HS RESOURCES INC, 10-Q, 1996-11-08

HS RESOURCES INC
10-Q, 1996-11-08
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996
-------------------------------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
------------------------ ------------------------

Commission file number 0-18886
----------------------------------------------------------

HS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 94-3036864
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (415) 433-5795
------------------------------

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

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

APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on October 21, 1996: 16,975,884 after deducting 141,977 shares in
treasury.

<PAGE> 2
HS RESOURCES, INC.

INDEX

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Financial Statements:

Consolidated Balance Sheets - September 30, 1996
(Unaudited) and December 31, 1995 . . . . . . . . . . . 3

Unaudited Consolidated Statements of Operations - For the
Three Months and Nine Months Ended September 30, 1996 and
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Consolidated Statements of Stockholders' Equity - For
the Year Ended December 31, 1995 and the Nine Months
Ended September 30, 1996 (Unaudited) . . . . . . . . . . 6

Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1996 and 1995 . 7

Notes to Unaudited Consolidated Financial Statements . 8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 9

PART II. OTHER INFORMATION

Item 1. Legal Proceedings & Environmental Issues . . . . . . . 15

Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 16

Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 16

Item 4. Submission of Matters to a Vote of Security Holders . . 16

Item 5. Other Information . . . . . . . . . . . . . . . . . . . 16

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 16
</TABLE>

2
<PAGE> 3
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,944,246 $ 116,581
Margin deposits 555,859 --
Accounts receivable
Oil and gas sales 23,405,637 6,344,672
Trade 2,602,915 1,300,244
Other 5,496,155 2,461,966
Lease and well equipment inventory, at cost 1,650,988 709,613
Prepaid expenses and other 562,970 152,569
------------- -------------
Total current assets 40,218,770 11,085,645
------------- -------------

OIL AND GAS PROPERTIES, at cost, using
the full cost method
Undeveloped acreage 58,036,033 26,778,702
Costs subject to depreciation, depletion
and amortization 712,196,567 341,382,375
Less accumulated depreciation,
depletion and amortization (117,720,959) (89,350,067)
------------- -------------
Net oil and gas properties 652,511,641 278,811,010
------------- -------------

GAS GATHERING AND TRANSPORTATION FACILITIES,
net of accumulated depreciation of $957,632 at
September 30, 1996 and $739,010 at December 31, 1995 5,146,038 4,913,692
------------- -------------

OTHER ASSETS
Deferred charges and other 5,140,813 3,652,769
Office and transportation equipment and other property, net of
accumulated depreciation of $3,265,309 at
September 30, 1996 and $2,457,070 at December 31, 1995 4,696,436 3,626,149
Investment in Oil and Gas Limited Partnership 975,835 --
------------- -------------
Total other assets 10,813,084 7,278,918
------------- -------------
TOTAL ASSETS $ 708,689,533 $ 302,089,265
============= =============

</TABLE>

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

3
<PAGE> 4
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable
Trade $ 11,918,766 $ 4,638,286
Revenue 6,216,370 2,091,073
Gas purchases 7,738,607 --
Accrued expenses
Ad valorem and production taxes 3,445,999 4,386,969
Interest 5,072,653 1,494,667
Other 2,187,940 2,159,324
Short-term note -- 12,400,000
Current portion of long-term debt 30,000 30,000
------------- -------------
Total current liabilities 36,610,335 27,200,319
------------- -------------

ACCRUED AD VALOREM TAXES AND OTHER 11,292,785 6,574,405

LONG-TERM OIL AND GAS PRODUCTION NOTE PAYABLE 734,696 --

LONG-TERM BANK DEBT, net of current portion 317,000,000 51,000,000

9 7/8% SENIOR SUBORDINATED NOTES, due 2003,
net of unamortized discount of $419,250 and $463,125
at September 30, 1996 and December 31, 1995, respectively 74,580,750 74,536,875

DEFERRED INCOME TAXES 81,653,770 23,603,540

STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 15,000,000 shares
authorized; none issued and outstanding at
September 30, 1996 and December 31, 1995 -- --
Common stock, $.001 par value, 30,000,000 shares authorized;
17,117,861 and 10,948,680 shares issued and outstanding
at September 30, 1996 and December 31, 1995, respectively 17,118 10,949
Additional paid-in capital 162,877,883 97,717,908
Retained earnings 25,677,313 22,484,572
Treasury stock, at cost, 141,977 shares at September 30, 1996
and 75,077 shares at December 31, 1995 (1,755,117) (1,039,303)
------------- -------------
Total stockholders' equity 186,817,197 119,174,126
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 708,689,533 $ 302,089,265
============= =============
</TABLE>

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

4
<PAGE> 5
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 32,206,719 $ 11,220,499 $ 67,168,879 $ 41,012,737
Trading and transportation 14,683,333 -- 19,536,574 --
Other gas revenues 675,553 700,000 1,780,257 1,454,343
Interest income and other 173,086 72,312 276,868 134,624
------------ ------------ ------------ ------------
Total revenues 47,738,691 11,992,811 88,762,578 42,601,704
------------ ------------ ------------ ------------

EXPENSES
Production taxes 2,369,573 320,876 5,059,394 3,176,935
Lease operating 5,730,252 2,548,728 11,667,023 7,546,731
Cost of trading and transportation 14,218,629 -- 18,951,357 --
Depreciation, depletion and amortization 14,330,624 6,261,223 29,522,582 20,592,741
General and administrative 1,160,307 812,917 2,922,600 2,996,747
Interest 7,643,127 2,667,302 15,387,809 7,575,040
Other expenses 93,713 -- 93,713 --
------------ ------------ ------------ ------------
Total expenses 45,546,225 12,611,046 83,604,478 41,888,194
------------ ------------ ------------ ------------

INCOME BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 2,192,466 (618,235) 5,158,100 713,510

PROVISION (BENEFIT) FOR INCOME TAXES 835,453 (235,548) 1,965,359 276,597
------------ ------------ ------------ ------------

NET INCOME (LOSS) $ 1,357,013 $ (382,687) $ 3,192,741 $ 436,913
============ ============ ============ ============

EARNINGS PER SHARE
Net income (loss) per common and common
equivalent share $ 0.08 $ (0.03) $ 0.24 $ 0.04
============ ============ ============ ============
Net income (loss) per common and common
equivalent share assuming full dilution $ 0.08 $ (0.03) $ 0.24 $ 0.04
============ ============ ============ ============

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Weighted average number of common
and common equivalent shares 17,431,000 11,450,000 13,546,000 11,474,000
============ ============ ============ ============

Weighted average number of common
and common equivalent shares
assuming full dilution 17,442,000 11,450,000 13,549,000 11,474,000
============ ============ ============ ============
</TABLE>

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

5
<PAGE> 6

HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
Common Stock Additional
------------ ---------- Treasury Stock
Paid-In Retained --------------
------- --------
Shares Amount Capital Earnings Shares Amount
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 10,948,680 $ 10,949 $ 97,713,613 $ 15,951,796 (28,913) $ (377,591)

Common stock options
exercised, including
income tax benefit -- -- 5,945 -- 1,500 19,590

Purchase of treasury
stock -- -- -- -- (13,500) (233,962)

Exercise of options
by issuance of
treasury stock,
including income
tax benefit -- -- 798 -- 600 7,854

Net income -- -- -- 6,258,620 -- --
---------- ---------- ------------- ------------- -------- -------------

Balance, December 31, 1994 10,948,680 10,949 97,720,356 22,210,416 (40,313) (584,109)

Purchase of treasury
stock -- -- -- -- (63,700) (846,625)

Transfer of treasury
stock to 401(k) Plan -- -- 3,328 -- 26,536 358,287

Exercise of options by
issuance of treasury
stock, including income
tax benefit -- -- (5,776) -- 2,400 33,144

Net income -- -- -- 274,156 -- --
---------- ---------- ------------- ------------- -------- -------------

Balance, December 31, 1995 10,948,680 10,949 97,717,908 22,484,572 (75,077) (1,039,303)

Purchase of treasury stock -- -- -- -- (77,867) (850,945)

Issuance of common stock
for Tide West acquisition 6,169,181 6,169 65,158,796 -- -- --

Exercise of options by
issuance of treasury stock,
including income tax benefit -- -- 1,179 -- 10,967 135,131

Net income -- -- -- 3,192,741 -- --
---------- ---------- ------------- ------------- -------- -------------

Balance, September 30, 1996
(Unaudited) 17,117,861 $ 17,118 $ 162,877,883 $ 25,677,313 (141,977) $ (1,755,117)
========== ========== ============= ============= ======== =============
</TABLE>

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

6
<PAGE> 7

HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)

<TABLE>
<CAPTION>
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,192,741 $ 436,913
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 29,522,582 20,592,741
Amortization of deferred charges
and debenture issue costs 621,193 583,188
Transfer of treasury stock to the 401(k) Plan -- 378,141
Gain on sale of fixed assets (12,175) (52,545)
Deferred income tax provision 1,960,486 272,810
Changes in assets and liabilities net of effect from
purchase of Tide West:
Decrease (increase) in accounts and notes receivable (5,019,888) 3,414,523
Increase in accounts payable and accrued expenses 3,367,125 2,999,871
Decrease in unearned income, net -- (1,055,321)
Other 369,191 788,171
------------- -------------
Net cash provided by operating activities 34,001,255 28,358,492
------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development, and leasehold costs (40,329,316) (30,797,115)
Purchase of unproved and proved properties (128,391,646) (12,542,071)
Cash payment for the purchase of Tide West, net of cash acquired (85,125,084) --
Gas gathering and transportation facilities additions (450,968) (514,221)
Other property additions (644,219) (90,372)
Proceeds from the sale of properties 9,678,851 --
Proceeds from the sale of fixed assets and other property 12,175 419,116
Increase (decrease) in property related payables 5,582,656 (3,836,625)
------------- -------------
Net cash used in investing activities (239,667,551) (47,361,288)
------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 364,093,596 30,000,000
Repayments of debt (149,258,900) (10,000,000)
Tide West acquisition costs (2,696,021) --
Exercise of options 136,310 --
Purchase of treasury stock (850,945) (577,745)
Other 69,921 --
------------- -------------
Net cash provided by financing activities 211,493,961 19,422,255
------------- -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS 5,827,665 419,459

CASH AND CASH EQUIVALENTS, beginning of year 116,581 657,383
------------- -------------

CASH AND CASH EQUIVALENTS, end of period $ 5,944,246 $ 1,076,842
============= =============

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Interest paid, net of capitalized interest $ 11,202,129 $ 4,884,909
============= =============
</TABLE>

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

7
<PAGE> 8
HS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. General

HS Resources, Inc., a Delaware Corporation (the "Company") was
organized in January 1987. The Company, directly or through subsidiaries,
acquires, develops and exploits oil and gas properties. The interim financial
data are unaudited; however, all adjustments (which are of a normal and
recurring nature) have been made which are, in the opinion of management,
necessary for a fair statement of the financial position of the Company at
September 30, 1996, and its results of operations and cash flows for the
interim periods presented. Because of various factors, results of operations
for these periods are not necessarily indicative of results to be expected for
the full year. For a more complete understanding of the Company's operations
and financial position these statements should be read in conjunction with
audited financial statements and notes thereto included in the Company's
December 31, 1995 Annual Report on Form 10-K previously filed with the
Securities and Exchange Commission.

Note 2. Basin Acquisitions and Tide West Merger

In March and June 1996, the Company acquired all of Basin Exploration,
Inc.'s ("Basin") Denver-Julesburg ("D-J") Basin oil and gas properties (the
"Acquisitions") for aggregate cash consideration of $125.5 million. The
Acquisitions included a total of 850 gross wells with approximately 35 MMBoe of
net proved reserves and approximately 5,500 Boe of net daily production.
Subsequent to the March acquisition, the Company sold $23.5 million of such
assets to a limited liability company (the "Third Party") under an arrangement
whereby the Third Party assumed all of the Company's liability for (and the
Company was fully released from) $23.5 million of the Company's debt (the
"Chase Asset Monetization Arrangement"). On November 1, 1996, the Company
exercised its option to repurchase the properties and assumed the debt of the
Third Party. The assumed debt has been reflected as long term bank debt in the
September 30, 1996 financial statements. These Acquisitions were accounted for
using the purchase method of accounting and the Company began consolidating
the results of operations as of March and June, 1996.

On June 17, 1996, the Company completed the merger of Tide West Oil
Company ("Tide West") into a wholly owned subsidiary of the Company (the
"Merger"). Pursuant to the Merger, Tide West shareholders received 0.6295
shares of HS Resources common stock and $8.704 cash for each outstanding share
of Tide West common stock for an aggregate consideration of $187.7 million. HS
Resources issued 6,169,181 shares of common stock, bringing its total shares
outstanding to 17.1 million shares. The Merger added 1,259 gross wells,
approximately 39.1 MMBoe of net proved reserves and 9,985 Boe of net daily
production to the Company. Tide West was an independent oil and gas company with
principal operations in portions of the Anadarko and Arkoma geologic basins
located within Oklahoma and Texas, as well as additional operations located in

8
<PAGE> 9
Southern Oklahoma, Texas and New Mexico. The Company accounted for the merger
using the purchase method of accounting and began consolidating Tide West's
results as of June 17, 1996.

Note 3. Chenier Joint Venture

In May 1996, the Company entered into a joint venture arrangement with
Chenier Exploration, Inc. ("CEI"), pursuant to which the Company purchased from
CEI and a third party, interests in properties in the Gulf Coast for
approximately $1.9 million, of which $1.2 million was paid in cash and the
remaining portion was funded with a promissory note. Under the terms of the
agreements, CEI will be responsible for the generation and development of
prospects in the project areas.

Note 4. Pro forma Statements

The following table sets forth condensed unaudited pro forma operating
results of the Company for the nine months ended September 30, 1996 and 1995.
The condensed pro forma operating results assume that both the Acquisitions and
the Merger (as discussed in Note 2) had occurred on January 1, 1995. The
condensed pro forma results are not necessarily indicative of the results of
operations had the acquisition been consummated on January 1, 1995, and may not
necessarily be indicative of future performance.

<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Revenues $ 168,257,195 $ 148,735,572
Net income (loss) $ 5,726,465 $ (2,667,620)
Net income (loss) per common share $ 0.33 $ (0.15)
Weighted average common shares outstanding 17,431,000 17,719,899
</TABLE>

Note 5. Subsequent Event

In November 1996, the Company commenced a private placement offering of
$125 million of Senior Subordinated Notes. The Company intends to utilize
proceeds from this offering to repay a portion of the outstanding balance due
under its existing bank credit facility.

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

GENERAL

Over the past 12 months, the Company has undertaken several strategic
initiatives that have positioned the Company for a period of significant growth
in reserves, production, cash flow and earnings. In 1995, the Company
articulated a strategy that included (i) consolidating in its core geographic
areas, particularly the D-J Basin, (ii) diversifying its asset base outside of
the D-J Basin, (iii) capturing more of the value stream by marketing its
production and (iv) maximizing its financial flexibility. By completing the
Acquisitions and the Merger and by forming two important, exploration-focused
Gulf Coast joint ventures, SouthTech and Chenier, HSR has taken the fundamental
initial steps to implement its strategy. Management's focus for the foreseeable
future will be to continue to execute this strategy with particular emphasis on
activities that maximize the financial returns from HSR's expanded asset base.

The Company now has three significant core areas of operations, the
geologic and geographic diversity of which combine to create an oil and natural
gas company with attractive, long-lived reserves balanced with meaningful
exposure to exploration and technologically-driven upside. The Company has also
created a strategically important and profitable presence in the natural gas
marketing, trading and transportation business, which provides the opportunity
for the Company to increase its operating margins on production from both the
D-J Basin and Mid-Continent areas.

The United States oil and gas industry is subject to large variations
in profitability due to fluctuating commodity prices and related changes in
rates of reinvestment by industry participants. Over the past year the industry
has seen increases in both oil and natural gas prices from the relatively low
price levels experienced in 1995. Several factors have lead to a positive
fundamental outlook for the oil and gas industry and improved economics for
production in the Company's core geographic areas. These include (i)
historically low natural gas storage levels combined with relatively high
wellhead capacity utilization, (ii) increasing overall natural gas demand, (iii)
deregulation of distribution and marketing channels, particularly for D-J Basin
and Rocky Mountain production and (iv) successful application of advanced oil
and natural gas exploration, drilling and production technologies.

NATURAL GAS PRICE CONSIDERATIONS

Approximately 75% of the Company's proved producing reserves consist of
natural gas located in the D-J Basin and Mid-Continent areas. The absolute level
and volatility of natural gas prices have a material impact on the Company.

During 1995 and early 1996, prices for Rocky Mountain natural gas were
substantially below prices for natural gas in markets outside the Rocky Mountain
region. This disparity was caused by low demand for Rocky Mountain gas due to an
unusually warm winter season and above-normal availability of hydro-electric
power in the West. This resulted in excess natural gas supply in the Rocky
Mountains which led to downward price pressure in the Colorado Front Range
market. However, in recent months, the market for the Company's natural gas has
strengthened due to several factors. First, the excess supply from Wyoming
natural gas producers has declined as a result of increased demand from West
Coast markets. Second, in October 1995, the Colorado Public Utilities Commission
approved tariff changes that effectively eliminated transportation costs for D-J
Basin natural gas sold to the Colorado Front Range market, resulting in an
approximately $0.40 per MMBtu transportation cost advantage for D-J Basin
producers. Third, in the last 18 months, the supply of D-J Basin natural gas has
declined due to reduced drilling in the D-J Basin and natural production
declines. The average natural gas price received by the Company for its D-J
Basin production has increased from $1.28 per Mcf in 1995 to $1.60 per Mcf in
the first nine months of 1996. Recently, the Company has sold D-J Basin natural
gas for as much as $2.50 per Mcf in the spot market. In addition, expansion of
pipeline capacity has begun, which will, in mid- to late-1997, provide
additional transportation outlets for Wyoming producers to markets other than
the Colorado Front Range (the area from Denver north to Fort Collins and south
to Colorado Springs). The Company believes that these developments will further
reduce the disparity between D-J Basin pricing and pricing generally available
elsewhere in the United States.

The D-J Basin provides a significant portion of the Company's natural
gas production. Historically, the price of D-J Basin natural gas (on a
Btu-equivalent basis) has been linked closely to the Colorado Interstate Gas
pipeline ("CIG") Rocky Mountain Index. However, more recently, as a result of
the tariff changes and the seasonal nature of demand in the Colorado Front
Range, the price for D-J Basin natural gas tends to reflect the CIG Rocky
Mountain index during the low demand summer months (generally April through
October) and Mid-Continent indices during the high demand winter periods
(generally November through March).

Gas prices in the Mid-Continent are closely tied to established indices
which are influenced by national supply and demand factors. Average natural gas
prices received by the Company in the Mid-Continent generally fluctuate with
changes in Mid-Continent posted prices, which for the years 1993 through 1995
averaged $0.18 per Mcf less than the Henry Hub price. The average natural gas
price received in the Mid-Continent since the Merger in June 1996, was $1.98, or
$0.29 below the Henry Hub price.

OIL PRICE CONSIDERATIONS

Oil prices are established in a highly liquid international market.
Average oil prices received by the Company in the D-J Basin and Mid-Continent
generally fluctuate with changes in the NYMEX West Texas Intermediate
("NYMEX-WTI") crude oil closing prices. The Company's average oil price for 1995
was approximately $1.77 below NYMEX-WTI closing prices. The average oil price
for the nine months ended September 30, 1996, was approximately $0.53 below
NYMEX-WTI closing prices. The increase in the relative value of the Company's
oil production during 1996 is a result of renegotiation of several oil
contracts, as well as the general increase in the market value of the Company's
oil production in the D-J Basin.

RESULTS OF OPERATIONS

The Company's results of operations have been significantly affected
by the Acquisitions, the Merger and its drilling program. Fluctuations in oil
and natural gas prices have also significantly affected the Company's results.
The following table reflects the Company's oil and natural gas production and
its average oil and natural gas prices for the periods presented.

<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ----------------
1995 1996 1995 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net production:
Oil (MBbls).................... 1,263 1,360 349 594
Natural gas (MMcf)............. 16,328 23,221 5,115 11,168
Oil equivalent (MBoe).......... 3,985 5,230 1,202 2,456
Average net daily production:
Oil (Bbls)..................... 4,627 4,965 3,797 6,460
Natural gas (Mcf).............. 59,591 84,750 55,593 121,388
Oil equivalent (Boe)........... 14,559 19,090 13,062 26,691
Average sales price per unit:
Oil ($/Bbls)(1)................ $16.29 $20.32 $16.06 $ 21.02
Natural gas ($/Mcf)(1)......... 1.25 1.70 1.10 1.77
</TABLE>

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

(1) Includes the effects of hedging activities.

Comparison of Three Months and Nine Months Ended September 30, 1996 and
September 30, 1995

Oil and Natural Gas Revenues. For the comparative three month periods,
oil production increased from 349 MBbls to 594 MBbls, and natural gas production
increased from 5,115 MMcf to 11,168 MMcf, or 70% and 118%, respectively. These
production increases were the result of additional production from the
properties acquired in the Acquisitions and the Merger and new wells drilled by
the Company in the D-J Basin in early 1996. Oil prices increased by 31%, from
$16.06 to $21.02 per Bbl, and natural gas prices increased 61%, from $1.10 to
$1.77 per Mcf. The net effect of these changes resulted in an increase in oil
and natural gas revenues from $11.2 million to $32.2 million, or 187%. The
Company also recognized $675,553 in other revenues from the sale of tax credits
under its Section 29 tax credit agreements.

For the comparative nine month periods, oil production increased from
1,263 MBbls to 1,360 MBbls and natural gas production increased from 16,328 MMcf
to 23,221 MMcf, or 8% and 42%, respectively. Oil prices increased by 25%, from
$16.29 to $20.32 per Bbl, and natural gas prices increased by 36%, from $1.25 to
$1.70 per Mcf. The net effect of these changes resulted in an increase in oil
and natural gas revenues from $41.0 million to $67.2 million, or 64%. The
Company also recognized $1.8 million in other revenues from the sale of tax
credits under its Section 29 tax credit agreements during the nine months ended
September 30, 1996. On a pro forma basis, production decreased by 11%, from
8,465 MBoe to 7,513 MBoe, during the nine months ended September 30, 1995,
compared to the same period in 1996, respectively, primarily as a result of a
natural decline in initial production from certain of the Company's existing
wells and from certain of the wells acquired in the Acquisitions. The decrease
in production was also partially attributable to the fact that the Company
deferred its drilling program in mid-1995 due to low natural gas prices.

The Company, through its natural gas marketing division and wholly
owned subsidiary, Tide West Trading & Transport Company ("TWTT"), actively
markets its own natural gas production, markets natural gas to third parties and
supplies natural gas to end users. Trading and transportation net operating
margins were $464,704 for the third quarter of 1996 and $585,217 for the nine
months ended September 30, 1996, including $563,070 from TWTT from the date of
the Merger to September 30, 1996. There were no comparable revenues in 1995.

Interest Income and Other Income. Interest and other income increased
by $100,774, or 139%, for the three month comparative periods and by $142,244,
or 106%, for the nine month comparative periods. The increase in interest and
other income was mainly due to short term investing of the Company's available
funds as well as gain recorded on the sale of assets.

Production Expenses. Lease operating expenses increased by $3.2
million, or 125%, for the three month comparative periods and by $4.1 million,
or 55%, for the nine month comparative periods due to an increase in the number
of producing wells. On a Boe basis, lease operating expenses increased from
$2.12 to $2.33 for the three month comparative periods and from $1.89 to $2.23
for the nine month comparative periods. Production taxes increased by $2.0
million, or 638%, for the three month comparative periods and increased by $1.9
million, or 59%, for the nine month comparative periods due to increased
production and prices. Production taxes in 1996 reflect an adjustment for a
reduction in the Company's severance tax rate. A cumulative rate adjustment for
1995 was recorded in the third quarter of 1995.

Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $8.1 million, or 129%, for the three month comparative
periods and by $8.9 million, or 43%, for the nine month comparative periods due
to an increase in production and an increase in the depletion rate. As a result
of the Acquisitions and the Merger, the Company adjusted its depletion rate in
June 1996 from $5.15 to $5.65 per Boe.

General and Administrative Expense. General and administrative expense
reflects costs incurred net of administrative costs directly attributable to
drilling and well operations. Such costs are included in lease operating
expenses or are capitalized. General and administrative expenses increased
$347,390, or 43%, for the three month comparative periods and decreased by
$74,147, or 2%, for the nine month comparative periods. The increase for the
three month comparative periods is primarily attributable to the Merger and the
retention of former Tide West employees. The decrease for the nine month
comparative periods reflects an increase in COPAS reimbursements for well
operating expenses from third parties in 1996 as a result of the Acquisitions.
These reimbursements have been partially offset by the increase in general and
administrative expenses attributable to the Company's Mid-Continent activities.
On a per Boe basis, general and administrative expenses decreased from $0.68 to
$0.47 for the three month comparative periods and from $0.75 to $0.56 for the
nine month comparative periods.

Interest Expense. Interest expense increased $5.0 million, or 187%,
for the three month comparative periods and by $7.8 million, or 103%, for the
nine month comparative periods due to increased borrowings under the Company's
bank credit facility.

LIQUIDITY AND CAPITAL RESOURCES

Financing Sources

The Company is committed to reducing its debt to total book
capitalization ratio and is currently evaluating various alternatives by which
to do so, including asset divestitures. The Company believes that it will be
able to arrange a favorable combination of financing alternatives to fund its
ongoing capital requirements and reduce its overall financial leverage. Until
this debt ratio has been reduced, the Company currently plans to fund capital
expenditures attributable to exploration and drilling activities primarily out
of its expected cash flow from operations. The Company has financed, and expects
to continue to finance, its acquisition activities, if any, with (i) cash flow
from operations, (ii) borrowings under the Chase Facility (defined below),
(iii) public offerings of equity and debt, (iv) divestitures (including asset
monetizations) of non-core assets and (v) the TCW Facility (defined below).

On June 7, 1996, the Company entered into a $180 million revolving and
senior bank credit facility with The Chase Manhattan Bank, as agent (the "Chase
Facility"). On June 14, 1996, the Company amended the terms of the Chase
Facility to increase the maximum credit amount to $350 million. Under the terms
of the Chase Facility, no principal payments are required until June 14, 2001,
assuming the Company maintains a Borrowing Base sufficient to support the
outstanding loan balance. The Borrowing Base, currently $335 million, is based
on the underlying value of the Company's oil and natural gas properties. The
Chase Facility bears interest at the Base Rate plus 0% to 0.5% or LIBOR plus
0.75% to 1.5%. As part of the amendment to the Chase Facility, Tide West's
senior bank debt in the amount of $39.5 million was fully repaid.

In August 1995, the Company signed a Term Sheet with a Trust Company
of the West-related entity covering a proposed $90 million non-recourse,
volumetric overriding royalty monetization facility (the "TCW Facility"). The
proceeds from the TCW Facility may be used by the Company at its discretion for
a variety of corporate purposes, including acquisitions of new properties,
exploration and development drilling, monetization of existing corporate
properties, or repayment of bank debt. Effective July 1996, the Company sold
certain non-strategic properties under the TCW Facility for total consideration
of $9.4 million. The Company used the sale proceeds, plus internally generated
cash, to repay $12 million of debt.

The Company anticipates that its available borrowing capacity under the
Chase Facility, combined with its operating cash flow and the TCW Facility,
provide the Company with the financial resources and flexibility to fund current
and ongoing development activities and to meet other financial obligations. In
addition, the Company is evaluating certain non-core properties and plans to
divest approximately $65 million of such properties in the coming months. The
Company anticipates that it will apply the proceeds of such divestitures to
repay outstanding indebtedness. The nature of the Company's current development
strategies and other activities provide the Company with considerable
flexibility in terms of the timing and magnitude of its capital expenditures. If
the Company experiences unforeseen changes in its working capital position or
capital resources, management may revise the capital expenditure program
accordingly or alternatively may supplement the capital position of the Company
through, among other things, the issuance of additional equity or debt
securities or by entering into joint venture arrangements.

Capital Commitments

For the nine months ended September 30, 1996, the Company incurred
total exploration, development and leasehold capital expenditures of $40.3
million. For the balance of 1996, the Company currently estimates capital
expenditures will be $10 million to $15 million, which will be allocated in
varying amounts primarily to activities in the Company's three core geographic
areas: the D-J Basin of the Rocky Mountains, the Anadarko and Arkoma Basins of
the Mid-Continent and the on-shore Gulf Coast region. The Company continuously
evaluates its inventory of drilling opportunities and adjusts the amount and
allocation of its capital program based on a number of factors, including
seismic results, prospect readiness, product prices, service company
availability and rates, acquisitions and capital positions.

A major component of the Company's capital expenditure program includes
costs associated with the consolidation and development drilling in the D-J
Basin, and, to a lesser extent, the development of its other Rocky Mountain
properties. In the second quarter of 1996, the Company acquired Basin's D-J
Basin properties for a total cash consideration of $125.5 million. The
Acquisitions increased the Company's D-J Basin reserves by 35 MMBoe and
production by 5,500 Boe per day. The Company also has incurred approximately
$29.5 million in capital expenditures in the first nine months of 1996 for
drilling and recompleting wells and building gathering systems on the Company's
existing Wattenberg Field area properties, compared to $13 million in the first
nine months of 1995.

The second component of the Company's capital expenditure program is
the continued exploitation of the properties acquired as a result of the Merger
with Tide West. Since the completion of the Merger in June 1996, the Company has
incurred total exploitation and development expenditures in the Mid-Continent
area of $2.6 million. The Company is currently evaluating a variety of
opportunities that include increased density drilling, recompletions and field
extensions.

The final component of the Company's capital expenditure program is to
develop exploitation and exploration prospects in the Gulf Coast. The Company
has entered into two joint ventures (described below). For the nine months
ended September 30, 1996, the Company incurred total capital expenditures of
$5.5 million in the Gulf Coast.

The Company spent approximately $2.0 million under the SouthTech joint
venture in 1995 for seismic, leasehold and overhead costs. In 1996, the Company
has committed to spend approximately $2.9 million in similar costs and for
drilling, of which $2.8 million was funded as of September 30, 1996. The Company
may incur additional expenditures in SouthTech in 1996 beyond the minimum
commitment.

In June 1996, in connection with Chenier, the Company entered into an
exploration and development agreement with Chenier Exploration, Inc. ("CEI"),
pursuant to which the Company purchased from CEI and a third party interests in
properties in the Gulf Coast for approximately $1.9 million, of which $1.2
million was paid in cash and the remaining portion was funded with a promissory
note. Under the terms of the agreements, CEI will be responsible for the
generation and development of prospects in the project areas. Although the
Company has no current obligation to do so, HSR anticipates spending
approximately $4.3 million for seismic, leasehold, drilling and overhead costs
in 1996.

In 1994, the Company entered into an exploration agreement with Union
Pacific Resources Company covering drilling locations in the D-J Basin, pursuant
to which the Company committed to spend $9.3 million during the two years ended
June 1996 and meet certain other minimum obligations. All such commitments were
met. In 1996, the Company elected to extend the agreement and committed to spend
approximately $2.4 million by June 1997. The Company has also entered into a
number of other standard industry arrangements that require the drilling of
wells or other activities. The Company believes that it will meet its
obligations under these arrangements, which individually and in the aggregate
are not material.

Working Capital and Cash Flow

Working capital at September 30, 1996, was $3.6 million. Net cash
provided by operating activities in the nine months ended September 30, 1996,
was $34.0 million, up from $28.4 million in the same period in 1995. This
increase is primarily the result of increased oil and natural gas production
revenues attributable to the larger number of producing wells resulting from its
drilling activities and the wells acquired in the Acquisitions and the Merger,
as well as higher product prices. Future cash flows will be influenced by, among
other factors, the number of producing wells on line, product prices and
production constraints, none of which information is presently ascertainable.

Hedging

In support of the Company's ongoing oil and natural gas producing
operations, the Company utilizes various hedging strategies to hedge the price
of portions of future oil and natural gas production, which include swap,
collar, floor and ceiling arrangements. These hedging strategies address the
fluctuations in the price of a commodity at a stated market center, and the
price differential encountered when the point of sale is other than the market
center (the "basis"). Under oil and natural gas hedging agreements, the
difference between the current value for the Company's oil and natural gas,
based upon current market prices, and a fixed price is received or paid by the
Company. The Company records the payments received or made under these
agreements in its oil and natural gas sales. In connection with the Merger, the
Company assumed additional agreements of this type.

The Company has entered into forward sales and swap arrangements with
respect to approximately one-third of its gas production through the second
quarter of 1997 at an average price of approximately $1.93 per Mcf. For the same
period, the Company has hedged through collar arrangements approximately 70% of
its current oil production at prices between $19.16 and $22.80 per Bbl.

The Company's trading and transport business consists of numerous swap
positions that are entered into to realize the margins available from
dislocation in the natural gas commodity and transportation markets. The Company
generally attempts to balance its positions so that its margins are captured and
exposure to market price movement is minimized.

During the second quarter of 1995, the Company entered into an interest
rate exchange agreement with a financial institution to hedge its interest rate
on $40 million of the Company's borrowings at 7.76% through May 2002. Under the
terms of the agreement, the difference between the Company's fixed rate of 7.76%
and the three month LIBOR rate plus 1.125% is received or paid by the Company.

The Company, through the Merger, assumed interest rate exchange
agreements with two financial institutions to hedge its interest rate on $40
million of the Company's borrowings at 8.7% for 1996 and 8.8% for 1997 through
1999. Under the terms of these agreements, the difference between the Company's
fixed rate and three month LIBOR rate is received or paid by the Company.

Contingencies

In May 1995, the Company was named as a respondent by the United States
Environmental Protection Agency (the "EPA") in an administrative order brought
under the Resource Conservation and Recovery Act ("RCRA") by the EPA against the
owner/operator of an oilfield production water evaporation facility. The Company
does not believe that its share of reclamation costs will have a material impact
on its financial position or results of operations.

FORWARD-LOOKING STATEMENT DISCLOSURE

The foregoing discussion includes statements that are not purely
historical and are "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding the Company's expectations, hopes, beliefs, intentions and
strategies regarding the future. The Company's actual results could differ
materially from its expectations, discussed herein. Capital expenditure and
financing plans may change in connection with the success of drilling
activities, the general availability of capital, interest rates, and cash flow
available from operations. Cash flow from operations may change depending on
costs of materials and services, regulatory burden and commodity prices.

The Company's expectations and plans depend significantly on future
product prices. Oil and natural gas prices are volatile, and there are several
potentially significant adverse effects to the Company that can result if
product prices decline materially. First, lower product prices will adversely
impact the Company's cash flow and could cause the Company to (i) curtail its
capital program, (ii) borrow additional amounts under the Chase Facility or
(iii) issue additional debt or equity securities on terms less favorable than
might otherwise have been available. Second, lower product prices could cause
the Borrowing Base under the Chase Facility to be reduced and certain covenant
tests to be adversely affected. Third, under rules promulgated by the Securities
and Exchange Commission, companies that follow the full cost accounting method
are required to make quarterly "ceiling test" calculations. Using September
prices, the Company has a ceiling cushion. If product prices remain low or
decline further and cannot be offset by additional reserves, the Company could
be required to write down its oil and gas properties resulting in a charge
against earnings. The likelihood or magnitude of any or all of these potential
impacts are impossible to predict or quantify at this time.

9
<PAGE> 10
PART II. OTHER INFORMATION

Item 1. Legal Proceedings & Environmental Issues

Legal Proceedings. During 1994, the Company was named as one of three
defendants in a quiet title action brought by certain landowners in Colorado
and filed in Weld County District Court, Colorado (Civil Action No. 94-S-2118)
challenging certain mineral reservations by the Company's assignor in its
original surface conveyance. This action addresses two small tracts of the
Company's mineral interest.

In February 1995, the Company was named as one of many defendants in a
suit brought in the District Court of Yuma County, Colorado (Case No. 95-CV-5)
by several northeast Colorado royalty owners seeking royalty payment on certain
deductions from gas sales.

While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any or all such actions will have a material impact on
its financial condition or results of operations.

The Company is involved in no other material litigation, however, the
Company may be involved from time to time in various claims and lawsuits
incidental to its business.

Environmental Issues. The owner of an oil field waste disposal
facility, a major oil company and the Company were named as respondents by the
EPA in an administrative order brought by the EPA against Weld County Waste
Disposal, Inc. ("WCWDI") under section 7003 of the Resource Conservation and
Recovery Act ("RCRA") on May 11, 1995. WCWDI operated and continues to own an
evaporation pit in Colorado for the disposal of non-hazardous production
wastes. The EPA order requires that work be performed to abate a perceived
endangerment to health or the environment. The respondents have been working
together with the EPA developing interim plans and studies, have permanently
closed the facility and are mitigating the situation.

The Company has utilized the facility in the past to dispose of its
production and flowback water and believed that the facility was operating in
compliance with all applicable legal requirements and, along with other oil and
gas operators, paid fees to WCWDI to use the facility. There were a number of
other significant contributors to the facility during the period reviewed by
the EPA (1988 through 1994) and additional contributors during the period from
1977, when it was constructed, through 1988. The Company and the major oil
company were named because they were deemed the major contributors of waste
volumes to the facility for the period reviewed by the EPA. Certain other
contributors are participating in their share of the reclamation costs.

Based on the Company's current knowledge and its expectation of
proportionate reimbursement from other parties utilizing the facility, the
Company does not believe that its share of the reclamation costs will have a
material impact on its financial condition or results of operations. While
technically the Company's liability in connection with this reclamation project
is joint and several, based on the financial capability of the other named
respondent and its similar legal position to the Company's, the Company
believes it is highly unlikely that its liability for the project will exceed
50%. Furthermore,

15
<PAGE> 11
based on the Company's current knowledge of the project, 100% of the cost
burden thereof would not have a material impact on the Company's financial
condition or results of operations.

Item 2. Changes in Securities. None.

Item 3. Defaults Upon Senior Securities. None.

Item 4. Submission of Matters to a Vote of Security Holders. None.

Item 5. Other Information. None.

Item 6. Exhibits and Reports on Form 8-K. None.

a. List of Exhibits

16
<PAGE> 12

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

2.1 Amended and Restated Agreement and Plan of Merger, dated as of
April 29, 1996, among, HSR, Merger Sub and Tide West
(Incorporated by reference as Annex A to Amendment No. 2 to
the Company's Registration Statement on Form S-4, No.
333-01991, filed on May 2, 1996).

3.1 Amended and Restated Certificate of Incorporation of HSR
(Incorporated by reference to Exhibit 3.1 to HSR's Form S-1,
No. 33-52774, filed on October 2, 1992 (the "HSR 1992 Form
S-1")).

3.2 Second Amended and Restated By-Laws of HSR (Incorporated by
reference to Exhibit 3.2 to the HSR 1992 Form S-1).

4.7 Form of Indenture dated December 1, 1993 entered into between
the Company and the Trustee. (Incorporated by reference as
Exhibit 4.7 to Amendment No. 3 to the Company's Registration
Statement on Form S-3 (file no. 33-70354), filed November 23,
1993).

10.1 Amended Note and Warrant Purchase Agreement dated January 15,
1991, among NGP, Resolute Resources, Inc., and the Company.
(Incorporated by reference as Exhibit 4.4.1 to the Company's
quarterly report on Form 10-Q for the quarter ended December
31, 1990, filed February 14, 1991.)

10.1.1 Amended No. 1 to Note and Warrant Purchase Agreement dated
June 28, 1991, between the Company and NGP. (Incorporated by
reference as Exhibit 4.4.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991, filed
September 30, 1991.)

10.1.2 Second Amendment to Note and Warrant Purchase Agreement dated
August 17, 1992, between the Company and NGP. (Incorporated
by reference as Exhibit 4.2.2 as Exhibit to Amendment No. 2 to
the Company's Registration Statement on Form S-1 (file no.
33-52774), filed November 19, 1992).

10.1.3 Third Amendment to Note and Warrant Purchase Agreement dated
October 21, 1993, between the Company and NGP. (Incorporated
by reference as Exhibit 4.1.3 to Amendment No. 3 to the
Company's Registration Statement of Form S-3 (file no.
33-70354), filed November 23, 1993).

10.2 Amended and Restated Warrant Agreement dated January 15, 1991,
between NGP and the Company. (Incorporated by reference as
Exhibit 4.5.1 to the Company's quarterly report on Form 10-Q
for the quarter ended December 31, 1990, filed February 14,
1991.)

17
<PAGE> 13
10.3 Amended Warrant No. W-1, dated January 15, 1991, and issued by
the Company to NGP. (Incorporated by reference as Exhibit
4.6.1 to the Form 8, Second Amendment to Form 10 filed April
8, 1991.)

10.3.1 Amendment No. 1 to Amended Warrant No. W-1, dated December 30,
1991, and issued by the Company to NGP. (Incorporated by
reference as Exhibit 4.6.2 to the Company's quarterly report
on Form 10-Q for the quarter ended December 31, 1991, filed
February 14, 1991.)

10.4 Form of Warrant No. W-10, dated January 28, 1992, and issued
by the Company to NGP. (Incorporated by reference as Exhibit
4.16 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (file no. 33-52774), filed November 9,
1992).

10.5 Amended and Restated Employee Stock Incentive Plan.
(Incorporated by reference as Exhibit 10.2.1 to Amendment No.
1 to the Company's Registration Statement on Form S-1 (file
no. 33-52774), filed November 9, 1992).

10.6 Common Stock Purchase Warrant dated July 12, 1990 by the
Company to James E. Duffy. (Incorporated by reference as
Exhibit 10.5 to the Form 8, Second Amendment to Form 10 filed
April 8, 1991.)

10.7 HS Resources, Inc. Rule 701 Compensatory Benefit Plan.
(Incorporated by reference as Exhibit 10.5.2 to the Form 8,
Second Amendment to Form 10 filed April 8, 1991.)

10.8 1992 Directors' Stock Option Plan. (Incorporated by reference
as Exhibit 10.10 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (file no. 33-52774), filed
November 9, 1992).

10.8.1 1993 Directors' Stock Option Plan. (Incorporated by reference
as Exhibit 10.8.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, filed March 31,
1994 (as amended by Form 10-K/A-1 on April 9, 1994)).

10.9 Form of Indemnification Agreement for Directors of the
Company. (Incorporated by reference as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed March 25, 1996).

10.10 Lease Agreement dated October 6, 1993, between the Company and
JMB Group Trust IV and Endowment and Foundation Realty,
Ltd.--JMB III for the premises at One Maritime Plaza, San
Francisco, California. (Incorporated by reference as Exhibit
10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, filed March 31, 1994 (as
amended by Form 10-K/A-1 on April 8, 1994)).

18
<PAGE> 14
10.11 Lease Agreement dated March 28, 1994, between the Company and
1999 Broadway Partnership for the premises at 1999 Broadway,
Denver, Colorado. (Incorporated by reference as Exhibit 10.15
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, filed August 12, 1994).

10.12 Interest exchange agreement between Chase and the Company
dated May 9, 1995. (Incorporated by reference as exhibit
10.19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, filed August 14, 1995).

10.13 Agreement and Plan of Merger, dated as of February 25, 1996,
among the Company, HSR Acquisition, Inc. and Tide West.
(Incorporated by reference to Exhibit A to the Company's
Schedule 13D filed on March 6, 1996.)

10.14 Agreement for Purchase and Sale of Assets (Monetization),
dated as of February 24, 1996, among the Company, Basin
Exploration, Inc. ("Basin") and Orion Acquisition, Inc.
("Orion"). (Incorporated by reference to Exhibit 2.3 to the
Company's Form 8-K filed on March 12, 1996.)

10.15 Agreement for Purchase and Sale of Assets, dated as of
February 24, 1996, among the Company, Orion and Basin.
(Incorporated by reference to Exhibit A to the Company's
Schedule 13D filed on March 6, 1996.)

10.16 Purchase and Sale Agreement, dated December 1, 1995, between
the Company and Wattenberg Gas Investments, LLC.
(Incorporated by reference as Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995, filed March 25, 1996).

10.17 Rights Agreement, dated as of February 28, 1996, between the
Company and Harris Trust Company of California as Rights
Agent. (Incorporated by reference as Exhibit 1 to HSR's Form
8-A filed on March 11, 1996).

10.18 Purchase and Sale Agreement dated March 25, 1996 between Orion
Acquisition, Inc., the Company and Wattenberg Resources Land,
L.L.C. (Incorporated by reference as Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, filed May 15, 1996).

10.19* Credit Agreement, dated as of June 7, 1996, among the Company
and The Chase Manhattan Bank, N.A. ("Chase"), as Agent of the
Banks signatory thereto.

10.20* Amended and Restated Credit Agreement, dated as of June 14,
1996, among the Company, Chase, as Agent and the Banks
signatory thereto.

10.21* First Amendment to Amended and Restated Credit Agreement dated
as of June 17, 1996, by and among the Company and Chase, in
its individual capacity and as agent for the Lenders.

19
<PAGE> 15
10.22* Assignment of Liens and Amendment of Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security
Agreement and Financing Statement, dated June 14, 1996, among
Chase (Assignor), Chase (Assignee) and HS Resources, Inc.

10.23* Guaranty Agreement by HSR Acquisition, Inc. in favor of Chase,
as Agent, dated June 14, 1996.

10.24* Guaranty Agreement by Orion Acquisition, Inc. in favor of
Chase, as Agent, dated June 14, 1996.

10.25* First Amendment to Guaranty Agreement dated as of June 17,
1996, by and among Orion Acquisition, Inc. and Chase, in its
individual capacity and as agent for the Lenders.

10.26* First Amendment to Guaranty Agreement dated as of June 17,
1996, by and among HSRTW, Inc. (formerly HSR Acquisition,
Inc.) and Chase, in its individual capacity and as agent for
the Lenders.

10.27* Third Amendment and Supplement to Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security
Agreement and Financing Statement, dated as of July 15, 1996,
by and between the Company and Chase.

10.28* Hedging agreement between Chase and the Company dated May 1,
1996.

10.29* Hedging agreement between Chase and the Company dated May 1,
1996.

10.30* Hedging agreement between Chase and the Company dated June 1,
1996.

10.31* Purchase and Sale Agreement between HS Resources, Inc. and
Wattenberg Gas Investments, LLC dated April 25, 1996.

10.32* Purchase and Sale Agreement between Wattenberg Resources Land,
L.L.C. and Wattenberg Gas Investments, LLC dated May 21, 1996.

10.33* Purchase and Sale Agreement between Orion Acquisition, Inc.
and Wattenberg Gas Investments, LLC dated June 14, 1996.

10.34* Purchase and Sale Agreement between Wattenberg Resources Land,
L.L.C. and Wattenberg Gas Investments, LLC dated June 14,
1996.

10.35* Purchase and Sale Agreement between Orion Acquisition, Inc.
and Wattenberg Gas Investments, LLC dated June 14, 1996.

10.36* Purchase and Sale Agreement between HS Resources, Inc. and
Wattenberg Gas Investments, LLC dated June 28, 1996.

20
<PAGE> 16
10.37@ Purchase and Sale Agreement between HSRTW, Inc. and Westtide
Investments, LLC dated August 9, 1996.

10.38@ Acquisition Agreement between HS Resources, Inc. and TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. dated
August 30, 1996.

27@ Financial Data Schedule

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

@ Filed herewith.

* Incorporated by reference to the Company's quarterly report
on Form 10-Q for the quarter ended June 30, 1996, filed
August 14, 1996.

21
<PAGE> 17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
HS Resources, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

HS RESOURCES, INC.

Dated: November 7, 1996 By: /s/ JAMES E. DUFFY
-----------------------------
James E. Duffy
Vice President and Chief
Financial Officer

By: /s/ ANNETTE MONTOYA
-----------------------------
Annette Montoya
Vice President and Principal
Accounting Officer

<PAGE> 1

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

PURCHASE AND SALE AGREEMENT

between

HSRTW, INC.

and

WESTTIDE INVESTMENTS, LLC

Dated: August 9, 1996

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

<PAGE> 2

TABLE OF CONTENTS
Page

1. Purchase and Sale ........................................... 1

2. The Assets .................................................. 1
2.1 Leases and Wells ...................................... 1
2.2 Incidental Rights ..................................... 2

3. Effective Date .............................................. 2

4. Purchase Payments ........................................... 2
4.1 Purchase Price ........................................ 2
4.2 Credit Payment Amount ................................. 2

5. Apportionment of Production, Revenues, Taxes
and other Expenses .......................................... 3

6. Buyer's Representations and Warranties ...................... 4
6.1 Existence ............................................. 4
6.2 Power and Authority ................................... 4
6.3 Authorization ......................................... 4
6.4 Execution and Delivery ................................ 4
6.5 Securities Laws ....................................... 4
6.6 Brokers' Fees ......................................... 5

7. Seller's Representations and Warranties ..................... 5
7.1 Existence ............................................. 5
7.2 Power and Authority ................................... 5
7.3 Authorization ......................................... 5
7.4 Execution and Delivery ................................ 5
7.5 Brokers' Fees ......................................... 6
7.6 Reserve Report ........................................ 6
7.7 Liens ................................................. 6
7.8 Title ................................................. 8
7.9 Preferential Purchase Rights and Consents ............. 8
7.10 No Prepayments ........................................ 9
7.11 Gas Balancing ......................................... 9
7.12 Leases ................................................ 9
7.13 Operations in Progress ................................ 9
7.14 Hydrocarbon Sales Contracts ........................... 9
7.15 Proceeds of Production ................................ 10
7.16 Material Contracts .................................... 10
7.17 Bills in the Ordinary Course .......................... 10
7.18 Legal Proceedings ..................................... 10
7.19 Compliance with Laws .................................. 10
7.20 Environmental Matters ................................. 10
7.21 Payment of Taxes ...................................... 11
7.22 Tax Partnerships ...................................... 11
7.23 Other Tax Matters ..................................... 12

8. Certain Tax Matters ......................................... 13
8.1 Opinion of Tax Counsel, Right to Request Ruling ....... 13
8.2 Tax Status ............................................ 14
8.3 Escrow in the Event of Tax Audit ...................... 14
8.4 Settlements Resulting from a Tax Audit ................ 16

<PAGE> 3

9. Covenants ................................................... 17
9.1 Cooperation and Access ................................ 17
9.2 Insurance ............................................. 17

10. Closing Conditions .......................................... 17
10.1 Seller's Closing Conditions ........................... 17
10.2 Buyer's Closing Conditions ............................ 17

11. Closing ..................................................... 18
11.1 Payment of Purchase Price ............................. 18
11.2 Section 15.2 Payment .................................. 18
11.3 Notice of Preferential Rights and Consents ............ 18
11.4 Assignment; Option .................................... 19
11.5 Non-Foreign Ownership Affidavit ....................... 19
11.6 Evidence of Insurance ................................. 19
11.7 Contribution Agreement ................................ 19
11.8 Guaranty Agreement .................................... 19
11.9 Seller's Officer's Certificate ........................ 19
11.10 Opinion on Behalf of Seller ........................... 19
11.11 Buyer's Manager's Certificate ......................... 19
11.12 Opinions on Behalf of Buyer ........................... 19
11.13 Management Agreement .................................. 20
11.14 Performance Power of Attorney ......................... 20
11.15 Tax Opinion ........................................... 20
11.16 Additional Instruments ................................ 20

12. Post-Closing Matters ........................................ 20
12.1 Files and Records ..................................... 20
12.2 Sales Taxes and Recording Fees ........................ 20
12.3 Purchase Price Rebates for Defective Interests ........ 20
12.4 Purchase Price and Other Rebates for Exercised
Preferential Purchase Rights, Failure to
Obtain Consents ....................................... 21
12.5 Reconveyance of Excluded Assets ....................... 21
12.6 Allocation of Commingled Production and Costs ......... 22
12.7 Performance of Buyer .................................. 22
12.8 Overpayments .......................................... 22
12.9 Verification of Formation Qualification; Reconveyance . 25

13. Apportionment of Liabilities and Obligations................. 25
13.1 Buyer ................................................. 25
13.2 Seller ................................................ 25

14. Indemnification ............................................. 25
14.1 Buyer's Indemnification of Selle ...................... 26
14.2 Seller's Indemnification of Buye ...................... 26
14.3 Third Party Claims .................................... 26
14.4 HS Guarantee .......................................... 27

15. Miscellaneous ............................................... 28
15.1 Further Assurances .................................... 28
15.2 Expenses .............................................. 28
15.3 Notices ............................................... 29

(ii)
<PAGE> 4

15.4 Survival .............................................. 29
15.5 Confidentiality ....................................... 30
15.6 Announcements ......................................... 30
15.7 Assignment ............................................ 30
15.8 Binding Effect ........................................ 30
15.9 Complete Agreement .................................... 31
15.10 Knowledge ............................................. 31
15.11 Governing Law ......................................... 31
15.12 Counterparts .......................................... 31

(iii)
<PAGE> 5
EXHIBITS

Exhibit A Leases (Oklahoma, Louisiana)

Exhibit B Wells (showing WI, NRI, qualifying formations)

Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment

Exhibit D Form of Option to Purchase Oil and Gas Interests

Exhibit E Reserve Report

Exhibit F Preferential Purchase Rights and Consents

Exhibit G Prepayments

Exhibit H Gas Imbalances

Exhibit I Operations in Progress

Exhibit J Hydrocarbon Sales Contracts

Exhibit K Legal Proceedings

Exhibit L Tax Partnerships

Exhibit M Well List - No NGPA Application Filed

Exhibit N Form of Non-Foreign Ownership Affidavits

Exhibit O Form of Contribution Agreement and Form of Guaranty Agreement

Exhibit P Form of Seller's Officer's Certificate

Exhibit Q Form of Opinion on Behalf of Seller

Exhibit R Form of Buyer's Manager's Certificate

Exhibit S Form of Opinions on Behalf of Buyer

Exhibit T Form of Management Agreement

Exhibit U Form of Escrow Agreement

Exhibit V Form of Limited Power of Attorney

(iv)
<PAGE> 6
PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement ("Agreement"), dated August 9, 1996, is
between HSRTW, Inc., a Delaware corporation ("Seller" or "HSRTW") and WestTide
Investments, LLC, a Delaware limited liability company ("Buyer" or
"WestTide").

RECITALS

A. Seller is the owner of certain oil and gas leasehold interests in
Oklahoma and Louisiana, as more specifically described below in Section 2 (the
"Assets").

B. Seller desires to sell and Buyer desires to purchase the Assets
pursuant to the terms and conditions of this Agreement.

AGREEMENT

IN CONSIDERATION of the Purchase Price set forth below in Section 4.1,
the Credit Payment Amounts set forth below in Section 4.2, the reservation of
the "Production Payment" (defined below) and the grant of the "Option"
(defined below), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer agree as
follows:

1. Purchase and Sale. Seller agrees to convey the Assets to Buyer and
Buyer agrees to purchase the Assets from Seller, all pursuant to the terms and
conditions of this Agreement. Seller will convey the Assets subject to (i) a
production payment (the "Production Payment"), a reversionary interest (the
"Reversion Interest") and other reservations and obligations as specifically
set forth in the Wellbore Assignment of Oil and Gas Leases With Reservation of
Production Payment in a form substantially similar to Exhibit C (the
"Assignment"), and (ii) the Option To Purchase Oil and Gas Interests to be
granted to Seller in a form substantially similar to Exhibit D (the "Option").

2. The Assets. The "Assets" shall be all of the following:

2.1 Leases and Wells. Seller's right, title and interest in and to
the oil and gas leases and mineral interests described in Exhibit A, including
any and all overriding royalty interests owned by Seller in such leases, but
insofar and only insofar as said leases cover the right to produce the wells
described in Exhibit B from the intervals referenced in Section 7.23 and
identified in Exhibit B in such wells as of the Effective Date (the above
described interest in such leases being herein called the "Leases" and the
above described interest in such wells being herein called the "Wells"), and
subject to any

<PAGE> 7
restrictions, exceptions, reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to such Leases and Wells.

2.2 Incidental Rights. All of Seller's right, title and
interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:

(a) Unitization and Pooling Agreements. All presently existing
and valid oil, gas or mineral unitization, pooling, operating and
communitization agreements, declarations and orders affecting the Leases
and Wells, and in and to the properties covered and the units created
thereby;

(b) Personal Property. The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing, pumps,
separators, tanks, lines and other personal property and oil field
equipment appurtenant to such Wells;

(c) Agreements. All presently existing and valid oil and gas
sales, purchase, production swap, gathering and processing contracts and
operating agreements, joint venture agreements, partnership agreements,
rights-of-way, easements, permits, surface leases and other contracts,
agreements and instruments, but specifically excluding any management
agreements.

Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any
property or formation owned by Seller that is not exclusively part of the
Wells.

3. Effective Date. The purchase and sale of the Assets shall be
effective, for all purposes, including allocation of revenue, expenses and
taxes, as of August 1, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").

4. Purchase Payments. Buyer shall pay to Seller the Purchase Price
defined in Section 4.1 and the Credit Payment Amounts defined in Section 4.2.

4.1 Purchase Price. The purchase price for the Assets shall be
$240,000 (the "Purchase Price"). Buyer shall pay the Purchase Price to Seller
in immediately available funds at Closing.

4.2 Credit Payment Amount. "Credit Payment Amount" shall mean, for
any Payment Period, an amount equal to $0.70 of each dollar of tax credits
(the "Tax Credits") available to Buyer under 29 of the Internal Revenue Code
of 1986, as amended (the "IRC"), as a result of the sale of Subject
Hydrocarbons by or on behalf of Buyer, to the extent that such

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<PAGE> 8

Subject Hydrocarbons (i) constitute "qualified fuels" within the meaning of IRC
29(c), (ii) meet the requirements of IRC 29(d)(1), 29(d)(4) and 29(f), during
(x) such Payment Period and (y) any earlier Payment Period to the extent the
dollar amount of Tax Credits attributable thereto was not taken into account in
a Credit Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells. For purposes of the preceding sentence, Tax Credits available
to Buyer under IRC 29 shall be determined after taking into account any
phase-out of Tax Credits under IRC 29(b)(1) and any applicable inflation
adjustment under IRC 29(b)(2), but shall be determined without regard to
limitations on Buyer's or its affiliate's use of Tax Credits imposed by IRC
29(b)(6) and without regard to whether Buyer or its affiliates actually utilize
such Tax Credits. The Credit Payment Amount for any given Payment Period shall
initially be based on estimated Subject Hydrocarbon production and sales data
available at the time of the calculation of such amount and later corrected
when actual data is available. The Credit Payment Amount shall be determined on
the assumption that (i) the Production Payment is treated as a production
payment for federal income tax purposes, and (ii) Buyer is treated as owning
the economic interest in minerals in place in the Assets. Credit Payment
Amounts shall be calculated and, unless otherwise provided, will be due and
payable with respect to gas produced and sold from August 1, 1996 until the
earlier of (x) the aggregate of all Credit Payment Amounts paid pursuant to
this Agreement equals $950,000 (subject to the provisions of Paragraph
1.a.(vii) of the Option), (y) December 31, 2002, or (z) the first day on which
Tax Credits are no longer permitted for gas attributable to the Subject
Hydrocarbons and produced and sold from the Wells. The Credit Payment Amount
shall include, without limitation, payments for Tax Credits attributable to
natural gas liquids produced from the Subject Hydrocarbons, subject to the
provisions of Sections 7.23 and 12.8. If for any reason the Tax Credits are
repealed by Congressional statute or resulting regulation, no Credit Payment
Amount shall be due with respect to Subject Hydrocarbons subject to such
repeal. If for any reason the amount of Tax Credits contemplated under this
Agreement are reduced by Congressional statute or resulting regulation, the
Credit Payment Amounts due under this Agreement shall be reduced commensurate
with such reduction in Tax Credits. For purposes of the foregoing, the term
"Subject Hydrocarbons" shall have the meaning set forth in the Assignment.

5. Apportionment of Production, Revenues, Taxes and other Expenses. Buyer
shall be entitled to revenue from the sale of hydrocarbons produced from the
Wells on or after the Effective Date, subject to the Production Payment,
Reversion Interest and the Option. Buyer shall pay for costs and expenses
incurred with respect to the Assets on or after the Effective Date. Seller
shall be entitled to revenue from the sale of hydrocarbons produced from the
Wells before the Effective Date, and shall pay for costs and expenses incurred
with respect to the Assets prior to the Effective Date. Taxes relating to the
Assets, including

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<PAGE> 9

ad valorem, property, production, severance and other taxes (other than income
taxes) shall be allocated in the same manner as other expenses. Taxes that are
measured by or that relate to production shall be treated as expenses in
connection with such production regardless of the period for which such taxes
are assessed.

6. Buyer's Representations and Warranties. Buyer makes the following
representations and warranties as of the date of execution of this Agreement:

6.1 Existence. Buyer is a limited liability company, duly organized,
validly existing and formed under the law of the State of Delaware, and Buyer
is duly qualified to carry on its business, and is duly qualified and in good
standing, in each of the states in which the nature of its business and
activities requires it to be so qualified.

6.2 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 transactions 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 material 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.

6.3 Authorization. The execution, delivery and performance of this
Agreement and each of the documents contemplated to be executed by Buyer at
Closing and the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite action on the part of Buyer.

6.4 Execution and Delivery. This Agreement has been duly executed
and delivered on behalf of Buyer, and at the Closing all documents,
instruments and schedules required hereunder to be executed and delivered by
Buyer shall have been 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.

6.5 Securities Laws. Buyer is purchasing the Assets for Buyer's own
account, not for public distribution thereof, and Buyer shall not sell or
transfer all or any part of, or any interest in, the Assets in violation of
the Securities Act

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<PAGE> 10

of 1933, as amended, and the rules and regulations thereunder, or the
securities laws of any state.

6.6 Brokers' Fees. Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Seller shall have any responsibility
whatsoever.

7. Seller's Representations and Warranties. Seller makes the
following representations and warranties as of the date of this Agreement:

7.1 Existence. Seller is a corporation duly organized and validly
existing under the law of the State of Delaware, and Seller is duly qualified
to carry on its business, and is in good standing in the States of Delaware,
Oklahoma and Louisiana.

7.2 Power and Authority. Seller has all requisite 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. The
consummation of the transactions 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 Certificate of
Incorporation, bylaws or other governing documents, (ii) any material
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;
provided that, the representations and warranties contained in clauses (ii)
and (iii) of this Section 7.2 are subject to (a) consents of or filings with
the United States Department of Interior or the applicable state agencies or
authorities in connection with the assignment of any federal or state leases
or any interest therein to the extent such consents are typically received or
filings typically made subsequent to such assignment ("Governmental
Consents"), (b) preferential rights to purchase all or any portion of the
Assets and consent to or notices of assignment necessary to convey all or any
portion of the Assets which are not Governmental Consents, and (c) any
violation of any maintenance of uniform interest provision in any applicable
operating agreement.

7.3 Authorization. The execution, delivery and performance
of this Agreement and each of the documents contemplated to be executed by
Seller at Closing and the transactions contemplated hereby and thereby have
been duly and validly authorized by all requisite corporate action on the part
of Seller.

7.4 Execution and Delivery. This Agreement has been duly executed
and delivered on behalf of Seller, and at the

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<PAGE> 11

Closing all documents, instruments and schedules 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.

7.5 Brokers' Fees. Seller has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.

7.6 Reserve Report. The term "Reserve Report" shall mean the reserve
report prepared by Seller and dated as of June 1, 1996, which is based on
reserves as of December 31, 1995, as adjusted by estimated production from
January 1, 1996 through August 1, 1996, and attached hereto as Exhibit E. To
Seller's best knowledge, the average price for sales of hydrocarbons (based on
contract prices for existing effective contracts and estimates of regional
spot prices adjusted for regional transportation costs), historical costs of
operations, production volumes, and payout data used by Seller in the
preparation of the Reserve Report were, on the dates so used, accurate in all
material respects.

7.7 Liens. Except for the burdens and obligations created by or
arising under the Leases and except for Permitted Encumbrances, the Assets are
free and clear of all Encumbrances. As used herein, the term "Encumbrances"
shall mean all royalties, overriding royalties, production payments, debts,
liens, mortgages, security interests, and encumbrances. As used herein, the
term "Permitted Encumbrances" shall mean the following:

(i) the burdens, encumbrances and obligations created by or
arising under the Wells and other agreements affecting the
Assets, and all royalties, overriding royalties, net profits
interests, carried interests, reversionary interests, back-in rights
and other burdens taken into account in computing the net revenue
interests ("NRI") and working interests ("WI") set forth on Exhibit
B for the Wells;

(ii) all rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection with
the sale or conveyance of the Assets if the same are customarily
obtained subsequent to such sale or conveyance;

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<PAGE> 12

(iii) rights of reassignment upon surrender of the
Leases held by predecessors in interest to Seller;

(iv) easements, rights-of-way, servitudes, permits,
licenses, surface leases and other rights in respect of surface
use to the extent these do not materially interfere with operations
or production on or from the Assets;

(v) rights and regulatory powers reserved to or vested in
any municipality or governmental, statutory or public authority;

(vi) all Material Contracts to the extent same do not
reduce Seller's interest in the production from the Wells to less
than the NRI set forth on Exhibit B;

(vii) any (a) undetermined or inchoate liens or charges
constituting or securing the payment of expenses which were incurred
incidental to maintenance, development, production or operation of
the Assets or for the purpose of developing, producing or processing
oil, gas or other hydrocarbons therefrom or therein and (b)
materialman's, mechanics', repairman's, employees', contractors',
operators' or other similar liens, security interests or charges for
liquidated amounts arising in the ordinary course of business
incidental to construction, maintenance, development, production or
operation of the Assets or the production or processing of oil, gas
or other hydrocarbons therefrom, that are not delinquent and that
will be paid in the ordinary course of business or, if delinquent,
that are being contested in good faith;

(viii) any liens for taxes not yet delinquent or, if
delinquent, that are being contested in good faith in the ordinary
course of business;

(ix) any liens or security interests created by law or
reserved in Leases for royalty, bonus or rental or for compliance
with the terms of the Leases;

(x) any prohibitions or restrictions similar to the
Maintenance of Uniform Interest Provisions contained in Article
VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating Agreement
and any contribution obligations under provisions similar to Article
VII.B of such Model Form Operating Agreement;

(xi) all preferential rights to purchase all or any portion
of the Assets and consents to or notices of assignment necessary to
convey all or any portion

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<PAGE> 13

of the Assets which are not described in item (ii) of this
definition of Permitted Encumbrances;

(xii) all agreements and obligations relating to imbalances
with respect to the production, transportation or processing of gas
or calls or purchase options on oil or gas production;

(xiii) all agreements and obligations relating to
gathering, transportation or processing of gas or oil production;

(xiv) all treating, processing, sales or marketing
agreements which have a fee which is based on a percentage of
proceeds or an obligation to transfer certain volumes of gas or oil
production in-kind;

(xv) all obligations by virtue of a prepayment, advance
payment or similar arrangement under any contract for the sale
of gas production, including by virtue of "take or pay" or similar
provisions, to deliver gas produced from or attributable to the
Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;

(xvi) all liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, irregularities
and other matters affecting any Asset which individually or in the
aggregate will not interfere materially with the operation, value or
use of such Asset;

(xvii) the burdens, encumbrances and obligations created by
or arising under this Agreement, the Assignment, Option or
Management Agreement.

7.8 Title. Seller has Defensible Title to the Assets. The term
"Defensible Title" means such title of Seller in the Leases that, subject to
and except for the Permitted Encumbrances, entitles Seller to receive an
interest in production from the Wells not less than the respective NRIs in the
Wells as set forth on Exhibit B, and entitles Seller to own the respective WIs
in the Wells as set forth on Exhibit B under applicable state law and for
federal income tax purposes. Any Well or Lease for which Seller has less than
Defensible Title as of the date of this Agreement shall be called a "Defective
Interest." Buyer's exclusive remedy for Seller's breach of this representation
and warranty is set forth in Section 12.3. Buyer and Seller shall cooperate
fully and consult in good faith with each other in the litigation of any
matter identified in this Section 7.8

7.9 Preferential Purchase Rights and Consents. To Seller's best
knowledge, except as set forth in Exhibit F, there do not exist any
preferential rights to purchase all or any

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<PAGE> 14

portion of the Assets. To Seller's best knowledge, except for Governmental
Consents and other matters as set forth in Exhibit F, there are no consents or
waivers necessary to convey any material portion of the Assets pursuant to
this Agreement. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.4.

7.10 No Prepayments. To Seller's best knowledge, except as set forth
in Exhibit G, Seller is not obligated, by virtue of a prepayment arrangement,
a "take or pay" arrangement, a production payment, hedging or any other
arrangement, to deliver any material portion of hydrocarbons produced from the
Wells at some future time without then or thereafter receiving full payment
therefor.

7.11 Gas Balancing. To Seller's best knowledge, except as set forth
in Exhibit H, no material portion of hydrocarbons produced from the Wells are
subject to a gas imbalance or other arrangement requiring delivery of
hydrocarbons after the Effective Date without receiving full payment therefor.

7.12 Leases. To Seller's best knowledge, all royalties, rentals and
other payments due by Seller under the Leases have been properly and timely
paid except where the failure to pay same will not have a material adverse
effect on the value of the particular Asset. To Seller's best knowledge, all
Leases are presently in full force and effect. To Seller's best knowledge,
Seller has not received a written notice of material default under any Lease
that could result in cancellation of the Lease. Any Lease which is not
presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.

7.13 Operations in Progress. Except for operations disclosed on
Exhibit I and normal daily operating expenses, as of the date of this
Agreement there are no operations in progress with respect to the Assets which
are reasonably expected to exceed $35,000 in cost net to Seller's interest and
which shall be payable in whole or in part on or after the Effective Date.

7.14 Hydrocarbon Sales Contracts. Except as specifically indicated
in Exhibit J and for calls on production, options to purchase or similar
rights with respect to production from the Wells, no material portion of the
hydrocarbons produced from the Wells is subject to a sales contract or other
agreement relating to the production, gathering, transporting, processing,
treating or marketing of hydrocarbons except those which can be terminated by
Seller upon not more than three months notice.

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<PAGE> 15

7.15 Proceeds of Production. To Seller's best knowledge, Seller is
currently receiving from all purchasers of production from the Wells at least
the NRI set forth in Exhibit B without suspense or any indemnity other than
the normal division order warranty of title, except where the failure to
receive same would not have a material adverse effect on the value of the
Assets.

7.16 Material Contracts. To Seller's best knowledge, and subject to
the execution of new contracts in the ordinary course of business if a
contract has expired or has been terminated, all contracts material to the
Assets are in full force and effect (the "Material Contracts"). Seller has not
received written notices of material default under the Material Contracts that
remain uncured, or that Seller has not made provisions for so that such event
of default will not have a material adverse effect on the Assets.

7.17 Bills in the Ordinary Course. In the ordinary course of
business and to Seller's best knowledge, Seller is current on its payments for
all costs and expenses pertaining to the Assets, except where such payments
are being contested with good faith or except where the failure to make such
payments would not have a material adverse effect on the Assets.

7.18 Legal Proceedings. Except as set forth on Exhibit K, no suit,
action or other proceeding is pending against Seller or, to Seller's best
knowledge, threatened in writing against Seller before any court, governmental
agency, arbitrator or other panel that relates to the Assets or the
transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.

7.19 Compliance with Laws. To Seller's best knowledge, all laws,
rules, regulations, ordinances and orders (of all governmental and regulatory
bodies having authority over the Assets) material to the operation of the
Assets have been complied with in all material respects.

7.20 Environmental Matters. To Seller's best knowledge, no
conditions exist on the Assets that would subject Seller or Buyer to any
damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated
directly or indirectly with cleanup, removal, closure or other response
actions; provided that Seller or Buyer may be subject to such matters which
are (i) routine in the operation of the Assets and (ii) in the aggregate not
material to the value of the Assets as a whole. Seller and its predecessors
have obtained and are in material

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<PAGE> 16

compliance with all material permits, licenses and approvals affecting the
Assets and required under Environmental Laws.

As used herein, the term "Environmental Laws" shall mean any and all
existing laws (common or statutory), rules, regulations, codes, or ordinances
issued or promulgated by any federal, state or local governmental entity
relating to the management and disposal of waste materials, the protection of
public or employee health and safety, the cleanup, remediation or prevention
of pollution, or the protection of the environment.

7.21 Payment of Taxes. To Seller's best knowledge, all ad valorem,
property, production, severance, excise and similar taxes and assessments
based on or measured by the ownership of property or the production of
hydrocarbons or the receipt of proceeds therefrom on the Assets which are
currently due and payable have been properly and timely paid, except to the
extent such taxes are being contested in good faith in the ordinary course of
business.

7.22 Tax Partnerships. Except as set forth in Exhibit L, no portion
of the Assets (i) has been contributed to and is currently owned by a tax
partnership; (ii) is subject to any form of agreement (whether formal or
informal, written or oral) deemed by any state or federal tax statute, rule or
regulation to be or to have created a tax partnership; or (iii) otherwise
constitutes "partnership property" (as that term is used throughout Subchapter
K of Chapter 1 of Subtitle A of the IRC) of a tax partnership. Seller retains
all liability and responsibility, if any, to make all payments to appropriate
parties under the tax partnerships identified on Exhibit L. In addition to all
other remedies available to Buyer, Seller agrees to indemnify Buyer for all
costs, losses, damages, penalties or expenses incurred by Buyer as a result of
any of the Assets having been contributed to or currently owned by a tax
partnership, and Buyer may elect, with a proportionate rebate in the Purchase
Price in accordance with the procedures of Section 12.3 and the provisions of
Section 12.4, to reassign such Assets to Seller. For purposes of this Section
7.22, a "tax partnership" is any entity, organization or group deemed to be a
partnership within the meaning of IRC 761 or any similar state or federal
statute, rule or regulation, and that is not excluded from the application of
the partnership provisions of IRC Subchapter K of Chapter 1 of Subtitle A and
of all similar provisions of state tax statutes or regulations by reason of
elections made, pursuant to IRC 761(a) and all such similar state or federal
statutes, rules and regulations, to be excluded from the application of all
such partnership provisions. With respect to any tax partnership identified on
Exhibit L, Seller and Buyer have the power to elect a basis adjustment under
IRC 754 in connection with the transaction contemplated by this Agreement, and
the consummation of the transaction contemplated by this Agreement will not
(i) result in a termination of such tax partnership, nor (ii) result in the
reduction of any "Tax

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<PAGE> 17

Credits" (as that term is defined in the definition of "Credit Payment
Amount" in the Assignment) attributable to the Assets.

7.23 Other Tax Matters.

(a) NGPA Determination.

(i) Applications. Except for the Wells listed on Exhibit M,
Seller or its predecessor in interest has filed or caused to be
filed with the applicable state and federal agencies "Applications"
for well determination(s) for each Well under the Natural Gas Policy
Act of 1978, as amended (the "NGPA") and the rules and regulations
of the Federal Energy Regulatory Commission (the "FERC") under such
act (the "NGPA Regulations") requesting a determination that all or
a quantifiable portion of the gas produced from a particular Well is
"natural gas produced from designated tight formations" as defined
in 18 C.F.R. 274.205(e). Each such application has been approved by
the indicated state and federal agency and by the FERC and has been
finally approved under and in accordance with Section 503 of the
NGPA. Such applications comply with the requirements of the NGPA and
the NGPA Regulations and do not (1) contain any untrue statement of
material fact or (2) omit any statement of material fact necessary
to make the statements therein not misleading. No further
applications are required under the NGPA and the NGPA Regulations to
allow the legal sale of all gas produced from the Wells at a price
equal to the price for such gas currently being received.

(ii) Wells For Which Applications Were Not Filed. With
respect to the Wells listed on Exhibit M, Seller, its predecessor in
interest, or the operator of such Wells has not to Seller's
knowledge filed or caused to be filed with the applicable state and
federal agencies "Applications" for well determinations under the
NGPA and the rules and regulations of the FERC. With respect to the
Wells listed on Exhibit M, and except as provided in Section 12.9,
(a) all such Wells were (x) drilled (or recompleted in accordance
with private letter rulings issued by the Internal Revenue Service
("IRS") to third parties, or will be recompleted in an uphole
formation in accordance with Situation 1 of Revenue Ruling 93-54)
into a "qualifying formation" (tight formation or other qualifying
formation) within the time frames set forth in subsection (b)
below or (y) drilled within the time frames set forth in subsection
(b) below but no certificate was obtained from either the state
agency or the FERC or both stating that the Well is qualified and
but for the absence of such certificate the Well is qualified under
IRC 29, and as to both (x) and (y) the hydrocarbons produced and
sold from such Wells qualify for the Tax Credit, or (b) Seller has a
reasonable basis to believe that either (x) or (y) is true.

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(iii) Wells Where Commingling With Non-Qualified Production
Is Conducted. For Wells, if any, where production from a qualifying
formation and production from a non-qualifying formation are
commingled, the production has been allocated to each producing
formation on a reasonable basis, consistent with industry standards
and in accordance with procedures, if any, that have been approved
by appropriate state and federal agencies.

(b) Wells. Each Well (1) has been timely drilled under IRC
29(f)(1)(A) (drilled after December 31, 1979 but before January 1, 1993),
or administrative interpretations thereof, and (2) has been timely
drilled under IRC 29(c)(2)(B)(ii) or administrative interpretations
thereof, or was committed to interstate commerce (as defined in Section
2(18) of the Natural Gas Policy Act of 1978, as in effect on November 5,
1990) as of April 20, 1977.

(c) No Qualified Production prior to January 1, 1980. Prior to
January 1, 1980, there was no production of oil or gas from, nor were any
wells drilled or completed on, the "property" (within the meaning of IRC
29) on which any Well is located nor was any portion of any such
"property" included within a unit from which oil or gas was produced or
in which any wells were drilled or completed prior to such date.

(d) No Enhanced Oil Recovery Credit. No oil or gas produced from
the Wells qualifies or has qualified for (i) the enhanced oil recovery
credit or any other credit under IRC 43 and none has been claimed or
taken on such oil or gas, or (ii) the credit allowed under IRC 38 by
reason of the energy percentage with respect to property used in the
project.

(e) No Government Financing. No portion of any drilling,
equipping, seismic or other development costs of the Assets paid by
Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan
guaranty.

(f) Seller Status. Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate (as
those terms are defined in the IRC and the rules and regulations
promulgated thereunder), and Seller shall deliver to Buyer an affidavit
of non-foreign ownership in the form of Exhibit N.

8. Certain Tax Matters.

8.1 Opinion of Tax Counsel, Right to Request Ruling . At Closing,
Buyer at its sole cost, shall provide Seller a copy of the opinion which Buyer
has requested from Arthur Andersen LLP ("AA") regarding the tax consequences
of the transaction contemplated by this Agreement (the "Tax Opinion").

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<PAGE> 19

Notwithstanding the Tax Opinion, Buyer shall have the right, but not the
obligation, to request a "private letter ruling" from the IRS to the effect
that (i) Buyer's interest in the Assets constitutes an economic interest in
minerals in place, and (ii) the Production Payment will be treated as a
mortgage loan under IRC 636 (a "Ruling"). Should Buyer elect to request a
Ruling, Buyer shall have no right to terminate or rescind this Agreement if
the Ruling is not acceptable to Buyer. Seller shall, in good faith, amend this
Agreement and the documents contemplated hereunder in order that Buyer may
obtain a favorable Ruling, if, in Seller's sole and reasonable discretion,
such amendments will not have a material adverse effect on Seller.

8.2 Tax Status. Seller and Buyer intend that, for tax purposes only,
the Production Payment will be treated as a mortgage loan and not as an
"economic interest" in the Assets. Buyer shall have no recourse against Seller
in the event that the Production Payment is not so treated until the
commencement of a Tax Audit, in which event the provisions of Section 8.3
shall control.

8.3 Escrow in the Event of Tax Audit. Promptly following the earlier
to occur of (1) the date which is 90 days following receipt by a member of Buyer
of a notice from the IRS of the commencement of an administrative proceeding at
the partnership level pursuant to IRC 6223(a)(1) (a "Tax Audit"), or (2) the
date of issuance by the IRS of either (i) a notice of proposed adjustment with
respect to any audit proceedings or (ii) a so-called "60 day letter" (such
earlier date, the "Escrow Commencement Date"), Seller and Buyer shall enter into
an Escrow Agreement with an escrow agent, substantially in the form of Exhibit
U; provided, however, that Buyer may waive its rights to enter into such an
Escrow Agreement, in which event the provisions of Sections 8.3(a) through
8.3(e) shall not apply. If Buyer does not waive its rights to an Escrow
Agreement, the Escrow Agreement and the funds in the "Escrow Account"
established pursuant thereto shall be administered in accordance with the
following provisions:

(a) Beginning with the Payment Period (as that term is defined
in the Assignment) in which the Escrow Commencement Date occurs and
continuing for each Payment Period until the "Conclusion of a Tax Audit"
(as that term is defined below, with such period of time being the
"Escrow Period"), Buyer shall deposit into the Escrow Account the Credit
Payment Amount for each Payment Period (the "Escrow Amount" and the sum
of all Escrow Amounts being the "Escrowed Funds"). The Escrowed Funds
shall not include any funds which were due from Buyer to Seller prior to
the Escrow Commencement Date, but which were not paid to Seller. During
the Escrow Period, Buyer and Seller agree that Gross Proceeds plus Other
Income (as contemplated in the Assignment) will be sufficient to perform
all of the Services under the Management Agreement. For tax purposes

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<PAGE> 20

only, Buyer shall be treated as the owner of the Escrowed Funds.

(b) A Tax Audit will be deemed to have concluded upon the
earliest to occur of the following events: (i) the receipt by Buyer
of written notice from the IRS that it will not assert any adjustments
with respect to the transactions contemplated by this Agreement; (ii)
Buyer entering into a settlement agreement with the IRS which resolves
the open federal income tax issues in connection with such transactions;
(iii) a judgment of a court of law or a decision in an administrative
proceeding becoming non-appealable with respect to the federal income tax
issues in connection with such transactions; or (iv) the expiration of
the applicable period of limitations for making assessments with respect
to the years under examination in the Tax Audit if the IRS has made no
assessments within such period with respect to such transactions (such
earliest event being deemed the "Conclusion of a Tax Audit").

(c) At the Conclusion of a Tax Audit, Buyer and Seller agree to
recalculate, pursuant to the provisions of the second paragraph of this
Section 8.3(c), any amounts due Buyer and Seller pursuant to the terms of
this Agreement for the Escrow Period, taking into account the reduction,
if any, in the Credit Payment Amounts due for each Payment Period during
the Escrow Period resulting from the Tax Audit (including any settlement
described in Section 8.4). Buyer shall receive from the Escrowed Funds an
amount equal to 70% of the total dollar amount of any reduction in Tax
Credits available to Buyer with respect to hydrocarbon production from
the Wells as a result of the application of the preceding sentence, or
Sections 8.3(d) and (e) as applicable, including interest thereon, for
the periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon. Except
for such adjustment, there is no other obligation of Seller to make any
other payment to Buyer with respect to the Tax Audit, subject to Section
12.8 below.

If, at the Conclusion of a Tax Audit, payments have been made into
the Escrow Account with respect to any Open Period, distributions from
the Escrow Account with respect to the Open Period (whether or not
another Tax Audit has commenced and remains outstanding with respect to
such period) shall, subject to Section 8.3(e), be shared under this
Section 8.3(c) in accordance with the principles of any "no-change
letter," binding settlement or final court decision or administrative
determination with respect to the Tax Audit or, if the statute of
limitations with respect to the Tax Audit expired without an IRS
adjustment having been imposed, in accordance with the terms of this
Agreement (in either case, the "Audit Terms"). An "Open Period" shall

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mean any period not covered by a Tax Audit if there has been a Conclusion
of such Tax Audit.

Credit Payment Amounts which are credited or paid to Seller other
than from Escrowed Funds with respect to Open Periods shall, subject to
the second paragraph of Section 8.3(e), be computed in accordance with
the Audit Terms.

(d) If a new Tax Audit (the "New Tax Audit") is commenced with
respect to an Open Period before the expiration of the applicable statute
of limitations and after the Conclusion of a Tax Audit, then a new Escrow
Account shall not be established in accordance with Section 8.3(a) with
respect to such New Tax Audit, and Credit Payment Amounts for the Open
Period shall, subject to Section 8.3(e), continue to be computed in
accordance with the applicable Audit Terms.

(e) Upon the Conclusion of a New Tax Audit with respect to an
Open Period, the Credit Payment Amounts with respect to the Open Period
shall be recomputed in accordance with any no-change letter, binding
settlement or final court or administrative decision resulting from the
New Tax Audit.

If the statute of limitations for any Open Period expires without an IRS
adjustment having been imposed for such Open Period, the Credit Payment
Amounts with respect to such Open Period shall be recomputed in
accordance with the terms of this Agreement without regard to the result
of any Tax Audit, provided that such treatment is consistent with Buyer's
federal income tax returns (as amended) for such Open Period. Buyer shall
make reasonable efforts to claim all the Tax Credits arising from the
sale of production from the Assets during each Open Period.

Promptly following a recomputation of Credit Payment Amounts pursuant to
the first two paragraphs of this Section 8.3(e), Buyer shall pay to Seller
(or Seller shall pay to Buyer) any amount to which Seller (or Buyer) is
entitled under such recomputation.

8.4 Settlements Resulting from a Tax Audit . If Buyer elects to
enter into a negotiated settlement with the IRS of any Tax Audit adjustments,
Buyer shall, in good faith, consult with Seller regarding the suggested terms
of such settlement; provided, however, that Buyer shall be under no obligation
to comply with any suggestion of Seller. Buyer shall provide to Seller copies
of all correspondence or pleadings between Buyer and the IRS regarding any Tax
Audit. Seller shall be entitled to monitor all hearings and meetings with the
IRS associated with such settlement negotiations. Notwithstanding the
foregoing, Section 12.8 shall govern Seller's rights to monitor or control
whether Tax Credits are available for natural gas liquids.

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9. Covenants.

9.1 Cooperation and Access. Seller shall fully cooperate with
Buyer's post-Closing due diligence efforts, both at Seller's offices and at
the site of the Assets.

9.2 Insurance. At or prior to the Closing, Seller shall cause Buyer
to be named as an additional insured on all insurance policies Seller has that
pertain in any way to the ownership and operation of the Assets. At Closing,
Seller will provide Buyer with Certificates of Insurance naming Buyer as an
additional insured, or other evidence, satisfactory to Buyer, of compliance
with this Section 9.2.

10. Closing Conditions.

10.1 Seller's Closing Conditions. The obligation of Seller
to consummate the transactions contemplated hereby is subject, at the option
of Seller, to the satisfaction on or prior to the Closing Date of all of the
following conditions:

(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Buyer contained in this Agreement shall
be true and correct in all respects on and as of the Closing Date, and
(2) covenants and agreements of Buyer to be performed on or before the
Closing Date in accordance with this Agreement shall have been duly
performed in all respects.

(b) Closing Documents. Buyer shall have executed and delivered
the documents which are contemplated to be executed and delivered by it
pursuant to Section 11 hereof prior to or on the Closing Date.

(c) No Action. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Seller or any of its
affiliates) shall be pending or threatened before any court or
governmental agency or body of competent jurisdiction seeking to enjoin
or restrain the consummation of this Agreement or recover damages from
Seller resulting therefrom.

10.2 Buyer's Closing Conditions. The obligation of Buyer to
consummate the transactions contemplated hereby is subject, at the option of
Buyer, to the satisfaction on or prior to the Closing Date of all of the
following conditions:

(a) Representations, Warranties and Covenants. The (1)
representations and warranties of Seller contained in this Agreement
shall be true and correct in all respects on and as of the Closing Date,
and (2) covenants and agreements of Seller to be performed on or before
the

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Closing Date in accordance with this Agreement shall have been duly
performed in all respects.

(b) Closing Documents. Seller shall have executed and delivered
the documents which are contemplated to be executed and delivered by it
pursuant to Section 11 hereof prior to or on the Closing Date.

(c) No Action. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Buyer or any of its
affiliates) shall be pending or threatened before any court or
governmental agency or body of competent jurisdiction seeking to enjoin
or restrain the consummation of this Agreement or recover damages from
Buyer resulting therefrom.

(d) Engineering Confirmation. Williamson Petroleum Consultants,
Inc., using the same cost and pricing assumptions as used in the Reserve
Report, shall confirm that Seller's estimates of the amount of reserves
and estimated annual production rates with respect to the Assets are, in
the aggregate, reasonable.

(e) Tax Opinion. On or before the Closing Date, Buyer shall have
received the Tax Opinion described in Section 8.1.

11. Closing. The consummation of the transactions contemplated hereby
(the "Closing") shall occur, either in person or by facsimile, at the offices
of Davis, Graham & Stubbs LLP on the date of this Agreement (the "Closing
Date") or at such other time and place as the parties may agree to in writing.
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 (except where the documents involved indicate otherwise):

11.1 Payment of Purchase Price. Buyer shall deliver the Purchase
Price by wire transfer to Seller's account in accordance with written
instructions supplied by Seller at least three days prior to the Closing Date.

11.2 Section 15.2 Payment. Seller and Buyer shall pay to the other,
in cash or its equivalent, the amount due pursuant to Section 15.2, if any, as
reimbursement for the expenses incurred in connection with this transaction.

11.3 Notice of Preferential Rights and Consents. Seller shall
deliver to Buyer a copy of the notices sent to and any responses received from
third parties regarding preferential rights to purchase and consents affecting
the Assets with respect to the transactions contemplated by this Agreement.

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11.4 Assignment; Option. Seller and Buyer shall execute and deliver
the Assignment and the Option. In addition, Seller shall prepare and Seller
and Buyer shall execute such other conveyances on official forms and related
documentation necessary to transfer the Assets to Buyer in accordance with
requirements of governmental regulations; provided, however, that any such
separate or additional conveyances required pursuant to this Section 11.4 or
pursuant to Section 15.1 (i) shall evidence the conveyance and assignment of
the Assets made or intended to be made in the Assignment, (ii) shall not
modify or be deemed to modify any of the terms, reservations, covenants and
conditions set forth in the Assignment, and (iii) shall be deemed to contain
all of the terms, reservations and provisions of the Assignment, as though the
same were set forth at length in such separate or additional conveyance.

11.5 Non-Foreign Ownership Affidavit. Seller shall deliver to Buyer
the affidavit of non-foreign ownership substantially in the form of Exhibit N
one stating that Seller is a non-foreign entity for federal income tax
purposes.

11.6 Evidence of Insurance. Seller shall provide Buyer with
certificates from Seller's insurers or other evidence that Buyer has been
named an additional insured on Seller's policies affecting the Assets.

11.7 Contribution Agreement. Buyer shall deliver to Seller
the Contribution Agreement by and among Fontenelle, Inc. and Bald Prairie,
Inc. as members of Buyer, Buyer and Seller (as a third party beneficiary),
substantially in the form set forth in Exhibit O.

11.8 Guaranty Agreement. Buyer shall deliver to Seller the Guaranty
Agreement from FMR Corp. in favor of Buyer as beneficiary and Seller as third
party beneficiary, substantially in the form set forth in Exhibit O.

11.9 Seller's Officer's Certificate. Seller shall execute and
deliver to Buyer the Officer's Certificate, substantially in the form attached
as Exhibit P.

11.10 Opinion on Behalf of Seller. Seller shall deliver to Buyer
the opinion substantially in the form set forth in Exhibit Q.

11.11 Buyer's Manager's Certificate. Buyer shall execute and
deliver to Seller the Manager's Certificate substantially in the form attached
as Exhibit R.

11.12 Opinions on Behalf of Buyer. Buyer shall deliver to Seller
the opinions of Morris, Nichols, Arsht & Tunnell, and of Davis, Graham &
Stubbs LLP, substantially in the forms set forth in Exhibit S.

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11.13 Management Agreement. Seller shall cause HS to execute
and deliver to Buyer and Buyer shall execute and deliver to Seller the
Management Agreement (the "Management Agreement") and Memorandum of Management
Agreement and Power of Attorney substantially in the forms set forth in
Exhibit T.

11.14 Performance Power of Attorney. Buyer shall execute and
deliver to Seller counterparts of a Limited Power of Attorney, substantially
in the form of Exhibit V.

11.15 Tax Opinion. Buyer shall deliver to Seller a copy of
the Tax Opinion of AA.

11.16 Additional Instruments. Seller and Buyer shall execute,
acknowledge and deliver to each other such additional instruments as are
reasonable and customary to accomplish the purposes of this Agreement.

12. Post-Closing Matters.

12.1 Files and Records. Following Closing, Seller shall retain
physical possession of all lease files, land files, division order files,
production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would
not violate legal constraints or legal obligations.

12.2 Sales Taxes and Recording Fees. Seller shall be responsible for
making the payment to the proper authorities of all taxes and fees occasioned
by the sale of the Assets, including without limitation, any transfer fees and
sales taxes (which are to be apportioned one-half to Seller and one-half to
Buyer), and any documentary, filing and recording fees required in connection
with the filing and recording of any assignments or conveyances delivered
hereunder in the appropriate county, federal and/or state records.

12.3 Purchase Price Rebates for Defective Interests. In addition to
the remedy provisions of Section 12.8, Buyer shall be entitled to the
following rebate if Seller does not have Defensible Title to the Assets. At
any time and from

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time to time if Buyer discovers that Seller breached the representation and
warranty set forth in Section 7.8 or 7.12, Buyer may give Seller a Notice of
Defective Interests, which notice shall describe the Defective Interest and
the basis for the Defective Interest. Buyer shall be entitled to a rebate in
the Purchase Price for a Defective Interest which shall equal the difference
between the Purchase Price and the product of the Purchase Price multiplied by
a fraction, the numerator of which is the volume of reserves (net to Buyer)
allocated to the Wells not affected by the Defective Interest and the
denominator of which is the total volume of reserves (net to Buyer) allocated
to all of the Wells in the Reserve Report; provided, however, that if the
Defective Interest does not remain in effect during the entire productive life
of the subject Well, such fact shall be taken into account in determining the
amount of the rebate in the Purchase Price.

The rebate of the Purchase Price calculated above shall be paid from
Seller to Buyer if and only if the aggregate amount to be rebated with respect
to all Defective Interests exceeds a threshold of $35,000, and if such amount
is exceeded, the rebate shall be made for all Defective Interests. In addition
to rebating a portion of the Purchase Price on account of Defective Interests,
Buyer and Seller agree that all other express dollar amounts, numbers or
volumes set forth in this Agreement, the Assignment and Option, shall each be
decreased, as appropriate, by multiplying such amount or number, as the case
may be, by a fraction, the numerator of which is the aggregate volume of
reserves associated with the Assets without such Defective Interest and the
denominator of which is the total volume of reserves allocated to all of the
Assets.

12.4 Purchase Price and Other Rebates for Exercised Preferential
Purchase Rights, Failure to Obtain Consents. If the holder of any preferential
purchase right exercises such right and Seller cannot validly convey the
affected Asset to Buyer, or if a required consent (except for Governmental
Consents) to assign is not obtained or deemed obtained within 45 days
following Closing and the affected Asset cannot be validly conveyed to Buyer,
a portion of the Purchase Price shall be rebated for the value of such
affected Asset and such affected Asset shall be excluded from the Assets
conveyed to Buyer pursuant to the terms hereof (collectively the "Excluded
Assets"). The amount of the rebate in the Purchase Price for an Excluded Asset
shall be determined in accordance with the provisions of Section 12.3. In
addition to rebating a portion of the Purchase Price on account of Excluded
Assets, Buyer and Seller agree that all other express dollar amounts, numbers
or volumes set forth in this Agreement, the Assignment and Option, shall each
be decreased, as appropriate, for the Excluded Assets in accordance with the
provisions of Section 12.3.

12.5 Reconveyance of Excluded Assets. Seller shall provide to Buyer,
within 45 days following Closing, copies

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of all responses from third parties regarding the notices sent to such third
parties pursuant to Section 11.3. Upon written request from Seller, Buyer
shall reconvey to Seller all Excluded Assets, free and clear of any burdens,
liens and encumbrances created by, through or under Buyer.

12.6 Allocation of Commingled Production and Costs. Seller may have
interests in the lands covered by the Leases that are not part of the Assets
("Seller's Interests"), which are producing hydrocarbons into a Well and such
hydrocarbons are commingled with the hydrocarbons produced from the Assets.
Seller shall use reasonable efforts to ensure that hydrocarbon production from
the Wells is allocated between Seller's Interests and the Assets on a
reasonable basis, consistent with industry standards and in accordance with
procedures, if any, that have been approved by appropriate state and federal
agencies. Costs and expenses shall be allocated between the Seller's Interests
and the Assets in accordance with the allocation of production between the
Seller's Interests and the Assets; provided that costs and expenses directly
attributable to Seller's Interests shall be allocated to such Seller's
Interests, and costs and expenses directly attributable to the Assets shall be
allocated to and debited against the Net Profits Account under the Assignment.

12.7 Performance of Buyer. Seller shall be entitled to the
remedy of specific performance of Buyer's obligations under this Agreement in
order to be assured of the benefits contemplated under this Agreement, the
Assignment, Option or Management Agreement. Should Buyer fail to perform any
obligation under this Agreement, the Assignment, Option or Management
Agreement, which if unremedied would have a material adverse effect on Seller,
then Seller may give written notice to Buyer of such failure to perform. If
Seller gives such notice and Buyer does not remedy such failure within 60 days
of receipt of such notice, in addition to the remedy of specific performance,
Seller shall have the right to cause the attorney-in-fact of Buyer identified
in the Limited Power of Attorney to execute an Assignment, Bill of Sale and
Conveyance in a form substantially similar to that set forth in Exhibit V
covering any or all of the Assets which are adversely affected by such
failure. Seller and Buyer expressly waive any and all claims against the
attorney-in-fact named in the Limited Power of Attorney and any right to
enjoin such attorney-in-fact.

12.8 Overpayments. For purposes of this Section 12.8, the term
"Payment Period" shall have the meaning given it in the Assignment.

(i) If at any time Buyer is determined to have paid Seller
more than the amount then due with respect to any Credit Payment
Amount as a result of a breach by Seller of its representations and
warranties in Section 7, then as Buyer's exclusive remedy, Seller
shall be obligated to

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return any such overpayment, limited to amounts actually paid
to Seller by Buyer, after Buyer notifies Seller of the amount of
such overpayment and provides Seller substantiation thereof.
Alternatively, Buyer may elect to offset the amount of any such
overpayment against future Credit Payment Amounts.

(ii) The Credit Payment Amount shall include payments for
credits attributable to natural gas liquids produced from the
Subject Hydrocarbons until Buyer provides Seller with (a) a copy of
a published or private ruling, court decision or other authority
which supports the position that IRC 29 credits are not available
for such natural gas liquids (the "IRS Position"), and (b) an
opinion reasonably satisfactory to Seller from a "big-six"
accounting firm (or other accounting or law firm acceptable to both
Seller and Buyer) that, in its view, there is not "substantial
authority" under IRC 6662 for taking a position that is contrary to
the IRS Position.

(iii) After Buyer provides Seller with an authority and an
opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm
(or other accounting or law firm acceptable to both Seller and
Buyer) that, in its view, there is "substantial authority" under IRC
6662 for taking a position that is contrary to the IRS Position.

(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii),
(a) the Credit Payment Amount shall thereafter include payments for
Tax Credits based upon the position of such opinion (unless and
until Buyer again provides Seller with a copy of an authority and an
opinion in accordance with Section 12.8(ii) with respect to such
position), and (b) the Credit Payment Amount for the first Payment
Period following the receipt of such opinion shall include an amount
equal to the increase in prior Credit Payment Amounts that would
result from recomputing the prior Credit Payment Amounts in
accordance with the position of such opinion.

(v) If the IRS asserts in a Tax Audit that IRC 29 credits
are not available for portions of production (the "Disputed
Production") from the Subject Hydrocarbons on the ground that IRC 29
credits are not available for natural gas liquids, then (a) the
computation of the Credit Payment Amount shall continue to include
Tax Credits from the sale of natural gas liquids subject to Sections
12.8(ii) and (iii) above; (b) Credit Payment Amounts attributable to

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<PAGE> 29

the production from the Subject Hydrocarbons shall be escrowed and
distributed as required by, and in accordance with, the provisions of
Section 8.3 (if Buyer has not waived its rights to have such amounts
escrowed pursuant to Section 8.3); and (c) Seller shall have the
right to participate, in accordance with the provisions of Section
12.8(vii), in challenging the IRS Position that natural gas liquids
do not qualify for IRC 29 credits.

(vi) Should Buyer receive either a 90-day letter or final
partnership administrative adjustment (either, an "Adjustment")
holding that Tax Credits are not available for Disputed Production,
then Seller shall pay Buyer within 60 days of the receipt by Seller
of a copy of the Adjustment, an amount equal to 70% of the amount of
all IRC 29 credits with respect to Disputed Production prior to the
applicable Escrow Commencement Date which were disallowed in the
Adjustment, such payment not to exceed the Credit Payment Amount
previously paid by Buyer with respect to such Disputed Production.
Upon the Conclusion of the applicable Tax Audit, Buyer shall repay
to Seller any portion of the amount paid pursuant to the preceding
sentence that would not have been payable if the Adjustment had
conformed to the determinations reached in the Conclusion of the Tax
Audit.

(vii) Buyer agrees to keep Seller fully and promptly
informed of all administrative and court proceedings with respect to
the qualification of natural gas liquids for IRC 29 credits. Upon the
commencement of any such proceeding, Seller shall have the right to
participate, at its own expense, in challenging the IRS Position that
natural gas liquids do not qualify for IRC 29 credits. Buyer shall
fully cooperate in any such challenge, including without limitation
the execution of protests, petitions and complaints if requested by
Seller in the course of such challenge, and the determination of the
nature, method, timing, forum, strategy, issuances of and response to
settlement proposals, counsel and issues in connection with such
challenge shall be at the discretion of Seller. Seller shall
indemnify and hold harmless Buyer with respect to any liability
incurred in connection with providing such cooperation, and shall
reimburse Buyer for all costs incurred (as incurred and in no event
less frequently than quarterly) in doing so, including reimbursement
for a reasonable amount of internal overhead, and reasonable
attorneys' and accountants' fees. If, in connection with requests
for cooperation with respect to such a challenge, Buyer determines
that it is likely to incur an expense to a third party other than
its own attorneys and accountants, then, before incurring the
expense, Buyer shall promptly give notice to Seller. If Seller
declines to reimburse Buyer for the actual amount to be expended in
complying with such request, then Buyer shall be excused from
complying with such request.

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<PAGE> 30

12.9 Verification of Formation Qualification; Reconveyance. Buyer
and Seller acknowledge that they have been unable to conclusively verify that
certain of the Wells are producing or producible from a "qualifying formation"
as defined in IRC 29. Buyer and Seller agree to cooperate with each other in
determining such matter no later than October 31, 1996, and on or before such
date taking the following actions:

(a) Reconveyance. With respect to Wells that Seller has not been
able to verify are producing or producible from a qualifying formation,
Buyer, upon written request of Seller, made on or before October 31,
1996, shall, on or before November 30, 1996, reconvey all of the interest
acquired by Buyer hereunder in such Wells to Seller by assignment in
recordable form, reasonably acceptable to Seller, with a special warranty
of title as to liens, encumbrances and defects arising by, through or
under Buyer.

(b) Amendment of Warranty. With respect to the remaining Wells,
Seller shall, as of November 1, 1996, be deemed to have made the warranty
set forth in Section 7.23(a)(ii)(a); and Section 7.23(a)(ii)(b) shall
thereafter be deemed deleted from this Agreement.

13. Apportionment of Liabilities and Obligations.

13.1 Buyer. Upon Closing, Buyer shall assume and pay for all costs,
expenses, liabilities and obligations accruing or relating to the owning,
operating or maintaining of the Assets or the producing, transporting and
marketing of hydrocarbons from the Assets, relating to periods on and after
the Effective Date, including without limitation, environmental obligations
and liabilities, off-site liabilities associated with the Assets, the
obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").

13.2 Seller. Upon Closing, Seller shall retain, assume and pay for
all costs, expenses, liabilities and obligations accruing or relating to the
owning, operating or maintaining of the Assets or the producing, transporting
and marketing of hydrocarbons from the Assets, relating to periods before the
Effective Date, including without limitation, environmental obligations and
liabilities, the obligation to plug and abandon wells (to the extent relating
to periods prior to the Effective Date), off site liabilities associated with
the Assets, and all obligations arising under agreements covering or relating
to the Assets (collectively, the "Pre-Effective Date Liabilities").

14. Indemnification. For the purposes of this Agreement, "Losses" shall
mean any actual loss, cost and expense

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<PAGE> 31

(including reasonable fees and expenses of attorneys, technical experts and
expert witnesses), liability, and damage (including those arising out of
demands, suits, sanctions of every kind and character); provided, however,
that in no event shall "Losses" be deemed to include consequential damages of
a party to this Agreement.

14.1 Buyer's Indemnification of Seller. Subject to the terms of and
the indemnification obligations contained in the Management Agreement, Buyer
shall indemnify and hold harmless Seller, its officers, directors,
shareholders, employees, representatives, agents, successors and assigns,
forever, from and against all Losses and interest thereon which arise from or
in connection with (i) the Post-Effective Date Liabilities, and (ii) Buyer's
breach of its representations, warranties and covenants in this Agreement.

14.2 Seller's Indemnification of Buyer. Subject to the terms of and
the indemnification obligations contained in the Management Agreement, Seller
shall indemnify and hold harmless Buyer; its officers; directors; members;
employees; representatives; agents; successors and assigns; and the employees,
representatives, agents, successors and assigns of such members forever, from
and against all Losses and interest thereon which arise from or in connection
with (i) the Pre-Effective Date Liabilities, and (ii) Seller's breach of its
representations, warranties and covenants in this Agreement regardless of
Seller's knowledge if such representations or warranties are knowledge
qualified, provided that the matters contemplated in this clause (ii) shall
not apply to the representations set forth in Section 7.6. Buyer and Seller
shall cooperate fully and consult in good faith with each other in the
litigation of any matter identified in this Section 14.2.

Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.

14.3 Third Party Claims. If a claim by a third party is made against
Seller or Buyer (an "Indemnified Party"), and if such party intends to seek
indemnity with respect thereto under this Section 14, such Indemnified Party
shall promptly notify Buyer or Seller, as the case may be (the "Indemnitor"),
of such claim. The Indemnitor shall have 30 days after receipt of such notice
to undertake, conduct and control, through counsel of its own choosing and at
its own expense, the settlement or defense thereof, and the Indemnified Party
shall cooperate with it in connection therewith; provided that the Indemnitor
shall permit the Indemnified Party to participate in such settlement or

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<PAGE> 32

defense through counsel chosen by such Indemnified Party, however, the fees
and expenses of such counsel shall be borne by such Indemnified Party. So long
as the Indemnitor, at its cost and expense, (1) has undertaken the defense of,
and assumed full responsibility for all Losses with respect to, such claim,
and (2) is reasonably contesting such claim in good faith, by appropriate
proceedings, the Indemnified Party shall not pay or settle any such claim.
Notwithstanding compliance by the Indemnitor with the preceding sentence, the
Indemnified Party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to indemnity therefor by
the Indemnitor for such claim. If, within 30 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder, the Indemnitor
does not notify the Indemnified Party that it elects, at Indemnitor's cost and
expense, to undertake the defense thereof and assume full responsibility for
all Losses with respect thereto, or gives such notice and thereafter fails to
contest such claim in good faith, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.

14.4 HS Guarantee. Seller is a wholly-owned subsidiary of HS
Resources, Inc., a Delaware corporation ("HS"). HS hereby unconditionally
guarantees the punctual payment and performance by Seller of all obligations
due Buyer under this Agreement and under all instruments contemplated
hereunder to which Seller is a party, and agrees to pay all costs, expenses
(including reasonable attorneys' fees and expenses associated with claims made
by Buyer against HS, but not against Seller), liabilities and obligations
incurred by Buyer in enforcing any rights under this Agreement and the
instruments contemplated hereby with respect to owning, operating or
maintaining the Assets or producing, transporting and marketing of
hydrocarbons from the Assets (all such obligations being referred to herein as
the "Obligations"). Without limiting the generality of the foregoing, HS'
liability hereunder shall extend to all amounts which constitute part of the
Obligations and would be owed by Seller under this Agreement or the
instruments contemplated hereunder but for the fact that they are
unenforceable or limited due to the existence of a bankruptcy, reorganization
or similar proceeding involving Seller.

(a) Guarantee Absolute. HS guarantees that the Obligations will
be paid or performed, as appropriate, strictly in accordance with the
terms of this Agreement and any instrument contemplated hereby to which
Seller is a party, and any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of
Buyer with respect thereto. The obligations of HS under this guarantee
are independent of the Obligations, and a separate action or actions may
be brought and prosecuted against HS to enforce this guarantee,
irrespective of whether any action is brought against Seller or whether
Seller is joined in any action or actions.

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<PAGE> 33

(b) Notice. HS hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Obligations
and this guarantee and any requirement that Buyer exhaust any right or
take any action against Seller or any other person.

(i) There are no conditions precedent to the effectiveness
of this guarantee that have not been satisfied or waived.

(ii) HS is a corporation duly organized and in good
standing under the law of the State of Delaware.

(iii) This guarantee has been duly authorized by all
necessary corporate action; is binding upon and enforceable
against HS in accordance with its terms; and will not violate or
constitute a default under its Certificate of Incorporation or
by-laws, or any agreements or indentures to which HS is a party or
by which HS or its properties are bound.

(d) Amendments, Consents. No amendment or waiver of any
provision of this guarantee, and no consent to any departure by HS
herefrom, shall in any event be effective unless the same shall be in
writing and signed by Buyer, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.

(e) Continuing Guarantee. This guarantee by HS is a continuing
guarantee and shall (1) remain in full force and effect until the later
of (i) the payment or performance in full of the Obligations, and (ii)
the termination of both this Agreement and the Management Agreement
contemplated hereunder; (2) be binding upon HS, its successors and
assigns; and (3) inure to the benefit of, and be enforceable by, Buyer
and its successors and assigns.

15. Miscellaneous.

15.1 Further Assurances. After Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be reasonably
necessary or advisable to carry out the purposes and intents of this Agreement
and any document, certificate or other instrument delivered pursuant hereto.

15.2 Expenses. Seller and Buyer each agree to pay one-half of the
reasonable costs and expenses of Williamson Petroleum Consultants, Inc.,
Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred in connection with
this transaction,

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<PAGE> 34

subject to receipt of evidence and substantiation thereof. Such costs and
expenses shall not include any costs or expenses associated with the Tax
Opinion. Seller and Buyer shall pay their respective amount of taxes and fees,
apportioned to each under Section 12.2.

15.3 Notices. All notices under this Agreement shall be in writing
and addressed as set forth below. Any communication or delivery hereunder
shall be deemed to have been duly made and the receiving party charged with
notice (i) if personally delivered or telecopied, when received, (ii) if
mailed, three business days after mailing, certified mail, return receipt
requested, or (iii) if sent by overnight courier, one day after sending. All
notices shall be addressed as follows:

If to Seller:

HSRTW, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601

If to Buyer:

WestTide Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248

with a copy to:

Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880

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 Survival. The representations, warranties, covenants, agreements
and indemnities included or provided in this Agreement shall survive the
Closing. The doctrine of merger shall not cause any representation, warranty,
covenant, agreement or indemnity under this Agreement to terminate as a result
of Buyer and Seller entering into the Assignment, Option or any other instrument
contemplated hereunder.

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<PAGE> 35

15.5 Confidentiality. Buyer and Seller shall keep this Agreement
confidential except to the extent each may be required to disclose the
contents hereof by recording the Assignment, Option, and Memorandum of
Management Agreement and Power of Attorney in the real property records in the
counties where the Assets are located or filing the official forms of
conveyances covering the Assets with appropriate governmental authorities, the
IRS or to the extent required in the operation of the Assets, pursuant to the
Management Agreement, by law, regulation or order, in connection with
obtaining third party consents and waivers of preferential purchase rights and
other matters, or in connection with any public announcement issued in
accordance with Section 15.6 hereof.

15.6 Announcements. Seller and Buyer shall consult with each other
regarding all press releases and other public announcements issued at, prior
to or following Closing concerning this Agreement or the transactions
contemplated hereby and except as may be required by applicable laws or the
applicable rules and regulations of any governmental agency or stock exchange.
Neither Buyer nor Seller shall issue any such press release or other public
announcement without the prior written consent of the other party, which
consent will not be unreasonably withheld. In all such press releases and
other public announcements, Seller shall refer to Buyer as being affiliated
with large east coast financial institutions.

15.7 Assignment. Neither Buyer nor Seller may assign its rights or
delegate its duties or obligations under the terms of this Agreement without
the prior written consent of the other party, provided that either Buyer or
Seller may assign its rights, but not its obligations under this Agreement, to
any party (including any affiliated or nonaffiliated party) as long as such
assignment does not relieve the assigning party of its obligations to the
other party hereto, and provided further that Buyer may not cause or permit an
assignment, transfer, sale, alienation or other disposition of all or any
portion of the Assets which would result in the transferred Assets becoming
"plan assets" under the Employee Retirement Income Security Act of 1974, as
amended. Notwithstanding the foregoing provisions of this Section 15.7, Seller
shall be entitled without prior consent, but upon written notice within a
reasonable time thereafter, to assign or otherwise convey to HS all or any
portion of the Production Payment, Reversion Interest or Seller's obligations
to Buyer under this Agreement, the Assignment or the Option. Such an
assignment or conveyance of obligations to HS shall serve to release Seller
from any such obligations and to substitute HS as the obligor under such
obligations.

15.8 Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their successors and,
subject to Section 15.7 hereof, their assigns.

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<PAGE> 36

15.9 Complete Agreement. When executed by the authorized
representative of Seller and Buyer, this Agreement, the Exhibits hereto and
the documents to be delivered pursuant hereto shall constitute the complete
agreement between the parties. This Agreement may be amended only by a writing
signed by both parties.

15.10 Knowledge. As used in this Agreement, the term "knowledge,"
"best knowledge" or any variations thereof shall mean the actual knowledge of
any fact, circumstance or condition by the officers or employees at a manager
or higher level of the party involved as such knowledge has been obtained in
the performance of their duties in the ordinary course of business after
making reasonable and appropriate inquiries.

15.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO WITHOUT
REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.

15.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other party.

EXECUTED as of the date first above mentioned.

BUYER:

WESTTIDE INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.

By:
--------------------------------
Gary L. Greenstein
Vice President

SELLER:

HSRTW, INC.

Attest: By:
--------------------------------
James M. Piccone
Vice President
- ----------------------------
Name: Ronald B. Jacobs
Title: Assistant Secretary

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<PAGE> 37

HS Resources, Inc., a Delaware corporation, is a signatory to this Agreement
for the purpose of confirming its obligations under Section 14.4 above.

HS RESOURCES, INC.

[CORPORATE SEAL]
Attest: By:
--------------------------------
James M. Piccone
- ---------------------------- Vice President
Name: Ronald B. Jacobs
Title: Assistant Secretary

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<PAGE> 38

STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )

The foregoing instrument was acknowledged before me this 8th day of
August, 1996, by James M. Piccone, Vice President of HSRTW, Inc., a Delaware
corporation, on behalf of such corporation.

Witness my hand and official seal.

-----------------------------------
Notary Public

My commission expires:
--------------------------
(SEAL)

STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )

The foregoing instrument was acknowledged before me this 8th day of
August, 1996, by James M. Piccone, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.

Witness my hand and official seal.

-----------------------------------
Notary Public

My commission expires:
--------------------------

(SEAL)

COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )

The foregoing instrument was acknowledged before me this 9th day of
August, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware corporation, Manager of WestTide Investments, LLC, a Delaware limited
liability company on behalf of the company.

Witness my hand and official seal.

-----------------------------------
Notary Public

My commission expires:
--------------------------
(SEAL)

-33-

<PAGE> 1
- --------------------------------------------------------------------------------

ACQUISITION AGREEMENT

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

HS RESOURCES INC.

and

TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P.

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

$90,000,000

August 30, 1996

- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I - Definitions and References . . . . . . . . . . . . . 1
Section 1.1. Defined Terms and References. . . . . . . . . 1
Section 1.2. References and Titles . . . . . . . . . . . . 9

Article II - Purchase and Sale . . . . . . . . . . . . . . . . . 10
Section 2.1. Agreement of Purchase and Sale. . . . . . . . 10
Section 2.2. Purchase Price Installment Request. . . . . . 10
Section 2.3. PPIR Response . . . . . . . . . . . . . . . . 11
Section 2.4. Initial Closing Date. . . . . . . . . . . . . 11
Section 2.5. Subsequent Closing Dates
Scheduled Wells. . . . . . . . . . . . . . . . . . . . 11
Section 2.6. Payments to Seller. . . . . . . . . . . . . . 12
Section 2.7. Payments to Buyer . . . . . . . . . . . . . . 12

Article III - Closing Dates and Closings . . . . . . . . . . . . 12
Section 3.1. Time and Place of Initial Closing . . . . . . 12
Section 3.2. Conditions to Closings by Seller. . . . . . . 12
Section 3.3. Conditions to Initial Closing by Buyer. . . . 13
Section 3.4. Conditions to Each Closing by Buyer . . . . . 14
Section 3.5. Funding Fee . . . . . . . . . . . . . . . . . 16

Article IV - Representations, Covenants, and Indemnities . . . . 16
Section 4.1. Representations and Warranties
of Seller. . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Covenants of Seller . . . . . . . . . . . . . 21
Section 4.3. Specified Hydrocarbons. . . . . . . . . . . . 25
Section 4.4. Default; Remedies . . . . . . . . . . . . . . 25

Article V - Purchase Option; Periodic Offer; Right of First
Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.1. Option to Purchase ORR Rights in Acquisition
Properties . . . . . . . . . . . . . . . . . . . . . 26
Section 5.2. Periodic Offers to Operator; Preferential
Right to Purchase . . . . . . . . . . . . . . . . . . 29

Article VI - Miscellaneous . . . . . . . . . . . . . . . . . . 31
Section 6.1. Waivers and Amendments . . . . . . . . . . . 31
Section 6.2. Survival of Agreements; Cumulative
Nature . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.3. Notices . . . . . . . . . . . . . . . . . . 32
Section 6.4. Parties in Interest . . . . . . . . . . . . 33
Section 6.5. Governing Law . . . . . . . . . . . . . . . 34
Section 6.6. Limitation on Interest . . . . . . . . . . . 34
Section 6.7. Termination; Limited Survival . . . . . . . 34
Section 6.8. Severability . . . . . . . . . . . . . . . . 35
Section 6.9. Limitation on Liability; Setoff . . . . . . . 35
Section 6.10. Counterparts . . . . . . . . . . . . . . . 36
</TABLE>

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<PAGE> 3

SCHEDULE 1 - Discount Factors for 12% IRR Calculation
SCHEDULE 2 - Discount Factors for 13% IRR Calculation
SCHEDULE 3 - Initial Production Unit Groups, Volumes and Percentages
SCHEDULE 4 - Disclosure Schedule
SCHEDULE 5 - Calculation of Scheduled Total NPV12 Volume - Oil
SCHEDULE 6 - Calculation of Scheduled Total NPV12 Volume - Gas
SCHEDULE 7 - Calculation of Scheduled Total NPV12 Volume - Liquids
SCHEDULE 8 - Examples of 12% and 13% IRR Calculation

EXHIBIT A-1 - Initial Legal Opinion
EXHIBIT A-2 - Supplemental Legal Opinion
EXHIBIT B - Conveyance
EXHIBIT C - Conveyance Supplement
EXHIBIT D - Intentionally Omitted
EXHIBIT E - Intentionally Omitted
EXHIBIT F - Form of Letter Agreement Re Purchase of Production
through December 31, 1998

-ii-
<PAGE> 4
ACQUISITION AGREEMENT

THIS ACQUISITION AGREEMENT dated as of the 30th day of August, 1996
(herein called this "AGREEMENT") is made by HS Resources, Inc., a Delaware
corporation (herein called "SELLER"), and TCW Portfolio No. 1555 Sub-Custody
Partnership, L.P., a California limited partnership (herein called "BUYER").

RECITALS

WHEREAS, Seller is and will be the owner of interests in certain oil and
gas leases located in Yuma County, Colorado, Sweetwater County, Wyoming, and
other counties in other states and desires to sell and assign to Buyer, upon
the terms and conditions herein set forth, an overriding royalty under a
Conveyance of Overriding Royalty to be made by Seller to Buyer in the form
attached hereto as Exhibit B;

WHEREAS, Seller intends to purchase from third party sellers ("3P
GRANTORS") additional interests in oil and gas leases located in various states
and desires that Buyer also acquire from such 3P Grantors, upon the terms and
conditions herein set forth, an overriding royalty under a Conveyance of
Overriding Royalty substantially similar to the form attached hereto as Exhibit
B; and

WHEREAS, Buyer desires to purchase such overriding royalty upon the terms
and conditions herein set forth;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, intending to be legally bound hereby, Seller
and Buyer do hereby agree as follows:

Article I - Definitions and References

Section 1.1. Defined Terms and References. For purposes of this
Agreement, unless the context otherwise requires:

"Acquisition Property" has the meaning given it in Section 2.2.

"Adjusted ORR Value" has the meaning given it in the Conveyance.

"Affiliate" has the meaning given it in the Conveyance.

"Aggregate Termination Volume" has the meaning given it in the Conveyance.

-1-
<PAGE> 5

"Aggregation Price" has the meaning given it in the Conveyance.

"Agreed Rate" has the meaning given it in the Conveyance.

"Annual ORR Volume" has the meaning given it in the Conveyance.

"Annual Scheduled Volumes" has the meaning given it in the Conveyance.

"Applicable Environmental Laws" has the meaning given it in the
Conveyance.

"Application Date" and "Application Period" have the meanings given such
terms in the Conveyance.

"Associated Property" has the meaning given it in the Conveyance.

"ASV Percentage" has the meaning given it in the Conveyance.

"Bankruptcy Code" means Title 11 of the United States Code.

"Barrel" has the meaning given it in the Conveyance.

"BTU" or "British Thermal Unit" has the meaning given it in the
Conveyance.

"Business Day" has the meaning given it in the Conveyance.

"Buyer" is defined in the first paragraph of this Agreement.

"Buyer Marketing Contracts" has the meaning given it in Section 4.3.

"Calendar Month" means any of the twelve months comprising a Calendar
Year.

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

"Calendar Year" has the meaning given it in the Conveyance.

"Closing" means the Initial Closing or any Subsequent Closing.

"Closing Date" means the Initial Closing Date or any Subsequent Closing
Date.

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<PAGE> 6

"Commitment" means the aggregate amount of $90,000,000 committed by Buyer
for the purpose of purchasing the Overriding Royalty from Seller hereunder
subject to the terms and conditions set forth herein and in the Conveyance.

"Conveyance" means the Conveyance of Overriding Royalty made by Seller as
Grantors, to Buyer, as Grantee, in the form of Exhibit B to this Agreement
(appropriately completed), as from time to time amended and supplemented.

"Conveyance Supplement" means a Supplemental Conveyance of Overriding
Royalty made by Seller and Buyer, in the form of Exhibit C to this Agreement
(appropriately numbered and completed).

"Delivered ORR Volumes" has the meaning given it in the Conveyance.

"Designated Event" has the meaning given it in the Conveyance.

"Discharge Time" has the meaning given it in the Conveyance.

"Effective Date" has the meaning given it in the Conveyance.

"Eligible Proved Producing Wells" means those Production Units that a)
have been assigned a cash flow value under an Engineering Report, b) have value
satisfactory to Buyer, and c) are free and clear of all Liens other than
Permitted Liens.

"EMDS Volume" has the meaning given it in the Conveyance.

"Engineering Report" means (i) with respect to the Engineering Reports
required to be delivered by Seller to Buyer in connection with any PPIR, an
engineering report that (A) is prepared by Seller and audited by Williamson
Petroleum Consultants, Inc. or such other nationally or regionally recognized
independent petroleum engineers, reasonably acceptable to Buyer in its sole
discretion, concerning all of the proposed Production Unit Groups, and prepared
at Seller's expense; (B) separately reports on Proved Developed Producing
Reserves, Proved Developed Non-Producing Reserves and Proved Undeveloped
Reserves of the Proposed Production Unit Groups, with separate calculations of
the projected Production Volumes and Annual ORR Volume prepared by Seller based
on production figures audited by Williamson Petroleum Consultants, Inc.; (C)
uses pricing consistent with the definition of ORR Market Value in the
Conveyance or as otherwise approved by Buyer; (D) takes into account any "over-
produced" status under gas balancing arrangements; (E) contains information and
analysis comparable in

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scope to that contained in that certain engineering report prepared by
Williamson Petroleum Consultants, Inc. and dated February 13, 1996 previously
delivered to Buyer; and (F) is otherwise in form and substance satisfactory to
Buyer; and (ii) with respect to all other Engineering Reports required to be
delivered by Seller to Buyer pursuant to the terms of any Overriding Royalty
Document, an engineering report that complies with the provisions of Section
7.2 of the Conveyance.

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

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

"Financial Statements" has the meaning set forth in Section 4.1(i).

"Funding Expiry Date" means, as to any Production Unit Group, the earliest
to occur of:

(a) September 27, 1996;

(b) the occurrence of a Designated Event; or

"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) in the United States.

"Gas" means natural gas and all other gaseous Hydrocarbons, including
casing head gas, whether or not such natural gas and other gaseous hydrocarbons
are Processed but excluding therefrom Liquids.

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

"Hydrocarbons" means Oil, Gas and Liquids.

"Initial Closing" and "Initial Closing Date" have the meanings given them
in Section 3.1.

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<PAGE> 8
"Inventory Property" has the meaning given it in Section 2.2.

"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure debt owed to him or any other
arrangement with such creditor which provides for the payment of such debt out
of such property or assets or which allows him to have such debt 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 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 unregistered 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.

"Liquids" has the meaning given it in the Conveyance.

"Mcf" has the meaning given it in the Conveyance.

"MMBTU" has the meaning given it in the Conveyance.

"Net ORR Proceeds" means all cash proceeds received by Buyer after the
Effective Date as Adjusted ORR Value of the ORR Hydrocarbons (including any DRH
Payments), less any and all costs and expenses incurred by Buyer in connection
with the ORR Hydrocarbons, including, without limitation, any costs of selling,
delivering, transporting, marketing or hedging of the ORR Hydrocarbons, any
pipeline penalties or other fees or penalties, any amounts deducted in the
calculation of Adjusted ORR Value including without limitation the DT
Percentage and other amounts relating to Direct Taxes or other taxes paid by
Seller and any transaction or enforcement costs with respect to the Overriding
Royalty Documents not reimbursed by Grantor or any other party. Net ORR
Proceeds shall not include any interest received by Buyer from Seller for
delinquent payments or other transaction or enforcement costs with respect to
the Overriding Royalty Documents reimbursed by Grantor or any other party.

"Oil" has the meaning given it in the Conveyance.

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<PAGE> 9
"ORR Hydrocarbons" has the meaning given it in the Conveyance.

"ORR Market Value" has the meaning given it in the Conveyance.

"ORR Percentage" has the meaning given it in the Conveyance.

"ORR Rights" means the rights acquired or to be acquired by Buyer under
the Conveyance.

"Overriding Royalty" has the meaning given it in the Conveyance.

"Overriding Royalty Documents" has the meaning given it in the Conveyance.

"Permitted Encumbrances" has the meaning given it in the Conveyance.

"Person" means an individual, corporation, partnership, association, joint
stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.

"Pref. Right" has the meaning given it in Section 5.3.

"Preferential Right" has the meaning given it in Section 4.2(h).

"PPIR" or "Purchase Price Installment Request" shall have the meaning set
forth in Section 2.2.

"Processed" has the meaning given it in the Conveyance.

"Production Unit" has the meaning given it in the Conveyance.

"Production Unit Group" has the meaning given it in the Conveyance.

"Proposed Production Unit Group" means a group of proposed Production
Units identified in a PPIR.

"Proved Developed Non-Producing Reserves" are Proved Reserves that include
Shut-in and Behind-pipe Reserves. "Shut-in Reserves" are those expected to be
recovered from completion intervals open at the time of the estimate, but which
had not started producing, or were shut in for market conditions or

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<PAGE> 10
pipeline connections, or were not capable of production for mechanical reasons
(including the requirement for installation or restaging of compression), and
the time when sales will start is uncertain. "Behind-pipe Reserves" are those
expected to be recovered from zones behind casing in existing wells, which will
require additional completion work or a future completion prior to the start of
production.

"Proved Developed Producing Reserves" means Proved Reserves that are
expected to be recovered from completion intervals open and producing at the
time of the estimate.

"Proved Reserves" means those reserves which are "proved oil and gas
reserves" within the meaning of Rule 4-10 of Regulation S-X, 17 C.F.R. #
210.4-10 of the Securities and Exchange Commission where the commercial
producibility of the reservoir is supported by actual production or formation
tests based on the estimated volume of reserves and not just the productivity
of the well or reservoir. In certain instances, Proved Reserves may be assigned
on the basis of electrical and other well logs or core analysis that indicates
the subject reservoir is Hydrocarbon bearing and is analogous to reservoirs in
the same area which are producing, or have demonstrated the ability to produce
on a formation test. The area of a reservoir considered proved includes (a) the
area delineated by drilling and defined by fluid contacts, if any, and (b) the
undrilled areas that can be reasonably judged as commercially productive on the
basis of available geologic and engineering data. In the absence of data on
fluid contacts, the lowest known structural occurrence of Hydrocarbons controls
the proved limit unless otherwise indicated by definitive engineering or
performance data. In addition, Proved Reserves must have facilities to process
and transport those reserves to market which are operational at the time of the
estimate, or there is a commitment or reasonable expectation to install such
facilities in the future.

"Proved Undeveloped Reserves" means Proved Reserves that are assigned to
undrilled locations which satisfy the following conditions: (i) the locations
are direct offsets to wells which have indicated commercial production in the
objective formation, (ii) it is reasonably certain that the locations are
within the known proved productive limits of the objective formation, (iii) the
locations conform to existing well spacing regulations, if any, and (iv) it is
reasonably certain that the locations will be developed. Reserves for other
undrilled locations are classified as Proved Undeveloped Reserves only in those
cases where interpretations of data from wells indicate that the objective
formation is laterally continuous and contains commercially recoverable
hydrocarbons at locations beyond direct offsets.

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"Purchase Option" has the meaning given it in Section 5.1(a).

"Purchase Price" means the aggregate amount paid hereunder by Buyer to
obtain the ORR Rights.

"Purchase Price Installment" means an installment of the Purchase Price
paid under Section 2.4, 2.5 or 2.6. Each Purchase Price Installment must be in
an amount that is equal to or greater than $9,000,000 and in integral multiples
of $100,000.

"Qualified Acreage" means acreage (a) in which Seller owns good and
marketable title to an interest in and to the oil, gas, and all other liquid
and gaseous hydrocarbons in all or specified depths, and (b) which is located
within the lands of a Production Unit described on Schedule B to the Conveyance
or any Conveyance Supplement.

"Qualified Well" means a well described on Schedule B to the Conveyance or
any Conveyance Supplement which has: (a) been drilled on Qualified Acreage for
such well to its target horizon, (b) completed (with casing, tubing, and
fracturing), (c) a continuous production history of not less than thirty (30)
days and (d) has been categorized as Proved Developed Producing Reserves in an
Engineering Report. Any well which cannot be properly operated due to
mechanical failure cannot be a Qualified Well.

"Right of First Offer" has the meaning given it in Section 5.2.

"Scheduled Total NPV12 Volume" means with respect to any Production Unit
Group, the volume of Oil, Gas and Liquids set forth on Schedules 5, 6 and 7,
respectively, hereto as the Scheduled Total NPV12 Volume for the Calendar Month
of the date of determination, such amount to be calculated to equal the sum of
the 12% net present values as of the Initial Closing Date of the Annual
Scheduled Volumes of the Calendar Months after the Effective Date through and
including the date of determination.

"Seller" is defined in the first paragraph of this Agreement.

"Seller Marketing Contracts" has the meaning given in Section 4.3.

"Specified Hydrocarbons" means ORR Hydrocarbons which have been designated
as such pursuant to Section 4.3.

"Subject Interests" has the meaning given it in the Conveyance.

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<PAGE> 12
"Subject Properties" means the Production Units which are or are intended
to be subject to the Conveyance or any Conveyance Supplement.

"Subject Well" has the meaning given it in the Conveyance.

"Subsequent Closing" means the delivery of an executed Conveyance
Supplement by Seller to Buyer and the payment of the associated Purchase Price
Installment by Buyer to Seller.

"Subsequent Closing Date" means the date on which a Subsequent Closing
occurs.

"TCW" means TCW Asset Management Company, as Investment Manager for Buyer.

"Termination Notice" has the meaning given in Section 6.7.

"Termination Volume Adjustment Factor" has the meaning given it in the
Conveyance.

"12% IRR" means a twelve percent realized cash-on-cash internal rate of
return to Buyer on the Purchase Price (or portion of the Purchase Price paid
for ORR Rights with respect to a particular Production Unit Group) from Net ORR
Proceeds, calculated over the period from the Initial Closing Date (or
Subsequent Closing Date if applicable to a specific Production Unit Group) to a
given date. The present value discount factors to be used in calculating such
internal rate of return are set forth in Schedule 1 and the methods to be used
for calculating such internal rate of return are set forth in Schedule 8.

"13% IRR" means a thirteen percent realized cash-on-cash internal rate of
return to Buyer on the Purchase Price (or portion of the Purchase Price paid
for ORR Rights with respect to a particular Production Unit Group) from Net ORR
Proceeds, calculated over the period from the Initial Closing Date (or
Subsequent Closing Date if applicable to a specific Production Unit Group) to a
given date. The present value discount factors to be used in calculating such
internal rate of return are set forth in Schedule 2 and the methods to be used
for calculating such internal rate of return are set forth in Schedule 8.

"Well Assignee" has the meaning given in Section 4.2(h).

Section 1.2. References and Titles. All references in this Agreement to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning

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<PAGE> 13
of any of such subdivisions are for convenience only and shall not constitute
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 import refer to
this Agreement as a whole and not to any particular subdivision unless
expressly so limited. The word "or" is not exclusive, and the word "including"
(in its various forms) means "including without limitation". Words in the
singular form shall be construed to include the plural and vice versa, and
words in one gender shall be construed to include the other genders and vice
versa, unless the context otherwise requires. All references in this Agreement
to exhibits and schedules refer to the exhibits and schedules to this Agreement
unless expressly provided otherwise, and all such exhibits and schedules are
hereby incorporated herein by reference and made a part hereof for all
purposes.

Article II - Purchase and Sale; Acquisition Proposals

Section 2.1. Agreement of Purchase and Sale. Upon the terms and
conditions of this Agreement, Seller agrees to sell the ORR Rights to Buyer and
Buyer agrees to purchase the ORR Rights from Seller.

Section 2.2. Purchase Price Installment Request. From and after the date
hereof until the Funding Expiry Date, Seller may deliver to Buyer in writing a
Purchase Price Installment Request ("PPIR") with respect to any Oil and Gas
property ("ACQUISITION PROPERTY") acquisition by Seller or any Affiliate of
Seller which is contemplated to close on or before the Funding Expiry Date.
Each such PPIR shall be delivered at least twenty (20) Business Days prior to
the scheduled closing date of such acquisition and shall contain the following
information:

(a) legal descriptions (which must be reasonably acceptable to Buyer in
form and substance) to the Proposed Production Unit Groups which Seller will
make subject to the Conveyance on such Closing Date; which legal descriptions
shall identify each Production Unit and Subject Well then located on such
Proposed Production Unit Groups, shall (unless otherwise agreed by Buyer and
Seller) set out as the "Operating Interest" and "Net Revenue Interest" for each
such Proposed Production Unit Groups the working interest ("WI") and net
revenue interest ("NI") for each such Production Unit and Subject Well, and
shall otherwise conform to the Conveyance;

(b) an Engineering Report concerning such Proposed Production Unit Group;
and

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<PAGE> 14
(c) the terms of the acquisition of such Proposed Production Unit Group
and such other information as Buyer may reasonably request.

In addition, from and after the date hereof until the Funding Expiry Date,
Seller shall have the right and option to deliver to Buyer one or more PPIR's
with respect to any Oil and Gas properties ("INVENTORY PROPERTY") presently
owned by Seller or any Affiliate of Seller which Seller identifies as a
Proposed Production Unit Group.

Section 2.3. PPIR Response.

(a) Upon Buyer's receipt of a PPIR, Buyer shall determine, in its sole
and absolute discretion, whether or not to accept and fund such PPIR. Buyer
shall base its decision, in part, upon a funding ratio of up to 100% of the
present value of net cash flow of the Eligible Proved Producing Wells then
located on the Proposed Production Unit Group. If a Designated Event has
occurred and is outstanding, then Buyer shall not be obligated to consider any
PPIR delivered to Buyer by Seller.

(b) Should Buyer elect to accept a PPIR, Buyer shall notify Seller thereof
in writing by delivering to Seller a response to the PPIR (the "PPIR RESPONSE")
which shall include the following: (i) the dollar denominated amount of the
Purchase Price Installment calculated for such acquisition and proposed by
Buyer; (ii) Buyer's conversion of such Purchase Price Installment into the
Annual Scheduled Volumes; and (iii) Aggregate Termination Volume, Scheduled
Total NPV12 Volume, EMDS Volumes, Annual Scheduled Volume, ORR Percentage(s),
and ASV Percentage(s) proposed by Buyer for the Proposed Production Unit Group.
If Buyer shall fail to deliver a PPIR Response to Seller within fifteen (15)
Business Days after Buyer's receipt of a complete PPIR, Buyer shall be deemed
to have rejected such PPIR. Within five (5) Business Days of Seller's receipt
of the PPIR Response, Seller shall notify Buyer of its acceptance or rejection
(in Seller's sole and absolute discretion) of such PPIR Response.

Section 2.4. Initial Closing Date Buyer and Seller have hereby agreed to
(a) the initial Production Unit Groups as set forth in Schedule 3 hereto and
the Purchase Price Installment amount of $9,400,000 for the ORR Rights therein
(with $7,600,000 allocated to Blue Forest and $1,800,000 allocated in the
aggregate to Yuma) and (b) the Termination Volumes, Scheduled Total NPV12
Volumes, EMDS Volumes, Annual Scheduled Volume, ASV Percentages and ORR
Percentages related to the initial Production Unit Group, all as set forth on
Exhibits 2, 3 and 4 to the Conveyance. On the Initial Closing Date, subject to
the conditions of Seller and Buyer set forth herein, Seller will

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<PAGE> 15
execute and deliver the Conveyance to Buyer using the descriptions and other
information set forth on said exhibits, and Buyer shall pay to Seller such
Purchase Price Installment.

Section 2.5. Subsequent Closing Dates - Scheduled Wells. Upon (a)
Seller's acceptance of a PPIR Response from Buyer or (b) Seller and Buyer
otherwise reaching an agreement as to the matters described in a PPIR Response,
Seller shall specify the contemplated Subsequent Closing Date for the Proposed
Production Unit Groups to be made subject to the Conveyance; provided that the
contemplated Subsequent Closing Date for any Production Unit Groups must be a
Business Day prior to the Funding Expiry Date not less than twenty (20)
Business Days after the date of such notice. In addition, there must be an
interval of at least thirty (30) days between Closing Dates. On such
Subsequent Closing Date, subject to the conditions of Seller and Buyer set
forth herein, Seller will execute and deliver to Buyer a Conveyance Supplement
in form and substance satisfactory to Buyer which will, inter alia, amend the
definitions of Aggregate Termination Volume, Annual Scheduled Volumes and EMDS
Volumes under the Conveyance to add the amounts of such volumes for the
Proposed Production Unit Group to the amounts of such volumes theretofore in
effect under the Conveyance and Buyer shall pay to Seller the Purchase Price
Installment for such Production Unit Group specified in the PPIR (or otherwise
agreed to by Buyer and Seller).

Section 2.6. Payments to Seller and 3P Grantor. Buyer will pay each
Purchase Price Installment to Seller by wire transfer of same day funds to
Seller in care of Bank of America, San Francisco - Main, ABA #121000358, Re:
TCW Sale/Financing, Account No. 14996-01919 or to such other account as Seller
shall from time to time specify and, with respect to a purchase from a 3P
Grantor, such account as 3P Grantor shall specify. Seller may at its option
direct Buyer to apply a designated portion of any Purchase Price Installment to
the direct payment of any costs and expenses which Seller has agreed to pay
under Section 4.2(d) and to remit the remainder to Seller by such wire
transfer.

Section 2.7. Payments to Buyer. Seller will pay each amount owing to
Buyer under the Overriding Royalty Documents by wire transfer of same day funds
to Buyer in care of Boston Safe Deposit, ABA #011001234, Real Estate Wiring
#039624, Cost Center #3137, Re: Mellon Bank/Morgan Stanley/Fund V, Account No.
CPFF 863-36302, or to such other account as Buyer shall from time to time
specify in accordance with Section 6.3.

Section 2.8.Purchase from 3P Grantor. In connection with Buyer's purchase
of an Overriding Royalty in an Acquisition Property concurrent with Seller's
acquisition of the Retained

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<PAGE> 16
Interest in such Acquisition Property, Buyer shall receive a Conveyance of
Overriding Royalty (substantially in the form of Exhibit B) from 3P Grantor
("3P Conveyance"). Upon Buyer's and Seller's purchase of their respective
interests in the Acquisition Property, Seller will assume all of the
obligations of 3P Grantor under the 3P Conveyance pursuant to an assumption in
form acceptable to Buyer, and Buyer will release 3P Grantor from all such
obligations.

Article III - Closing Dates and Closings

Section 3.1. Time and Place of Initial Closing. The closing for the
consummation of the sale and purchase of the first component of the ORR Rights
(herein called the "INITIAL CLOSING") shall, unless another date, time or place
is agreed to in writing by Seller and Buyer, take place at the offices of
Milbank, Tweed, Hadley & McCloy in Los Angeles, California on a date (herein
called the "INITIAL CLOSING DATE") which is on or about the date of this
Agreement.

Section 3.2. Conditions to Closings by Seller. The obligation of Seller
to deliver the Conveyance and each Conveyance Supplement, on the relevant
Closing Date for each, is subject to the following conditions:

(a) Seller shall concurrently receive the Purchase Price Installment
provided in Article II which is to be paid in connection with such Conveyance
or Conveyance Supplement.

(b) All representations and warranties made by Buyer in any Overriding
Royalty Document then or previously delivered shall be true and correct as of
such Closing Date in all respects which Seller, in the reasonable exercise of
its discretion, considers material to the value of its rights under the
Overriding Royalty Documents, to the extent such representations and warranties
apply to the properties covered by the Conveyance Supplement.

(c) Buyer shall have performed in all material respects all material
agreements, covenants, and conditions which Buyer is required by any Overriding
Royalty Document to perform on or prior to such Closing Date.

(d) The consummation of such Closing shall not be prohibited by any law
or any regulation or order of any court or governmental agency or authority
applicable to Seller and shall not subject Seller to any penalty under or
pursuant to any such law, regulation or order.

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<PAGE> 17
(e) If the Subject Properties covered by the Conveyance or Conveyance
Supplement to be delivered by Seller shall have been encumbered to the agent
for Seller's lenders, The Chase Manhattan Bank ("Agent"), Seller shall have
received the written consent of the Agent to the transaction and the release of
the liens, if any, thereon in favor of the Agent or such lenders.

Section 3.3. Conditions to Initial Closing by Buyer. The obligation of
Buyer to pay the first Purchase Price Installments in the amount of $9,400,000
is subject to Buyer's receipt of each of the following, in form, substance, and
date satisfactory to Buyer in the reasonable exercise of its discretion:

(a) A certificate of the Secretary or Assistant Secretary of Seller,
which shall contain the names and signatures of the officers authorized to
execute and deliver the Overriding Royalty Documents on behalf of and as the
act of Seller and which shall certify to their authority to do so.

(b) A certificate (or certificates) of the due formation, valid existence
and good standing of Seller in its state of incorporation, issued by the
appropriate authorities of such state, and certificates of Seller's good
standing and due qualification to do business in Colorado.

(c) The Conveyance, duly executed and delivered by Seller in such number
of counterparts as Buyer shall have reasonably requested.

(d) Any title opinions reasonably requested by Buyer prior to the Initial
Closing Date concerning the ORR Rights (and the recording and filing of the
Conveyance) prepared by reputable oil and gas title counsel satisfactory to
Buyer and other title information concerning the ORR Rights and Subject
Interests in form and substance satisfactory to Buyer (it being understood that
no title deficiencies learned of by Buyer shall in any way be deemed to qualify
any of Seller's warranties of title or indemnities with respect to title in any
of the Overriding Royalty Documents).

(e) The favorable opinion of Davis, Graham & Stubbs, as counsel to
Seller, dated the Initial Closing Date and substantially in the form of Exhibit
A-1 hereto.

(f) The agreement between Seller and Buyer with respect to Seller's
purchase of Buyer's ORR Hydrocarbons produced on or before December 31, 1998,
substantially in the form of Exhibit F hereto.

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<PAGE> 18
Section 3.4. Conditions to Each Closing by Buyer. The obligation of
Buyer to pay any Purchase Price Installment (including the first) on any
Closing Date is subject to the satisfaction (or waiver by Buyer) on such
Closing Date of the following conditions precedent:

(a) Such Purchase Price Installment (i) is in an amount equal to or
greater than $9,000,000, (ii) is an integral multiple of $100,000, and (iii)
does not cause the total Purchase Price to exceed $90,000,000.

(b) All representations and warranties made by Seller or any Affiliate of
Seller in any Overriding Royalty Document then or previously delivered, and all
representations and warranties made by a 3P Grantor in its 3P Conveyance, shall
be true and correct as of such Closing Date in all material respects.

(c) Seller shall have executed, delivered and performed all agreements,
covenants, and conditions which Seller is required to perform under any
Overriding Royalty Document to perform on or prior to such Closing Date and
Seller shall have concurrently paid (or made arrangements satisfactory to Buyer
for the payment within one Business Day after such Closing Date of) any amounts
owed by Seller under Section 4.2(d) which are due and payable on or before such
Closing Date.

(d) No Designated Event shall have occurred and be continuing on such
Closing Date.

(e) No material adverse change shall have occurred to Seller's
consolidated financial condition since the date of this Agreement.

(f) Buyer shall have received a "Compliance Certificate" of Seller, dated
as of such Closing Date, in which Seller represents and warrants that the
conditions set out in subsections (b), (c), (d), and (e) of this section have
been satisfied.

(g) No material adverse change shall have occurred with respect to the
Proposed Production Unit Group(s) (including without limitation changes in
general economic or market conditions which could affect the value of the ORR
Rights) since the date of Buyer's agreement to the proposed ORR terms relating
to such Proposed Production Unit Group(s).

(h) Buyer shall have received and approved an Engineering Report covering
the Subject Interests.

(i) The consummation of such Closing shall not be prohibited by any law
or any regulation or order of any court or

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<PAGE> 19
governmental agency or authority applicable to Seller or Buyer and shall not
subject either of them to any penalty under or pursuant to any such law,
regulation or order.

(j) In the case of each Subsequent Closing, Buyer shall have received (i)
a Conveyance Supplement or a 3P Conveyance, duly executed and delivered by
Seller or 3P Grantor, respectively, in such number of counterparts as Buyer
shall have reasonably requested, (ii) evidence of Seller's purchase of the
Retained Interest in the Acquisition Property, (iii) evidence of Seller's
assumption of 3P Grantor's obligations under the 3P Conveyance in form
acceptable to Buyer and (iv) any evidence of title reasonably requested by
Buyer at least three Business Days prior to such Closing concerning the ORR
Rights.

(k) In the case of each Subsequent Closing, Buyer shall have received a
supplemental legal opinion substantially in the form of Exhibit A-2 hereto,
addressing the Conveyance Supplement then being delivered. Seller shall have
delivered such other information as Buyer may reasonably require, including
evidence satisfactory to Buyer that all conditions precedent to closing set
forth in this Section and to any disbursement to be made at Closing have been
satisfied.

(l) The Investment Committee of TCW shall have approved the funding of
the Purchase Price Installment.

(m) Buyer shall have received an environmental site assessment in form
and substance satisfactory to Buyer in its sole and absolute discretion;
provided that, if such environmental site assessment is prepared by Seller's
internal environmental staff, Buyer has the right to have an independent
environmental consultant review any matters which Buyer reasonably believes may
pose an environmental hazard.

Section 3.5. Funding Fee. Concurrently with the funding of any Purchase
Price Installment, Seller shall pay to Buyer a fee in an amount equal to one
percent (1%) of the amount of such Purchase Price Installment.

Article IV - Representations, Covenants and Indemnities

Section 4.1. Representations and Warranties of Seller. To induce Buyer
to enter into this Agreement and to pay the Purchase Price, Seller hereby
represents and warrants to Buyer, as of the date of this Agreement and as of
each Closing Date on which the following representations and warranties are
remade, that:

(a) No Designated Event has occurred and is continuing.

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(b) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, is duly qualified to do
business and is in good standing as a foreign corporation in the States of
Colorado and California and all other States in which Producing Units are
located, and has all requisite power and authority, corporate or otherwise, to
own the Subject Properties and to execute and deliver, and perform all of its
obligations under, the Overriding Royalty Documents.

(c) The execution, delivery and performance by Seller of the Overriding
Royalty Documents and the consummation by Seller of the transactions
contemplated herein and therein have been duly authorized by all necessary
corporate action and do not and will not (i) violate any provision of any law,
rule, regulation, order, writ, judgment, decree, determination or award
presently in effect having applicability to Seller or of the Articles of
Incorporation or Bylaws of Seller, (ii) result in a breach of, or constitute a
default under, any contract, indenture, instrument, or agreement to which
Seller is a party or by which it or its property may be presently bound or
affected (including the leases under which Seller holds the Proposed Production
Unit Groups or the Production Unit Groups), or result in or require the
creation or imposition of any lien or encumbrance under any such contract,
indenture, instrument, or agreement, or (iii) otherwise give any Person other
than Buyer any right to damages from Seller or Buyer. On or before each
Closing Date, Seller will have obtained all consents, authorizations and
waivers (including without limitation waivers of preferential rights, if any
then exist and are applicable, to purchase any of the ORR Rights, but excluding
any consents, authorizations, or waivers which are customarily obtained after
closing with respect to state or federal leases) necessary under any such
contract, indenture, instrument or agreement or under any such provision of
law, rule, regulation, order, writ, judgment, decree, determination or award in
order to permit the valid execution, delivery and performance by Seller of the
Overriding Royalty Documents.

(d) The Overriding Royalty Documents have been duly executed and
delivered by Seller. The Conveyance, as from time to time amended by the
Conveyance Supplements, constitutes an effective conveyance of the property
interests described therein. The Overriding Royalty Documents (including the
Conveyance and the Conveyance Supplements insofar as they contain contractual
obligations of Seller) constitute the legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms
except that: (i) enforcement of such obligations may be limited by bankruptcy,
insolvency, moratorium, or similar laws affecting creditors' rights generally,
and (ii) the remedies of specific performance and injunctive relief

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(as well as other equitable remedies) are subject to certain equitable defenses
and to the discretion of the court before which any proceedings therefor may be
brought.

(e) There are no suits, actions, claims, investigations, inquiries,
proceedings or demands pending or, to the knowledge of Seller, threatened
against Seller or involving any Subject Properties or Associated Property
(including any which challenge or otherwise pertain to Seller's title thereto
or operations thereon) which would, if determined adversely to Seller, have a
material adverse effect on Seller's financial condition, the value of the ORR
Rights, or the ability of Seller to convey the ORR Rights pursuant to the
Overriding Royalty Documents.

(f) Except as disclosed in the Disclosure Schedule, operations on the
Subject Properties and Associated Property are being conducted in compliance
with all applicable federal, state or local laws (including Applicable
Environmental Laws), the noncompliance with which would have a material adverse
effect on Buyer or the value of the ORR Rights.

(i) Seller is conducting its businesses in material compliance with
all applicable federal, state or local laws, including Applicable
Environmental Laws, has been and is in material compliance with all
licenses and permits required under Applicable Environmental Laws, and has
been and is in compliance in all material respects with all licenses and
permits required under any such other laws;

(ii) to the best of Seller s knowledge, none of the operations on
the Subject Properties or the Associated Properties are the subject of any
material federal, state or local investigations relating to any release of
any Hazardous Materials into the environment or the improper storage or
disposal (including storage or disposal at offsite locations) of any
Hazardous Materials;

(iii) To the best knowledge of Seller, no Person has filed or
threatened to file any notice under any federal, state or local law
indicating that Seller is responsible for the 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
released, or are improperly stored or disposed of, upon any Subject
Property or Associated Property of Seller;

(iv) Neither Seller nor, to the best of Seller's knowledge, any
predecessor-in-interest in any Subject Property or Associated Property has
transported or arranged for the transportation of any Hazardous Material
from the

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<PAGE> 22

Subject Properties or Associated Properties to any location which (A) is
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 (B) is the subject of federal, state or local
enforcement actions or, to the best of Seller's knowledge, other
investigations which may lead to claims against Seller or any Affiliate
for clean-up costs, remedial work, damages to natural resources or for
personal injury claims (whether under Applicable Environmental Laws or
otherwise); and

(v) Seller has no known material contingent liability under any
Applicable Environmental Laws or in connection with the release into the
environment, or the storage or disposal, of any Hazardous Materials
relating to any Subject Property or Associated Property.

(g) Seller has incurred no obligation or liability, contingent or
otherwise, for broker's or finder's fees in respect of the matters provided for
in this Agreement.

(h) Except as disclosed in the Disclosure Schedule, no Production Unit
is, at the time it is made subject to the Conveyance, subject to a gas
imbalance with respect to which imbalance Seller is in an overproduced status
and is required to (i) permit one or more third parties to take a portion of
the production attributable to any Production Unit without payment (or without
full payment) therefor or (ii) make payment in cash in order to correct such
imbalance. No Subject Interest is subject to any Preferential Right.

(i) Seller has delivered its most recent audited financial statements,
its most recent unaudited financial statements and the pro forma financial
statements contained in the prospectus dated May 16, 1996 (the "FINANCIAL
STATEMENTS") to Buyer, and the Financial Statements were prepared in accordance
with GAAP and fairly present Seller's financial position or pro forma financial
position at the statements' date and the results of Seller's operations and
Seller's cash flows for the statements' periods. Since the statements' date, no
material adverse effect has occurred with respect to Seller s financial
condition or businesses.

(j) Seller has no outstanding debt of any kind (including contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, (i) material

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to Seller or material with respect to Seller s consolidated financial condition
and (ii) not shown in the Financial Statements or disclosed in the Disclosure
Schedule. Except as shown in the Financial Statements, Seller is not subject
to or restricted by any franchise, contract, deed, charter restriction, or
other instrument or restriction which is materially likely in the foreseeable
future to materially and adversely affect the businesses, properties,
prospects, operations, or financial condition of Seller.

(k) No certificate, written statement or other written information
delivered herewith or heretofore by Seller to Buyer 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 Seller (other than industry-wide risks
normally associated with the types of businesses conducted by Seller) 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 Seller (other than
industry-wide risks normally associated with the types of businesses conducted
by Seller) that has not been disclosed to Buyer in writing which has a material
probability of causing a material adverse effect upon Seller s or any of its
properties, businesses, prospects or condition (financial or otherwise).

(l) To the knowledge of Seller, all data and information provided by
Seller in connection with any environmental assessment or Engineering Report
was true and correct and did not fail to include any information known to or
reasonably available to Seller which was required in order to keep the
information which was provided from being materially misleading. Seller has
heretofore delivered to Buyer true, correct and complete copies of the
Financial Statements and the Engineering Reports.

(m) Except as disclosed in the Financial Statements or in the Disclosure
Schedule: (i) there are no actions, suits or legal, equitable, arbitrative or
administrative proceedings pending, or to the knowledge of Seller threatened,
against Seller before any federal, state, municipal or other court, department,
commission, body, board, bureau, agency, or instrumentality, domestic or
foreign, which could reasonably be expected to have a material and adverse
effect on Seller or its ownership or use of any of its assets or properties,
its businesses or financial condition or prospects, or the right or ability of
Seller to enter into the Overriding Royalty Documents to which it is a party or
to consummate the transactions contemplated thereby or to perform its
obligations thereunder and (ii) there are no outstanding judgments,
injunctions, writs, rulings or orders by any such governmental entity against
Seller or its stockholders,

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<PAGE> 24
partners, directors or officers which have a material probability of causing
any such effect.

(n) There are no currently existing ERISA Plans, except as may be
disclosed in the Disclosure Schedule. Except as disclosed in the Financial
Statements or in the Disclosure Schedule, and Seller is in compliance with
ERISA in all material respects. Seller is not 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 the Disclosure Schedule, (i) no "accumulated funding deficiency" (as defined
in Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with
respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, and (ii) the current value of each ERISA Plan s
benefits does not exceed the current value of its assets available for the
payment of such benefits by more than $100,000.

(o) Seller has not, during the preceding five years, had, been known by,
or used any other partnership, trade, or fictitious name, except as disclosed
in the Disclosure Schedule. The chief executive office and principal place of
business of Seller are located (and have been for the preceding five years
located) at the address for Seller set out herein or the Disclosure Schedule.

(p) Except as disclosed in the Disclosure Schedule, Seller has no
subsidiary, owns no stock in any other corporation or association, and is not a
member of any general or limited partnership, joint venture or association of
any kind.

(q) Seller is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying "margin stock" (as defined in Regulations G, U and X of the Board
of Governors of the Federal Reserve System).

(r) Seller has not entered into any agreement or incurred any obligation
which might result in the obligation to pay a brokerage commission or finder s
fee with respect to the transactions contemplated by the Overriding Royalty
Documents.

(s) Seller (i) is not an "investment company," or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940; (ii) is not a "holding company," an "affiliate" of a "holding company" or
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935; and (iii) is not subject to

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<PAGE> 25
any other law, rule or regulation restricting its ability to incur debt or to
grant Liens.

(t) Except as disclosed in the Disclosure Schedule, no Person has any
claim to acquire an interest in any Subject Property. Seller hereby agrees to
indemnify and hold Buyer harmless from any claim, demand, loss, liability, cost
or expense (including reasonable fees of attorneys, accountants, experts and
advisors) incurred by reason of any claim to any interest in Seller or in any
Subject Property.

Section 4.2. Covenants of Seller. To induce Buyer to enter into this
Agreement and to pay the Purchase Price, Seller warrants, covenants and agrees
that until the full and final delivery of the Aggregate Termination Volume due
under the Overriding Royalty Documents and the termination of this Agreement,
unless Buyer has previously agreed otherwise:

(a) Compliance with Overriding Royalty Documents. Seller will perform
all of its covenants and obligations under the Overriding Royalty Documents,
all as fully as if they were set out in full herein.

(b) Reporting and Information. In addition to the other reports and
information required under the Conveyance and this Agreement, Seller will give
Buyer prompt written notice after learning of the occurrence of any Designated
Event or of the making of any claim by any Person which allegedly affects the
rights of Seller or Buyer in and to the properties subject to or expected to be
subject to the Conveyance and Seller will give to Buyer any information (in the
format in which such information is maintained by Seller) which Buyer may from
time to time reasonably request concerning Seller's compliance with any
covenant, provision or condition of the Overriding Royalty Documents or
concerning the geology of, production from, or accounting for the properties
subject to or expected to be subject to the Conveyance.

(c) Documentation Expenses. If the transactions contemplated by this
Agreement are consummated, or if Seller unilaterally withdraws from the
transaction contemplated hereby, Seller will promptly (and in any event, within
30 days after receipt of any invoice or other statement or notice in reasonable
detail) pay all reasonable costs and expenses for legal services incurred by or
on behalf of Buyer (excluding services of inside attorneys or engineers who are
the employees of Buyer or its affiliates) in connection with (i) the
negotiation, preparation, execution and delivery of the Overriding Royalty
Documents, and any and all consents, waivers or other documents or instruments
relating to any of the foregoing, and (ii) the filing, recording,

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<PAGE> 26
refiling and re-recording of any such documents or of any instruments or
further assurances required to be filed or recorded or refiled or re-recorded
by the terms of any such documents; provided, however, that the legal fees of
Buyer (excluding out-of-pocket costs, expenses and disbursements) for which
Seller shall be liable under this subsection (d) in connection with the
preparation of the Overriding Royalty Documents delivered on the Initial
Closing Date shall be fixed at $60,000. If the transactions contemplated
hereby with respect to the Initial Production Unit Group are not consummated,
Seller shall only be obligated to bear fifty percent (50%) of the costs and
expenses (excluding out-of-pocket costs, expenses and disbursements), incurred
by Buyer for legal services in connection herewith. Seller and Buyer shall
agree as to the additional amounts of legal fees (excluding out-of-pocket
costs, expenses and disbursements to be borne by Seller in connection with the
preparation of the Overriding Royalty Documents for additional acquisitions by
Buyer to be consummated on Subsequent Closing Dates prior to the funding of
such additional acquisitions.

(d) Interest. Except to the extent otherwise expressly provided in any
Overriding Royalty Document, Seller will pay interest on any amounts owing by
Seller to Buyer under any Overriding Royalty Document which are not paid within
three (3) business days after the same become due and payable. Each such past
due amount shall bear interest at the Agreed Rate from the date it becomes due
and payable until the date it is paid.

(e) Allowables. Seller, to the maximum extent it is able to do so, will
produce, or cause to be produced, each Subject Well at least ratably with all
other wells in the field and will assign allowables to each Subject Well as
needed to accomplish this result.

(f) Bonding and Insurance. Seller will at all times maintain all bonds
and insurance as specified in Section 3.7 of the Conveyance and on Schedule C
attached thereto, as such Schedule may be amended from time to time by Buyer in
its reasonable discretion.

(g) Payment of Taxes. Seller will:

(i) timely file all required tax returns;

(ii) timely pay all taxes, assessments, and other governmental
charges or levies imposed upon it or upon its income, profits or property,
except as the same is being contested diligently and in good faith by
appropriate action; and

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(iii) maintain appropriate accruals for all of the foregoing taxes
in accordance with GAAP.

(h) Title Matters.

(i) If any Person ever challenges or attacks (i) the validity or
priority of any Overriding Royalty Document or of any rights, titles, or
interests created or evidenced thereby or (ii) the title of Seller to any
Subject Interest or of Buyer to any part of the Overriding Royalty, then
upon learning thereof Seller will give prompt written notice thereof to
Buyer and at Seller's own cost and expense will diligently endeavor to
defeat such challenge or attack and to cure any defect that may be
developed or claimed, and Seller will take all necessary and proper steps
for the defense of any legal proceedings with respect thereto, including
the employment of counsel to represent Seller, the prosecution or defense
of litigation, and the release or discharge of all adverse claims. If, in
Buyer's reasonable discretion, Seller fails to take all necessary and
proper steps to defend against such suit, then Buyer (whether or not named
as a party to legal proceedings with respect thereto) is hereby authorized
and empowered to take such additional steps as in its reasonable judgment
and discretion may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of the
Overriding Royalty Documents and the rights, titles, and interests created
or evidenced thereby, including the employment of independent counsel to
represent Buyer, the prosecution or defense of litigation, the compromise
or discharge of any adverse claims made with respect to the Subject
Interests, the purchase of any tax title and the removal of prior liens or
security interests, and all expenditures so made of every kind and
character shall be a Reimbursable Expense (which obligation Seller hereby
expressly promises to pay on demand) owing by Seller to Buyer and shall
bear interest from the date demanded until paid at the Agreed Rate.

(ii) Seller will, on request of Buyer, (i) promptly correct any
defect, error or omission which may be discovered in the contents,
execution or acknowledgment of any Overriding Royalty Document, (ii)
execute, acknowledge, deliver and record or file such further instruments
and do such further acts as may be necessary, desirable or proper to carry
out more effectively the purposes of the Overriding Royalty Documents and
to more fully identify and make subject to the Conveyance any property
intended to be covered thereby, including any renewals, additions,
substitutions, replacements, or appurtenances to the Subject

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<PAGE> 28

Interests; and (iii) execute, acknowledge, deliver, and file or record any
document or instrument desired by Buyer to protect its rights, title and
interests under the Overriding Royalty Documents against the rights or
interests of third Persons. Seller shall pay all costs connected with any
of the foregoing.

(iii) Without limitation of Buyer's remedies for breach of the
representations or warranties contained in Section 4.1(h), if a third
party properly exercises a preferential right to purchase (a "PREFERENTIAL
RIGHT") after the Closing, Buyer will, in its sole and absolute
discretion, either (i) join in any required conveyance of the affected
Subject Interest to such third party, or (ii) make a conveyance of the
affected Subject Interest to Seller in order that Seller may make the
necessary conveyance to such third party. Upon making a conveyance in
accordance with (i) or (ii), above, Buyer shall be entitled to receive --
either from the exercising third party, assuming that Buyer exercised
option (i), or from Seller, assuming that Buyer exercised option (ii) --
the entire amount of consideration attributable to Buyer's interest in the
particular Subject Interest covered by such Preferential Right. Buyer
shall not incur any liabilities with respect to any such reconveyance of
properties that may be required in accordance with this subsection or
otherwise with respect to any exercise of a Preferential Right, and Seller
shall indemnify and hold harmless Buyer from any liabilities (including
reasonable attorneys' fees) with respect thereto.

(iv) Seller will provide to Buyer any assurances of title which
Buyer may from time to time reasonably request concerning the Overriding
Royalty, including the recording and filing of the Conveyance and the
updating of any specified title opinions through such recording (it being
understood that no title deficiencies learned of by Seller shall in any
way be deemed to qualify any of Seller's warranties of title or
indemnities with respect to title in any of the Overriding Royalty
Documents).

Section 4.3. Specified Hydrocarbons. Subject to the rights of Buyer set
forth in Section 2.6 of the Conveyance, Seller has been given the power, and is
obligated, to arrange for the marketing and sale of ORR Hydrocarbons as
provided in, and subject to, Section 2.5 of the Conveyance by entering into
contracts or other arrangements which may be with Seller or its Affiliates or
third parties ("SELLER MARKETING CONTRACTS"). Under the terms of Section 2.6
of the Conveyance, Buyer has the power to arrange for the marketing and sale of
ORR Hydrocarbons by entering into certain contracts or other arrangements all
as

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<PAGE> 29
specified in Section 2.6 of the Conveyance ("BUYER MARKETING CONTRACTS").
Buyer and Seller shall deem the following "SPECIFIED HYDROCARBONS" for all
purposes under the Overriding Royalty Documents: (a) all ORR Hydrocarbons sold
under Seller Marketing Contracts approved by Buyer in its sole and absolute
discretion; (b) all ORR Hydrocarbons sold under Buyer Marketing Contracts; (c)
all ORR Hydrocarbons that are the subject of hedge contracts entered into by
Seller or any Affiliate of Seller at Buyer's request pursuant to Section 2.5(b)
of the Conveyance, provided, that (i) Buyer has approved the terms of such
hedge contract and (ii) the hedge price shall be deemed to be the price at
which the ORR Hydrocarbons covered by such hedge contract are sold for purposes
of calculating ORR Market Value notwithstanding that Seller actually receives a
different price therefor from the actual purchaser of such ORR Hydrocarbons.

Section 4.4. Default; Remedies. If any Designated Event occurs and is
not cured within the time specified in Section 5.2 of the Conveyance, Buyer
shall have all of the rights and remedies specified in such Section 5.2 of the
Conveyance.

Section 4.5. Representations and Warranties of Buyer. To induce Seller
to enter into this Agreement and to convey the Overriding Royalty, Buyer hereby
represents and warrants to Seller, as of the date of this Agreement and as of
each Closing Date on which the following representations and warranties are
remade, that:

(a) Buyer will acquire its interests in the ORR Rights for its own
account and not with a view to any further disposition thereof to any Person
(other than to TCW or an Affiliate of TCW); however, the disposition of Buyer's
property shall at all times be and remain within its control subject to Section
6.4.

(b) Buyer is a partnership duly formed and validly existing under the
laws of the State of California, Buyer is duly qualified to do business in
Colorado and Wyoming, and Buyer has all requisite partnership power and
authority to own the ORR Rights and to execute and deliver, and perform all of
its obligations under, the Overriding Royalty Documents.

(c) The execution, delivery and performance by Buyer of the Overriding
Royalty Documents and the consummation of the transactions contemplated herein
and therein have been duly authorized by all necessary partnership action and
do not and will not (i) violate any provision of any law, rule, regulation,
order, writ, judgment, decree, determination or award presently in effect
having applicability to Buyer or any partnership agreement of Buyer, (ii)
result in a breach of, or constitute a default under, any contract, indenture,
instrument, or agreement

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<PAGE> 30
to which Buyer is a party or by which it or its property may be presently bound
or affected, or (iii) otherwise give any Person other than Seller any right to
damages from Seller or Buyer.

(d) Buyer has incurred no obligation or liability, contingent or
otherwise, for broker's or finder's fees in respect of the matters provided for
in this Agreement.

Article V - Purchase Option; Periodic Offer;
Right of First Refusal

Section 5.1. Option to Purchase ORR Rights in Acquisition Properties.

(a) Seller will have an option, subject to the terms and conditions set
forth in this Section 5.1, to acquire Buyer's ORR Rights in Acquisition
Properties (the "PURCHASE OPTION") for a price equal to FMV (as hereinafter
defined) or such greater amount as necessary to satisfy the condition set forth
in this Section 5.1. "FMV" of the ORR Rights shall be determined in the
following manner: (i) Seller and Buyer, acting in good faith, and using the
FMV Formula described below and Seller's internal engineering reports, shall
attempt to calculate and agree on FMV; (ii) If Seller and Buyer cannot agree
upon the FMV, the FMV shall be determined by an independent engineer to be
mutually agreed upon by Seller and Buyer and utilizing the FMV Formula and
Seller's internal engineering reports as audited by such independent engineer.

The FMV Formula is as follows:

[Op + (Gp/C] x P + [On + (Gn/C)] x N +
[Ou + Gu/C)] x U} x A x B, where

O = the amount of proved Oil reserves attributable to the Overriding
Royalty and calculated by reserve category as specified in the Engineering
Report which had been used to determine the Purchase Price Installments
reduced by Delivered ORR Volumes of Oil between the Initial Closing Date
and the date of repurchase,

G = the amount of proved Gas reserves attributable to the Overriding
Royalty and calculated by reserve category as specified in the Engineering
Report which had been used to determine the Purchase Price Installments,
reduced by Delivered ORR Volumes of Gas between the Closing Date and the
date of repurchase,

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<PAGE> 31
P = 80%, N = 70%, U = 50%,
p = Proved Developed Producing Reserves,
n = Proved Developed Non-Producing, Reserves,
u = Proved Undeveloped Reserves.

C = the conversion factor used by Buyer in calculating the Purchase Price
Installment of the subject Production Unit Group or such other conversion
factor approved by Buyer and Seller.

A = the average price per BOE (at a conversion ratio equal to C) paid for
Oil and Gas reserves in place for domestic onshore reserves, as reported
by Strevig, Miller and Company, Houston, Texas (or its successor, or by
another equivalent index as agreed to by the parties if the foregoing
index is not available) for the four Calendar Quarters immediately
preceding the determination. If the conversion ratio C does not directly
relate to the data published by Strevig, Miller and Company, such data
shall be adjusted appropriately by Buyer to relate to such conversion
ratio.

B = the number (not to exceed 1.0) that equals the ratio of (a) the
average per BOE amount funded by Buyer with respect to any Production Unit
Group as to which a Purchase Price Installment is made (determined by
dividing such Purchase Price Installment by the BOE amount of the
Aggregate Termination Volume for such Production Unit Group), divided by
(b) the average price per BOE (at a conversion ratio of C) paid for Oil
and Gas reserves in place for domestic onshore reserves during the four
Calendar Quarters immediately preceding the funding, as reported by
Strevig, Miller and Company and as such data may be required to be
adjusted by Buyer to directly relate to conversion ratio C.

(b) If Subsequent Closing Dates occur, Seller will have a Purchase
Option(s) on the ORR Interests for any Production Unit Group that is an
Acquisition Property beginning two years after the Closing Date related to such
Production Unit Group subject to the following conditions: (i) no unresolved,
good faith dispute exists between the Seller and Buyer as to any material
matter relating to the Overriding Royalty Documents; (ii) the remaining
Production Unit Groups as a whole must have delivered not less than their
Scheduled Total NPV12 Volumes as of the date of the exercise of any Purchase
Option; and (iii) the most recent Engineering Report indicates that the
Termination Volumes and Aggregate Termination Volume for the remaining Subject
Properties shall be met using the ASV Percentage for each such Production Unit
Group.

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<PAGE> 32
(c) Notwithstanding any of the foregoing, no Purchase Option may be
exercised with respect to any Production Unit Group (i) within 24 months of the
Closing Date; (ii) if a Designated Event is outstanding; (iii) unless Seller
assumes and agrees to perform any obligations of Buyer under (a) any forward
sales, hedging or other long-term delivery commitments entered into by Buyer in
accordance with provisions herein with respect to production attributable to
the repurchased Overriding Royalty for the period from the date of exercise of
the Option Repurchase through but not later than one year thereafter and (b)
any forward sales, hedging or other long-term delivery commitments approved by
Seller and entered into by Buyer with respect to production attributable to the
repurchased Overriding Royalty; and (iv) unless payment of the Purchase Option
purchase price with respect to any Production Unit Group plus all previous
amounts received by Buyer as Net ORR Proceeds from that Production Unit Group
provides Buyer, as of the date of payment of such Purchase Option purchase
price, a 13% IRR if the Purchase Option is exercised more than 24 months and
less than 49 months after the Closing Date with respect to that Production Unit
Group, and 12% IRR if the Purchase Option is exercised at any time thereafter.

(d) The exercise of any Purchase Option must be made (i) by Seller
delivering written notice to Buyer no later than thirty (30) days prior to the
date which Seller wishes to exercise such Purchase Option, which notice shall
set forth Seller's intended exercise date and which shall contain a
representation and warranty by Seller with respect to the conditions and
matters set forth in Sections 5.1(b) and (c) above in form reasonably
satisfactory to Seller, and (ii) in cash or, at Buyer's option, 80% in cash and
20% in the form of a perpetual (i.e., no Aggregate Termination Volume)
overriding royalty (a "Perpetual ORR") in the Production Unit Group(s) which
shall be retained by Buyer and conveyed by Seller (or such other appropriate
party) having a value (equal to 20% of the Purchase Option purchase price)
established based on the most recent Engineering Report on the Subject
Properties with future product prices based on NYMEX (or such other public
market index as agreed to by Buyer at the time of each exercise of a Purchase
Option) as adjusted on a monthly basis for the differential between the prices
actually expected to be received for production from such properties for sales
to be made therefrom and prices reflected on the NYMEX (or other price index)
for such future periods based on (A) a public differential market index agreed
to at the time of each exercise of a Purchase Option or (B) if such
differential cannot be determined pursuant to clause (A), the average
difference between the prices actually received for production from such
properties for sales made therefrom during the preceding twenty-four months

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<PAGE> 33
and prices reflected on the NYMEX (or other price index) for such months.

The closing of any Purchase Option under this Section 5.1 (or Right
of First Offer under Section 5.2 or Pref. Right under Section 5.3) which
includes Buyer's receipt of a Perpetual ORR shall be conditioned upon the
delivery to Buyer of conveyances or other documents in form reasonably
acceptable to Buyer sufficient to vest such Perpetual ORR in Buyer free and
clear of any liens, security interests, encumbrances or other matters except
Permitted Encumbrances, together with title assurances and opinions of counsel
acceptable to Buyer which shall be equivalent to the title assurances and
opinions of counsel received by Buyer with respect to the ORR Rights.

Section 5.2. Right of First Offer. Subject to the terms and conditions
hereinafter set forth, after the second anniversary of the Effective Date of
the acquisition by Buyer of ORR Rights with respect to each Production Unit
Group that is an Inventory Property, Seller shall have a continuing first right
to offer ("Right of First Offer") to repurchase from Buyer or its successors
and assigns such ORR Rights in accordance with the following:

(a) The offer shall be made in writing containing a representation
and warranty by Seller that the conditions and requirements set forth in
Sections 5.1(b) and 5.1(c)(ii) and (iii) (as described in subsection
5.2(f) below) have been satisfied or met.

(b) The proposed purchase price shall be the greater of (i) the FMV
as determined in accordance with Section 5.1(a) or (ii) that amount
required to be received by Buyer which, when added to all net amounts
previously received by Buyer as Net ORR Proceeds from the particular
Production Unit Group, provides Buyer the Applicable IRR (assuming the
payment of such amount on the sixtieth day after the date of the offer),
and which shall be paid in cash, or cash and a retained perpetual
overriding royalty in accordance with Section 5.1(d)(ii). The "Applicable
IRR" shall be a 13% IRR if the effective date of the proposed sale would
be on or after the second and before the fourth anniversary of the
Effective Date of the acquisition by Buyer of ORR Rights with respect to
the relevant Production Unit Group, and a 12% IRR if the effective date of
the proposed sale would be on or after the fourth anniversary of the
Effective Date of the acquisition by Buyer of such ORR Rights. The
effective date of the sale, if the offer is accepted, shall be the first
day of the month during which the offer is made.

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<PAGE> 34
(c) The offer shall remain open for a period of not less than thirty
(30) days and may be accepted by Seller's delivery of written acceptance
within such period. A failure on the part of Buyer or its successors and
assigns to respond to the offer within such time period shall be deemed an
acceptance of the offer.

(d) If the offer is accepted, or deemed to be accepted, the closing
of the purchase and sale shall occur within thirty (30) days following
acceptance or deemed acceptance by Buyer but in no event later than the
sixtieth day after the date of the offer.

(e) If the offer is not accepted, the following amendments shall
apply to the Overriding Royalty and the Overriding Royalty Documents, but
only with respect to the particular Production Unit Group(s) which
comprised the Inventory Property which was the subject of the offer
delivered by Seller (and not with respect to any other Production Unit
Group), effective as of the first day of the month during which the offer
was made. Buyer and Seller shall cooperate to effect such amendments and
to execute and deliver, within thirty (30) days following such rejection,
the documents that may be necessary or desirable in the opinion of either
Buyer or Seller to evidence and place of public record notice of such
amendments:

(i) The applicable ORR Percentage shall be reduced to a
percentage which is equal to the then-applicable ASV Percentage;

(ii) The applicable Annual Scheduled Volume and EMDS Volume
shall each be reduced to an amount which is equal to three-quarters
of the then-applicable Annual Scheduled Volume and EMDS Volume; and

(iii) The following provisions of the applicable Conveyance or
Conveyance Supplement shall be deleted and the obligations thereunder
terminated: the proviso in Section (a)(i) of the definition of ORR
Market Value in Section 1.1, Sections 2.5 and 2.6, and Articles III,
IV and V;

provided, however, that if Buyer has a reasonable, good faith belief that
the requirements and conditions set forth in Section 5.1(b) and 5.1
(c)(ii) and (iii) have not been satisfied, then the above amendments shall
not be effective until after the determination by a court of competent
jurisdiction or, if agreed to by Seller and Buyer, an arbitrator that the
conditions and requirements had been and

-31-
<PAGE> 35

continue to be satisfied and Buyer subsequently rejects the offer, but any
such effectiveness shall be as of the date specified in Section 5.2(b).

(f) Seller's rights under this Section 5.2 shall not apply if, at
the time of the Right of First Offer, or at any time until the applicable
closing, any of the conditions set forth in Sections 5.1(b)(i), (ii) and
(iii) and 5.1(c)(ii) and (iii) are not satisfied.

(g) The rights of Seller in this Article V may be enforced by means
of specific performance.

Section 5.3. Preferential Right to Purchase. Seller shall have a
preferential right to purchase (the "Pref. Right") any ORR Rights contemplated
to be sold, transferred or otherwise disposed of by Buyer in accordance with
the following:

(a) If Buyer intends to sell, transfer or otherwise dispose of any
ORR Rights or any interest therein or portion thereof to any Person other
than an Affiliate of Buyer, it shall give notice of the proposed sale,
transfer or other transaction (which may be putting such interests on the
market in the future to sell for a specified price) to Seller. Such
notice shall be in writing and shall contain all of the material terms of
the proposed transaction and all documents, if any, and information
relevant thereto or reasonably requested by Seller. Seller shall have a
period of thirty (30) days from receipt of such material terms within
which to notify Buyer in writing of its intent to exercise its Pref.
Right. The Pref. Right shall apply to any proposed transaction or series
of transactions the result of which would be that the ORR Rights or
portions thereof would come to be held by a party that is not an Affiliate
of Buyer at the time the transfer is proposed.

(b) The Pref. Right shall entitle Seller to purchase the ORR Rights
offered or intended to be offered by Buyer at the same price and on the
same terms as are offered or intended to be offered to third parties.

(c) If Seller exercises its Pref. Right, the closing of the purchase
by Seller shall take place at Buyer's office no later than thirty (30)
days from the date that Buyer receives notice of Seller's intent to
exercise the Pref. Right.

(d) If Seller does not exercise its Pref. Right, Buyer may transfer
the ORR Rights that were the subject of the notice to Seller on the
proposed terms or terms less

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<PAGE> 36
favorable to a third-party purchaser, provided that if a closing of the
sale to a third-party purchaser is not consummated within six (6) months
from the date Seller receives notice of the proposed sale, the Pref. Right
shall again apply and Seller shall be given notice and an opportunity to
exercise the Pref. Right as provided above prior to any subsequent sale or
other disposition of such ORR Rights.

Article VI - Miscellaneous

Section 6.1. Waivers and Amendments. Except for failures and delays
which extend past specified time limits or events, no failure or delay (whether
by course of conduct or otherwise) by Buyer or Seller in exercising any right,
power or remedy which such party may have under any of the Overriding Royalty
Documents shall operate as a waiver thereof or of any other right, power or
remedy. No single or partial exercise by Buyer or Seller of any right, power
or remedy under any of the Overriding Royalty Documents shall preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Overriding Royalty Document and no consent to
any departure therefrom shall ever be effective unless it is in writing and
signed by the party giving such waiver or consent, 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 Seller shall in any case of itself entitle Seller to any other or
further notice or demand in similar or other circumstances. This Agreement and
the other Overriding Royalty Documents set forth the entire understanding and
agreement of the parties hereto and thereto 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
except as stated in a Overriding Royalty Document neither Seller nor Buyer is
making any representation or warranty of any kind to the other. No
modification or amendment of or supplement to this Agreement or the other
Overriding Royalty Documents shall be valid or effective unless the same is in
writing and signed by the party against whom it is sought to be enforced.

Section 6.2. Survival of Agreements; Cumulative Nature. All of Seller's
and Buyer's various representations, warranties, covenants and agreements in
the Overriding Royalty Documents shall survive the execution and delivery of
this Agreement and the other Overriding Royalty Documents and the performance
hereof and thereof, including the granting of the ORR Rights and the delivery
of the Conveyance.

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<PAGE> 37
Section 6.3. Notices. All notices, requests, consents, demands and other
communications (in this section, collectively called "notices") which are
required or permitted under any Overriding Royalty Document shall be in
writing, unless otherwise specifically provided in such Overriding Royalty
Document, and shall be deemed sufficiently given if delivered by personal
delivery, by facsimile transmission, by delivery service with proof of
delivery, or by registered or certified United States mail, postage prepaid, to
Seller at its address specified on the signature pages hereto and to Buyer at
its address specified on the signature pages hereto. Any such notice shall be
deemed to have been given (a) in the case of personal delivery, delivery
service, or facsimile transmission, upon receipt, or (b) in the case of
registered or certified United States mail, five days after deposit in the
mail. (Seller and Buyer may change their respective addresses from time to
time by sending notices of the new address, in the manner provided for in this
section, to the others.)

Buyer's address: TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P.
c/o Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson

Telephone: (213) 244-0053
Telecopy: (213) 244-0604

with a copy to: Milbank, Tweed, Hadley & McCloy
601 S. Figueroa Street
30th Floor
Los Angeles, California 90017
Attention: David A. Lamb, Esq.

Telephone: (213) 892-4434
Telecopy: (213) 629-5063

Seller's Address: HS Resources, Inc.
One Maritime Plaza, 15th Floor
San Francisco, California 94111
Attention: Mr. Theodore Gazulis
Telephone: (415) 433-5795
Telecopy: (415) 433-5811

with a copy to: HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attention: James M. Piccone, Esq.

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<PAGE> 38
Telephone: (303) 296-3600
Telecopy: (303) 296-3601

Section 6.4. Parties in Interest. All grants, covenants and agreements
contained in the Overriding Royalty Documents shall bind and inure to the
benefit of the parties thereto and their respective successors and assigns;
provided, however, that:

(a) Seller may not assign or transfer any of its rights or delegate any
of its duties or obligations under any Overriding Royalty Document without the
prior consent of Buyer, except to the extent expressly provided in Section 6.1
of the Conveyance (provided that nothing in the Overriding Royalty Documents
shall be deemed to prevent Seller from retaining independent service providers
in the ordinary course of business to assist it in the performance of its
duties).

(b) Buyer may not assign its funding obligations under this Agreement to
any Person other than TCW or TCW's Affiliates without the prior consent of
Seller.

Section 6.5. Governing Law. Except to the extent that the law of another
jurisdiction is expressly elected in a Overriding Royalty Document, the
Overriding Royalty Documents shall be deemed contracts and instruments made
under the laws of the State of Colorado (including the statute of limitations)
and shall be construed and enforced in accordance with and governed by the laws
of the State of Colorado and the laws of the United States of America, without
regard to principles of choice of law.

Section 6.6. Limitation on Interest. Although the Overriding Royalty
Documents provide for the sale and purchase of a real property interest and not
a loan (except under federal income tax law), there are certain provisions of
the Overriding Royalty Documents which provide for the charging and payment of
interest. Buyer and Seller intend to contract in strict compliance with
applicable usury law from time to time in effect. In furtherance thereof they
hereby stipulate and agree that none of the terms and provisions contained in
the Overriding Royalty Documents shall ever be construed to create a contract
to pay, for the use, forbearance or detention of money, interest in excess of
the maximum amount of interest permitted to be charged by applicable law from
time to time in effect. No party to any Overriding Royalty Document shall ever
be liable for unearned interest or shall ever be required to pay interest in
excess of the maximum amount that may be lawfully charged under applicable law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the Overriding Royalty Documents which may be in
conflict or apparent conflict herewith. In determining whether or not the
interest paid or

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<PAGE> 39
payable, under any specific circumstance, exceeds the maximum amount permitted
under applicable law, the parties to the Overriding Royalty Documents shall to
the greatest extent permitted under applicable law: (a) exclude voluntary
prepayments and the effects thereof, and (b) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of
the interest bearing obligation in accordance with the amounts thereof
outstanding from time to time and the maximum legal rate of interest from time
to time in effect under applicable law in order to lawfully charge the maximum
amount of interest permitted under applicable law.

Section 6.7. Termination; Limited Survival. As provided in the
Conveyance, Seller may elect at any time after the Discharge Time to deliver to
Buyer a notice to terminate the Conveyance ("TERMINATION NOTICE"). Upon
receipt by Buyer of such a notice, if no unpaid obligations are then owing
under this Agreement or any other Overriding Royalty Document, then all of the
Overriding Royalty Documents shall thereupon be terminated and the parties
thereto released from all prospective obligations thereunder. Notwithstanding
the foregoing or anything herein to the contrary other than Section 5.2(e): (a)
any waivers, acknowledgments, or admissions made by Seller or Buyer in any
Overriding Royalty Documents, (b) Seller's obligations under Section 4.4, and
(c) any other obligations which any Person may have to indemnify or compensate
Buyer shall survive any termination of this Agreement or any other Overriding
Royalty Document. At the request of Seller, Buyer shall prepare and execute
all necessary instruments to reflect and effect such termination and limited
survival of the Overriding Royalty Documents, such instruments to be reasonably
satisfactory to Seller in form and substance.

Section 6.8. Severability. If any term or provision of any Overriding
Royalty Document shall be determined to be illegal or unenforceable all other
terms and provisions of the Overriding Royalty Documents shall nevertheless
remain effective and shall be enforced to the fullest extent permitted by
applicable law.

Section 6.9. Limitation on Liability; Setoff.

(a) No Personal Liability. Notwithstanding anything else to the contrary
herein, no Sub-Custody Person shall be personally liable for any money judgment
against any Sub-Custody Person in connection with any action brought under this
Agreement or any other Overriding Royalty Document, nor shall Seller enforce,
or seek to enforce, any judgment against any assets of any Sub-Custody Person
other than such Sub-Custody Person's interest in the ORR Rights and other
rights under the Overriding Royalty Documents. As used in this subsection,
"SUB-CUSTODY PERSON" means TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P.,

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<PAGE> 40
a California limited partnership, the partners in such limited partnership, and
the respective officers, directors, shareholders, affiliates and partners of
such partnership or any such partner.

(b) Setoff. In the event that Seller ever has a claim for damages
against Buyer, Seller will provide Buyer with notice of such claim, and the
parties agree to meet in good faith within thirty (30) days of Buyer's receipt
of such notice to resolve such claim. If the parties fail to resolve Seller's
claim, Seller will have the right to deposit any amounts payable to Buyer under
the Overriding Royalty Documents, up to the disputed amount, into an
interest-bearing, third party escrow account or to interplead such amount into
a court registry.

To the extent that Seller ever obtains a final judgment for damages
against Buyer (including any successor owner of the ORR Rights), then Seller
shall be entitled to setoff such damages against any amounts payable under the
Overriding Royalty Documents by Seller to Buyer (or to any such successor
owner) until Seller shall have recovered such damages (with interest thereon at
the Agreed Rate) in full. Except as otherwise expressly provided in any
Overriding Royalty Document, Seller shall not have any right to setoff or
suspend payments under the Overriding Royalty Documents prior to any such final
judgment. Seller's rights under this subsection shall be superior to, and may
be enforced by Seller notwithstanding, any mortgage, deed of trust, financing
statement, or other lien upon any of the ORR Rights.

Section 6.10. Counterparts. 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 shall not be recorded by either party
in the real estate records.

-37-
<PAGE> 41
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.

Seller: HS RESOURCES, INC.,
a Delaware corporation

By:
----------------------------------------
Name:
Title:

Buyer: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P.,
a California limited partnership

By: TCW Royalty Company V,
a California Corporation,
its Managing General Partner

By:
--------------------------------------
Arthur R. Carlson
Managing Director

By:
--------------------------------------
Thomas F. Mehlberg
Senior Vice President

-38-

<ARTICLE> 5
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,944,246
<SECURITIES> 0
<RECEIVABLES> 31,504,707
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<INVENTORY> 1,650,988
<CURRENT-ASSETS> 40,218,770
<PP&E> 784,298,015
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<TOTAL-ASSETS> 708,689,533
<CURRENT-LIABILITIES> 36,610,335
<BONDS> 392,315,446
0
0
<COMMON> 17,118
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<TOTAL-LIABILITY-AND-EQUITY> 708,689,533
<SALES> 86,705,453
<TOTAL-REVENUES> 88,762,578
<CGS> 18,951,357
<TOTAL-COSTS> 49,265,312
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<INTEREST-EXPENSE> 15,387,809
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<EPS-PRIMARY> .24
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