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Division Order for Highlander Gas Unit #2 DIVISION ORDER PROPERTY NAME: Highlander Gas Unit#2 PROPERTY NO.: T0302-0312 OPERATOR: Sanchez Oil &Gas Corporation DATE: November 1, 1999 EFFECTIVE DATE: First Production TO: Sanchez Oil&Gas Corporation P.O. Box 2986 Laredo,Texas 78044-2986 Each of the undersigned severally, but not jointly, certifies that he, she or it is the legal owner of the interest shown opposite his, her or its name hereinbelow of all of the oil, gas and other liquid or gaseous hydrocarbons,which are produced from the property described as follows: 701.4827 acre unit, more or less, out of the Nathaniel Lynch Survey, Abstract 44, the Sanford Rice Survey, Abstract 682, and the Jesse White Survey, Abstract 83, and the William Hilbus Survey, Abstract 336, Harris County, Texas, and being more particularly described in unit designation covering the Sanchez Oil & Gas Corporation—Highlander Gas Unit#2,to be filed in the Records of Harris County,Texas. THIS AGREEMENT DOES NOT AMEND ANY LEASE OR OPERATING AGREEMENT BETWEEN THE INTEREST OWNERS AND THE LESSEE OR OPERATOR OR ANY OTHER CONTRACTS FOR THE..PURCHASE OF OIL OR GAS. THE FOLLOWING PROVISIONS APPLY TO EACH INTEREST OWNER("OWNER") WHO EXECUTES THIS AGREEMENT: 1. Commencing with the effective date hereinabove and thereafter until payor is furnished with evidence of a change in ownership as provided in Paragraph No. 6 below, owner will be paid in accordance with the division of interest set out as follows: Baytown Area Water Authority 68.16/701.4827 x 115 - .01943312 Royalty 2. The Payor shall pay all parties at the price agreed to by the operator for oil, gas and/or other liquid or gaseous hydrocarbons sold pursuant to this division order. Purchaser shall compute quantity and make corrections for gravity and temperature and make deductions for impurities. 3. Payments shall be made each month by payor's check, based on the division of interest set out above for oil, gas and other liquid or gaseous hydrocarbons run during the preceding calendar month from the property listed above, less taxes required by law to be deducted and remitted by payor as purchaser. Payments of less than $25.00 may be accrued before disbursement until the total amount equals $25.00 or more, or until December 31 of each year,whichever occurs first. Payee agrees to refund to payor any amounts attributable to an interest or part of an interest that payee does not own. 4. If a suit is filed that affects the interest of the owner, written notice shall be given to payor by the owner together with a copy of the complaint or petition filed. In the event of a claim or Division Order,Page 1 dispute that affects title to the division of interest credited herein, payor is authorized to withhold payments accruing to such interest,without interest,until such claim or dispute is settled. 5. Termination of this agreement is effective on the first day of the month that begins after the 30th day after the date written notice of termination is received by either party. 6. Each owner agrees to notify payor in writing of any change in the division of interest, including changes of interest contingent on payment of money or expiration of time. No change of interest is binding on payor until the recorded copy of the instrument of change or documents satisfactorily evidencing such change of interest shall be made effective on the first day of the month following receipt of such notice by payor. Any correspondence regarding this agreement shall be furnished to the addresses listed herein,unless otherwise advised by either party. In addition to the legal rights provided by the terms and provisions of this division order, an owner may have certain statutory rights under the laws of this state. IN WITNESS WHEREOF, this instrument is executed this the /,5 day of BAYTOWN AREA WATER AUTHORITY Tax I.D.Number: 1746000246-6 ROBERT L. GIL ETTE President Baytown Area Water Authority P.O. Box 424 Baytown,TX 77522 Witnesses: Signature =>on OJ M L4 No V"-x0L-yZ-._ Printed Name Signature Printed Name c:klh213'+BAW AlOil&Gast.ease\DivisionOderHighlanderGasUnit2Clean Division Order,Page 2