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Section 4043(b)(5) or (6) of ERISA or
(ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate any ERISA Plan or the treatment of any ERISA
Plan amendment as a termination under Section 4041 of ERISA, or (d) the
institution of proceedings to terminate any ERISA Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or
condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any ERISA
Plan.

"Total Funded Debt" means all Liabilities of the Restricted Persons of the
types described in clauses (a), (b), (c), (d), (f), (h), (j) of the
definition of Indebtedness.

"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality
of the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or
municipality, whether now or hereafter constituted or existing.

"Type" means, with respect to any Loans, the characterization of such Loans
as either Base Rate Loans or Eurodollar Loans.

"Utilization Percentage" means, for any day, the Facility Usage for such day,
divided by the Borrowing Base in effect on such day expressed as a
percentage.

"Wells Fargo" means Wells Fargo Bank, National Association.

        Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the Security Schedule for the meaning
of certain terms defined therein and used but not defined herein, which
definitions are incorporated herein by reference.

        Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.

        Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Exhibits
and Schedules to any Loan Document shall be  deemedincorporated by reference
in such Loan Document. References to any document, instrument, or agreement
(a) shall include all exhibits, schedules, and other attachments thereto, and
(b) shall include all documents, instruments, or agreements issued or
executed in replacement thereof. Titles appearing at the beginning of any
subdivisions are for convenience only and do not constitute any part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar importrefer to this
Agreement as a whole and not to any particular subdivision unless expressly
so limited. The phrases "this section" and "this subsection" and similar
phrases refer only to the sections or subsections hereof in which such
phrases occur. The word "or" is not exclusive, and the word "including" (in
its various forms) means "including without limitation". Pronouns in
masculine, feminine and neuter genders shall be construed to include any
other gender, and words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires. Accounting
terms have the meanings assigned to them by GAAP, as applied by the
accounting entity to which they refer. References to "days" shall mean
calendar days, unless the term "Business Day" is used. Unless otherwise
specified, references herein to any particular Person also refer to its
successors and permitted assigns.

        Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents shall be made on the basis of actual days elapsed
(including the first day but excluding the last) and a year of 360 days. Each
determination by a Lender Party of amounts to be paid under Article III or
any other matters which are to be determined hereunder by a Lender Party
(such as any Eurodollar Rate, Adjusted Eurodollar Rate, Business Day,
Interest Period, or Reserve Requirement) shall, in the absence of manifest
error, be conclusive and binding. Unless otherwise expressly provided herein
or unless Majority
Lenders otherwise consent all financial statements and reports furnished to
any Lender Party hereunder shall be prepared and all financial computations
and determinations pursuant hereto shall be made in accordance with GAAP.

        Section 1.6. Joint Preparation; Construction of Indemnities and
Releases. This Agreement and the other Loan Documents have been reviewed and
negotiated by sophisticated parties with access to legal counsel and no rule
of construction shall apply hereto or thereto which would require or allow
any Loan Document to be construed against any party because of its role in
drafting such Loan Document. All indemnification and release provisions of
this Agreement shall be construed broadly (and not narrowly) in favor of the
Persons receiving indemnification or being released.

ARTICLE II - The Loans and Letters of Credit

        Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein
called such Lender's "Loans") upon Borrower's request from time to time
during the Commitment Period, provided that (a) subject to Section 3.3,
Section 3.4 and Section 3.6, all Lenders are requested to make Loans of the
same Type in accordance with their respective Percentage Shares and as part
of the same Borrowing, and (b) after giving effect to such Loans, the
Facility Usage does not exceed the Aggregate Commitment or the Borrowing Base
determined as of the date on which the requested Loans are to be made. The
aggregate amount of all Loans in any Borrowing of Base Rate Loans must be
greater than or equal to $500,000 or a higher integral multiple of $100,000
or must equal the remaining availability under the Borrowing Base, and the
aggregate amount of all Loans in any Borrowing of Eurodollar Loans must be
greater than or  equal to $3,000,000 or any higher integral multiple of
$1,000,000 or must equal the remaining availability under the Borrowing Base.
Borrower may have no more than ten Borrowings of Eurodollar Loans outstanding
at any time. The obligation of Borrower to repay to each Lender the aggregate
amount of all Loans made by such Lender, together with interest accruing in
connection therewith, shall be evidenced by a single promissory note (herein
called such Lender's "Note") made by Borrower payable to the order of such
Lender in the form of Exhibit A with appropriate insertions. The amount of
principal owing on any Lender's Note at any given time shall be the aggregate
amount of all Loans theretofore made by such Lender minus all payments of
principal theretofore received by such Lender on such Note. Interest on each
Note shall accrue and be due and payable as provided herein and therein. Each
Note shall be due and payable as provided herein and therein, and shall be
due and payable in full on the Maturity Date. Subject to the terms and
conditions hereof, Borrower may borrow, repay, and reborrow hereunder.

        Section 2.2. Requests for New Loans. Borrower must give to
Administrative Agent written or electronic notice (or telephonic notice
promptly confirmed in writing) of any requested Borrowing of new Loans to be
advanced by Lenders. Each such notice constitutes a "Borrowing Notice"
hereunder and must:

        (a) specify (i) the aggregate amount of any such Borrowing of new Base
Rate Loans and the date on which such Base Rate Loans are to be advanced, or
(ii) the aggregate amount of any such Borrowing of new Eurodollar Loans, the
date on which such Eurodollar Loans are to be advanced (which shall be the
first day of the Interest Period which is to apply thereto), and the length
of the applicable Interest Period; and
        (b) be received by Administrative Agent not later than 11:00 a.m.,
Denver Colorado time, on (i) the day on which any such Base Rate Loans are to
be made, or (ii) the third Business Day preceding the day on which any such
Eurodollar Loans are to be made.

        Each such written request or confirmation must be made in the form and
substance of the "Borrowing Notice" attached hereto as Exhibit B, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which
are required to be set out in such written confirmation. Upon receipt of any
such Borrowing Notice, Administrative Agent shall give each Lender prompt
notice of the terms thereof. If all conditions precedent to such new Loans
have been met, each Lender will on the date requested promptly remit to
Administrative Agent at Administrative Agent's office in Denver, Colorado the
amount of such Lender's new Loan in immediately available funds, and upon
receipt of such funds, unless to its actual knowledge any conditions
precedent to such Loans have been neither met nor waived as provided herein,
Administrative Agent shall promptly make such Loans available to Borrower.
Unless Administrative Agent shall have received prompt notice from a Lender
that such Lender will not make available to Administrative Agent such
Lender's new Loan, Administrative Agent may in its discretion assume that
such Lender has made such Loan available to Administrative Agent in
accordance with this section and Administrative Agent may if it chooses, in
reliance upon such assumption, make such Loan available to Borrower. If and
to the extent such Lender shall not so make its new Loan available to
Administrative Agent, such Lender and Borrower severally agree to pay or
repay to Administrative Agent within three days after demand the amount of
such Loan together withinterest thereon, for each day from the date such
amount was made available to Borrower until the date such amount is paid or
repaid to Administrative Agent, with interest at (i) the Federal Funds Rate,
if such Lender is making such payment and (ii) the interest rate applicable
at the time to the other new Loans made on such date, if Borrower is making
such repayment. If neither such Lender nor Borrower pays or repays to
Administrative Agent such amount within such three-day period, Administrative
Agent shall in addition to such amount be entitled to recover from such
Lender and from Borrower, on demand, interest thereon at the Default Rate
applicable to Base Rate Loans, calculated from the date such amount was made
available to Borrower (provided that if such amount has been paid to
Administrative Agent by such Lender, Borrower shall not be obligated to pay
the same amount to Administrative Agent). The failure of any Lender to make
any new Loan to be made by it hereunder shall not relieve any other Lender of
its obligation hereunder, if any, to make its new Loan, but no Lender shall
be responsible for the failure of any other Lender to make any new Loan to be
made by such other Lender.

        Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding:
to convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans
to Base Rate Loans on the last day of the Interest Period applicable thereto,
and to continue Eurodollar Loans beyond the expiration of such Interest
Period by designating a new Interest Period to take effect at the time of
such expiration. In making such elections, Borrower may combine existing
Loans made pursuant to separateBorrowings into one new Borrowing or divide
existing Loans made pursuant to one Borrowing into separate new Borrowings,
provided that Borrower may have no more than ten Borrowings  of Eurodollar
Loans outstanding at any time. To make any such election, Borrower must give
to Administrative Agent written notice (or telephonic notice promptly
confirmed in writing) of any such Conversion or Continuation of existing
Loans, with a separate notice given for each new Borrowing. Each such notice
constitutes a "Continuation/Conversion Notice" hereunder and must:

        (a) specify the existing Loans which are to be Continued or Converted;

        (b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be continued or converted and the
date on which such Continuation or Conversion is to occur, or (ii) the
aggregate amount of any Borrowing of Eurodollar Loans into which such
existing Loans are to be continued or converted, the date on which such
Continuation or Conversion is to occur (which shall be the first day of the
Interest Period which is to apply to
such Eurodollar Loans), and the length of the applicable Interest Period; and

        (c) be received by Administrative Agent not later than 11:00 a.m.,
Denver, Colorado time, on (i) the day on which any such Continuation or
Conversion to Base Rate Loans is to occur, or (ii) the third Business Day
preceding the day on which any such Continuation or Conversion to Eurodollar
Loans is to occur.

        Each such written request or confirmation must be made in the form and
substance of the "Continuation/Conversion Notice" attached hereto as Exhibit
C, duly completed. Each such telephonic request shall be deemed a
representation, warranty, acknowledgment and agreement by Borrower as to the
matters which are required to be set out in such written confirmation. Upon
receipt of any such Continuation/Conversion Notice, Administrative Agent
shall give each Lender prompt notice of the terms thereof. Each
Continuation/Conversion Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not ake any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other
reason) Borrower fails to timely and properly give any
Continuation/Conversion Notice with respect to a Borrowing of existing
Eurodollar Loans at least three days prior to the end of the Interest Period
applicable thereto, such Eurodollar Loans shall automatically be converted
into Base Rate Loans at the end of such Interest Period. No new funds shall
be repaid by Borrower or advanced by any Lender in connection with any
Continuation or Conversion of existing Loans pursuant to this section, and no
such Continuation or Conversion shall be deemed to be a new advance of funds
for any purpose; such Continuations and Conversions merely constitute a
change in the interest rate applicable to already outstanding Loans.

        Section 2.4. Use of Proceeds. Borrower shall use all Loans to refinance
existing indebtedness of Borrower, to make acquisitions permitted by this
Agreement, to finance capital expenditures, to refinance Matured LC
Obligations, and provide working capital for its operations and for other
general business purposes. Borrower shall use all Letters of Credit for its
general corporate purposes. In no event shall the funds from any Loan or any
Letter of Credit be used directly or indirectly by any Person for personal,
family, household or agricultural purposes or for the purpose, whether
immediate, incidental or ultimate, of purchasing, acquiring or carrying any
"margin stock" (as such term is defined in Regulation U promulgated by the
Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any
such margin stock. Borrower represents and warrants that Borrower is not
engaged principally, or as one of Borrower's important activities, in the
business of extending credit to others for the purpose of purchasing or
carrying such margin stock.

        Section 2.5. Interest Rates and Fees.

        (a) Base Rate Loans. So long as no Event of Default has occurred and is
continuing, all Base Rate Loans (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the Adjusted Base Rate in effect on such day. If an Event of
Default has occurred and is continuing, all Base Rate Loans (exclusive of any
past due principal or interest) from time to time  outstanding shall bear
interest on each day outstanding at the applicable Default Rate in effect on
such day. On each Interest Payment Date Borrower shall pay to the holder
hereof all unpaid interest which has accrued on the Base Rate Loans to but
not including such Interest Payment Date.

        (b) Eurodollar Loans. So long as no Event of Default has occurred and
is continuing, each Eurodollar Loan (exclusive of any past due principal or
interest) shall bear interest on each day during the related Interest Period
at the related Adjusted Eurodollar Rate in effect on such day. If an Event of
Default has occurred and is continuing, all Eurodollar Loans (exclusive of
any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the applicable Default Rate in effect on
such day. On each Interest Payment Date relating to such Eurodollar Loan,
Borrower shall pay to the holder hereof all unpaid interest which has accrued
on such Eurodollar Loan to but not including such Interest Payment Date.

        (c) Past Due Principal and Interest. All past due principal pf and past
due interest on the Loans shall bear interest on each day outstanding at the
Default Rate in effect on such day, and such interest shall be due and
payable daily as it accrues.

        (d) Commitment Fees. In consideration of each Lender's commitment to
make Loans, Borrower will pay to Administrative Agent for the account of each
Lender a commitment fee determined on a daily basis by applying the
Commitment Fee Rate to such Lender's Percentage Share of the Availability
each day during the Commitment Period. This commitment fee shall be due and
payable in arrears on the last day of each Fiscal Quarter and at the end of
the Commitment Period.

        (e) Administrative Agent's Fees. In addition to all other amounts due
to Administrative Agent under the Loan Documents, Borrower will pay fees to
Administrative Agent as described in a letter agreement dated April 30, 2003
between Administrative Agent and Borrower.

        Section 2.6. Optional Prepayments. Borrower may from time to time and
without premium or penalty prepay the Notes, in whole or in part, so ong as
the aggregate amounts of all partial prepayments of principal on the Notes
equals $1,000,000 or any higher integral multiple of $1,000,000, provided
that if Borrower prepays any Eurodollar Loan, it shall give notice to
Administrative Agent at least three Business Days' prior to the date such
prepayment is made and pay to Lenders any amounts due under Section 3.5.

        Section 2.7. Mandatory Prepayments

        (a) If at any time the Facility Usage is in excess of the Borrowing
Base (such excess being herein called a "Borrowing Base Deficiency"),
Borrower shall prepay the principal of the Loans in an aggregate amount at
least equal to such Borrowing Base Deficiency in two equal installments, one
being due and payable on the 90th day  after the date on which Administrative
Agent gives notice of such Borrowing Base Deficiency to Borrower and the
other being payable
on the 180th day after the date on which such notice is given to Borrower
(or, if the Loans have been paid in full, pay to LC Issuer LC Collateral as
required under Section 2.16(a).

        (b) Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid and any amounts due under Section 3.5. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the
time of such prepayment.

        Section 2.8. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be
$200,000,000.

        Section 2.9. Subsequent Determinations of Borrowing Base.

        (a) Scheduled Determinations of Borrowing Base. By March 31 of each
year Borrower shall furnish to each Lender all information, reports and data
which Administrative Agent has then requested concerning Restricted Persons'
businesses and properties (including their Mineral Interests and the reserves
and production relating thereto), together with the Engineering Report
described in Section 6.2(d). Within forty- five days after receiving such
information, reports and  data, or as promptly thereafter as practicable,
Majority Lenders shall agree upon an amount for the Borrowing Base (provided
that all Lenders must agree to any increase in the Borrowing Base) and
Administrative Agent shall by notice to Borrower designatesuch amount as the
new Borrowing Base available to Borrower hereunder, which designation shall
take effect immediately on the date such notice is sent (herein called a
"Determination Date") and shall remain in effect until but not including the
next date as of which the Borrowing Base is redetermined. If Borrower does
not furnish all such information, reports and data by the date specified in
the first sentence of this section, Administrative Agent may nonetheless
designate the Borrowing Base at any amount which Majority Lenders determine
and may redesignate the Borrowing Base from time to time thereafter (provided
that all Lenders must agree to any increase in the Borrowing Base) until each
Lender receives all such information, reports and data, whereupon Majority
Lenders shall designate a new Borrowing Base as described above. Majority
Lenders shall determine the amount of the Borrowing Base based upon the loan
collateral value which they in their discretion assign to the various Mineral
Interests of Restricted Persons at the time in question and based upon such
other credit factors (including without limitation the assets, liabilities,
cash flow, hedged and unhedged exposure to price, foreign exchange rate, and
interest rate changes, business, properties, prospects, management and
ownership of Borrower and its Affiliates) as they in their discretion deem
significant. It is expressly understood that Lenders and Administrative Agent
have no obligation to agree upon or designate the Borrowing Base at any
particular amount, whether in relation to the Maximum Credit Amount or
otherwise, and that Lenders' commitments to advance funds hereunder is
determined by reference to the Borrowing Base from time to time in effect.

        (b) In addition to Scheduled Redeterminations, Majority Lenders shall
be permitted to make a Special Redetermination of the Borrowing Base once in
each calendar year. Any request by Majority Lenders pursuant to this Section
2.9(b) shall be submitted to Administrative Agent and Borrower. As soon as
reasonably possible, Borrowershall deliver to Administrative Agent and
Lenders an Engineering Report.

        (c) In addition to Scheduled Redeterminations, Borrower shall be
permitted to request a Special Redetermination of the Borrowing Base once in
each calendar year. Suchrequest shall be submitted to Administrative Agent
and Lenders and at the time of such request Borrower shall (i) deliver to
Administrative Agent and each Lender an Engineering Report and to
Administrative Agent for the account of Lenders, an engineering fee in the
amount of $4,000 for each Lender, and (ii) notify Administrative Agent and
each Lender of the Borrowing Base requested by Borrower in connection with
such Special Redetermination.

        (d) Any Special Redetermination shall be made by Lenders in accordance
with the procedures and standards set forth in Section 2.9 (a).

        Section 2.10. Changes in Amount of Aggregate Commitment.

        (a) So long as no Default has occurred and is continuing Borrower shall
have the right to increase the Aggregate Commitment by obtaining additional
Commitments in a maximum aggregate amount not to exceed $25,000,000, but in
increments of not less than $5,000,000 or any higher integral multiple of
$1,000,000 (in this section, the amount of each such increase is herein
called an "Aggregate Commitment Increase"); either from one or more of the
Lenders or another lending institution provided that (i) the Aggregate
Commitment as increased by the Aggregate Commitment Increase shall not exceed
the Borrowing Base, (ii) Borrower shall have notified Administrative Agent of
the amount of the Aggregate Commitment Increase, (iii) each Lender shall have
had the option to increase its Commitment by its Percentage Share of the
Aggregate Commitment Increase (and to further increase its Commitment by its
pro rata share of the amount available if other Lenders do not desire to
increase their Commitments), (iv) the Administrative Agent shall have
approved the identity of any such new Lender, such approval not to be
unreasonably withheld, and (v) any such new Lender shall have assumed all of
the rights and obligations of a "Lender" hereunder by its execution and
delivery of a joinder agreement in form and
substance satisfactory to Administrative Agent.

        (b) If the Aggregate Commitment is increased in accordance with this
Section, the Administrative Agent and Borrower shall determine the effective
date (in this section called the "Increase Effective Date") and the final
allocation of such Aggregate Commitment Increase. The Administrative Agent
shall promptly notify Borrower and the Lenders of the final allocation of
such Aggregate Commitment increase and the Increase Effective Date. As a
condition precedent to such Aggregate Commitment Increase, Borrower shall
deliver to the Administrative Agent a certificate of Borrower dated as of the
Increase Effective Date (in sufficient copies for each Lender) (i) certifying
that, before and after giving effect to such Aggregate CommitmentIncrease,
(A) the representations and warranties contained in Article IV are true and
correct on and as of the Increase Effective Date, except to the extent that
such representations and warranties specifically refer to an earlier date, in
which case they are true and correct as of such earlier date, and (B) no
Default exists. Borrower shall prepay any Loans outstanding on the Increase
Effective Date to the extent necessary to keep the outstanding Loans ratable
with any revised Percentage Shares arising from any non-ratable increase in
the Commitments under this Section and all accrued and unpaid interest
thereon (and shall also pay any additional amounts required pursuant to
Section 3.5). At the time of sending such notice, Borrower (in consultation
with the Administrative Agent) shall specify the time period within which
each Lender is requested to respond (which shall in no event be less than ten
Business Days from the date of delivery of such notice to the Lenders). Each
Lender shall notify the Administrative Agent within such time period whether
or not it agrees to increase its Commitment and, if so, whether by an amount
equal to, greater than, or less than its Percentage Share of such requested
increase. Any Lender not responding within such time period shall be deemed
to have declined to increase its Commitment. The Administrative Agent shall
notify Borrower and each Lender of the Lenders' responses to each request
made hereunder.

        (c) This Section shall supersede any provisions in Section 10.1(a) to
the contrary

        (d) Borrower may at any time reduce the Aggregate Commitment in whole,
or in part ratably among the Lenders in the amount of $5,000,000 or any
higher integral multiple of $1,000,000, upon at least three Business Days'
written notice to the Administrative Agent, which notice shall specify the
amount of any such reduction, provided, however, that the amount of the
Aggregate Commitment may not be reduced below the Facility Usage and may not
be reinstated.

Section 2.11. Letters of Credit. Subject to the terms and conditions hereof,
Borrower may during the Commitment Period request LC Issuer to issue one or
more Letters of Credit, provided that, after taking such Letter of Credit
into
account:

        (a) the Facility Usage does not exceed the Borrowing Base at such time;
and

        (b) the aggregate amount of LC Obligations at such time does not exceed
the LC Sublimit; and

        (c) the expiration date of such Letter of Credit is prior to the end of
the Commitment Period.

and further provided that:

        (d) such Letter of Credit is to be used for general corporate purposes
of Borrower;

        (e) such Letter of Credit is not directly or indirectly used to assure
payment of or otherwise support any Indebtedness of any Person except
Indebtedness of Borrower;

        (f) the issuance of such Letter of Credit will be in compliance with
all applicable governmental restrictions, policies, and guidelines and will
not subject LC Issuer to any cost which is not reimbursable under Article
III;

        (g) the form and terms of such Letter of Credit are acceptable to LC
Issuer in its sole and absolute discretion; and

        (h) all other conditions in this Agreement to the issuance of such
Letter of Credit have been satisfied.

        LC Issuer will honor any such request if the foregoing conditions (a)
through (h) (in the following Section 2.12 called the "LC Conditions") have
been met as of the date of issuance of such Letter of Credit. LC Issuer may
choose to honor any such request for any other Letter of Credit but has no
obligation to do so and may refuse to issue any other requested Letter of
Credit for any reason which LC Issuer in its sole discretion deems relevant.

        Section 2.12. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit at least five Business Days before the
date on which Borrower desires for LC Issuer to issue such Letter of Credit.
By making any such written application Borrower shall be deemed to have
represented and warranted that the LC Conditions described in Section 2.11
ill be met as of the date of issuance of such Letter of Credit. Each such
written application for a Letter of Credit must be made in writing in the
form customarily used by LC Issuer, the terms and provisions of which are
hereby incorporated herein by reference (or in such other form as may
mutually be agreed upon by LC Issuer and Borrower). Two Business Days after
the LC Conditions for a Letter of Credit have been met as described in
Section 2.11 (or if LC Issuer otherwise desires to issue such Letter of
Credit), LC Issuer will issue such Letter of Credit at LC Issuer's office in
Denver, Colorado. If any provisions of any LC Application conflict with any
provisions of this Agreement, the provisions of this Agreement shall govern
and control.

        Section 2.13. Reimbursement and Participations.

        (a) Reimbursement by Borrower. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured
LC Obligation, together with interest thereon at the Default Rate applicable
to Base Rate Loans.

        (b) Letter of Credit Advances. If the beneficiary of any Letter of
Credit makes a draft or other demand for payment thereunder then Borrower
may, during the interval between the making thereof and the honoring thereof
by LC Issuer, request Lenders to make Loans to Borrower in the amount of such
draft or demand, which Loans shall be made concurrently with LC Issuer's
payment of such draft or demand and shall be immediately used by LC Issuer to
repay the amount of the resulting Matured LC Obligation. Such a request by
Borrower shall be made in compliance with all of the provisions hereof,
provided that for the purposes of the first sentence of Section 2.1, the
amount of such Loans shall be considered, but the amount of the Matured LC
Obligation to be concurrently paid by such Loans shall not be considered.

        (c) Participation by Lenders. LC Issuer irrevocably agrees to grant and
hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of
Credit hereunder -- each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from LC Issuer, on the terms and conditions
hereinafter stated and for such Lender's own account and risk, an undivided
interest equal to such Lender's Percentage Share of LC Issuer's obligations
and rights under each Letter of Credit issued hereunder and the amount of
each Matured LC Obligation paid by LC Issuer thereunder. Each Lender
unconditionally and irrevocably agrees with LC  Issuer that, if a Matured LC
Obligation is paid under any Letter of Credit for which LC Issuer is not
reimbursed in full by Borrower in accordance with the terms of this Agreement
and the related LC Application (including any reimbursement by means of
concurrent Loans or by the application of LC Collateral), such Lender shall
(in all circumstances and without set-off or counterclaim) pay to LC Issuer
on demand, in immediately available funds at LC Issuer's address for notices
hereunder, such Lender's Percentage Share of such Matured LC Obligation (or
any portion thereof which has not been reimbursed by Borrower). Each Lender's
obligation to pay LC Issuer pursuant to the terms of this subsection is
irrevocable and unconditional. If any amount required to be paid by any
Lender to LC Issuer pursuant to this subsection is paid by such Lender to LC
Issuer within three Business Days after the date such payment is due, LC
Issuer shall in addition to such amount be entitled to recover from such
Lender, on demand, interest thereon calculated from such due date at the
Federal Funds Rate. If any amount required to be paid by any Lender to LC
Issuer pursuant to this subsection is not paid by such Lender to LC Issuer
within three Business Days after the date such payment is due, LC Issuer
shall in addition to such amount be entitled to recover from such Lender, on
demand, interest thereon calculated from such due date at the Default Rate
applicable to Base Rate Loans.

        (d) Distributions to Participants. Whenever LC Issuer has in accordance
with this section received from any Lender payment of such Lender's
Percentage Share of any Matured LC Obligation, if LC Issuer thereafter
receives any payment of such Matured LC Obligation or any payment of interest
thereon (whether directly from Borrower or by application of LC Collateral or
otherwise, and excluding only interest for any period prior to LC Issuer's
demand that such Lender make such payment of its Percentage Share), LC Issuer
will distribute to such Lender its Percentage Share of the amounts so
received by LC Issuer; provided, however, that if any such payment received
by LC Issuer must thereafter be returned by LC Issuer, such Lender shall
return to LC Issuer the portion thereof which LC Issuer has previously
distributed to it.

        (e) Calculations. A written advice setting forth in reasonable detail
the amounts owing under this section, submitted by LC Issuer to Borrower or
any Lender from time to time, shall be conclusive, absent manifest error, as
to the amounts thereof.

        Section 2.14. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay (a) to
Administrative Agent, for the account of all Lenders in accordance with their
respective Percentage Shares, a letter of credit issuance fee at a rate equal
to the Eurodollar Margin then in effect, and (b) to such LC Issuer for its
own account, a letter of credit fronting fee at a rate equal to one- eighth
of one percent (0.125%) per annum.
Each such fee will be calculated based on the face amount of all Letters of
Credit outstanding on each day at the above applicable rate and will be
payable at the end of each Fiscal Quarter in arrears. In addition, Borrower
will pay to LC Issuer the LC Issuer's customary fees for administrative
issuance, amendment and drawing of each Letter of Credit.

        Section 2.15. No Duty to Inquire.

        (a) Drafts and Demands. LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit
without requiring, and without responsibility for, any determination as to
the existence of any event giving rise to said draft, either at the time of
acceptance or payment or thereafter. LC Issuer is under no duty to determine
the proper identity of anyone presenting such a draft or making such a demand
(whether by tested telex or otherwise) as the officer, representative or
Administrative Agent of any beneficiary under any Letter of Credit, and
payment  by LC Issuer to any such beneficiary when requested by any such
purported officer, representative or Administrative Agent is hereby
authorized and approved. Borrower releases each Lender Party from, and agrees
to hold each Lender Party harmless and indemnified against, any liability or
claim in connection with or arising out of the subject matter of this
section, which indemnity shall apply whether or not any such liability or
claim is in any way or to any extent caused, in whole or in part, by any
negligent act or omission of any kind by any Lender Party, provided only that
no Lender Party shall be entitled to indemnification for that portion, if
any, of any liability or claim which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a final
judgment.

        (b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, if any extension of
the maturity or time for presentation of drafts or any other modification of
the terms of any Letter of Credit is made at the request of ny Restricted
Person, or if the amount of any Letter of Credit is increased at the request
of any Restricted Person, this Agreement shall be binding upon all Restricted
Persons with respect to
such Letter of Credit as so extended, increased or otherwise modified, with
respect to drafts and property covered thereby, and with respect to any
action taken by LC Issuer, LC Issuer's correspondents, or any Lender Party in
accordance with such extension, increase or other modification.

        (c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing  as transferee of such Letter of Credit, nor
shall LC Issuer be charged with responsibility of any nature or character for
the validity or correctness of any transfer or successive transfers, and
payment by LC Issuer to any purported transferee or transferees as determined
by LC Issuer is hereby authorized and approved, and Borrower releases each
Lender Party from, and agrees to hold each Lender Party harmless and
indemnified against, any liability or claim in connection with or arising out
of the foregoing, which indemnity shall apply whether or not any such
liability or claim is in any way or to any extent caused, in whole or in
part, by any negligent act or omission of any kind by any Lender Party,
provided only that no Lender Party shall be entitled to indemnification for
that portion, if any, of any liability or claim which is proximately caused
by its own individual gross negligence or willful misconduct, as determined
in a final judgment.

        Section 2.16. LC Collateral.

        (a) LC Obligations in Excess of Borrowing Base. If, after the making of
all mandatory prepayments required under Section 2.7, the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to prepayment of
the entire principal balance of the Loans Borrower will immediately pay to LC
Issuer an amount equal to such excess. LC Issuer will hold such amount as
security for the remaining LC Obligations (all such amounts held as security
for LC Obligations being herein collectively called "LC Collateral") and the
other Obligations, and such collateral may be applied from time to time to
any Matured LC Obligations or other Obligations which are due and payable.
Neither this subsection nor the following subsection shall, however, limit or
impair any rights which LC Issuer may have under any other document or
agreement relating to any Letter of Credit, LC Collateral or LC Obligation,
including any LC Application, or any rights which any Lender Party may have
to otherwise apply any payments by Borrower and any LC Collateral under
Section 3.1.

        (b) Acceleration of LC Obligations. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then,
unless Majority Lenders otherwise specifically elect to the contrary (which
election may thereafter be retracted by Majority Lenders at any time), all LC
Obligations shall become immediately due and payable without regard to
whether or not actual drawings or payments on the Letters of Credit have
occurred, and Borrower shall be obligated to pay to LC Issuer immediately an
amount equal to the aggregate LC Obligations which are then outstanding.

        (c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such Investments as LC Issuer
may choose in its sole discretion. All interest on (and other proceeds of)
such Investments shall be reinvested or applied to Matured LC Obligations or
other Obligations which are due and payable. When all Obligations have
beensatisfied in full, including all LC Obligations, all Letters of Credit
have expired or been terminated, and all of Borrower's reimbursement
obligations in connection therewith have been satisfied in full, LC Issuer
shall release any remaining LC Collateral. Borrower hereby assigns and grants
to LC Issuer a continuing security interest in all LC Collateral paid by it
to LC Issuer, all Investments purchased with such LC Collateral, and all
proceeds thereof to secure its Matured LC Obligations and its Obligations
under this Agreement, each Note, and the other Loan Documents. Borrower
further agrees that LC Issuer shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as adopted in the State of
California with respect to such security interest and that an Event of
Default under this Agreement shall constitute a default for purposes of such
security interest.

        (d) Payment of LC Collateral. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC
Issuer may without notice to Borrower or any other Restricted Person provide
such LC Collateral (whether by transfers from other accounts maintained with
LC Issuer or otherwise) using any available funds of Borrower or any other
Person also liable to make such payments. Any such amounts which are required
to be provided as LC Collateral and which are not provided on the date
required shall be considered past due Obligations owing hereunder.

                                ARTICLE III - Payments to Lenders

        Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Administrative Agent for the account of
the Lender Party to whom such payment is owed, in lawful money of the United
States of America, without set-off, deduction or counterclaim, and in
immediately available funds. Each such payment must be received by
Administrative Agent not later than 11:00 a.m., Denver, Colorado time, on the
date such payment becomes due and payable. Any payment received by
Administrative Agent after such time will be deemed to have been made on the
next following Business Day. Should any such payment become due and payable
on a day other than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of a payment
of principal or past due interest, interest shall accrue and be payable
thereon for the period of such extension as provided in the Loan Document
under which such payment is due. Each payment under a Loan Document shall be
due and payable at the place provided therein and, if no specific place of
payment is provided, shall be due and payable at the place of payment of
Administrative Agent's Note. When Administrative Agent collects or receives
money on account of the Obligations, Administrative Agent shall promptly
distribute all money so collected or received in like funds, and each Lender
Party shall apply all such money so distributed, as follows:

        (a) first, for the payment of all Obligations which are then due (and
if such money is insufficient to pay all such Obligations, first to any
reimbursements due Administrative Agent under Section 6.9 or Section 10.4 and
then to the partial payment of all other Obligations then due in proportion
to the amounts thereof, or as Lender Parties shall otherwise agree);

        (b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;

        (c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and

        (d) last, for the payment or prepayment of any other Obligations. All
payments applied to principal or interest on any Note shall be applied first
to any interest hen due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with
Section 2.6 and Section 2.7. All distributions of amounts described in any of
subsections (b), (c) or (d) above shall be made by Administrative Agent pro
rata to each Lender Party then owed Obligations described in such subsection
in proportion to all amounts owed to all Lender Parties which are described
in such subsection; provided that if any Lender then owes payments to LC
Issuer for the purchase of a participation under Section 2.13(c) or to
Administrative Agent under Section 9.9, any amounts otherwise distributable
under this section to such Lender shall be deemed to belong to LC Issuer, or
Administrative Agent, respectively, to the extent of such unpaid payments,
and Administrative Agent shall apply such amounts to make such unpaid
payments rather than distribute such amounts to such Lender.

        Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or
the compliance with any request, directive or guideline from any central bank
or other governmental authority (whether or not having the force of Law)
affects or would affect the amount of capital required or expected to be
maintained by any Lender Party or any corporation controlling any Lender
Party, then, upon demand by such Lender Party, Borrower will pay to
Administrative Agent for the benefit of such Lender Party, from time to time
as specified by such Lender Party, such additional amount or amounts which
such Lender Party shall determine to be appropriate to compensate such Lender
Party or any corporation controlling such Lender Party in light of such
circumstances, to the extent that such Lender Party reasonably determines
that the amount of any such capital would be increased or the rate of return
on any such capital would be reduced by or in whole or in part based on the
existence of the face amount of such Lender Party's Loans, Letters of Credit,
participations in Letters of Credit or commitments under this Agreement.

        Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit.
If any applicable Law (whether now in effect or hereinafter enacted or
promulgated, including Regulation D) or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of Law):

        (a) shall change the methodology of taxation of payments to any Lender
Party of any principal, interest, or other amounts attributable to any
Eurodollar Loan or Letter of Credit or otherwise due under this Agreement in
respect of any Eurodollar Loan or Letter of Credit (other than taxes imposed
on the overall net income of such Lender Party or any Applicable Lending
Office of such Lender Party by any jurisdiction in which such Lender Party or
any such Applicable Lending Office is located); or

        (b) shall change, impose, modify, apply or deem applicable any reserve,
special deposit or similar requirements in respect of any Eurodollar Loan or
any Letter of Credit (excluding those for which such Lender Party is fully
compensated pursuant to adjustments made in the definition of Eurodollar
Rate) or against assets of, deposits with or for the account of, or credit
extended by, such Lender Party; or

        (c) shall impose on any Lender Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan or Letter of
Credit, the result of which is to increase the cost to any Lender Party of
funding or maintaining any Eurodollar Loan or of issuing any Letter of Credit
or to reduce the amount of any sum receivable by any Lender Party in respect
of any Eurodollar Loan or Letter of Credit by an amount deemed by such Lender
Party
to be material,

then such Lender Party shall promptly notify Administrative Agent and
Borrower in writing of the happening of such event and of the amount required
to compensate such Lender Party for such event (on an after-tax basis, taking
into account any taxes on such compensation), whereupon (i) Borrower shall
pay such amount to Administrative Agent for the account of such Lender Party
and (ii) Borrower may elect, by giving to Administrative Agent and such
Lender Party not less than three Business Days' notice, to convert any such
Eurodollar Loans into Base Rate Loans.

        Section 3.4. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Lender Party to fund or maintain Eurodollar Loans or to issue or
participate in Letters of Credit, or shall materially restrict the authority
of any Lender Party to purchase or take offshore deposits of dollars (i.e.,
"eurodollars"), or (b) any Lender Party determines that matching deposits
appropriate to fund or maintain any Eurodollar Loan are not available to it,
or (c) any Lender Party determines that the formula for calculating the
Eurodollar Rate does not fairly reflect the cost to such Lender Party of
making or maintaining loans based on such rate, then, upon notice by such
Lender Party to Borrower and Administrative Agent, Borrower's right to elect
Eurodollar Loans from such Lender Party (or, if applicable, to obtain
Letters of Credit) shall be suspended to the extent and for the duration of
such illegality, impracticability or restriction and all Eurodollar Loans of
such Lender Party which are then outstanding or are then the subject of any
Borrowing Notice and which cannot lawfully or practicably be maintained or
funded shall immediately become or remain, or shall be funded as,Base Rate
Loans of such Lender Party. Borrower agrees to indemnify each Lender Party
and hold it harmless against all costs, expenses, claims, penalties,
liabilities and damages which may result from any such change in Law,
interpretation or administration. Such indemnification shall be on an after-
tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.

        Section 3.5. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Lender Party  against, and reimburse
each Lender Party on demand for, any loss or expense incurred or sustained by
such Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans), as a result of (a) any payment
or prepayment (whether authorized or required hereunder or otherwise) of all
or a portion of a Eurodollar Loan on a day other than the day on which the
applicable Interest Period ends, (b) any payment or prepayment, whether
required hereunder or otherwise, of a Loan made after the delivery, but
before the effective date, of a Continuation/Conversion Notice, if such
payment or prepayment prevents such Continuation/Conversion Notice from
becoming fully effective, (c) the failure of any Loan to be made or of any
Continuation/Conversion Notice to become effective due to any condition
precedent not being satisfied or due to any other action or inaction of any
Restricted Person, or (d) any Conversion (whether authorized or required
hereunder or otherwise) of all or any portion of any Eurodollar Loan into a
Base Rate Loan or into a different Eurodollar Loan on a day other than the
day on which the applicable Interest Period ends. Such indemnification shall
be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.

        Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:

        (a) Borrower will indemnify each Lender Party against and reimburse
each Lender Party for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of this Agreement or any Eurodollar Loans or Letters of
Credit (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by the
overall net income of Administrative Agent or such Lender Party or any
Applicable Lending Office of such Lender Party by any jurisdiction in which
such Lender Party or any such Applicable Lending Office is located (all such
non-excluded taxes, levies, costs and charges being collectively called
"Reimbursable Taxes" in this section). Such indemnification shall be on an
after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.

        (b) All payments on account of the principal of, and interest on, each
Lender Party's Loans and Note, and all other amounts payable by Borrower to
any Lender Party hereunder, shall be made in full without set-off or
counterclaim and shall be made free and clear of and without deductions or
withholdings of any nature by reason of any Reimbursable Taxes, all of which
will be for the account of Borrower. In the event of Borrower's being
compelled by Law to make any such deduction or withholding from any payment
to anyLender Party, Borrower shall pay on the due date of such payment, by
way of additional interest, such additional amounts as are needed to cause
the amount receivable by such Lender Party after such deduction or
withholding to equal the amount which would have been receivable in the
absence of such deduction or withholding. If Borrower should make any
deduction or withholding as aforesaid, Borrower shall within 60 days
thereafter forward to such Lender Party an official receipt or other official
document evidencing payment of such deduction or withholding.

        (c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to
Administrative Agent and such Lender Party not less than three Business Days'
notice, to convert any such Eurodollar Loan into a Base Rate Loan, but such
election shall not diminish Borrower's obligation to pay all Reimbursable
Taxes.

        (d) Notwithstanding the foregoing provisions of this section, Borrower
shall be entitled, to the extent it is required to do so by Law, to deduct or
withhold (and not to make any indemnification or reimbursement for) income or
other similar taxes imposed by the United States of America from interest,
fees or other amounts payable hereunder for the account of any Lender Party,
other than a Lender Party (i) who is a U.S. person for Federal income tax
purposes or (ii) who has the Prescribed Forms on file with Agent (with copies
provided to Borrower) for the applicable year to the extent deduction or
withholding of such taxes is not required as a result of the filing of such
Prescribed Forms, provided that if Borrower shall so deduct or withhold any
such taxes, it shall provide a statement to Agent and such Lender Party,
setting forth the amount of such taxes so deducted or withheld, the
applicable rate and any other information or
documentation which such Lender Party may reasonably request for assisting
such Lender Party to obtain any allowable credits or deductions for the taxes
so deducted or withheld in the jurisdiction or jurisdictions in which such
Lender Party is subject to tax.

        Section 3.7. Change of Applicable Lending Office. Each Lender Party
agrees that, upon the occurrence of any event giving rise to the operation of
Section 3.2 through Section 3.6 with respect to such Lender Party, it will,
if requested by Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender Party) to designate another Applicable Lending
Office, provided that such designation is made on such terms that such Lender
Party and its Applicable Lending Office suffer no 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 shall affect or postpone any of the obligations of Borrower or the
rights of any Lender Party provided in Section 3.2 through Section 3.6.

        Section 3.8. Replacement of Lenders. If any Lender Party seeks
reimbursement for increased costs under Section 3.2 through Section 3.6, then
within ninety days thereafter -- provided no Event of Default then exists --
Borrower shall have the right (unless such Lender Party withdraws its request
for additional compensation) to replace such Lender Party by requiring such
Lender Party to assign its Loans and Notes and its commitments hereunder to
an Eligible Transferee reasonably acceptable to Administrative Agent and to
Borrower, provided that: (a) all Obligations of Borrower owing to such Lender
Party being replaced (including such increased costs, but excluding principal
and accrued interest on the Notes being assigned) shall be paid in full to
such Lender Party concurrently with such assignment, and (b) the replacement
Eligible Transferee shall purchase the Note being assigned by paying to such
Lender Party a price equal to the principal amount thereof plus accrued and
unpaid interest thereon. In connection with any such assignment Borrower,
Administrative Agent, such Lender Party and the replacement Eligible
Transferee shall otherwise comply with Section 10.5. Notwithstanding the
foregoing rights of Borrower under this section, however, Borrower may not
replace any Lender Party which seeks reimbursement for increased costs under
Section 3.2 through Section 3.6 unless Borrower is at the same time replacing
all Lender Parties which are then seeking such compensation. In connection
with the replacement of a Lender Party, Borrower shall pay all costs that
would have been due to such Lender Party pursuant to Section 3.5 if such
Lender Party's Loans had been prepaid at the time of such replacement.

                                ARTICLE IV- Conditions Precedent to Lending

        Section 4.1. Documents to be Delivered. No Lender has any obligation to
make its first Loan, and LC Issuer has no obligation to issue the first
Letter of Credit, unless Administrative Agent shall have received all of the
following, at Administrative Agent's office in Denver, Colorado, duly
executed and delivered and in form, substance and date satisfactory to
Administrative Agent:

        (a) This Agreement.

        (b) Each Note.

        (c) Certain certificates of Borrower including:

                (i) An "Omnibus Certificate" of the Secretary and of the Chairman
of the Board or President of Borrower, which shall contain the names and
signatures of the officers of Borrower authorized to execute Loan Documents
and which shall certify to the truth, correctness and completeness of the
following exhibits attached thereto: (1) a copy of resolutions duly adopted
by the Board of Directors of Borrower and in full force and effect at the
time this Agreement is entered into,
authorizing the execution of this Agreement and the other Loan Documents
delivered or to be delivered in connection herewith and the consummation of
the transactions contemplated herein and therein, (2) a copy of the charter
documents of Borrower and all amendments thereto, certified by theappropriate
official of Borrower's state of organization, and (3) a copy of any bylaws of
Borrower; and

                (ii) A "Compliance Certificate" of the Chairman of the Board or
President and of the Chief Financial Officer of Borrower, of even date with
such Loan or such Letter of Credit, in which such officers certify to the
satisfaction of the conditions set out in subsections (a), (b), (c) and (d)
of Section 4.2.

        (d) Certificate (or certificates) of the due formation, valid existence
and good standing of Borrower in its state of organization, issued by the
appropriate authorities of such jurisdiction.

        (e) A favorable opinion of Jackson DeMarco & Peckenpaugh, counsel for
Restricted Persons, substantially in the form set forth in Exhibit E.

        (f) The Initial Financial Statements.

        (g) Certificates or binders evidencing Restricted Persons' insurance in
effect on the date hereof.

        (h) Initial Engineering Report.

        (i) Payment of all commitment, facility, agency and other fees required
to be paid to any Lender pursuant to any Loan Documents or any commitment
agreement heretofore entered into.

        (j) Documents (i) confirming the payment in full of all Indebtedness
under the Existing Credit Documents (other than letters of credit outstanding
under the Existing Credit Documents as of the date hereof), (ii) releasing
and terminating any Liens on any Restricted Person's property securing such
Indebtedness, and (iii) terminating the credit facility under the Existing
Credit Documents, except with respect to such letters of credit.

        Section 4.2. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:

        (a) All representations and warranties made by any Restricted Person in
any Loan Document shall be true on and as of the date of such Loan or the
date of issuance of such Letter of Credit (except to the extent that the
facts upon which such representations are based have been changed by the
extension of credit hereunder) as if such representations and warranties had
been made as of the date of such Loan or the date of issuance of such Letter
of Credit.

        (b) No Default shall exist at the date of such Loan or the date of
issuance of such Letter of Credit.

        (c) No Material Adverse Change shall have occurred since the date of
the most recent financial statements of Borrower delivered pursuant to
Section 6.2(a).

        (d) Each Restricted Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan or the date of
issuance of
such Letter of Credit.

        (e) The making of such Loan or the issuance of such Letterc of Credit
shall not be prohibited by any Law and shall not subject any Lender or any LC
Issuer to any penalty or other onerous condition under or pursuant to any
such Law.

        (f) Administrative Agent shall have received all documents and
instruments which Administrative Agent has then requested, in addition to
those described in Section 4.1 (including opinions of legal counsel for
Restricted Persons and Administrative Agent; corporate documents and records;
documents evidencing governmental authorizations, consents, approvals,
licenses and exemptions; and certificates of public officials and of officers
and representatives of Borrower and other Persons), as to (i) the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in this Agreement and the other Loan
Documents, (ii) the satisfaction of all conditions contained herein or
therein, and (iii) all other matters pertaining hereto and thereto. All such
additional documents and instruments shall be satisfactory to Administrative
Agent in form, substance and date.

                                ARTICLE V- Representations and Warranties

        To confirm each Lender's understanding concerning Restricted Persons
and Restricted Persons' businesses, properties and obligations and to induce
each Lender to enter into this Agreement and to extend credit hereunder,
Borrower represents and warrants to each Lender that:

        Section 5.1. No Default. No event has occurred and is continuing which
constitutes a Default.

        Section 5.2. Organization and Good Standing. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to
do business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Restricted Person
has taken all actions and procedures customarily taken in order to enter, for
the purpose of conducting business or owning property, each jurisdiction
outside the United States wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such actions
and procedures desirable.

        Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.

        Section 5.4. No Conflicts or Consents. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a
party, the performance by each of its obligations under such Loan Documents,
and the consummation of the transactions contemplated by the various Loan
Documents, do not and will not (a) conflict with any provision of (i) any
Law, (ii) the organizational documents of any Restricted Person, or (iii) any
agreement, judgment, license, order or permit applicable to or binding upon
any Restricted Person, (b) result in the acceleration of any Indebtedness
owed by any Restricted Person, or (c) result in or require the creation of
any Lien upon any assets or properties of any Restricted Person except as
expressly contemplated or permitted in the Loan Documents. Except as
expressly contemplated in the Loan Documents no consent, approval,
authorization or order of, and no notice to or filing with, any Tribunal or
third party is required in connection with the execution, delivery or
performance by any Restricted Person of any Loan Document or to consummate
any transactions contemplated by the Loan Documents.

        Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors' rights.

        Section 5.6. Initial Financial Statements. Borrower has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present
Borrower's Consolidated financial position at the respective dates thereof
and the Consolidated results of Borrower's operations and Borrower's
Consolidated cash flows for the respective periods thereof. Since the date of
the annual Initial Financial Statements no Material Adverse Change has
occurred, except as reflected in the quarterly Initial Financial Statements
or in Section 5.6 of the Disclosure Letter. All Initial Financial Statements
were prepared in accordance with GAAP.

        Section 5.7. Other Obligations and Restrictions. No Restricted Person
has any outstanding Liabilities of any kind (including contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which are, in the aggregate, material to Borrower or material with respect to
Borrower's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in Section 5.7 of the Disclosure Letter or
a Disclosure Report. Except as shown in the Initial Financial Statements or
disclosed in Section 5.7 of the Disclosure Letter or a Disclosure Report, no
Restricted Person is subject to or restricted by any franchise, contract,
deed, charter restriction, or other instrument or restriction which could
cause a Material Adverse Change.

        Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Restricted
Person (other than industry-wide risks normally associated with the types of
businesses conducted by Restricted Persons) necessary to make the statements
contained herein or therein not misleading as of the date made or deemed
made. There is no fact known to any Restricted Person (other than industry-
wide risks normally associated with the types of businesses conducted by
Restricted Persons) that has not been disclosed to each Lender in writing
which
could cause a Material Adverse Change. There are no statements or conclusions
in any Engineering Report which are based upon or include misleading
information or fail to take into account material information regarding the
matters reported therein, it being understood that each Engineering Report is
necessarily based upon professional opinions, estimates and projections and
that Borrower does not warrant that such opinions, estimates and projections
will ultimately prove to have been accurate. Borrower has heretofore
delivered to each Lender true, correct and complete copies of the Initial
engineering Report.

        Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in Section 5.9 of the Disclosure Letter: (a) there are no
actions, suits or legal, equitable, arbitrative or administrative proceedings
pending, or to the knowledge of any Restricted Person threatened, against any
Restricted Person before any Tribunal which could cause a Material Adverse
Change, and (b) there are no outstanding judgments, injunctions, writs,
rulings or orders by any
such Tribunal against any Restricted Person or any Restricted Person's
stockholders, partners, directors or officers which could cause a Material
Adverse Change.

        Section 5.10. Labor Disputes and Acts of God. Except as disclosed in
Section 5.10 of the Disclosure Letter or a Disclosure Report, neither the
business nor the properties of any Restricted Person has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), which could cause a Material
Adverse Change.

        Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed in Section 5.11 of the Disclosure Letter or a Disclosure
Report. Except as disclosed in the Initial Financial Statements or in Section
5.11 of the Disclosure Letter or a Disclosure Report, no Termination Event
has occurred with respect to any ERISA Plan and all ERISA Affiliates are in
compliance with ERISA in all material respects. No ERISA Affiliate is
required to contribute to, or has any other absolute or contingent liability
in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA.
Except as set forth in Section 5.11 of the Disclosure Letter or a Disclosure
Report: (a) no "accumulated funding deficiency" (as defined in Section 412(a)
of the Internal Revenue Code) exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
and (b) the current value of each ERISA Plan's benefits does not exceed the
current value of such ERISA Plan's assets available for the payment of such
benefits by more than $500,000.

        Section 5.12. Environmental and Other Laws. Except as disclosed in
Section 5.12 of the Disclosure Letter or a Disclosure Report: (a) Restricted
Persons are conducting their businesses in material compliance with all
applicable Laws, including Environmental Laws, and have and are in compliance
with all material licenses and permits required under any such Laws; (b) none
of the operations or properties of any Restricted Person is the subject of
federal, state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any Hazardous Materials
into the environment or to the improper storage or disposal (including
storage or disposal at offsite locations) of any Hazardous Materials; (c) no
Restricted Person (and to the best knowledge of Borrower, no other Person)
has filed any notice under any Law indicating that any Restricted Person is
responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or
that any Hazardous Materials have been improperly released, or are improperly
stored or disposed of, upon any property of any Restricted Person; (d) no
Restricted Person has transported or arranged for the transportation of any
Hazardous Material to any location which is (i) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or (ii) the subject of
federal, state or local enforcement actions or other investigations which may
lead to claims against any Restricted Person for clean-up costs, remedial
work, damages to natural resources or for personal injury claims (whether
under Environmental Laws or otherwise); and (e) no Restricted Person
otherwise has any known material contingent liability under any Environmental
Laws or in connection with the release into the environment, or the storage
or disposal, of any Hazardous Materials. Each Restricted Person undertook, at
the time of its acquisition of each of its material properties, all
appropriate inquiry into the previous ownership and uses of the Property and
any potential environmental liabilities associated therewith.

        Section 5.13. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade
or fictitious name, except as disclosed in Section 5.13 of the Disclosure
Letter. Except as otherwise indicated in Section 5.13 of the Disclosure
Letter or a Disclosure Report, the chief executive  office and principal
place of business of each Restricted Person are (and for the preceding five
years have been) located at the address of Borrower set out on the signature
pages hereto. Except as indicated in Section 5.13 of the Disclosure Letter or
a Disclosure Report, no Restricted Person has any other office or place of
business.

        Section 5.14. Borrower's Subsidiaries. Borrower does not presently have
any Subsidiary or own any stock in any other corporation or association
except those listed in Section 5.14 of the Disclosure Letter or a Disclosure
Report. Neither Borrower nor any Restricted Person is a member of any general
or limited partnership, joint venture or association of any type whatsoever
except those listed in Section 5.14 of the Disclosure Letter or a Disclosure
Report and associations, joint ventures or other relationships (a) which are
established pursuant to a standard form operating agreement or similar
agreement or which are partnerships for purposes of federal income taxation
only, (b) which are not corporations or partnerships (or subject to the
Uniform Partnership Act) under applicable state Law, and (c) whose businesses
are limited to the exploration, development and operation of oil, gas or
mineral properties and interests owned directly by the parties in such
associations, joint ventures or relationships. Except as otherwise revealed
in a Disclosure Report, Borrower owns, directly or indirectly, the equity
interest in each of its Subsidiaries which is indicated in Section 5.14 of
the Disclosure Letter.

        Section 5.15. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of
electricity, gas, steam, water or other public utility services.

        Section 5.16. Insider. No Restricted Person, nor any Person having
"control" (as that term is defined in 12 U.S.C.  375b(9) or in regulations
promulgated pursuant thereto) of any Restricted Person, is a "director" or an
"executive officer"
or "principal shareholder" (as those terms are defined in 12 U.S.C.  375b(8)
or (9) or in egulations promulgated pursuant thereto) of any Lender, of a
bank holding company of which any Lender is a Subsidiary or of any Subsidiary
of a bank holding company of which any Lender is a Subsidiary.

        Section 5.17. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation
of the transactions contemplated hereby, Borrower will be solvent (as such
term is used in applicable bankruptcy, liquidation, receivership, insolvency
or similar Laws).

        Section 5.18. Title to Properties; Licenses. Each Restricted Person has
good and defensible title to all of its material properties and assets, free
and clear of all Liens, encumbrances, or adverse claims other than Permitted
Liens and free and clear of all impediments to the use of such properties and
assets in such Restricted Person's business. Each Restricted Person possesses
all licenses, permits, franchises, patents, copyrights, trademarks and trade
names, and other intellectual property (or otherwise possesses the right to
use such intellectual property without violation of the rights of any other
Person) which are necessary to carry out its business as presently conducted
and as presently proposed to be conducted hereafter, and no Restricted Person
is in violation in any material respect of the terms under which it possesses
such intellectual property or the right to use such intellectual property.

        Section 5.19. Tax Shelter Regulations. Borrower does not intend to
treat the Loans and/or Letters of Credit and related transactions as being a
"reportable transaction" (within the meaning of Treasury Regulation Section
1.6011-4). In the event Borrower determines to take any action inconsistent
with such intention, it will promptly notify Agent thereof. If Borrower so
notifies Agent, Borrower acknowledges that one or more of the Lenders may
treat its Loans and/or Letters of Credit as part of a transaction that is
subject to Treasury Regulation Section 301.6112-1, and such Lender or
Lenders, as applicable, willmaintain the lists and other records required by
such Treasury Regulation.

ARTICLE VI- Affirmative Covenants of Borrower

        To conform with the terms and conditions under which each Lender is
willing to have credit outstanding to Borrower, and to induce each Lender to
enter into this Agreement and extend credit hereunder, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Majority Lenders have
previously agreed otherwise:

        Section 6.1. Payment and Performance. Borrower will pay all amounts due
under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower will cause each other Restricted
Person to observe, perform and comply with every such term, covenant and
condition in any Loan Document.

        Section 6.2. Books, Financial Statements and Reports. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Borrower will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will
furnish the following statements and reports to each Lender Party at
Borrower's expense:

        (a) As soon as available, and in any event within ninety (90) days
after the end of ach Fiscal Year, complete Consolidated and consolidating
financial statements of Borrower together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
independent certified public accountants selected by Borrower and acceptable
to Majority Lenders, stating that such Consolidated financial statements have
been so prepared. These financial statements shall contain a Consolidated and
consolidating balance sheet as of the end of such Fiscal Year and
Consolidated and consolidating statements of earnings, of cash flows, and of
changes in owners' equity for such Fiscal Year, each setting forth in
comparative form the corresponding figures for the preceding Fiscal Year.

        (b) As soon as available, and in any event within forty-five (45) days
after the end of the first three Fiscal Quarters in each Fiscal Year,
Borrower's Consolidated and consolidating balance sheet as of the end of such
Fiscal Quarter and Consolidated and consolidating statements of Borrower's
earnings and cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition Borrower will, together with each such set
of financial statements and each set of financial statements furnished under
subsection (a) of this section, furnish a certificate in the form of Exhibit
D signed by the Chief Financial Officer of Borrower stating that such
financial statements are accurate and complete (subject to normal year- end
adjustments), stating that he has reviewed the Loan Documents, containing
calculations showing compliance (or noncompliance) at the end of such Fiscal
Quarter with the requirements of Section 7.11 and Section 7.12 and stating
that no Default exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of any such
Default.

        (c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by any Restricted
Person to its stockholders and all registration statements, periodic reports
and other statements and schedules filed by any Restricted Person with any
securities exchange, the Securities and Exchange Commission or any similar
governmental authority. Documents required to be delivered pursuant to
Section 6.2(a), (b) or (c) (to the extent any such documents are included in
materials otherwise filed with the SEC) 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 in the
Disclosure Letter; or (ii) on which such documents are posted on the
Borrower's behalf on IntraLinks/IntraAgency or another relevant website, if
any, including, but not limited to any filings made on EDGAR to which each
Lender and the Administrative Agent have access(whether a commercial, third-
party website or whether sponsored by the Administrative Agent); provided
that: (x) the Borrower shall deliver paper copies of such documents to the
Administrative Agent or any Lender that requests the Borrower to deliver such
paper copies until a written request to cease delivering paper copies is
given by the Administrative Agent or such Lender and (y) the Borrower shall
notify (which may be by facsimile or electronic mail) the Administrative
Agent and each Lender 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. Notwithstanding anything contained herein, in
every instance the Borrower shall be required to provide paper copies of the
Compliance Certificates required by Section 6.2(b) to the
Administrative Agent and each of the Lenders. Except for such Compliance
Certificates, the Administrative Agent shall have no obligation to request
the delivery or to maintain copies of the documents referred to above, and in
any event shall have no responsibility to monitor compliance by the Borrower
with any such request for delivery, and each Lender shall be solely
responsible for requesting delivery to it or maintaining its copies of such
documents.

        (d) By March 31 of each year, an Engineering Report prepared by
DeGolyer & MacNaughton, or other independent petroleum engineers chosen by
Borrower and acceptable to Majority Lenders, concerning all oil and gas
properties and interests owned by any Restricted Person which are located in
or offshore of the United States and which have attributable to them proved
oil or gas reserves. This report shall be satisfactory to Administrative
Agent, shall contain sufficient information to enable Borrower to meet the
reporting requirements concerning oil and gas reserves contained in
Regulations S-K and S-X promulgated by the Securities and Exchange Commission
and shall contain information and analysis comparable in scope to that
contained in the Initial Engineering Report.

        (e) As soon as available, and in any event within sixty (60) days after
the end of each month, a report describing by field the gross volume of
production and sales prices attributable to production during such month from
the properties described in subsection (a) above.

        (f) When required under Section 2.9(b) or Section 2.9(c), the
Engineering Reports described therein.

        (g) When Borrower or a Consolidated subsidiary of Borrower acquires
assets during a Four-Quarter Period and such assets are included in the
calculation of Adjusted EBITDA for such Four-Quarter Period, Borrower shall
deliver to Administrative Agent and Lenders, together with the financial
statements described in Section 6.2(b), pro forma financial statements of
Borrower for such period prepared on a Consolidated basis as if such assets
had been acquired by
Borrower or such subsidiary on the first day of such Four-Quarter Period.

        (h) Concurrently with the reports referred to in Section 6.2(d), a
report describing material gas imbalances and curtailments of production for
the Collateral.

        (i) Promptly after Borrower has notified Agent of any intention by
Borrower to treat the Loans and/or Letters of Credit and related transaction
as being a "reportable transaction" (within the meaning of Treasury
Regulation Section 1.6011- 4), Borrower shall deliver to Agent a duly
completed copy of IRS Form 8886 or any successor form.

        Section 6.3. Other Information and Inspections. Each Restricted Person
will furnish to each Lender any information which Administrative Agent may
from time to time request concerning any provision of the Loan Documents or
any matter in connection with Restricted Persons' businesses, properties,
prospects, financial condition and operations. Each  Restricted Person will
permit representatives appointed by Administrative Agent (including
independent accountants, auditors, Administrative Agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person's property, including its books of
account, other books and records, and any facilities or other business
assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain, and each Restricted Person shall permit Administrative Agent or its
representatives to investigate and verify the accuracy of the information
furnished to Administrative Agent or any Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives.

        Section 6.4. Notice of Material Events and Change of Address. Borrower
will promptly notify each Lender in writing, stating that such notice is
being given pursuant to this Agreement, of:

        (a) occurrence of any Material Adverse Change,

        (b) the occurrence of any Default,

        (c) the acceleration of the maturity of any Indebtedness owed by any
Restricted Person or of any default by any Restricted Person under any
indenture, mortgage, agreement, contract or other instrument to which any of
them is a party or by which any of them or any of their properties is bound,
if such acceleration or default could cause a Material Adverse Change,

        (d) the occurrence of any Termination Event,

        (e) any claim of $10,000,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against any Restricted Person or with respect
to any Restricted Person's properties, and

        (f) the filing of any suit or proceeding against any Restricted Person
in which an adverse decision could cause a Material Adverse Change.

        Upon the occurrence of any of the foregoing Restricted Persons will
take all necessary or appropriate steps to remedy promptly any such Material
Adverse Change, Default, acceleration, default or Termination Event, to
protect against any such adverse claim, to defend any such suit or
proceeding, and to resolve all controversies on account of any of the
foregoing. Borrower will also notify Administrative Agent and Administrative
Agent's counsel in writing at least twenty Business Days prior to the date
that any Restricted Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps
its books and records, furnishing with such notice any necessary financing
statement amendments or requesting Administrative Agent and its counsel to
prepare the same.

        Section 6.5. Maintenance of Properties. Each Restricted Person will
maintain, preserve, protect, and keep all property used or useful in the
conduct of its business in good condition and in compliance with all
applicable Laws, and will from time to time make all repairs, renewals and
replacements needed to enable the business and operations carried on in
connection therewith to be promptly and advantageously conducted at all
times.

        Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.

        Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted
Person will (a) timely file all required tax returns; (b) timely pay all
taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) pay all Liabilities owed by it
on ordinary trade terms to vendors, suppliers and other Persons providing
goods and services used by it in the ordinary course of its business within a
period of time after the invoice date that is customary in the oil and gas
industry; (d) pay and discharge when due all other Liabilities now or
hereafter owed by it; and (e) maintain appropriate accruals and reserves for
all of the foregoing in accordance with GAAP. Each Restricted Person may,
however, delay paying or discharging any of the foregoing so long as it is in
good faith contesting the validity thereof by appropriate proceedings and has
set aside on its books adequate reserves therefor.

        Section 6.8. Insurance. Each Restricted Person shall at all times
maintain (at its own expense) insurance for its property and its liability
for injury to persons or property in accordance with the Insurance Schedule,
which insurance shall be by financially sound and reputable insurers.

        Section 6.9. Performance on Borrower's Behalf. If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or
other amounts it is required to pay under any Loan Document, Administrative
Agent may pay the same. Borrower shall immediately reimburse Administrative
Agent for any such payments and each amount paid by Administrative Agent
shall constitute an Obligation owed hereunder which is due and payable on the
date such amount is paid by Administrative Agent.

        Section 6.10. Interest. Borrower hereby promises to each Lender Party
to pay interest at the Default Rate applicable to Base Rate Loans on all
Obligations (including Obligations to pay fees or to reimburse or indemnify
any Lender) which Borrower has in this Agreement promised to pay to such
Lender Party and which are not paid when due. Such interest shall accrue from
the date such Obligations become due until they are paid.

        Section 6.11. Compliance with Agreements and Law. Each Restricted
Person will perform all material obligations it is required to perform under
the terms of each indenture, mortgage, deed of trust, security agreement,
lease, franchise, agreement, contract or other instrument or obligation to
which it is a party or by which it or any of its properties is bound. Each
Restricted Person will conduct its business and affairs in compliance with
all Laws applicable thereto and will maintain in good standing all licenses
that may be necessary or appropriate to carry on its business.

        Section 6.12. Environmental Matters; Environmental Reviews.

        (a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted Person,
as well as all contractual obligations and agreements with respect to
environmental remediation or other environmental matters, and shall obtain,
at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full
force and effect. No Restricted Person will do anything or permit anything to
be done which will subject any of its properties to any remedial obligations
under, or result in noncompliance with applicable permits and licenses issued
under, any applicable Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances. Upon Administrative Agent's reasonable request, at any time
and from time to time, Borrower will provide at its own expense an
environmental inspection of any of the Restricted Persons' material real
properties and audit of their environmental compliance procedures and
practices, in each case from an engineering or consulting firm approved by
Administrative Agent. Administrative Agent and Lenders will use their best
efforts to protect any attorney client privilege that exists with respect to
reports or audits prepared by such engineers or consultants.

        (b) Borrower will promptly furnish to Administrative Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by any Restricted Person, or
of which Borrower otherwise has notice, pending or threatened against any
Restricted Person by any governmental authority with respect to any alleged
violation of or non-compliance with any Environmental Laws or relating to
potential responsibility with respect to any investigation or clean-up of
Hazardous Material at any location, in each case which involves a claim or
liability in excess of $5,000,000.

        Section 6.13. Evidence of Compliance. Each Restricted Person will
furnish to each Lender at such Restricted Person's or Borrower's expense all
evidence which Administrative Agent from time to time reasonably requests in
writing as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Restricted Person in
the Loan Documents, the satisfaction of all conditions contained therein, and
all other matters pertaining thereto.

        Section 6.14. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower hereby grants to each Lender a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Lender at common Law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any
and all moneys, securities or other property (and the  proceeds therefrom) of
Borrower now or hereafter held or received by or in transit to any Lender
from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower with
any Lender, and (c) any other credits and claims of Borrower at any time
existing against any Lender, including claims under certificates of deposit.
At any time and from time to time after the occurrence of any Default, each
Lender is hereby authorized  to foreclose upon, or to offset against the
Obligations then due and payable (in either case without notice to Borrower),
any and all items hereinabove referred to. The remedies of foreclosure and
offset are separate and cumulative, and either may be exercised independently
of the other without regard to procedures or restrictions applicable to the
other.

                                ARTICLE VII- Negative Covenants of Borrower

        To conform with the terms and conditions under which each Lender is
willing to have credit outstanding to Borrower, and to induce each Lender to
enter into this Agreement and make the Loans, Borrower warrants, covenants
and agrees that until the full and final payment of the Obligations and the
termination of this Agreement, unless Majority Lenders have previously agreed
otherwise:

        Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:

        (a) the Obligations.

        (b) Liabilities for taxes and governmental assessments in the ordinary
course of business that are not yet due.

        (c) Indebtedness arising under Hedging Contracts permitted under
Section 7.3.

        (d) Liability for that certain royalty associated with production from
Borrower's Formax properties.

        (e) miscellaneous items of Indebtedness not described in subsections
(a) through (c) which do not in the aggregate (taking into account all such
Indebtedness of all Restricted Persons) exceed $10,000,000 at any one time
outstanding.

        Section 7.2. Limitation on Liens. Except for Permitted Liens, no
Restricted Person will create, assume or permit to exist any Lien upon any of
the properties or assets which it now owns or hereafter acquires.

        Section 7.3. Hedging Contracts. No Restricted Person will be a party to
or in any manner be liable on any Hedging Contract except:

        (a) contracts entered into with the purpose and effect of fixing prices
on oil or gasexpected to be produced, purchased, sold or transported by
Restricted Persons, provided that at all times: (i) no such contract fixes a
price for a term of more than thirty-six (36) months except contracts that
are directly hedged to offset a longer term fixed rate contract; (ii) the
aggregate monthly production covered by all such contracts (determined, in
the case of contracts that are not settled on a monthly basis, by a monthly
proration acceptable to Administrative Agent) for any single month does not
in the aggregate exceed seventy-five percent (75%) of Restricted Persons'
aggregate Projected Oil and Gas Production anticipated to be sold in the
ordinary course of Restricted Persons' businesses for such month, (iii) no
such contract requires any Restricted Person to put up money, assets, letters
of credit or other security against the event of its nonperformance prior to
actual default by such Restricted Person in performing its obligations
thereunder, and (iv) each such contract is with a counterparty or has a
guarantor of the obligation of the counterparty who (unless such counterparty
is a Lender or one of its Affiliates) at the time the contract is made has
long-term obligations rated A1 by Moody's or A+ by S & P, or better,
respectively, by either Rating Agency. As used in this subsection, the term
"Projected Oil and Gas Production" means the projected production of oil or
gas (measured by volume unit or BTU equivalent, not sales price) for the term
of the contracts or a particular month, as applicable, from properties and
interests owned by any Restricted Person which are located in or offshore of
the United States and which have attributable to them proved oil or gas
reserves, as such production is projected in the most recent report delivered
pursuant to Section 6.2(d), after deducting projected production from any
properties or interests sold or under contract for sale that had been
included in such report and after adding projected production from any
properties or interests that had not been reflected in such report but that
are reflected in a separate or supplemental reports meeting the requirements
of such Section 6.2(d) above and otherwise are satisfactory to Administrative
Agent;

        (b) contracts entered into by a Restricted Person with the purpose and
effect of fixing interest rates on a principal amount of indebtedness of such
Restricted Person that is accruing interest at a variable rate, provided that
(i) the aggregate notional amount of such contracts never exceeds seventy-
five percent (75%) of the anticipated
outstanding principal balance of the indebtedness to be hedged by such
contracts or an average of such principal balances calculated using a
generally accepted method of matching interest swap contracts to declining
principal balances, (ii) the floating rate index of each such contract
generally matches the index used to determine the floating rates of interest
on the corresponding indebtedness to be hedged by such contract and (iii)
each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender or
one of its Affiliates) at the time the contract is made has long-term
obligations rated A1 by Moody's or A+ by S & P, or better; and

        (c) contracts entered into with the purpose and effect offixing prices
on electricity expected to be produced or sold by Restricted Persons,
provided that at all times: (i) no such contract fixes a price for a term of
more than sixty (60) months, (ii) the aggregate monthly production covered by
all such contracts (determined, in the case of contracts that are not settled
on a monthly basis, by a monthly proration acceptable to Administrative
Agent) for any single month does not in the aggregate exceed ninety percent
(90%) of Restricted Persons' aggregateProjected Electricity Production
anticipated to be sold in the ordinary course of Restricted Persons'
businesses for such month, (iii) no such contract requires any Restricted
Person to put up money, assets, letters of credit or other security against
the event of its nonperformance prior to actual default by such Restricted
Person in performing its obligations thereunder, and (iv) each such contract
is with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its
Affiliates) at the time the contract is made has long-term obligations rated
A1 by Moody's or A+ by S&P, or better, respectively, by either Rating Agency.
As used in this subsection, the term "Projected Electricity Production" means
the projected production of electricity (measured by volume unit or megawatt
per hour equivalent, not sales price) for the term of the contracts or a
particular month, as applicable, from generating facilities owned by any
Restricted Person which are located in the United States and projected by
Restricted Persons.

        Section 7.4. Limitation on Mergers, Issuances of Securities. No
Restricted Person will merge or consolidate with or into any other Person;
provided that so long as no Default has occurred and is continuing or will
occur as a result thereof (a) Borrower may merge or consolidate with another
Person so long as Borrower is the surviving business entity, (b) any wholly-
owned Subsidiary of Borrower may be merged into or consolidated with another
Person so long as Borrower or a wholly-owned Subsidiary of Borrower is the
surviving business entity, and (c) any Subsidiary of Borrower may merge or
consolidate with another Person so long as Borrower or a Subsidiary of
Borrower is the surviving business entity. Borrower will not issue any
securities other than shares of its common stock and any options or warrants
giving the holders thereof only the right to acquire such shares. No
Subsidiary of Borrower will issue any additional shares of its capital stock
or other securities or any options, warrants or other rights to acquire such
additional shares or other securities except to Borrower and only to the
extent not otherwise forbidden under the terms hereof. No Subsidiary of
Borrower which is a partnership will allow any diminution of Borrower's
interest (direct or indirect) therein.

        Section 7.5. Limitation on Sales of Property. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein, or discount, sell,
pledge or assign any notes payable to it, accounts receivable or future
income, except:

        (a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;

        (b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms;

        (c) capital stock of any of Borrower's Subsidiaries which is
transferred to Borrower or a wholly owned Subsidiary of Borrower;

        (d) interests in oil and gas properties, or portions thereof, to which
no proved reserves of oil, gas or other liquid or gaseous hydrocarbons are
properly attributed; and

        (e) other property which is sold for fair consideration not in the
aggregate in excess of $10,000,000 in any period of twelve (12) consecutive
calendar months.

        Section 7.6. Limitation on  dividends and Stock Repurchases. No
Restricted Person (a)will declare or make any Dividends  other than (i)
Dividends payable to Borrower, and (ii) so long as no Default has occurred
and is continuing or will occur as a result thereof, Dividends payable to
Borrower's shareholders, to the extent that the aggregate value of all such
Distributions made during any Four-Quarter Period does not exceed the greater
of $13,000,000 or seventy-five percent (75%) of Net Income for such Four-
Quarter Period; or (b) make Stock Repurchases except to the extent that the
aggregate value of all such Stock Repurchases made during any Four-Quarter
Period does not exceed $15,000,000.

        Section 7.7. Limitation on Acquisitions, Investments; and New
Businesses. Except as expressly permitted by this section, no Restricted
Person will (a) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction, or (b) make any acquisitions of or
capital contributions to or other Investments in any Person or property;
provided that the Restricted Persons (i) may make Permitted Investments and
Core Acquisitions and Investments without limitation, and (ii) may make Non-
Core Acquisitions and Investments so long as the aggregate amount expended on
Non-Core Acquisitions and Investments during the period from the date hereof
until the Maturity Date never exceeds $15,000,000. No Restricted Person will
engage directly or indirectly in any business or conduct any operations
except in connection with or incidental to its present businesses and
operations.

        Section 7.8. Limitation on Credit Extensions. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than (a) normal and prudent extensions of credit to customers
buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner.

        Section 7.9. Transactions with Affiliates. Neither Borrower nor any of
its Subsidiaries will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would
have been obtainable at the time in arm's-length dealing with Persons other
than such Affiliates, provided that such restriction shall not apply to
transactions among Borrower and its wholly owned Subsidiaries.

        Section 7.10. Prohibited Contracts. Except as expressly provided for in
the Loan Documents, no Restricted Person will, directly or indirectly, enter
into, create, or otherwise allow to exist any contract or other consensual
restriction on (a) the ability of any Subsidiary of Borrower to (i) pay
dividends or make other distributions to Borrower, (ii) to redeem equity
interests held in it by Borrower, (iii) to repay loans and other indebtedness
owing by it to Borrower, or (iv) to transfer any of its assets to Borrower or
(b) the ability of any Restricted Person to grant to Agent and Lenders Liens
on its assets. No ERISA Affiliate will incur any obligation to contribute to
any "multiemployer plan" as defined in Section 4001 of ERISA.

        Section 7.11. Current Ratio. The ratio of Borrower's Current Assets to
Borrower's Current Liabilities will never be less than 1.0 to 1.0.

        Section 7.12. EBITDA to Total Funded Debt Ratio. At the end of any
Fiscal Quarter, beginning with the Fiscal Quarter ending June 30, 2003, the
ratio of (a) Total Funded Debt to (b) Adjusted EBITDA for the Four-Quarter
period then ended, will not be greater than 3.0 to 1.0.

                                ARTICLE VIII- Events of Default and Remedies

        Section 8.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:

        (a) Any Restricted Person fails to pay any principal component of any
Obligation (including but not limited to any Borrowing Base Deficiency) when
due and payable, whether at a date for the payment of a fixed installment or
as a contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;

        (b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in subsection (a) above) when due and payable, whether at a date
for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within
three Business Days after the same becomes due;

        (c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;

        (d) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII;

        (e) Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply
with any covenant, agreement, condition or provision of any Loan Document,
and such failure remains unremedied for a period of thirty (30) days after
notice of such failure is given by Administrative
Agent to Borrower;

        (f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Restricted Person in connection with
any Loan Document shall prove to have been false or incorrect in any material
respect on any date on or as of which made, or any Loan Document at any time
ceases to be valid, binding and enforceable as warranted in Section 5.5 for
any reason other than its release or subordination by Administrative Agent;

        (g) Any Restricted Person fails to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument, if
such agreement or instrument is materially significant to Borrower or to
Borrower and its Subsidiaries on a Consolidated basis, and such failure is
not remedied within the applicable period of grace (if any) provided in such
agreement or instrument;

        (h) Any Restricted Person (i) fails to pay any portion, when such
portion is due, of any of its Indebtedness in excess of $5,000,000, or (ii)
breaches or defaults in the performance of any agreement or instrument by
which any such Indebtedness is issued, evidenced, governed, or ecured, and
any such failure, breach or default continues beyond any applicable period of
grace provided therefore;

        (i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code) in excess of $5,000,000 exists
with respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, or (ii) any Termination Event occurs with respect
to any ERISA Plan and the then current value of such ERISA Plan's benefit
liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $5,000,000
(or in the case of a Termination Event involving the withdrawal of a
substantial employer, the withdrawing employer's proportionate share of such
excess exceeds such amount);

        (j) Any Restricted Person:

                (i) suffers the entry against it of a judgment, decree or order
for relief by a Tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Law of any jurisdiction now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended, or has any such
proceeding commenced against it which remains undismissed for a period of
thirty days; or

                (ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents to
the entry of an order for relief in an involuntary case under any such Law;
or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any of
the foregoing; or

                (iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time consented
to, requested by, or acquiesced to by it; or

                (iv) suffers the entry against it of a final judgment for the
payment of money in excess of $5,000,000 (not covered by insurance
satisfactory to Administrative Agent in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such
period and a stay of execution pending such appeal is obtained; or

                (v) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial part of
its assets and such writ or warrant of  attachment or any similar process is
not stayed or released within thirty days after the entry or levy thereof or
after any stay is vacated or set aside;

        (k) Any Change of Control occurs; and

        (l) Any Material Adverse Change occurs.

        Upon the occurrence of an Event of Default described in subsection
(j)(i), (j)(ii) or (j)(iii) of this section with respect to Borrower, all of
the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice
of acceleratio, or any other notice or declaration of any kind, all of which
are hereby expressly waived by
Borrower and each Restricted Person who at any time ratifies or approves this
Agreement. Upon any such acceleration, any obligation of any Lender and any
obligation of LC Issuer to issue Letters of Credit hereunder to make any
further Loans shall be permanently terminated. During the continuance of any
other Event of Default, Administrative Agent at any time and  from time to
time may (and upon written instructions from Majority Lenders, Administrative
Agent shall), without notice to Borrower or any other Restricted Person, do
either or both of the following: (1) terminate any obligation of Lenders to
make Loans hereunder, and any obligation of LC Issuer to issue Letters of
Credit hereunder, and (2) declare any or all of the Obligations immediately
due and payable, and all such Obligations shall thereupon be immediately due
and payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each
Restricted Person who at any time ratifies or approves this Agreement.

        Section 8.2. Remedies. If any Default shall occur and be continuing,
each Lender Party may protect and enforce its rights under the Loan Documents
by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Loan Document, and
each Lender Party may enforce the payment of any Obligations due it or
enforce any other legal or equitable right which it may have. All rights,
remedies and powers conferred upon Lender Parties under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at Law or in equity.

                                ARTICLE IX- Administrative Agent

        Section 9.1. Appointment and Authority. Each Lender Party hereby
irrevocably authorizes Administrative Agent, and Administrative Agent hereby
undertakes, to receive payments of principal, interest and other amounts due
hereunder as specified herein and to take all other actions and to exercise
such powers under the Loan Documents as are  specifically delegated to
Administrative Agent by the terms hereof or thereof, together with all other
powers reasonably incidental thereto. The relationship of Administrative
Agent to the other Lender Parties is only that of one commercial lender
acting as Administrative Agent for others, and nothing in the Loan Documents
shall be construed to constitute Administrative Agent a trustee or other
fiduciary for any Lender Party or any holder of any participation in a Note
nor to impose on Administrative Agent duties and obligations other than those
expressly provided for in the Loan Documents. With respect to any matters not
expressly provided for in the Loan Documents and any matters which the Loan
Documents place within the discretion of Administrative Agent, Administrative
Agent shall not be required to exercise any discretion or take any action,
and it may request instructions from Lenders with respect to any such matter,
in which case it shall be required to act or to refrain from acting (and
shall be fully protected and free from liability to all Lender Parties in so
acting or refraining from acting) upon the instructions of Majority Lenders
(including itself), provided, however, that Administrative Agent shall not be
required to take any action which exposes it to a risk of personal liability
that it considers unreasonable or which is contrary to the Loan Documents or
to applicable Law. Upon receipt by Administrative Agent from Borrower of any
communication calling for action on the part of Lenders or upon notice from
any other Lender to Administrative Agent of a Default, Administrative Agent
shall promptly notify each other Lender thereof.

        Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. Neither
Administrative Agent nor any of its directors, officers, Administrative
Agents, attorneys, or employees shall be liable for any action taken or
omitted to be taken by any of them under or in connection with the Loan
Documents, including their negligence of any kind, except that each shall be
liable for its own gross negligence or willful misconduct. Without limiting
the generality of the foregoing, Administrative Agent (a) may treat the payee
of any Note as the holder thereof until Administrative Agent receives written
notice of the assignment or transfer thereof in accordance with this
Agreement, signed by such payee and in form satisfactory to Administrative
Agent; (b) may consult with legal counsel (including counsel for Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (c) makes
no warranty or representation to any other Lender and shall not be
responsible to any other Lender Party for any
statements, warranties or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
the Loan Documents on the part of any Restricted Person or to inspect the
property (including the books and records) of any Restricted Person; (e)
shall not be deemed to have knowledge of the occurrence of a Default unless
it shall have received notice thereof specifying that it is a "Notice of
Default," (f) shall not be responsible to any other Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any instrument or document furnished in
connection therewith; (g) may rely upon the representations and warranties of
each Restricted Person or Lender Party in exercising its  powers hereunder;
and (h) shall incur no liability under or in respect of the Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing
(including any facsimile, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper Person or Persons.

        Section 9.3. Credit Decisions. Each Lender Party acknowledges that it
has, independently and without reliance upon any other Lender Party, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan
Documents. Each Lender Party also acknowledges that it will, independently
and without reliance upon any other Lender Party and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Loan
Documents.

        Section 9.4. Indemnification. Each Lender agrees to indemnify
Administrative Agent (to the extent not reimbursed by Borrower within ten
(10) days after demand) from and against such Lender's Percentage Share of
any and all liabilities, obligations, claims, losses, damages, penalties,
fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, accountants, experts
and advisors) of any kind or nature whatsoever (in this section collectively
called "liabilities and costs") which to any extent (in whole or in part) may
be imposed on, incurred by, or asserted against Administrative Agent growing
out of, resulting from or in any other way associated with the Loan Documents
and the transactions and events (including the enforcement thereof) at any
time associated therewith or contemplated therein (whether arising in
contract or in tort and otherwise and including any
violation or noncompliance with any Environmental Laws by any Person or any
liabilities or duties of any Person with respect to Hazardous Materials found
in or released into the environment).

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED,
IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY
ADMINISTRATIVE AGENT,

provided only that no Lender shall be obligated under this section to
indemnify Administrative Agent for that portion, if any, of any liabilities
and costs which is proximately caused by Administrative Agent's own
individual gross negligence or willful misconduct, as determined in a final
judgment. Cumulative of the foregoing, each Lender agrees to reimburse
Administrative Agent promptly upon demand for such Lender's Percentage Share
of any costs and expenses to
be paid to Administrative Agent by Borrower under Section 10.4(a) to the
extent that Administrative Agent is not timely reimbursed for such expenses
by Borrower as provided in such section. As used in this section the term
"Administrative Agent" shall refer not only to the Person designated as such
in Section 1.1 but also to each director, officer, Administrative Agent,
attorney, employee, representative and Affiliate of such Person.

        Section 9.5. Rights as Lender. In its capacity as a Lender,
Administrative Agent shall have the same rights and obligations as any Lender
and may exercise such rights as though it were not Administrative Agent.
Administrative Agent may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with any
Restricted Person or their Affiliates, all as if it were not Administrative
Agent hereunder and without any duty to account therefor to any other Lender.

        Section 9.6. Sharing of Set-Offs and Other Payments. Each Lender Party
agrees that if it shall, whether through the exercise of rights of banker's
lien, set off, or counterclaim against Borrower or otherwise, obtain payment
of a portion of the aggregate Obligations owed to it which, taking into
account all distributions made by Administrative Agent under Section 3.1,
causes such Lender Party to have received more than it would have received
had such payment been received by Administrative Agent and distributed
pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously
purchased and shall be obligated to purchase interests in the Obligations as
necessary to cause all Lender Parties to share all payments as provided for
in Section 3.1, and (b) such other adjustments shall be made from time to
time as shall be equitable to ensure that Administrative Agent and all Lender
Parties share all payments of Obligations as
provided in Section 3.1; provided, however, that nothing herein contained
shall in any way affect the right of any Lender Party to obtain payment
(whether by exercise of rights of banker's lien, set-off or counterclaim or
otherwise) of indebtedness other than the Obligations. Borrower expressly
consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired
pursuant to the foregoing arrangements, may to the fullest extent permitted
by Law exercise any and all rights of banker's lien, set-off, or counterclaim
as fully as if such holder were a holder of the Obligations in the amount of
such interest or other participation. If all or any part of any funds
transferred pursuant to this section is thereafter recovered from the seller
under this section which received the same, the purchase provided for in this
section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to
the order of a Tribunal order to be paid on account of the possession of such
funds prior to such recovery.

        Section 9.7. Investments. Whenever Administrative Agent in good faith
determines that it is uncertain about how to distribute to Lender Parties any
funds which it has received, or whenever Administrative Agent in good faith
determines that there is any dispute among Lender Parties about how such
funds should be distributed, Administrative Agent may choose to defer
distribution of the funds which are the subject of such uncertainty or
dispute. If Administrative Agent in good faith believes that the uncertainty
or dispute will not be promptly resolved, or if Administrative Agent is
otherwise required to invest funds pending distribution to Lender Parties,
Administrative Agent shall invest such funds pending distribution; all
interest on any such Investment shall be distributed upon the distribution of
such Investment and in the same proportion and to the same Persons as such
Investment. All moneys received by Administrative Agent for distribution to
Lender Parties (other than to the Person who is Administrative Agent in its
separate capacity as a Lender Party) shall be held by Administrative Agent
pending such distribution solely as Administrative Agent for such Lender
Parties, and Administrative Agent shall have no equitable title to any
portion thereof.

        Section 9.8. Benefit of Article IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Lender Parties, and no Restricted Person shall be entitled to rely on any
such provision or assert any such provision in a claim or defense against any
Lender. Lender Parties may waive or amend such provisions as they desire
without any notice to or consent of Borrower or any Restricted Person.

        Section 9.9. Resignation. Administrative Agent may resign at any time
by giving written notice thereof to Lenders and Borrower. Each such notice
shall set forth the date of such resignation. Upon any such resignation
Majority Lenders shall have the right to appoint a successor Administrative
Agent. A successor must be appointed for any retiring Administrative Agent,
and such Administrative Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of
the retiring Administrative Agent's resignation, no successor Administrative
Agent has been appointed and has accepted such appointment, then the retiring
Administrative Agent may appoint a successor Administrative Agent, which
shall be a commercial bank organized or licensed to conduct a banking or
trust business under the Laws of the United States of America or of any state
thereof. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, the retiring Administrative
Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents. After any retiring Administrative
Agent's resignation hereunder the provisions of this ARTICLE IX shall
continueto inure to its benefit as to  any actions taken or omitted to be
taken by it while it was Administrative Agent under the Loan Documents.

                                ARTICLE X - Miscellaneous

        Section 10.1. Waivers and Amendments; Acknowledgments.

        (a) Waivers and Amendments. No failure or delay (whether bycourse of
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender Party may have under any of the Loan Documents shall
operate as a waiver thereof or of any other right, power or remedy, nor shall
any single or partial exercise by any Lender Party of any such right, power
or remedy preclude any other or further exercise thereof or of any other
right, power or remedy. No waiver of any provision of any Loan Document and
no consent to any departure therefrom shall ever be effective unless it is in
writing and signed as provided below in this section, and then such waiver or
consent shall be effective only in the specific instances and for the
purposes for which given and to the extent specified in such writing. No
notice to or demand on any Restricted Person shall in any case of itself
entitle any Restricted Person to any other or further notice or demand in
similar or other circumstances. This Agreement and the other Loan Documents
set forth the entire understanding between the parties hereto with respect to
the transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof and
thereof, and no waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed
by (i) if such party is Borrower, by Borrower, (ii) if such party is
Administrative Agent or LC Issuer, by such party, and (iii) if such party is
a Lender, by such Lender or by Administrative Agent on behalf of Lenders with
the written consent of Majority Lenders (which consent has already been given
as to the termination of the Loan Documents as provided in Section 10.9).
Notwithstanding the foregoing or anything to the contrary herein,
Administrative Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would: (1) waive any of the conditions specified in Section 4.1
(provided that Administrative Agent may in itsdiscretion withdraw any request
it has made under Section 4.2(f), (2) increase the maximum amount which such
Lender is committed hereunder to lend, (3) reduce any fees payable to such
Lender hereunder, or the principal of, or interest on, such Lender's Note,
(4) postpone any date fixed for any payment of any such fees, principal or
interest, (5) amend the definition herein of "Majority Lenders" or otherwise
change the aggregate amount of Percentage Shares which is required for
Administrative Agent, Lenders or any of them to take any particular action
under the Loan Documents, (6) release Borrower from its obligation to pay
such Lender's Note or (7) amend this Section 10.1(a).

        (b) Acknowledgments and Admissions. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in
the negotiation, execution and delivery of the Loan Documents to which it is
a party, (ii) it has made an independent decision to enter into this
Agreement and the other Loan Documents to which it is a party, without
reliance on any representation, warranty, covenant or undertaking by
Administrative Agent or any Lender, whether written, oral or implicit, other
than as expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof, (iii) there are no representations,
warranties, covenants, undertakings or agreements by any Lender as to the
Loan Documents except as expressly set out in this Agreement or in another
Loan Document delivered on or after the date hereof, (iv) no Lender has any
fiduciary obligation toward Borrower with respect to any Loan Document or the
transactions contemplated thereby, (v) the relationship pursuant to the Loan
Documents between Borrower and the other Restricted Persons, on one hand, and
each Lender, on the other hand, is and shall be solely that of debtor and
creditor, respectively, (vi) no partnership or joint venture exists with
respect to the Loan Documents between any Restricted person and any Lender,
(vii) Administrative Agent is not Borrower's Administrative Agent, but
Administrative Agent for Lenders, (viii) should a Default occur or exist,
each Lender will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Lender, or any representative thereof, and
no such representation or covenant has been made, that any Lender will, at
the time of a Default, or at any other time, waive, negotiate, discuss, or
take or refrain from taking any action permitted
under the Loan Documents with respect to any such Default or any other
provision of the Loan Documents, and (x) all Lender Parties have relied upon
the truthfulness of the acknowledgments in this section in deciding to
execute and deliver this Agreement and to become obligated hereunder.

        (c) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS 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 UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

        Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of
the Notes and the other Loan Documents, and shall further survive until all
of the Obligations are paid in full to each Lender Party and all of Lender
Parties' obligations to Borrower are terminated. All statements and
agreements contained in any certificate or other instrument delivered by any
Restricted Person to any Lender Party under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, indemnities,
and covenants made by Restricted Persons in the Loan Documents, and the
rights, powers, and privileges granted to Lender Parties in the Loan
Documents, are cumulative, and, except for expressly specified waivers and
consents, no Loan Document shall be construed in the context of another to
diminish, nullify, or otherwise reduce the benefit to any Lender Party of any
such representation, warranty, indemnity, covenant, right, power or
privilege. In particular and without limitation, no exception set out in this
Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or covenant shall be subject only to
those exceptions which are expressly made applicable to it by the terms of
the various Loan Documents.

        Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be
in writing, unless otherwise specifically provided in such Loan Document
(provided that Administrative Agent may give telephonic notices to the other
Lender Parties), and shall be deemed sufficiently given or furnished if
delivered by personal delivery, by facsimile or other electronic
transmission, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto
and to each Lender Party at its address specified on the Lenders Schedule
(unless changed by similar notice in writing given by the particular Person
whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery during normal business hours at the address provided
herein, (b) in the case of facsimile, upon receipt, (c) in the case of other
electronic transmission, upon acknowledgment of receipt by the recipient
within twenty-four (24) hours of first attempted delivery, or (d) in the case
of registered or certified United States mail, within three days after
deposit in the mail; provided, however, that no Borrowing Notice shall become
effective until actually received by Administrative Agent.

        Section 10.4. Payment of Expenses; Indemnity.

        (a) Payment of Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (i) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement
or any of the other Loan Documents or any other document or transaction
referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on
behalf of Administrative Agent (including without limitation attorneys' fees
and engineering fees, travel costs and miscellaneous expenses) in connection
with (1) the negotiation, preparation, execution and delivery of the Loan
Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (2) the borrowings hereunder and other action
reasonably required
in the course of administration hereof, (3) monitoring or confirming (or
preparation or negotiation of any document related to) any Restricted
Person's compliance with any covenants or conditions contained in this
Agreement or in any Loan Document, and (iii) all reasonable costs and
expenses incurred by or on behalf of any Lender Party (including without
limitation attorneys' fees, consultants' fees and accounting fees) in
connection with the preservation of any
rights under the Loan Documents or the defense or enforcement of any of the
Loan Documents (including this section), any attempt to cure any breach
thereunder by any Restricted Person, or the defense of any Lender Party's
exercise of its rights thereunder. In addition to the foregoing, until all
Obligations have been paid in full, Borrower will also pay or reimburse
Administrative Agent for all reasonable out-of-pocket costs and expenses of
Administrative Agent or its Administrative Agents or employees in connection
with the continuing administration of the Loans and the related due diligence
of Administrative Agent, including travel and miscellaneous expenses and fees
and expenses of Administrative Agent's outside counsel, reserve engineers and
consultants engaged in connection with the Loan Documents.

        (b) Indemnity. Borrower agrees to indemnify each Lender Party , upon
demand, from and against any and all liabilities, obligations, broker's fees,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs")
which to any extent (in whole or in part) may be imposed on, incurred by, or
asserted against such Lender Party growing out of, resulting from or in any
other way associated with the Loan Documents and the transactions and events
(including the enforcement or defense thereof) at any time associated
therewith or contemplated therein (whether arising in contract or in tort or
otherwise). Among other things, the foregoing indemnification covers all
liabilities and costs incurred by any Lender Party related to any breach of a
Loan Document by a Restricted Person, any bodily injury to any Person or
damage to any Person's property, or any violation or noncompliance with any
Environmental Laws by any Lender Party or any other Person or any liabilities
or duties of any Lender Party or any other Person with respect to Hazardous
Materials found in or released into the environment.

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED,
IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED,
IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
LENDER PARTY,

provided only that no Lender Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and
costs which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment. If any Person
(including Borrower or any of its Affiliates) ever alleges such gross
negligence or willful misconduct by any Lender Party, the indemnification
provided for in this section shall nonetheless be paid upon demand, subject
to later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the
alleged gross negligence or willful misconduct. As used in this section the
term "Lender Party" shall refer not only to each Person designated as such in
Section 1.1 but also to each director, officer, Administrative Agent,
trustee, attorney, employee, representative and Affiliate of or for such
Person.

        Section 10.5. Parties in Interest; Assignments.

        (a) All grants, covenants and agreements contained in the Loan
Documents shall bind and inure to the benefit of the parties thereto and
their respective successors and assigns; provided, however, that no
Restricted Person may assign or transfer any of its rights or delegate any of
its duties or obligations under any Loan Document without the prior consent
of all of the Lenders. Neither Borrower nor any Affiliates of Borrower shall
directly or indirectly purchase or otherwise retire any Obligations owed to
any Lender nor will any Lender accept any offer to do so, unless each Lender
shall have received substantially the same offer with respect to the same
Percentage Share of the Obligations owed to it. If Borrower or any Affiliate
of Borrower at any time purchases some but less than all of the Obligations
owed to all Lender Parties, such purchaser shall not be entitled to any
rights of any Lender under the Loan Documents unless and until Borrower or
its Affiliates have purchased all of the Obligations.

        (b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person unless the agreement between such Lender and such participant at
all times provides: (i) that such participation exists only as a result of
the agreement between such participant and such Lender and that such transfer
does not give such participant any right to vote as a Lender or any other
direct claims or rights
against any Person other than such Lender, (ii) that such participant is not
entitled to payment from any Restricted Person under Section 3.2 through
Section 3.6 of amounts in excess of those payable to such Lender under such
sections (determined without regard to the sale of such participation), and
(iii) unless such participant is an Affiliate of such Lender, that such
participant shall not be entitled to require such Lender to take any action
under any Loan Document or to obtain the consent of such participant prior to
taking any action under any Loan Document, except for actions which would
require the consent of all Lenders under subsection (a) of Section 10.1. No
Lender selling such a participation shall, as between the other parties
hereto and such Lender, be relieved of any of its obligations hereunder as a
result of the sale of such participation. Each Lender which sells any such
participation to any Person (other than an Affiliate of such Lender) shall
give prompt notice thereof to Administrative Agent and Borrower.

        (c) Except for sales of participations under the immediately preceding
subsection, no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with
the following requirements:

                (i) Each such assignment shall apply to all Obligations owing to
the assignor Lender hereunder and to the unused portion of the assignor
Lender's commitments, so that after such assignment is made the assignor
Lender shall have a fixed (and not a varying) Percentage Share in its Loans
and Note and be committed to make that Percentage Share of all future Loans,
the assignee shall have a fixed Percentage Share in such Loans and Note and
be committed to make that Percentage Share of all future Loans, and the
Percentage Share of the Maximum Credit Amount of both the assignor and
assignee shall equal or exceed $5,000,000.

                (ii) The parties to each such assignment shall execute and
deliver to Administrative Agent, for its acceptance and recording in the
"Register" (as defined below in this section), an Assignment and Acceptance
in the form of Exhibit F, appropriately completed, together with the Note
subject to such assignment and a processing fee payable to Administrative
Agent of $3,500. Upon such execution,delivery, and payment and upon the
satisfaction of the conditions set out in such Assignment and Acceptance,
then (1) Borrower shall issue new
Notes to such assignor and assignee upon return of the old Notes to Borrower,
and (2) as of the "Settlement Date" specified in such Assignment and
Acceptance the assignee thereunder shall be a party hereto and a Lender
hereunder and Administrative Agent shall thereupon deliver to Borrower and
each Lender a schedule showing the revised
Percentage Shares of such assignor Lender and such assignee Lender and the
Percentage Shares of all other Lenders.

                (iii) Each assignee Lender which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Internal Revenue Code)
for Federal income tax purposes, shall (to the extent it has not already done
so) provide Administrative Agent and Borrower with the Prescribed Forms.

        (d) Nothing contained in this section shall prevent or prohibit any
Lender from assigning or pledging all or any portion of its Loans and Note to
any Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank; provided that no such
assignment or pledge shall relieve such Lender from its obligations
hereunder.

        (e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Administrative Agent and each other Lender Party that such assignee
understands and agrees to the terms hereof, including Article IX hereof.

        (f) Administrative Agent shall maintain a copy of each Assignment and
Acceptance and a register for the recordation of the names and addresses of
Lenders and the Percentage Shares of, and principal amount of the Loans owing
to, each Lender from time to time (in this section called the "Register").
The entries in the Register shall be conclusive, in the absence of manifest
error, and Borrower and each Lender Party may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes. The Register
shall be available for inspection by Borrower or any Lender Party at any
reasonable time and from time to time upon reasonable prior notice.

        Section 10.6. Confidentiality. Administrative Agent and each Lender
(each, a "Lending Party") agrees to keep confidential any information
furnished or made available to it by any Restricted Person pursuant to this
Agreement that is marked confidential; provided that nothing herein shall
prevent any Lending Party from disclosing such information (a) to any other
Lending Party or any Affiliate of any Lending Party, or any officer,
director, employee, Administrative Agent, or advisor of any Lending Party or
Affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c)
as required by any Law, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any Tribunal, (f) that is or
becomes available to the public or that is or becomes available to any
Lending Party other than as a result of a disclosure by any Lending Party
prohibited by this Agreement, (g) in connection with any litigation to which
such Lending Party or any of its Affiliates may be a party, (h)to the extent
necessary in connection with the exercise of any right or remedy under this
Agreement or any other Loan Document, and (i) subject to provisions
substantially similar to those contained in this section, to any actual or
proposed participant or assignee. Notwithstanding anything set forth herein
to the contrary, Administrative Agent and Lenders are hereby expressly
authorized to disclose the "tax reatment" and "tax structure" (as those terms
are defined in Treas. Reg.  1.6011-4(c)(8) and (9), respectively) of the
transactions contemplated hereby; provided, however, that the foregoing
authorization shall apply only in the event that the transactions
contemplated hereby are a "confidential transaction" within the meaning of
Treas. Reg.  1.6011-4(b)(3).

        Section 10.7. Governing Law; Submission to Process. Except to the
extent that the law of another jurisdiction is expressly elected in a Loan
Document, the Loan Documents shall be deemed contracts and instruments made
under the laws of the State of California and shall be construed and enforced
in accordance with and governed by the laws of the State of California and
the laws of the United States of America, without regard to principles of
conflicts of law. Borrower hereby irrevocably submits itself to the non-
exclusive jurisdiction of the state andfederal courts sitting in the Northern
District of California for the United States District Court and agrees and
consents that service of process may be made upon it in any legal proceeding
relating to the Loan Documents or the Obligations by any means allowed under
California or federal law.

        Section 10.8. Limitation on Interest. Lender Parties, Restricted
Persons and the other parties to the Loan Documents intend to contract in
strict compliance with applicable usury Law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of the terms
and provisions contained in the Loan Documents shall ever be construed to
provide for interest in excess of the maximum amount of interest permitted to
be contracted for, charged, or
received by applicable Law from time to time in effect. Neither any
Restricted Person nor any present or future guarantors, endorsers, or other
Persons hereafter becoming liable for payment of any Obligation shall ever be
liable for unearned interest thereon or shall ever be required to pay
interest thereon in excess of the maximum amount that
may be lawfully contracted for, charged, or received under applicable Law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the LoanDocuments which may be in conflict or
apparent conflict herewith.

        Section 10.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Administrative Agent to terminate this Agreement.
Upon receipt by Administrative Agent of such a notice, if no Obligations are
then owing this Agreement and all other Loan Documents shall thereupon be
terminated and the parties thereto released from all prospective obligations
thereunder. Notwithstanding the foregoing or anything herein to the contrary,
any waivers or admissions made by any Restricted Person in any Loan Document,
any Obligations under Section 3.2 through Section 3.6, and any obligations
which any Person may have to indemnify or compensate any Lender Party shall
survive any termination of this Agreement or any other Loan Document. At the
request and expense of Borrower, Administrative Agent shall prepare and
execute all necessary instruments to reflect and effect such termination of
the Loan Documents. Administrative Agent is hereby authorized to execute all
such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.

        Section 10.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms
and provisions of the Loan Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable Law.

        Section 10.11. Counterparts; Fax. This Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement. This Agreement and the Loan Documents
may be validly executed and delivered by facsimile or other electronic
transmission.

        SECTION 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. BORROWER
AND EACH LENDER PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN
ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR ADMINISTRATIVE AGENT OR
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR
IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION,
"SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.

IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.

                                                BERRY PETROLEUM COMPANY,
                                                Borrower

                                                By:
                                        /s/   Jerry V. Hoffman
                                                Jerry V. Hoffman
                                                Chairman, President and
                                                Chief Executive Officer

                                                By:
                                        /s/   Ralph J. Goehring
                                                Ralph J. Goehring
                                                Senior Vice President and
                                                Chief Financial Officer

                                                Address:
                                                5201 Truxtun Avenue, Suite 300
                                                Bakersfield, California 93309-0640
                                                Attention: Kenneth A. Olson

                                                Telephone: 661.616.3829
                                                Fax: 661.616.3881
                                                Email: kao@bry.com

                                                WELLS FARGO BANK, NATIONAL
                                                ASSOCIATION, Administrative Agent,
                                                LC Issuer and Lender

                                                By:
                                        /s/   Todd Stornetta
                                                Todd Stornetta
                                                Vice President

                                                BANK OF AMERICA, N.A., Lender

                                                By:
                                        /s/     Steven A. Mackenzie
                                                Steven A. Mackenzie
                                                Vice President

                                                BANK OF SCOTLAND, Lender

                                                By:
                                        /s/     Joseph Fratus
                                                Joseph Fratus
                                                First Vice President

                                                BNP PARIBAS, Lender

                                                By:
                                        /s/     Brian M. Malone
                                                Brian M. Malone
                                                Managing Director

                                        /s/     Polly Schott
                                                Polly Schott
                                                Vice President

                                                CITIBANK (WEST), FSB, Lender

                                        /s/     Gai Sherman
                                                Gai Sherman
                                                Vice President

                                                COMERICA BANK, Lender

                                        /s/     Peter Sefzik
                                                Peter Sefzik
                                                Assistant Vice President - Texas
                                                                                Divison

                                                FLEET NATIONAL BANK, Lender

                                        /s/     Jeffrey H. Rathkamp
                                                Jeffrey H. Rathkamp
                                                Director

                                                MIDFIRST BANK, Lender

                                        /s/     Shawn D. Brewer
                                                Shawn D. Brewer
                                                Assistant Vice President

                                                SOCIETE GENERALE, Lender

                                        /s/     Spencer N. Smith
                                                Spencer N. Smith
                                                Vice President

                                                UNION BANK OF CALIFORNIA, N.A.,
                                                                                Lender

                                        /s/     James G. Chepyha
                                                James G. Chepyha
                                                Vice President

SCHEDULE 1

LENDERS SCHEDULE

                                                                        Percentage
                                                                          Share
Amount
WELLS FARGO BANK, NATIONAL ASSOCIATION                                   15.000%
                 $30,000,000

Domestic Lending Office:

1740 Broadway, 4th Floor
Denver, Colorado 80274
Attention: Todd Stornetta
Tel: 303.863.5653
Fax: 303.863.5196
Email: stornet@wellsfargo.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                  Share
          Amount
BANK OF AMERICA, N.A.                                                            12.750%
                $25,500,000

Domestic Lending Office:

901 Main Street
67th Floor
Dallas, Texas 75146
Attention: Steven A. MacKenzie
Tel: 214.209.3680
Fax: 214.209.3140
Email: steven.mackenzie@bankofamerica.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                  Share
          Amount
BANK OF SCOTLAND                                                                 8.750%
        $17,500,000

Domestic Lending Office:

565 Fifth Avenue
New York, New York 10017
Attention: Joseph Fratus
Tel: 212.450.0837
Fax: 212.557.9460
Email: joseph_fratus@bankofscotland.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                   Share
          Amoun
BNP PARIBAS                                                                      12.000%
                $24,000,000

Domestic Lending Office:

1200 Smith Street
Suite 3100
Houston, Texas 77002
Attention: Polly Schott
Tel: 713.982.1150
Fax: 713.659.6915
Email: polly.schott@americas.bnpparibas.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                  Share
          Amount
CITIBANK (WEST), FSB                                                              6.250%
                $12,500,000

Domestic Lending Office:

5554 California Avenue
Bakersfield, California 93309
Attention: Gai Sherman
Tel: 661.863.0366
Fax: 661.324.0996
Email: gsherman@calfed.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                 Share
          Amount
COMERICA BANK                                                                     8.750%
                $17,500,000

Domestic Lending Office:

1601 Elm Street
2nd Floor
Dallas, Texas 75201
Attention: Peter Sefzik
Tel: 214.969.6538
Fax: 214.969.6561
Email: peter_l_sefzik@comerica.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                  Share
          Amount
FLEET NATIONAL BANK                                                               12.000%
                $24,000,000

Domestic Lending Office:

100 Federal Street
MA DE 10009H
Boston, Massachusetts 02110
Attention: Jeff Rathkamp
Tel: 617.434.7010
Fax: 617.434.3652
Email: jeffrey_h_rathkamp@fleet.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                  Share
          Amount
MIDFIRST BANK                                                                     6.250%
                $12,500,000

Domestic Lending Office:

501 NW Grand Blvd.
Oklahoma City, Oklahoma 73118
Attention: Shawn D. Brewer
Tel: 405.767.7524
Fax: 405.767.7120
Email: shawn.brewer@midfirst.com

Eurodollar Lending Office:
        Same

                                                                                Percentage
                                                                                 Share
          Amount
SOCIETE GENERALE                                                                6.250%
                $12,500,000

Domestic Lending Office:

1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Spencer Smith
Tel: 713.759.6301
Fax: 713.650.0824
Email: spencer.smith@us.socgen.com

Eurodollar Lending Office:
        Same

                                                                        Percentage
                                                                          Share
Amount
UNION BANK OF CALIFORNIA, N.A.                                            12.000%
                        $24,000,000

Domestic Lending Office:

500 N. Akard, Suite 4200
Dallas, Texas 75201
Attention: Ali Ahmed
Tel: 214.922.4207
Fax: 214.922.4209
ali.ahmed@uboc.com

Eurodollar Lending Office:
        Same

SCHEDULE 2
INSURANCE SCHEDULE

EXHIBIT A

PROMISSORY NOTE

July 10, 2003

        FOR VALUE RECEIVED, the undersigned, Berry Petroleum Company, a
Delaware corporation (herein called "Borrower"), hereby promises to pay to
the order of *________________________________________________ (herein called
"Lender"), the principal sum equal to the amount of such Lender's Commitment,
or, if greater or less, the aggregate unpaid principal amount of the Loans
made under this Note by Lender to Borrower pursuant to the terms of the
Credit Agreement (as
hereinafter defined), together with interest on the unpaid principal balance
thereof as hereinafter set forth, both principal and interest payable as
herein provided in lawful money of the United States of America at the
offices of Administrative Agent under the Credit
Agreement,*____________________________________or at such other place as from
time to time may be designated by the holder of this Note.

        This Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith among Borrower, Wells Fargo Bank, National
Association, as Administrative Agent, and the lenders (including Lender)
referred to therein (herein, as from time to time supplemented, amended or
restated, called the "Credit Agreement"), and is a "Note" as defined therein,
and (b) is subject to the terms and provisions of the Credit Agreement, which
contains provisions for payments and prepayments hereunder and acceleration
of the maturity hereof upon the happening of certain stated events. Payments
of
principal and interest on this Note shall be made and applied as provided
herein and in the Credit Agreement. Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein.

        The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Maturity Date.

        If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally
agree to pay reasonable attorneys' fees and collection costs to the holder
hereof in addition to the principal and interest payable hereunder.

        Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration
of the maturity of this Note, diligence in collecting, the bringing of any
suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.

        This Note and the rights and duties of the parties hereto shall be
governed by the Laws of the State of California (without regard to principles
of conflicts of law), except to the extent the same are governed by
applicable federal Law.

         BERRY PETROLEUM COMPANY

        By:
        Name:
                                                                                        Title:

EXHIBIT B

BORROWING NOTICE

Reference is made to that certain Credit Agreement dated as of July 10, 2003
(as from time to time amended, the "Agreement"), by and among Berry Petroleum
Company ("Borrower"), Wells Fargo Bank, National Association, as
Administrative Agent, and certain financial institutions ("Lenders"). Terms
which are defined in the Agreement are used herein with the meanings given
them in the Agreement. Pursuant to the terms of the Agreement Borrower hereby
requests a Borrowing of new Loans to be advanced pursuant to Section 2.2(a)
of the Agreement as follows:

Aggregate amount of Borrowing: $

Type of Loans in Borrowing:

Date on which Loans are to be advanced:

Length of Interest Period for
Eurodollar Loans (1, 2, 3, 6, 9 or 12 months):                   months

If combined with existing Loans see attached Continuation/Conversion Notice.

To induce Lenders to make such Loans, Borrower hereby represents, warrants,
acknowledges, and agrees to and with Administrative Agent and each Lender
that:

        (a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereto having all necessary authority to act for Borrower
in making the request herein contained.

        (b) The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of the
date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement), with the same effect as though such
representations and warranties had been made on and as of the date hereof.

        (c) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as provided
in Section 10.1(a) of the Agreement; nor will any such Default exist upon
Borrower's receipt and application of the Advances requested hereby. Borrower
will use the Advances hereby requested in compliance with Section 2.4 of the
Agreement.

        (d) Except to the extent waived in writing as provided in Section
10.1(a) of the Agreement, Borrower has performed and complied with all
agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Advances contained in the Agreement remains
satisfied.

        (e) The Facility Usage, after the making of the Advances requested
hereby, will not be in excess of the Borrowing Base on the date requested for
the making of such Advances.

        (f) The Loan Documents have not been modified, amended or supplemented
by any unwritten representations or promises, by any course of dealing, or by
any other means not provided for in Section 10.1(a) of the Agreement. The
Agreement and the other Loan Documents are hereby ratified, approved, and
confirmed in all respects.

The officer of Borrower signing this instrument hereby certifies that, to the
best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.

IN WITNESS WHEREOF, this instrument is executed as of ____________, 20__.

BERRY PETROLEUM COMPANY
By:
Name:
Title:

EXHIBIT C

CONTINUATION/CONVERSION NOTICE

Reference is made to that certain Credit Agreement dated as of July 10, 2003
(as from time to time amended, the "Agreement"), by and among Berry Petroleum
Company ("Borrower"), Wells Fargo Bank, National Association, as
Administrative Agent, and the lenders referred to therein ("Lenders"). Terms
which are defined in the Agreement are used herein with the meanings given
them in the Agreement.

Borrower hereby requests a Conversion or Continuation of existing Loans into
a new Borrowing pursuant to Section 2.3 of the Agreement as follows:

Existing Borrowing(s) to be continued or converted:

$____________ of Eurodollar Loans with Interest Period ending _____________

$____________ of Base Rate Loans

If being combined with new Loans, $____________ of new Loans to be advanced
on ____________

Aggregate amount of Borrowing: $

Type of Loans in new Borrowing:

Date of Continuation or Conversion:

Length of Interest Period for Eurodollar Loans (1, 2, 3, 6, 9 or 12 months):
                months

To meet the conditions set out in the Agreement for such
conversion/continuation, Borrower hereby represents, warrants, acknowledges,
and agrees to and with Administrative Agent and each Lender that:

        (a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereto having all necessary authority to act for Borrower
in making the request herein contained.

        (b) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as provided
in Section 10.1(a) of the Agreement.

        (c) The Loan Documents have not been modified, amended or supplemented
by any unwritten representations or promises, by any course of dealing, or by
any other means not provided for in Section 10.1(a) of the Agreement. The
Agreement and the other Loan Documents are hereby ratified, approved, and
confirmed in all respects.

The officer of Borrower signing this instrument hereby certifies that, to the
best of his knowledge after due inquiry, the above
representations,warranties, acknowledgments, and agreements of Borrower are
true, correct and complete.

        IN WITNESS WHEREOF this instrument is executed as of
__________________.

BERRY PETROLEUM COMPANY
By:
Name:
Title:

EXHIBIT D

CERTIFICATE ACCOMPANYING FINANCIAL STATEMENTS

Reference is made to that certain Credit Agreement dated as of July 10, 2003
(as from time to time amended, the "Agreement"), by and among Berry Petroleum
Company ("Borrower"), Wells Fargo Bank, National Association, as
Administrative Agent, and certain financial institutions ("Lenders"), which
Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.

This Certificate is furnished pursuant to Section 6.1(b) of the Agreement.
Together herewith Borrower is furnishing to Administrative Agent and each
Lender Borrower's *[audited/unaudited] financial statements (the "Financial
Statements") as at ____________ (the "Reporting Date"). Borrower hereby
represents, warrants, and acknowledges to Administrative Agent and each
Lender that:

        (a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting ____________ of Borrower and as such is
Borrower's Chief Financial Officer;

        (b) the Financial Statements are accurate and complete and satisfy the
requirements of the Agreement;

        (c) attached hereto is a schedule of calculations showing Borrower's
compliance as of the Reporting Date with the requirements of Sections 7.11
and 7.12 of the Agreement *[and Borrower's non-compliance as of such date
with the
requirements of Section(s) ____________ of the Agreement];

        (d) on the Reporting Date Borrower was, and on the date hereof Borrower
is, in full compliance with the disclosure requirements of Section 6.4 of the
Agreement, and no Default otherwise existed on the Reporting Date or
otherwise exists on the date of this instrument *[except for Default(s) under
Section(s) ____________ of the Agreement, which *[is/are] more fully
described on a schedule attached hereto].

        (e) *[Unless otherwise disclosed on a schedule attached hereto,] The
representations and warranties of Borrower set forth in the Agreement and the
other Loan Documents are true and correct on and as of the date hereof
(except to the extent that the facts on which such representations and
warranties are based have been changed by the extension of credit under the
Agreement), with the same effect as though such representations and
warranties had been made on and as of the date hereof.

The officer of Borrower signing this instrument hereby certifies that he has
reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to
express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.

IN WITNESS WHEREOF, this instrument is executed as of ____________, 20__.

                                                                        BERRY PETROLEUM COMPANY

                                                                        By:
                                                                        Name:
                                                                        Title:

EXHIBIT E

OPINION OF COUNSEL FOR RESTRICTED PERSONS

EXHIBIT F

ASSIGNMENT AND ACCEPTANCE

Reference is made to the Credit Agreement dated as of July 10, 2003 (the
"Credit Agreement") among Berry Petroleum Company, a Delaware corporation
(the "Borrower"), the Lenders (as defined in the Credit Agreement) and Wells
Fargo Bank, National Association, as Administrative Agent for the Lenders
(the "Administrative Agent"). Terms defined in the Credit Agreement are used
herein with the same meaning.

        The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:

1. The Assignor hereby sells and assigns to the Assignee, without recourse
and without representation or warranty except as expressly set forth herein,
and the Assignee hereby purchases and assumes from the Assignor, an interest
in and to the Assignor's rights and obligations under the Credit Agreement
and the other Loan Documents as of the date hereof equal to the percentage
interest specified on Schedule 1 of all outstanding rights and obligations
under the Credit Agreement and the other Loan Documents. After giving effect
to such sale and assignment, the Assignee's Commitment and the amount of the
Loans owing to the Assignee will be as set forth on Schedule 1.

2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in
connection with the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or
any other instrument or document furnished pursuant thereto; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Restricted Person or the performance or observance
by any Restricted Person of any of its obligations under the Loan Documents
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note held by the Assignor and requests that Administrative Agent
exchange such Note for new Notes payable to the order of the Assignee in an
amount equal to the Commitment assumed by the Assignee pursuant hereto and to
the Assignor in an amount equal to the Commitment retained by the Assignor,
if any, as specified on Schedule 1.

3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 6.2 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon Administrative Agent, the Assignor 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 decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is an Eligible
Assignee; (iv) appoints and authorizes Administrative Agent to take such
action as Administrative Agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to Administrative
Agent by the terms thereof, together with such
powers and discretion as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations that by
the terms of the Credit Agreement are required to be performed by it as a
Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms
required under Section 10.5(c).

4. Following the execution of this Assignment and Acceptance, it will be
delivered to Administrative Agent for acceptance and recording by
Administrative Agent. The effective date for this Assignment and Acceptance
(the "Effective Date") shall be the date of acceptance hereof by
Administrative Agent, unless otherwise specified on Schedule 1.

5. Upon such acceptance and recording by Administrative Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the
rights and obligations of a Lender thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.

6. Upon such acceptance and recording by Administrative Agent, from and after
the Effective Date, Administrative Agent shall make all payments under the
Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly
between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the Laws of the State of California.

8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart
of this Assignment and Acceptance.

        IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.

SCHEDULE 1
        to
ASSIGNMENT AND ACCEPTANCE

Percentage interest assigned: %

Assignee's Commitment: $

Aggregate outstanding principal amount
of Loans assigned: $

Principal amount of Note payable to Assignee: $

Principal amount of Note payable to Assignor: $

Effective Date (if other than date
of acceptance by Administrative Agent): *_______, 20___

                                        [NAME OF ASSIGNOR], as Assignor

                                        By:
                                        Title:
                                        Dated: , 20 _

                                        [NAME OF ASSIGNEE], as Assignee

                                        By:
                                        Title:
                                        Domestic Lending Office:
                                        Eurodollar Lending Office:

* This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to Administrative Agent.

Accepted [and Approved] **
this ___ day of ___________, 20 _

WELLS FARGO BANK, NATIONAL ASSOCIATION

By:
Title:

[Approved this ____ day
of ____________, 20__

BERRY PETROLEUM COMPANY

By:
Title:

** Required if the Assignee is an Eligible Assignee solely by reason of
subsection (iii) of the definition of "Eligible Assignee".

                   PURCHASE AND SALE AGREEMENT

                             between

                WILLIAMS PRODUCTION RMT COMPANY,

                           as Seller,

                               and

                     BERRY PETROLEUM COMPANY

                            as Buyer

                      Duchesne County, Utah

                      Dated April 23, 2003

                     Effective April 1, 2003

ARTICLE 1 PURCHASE AND SALE                                    1
     1.1  Purchase and Sale                                    1
     1.2  Assets                                               1
     1.3  Effective Time                                       2

ARTICLE 2 PURCHASE PRICE                                       2
     2.1  Purchase Price                                       2
     2.2  Deposit                                              2
     2.3  Adjustments to Purchase Price                        2
     2.4  Allocated Values                                     5

ARTICLE 3 DUE DILIGENCE INSPECTION                             5
     3.1  Access to Records                                    5
     3.2  No Representation or Warranty                        5
     3.3  Access to the Assets and Indemnity                   5

ARTICLE 4 TITLE MATTERS                                        5
     4.1  Defensible Title                                     5
     4.2  Permitted Encumbrances                               5
     4.3  Title Defect                                         6
     4.4  Notice of Title Defects                              7
     4.5  Seller's Right to Cure                               7
     4.6  Remedies for Title Defects                           7
     4.7  Title Thresholds                                     7
     4.8  Title Dispute Resolution                             8
     4.9  Depletion and Depreciation of Personal Property      8
     4.10 Consents                                             8
     4.11 Preferential Purchase Rights                         9
     4.12 Casualty Loss                                        9

ARTICLE 5 ENVIRONMENTAL MATTERS                                9
     5.1  Definitions                                          9
     5.2  Spills and NORM                                     10
     5.3  Environmental Assessment                            10
     5.4  Notice of Environmental Defects                     11
     5.5  Remedies for Environmental Defects                  11
     5.6  Environmental Thresholds                            11
     5.7  Environmental Dispute Resolution                    12
     5.8  "As Is, Where Is" Purchase                          12
     5.9  Disposal of Materials, Substances and Wastes        12
     5.10 Buyer's Indemnity                                   13

ARTICLE 6 SELLER'S REPRESENTATIONS AND WARRANTIES             13
     6.1  Existence                                           13
     6.2  Power                                               13
     6.3  Authorization                                       14
     6.4  Execution and Delivery                              14
     6.5  Liabilities for Brokers' Fees                       14
     6.6  Liens                                               14
     6.7  Taxes                                               14
     6.8  Litigation                                          14

ARTICLE 7 BUYER'S REPRESENTATIONS AND WARRANTIES              14
     7.1  Existence                                           14
     7.2  Power and Authority                                 14
     7.3  Authorization                                       15
     7.4  Execution and Delivery                              15
     7.5  Liabilities for Brokers' Fees                       15
     7.6  Litigation                                          15
     7.7  Independent Evaluation                              15
     7.8  Qualification                                       15
     7.9  Funds                                               15

ARTICLE 8 COVENANTS AND AGREEMENTS                            15
     8.1  Covenants and Agreements                            15

ARTICLE 9 CONDITIONS TO CLOSING                               17
     9.1  Seller's Conditions                                 17
     9.2  Buyer's Conditions                                  17

ARTICLE 10 RIGHT OF TERMINATION AND ABANDONMENT 18
     10.1 Termination                                         18
     10.2 Liabilities Upon Termination                        18

ARTICLE 11 CLOSING                                            19
     11.1 Date of Closing                                     19
     11.2 Closing Obligations                                 19

ARTICLE 12 POST-CLOSING OBLIGATIONS                           20
     12.1 Post-Closing Adjustments                            20
     12.2 Suspense Accounts                                   20
     12.3 Dispute Resolution                                  20
     12.4 Records                                             20
     12.5 Seller's Employees                                  20
     12.6 Further Assurances                                  20
     12.7 Disclaimers of Representations and Warranties       20

ARTICLE 13 TAXES                                              21
     13.1 Apportionment of Ad Valorem and Property Taxes      21
     13.2 Transfer Taxes and Recording Fees                   21
     13.3 Other Taxes                                         22
     13.4 Tax Reports and Returns                             22

ARTICLE 14
 ASSUMPTION AND RETENTION OF OBLIGATIONS; INDEMNIFICATION     22
     14.1 Buyer's Assumption of Liabilities and Obligations   22
     14.2 Seller's Retention of Liabilities and Obligations   22
     14.3 Buyer's Plugging and Abandonment Obligations        22
     14.4 Indemnification                                     23
     14.5 Procedure                                           24
     14.6 No Insurance; Subrogation                           25
     14.7 Reservation as to Non-Parties                       25

ARTICLE 15 MISCELLANEOUS                                      25
     15.1 Exhibits                                            25
     15.2 Expenses                                            25
     15.3 Notices                                             25
     15.4 Amendments                                          26
     15.5 Assignment                                          26
     15.6 Confidentiality                                     26
     15.7 Press Releases                                      26
     15.8 Headings                                            26
     15.9 Counterparts                                        26
     15.10 References                                         26
     15.11 Governing Law                                      27
     15.12 Removal of Signs                                   27
     15.13 Binding Effect                                     27
     15.14 Survival                                           27
     15.15 No Third-Party Beneficiaries                       27
     15.16 Limitation on Damages                              27
     15.17 Severability                                       27
     15.18 Knowledge                                          27

                            EXHIBITS

                                                   Section
  Exhibit                Description                Where
                                                   Defined

    A-1      Leases and Lands                       1.2.a

    A-2      Wells                                  1.2.b

    A-3      Rights-of-Way and Surface Leases       1.2.d

    A-4      Equipment and Facilities               1.2.e

     B       Material Agreements                    1.2.d

     C       Well Imbalances                        2.3.c

     D       Allocated Values                       2.4

     E       Form of Assignment and Bill of Sale    11.2.a

     F       Form of Assumption Agreement           11.2.a

     G       Seller's Officer's Certificate         11.2.g

     H       Buyer's Officer's Certificate          11.2.h

     I       Non-Foreign Affidavit                  11.2i

     J       Suspense Accounts                       12.2

     K       Seller's Employee Severance Policy      12.5

     L       Retained Litigation                     14.2

                   PURCHASE AND SALE AGREEMENT

     This  PURCHASE AND SALE AGREEMENT ("Agreement"), dated April
23,  2003,  is by and between Williams Production RMT Company,  a
Delaware  corporation,  whose address is  1515  Arapahoe  Street,
Tower  Three,  Suite 1000, Denver, Colorado 80202 ("Seller")  and
Berry Petroleum Company, a Delaware corporation, whose address is
5201  Truxtun Avenue, Suite 300, Bakersfield, California   93309-
0640 ("Buyer").

                            RECITALS

     A.    Seller  owns  and  desires to sell  certain  real  and
personal property interests located in Duchesne County, Utah,  as
more fully described in Section 1.2 below (the "Assets").

     B.   Buyer desires to purchase the Assets upon the terms and
conditions set forth in this Agreement.

                            AGREEMENT

     In consideration of the mutual promises contained herein and
other   good   and  valuable  consideration,  the   receipt   and
sufficiency  of which are hereby acknowledged, Seller  and  Buyer
agree as follows:

                            ARTICLE 1
                        PURCHASE AND SALE

     1.1  Purchase and Sale.  Seller agrees to sell and convey to
Buyer, and Buyer agrees to purchase and receive from Seller,  all
of  Seller's right, title and interest in the Assets, pursuant to
the terms and conditions of this Agreement.

        1.2  Assets.  The "Assets" are all of Seller's right, title,
and interest in and to the following real and personal property
interests located in Duchesne County, Utah:

      a.   The oil and gas leases and exploration and development
agreements  described on Exhibit A-1 (the "Leases"), insofar  and
only insofar as the Leases cover the lands described on Exhibit A-
1  (the  "Lands");  the  oil,  gas  and  all  other  hydrocarbons
("Hydrocarbons"), in, on or under or that may  be  produced  from
the Lands.

      b.   The oil and gas wells located on the Leases and Lands,
or lands pooled or unitized therewith, including without limitation
the oil and gas wells described on Exhibit A-2 (the "Wells"), all
injection and disposal wells on the Leases and Lands, and all
personal property and equipment associated with the Wells as of
the Closing Date.

      c.   The rights, to the extent transferable, in and to all
existing and effective unitization, pooling and communitization
agreements, declarations and orders, to the extent that they
relate to or affect any of the interests described in
Sections 1.2.a. and 1.2.b. or the post-Effective Time production
of Hydrocarbons from the Leases and Lands.

      d.   The rights, to the extent transferable, in and to
Hydrocarbon sales, purchase, gathering and processing contracts,
operating agreements, balancing agreements, joint venture
agreements, partnership agreements, farmout agreements and other
contracts, agreements and instruments relating to the interests
described in Sections 1.2.a., 1.2.b. and 1.2.c, including without
limitation the agreements described on Exhibit B (the "Material
Agreements").

      e.   All of the personal property, fixtures, improvements,
permits, licenses, approvals, servitudes, rights-of-way,
easements, surface leases (including without limitation the
rights-of-way easements and surface leases described on
Exhibit A-3) and other surface rights, tanks, boilers, buildings,
improvements, office equipment, injection facilities, saltwater
disposal facilities, the NJNR-Ute Tribe Joint Venture Pipeline
and Brundage Canyon Field compression facilities and gathering
systems, other appurtenances and facilities (including without
limitation the equipment, facilities and Roosevelt Office and
Yard Lease described on Exhibit A-4) located on and used in
connection with or otherwise related to the exploration for or
production, gathering, treatment, processing, storing, sale or
disposal of Hydrocarbons or water produced from the Assets
described in Sections 1.2.a. through 1.2.d.

      f.   Seller's files, records, data and information relating
to the Assets described in Sections 1.2.a. through 1.2.e., provided,
however, the foregoing shall not include any files, records, data
or information which is attorney work product or subject to
attorney client privilege or any files, data or information which
by agreement Seller is required to keep confidential except and
to the extent a waiver in writing is obtained of any such
confidential requirements (the "Records").

     1.3  Effective Time.  The purchase and sale of the Assets shall
be  effective as of April 1, 2003 at 7:00 a.m., local time  where
the Assets are located (the "Effective Time").

                            ARTICLE 2
                         PURCHASE PRICE

     2.1  Purchase Price.  The purchase price for the Assets shall
be Forty-eight Million Six Hundred Thousand Dollars ($48,600,000.00)
(the  "Purchase Price").  At Closing, Buyer shall pay Seller  the
Purchase Price as adjusted pursuant to Sections 2.2 and 2.3 below
by  wire  transfer of immediately available funds  to  Bank  One,
Chicago,  Illinois,  ABA  # 071000013,  Williams  Production  RMT
Company, Account 1098250, referencing "Brundage Canyon Sale."

     2.2  Deposit.  Buyer will deliver by wire transfer of immediately
available funds, on or before three (3) business days following
execution of this Agreement by Seller and Buyer, ten percent
(10%) of the Purchase Price with Seller as a deposit (the
"Deposit"), to be held by Seller and, subject to the terms of
Article 10 of this Agreement, either (i) applied against the
Purchase Price (without interest) in the event the Closing is
consummated, (ii) returned to Buyer with interest at the rate of
the average of the daily commercial paper overnight repurchase
rate as published in The Wall Street Journal for the period from
the time the Deposit is paid to Seller until it is returned to
Buyer ("Interest") if Seller refuses to close after all
conditions specified in Section 9.1 have been satisfied (or
waived by Seller) and Buyer certifies to Seller in writing that
it is ready, willing and able  to  perform under  Article 11 or
if the conditions specified in Section 9.2 have not been
satisfied (or waived by Buyer), or (iii) retained by Seller if
all conditions specified in Section 9.2 have been satisfied and
Seller certifies to Buyer in writing that Seller is ready,
willing and able to perform under Article 11.

        2.3  Adjustments to Purchase Price.  The Purchase Price shall be
adjusted according to this Section without duplication.  For all
adjustments known as of Closing, the Purchase Price shall be
adjusted at Closing pursuant to a "Preliminary Settlement
Statement" approved by Seller and Buyer on or before Closing.  A
draft of the Preliminary Settlement Statement will be prepared by
Seller and provided to Buyer two (2) business days prior to
Closing.  The Preliminary Settlement Statement shall set forth
the Purchase Price as adjusted as provided in this Section using
the best information available at the Closing Date which amount
shall be paid at Closing and is referred to as the "Closing
Amount."  The Closing Amount shall be paid at Closing by wire
transfer of immediately available funds in accordance with the
wiring instructions set forth in Section 2.1.  After Closing,
final adjustments to the Purchase Price shall be made pursuant to
the Final Settlement Statement to be delivered pursuant to
Section 12.1.  For the purposes of this Agreement, the term
"Property Expenses" shall mean all capital expenses, joint
interest billings, lease operating expenses, lease rental and
maintenance costs, royalties, overriding royalties, Taxes (as
defined and apportioned as of the Effective Time pursuant to
Article 13), drilling expenses, workover expenses, geological,
geophysical and any other exploration or development expenditures
chargeable under applicable operating agreements or other
agreements consistent with the standards established by the
Council of Petroleum Accountant Societies of North America that
are attributable to the maintenance and operation of the Assets
during the period in question.  Seller and Buyer agree that the
Purchase Price reflects the gas imbalance volumes attributable to
the Wells that are set forth on Exhibit C.  If the actual
imbalance volumes as of the Effective Time are different than
those set forth on Exhibit C, the Purchase Price  will be
adjusted in accordance with Sections 2.3.a.(vi) and 2.3.b.(v), as
applicable and will be subject to adjustment and confirmation in
connection with preparation of the Final Settlement Statement.

          a.   Upward Adjustments.  The Purchase Price shall be adjusted
upward by the following:

               (i)  An amount equal to all Property Expenses, including
prepaid expenses, attributable to the Assets after the Effective Time
that  were paid by Seller (all to be apportioned as  of  the
Effective Time except as otherwise provided), including without
limitation,  prepaid  utility charges, prepaid  rentals  and
royalties, including lease rentals, and prepaid drilling and
completion costs (to be apportioned as of the Effective Time
based on drilling days).

               (ii) The proceeds of production attributable to the Assets
occurring before the Effective Time and received by Buyer, net of
royalties and taxes measured by production.

             (iii) An amount equal to production from the Assets that
occurred before the Effective Time but, because such production
is in pipelines or in processing, had not been sold as of the
Effective Time times the price for which production from the
Assets was sold immediately prior to the Effective Time;

               (iv) To the extent that there are any pipelines imbalances, if
the net of such imbalances is an overdelivery imbalance (that is, at the
Effective Time, Seller has delivered more gas to the
pipeline than the pipeline has redelivered for Seller), the
Purchase Price shall be adjusted upward by the product of the
price received by Seller times the net overdelivery imbalance in
MMbtus.

               (v)  An amount equal to the value actually received
by Buyer for Seller's share of any oil or condensate in tanks or
storage facilities produced from or credited to the Leases and Lands
prior to the Effective Time based upon the quantities in oil or
condensate tanks or storage facilities as measured by and
reflected in Seller's records; and (vi) To the extent that the gas
imbalance volumes attributable to the Wells set forth on Exhibit C,
in the aggregate, reflect less than the actual volume of gas in MMbtus
which Seller is entitled to take in excess of its fractional interest
in the Wells asa result of underproduction by Seller from the Wells
as of the EffectiveTime (such additional volume of underproduced
gas being the "AdditionalUnderproduced Gas"), the Purchase Price
shall be adjusted upward by an amount equal to the product of Two
Dollars ($2.00)  times the Additional Underproduced Gas.

                (vii) Any other amount provided in this Agreement or agreed
upon
by Seller and Buyer.

          b.   Downward Adjustments.  The Purchase Price shall be adjusted
downward by the following:

               (i) An amount equal to the sum of all Title Purchase Price
Adjustments as defined in Section 4.7;

                   (ii) An amount equal to Environmental Purchase Price
Adjustment,
as defined in Section 5.6;

                   (iii)The proceeds of production attributable to the Assets
occurring on or after the Effective Time and received by Seller,
net of royalties and taxes measured by production;

                   (iv) To the extent that there are any pipelines imbalances, if
the net of such imbalances is an underdelivery imbalance (that is, at the
Effective Time, Seller has delivered less gas to the
pipeline than the pipeline has redelivered for Seller), the
Purchase Price shall be adjusted downward by the product of the
price received by Seller times the net underdelivery balance in
MMbtus.

                   (v)  To the extent that the gas imbalance volumes attributable
to the Wells set forth on Exhibit C, in the aggregate, reflect less than the
actual volume of gas in MMbtus which Seller is obligated to deliver in excess
of its fractional interest in the wells as a result of overproduction by Seller
from the Wells as of the Effective Time (such additional volume of overproduced
gas being the "Additional Overproduced Gas"), the Purchase Price shall be
adjusted downward by an amount equal to the product of Two
Dollars ($2.00) times the Additional Overproduced Gas;

                   (vi) An amount equal to the Seller Property Tax, as defined in
Section 13.1;

                   (vii) An amount equal to the Suspense Accounts, as defined in
Section 12.2; and

                   (viii) Any other amount provided in this Agreement or agreed
upon by Seller and Buyer.

     2.4  Allocated Values.  Seller and Buyer agree to allocate the
Purchase Price among the Assets as set forth in Exhibit D.

                            ARTICLE 3
                    DUE DILIGENCE INSPECTION

     3.1   Access to Records.  Subject to the provisions  of  the
Confidentiality Agreement dated February 11, 2003 between  Seller
and  Buyer, Seller will disclose and make available to Buyer  and
its  representatives at Seller's or Seller's agent's  office  and
during  Seller's normal business hours, all Records  in  Seller's
possession  or control relating to the Assets for the purpose  of
permitting  Buyer to perform its due diligence review  including,
but not limited to, all well, leasehold, unit and title files and
title opinions.  Seller agrees to cooperate with Buyer in Buyer's
efforts  to  obtain,  at  Buyer's sole expense,  such  additional
information  relating  to  the Assets  as  Buyer  may  reasonably
desire.  Buyer may inspect the Records only to the extent it  may
so do without violating any obligation, confidence or contractual
commitment  of  Seller  to  a  third  party.   Seller  shall  use
reasonable  efforts  to obtain the necessary  consents  to  allow
Buyer's  examination  of  any confidential  information  that  is
material to this transaction.

     3.2  No Representation or Warranty.  Seller makes no
representation or warranty as to the accuracy or completeness of
the Records maintained by Seller and made available to Buyer.
Buyer agrees that any conclusions drawn from such Records shall
be the result of its own independent review and judgment.

        3.3  Access to the Assets and Indemnity.  Prior to Closing,
Seller shall permit Buyer, and the officers, employees, agents
and advisors of Buyer, to have reasonable access to the Assets
pursuant to the terms of a Temporary Access Agreement dated March
17, 2003 between Seller and Buyer (the "Temporary Access
Agreement").

                                   ARTICLE 4
                          TITLE MATTERS

     4.1  Defensible Title.  The term "Defensible Title" means such
title  of Seller in and to the Assets that, subject to and except
for  the  Permitted Encumbrances:  (i) entitles Seller to receive
not  less than the net revenue interest described on Exhibit  A-2
("NRI");  (ii)  obligates  Seller  to  bear  costs  and  expenses
relating to the Assets in an amount not greater than the  working
interest  described on Exhibit A-2 ("WI"); and (iii) is free  and
clear  of material liens, taxes, encumbrances, mortgages,  claims
and  production  payments and any defects  that  would  create  a
material  impairment of use and enjoyment of or loss of  interest
in the affected Asset.

     4.2  Permitted Encumbrances.  The term "Permitted Encumbrances"
shall mean:

          a.   Lessors' royalties, overriding royalties net profits
interests,   production  payments,  reversionary  interests   and
similar burdens if the net cumulative effect of such burdens does
not operate to reduce the NRIs below those set forth on Exhibit A-
2;
            b.   Any required governmental or third-party consents to
assignment of the Assets and preferential purchase rights which
are handled exclusively under Sections 4.10, 4.11 and 9.2d below;

            c.   Liens for taxes or assessments not yet due or not yet
delinquent or, if delinquent, that are being contested in good
faith in the normal course of business, provided, however, that
Seller shall be responsible for the prompt payment of all taxes
attributable to the Assets for all pre-Effective Time periods.
This Section 4.2c does not change the apportionment of taxes
under Article 13 of this Agreement;

            d.   Rights of reassignment, to the extent any exist as of the date
of this Agreement, upon the surrender or expiration of any
lease;
            e.   Easements, rights-of-way, servitudes, permits, surface
leases and other rights with respect to surface operations, on,
over or in respect of any of the properties or any restriction on
access thereto and that do not materially interfere with the
operation of the affected property;

            f.   Materialmen's, mechanics', repairmen's, employees',
contractors', operators' or other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of the Assets (i) if they
have not been filed pursuant to law and the time for filing them
has expired, (ii) if filed, they have not yet become due and
payable or payment is being withheld as provided by law, or
(iii) if their validity is being contested in good faith by
appropriate action. Provided, however, that it shall be Seller's
responsibility to promptly discharge and remove all such liens or
charges at Seller's sole expense;

            g.   Rights reserved to or vested in any municipality or
governmental, statutory, public or tribal authority to control or
regulate any of the Assets in any manner; and all applicable
laws, rules, regulations and orders of general applicability in
the area;

            h.   Liens for post-Effective Time operations arising under
operating agreements, unitization and pooling agreements and
production sales contracts securing amounts not yet accrued or
due or;

            i.   The terms of the Material Agreements and any and all other
agreements that are ordinary and customary in the oil, gas,
sulfur and other mineral exploration, development or extraction
business, or in the business of processing of gas and gas
condensate for the extraction of products therefrom; and
Mortgage, Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement from Williams Production
RMT Company to Lehman Commercial Paper, Inc., as
Administrative Agent, dated July 30, 2002, as supplemented
and amended, which will, as to the Assets, be released as a
condition to Closing under Section 9.2c.

     4.3   Title  Defect.   The  term "Title  Defect"  means  any
encumbrance,  encroachment, irregularity, defect in or  objection
to  real  property title, excluding Permitted Encumbrances,  that
alone or in combination with other defects:

          a.   Renders title to an Asset less than Defensible Title;

            b.   Reduces, impairs or prevents Buyer from receiving payment from
the purchasers of production from an Asset; and/or

            c.   Restricts or extinguishes Buyer's right to use an Asset as
owner, lessee, licensee or permittee, as applicable.

     4.4  Notice of Title Defects.  Buyer shall deliver to Seller a
written  "Notice  of Title Defects" on or before  May  21,  2003,
5:00  p.m.,  Mountain  Time.  The Notice of Title  Defects  shall
(i)  describe  the Title Defect, (ii) describe the basis  of  the
Title  Defect and (iii) describe Buyer's good faith  estimate  of
the  reduction in the Asset's Allocated Value caused by the Title
Defect   ("Title   Defect  Value")  and  all   calculations   and
documentation  substantiating the existence of the Title  Defect.
Buyer will be deemed to have conclusively waived any Title Defect
about which it fails to so notify Seller in writing prior to  May
21,  2003  at  5:00 p.m. Mountain Time.  Seller may  contest  the
Title  Defect  or  the Title Defect Value by so notifying  Buyer.
The  agreement of Seller and Buyer as to the Title  Defect  Value
shall result in the "Actual Title Defect Value".

     4.5  Seller's Right to Cure.  Seller shall have the option, but
not the obligation, to attempt to cure any Title Defects.  Seller
shall notify Buyer prior to Closing of its election to cure any
Title Defect, and shall thereafter provide to Buyer as soon as
practicable prior to Closing evidence that any such Title Defect
is cured.

     4.6  Remedies for Title Defects.  In the event that any Title
Defect is not cured on or before Closing, Seller shall, at its
sole election, elect one of the following by so notifying Buyer
not later than two (2) business days prior to Closing:

          a.    Subject to the specific limitations set forth  in
Section  4.7, indemnify Buyer against all liability,  loss,  cost
and  expense resulting from such Title Defect, but in  an  amount
not to exceed the Allocated Value of the Asset that is subject to
such  Title  Defect, in which event the parties shall proceed  to
Closing and the Asset that is subject to such Title Defect  shall
be conveyed by Seller to Buyer subject to such Title Defect, with
no  payment  or settlement at Closing as a result of  such  Title
Defect and no reduction or adjustment to the Purchase Price;

            b.   Subject to the specific limitations set forth in Section
4.7, credit Buyer with the amount of the Actual Title Defect
Value for an Asset (the "Title Defect Adjustment"), in which
event the parties shall proceed to Closing and the Asset that is
subject to such Title Defect shall be conveyed by Seller to Buyer
subject to such Title Defect and Buyer shall pay to Seller the
Purchase Price as so adjusted;

            c.   Retain the Asset subject to such Title Defect and reduce the
Purchase Price by an amount equal to the Allocated Value of such
Asset, in which event the parties shall proceed to Closing and
the Asset that is subject to such Title Defect shall be retained
by Seller and Buyer shall pay to Seller the Purchase Price as so
adjusted.

     4.7  Title Thresholds.  Seller shall have no obligation under
Section  4.6 and there shall be no indemnification by  Seller  of
Buyer  under  Section 4.6.a or reduction to  the  Purchase  Price
under Sections 4.6.b or 4.6.c unless Seller's share of a proposed
indemnity  amount or reduction to the Purchase Price  as  to  any
single  incident exceeds One Hundred Thousand Dollars  ($100,000)
(the "Single Title Incident Threshold Amount").  For the purposes
of  application  of  the foregoing threshold,  "single  incident"
shall be applicable as follows: (i) on a lease-by-lease basis for
all  oil  and  gas leasehold interests, provided that  Waterflood
Unit, Bureau of Indian Affairs Contract No. 14-20-H62-4919, shall
be  treated  as  a  single  lease, (ii)  on  an  exploration  and
development  agreement-by-exploration and  development  agreement
basis  for  Lands for which an oil and  gas lease  has  not  been
earned  (as identified on Exhibit D),  and  (iii) on a field-wide
system  basis  for  the  NJNR-Ute Tribe Joint  Venture  Pipeline,
Brundage   Canyon  Field  compression  and  gas  gathering.    In
addition,  if  Seller's  share of the proposed  indemnity  amount
under  Section  4.6.a  or reduction to the Purchase  Price  under
Sections  4.6.b  or 4.6.c as to any single incident  exceeds  One
Hundred   Thousand  Dollars  ($100,000),  there   shall   be   no
indemnification  by  Seller of Buyer  under  Sections  4.6.a,  or
reduction  to the Purchase Price under Sections 4.6.b  and  4.6.c
until  such  time  as  the total of these  excess  amounts  (over
$100,000)  exceeds five percent (5%) of the Purchase Price   (the
"Title  Threshold  Amount").  If the Title  Threshold  Amount  is
exceeded,  the Purchase Price reduction shall include the  Single
Title  Incident  Threshold Amount for those  title  Defects  that
exceed  such  threshold and are conveyed to Buyer  under  Section
4.6.b and shall include the Allocated Value of those Assets  with
an  Allocated  Value in excess of $100,000 that are  retained  by
Seller  under  Section 4.6.c.  The total of  the  Purchase  Price
reductions under Sections 4.6.b and 4.6.c is the "Title  Purchase
Price Adjustment."

     4.8  Title Dispute Resolution.  Seller and Buyer agree to resolve
disputes  concerning  the  following  matters  pursuant  to  this
Section: (i) the existence and scope of a Title Defect, (ii)  the
Defect  Value   of   that portion  of the  Asset  affected  by  a
Title  Defect,  (iii)  ,  the adequacy of Seller's  Title  Defect
curative  materials (the "Disputed Title Matters").  The  parties
agree  to attempt to initially resolve all Disputed Title Matters
through  good faith negotiations.  If the parties cannot  resolve
such  disputes  within fourteen (14) days prior to  Closing,  the
Disputed  Title Matters shall be finally determined by a mutually
agreeable  accounting,  petroleum engineering,  or  law  firm  or
consultant (the "Title Arbiter"), taking into account the factors
set forth in this Agreement.  On or before ten (10) days prior to
Closing,   Buyer  and  Seller  shall  present  their   respective
positions  in  writing to the Title Arbiter, together  with  such
evidence  as each party deems appropriate.  The Arbiter shall  be
instructed to resolve the dispute through a final decision within
five  (5)  days  after  submission  of  the  parties'  respective
positions  to the Title Arbiter.  The costs incurred in employing
the  Arbiter  shall be borne equally by Seller  and  Buyer.   The
Title  Arbiter's  final decision may be filed  with  a  court  of
competent jurisdiction and entered as a judgment which  shall  be
binding on the parties.

    4.9  Depletion and Depreciation of Personal Property.  Buyer
shall assume all risk of loss with respect to, and any change in
the condition of, the Assets from the Effective Time until
Closing for production of oil, gas and/or other hydrocarbons
through depletion (including the watering-out of any well,
collapsed casing or sand infiltration of any well) and the
depreciation of personal property due to ordinary wear and tear.

    4.10 Consents.  Seller shall use reasonable efforts to obtain all
required consents to assignment of leases and contracts.  If
Buyer discovers properties for which consents to assign are
applicable during the course of Buyer's due diligence activities,
Buyer shall notify Seller immediately and Seller shall use
reasonable efforts to obtain such consents prior to Closing.
Except for consents and approvals which are customarily obtained
post-Closing (including without limitation federal, state, or
other non-tribal governmental approvals) and those consents which
would not invalidate the conveyance of the Assets, if a necessary
consent (with the exception of consents required from the Ute
Tribe of the Uintah and Ouray Reservation and the Ute
Distribution Corporation (together, the "Tribe") which are
handled as a condition to Closing under Section 9.2.d) to assign
any Asset has not been obtained as of the Closing, then (i) the
portion of the Assets for which such consent has not been
obtained shall be included with the Assets at the Closing, and
the Purchase Price for that Asset shall be included in the
Preliminary Settlement Statement, (ii) Seller shall employ
reasonable efforts to obtain such consent as promptly as possible
following Closing, and (iii) if such consent has not been
obtained as of the Final Settlement Date (unless Seller and Buyer
otherwise mutually agree in writing), the Allocated Value of the
Asset shall be a downward adjustment to the Purchase Price on the
Final Settlement Statement and Buyer shall reassign such Asset to
Seller, effective as of the Effective Time.  Buyer shall
reasonably cooperate with Seller in obtaining any required
consent including providing assurances of reasonable financial
conditions, plans of development or any other information
reasonably requested by the party whose consent is required.

    4.11 Preferential Purchase Rights.  Seller shall send notice of
this Agreement to all persons holding preferential purchase
rights in any portion of the Assets (i) offering to sell to each
such person that portion of the Assets for which such a
preferential right is held for an amount equal to the Allocated
Values of such Assets and subject to all other applicable terms
and conditions of this Agreement.  If, prior to Closing, any
person asserting a preferential purchase right notifies Seller
that it intends to consummate the purchase of that portion of the
Assets to which it holds a preferential purchase right pursuant
to the terms and conditions of such notice and this Agreement,
then such Assets shall be excluded from the Assets identified in
this Agreement and the Purchase Price shall be reduced by the
Allocated Values of such Assets; provided, however, that, at
Seller's option, if the holder of such preferential right fails
to purchase such Assets prior to the Closing Date, then Seller
shall promptly so notify Buyer, and Seller shall sell to Buyer,
and Buyer shall purchase from Seller, the Assets to which the
preferential purchase right was asserted for the Allocated Values
of such Assets.  All Assets for which a preferential purchase
right has not been asserted prior to Closing shall also be sold
to Buyer at Closing pursuant to the provisions of this Agreement.
If one or more of the holders of any preferential purchase right
notifies Seller subsequent to Closing that it intends to assert
its preferential purchase right, Seller shall give notice thereof
to Buyer, whereupon Buyer shall perform all valid preferential
purchase right obligations of Seller to such holders and Buyer
shall be entitled to receive (and Seller hereby assigns to Buyer
all of Seller's rights to) all proceeds received from such
holders in connection with such preferential purchase rights.
Buyer assumes all risk, liability and obligations, and shall
defend, indemnify, and hold harmless Buyer from and against all
Losses (as defined in Section 14.4), which arise from or in
connection with any preferential purchase right obligations
transferred to Buyer at Closing pursuant to this Section.

    4.12 Casualty Loss.  Prior to Closing, if any of the Assets is
destroyed by fire or other casualty or any of the Assets is taken
or threatened to be taken in condemnation or under the right of
eminent domain ("Casualty Loss"), Seller shall promptly provide
notice of the Casualty Loss to Buyer.  Buyer shall not be
obligated to purchase an Asset that is the subject of a Casualty
Loss if Buyer provides written notice to Seller prior to Closing
of Buyer's election not to purchase such Asset.  If Buyer so
elects not to purchase such Asset, the Purchase Price shall be
adjusted as agreed to by Buyer and Seller.  If Buyer elects to
purchase such Asset, the Purchase Price shall be reduced by the
estimated cost to repair such Asset (with equipment of similar
utility) as agreed to by Buyer and Seller (the reduction being
the "Net Casualty Loss").  The Net Casualty Loss shall not,
however, exceed the Allocated Value of such Asset.  Seller, at
its sole option, may elect to cure such Casualty Loss.  If Seller
elects to cure such Casualty Loss, Seller may replace any
personal property that is the subject of a Casualty Loss with
equipment of similar grade and utility, or replace any real
property with real property of similar nature and kind if such
property is acceptable to Buyer.  If Seller elects to cure the
Casualty Loss to the satisfaction of Buyer, the Asset subject to
such Casualty Loss shall be purchased by Buyer and there shall be
no adjustment to the Purchase Price.

                            ARTICLE 5
                      ENVIRONMENTAL MATTERS

     5.1   Definitions.  For the purposes of the  Agreement,  the
following terms shall have the following meanings:

     "Environmental Defect" means a condition in, on or under the
Assets  (including, without limitation, air, land, soil,  surface
and subsurface strata, surface water, ground water, or sediments)
that  causes  an  Asset  to  be  in  material  violation  of   an
Environmental Law or a condition that can reasonably be  expected
to give rise to costs or liability under applicable Environmental
Laws.  NORM  (defined in Section 5.2) contaminated pipe,  meters,
tubing and wellheads shall not be an Environmental Defect.

     "Environmental Defect Value" means the cost to Remediate  an
Environmental  Defect.  The Environmental Defect Value  shall  be
limited  to  the net present value before federal  income  taxes,
calculated using a ten percent discount rate (PV10), of the  most
cost  effective  means  to  achieve the Remediation  required  by
applicable  federal, state or local law or other governmental  or
judicial directive and not for any other cost.

     "Environmental  Law"  means any statute,  rule,  regulation,
code   or   order,  issued  by  any  federal,  state,  or   local
governmental  entity in effect on or before  the  Effective  Time
(collectively,  "Laws")  relating  to  the  protection   of   the
environment or the release or disposal of waste materials.

     "Remediation" or "Remediate" means actions taken to  correct
an Environmental Defect and "Remediation Costs" means the actual,
or good faith estimates of the costs to conduct such Remediation.

     5.2  Spills and NORM.  Buyer acknowledges that in the past there
may  have  been spills of wastes, crude oil, condensate, produced
water,  or  other  materials (including, without limitation,  any
toxic,  hazardous  or  extremely hazardous substances)  onto  the
Lands.   In  addition,  some  production  equipment  may  contain
asbestos   and/or   Naturally  Occurring   Radioactive   Material
("NORM").  In this regard Buyer expressly understands that   NORM
may  affix or attach itself to the inside of wells, materials and
equipment  as scale or in other forms, that said wells, materials
and  equipment  located on the Lands or included  in  the  Assets
described  herein  may  contain  NORM  and  that  NORM-containing
material  may have been buried or otherwise disposed  of  on  the
Lands.   Buyer also expressly understands that special procedures
may  be required for the Remediation, removal, transportation and
disposal of asbestos or NORM from the Assets and Lands where such
material may be found and that Buyer assumes all liability for or
in   connection   with  the  assessment,  containment,   removal,
Remediation,  transportation and disposal of any such  materials,
in  accordance with all past, present or future applicable  laws,
rules, regulations and other requirements of any governmental  or
judicial entities having jurisdiction and also with the terms and
conditions of all applicable leases and other contracts.

    5.3  Environmental Assessment.  Prior to Closing, Buyer may
conduct an on-site inspection, environmental assessment and
compliance audit of the Assets (an "Environmental Assessment") at
Buyer's cost and expense.  Such Environmental Assessment shall be
conducted in accordance with the Temporary Access Agreement.
Seller shall provide Buyer with access to the Assets and to all
information in Seller's possession or control pertaining to the
environmental condition of the Assets, including, but not limited
to, status or any environmental reports, permits, records and
assessments in Seller's possession or control, and shall make
available to Buyer all present personnel who would reasonably be
expected to have knowledge or information regarding the
environmental status or condition of the Assets.  Seller makes no
representation or warranty as to the accuracy or completeness of
the records maintained by Seller and made available to Buyer.
Buyer shall provide Seller five (5) days prior written notice of
any environmental inspections and tests, including the scope of
same, and Buyer shall give Seller the opportunity to participate
in all such inspections and tests.  Buyer shall promptly provide
Seller, at no cost to Seller, all reports of environmental
inspections and tests, provided that all such reports shall be
deemed to be confidential between the parties and subject to the
Confidentiality Agreement dated February 11, 2003 between Seller
and Buyer and the Temporary Access Agreement.  Buyer agrees to
release, indemnify, defend, and hold harmless Seller against all
Losses (as defined in Section 14.4) arising from or related to
the activities of Buyer, its employees, agents, contractors and
other representatives in connection with Buyer's Environmental
Assessment regardless of the negligence or strict liability of
Seller.

    5.4  Notice of Environmental Defects.  Buyer shall deliver to
Seller a written "Notice of Environmental Defects" on or before
May  21, 2003, 5:00 p.m., Mountain Time.  The Notice of
Environmental Defects shall (i) describe the Environmental
Defect, (ii) provide evidence of the Environmental Defect and the
documentation in Buyer's possession pertaining to such
Environmental Defect, and, (iii) describe Buyer's good faith
estimate of the Remediation Costs associated with the
Environmental Defect.  Buyer will be deemed to have conclusively
waived any Environmental Defect for which it fails to provide
Seller a Notice of Environmental Defect prior to May 21, 2003 at
5:00 p.m., Mountain Time.  Seller may contest the existence and
scope of the Environmental Defect or Environmental Defect Value
by so notifying Buyer.  The agreement of Seller and Buyer as to
the Environmental Defect Value shall result in the "Actual
Environmental Defect Value".

    5.5  Remedies for Environmental Defects.  Upon the receipt by
Seller of notice from Buyer pursuant to Section 5.4 of any
Environmental Defect, Seller shall have the option, but not the
obligation, to attempt to Remediate any Environmental Defect.  In
the event that any such Environmental Defect has not been
Remediated by Seller such that the applicable Asset(s) will not
be brought into compliance with the applicable Environmental Laws
on or before Closing, Seller shall, at its sole election, elect
one of the following by so notifying Buyer not later than two (2)
business days prior to Closing.

          a.   Subject to the specific limitations set forth in Section
5.6,  indemnify  Buyer  against all  liability,  loss,  cost  and
expense  resulting from such Environmental Defect in which  event
the  parties  shall  proceed to Closing and  the  Asset  that  is
subject to such Environmental Defect shall be conveyed by  Seller
to Buyer subject to such Environmental Defect, with no payment by
Seller  or  other  settlement at Closing  as  a  result  of  such
Environmental  Defect  and  no reduction  or  adjustment  to  the
Purchase Price;

            b.   Subject to the specific limitations set forth in Section
5.6, credit Buyer with the amount of the Actual Environmental
Defect Value (the "Environmental Defect Adjustment"), in which
event the parties shall proceed to Closing and the Asset that is
subject to such Environmental Defect shall be conveyed by Seller
to Buyer subject to such Environmental Defect and Buyer shall pay
to Seller the Purchase Price as so adjusted; or

            c.   Retain the Asset subject to such Environmental Defect and
reduce
the Purchase Price by an amount equal to the Allocated
Value of such Asset, in which event the parties shall proceed to
Closing and the Asset that is subject to such Environmental
Defect shall be retained by Seller and Buyer shall pay to Seller
the Purchase Price as so adjusted.

     5.6  Environmental Thresholds.  Seller shall have no obligation
under Section 5.5 and there shall be no indemnification by Seller
of  Buyer under Section 5.5.a or reduction to the Purchase  Price
under Sections 5.5.b or 5.5.c unless Seller's share of a proposed
indemnity  amount or reduction to the Purchase Price  as  to  any
single  incident exceeds Twenty Thousand Dollars  ($20,000)  (the
"Single  Environmental  Incident  Threshold  Amount").   For  the
purposes  of  application  of  the foregoing  threshold,  "single
incident"  shall be applicable on a well by well or  property  by
property  basis.  In addition, if Seller's share of the  proposed
indemnity amount under Section 5.5.a or reduction to the Purchase
Price  under  Sections 5.5.b or 5.5.c as to any  single  incident
exceeds  Twenty  Thousand Dollars ($20,000), there  shall  be  no
indemnification  by  Seller  of  Buyer  under  Section  5.5.a  or
reduction  to  the Purchase Price under Sections 5.5.b  or  5.5.c
until  such  time  as  the total of these  excess  amounts  (over
$20,000)  exceeds  five percent (5%) of the Purchase  Price  (the
"Environmental   Threshold  Amount").    If   the   Environmental
Threshold Amount is exceeded, the Purchase Price reduction  shall
include  the Single Environmental Incident Threshold  Amount  for
those  Environmental Defects that exceed such threshold  and  are
conveyed  to  Buyer  under Section 5.5.b and  shall  include  the
Allocated Value of those Assets with an Allocated Value in excess
of  Twenty Thousand Dollars ($20,000) that are retained by Seller
under  Section 5.5.c.  The total of the Purchase Price reductions
under  Sections  5.5.b  and 5.5.c is the "Environmental  Purchase
Price Adjustment").

        5.7  Environmental Dispute Resolution.  The parties agree to
resolve disputes concerning the following matters pursuant to
this Section:  (i) the existence and scope of an Environmental
Defect, (ii) Buyer's estimate of Remediation Costs of an
Environmental Defect and (iii) the effectiveness of Seller's
Remediation (the "Disputed Environmental Matters").  The parties
agree to attempt to initially resolve all Disputed Environmental
Matters through good faith negotiations.  If the parties cannot
resolve such disputes within fourteen (14) days prior to Closing,
the Disputed Environmental Matters shall be finally determined by
a mutually agreeable environmental consulting firm (the
"Environmental Arbiter"), taking into account the factors set
forth in this Agreement.  On or before ten (10) days prior to
Closing, Buyer and Seller shall present their respective
positions in writing to the Environmental Arbiter, together with
such evidence as each party deems appropriate.  The Environmental
Arbiter, shall be instructed to resolve the dispute through a
final decision within five (5) days after submission of the
parties' respective positions to the Environmental Arbiter.  The
costs incurred in employing the Environmental Arbiter shall be
borne equally by Seller and Buyer.  The Environmental Arbiter's
final decision may be filed with a court of competent
jurisdiction and entered as a judgment which shall be binding
upon the parties.

        5.8  "As Is, Where Is" Purchase.  Buyer shall acquire the Assets
(including Assets for which a notice was given under Section 5.4
above) in an "AS IS, WHERE IS" condition and shall assume all
risks that the Assets may contain waste materials (whether toxic,
hazardous, extremely hazardous or otherwise) or other adverse
physical conditions, including, but not limited to, the presence
of unknown abandoned oil and gas wells, water wells, sumps, pits,
pipelines or other waste or spill sites which may not have been
revealed by Buyer's investigation.  With the exception of matters
for which Seller indemnifies Buyer under Section 5.5.a, on and
after the Effective Time, all responsibility and liability
related to all such conditions, whether known or unknown, fixed
or contingent, will be transferred from Seller to Buyer.

        5.9  Disposal of Materials, Substances and Wastes.  Buyer shall
properly handle, remove, transport and dispose of any material,
substance or waste (whether toxic, hazardous, extremely hazardous
or otherwise) from the Assets or Lands (including, but not
limited to, produced water, drilling fluids and other associated
wastes), whether present before or after the Effective Time, in
accordance with applicable local, state and federal laws and
regulations.  Buyer shall keep records of the types, amounts and
location of materials, substances and wastes which are
transported, handled, discharged, released or disposed onsite and
offsite.  When and if any Lease is terminated, Buyer shall take
whatever additional testing, assessment, closure, reporting or
remedial action with respect to the Assets or Lands as is
necessary to meet any local, state, federal or tribal
requirements directed at protecting human health or the
environment in effect at that time.

     5.10 Buyer's Indemnity.

          a.   With the exception of matters for which Seller indemnifies
Buyer under Section 5.5.a, Buyer shall indemnify, hold harmless,
release  and defend Seller from and against all damages,  losses,
claims,  demands,  causes of action, judgments  and  other  costs
(including  but not limited to any civil fines, penalties,  costs
of  assessment, clean-up, removal and Remediation of pollution or
contamination,  and  expenses  for the  modification,  repair  or
replacement  of facilities on the Lands) brought by any  and  all
persons and any agency or other body of federal, state, local, or
tribal government, on account of any personal injury, illness  or
death,  any damage to, destruction or loss of property,  and  any
contamination or pollution of natural resources (including  soil,
air,  surface  water or groundwater) to the  extent  any  of  the
foregoing  directly  or  indirectly is  caused  by  or  otherwise
involves  any  environmental condition of the  Assets  or  Lands,
whether  created  or  existing before, on or after  the  Closing,
including, but not limited to, the presence, disposal or  release
of any material (whether hazardous, extremely hazardous, toxic or
otherwise) of any kind in, on or under the Assets or the Lands.

            b.   With the exception of matters for which Seller indemnifies
Buyer under Section 5.5.a, Buyer's indemnification obligations
shall extend to and include, but not be limited to (i) the
negligence or other fault of Seller, Buyer and third parties,
whether such negligence is active or passive, gross, joint, sole
or concurrent, (ii) Seller's or Buyer's strict liability, and
(iii) Seller's or Buyer's liabilities or obligations under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C.  9601 et seq.), the Resource
Conservation and Recovery Act of 1976 (42 U.S.C.  6901 et
seq.), the Clean Water Act (33 U.S.C.  466 et seq.), the Safe
Drinking Water Act (14 U.S.C.  1401-1450), the Hazardous
Materials Transportation Act (49 U.S.C.  1801 et seq.), the
Toxic Substances Control Act (15 U.S.C.  2601-2629), the Clean
Air Act (42 U.S.C.  7401 et seq.) as amended, the Clean Air Act
Amendments of 1990 and all state and local laws and any
replacement or successor legislation or regulation thereto.  This
indemnification shall be in addition to any other indemnity
provisions contained in this Agreement, and it is expressly
understood and agreed that any terms of this Section shall
control over any conflicting or contradicting terms or provisions
contained in this Agreement.

                            ARTICLE 6
             SELLER'S REPRESENTATIONS AND WARRANTIES

     Seller makes the following representations and warranties as
of the date of this Agreement:

     6.1   Existence.  Seller is a corporation duly organized and
validly existing under the laws of the State of Delaware.

     6.2  Power.  Seller has all requisite power and authority to
carry on its business as presently conducted, to enter into this
Agreement and each of the documents contemplated to be executed
by Seller at Closing, and to perform its obligations under this
Agreement and under such documents.  To Seller's knowledge,
(except for any consents which are the subject of Section 4.10 or
which are customarily obtained after Closing) the consummation of
the transaction contemplated by this Agreement and each of the
documents contemplated to be executed by Seller at Closing will
not violate, nor be in conflict with, (i) any provision of
Seller's organizational or governing documents, (ii) any
agreement or instrument to which Seller is a party or is bound,
or (iii) any judgment, decree, order, statute, rule or regulation
applicable to Seller.

     6.3  Authorization.  The execution, delivery and performance of
this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the contemplated transaction
has been duly and validly authorized by all requisite corporate
and shareholder action on the part of Seller.

     6.4  Execution and Delivery.  This Agreement has been duly
executed and delivered on behalf of Seller, and at the Closing
all documents and instruments required hereunder to be executed
and delivered by Seller will be duly executed and delivered.
This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of Seller
enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power
of a court to deny enforcement of remedies generally based upon
public policy.

     6.5  Liabilities for Brokers' Fees.  Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees
relating to the transaction contemplated by this Agreement for
which Buyer shall have any responsibility whatsoever.

     6.6  Liens.  To Seller's knowledge, except for the liens created
by or arising under joint operating agreements covering the
Assets or applicable state statutes, the Assets are free and
clear of all liens.

     6.7  Taxes.  To Seller's knowledge, all taxes and assessments
pertaining to the Assets based on or measured by the ownership of
property for all taxable periods prior to the taxable period in
which this Agreement is executed have been properly paid.  All
income taxes and obligations relating thereto that could result
in a lien or other claim against any of the Assets have been
properly paid, unless contested in good-faith by appropriate
proceeding.

      6.8   Litigation.  To Seller's knowledge, there is no action,
suit, proceeding, claim or investigation by any person, entity,
administrative agency or governmental body with the exception of
the Tribe, pending or, to Seller's knowledge, threatened, against
Seller before any governmental authority that impedes or is
likely to impede Seller's ability to consummate the transaction
contemplated by this Agreement and to assume the abilities to be
assumed by Seller under this Agreement."

                            ARTICLE 7
             BUYER'S REPRESENTATIONS AND WARRANTIES

     Buyer makes the following representations and warranties  as
of the date of this Agreement:

     7.1  Existence.  Buyer is a corporation, duly organized, validly
existing and formed under the laws of the State of Delaware,  and
Buyer  by Closing will be duly qualified and in good standing  in
the State of Utah.

     7.2  Power and Authority.  Buyer has all requisite power and
authority to carry on its business as presently conducted, to
enter into this Agreement and each of the documents contemplated
to be executed by Buyer at Closing, and to perform its
obligations under this Agreement and under such documents.  The
consummation of the transaction contemplated by this Agreement
and each of the documents contemplated to be executed by Buyer at
Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents,
(ii) any agreement or instrument to which Buyer is a party or is
bound, or (iii) any judgment, decree, order, statute, rule or
regulation applicable to Buyer.

     7.3  Authorization.  The execution, delivery and performance of
this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the contemplated transaction has
been duly and validly authorized by all requisite action on the
part of Buyer.

     7.4  Execution and Delivery.  This Agreement has been duly
executed and delivered on behalf of Buyer, and at the Closing all
documents and instruments required hereunder to be executed and
delivered by Buyer will be duly executed and delivered.  This
Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power
of a court to deny enforcement of remedies generally based upon
public policy.

     7.5  Liabilities for Brokers' Fees.  Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees
relating to the transaction contemplated by this Agreement for
which Seller shall have any responsibility whatsoever.

     7.6  Litigation.  There is no action, suit, proceeding, claim or
investigation by any person, entity, administrative agency or
governmental body pending or, to Buyer's knowledge, threatened in
writing, against Buyer before any governmental authority that
impedes or is likely to impede Buyer's ability to consummate the
transactions contemplated by this Agreement and to assume the
liabilities to be assumed by Buyer under this Agreement.

     7.7  Independent Evaluation.  Buyer is an experienced and
knowledgeable investor in the oil and gas business.  Buyer has
been advised by and has relied solely upon its own expertise in
legal, tax, reservoir engineering and other professional counsel
concerning this transaction, the Assets and the value thereof.

     7.8  Qualification.  Buyer is now or at closing will be and
thereafter will continue to be qualified to own and operate any
federal, state or Indian oil and gas lease that constitutes part
of the Assets, including meeting all bonding requirements.
Completing the transactions set out in this Agreement will not
cause Buyer to be disqualified or to exceed any acreage
limitation imposed by law, statute or regulation.

     7.9  Funds.  Buyer has arranged to have available by the Closing
Date sufficient funds to enable Buyer to pay in full the Purchase
Price and otherwise perform its obligations under this Agreement.

                            ARTICLE 8
                    COVENANTS AND AGREEMENTS

     8.1  Covenants and Agreements.  As to the period of time from the
execution hereof until Closing, Seller and Buyer as follows:

          a.   Operation Prior to Closing.  Except as otherwise consented to
in
writing by Buyer or provided in this Agreement, from  the date  of  execution
hereof  to the  Closing,  Seller  shall  use
Seller's  commercially  reasonable efforts  to  ensure  that  the
Assets  are  maintained and operated in a  good  and  workmanlike
manner.   Subject to the provisions of Section 2.3, Seller  shall
pay  or cause to be paid its proportionate share of all costs and
expenses  incurred  in connection with such operations.   To  the
extent  Seller  receives written AFEs or actual notice  of  such,
Seller shall notify Buyer of ongoing activities and major capital
expenditures   in   excess   of  Twenty-five   Thousand   Dollars
($25,000.00)  per activity net to Seller's interest conducted  on
the  Assets  and  shall  consult with Buyer  regarding  all  such
matters and operations.

            b.   Restriction on Operations.  Subject to Section 8.1.a.,
unless Seller obtains the prior written consent of Buyer to act
otherwise, Seller will use good-faith efforts within the
constraints of the applicable operating agreements and other
applicable agreements not to (i) abandon any part of the Assets
(except in the ordinary course of business or the abandonment of
leases upon the expiration of their respective primary terms or
if not capable of production in paying quantities), (ii) except
for capital projects which are deemed to be approved, approve any
operations on the Assets anticipated in any instance to cost the
owner of the Assets more than Twenty-five Thousand Dollars
($25,000.00) per activity net to Seller's interest (excepting
emergency operations, operations required under presently
existing contractual obligations, ongoing commitments under
existing AFEs and operations undertaken to avoid a monetary
penalty or forfeiture provision of any applicable agreement or
order), (iii) convey or dispose of any material part of the
Assets (other than replacement of equipment or sale of oil, gas,
and other liquid products produced from the Assets in the regular
course of business) or enter into any farmout, farmin or other
similar contract affecting the Assets (iv) let lapse any
insurance now in force with respect to the Assets, or
(v) materially modify or terminate any contract material to the
operation of the Assets.

            c.   Marketing.  Unless Seller obtains the prior written consent of
Buyer to act otherwise, Seller will not alter any existing
marketing contracts related to the Assets currently in existence,
or enter into any new marketing contracts or agreements related
to the Assets providing for the sale of Hydrocarbons for a term
in excess of one (1) month.

            d.   Legal Status.  Seller and Buyer shall use all reasonable
efforts to maintain their respective legal statuses from the date
hereof until the Final Settlement Date and to assure that as of
the Closing Date they will not be under any material corporate,
legal or contractual restriction that would prohibit or delay the
timely consummation of the transaction contemplated hereby.

            e.   Notices of Claims.  Seller shall promptly notify Buyer and
Buyer shall promptly notify Seller, if, between the date hereof
and the Closing Date, Seller or Buyer, as the case may be,
receives notice of any claim, suit, action or other proceeding of
the type referred to in Sections 6.8 and 7.6.

            f.   Compliance with Laws.  During the period from the date of this
Agreement to the Closing Date, Seller shall attempt in good
faith to comply in all material respects with all applicable
statutes, ordinances, rules, regulations and orders relating to
the ownership and operation of the Assets.

            g.   Government Reviews and Filings.  Before and after the
Closing, Buyer and Seller shall cooperate to provide requested
information, make required filings with, prepare applications to
and conduct negotiations with each governmental agency as
required to consummate the transaction contemplated hereby.  Each
party shall make any governmental filings occasioned by its
ownership or structure.  Buyer shall make all filings after the
Closing at its expense with governmental agencies necessary to
transfer title to the Assets or to comply with laws and shall
indemnify and hold harmless Seller from and against all claims,
costs, expenses, liabilities and actions arising out of Buyer's
holding of such title after the Closing and prior to the securing
of any necessary governmental approvals of the transfer.

            h.   Confidentiality.  Confidentiality is governed by the terms of
the Confidentiality Agreement dated February 11, 2003 between
Seller and Buyer and Section 15.6 of this Agreement.  The terms
of the Confidentiality Agreement dated February 11, 2003 between
Seller and Buyer shall survive termination of this Agreement for
the term set forth in the Confidentiality Agreement.

                            ARTICLE 9
                      CONDITIONS TO CLOSING

     9.1   Seller's Conditions.  The obligations of Seller at the
Closing are subject, at the option of Seller, to the satisfaction
at or prior to Closing of the following conditions precedent:

          a.    Representations, Warranties and  Covenants.   All
representations and warranties of Buyer contained in Article 7 of
this Agreement shall be true and correct in all material respects
on  and  as  of  the Closing, and Buyer shall have performed  and
satisfied all covenants and agreements required by this Agreement
to be performed and satisfied by Buyer at or prior to the Closing
in all material respects;

            b.   Closing Documents.  Buyer shall have executed and delivered
the documents which are contemplated to be executed and delivered by
it pursuant to Article 11 of this Agreement prior to or on the Closing Date;

            c.   No Action.  No order shall have been entered by any court or
governmental agency having jurisdiction over the parties or the subject
matter of this Agreement that restrains or prohibits the
purchase and sale contemplated by this Agreement and which
remains in effect at the time of Closing or seeks to recover
damages from Seller resulting therefrom.

     9.2  Buyer's Conditions.  The obligations of Buyer at the Closing
are  subject, at the option of Buyer, to the satisfaction  on  or
prior to the Closing of the following conditions precedent:

          a.    Representations, Warranties and  Covenants.   The
representations and warranties of Seller contained in  Article  6
of  this  Agreement  shall be true and correct  in  all  material
respects  on  and as of the Closing Date, and Seller  shall  have
performed and satisfied all covenants and agreements required  by
this Agreement to be performed and satisfied by Buyer at or prior
to the Closing in all material respects;

          b.   Closing Documents.  Seller shall have executed and delivered
the documents which are contemplated to be executed and delivered by
it pursuant to Article 11 of this Agreement prior to or on the Closing
Date;

            c.   Release of Mortgage.  Lehman Commercial Paper, Inc., as
Administrative Agent, shall have executed, as to the Assets, a
recordable release of Mortgage, Deed of Trust, Security
Agreement, Assignment of Production and Financing Statement from
Williams Production RMT Company to Lehman Commercial Paper, Inc.,
as Administrative Agent, dated July 30, 2002, as supplemented and
amended.

          d.   Tribal Consents.  The Tribe shall have given all consents
necessary to transfer the Assets to Buyer.

            e.   Assignment of Transportation Contracts.  Seller shall
deliver to Buyer assignments by Williams Energy marketing &
Trading Company of (i) Gas Transportation Agreement dated April
1, 1996 between Barrett Resources Corporation, as shipper, and
Questar Pipeline Company, as transporter, and, (ii) Gas
Transportation Agreement dated February 1, 1997 between Barrett
Resources Corporation, as shipper, and Questar Pipeline Company
as transporter.

          f.   No Action.  No order shall have been entered by any court or
governmental agency having jurisdiction over the parties  or  the subject
matter of this Agreement that restrains or prohibits  the
purchase  and  sale  contemplated by  this  Agreement  and  which
remains  in  effect at the time of Closing or  seeks  to  recover
damages from Buyer resulting therefrom.

                           ARTICLE 10
              RIGHT OF TERMINATION AND ABANDONMENT

     10.1 Termination.  This Agreement may be terminated in accordance
with the following provisions:

          a.   by Seller if the conditions set forth in Section 9.1 are not
satisfied,  through no fault of Seller, or waived  by  Seller  in
writing, as of the Closing Date; or

            b.   by Buyer if the conditions set forth in Section 9.2 are not
satisfied, through no fault of Buyer, or waived by Buyer in
writing, as of the Closing Date.

            c.   by Seller or Buyer if the aggregate of Title Defect
Adjustments and Environmental Defect Adjustments exceeds ten 10%
of the Purchase Price.

          d.   by Buyer if Closing does not occur on or before August 1,
2003.

            e.   by Seller or Buyer if Closing does not occur on or before
October
23, 2003.

     10.2 Liabilities Upon Termination.

          a.   Buyer's Default.  If the transactions contemplated by this
Agreement are not consummated on or before the date specified  in
Section  11.1  by  reason of Buyer's wrongful failure  to  tender
performance at Closing, and if Seller is not in material  default
under the terms of this Agreement and is ready, willing and  able
to  Close, and Seller terminates this Agreement, Seller shall  be
entitled,  at  Seller's election, to (i) specific performance  or
(ii)  retention  of  the Deposit, and any  accrued  interest,  as
liquidated   damages.   If  Seller  does   not   elect   specific
performance  of  this  Agreement, Seller  and  Buyer  agree  that
Seller's  damages in the event Buyer fails to close are difficult
to measure and both Seller and Buyer agree that the amount of the
Deposit  bears a reasonable relationship to and is  a  reasonable
estimation of such damages.

            b.   Seller's Default.  If the transactions contemplated by this
Agreement are not consummated on or before the date specified in
Section 11.1 by reason of Seller's wrongful failure to tender
performance at Closing and if Buyer is not in material default
under this Agreement and is ready, willing and able to Close, and
Buyer terminates this Agreement, Buyer shall be entitled to a
prompt refund of the Deposit with Interest as Buyer's sole and
exclusive remedy.

            c.   Other Termination.  If Seller and Buyer agree to terminate
this Agreement, or  if either party terminates the Agreement
under Sections 10.1.c pr 10.1e, or if Buyer terminates under
Section 10.1.d, then each party shall release the other party
from any and all liability for termination of this Agreement, and
Seller shall promptly refund the Deposit with Interest.

                           ARTICLE 11
                             CLOSING

     11.1  Date of Closing.      Subject to  Seller's and Buyer's
rights   to   terminate  in  Article  10,  the  closing  of   the
transaction contemplated by this Agreement ("Closing" or "Closing
Date")  shall be held on or before the later of June 12, 2003  or
five  (5)  business days after Buyer's condition to  Closing  set
forth  in  Section  9.2.d is satisfied or  waived  by  Buyer,  at
Seller's  office  in Denver, Colorado, at 8:30 a.m.  or  at  such
other time and place as the parties may agree in writing.

     11.2 Closing Obligations.  At Closing, the following events shall
occur, each being a condition precedent to the others and each
being deemed to have occurred simultaneously with the others:

          a.   Assignment of Assets.  Seller and Buyer shall execute,
acknowledge and deliver to Buyer an Assignment and Bill  of  Sale
of  the  Assets effective as of the Effective Time (in sufficient
counterparts     to    facilitate    filing    and     recording)
(i)  substantially  in  the  form of Exhibit  E  with  a  special
warranty of title by, through and under Seller but not otherwise;
with  no  warranties,  express or implied,  as  to  the  personal
property, fixtures or condition of the Assets which are  conveyed
"as is, where is;" (ii) such other assignments, bills of sale, or
deeds  necessary  to  transfer the  Assets  to  Buyer,  including
without  limitation any conveyances on official forms and related
documentation  necessary  to transfer  the  Assets  to  Buyer  in
accordance  with  requirements of state and federal  governmental
regulations; and (iii) an Assignment and Assumption Agreement  in
the  form  of  Exhibit  F  under  which  Seller  assigns  various
contractual  interests  included in the Assets  and  under  which
Buyer  assumes the obligations thereunder in accordance with  the
terms of this Agreement.

          b.   Assignment of Transportation Contracts.  Seller shall
deliver  to  Buyer  assignments of Williams  Energy  Marketing  &
Trading  Company of (i) Gas Transportation Agreement dated  April
1,  1996  between Barrett Resources Corporation, as shipper,  and
Questar   Pipeline  Company,  as  transporter,  and,   (ii)   Gas
Transportation  Agreement dated February 1, 1997 between  Barrett
Resources Corporation, as shipper, and Questar Pipeline  Company,
as transporter.

          c.   Release of Lehman Mortgage.  Seller shall deliver to Buyer a
recordable release, as to the Assets, by Lehman Commercial Paper, Inc.,  as
Administrative  Agent, of  Mortgage,  Deed  of  Trust, Security   Agreement,
Assignment  of  Production  and  Financing Statement   from  Williams
Production  RMT  Company  to   Lehman Commercial Paper, Inc., as
Administrative
Agent, dated  July  30, 2002, as supplemented and amended.

            d.   Preliminary Settlement Statement.  Seller shall deliver to
Buyer and Seller and Buyer shall execute and deliver the
Preliminary Settlement Statement.

            e.   Purchase Price.  Buyer shall deliver to Seller the Closing
Amount by wire transfer of immediately available funds.

            f.   Letters in Lieu.  Seller and Buyer shall execute and deliver
all necessary letters in lieu of transfer orders directing all
purchasers of production to pay Buyer the proceeds attributable
to production from the Assets from and after the Effective Time.

            g.   Seller's Officer's Certificate.  Seller shall execute and
deliver to Buyer an officer's certificate in form and substance
similar to Exhibit G, stating that all conditions precedent to
Closing have been satisfied.

            h.   Buyer's Officer's Certificate.  Buyer shall execute and
deliver to Seller an officer's certificate in form and substance
similar to Exhibit H, stating that all conditions precedent to
Closing have been satisfied.

          i.   Non-Foreign Affidavit.  In compliance with Section 1445 of the
United States Internal Revenue Code, Seller shall execute and
deliver  to Buyer a Non-Foreign Affidavit in the form of  Exhibit
I.

                           ARTICLE 12
                    POST-CLOSING OBLIGATIONS

     12.1 Post-Closing Adjustments.  As soon as practicable after the
Closing,  but  on or before one hundred twenty (120)  days  after
Closing,  Seller, with the assistance of Buyer's staff  and  with
access to such records as necessary, shall prepare and deliver to
Buyer   a  final  settlement  statement  (the  "Final  Settlement
Statement") setting forth each adjustment or payment that was not
finally  determined as of the Closing and showing the calculation
of  such  adjustment and the resulting final purchase price  (the
"Final Purchase Price").  As soon as practicable after receipt of
Seller's  proposed Final Settlement Statement, but on  or  before
fifteen  (15)  days  after  receipt of  Seller's  proposed  Final
Settlement  Statement, Buyer shall deliver to  Seller  a  written
report containing any changes that Buyer proposes to make to  the
Final Settlement Statement.  Buyer's failure to deliver to Seller
a   written  report  detailing  changes  to  the  proposed  Final
Settlement  Statement by that date shall be deemed an  acceptance
by  Buyer  of  the  Final Settlement Statement  as  submitted  by
Seller.  The parties shall endeavor to agree with respect to  the
changes  proposed  by Buyer, if any, no later than  fifteen  (15)
days  after receipt by Seller of Buyer's comments to the proposed
Final  Settlement Statement.  The date upon which such  agreement
is  reached or upon which the Final Purchase Price is established
for  the transaction shall be called the "Final Settlement Date."
If  the  Final  Purchase Price is more than the  Closing  Amount,
Buyer  shall  pay Seller the amount of such difference.   If  the
Final  Purchase  Price  is less than the Closing  Amount,  Seller
shall pay to Buyer the amount of such difference.  Any payment by
Buyer  or  Seller  shall  be  by  wire  transfer  in  immediately
available funds.  Any such payment shall be within five (5)  days
of the Final Settlement Date.

     12.2 Suspense Accounts.  Seller currently maintains suspense
accounts pertaining to oil and gas heretofore produced comprising
monies  payable  to  royalty owners,  mineral  owners  and  other
persons  with  an  interest in production that  Seller  has  been
unable to pay because of title defects (the "Suspense Accounts").
A  preliminary listing of the Suspense Accounts is set  forth  in
Exhibit  J.   At Closing, a downward adjustment to  the  Purchase
Price  will be made to convey the Suspense Accounts to Buyer  and
the  Suspense  Accounts  will  be  included  in  the  Preliminary
Settlement  Statement,  with  an adjustment  made  in  the  Final
Settlement Statement, if necessary.  Buyer will assume  full  and
complete responsibility and liability for proper payment  of  the
funds comprising the Suspense Accounts as set forth on the "Final
Suspense Account Statement," which shall be provided by Seller to
Buyer  with  the Final Settlement Statement required  in  Section
12.1 (including any liability under any unclaimed property law or
escheat  statute).  Buyer agrees to indemnify,  defend  and  hold
Seller,  its parent, subsidiary and affiliated entities, together
with their respective officers, directors, employees, agents  and
their  respective  successors  and  assigns,  harmless  from  and
against  any  and all liability, claims, demands,  penalties  and
expenses (including attorneys' fees) arising out of or pertaining
to   the  proper  payment  and  administration  of  the  Suspense
Accounts,  limited, however to the total amount of  the  Suspense
Accounts.

     12.3 Dispute Resolution.  If the parties are unable to resolve
disputes  concerning  the  Final Settlement  Statement  or  Final
Purchase  Price  on or before thirty (30) days  after  the  Final
Settlement Statement is received by Buyer, such disputes shall be
resolved in accordance with Section 14.5.d.

     12.4 Records.  Seller shall make the Records available for pick
up by Buyer at a mutually agreeable time.  Seller may retain
copies of the Records.  Buyer shall make the Records available to
Seller for review and copying during normal business hours.
Buyer agrees not to destroy or otherwise dispose of the Records
for a period of six years after the Closing without giving Seller
reasonable notice and an opportunity to copy the Records.

     12.5 Seller's Employees.  For all of Seller's employees hired by
Buyer  in  connection  with  Buyer's acquisition,  ownership  and
operation of the Assets, if Buyer terminates any such employee(s)
within  two  (2) years of Closing under circumstances that  would
have  entitled  such  employee(s) to a  severance  benefit  under
Seller's employee severance policy in effect for such employee(s)
on  the Effective Date, a copy of which is attached as Exhibit  K
to  this Agreement ("Seller's Employee Severance Policy"),  Buyer
shall  pay  such  employee(s) severance based  on  such  Seller's
employee  severance  policy based upon  years  of  employment  by
Seller  (and its affiliates) and Buyer.  Nothing in this  Section
12.5  is  intended to nor does bind Buyer to offer employment  to
any of Seller's employees which shall be a decision solely within
Buyer's discretion.  With the exception of Buyer's assumption  of
Seller's obligations under Seller's Employee Severance Policy  in
the  event Buyer hires Seller's employees, Buyer does not  hereby
assume any liability of Seller as to Seller's employees.

     12.6 Further Assurances.  From time to time after Closing, Seller
and  Buyer  shall each execute, acknowledge and  deliver  to  the
other such further instruments and take such other action as  may
be  reasonably requested in order more effectively to  assure  to
the other the full beneficial use and enjoyment of the Assets  in
accordance with the provisions of this Agreement and otherwise to
accomplish the purposes of the transaction contemplated  by  this
Agreement.

     12.7 Disclaimers of Representations and Warranties.  The express
representations and warranties of Seller contained in this
Agreement are exclusive and are in lieu of all other
representations and warranties, express, implied or statutory.
BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY
WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT
COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (A) PRODUCTION
RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING
INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF
HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS, (B) THE
ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR
OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER
FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, (C) THE
ENVIRONMENTAL CONDITION OF THE ASSETS, THEIR COMPLIANCE WITH
ENVIRONMENTAL LAWS, AND THE PRESENCE OR ABSENCE OF HAZARDOUS
SUBSTANCES OR NATURALLY OCCURRING RADIOACTIVE MATERIALS, (D) ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (E) ANY IMPLIED
OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (F) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS, (G) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, (H) ANY CLAIMS BY
BUYER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN AS
OF THE EFFECTIVE TIME OR THE CLOSING DATE, AND (I) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW, IT BEING THE
EXPRESS INTENTION OF BOTH BUYER AND SELLER THAT THE ASSETS WILL
BE CONVEYED TO BUYER IN THEIR PRESENT CONDITION AND STATE OF
REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS AND THAT BUYER HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS
APPROPRIATE.  THE PARTIES AGREE THAT THIS SECTION 12.5
CONSTITUTES A CONSPICUOUS LEGEND.

                           ARTICLE 13
                              TAXES

     13.1 Apportionment of Ad Valorem and Property Taxes.  All ad
valorem  taxes, real property taxes, personal property taxes  and
similar  obligations (the "Property Taxes") attributable  to  the
Assets with respect to the tax period in which the Effective Time
occurs  shall  be  apportioned as of the Effective  Time  between
Seller  and  Buyer.  Prior to Closing, Seller shall determine  an
estimate  of  the  portion of the Property Taxes  (based  on  the
latest  information then available), for the period in which  the
Effective  Time occurs attributable to the period  prior  to  the
Effective Time (the "Seller Property Tax").  Seller shall  credit
to  Buyer,  through a downward adjustment to the Purchase  Price,
the amount of the Seller Property Tax.  Buyer shall file or cause
to  be  filed  all required reports and returns incident  to  the
Property  Taxes and shall pay or cause to be paid to  the  taxing
authorities  all  Property Taxes relating to the  tax  period  in
which  the Effective Time occurs.  If the Property Taxes used  in
determining  the Seller Property Tax are not the actual  Property
Taxes for the tax period in which the Effective Time occurs, then
upon  the  determination of the actual Property  Taxes  for  such
period, the Seller Property Tax shall be recalculated based  upon
such  actual  Property Taxes (the "Revised Seller Property  Tax")
and  (i)  if the Revised Seller Property Tax is greater than  the
Seller  Property  Tax, Seller shall promptly pay  the  difference
between  such amounts or (ii) if the Revised Seller Property  Tax
is  less  than the Seller Property Tax, Buyer shall promptly  pay
Seller the difference between such amounts.

     13.2 Transfer Taxes and Recording Fees.  The Purchase Price
excludes, and Buyer shall be liable for, any Transfer Taxes (as
defined below) required to be paid in connection with the sale or
transfer of the Assets pursuant to this Agreement.  "Transfer
Taxes" mean any sales, use, stock, stamp, documentary, transfer,
filing, licensing, processing, recording authorization and
similar taxes, fees and charges.

     13.3 Other Taxes.  All severance, production, excise,
conservation and similar taxes attributable to the Assets that
are based upon or measured by the production of Hydrocarbons
(excluding Property Taxes which are addressed in Section 13.1)
shall be apportioned between the Seller and Buyer as of the
Effective Time.  All such taxes that have accrued with respect to
the period prior to the Effective Time have been or will be
properly paid or withheld by Seller, and all statements, returns,
and documents pertinent thereto have been or will be properly
filed.  Buyer shall be responsible for paying or withholding or
causing to be paid or withheld all such taxes that have accrued
after the Effective Time and for filing all statements, returns,
and documents incident thereto.

     13.4 Tax Reports and Returns.  For tax periods in which the
Effective Time occurs, Seller agrees to immediately forward to
Buyer copies of any tax reports and returns received by Seller
after Closing and provide Buyer with any information Seller has
that is necessary for Buyer to file any required tax reports and
returns related to the Assets.  Buyer agrees to file all tax
returns and reports applicable to the Assets that Buyer is
required to file after the Closing.

                           ARTICLE 14
                   ASSUMPTION AND RETENTION OF
                  OBLIGATIONS; INDEMNIFICATION

     14.1 Buyer's Assumption of Liabilities and Obligations.  Upon
Closing,  Buyer  shall  assume  and  pay,  perform,  fulfill  and
discharge   all   claims,   costs,  expenses,   liabilities   and
obligations  ("Obligations") accruing  or  relating  to  (i)  the
owning,  developing, exploring, operating or maintaining  of  the
Assets   or   the  producing,  transporting  and   marketing   of
Hydrocarbons  from the Assets from and after the Effective  Time,
including, without limitation, the payment of Property  Expenses,
the obligation to plug and abandon all wells located on the Lands
and  reclaim  all well sites located on the Lands  regardless  of
when the plugging, abandonment and reclamation obligations arose,
the  make-up and balancing obligations for overproduction of  gas
from  the Wells, all liability for royalty and overriding royalty
payments made and Taxes paid with respect to the Assets, (ii) the
environmental  condition of the Assets except for  any  condition
for which Buyer is indemnified by Seller under Section 5.5.a, and
(iii)  all  Obligations accruing or relating to the ownership  or
operation  of  the  Assets before the Effective  Time  for  which
Seller  is not liable pursuant to the provisions of Section  14.2
(collectively, the "Assumed Liabilities").

     14.2 Seller's Retention of Liabilities and Obligations.  Upon
Closing, Seller shall retain and pay (i) all Property Expenses of
Seller relating to the ownership and operation of the Assets and
the producing, transporting and marketing of Hydrocarbons from
the Assets prior to the Effective Time, but only as to Claims
asserted before one year after the Closing Date, (ii) all
liability for royalty and overriding royalty payments made and
Taxes paid prior to the Effective Time with respect to the
Assets, and (iii) the Retained Litigation described in Exhibit L
(collectively, the "Retained Liabilities").

     14.3 Buyer's Plugging and Abandonment Obligations.  In addition
to the Assumed Liabilities, upon Closing Buyer assumes full
responsibility and liability for the following plugging and
abandonment obligations related to the Assets ("Buyer's Plugging
and Abandonment Obligations"), regardless of whether they are
attributable to the ownership or operation of the Assets before
or after the Effective Time.  All operations by Buyer under this
Section shall be conducted in a good and workmanlike manner and
in compliance with all applicable laws and regulations.

          a.    The necessary and proper plugging, replugging and
abandonment of all wells on the Assets;

            b.   The necessary and proper removal, abandonment and disposal of
all structures, pipelines, equipment, abandoned property,
trash, refuse and junk located on or comprising part of the
Assets;

            c.   The necessary and proper capping and burying of all
associated flow lines located on or comprising part of the
Assets;

            d.   The necessary and proper restoration of the surface used for
operation of the Assets and subsurface to the condition required
by applicable laws, regulations or contract;

            e.   All obligations relating to the items described in Section
14.3.a. through Section 14.3.d. arising from contractual
requirements and demands made by courts, authorized regulatory
bodies or parties claiming a vested interest in the Assets; and

            f.   Obtaining and maintaining all bonds, or supplemental or
additional bonds, that may be required contractually or by
governmental authorities.

     14.4 Indemnification.  "Losses" shall mean any actual losses,
costs,  expenses  (including  court costs,  reasonable  fees  and
expenses of attorneys, technical experts and expert witnesses and
the  costs  of  investigation),  liabilities,  damages,  demands,
suits,   claims,  and  sanctions  of  every  kind  and  character
(including  civil fines) arising from, related to  or  reasonably
incident  to  matters indemnified against; excluding however  any
special, consequential, punitive or exemplary damages, diminution
of  value of an Asset, loss of profits incurred by a party hereto
or   Loss   incurred  as  a  result  of  the  indemnified   party
indemnifying a third party.

     After  the  Closing, Buyer and Seller shall  indemnify  each
other as follows:

          a.   Seller's Indemnification of Buyer.  Seller assumes all risk,
liability,  obligation and Losses in connection with,  and  shall
defend,  indemnify,  and  save  and  hold  harmless  Buyer,   its
officers,  directors, employees and agents, from and against  all
Losses  which  arise from or in connection with (i) the  Retained
Liabilities,  (ii)  any material breach of any representation  or
warranty  made by Seller, (iii) any matter for which  Seller  has
agreed  to  indemnify Buyer under this Agreement,  and  (iv)  any
material breach by Seller of this Agreement.

            b.   Buyer's Indemnification of Seller.  Buyer assumes all risk,
liability, obligation and Losses in connection with, and shall
defend, indemnify, and save and hold harmless Seller, Seller's
officers, directors, employees and agents, from and against all
Losses which arise from or in connection with (i) the Assumed
Liabilities, (ii) any material breach of any representation or
warranty made by Buyer, (iii) any matter for which Buyer has
agreed to indemnify Seller under this Agreement, and (iv) any
material breach by Buyer of this Agreement.

     14.5 Procedure.  The indemnifications contained in Section 14.4
shall be implemented as follows:

          a.   Coverage.  Such indemnity shall extend to all Losses
suffered or incurred by the Indemnified Party, as defined below.

            b.   Claim Notice.  The party seeking indemnification under the
terms of this Agreement ("Indemnified Party") shall submit a
written "Claim Notice" to the other party ("Indemnifying Party")
which, to be effective, must state:  (i) the amount of each
payment claimed by an Indemnified Party to be owing, (ii) the
basis for such claim, with supporting documentation, and (iii) a
list identifying to the extent reasonably possible each separate
item of Loss for which payment is so claimed.  The amount claimed
shall be paid by the Indemnifying Party to the extent required
herein within ten (10) days after receipt of the Claim Notice, or
after the amount of such payment has been finally established,
whichever last occurs.

            c.   Information.  Within twenty (20) days after the Indemnified
Party receives notice of a claim or legal action that may result in a Loss for
which indemnification may be sought under this
Article 14 ("Claim"), the Indemnified Party shall give a Claim
Notice to the Indemnifying Party.  If the Indemnifying Party or
its counsel so requests, the Indemnified Party shall furnish the
Indemnifying Party with copies of all pleadings and other
information with respect to such Claim.  At the election of the
Indemnifying Party made within sixty (60) days after receipt of
the Claim Notice, the Indemnified Party shall permit the
Indemnifying Party to assume control of such Claim (to the extent
only that such Claim, legal action or other matter relates to a
Loss for which the Indemnifying Party is liable), including the
determination of all appropriate actions, the negotiation of
settlements on behalf of the Indemnified Party, and the conduct
of litigation through attorneys of the Indemnifying Party's
choice; provided, however, that no such settlement can result in
any liability or cost to the Indemnified Party for which it is
entitled to be indemnified hereunder without its consent.  If the
Indemnifying Party elects to assume control, (i) any expense
incurred by the Indemnified Party thereafter for investigation or
defense of the matter shall be borne by the Indemnified Party,
and (ii) the Indemnified Party shall give all reasonable
information and assistance, other than pecuniary, that the
Indemnifying Party shall deem necessary to the proper defense of
such Claim, legal action, or other matter.  In the absence of
such an election, the Indemnified Party will use its best efforts
to defend, at the Indemnifying Party's expense, any claim, legal
action or other matter to which such other party's
indemnification under this Article 14 applies until the
Indemnifying Party assumes such defense, and, if the Indemnifying
Party fails to assume such defense within the time period
provided above, settle the same in the Indemnified Party's
reasonable discretion at the Indemnifying Party's expense.  If
such a Claim requires immediate action, both the Indemnified
Party and the Indemnifying Party will cooperate in good faith to
take appropriate action so as not to jeopardize defense of such
Claim or either party's position with respect to such Claim.

            d.   Dispute Resolution.  If the existence of a valid Claim or
amount to be paid by an Indemnifying Party is in dispute, the
parties agree to submit determination of the existence of a valid
Claim or the amount to be paid pursuant to the Claim Notice to
binding arbitration.  The arbitration shall be before a three
person panel of neutral arbitrators, consisting of one person
each to be selected by Seller and Buyer, and the third to be
selected by the arbitrators selected by Seller and Buyer.  The
arbitrators shall conduct a hearing no later than sixty (60) days
after submission of the matter to arbitration, and a written
decision shall be rendered by the arbitrators within thirty
(30) days of the hearing.  Any payment due pursuant to the
arbitration shall be made within fifteen (15) days of the
arbitrators' decision.  This Section excludes those matters
addressed in Sections 4.8 and 5.7 of this Agreement.

     14.6 No Insurance; Subrogation.  The indemnifications provided in
this  Article  14 shall not be construed as a form of  insurance.
Seller  and  Buyer  waive  for themselves,  their  successors  or
assigns,  including without limitation, any insurers, any  rights
to  subrogation for Losses for which each of them is respectively
liable  or against which each respectively indemnifies the other,
and,  if required by applicable policies, Seller and Buyer  shall
obtain waiver of such subrogation from their respective insurers.

     14.7 Reservation as to Non-Parties.  Nothing in this Agreement is
intended to limit or otherwise waive any recourse Seller or Buyer
may have against any non-party for any obligations or liabilities
that may be incurred with respect to the Assets.

                           ARTICLE 15
                          MISCELLANEOUS

     15.1 Exhibits.  The Exhibits referred to in this Agreement are
hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.

     15.2 Expenses.  Except as otherwise specifically provided, all
fees, costs and expenses incurred by Seller or Buyer in
negotiating this Agreement or in consummating the transaction
contemplated by this Agreement shall be paid by the party
incurring same, including, without limitation, legal and
accounting fees, costs and expenses.

     15.3 Notices.  All notices and communications required or
permitted under this Agreement shall be in writing and addressed
as follows:

          If to Seller:  Williams Production RMT Company
                    One Williams Center, 26th Floor
                    Tulsa, Oklahoma  74172
                    Attention:     Ron Greenwell
                    Telephone:     (918) 573-2104
                    Facsimile:     (918) 573-0582

                               and

                        Williams Production RMT Company
                        One Williams Center, MD41-3
                    Tulsa, Oklahoma  74172
                    Attention:     Exploration and Production
                              Legal Counsel
                    Telephone:     (918) 573-4850
                    Facsimile:     (918) 573-4190

          If to Buyer:   Berry Petroleum Company
                    5201 Truxtun Avenue, Suite 300
                    Bakersfield, California  93309
                    Attention:     Manager Land Department
                    Telephone:     (661) 616-3900
                    Facsimile:     (661) 616-3886

                                   and

                    Laura K. McAvoy, Esq.
                    Jackson, DeMarco & Peckenpaugh
                    2815 Townsgate Road, Suite 300
                    Westlake Village, California  91361
                    Telephone:     (805) 495-7489
                    Facsimile:     (805) 230-0087

Any  communication or delivery hereunder shall be deemed to  have
been duly made and the receiving party charged with notice (i) if
personally delivered, when received, (ii) if faxed, when received
if  receipt  is  confirmed by telephone by the sender,  (iii)  if
mailed, certified mail, return receipt requested, on the date set
forth on the return receipt or (iv) if sent by overnight courier,
one  day  after  sending.  Any party may, by  written  notice  so
delivered to the other party, change the address or individual to
which delivery shall thereafter be made.

     15.4 Amendments.  Except for waivers specifically provided for in
this  Agreement, this Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the
party  to  be charged with such amendment or waiver and delivered
by such party to the party claiming the benefit of such amendment
or waiver.

     15.5 Assignment.  Prior to Closing, neither party shall assign
all or any portion of its respective rights or delegate all or
any portion of its respective duties hereunder without the prior
written consent of the other party.

        15.6 Confidentiality.  Seller and Buyer agree the provisions of
this Agreement shall be kept confidential except as disclosure
may be required by applicable law, rules and regulations of
governmental agencies or stock exchanges.  Buyer shall inform
Seller of all such disclosures by Buyer.

     15.7 Press Releases.  Seller and Buyer agree that prior to making
any press releases or other public announcements concerning this
Agreement and the transactions contemplated hereby, the party
desiring to make such public announcement shall obtain the
consent of the other party with such consent not to be
unreasonably withheld.  Seller retains the right to edit and/or
reject any press release submitted by Buyer.  Nothing herein
shall preclude Buyer from making such disclosures deemed
necessary by Buyer's counsel under any federal securities laws or
New York Stock Exchange rule.

     15.8 Headings.  The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and
shall not limit or otherwise affect any of the terms or
provisions of this Agreement.

     15.9 Counterparts.  This Agreement may be executed by Seller and
Buyer in any number of counterparts, each of which shall be
deemed an original instrument, but all of which together shall
constitute one and the same instrument.  Execution can be
evidenced by fax signatures with original signature pages to
follow in due course.

     15.10     References.  References made in this Agreement,
including use of a pronoun, shall be deemed to include, where
applicable, masculine, feminine, singular or plural, individuals,
partnerships or corporations.  As used in this Agreement,
"person" shall mean any natural person, corporation, partnership,
court, agency, government, board, commission, trust, estate or
other entity or authority.

     15.11     Governing Law.  This Agreement and the transactions
contemplated hereby shall be construed in accordance with, and
governed by, the laws of the State of Colorado without regard to
principles of conflicts of law.  The validity of the various
conveyances affecting the title to real property Assets shall be
governed by and construed in accordance with the laws of the
State of Utah.

     15.12     Removal of Signs.  Buyer shall remove all of Seller's
well and lease signs within thirty (30) days of the Closing Date.

     15.13     Binding Effect.  This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto, and their
respective successors and assigns.

     15.14     Survival.  The following shall survive Closing:
(i) all post-closing obligations and indemnities of Seller and
Buyer subject to the limitations set forth herein, (ii) Seller's
representations and warranties in Article 6 and, (iii) Buyer's
representations and warranties in Article 7.

     15.15     No Third-Party Beneficiaries.  This Agreement is
intended only to benefit the parties hereto and their respective
permitted successors and assigns.

     15.16     Limitation on Damages.  Consistent with Article 14, the
parties hereto expressly waive any and all rights to
consequential, special, incidental, punitive or exemplary
damages, or loss of profits resulting from breach of this
Agreement.

     15.17     Severability.  It is the intent of the parties that the
provisions contained in this Agreement shall be severable.
Should any provisions, in whole or in part, be held invalid as a
matter of law, such holding shall not affect the other portions
of this Agreement, and such portions that are not invalid shall
be given effect without the invalid portion.

     15.18     Knowledge.  As used throughout this Agreement, the term
"knowledge" or "best knowledge" or "best of Seller's knowledge,"
whether or not such term is written in lower or upper case, means
the actual knowledge by the officers, employees, or agents of
Seller involved at a supervisory or higher level of any fact,
circumstance, or condition.

     Executed  on  the  dates  set forth in  the  acknowledgments
below.

                                Seller:

                                WILLIAMS PRODUCTION RMT COMPANY

                                /s/Ralph A. Hill
                                Ralph A. Hill
                                Senior Vice President

                                Buyer:

                                BERRY PETROLEUM COMPANY, a
                                Delaware corporation

                                By:
                                           /s/ Jerry V. Hoffman
                                Jerry V. Hoffman
                                Chairman, President and
                                Chief Executive Officer

STATE OF OKLAHOMA   )
     CITY AND       ) ss.
COUNTY OF TULSA     )

     The  foregoing  instrument was acknowledged before  me  this
23rd  day  of  April,  2003  by Ralph A.  Hill,  as  Senior  Vice
President  for  Williams  Production  RMT  Company,  a   Delaware
corporation.

     Witness my hand and official seal.

     My commission expires:

                                Notary Public

STATE OF COLORADO             )
                         CITY AND            )
COUNTY OF DENVER              )

     The  foregoing  instrument was acknowledged before  me  this
23rd  day  of  April,  2003  by Jerry V.  Hoffman,  as  Chairman,
President and Chief Executive Officer of Berry Petroleum Company,
a Delaware corporation.

     Witness my hand and official seal.

     My commission expires:

                                Notary Public
Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration 
Statements on Form S-8 (Nos. 333-62871, 333-62799 and 333-98379) of 
Berry Petroleum Company of our report dated February 20, 2004 relating 
to the financial statements, which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California
March 9, 2004
                  DeGolyer and MacNaughton
              4925 Greenville Avenue, Suite 400
                      One Energy Square
                     Dallas, Texas 75206
                        March 3, 2004

Berry Petroleum Company
5201 Truxtun Avenue, Suite 300
Bakersfield, California 93309-0640

Gentlemen:

     In  connection with the Annual Report on Form 10-K  for
the fiscal year ended December 31, 2003, (the Annual Report)
of  Berry Petroleum Company (the Company), we hereby consent
to  (i) the use of and reference to our report dated January
27, 2004, entitled "Appraisal Report as of December 31, 2003
on Certain Properties owned by Berry Petroleum Company," our
report  dated February 14, 2003, entitled "Appraisal  Report
as  of December 31, 2002 on Certain Property Interests owned
by  Berry  Petroleum Company," and our report dated February
25, 2002, entitled "Appraisal Report as of December 31, 2001
on  Certain  Property  Interests owned  by  Berry  Petroleum
Company," (collectively referred to as the "Reports"), under
the  caption "Oil and Gas Reserves" in items 1 and 2 of  the
Annual   Report   and   under  the   caption   "Supplemental
Information   About   Oil   &   Gas   Producing   Activities
(Unaudited)"  in item 8 of the Annual Report; and  (ii)  the
use of and reference to the name DeGolyer and MacNaughton as
the independent petroleum engineering firm that prepared the
Reports under such items; provided, however, that since  the
cash-flow   calculations  in  the  Annual   Report   include
estimated income taxes not included in the Reports,  we  are
unable to verify the accuracy of the cash-flow values in the
Annual Report.

                              Very truly yours,

                           /s/DeGOLYER and MacNAUGHTON

                              DeGOLYER and MacNAUGHTON

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Jerry V. Hoffman, Chairman, President, and Chief
Executive Officer of Berry Petroleum Company certify that:

1. I have reviewed this annual report on Form 10-K of Berry
Petroleum Company;

2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
factnecessary 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 officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and 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 is made known to us by others within the
registrant, particularly during the period in which this report is being
prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial
information; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls over financial reporting.

Date: March 9, 2004              /s/  Jerry V. Hoffman
                                      Jerry V. Hoffman
                                      Chairman, President and
                                      Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Ralph J. Goehring, Senior Vice President and Chief
Financial Officer of Berry Petroleum Company, certify that:

1. I have reviewed this annual report on Form 10-K of Berry
Petroleum Company;

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 officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under
our supervision to ensure that material information relating to
the registrant is made known to us by others within the
registrant, particularly during the period in which this report is being
prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial
information; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls over financial reporting.

Date: March 9, 2004               /s/  Ralph J. Goehring
                                       Ralph J. Goehring
                                       Senior Vice President and
                                       Chief Financial Officer

Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002

The certification set forth below is being submitted in
connection with the Annual Report on Form 10-K of Berry
Petroleum Company for the year ended December 31, 2003 (the
'Report') for the purpose of complying with Rule 13a-14(b) of
the Securities Exchange Act of 1934 (the 'Exchange Act') and
Section 1350 of Chapter 63 of Title 18 of the United States
Code.

    I, Jerry V. Hoffman, as Chairman, President and Chief
Executive Officer of Berry Petroleum Company (the
"Company"), hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1)  The Annual Report on Form 10-K of the Company for the
period ended December 31, 2003 (the "Report") which this
certification accompanies, fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

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

/s/ Jerry V. Hoffman
Jerry V. Hoffman
Chairman, President and Chief Executive Officer
March 9, 2004

Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002

The certification set forth below is being submitted in
connection with the Annual Report on Form 10-K of Berry
Petroleum Company for the year ended December 31, 2003 (the
'Report') for the purpose of complying with Rule 13a-14(b) of
the Securities Exchange Act of 1934 (the 'Exchange Act') and
Section 1350 of Chapter 63 of Title 18 of the United States
Code.

I, Ralph J. Goehring, Senior Vice President and Chief
Financial Officer of Berry Petroleum Company (the
"Company"), hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1)  The Annual Report on Form 10-K of the Company for the
period ended December 31, 2003 (the "Report") which this certification
accompanies, fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Ralph J. Goehring
Ralph J. Goehring
Senior Vice President and Chief Financial Officer
March 9, 2004