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MASTER WORK/SERVICE AGREEMENT

THIS MASTER WORK/SERVICE AGREEMENT (this “Agreement”) is made and entered into this _______ day of ______________, 201___ (the “Effective Date”), by and between Capitan Energy, Inc., a Texas Corporation (the “Company”), and _______________________________, a(n) ________________________ (the “Contractor”) (collectively the “Parties”).

In consideration of the mutual promises and agreements herein contained, the Company and the Contractor do hereby contract and agree as follows:

1. Services . All work (“Work”) which may be offered by the Company, either orally or in writing, and accepted by the Contractor during the term of this Agreement, or any other work that is performed for the benefit of Company after the Effective Date, shall be subject to and governed by all the terms and provisions of this Agreement to the same extent and with the same effect as if the terms and provisions herein were incorporated in any work order, either oral or written, given to the Contractor by the Company, any delivery ticket, purchase order, invoice, and other papers or documents executed or passed between the Parties in connection with the subject matter herein (collectively “Work Order”). If there is a conflict between the provisions herein and any Work Order, then the provisions of this Agreement shall be controlling. Nothing herein shall be construed to require Company to use the services or any services of Contractor or Contractor to accept Work offered by Company at any time and both parties may contract with competitors of the other for Work.

2. Term . This Agreement shall commence on the Effective Date and shall continue in full force and effect for a period of five (5) years from that date, unless sooner terminated by the parties as provided below (the “Primary Term”). Upon expiration of the Primary Term (and each Extended Term), this Agreement shall automatically renew for successive six (6) month periods (each such period an “Extended Term”) until such time as the Agreement is terminated by the parties as set forth below. The Contractor may terminate this Agreement at any time by giving the Company ninety (90) days prior written notice via Certified Mail, Return Receipt Requested, of such termination; provided, however, the Contractor shall have no right to terminate this Agreement pursuant to this paragraph for any job in progress. The Company may, at any

time, terminate for its own convenience this Agreement or any part of the Work or all remaining Work in connection with any or all jobs by giving thirty (30) days written notice via Certified Mail, Return Receipt Requested, of such termination to the Contractor. In the event of termination for the Company’s convenience, the Company shall incur no liability to the Contractor by reason of such termination, except that the Contractor shall be compensated for all Work performed prior to the termination date together with all reasonable expenses incurred by the Contractor which are directly attributable to the termination, the total of which shall in no event exceed the contractual price agreed upon. Termination of this Agreement for any reason whatsoever shall not affect (1) any right or obligation of any party which has accrued or vested prior to such termination, which is hereby deemed to survive the termination of this Agreement or (2) any continuing obligation, liability or responsibility of the Contractor or his subcontractors which shall otherwise survive the termination of this Agreement, including, without limitation, the Contractor’s indemnification obligations under this Agreement.

3. Contractor Warranties . The Contractor agrees to perform all Work with due diligence and care, and in a good workmanlike manner satisfactory and acceptable to the Company. In addition to any specific guaranty required in the applicable Work Order, the Contractor agrees at its own expense to replace or repair any faulty or defective material or workmanship in connection with a job within one (1) year from the date of final completion of such job. In addition, the Contractor shall be responsible for and pay for replacement or repair of adjacent materials or work which may be damaged due to the failure of the Contractor’s material or Work and/or damaged as a result of the replacement or repairs

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thereof. If Contractor has not commenced such repairs within ten (10) days of notice thereof and diligently pursued completion of such repair, Company may undertake such repairs and Contractor shall reimburse Company within ten (10) days of invoice for all reasonable costs incurred by Company for such repairs.

4. Liens . In connection with all Work performed by the Contractor for the Company, the Contractor shall pay all legal claims for labor and material and agrees that it will not permit any liens of any kind to be affixed against the property of the Company or the lease or property of others arising out of claims of the Contractor’s employees, mechanics, or materialmen. If such liens are so affixed to any such property in violation of this paragraph 4, Contractor shall cause same to be released within ten (10) days of notice from the Company. Upon the completion of any job, the Contractor shall, if requested, furnish the Company with satisfactory evidence of the payment of all such claims. THE CONTRACTOR AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE COMPANY AND ALL OTHER INDEMNITIES AS DESCRIBED BELOW FROM AND AGAINST ALL SUCH CLAIMS OR LIENS, and further agrees that any sums due to the Contractor by the Company may be withheld and applied toward the discharge or payment of any such claims or liens to prevent the filing of a lien or to release a lien that has been filed without obligation to participate in any controversy or negotiation between the parties or liability to Contractor for any amount so paid.

5. Limit on Indemnity . If the indemnities or insurance required in this Agreement hereunder are judicially determined to exceed the maximum limits permissible under applicable law, then the indemnity and insurance requirements shall automatically be amended to conform to the maximum limits permitted under such law and will be liberally construed to effectuate the intent and enforceability of these provisions. Furthermore, for Work performed in the State of Texas and covered by TEX. CIV. PRAC. & REM. CODE ANN. §§ 121.001-007 (Vernon 1986 and 1992 Supp.), as amended, (a) Section 6 below is subject to and expressly limited by the terms and conditions of that statute, and (b) that statute is incorporated herein.

6. INDEMNITIES .

As used herein “Company Group” means Company, Co-lessees, lessors, joint venturers, partners, co-owners, affiliates and contractors (including subcontractors of every tier) and each of their owners, partners, shareholders, members, officers, directors, managers, agents, employees, and invitees, but excluding all members of Contractor Group. As used herein “Contractor Group” means Contractor and its joint venturers, partners, co-owners, affiliates and subcontractors (of every tier) and each of their owners, partners, shareholders, members, officers, directors, managers, agents, employees, and invitees.

(A) CONTRACTOR AGREES TO PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS COMPANY GROUP, FROM AND AGAINST ALL CLAIMS, DEMANDS, LIABILITIES, AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF OR THE NEGLIGENCE OR FAULT (ACTIVE OR PASSIVE) OF ANY PARTY OR PARTIES INCLUDING THE JOINT OR CONCURRENT NEGLIGENCE OF A MEMBER OF COMPANY GROUP, AND INCLUDING, WITHOUT LIMITATION, ANY PRE-EXISTING CONDITIONS, DEFECT OR RUIN OF PREMISES OR EQUIPMENT, ANY THEORY OF STRICT LIABILITY, REGULATORY OR STATUTORY LIABILITY, PRODUCTS LIABILITY, BREACH OF REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED), BREACH OF DUTY (WHETHER STATUTORY, CONTRACTUAL OR OTHERWISE) ANY THEORY OF TORT, OR BREACH OF CONTRACT, ARISING IN CONNECTION HEREWITH IN FAVOR OF CONTRACTOR GROUP, INCLUDING BUT NOT LIMITED TO ANY CLAIM ON ACCOUNT OF BODILY INJURY, DEATH OR DAMAGE TO PROPERTY, BUT SPECIFICALLY EXCLUDING ANY CLAIM MADE BY CONTRACTOR AGAINST COMPANY FOR BREACH OF THIS AGREEMENT AND ANY CLAIM HEREUNDER FOR WHICH COMPANY HAS AGREED TO INDEMNIFY


CONTRACTOR GROUP.

(B) COMPANY AGREES TO PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS CONTRACTOR GROUP, FROM AND AGAINST ALL CLAIMS, DEMANDS, LIABILITIES, AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE THEREOF OR THE NEGLIGENCE OR FAULT (ACTIVE OR PASSIVE) OF ANY PARTY OR PARTIES INCLUDING THE JOINT OR CONCURRENT NEGLIGENCE OF ANY MEMBER OF CONTRACTOR GROUP, AND INCLUDING, WITHOUT LIMITATION, PRE-EXISTING CONDITIONS, DEFECT OR RUIN OF PREMISES OR EQUIPMENT, ANY THEORY OF STRICT LIABILITY, REGULATORY OR STATUTORY LIABILITY, PRODUCTS LIABILITY, BREACH OF REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED), BREACH OF DUTY (WHETHER STATUTORY, CONTRACTUAL OR OTHERWISE) ANY THEORY OF TORT, OR BREACH OF CONTRACT, ARISING IN CONNECTION HEREWITH IN FAVOR OF A MEMBER OF COMPANY GROUP ON ACCOUNT OF BODILY INJURY, DEATH OR DAMAGE TO PROPERTY, BUT SPECIFICALLY EXCLUDING ANY CLAIM MADE BY COMPANY AGAINST CONTRACTOR FOR BREACH OF THIS AGREEMENT AND ANY CLAIM HEREUNDER FOR WHICH CONTRACTOR HAS AGREED TO INDEMNIFY COMPANY GROUP.

(C) CONTRACTOR AGREES TO RELEASE, PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS COMPANY GROUP FROM ANY AND ALL CLAIMS, INCLUDING, WITHOUT LIMITATION, THE COST OF CONTROL AND CLEANUP, ARISING OUT OF POLLUTION OR CONTAMINATION IN THE PERFORMANCE OF THIS AGREEMENT FROM FUELS, LUBRICANTS, MOTOR OILS, PAINTS, SOLVENTS, GARBAGE, CHEMICALS, PRODUCED FLUIDS, DRILLING/COMPLETION FLUIDS, CUTTINGS AND OTHER POLLUTANTS ORIGINATING FROM CONTRACTOR’S

EQUIPMENT. Contractor’s liability for pollution hereunder is expressly limited to contamination occurring above the surface of the land or water, originating from Contractor’s equipment or vessel(s), originating from equipment, machinery or tools under Contractor’s control, or contamination resulting from Contractor’s sole negligence.

(D) Specific Events . Notwithstanding any other provision of this Agreement to the contrary, Company shall be responsible for and agrees to release, defend, indemnify and hold harmless Contractor Group from and against any and all Claims arising out of or in connection with:

(i) Pollution (including any environmental pollution) and/or contamination as a result of uncontrolled well conditions, including the expense of containment, cleanup and disposal; and

(ii) Radioactive pollution and/or contamination (including environmental pollution or contamination) originating from below the surface of the land or water or emanating from the wellbore, or in the event of radioactive pollution or contamination originating above the surface, while the radioactive source or material is in the sole custody or under the sole control of any member of company group, including the expense of containment, cleanup and disposal; and

(iii) Subsurface trespass or any action in the nature thereof; and

(iv) Subsurface loss or damage, including loss of or damage to any reservoir, production formation, well or borehole or down-hole equipment, or


impairment of any property, right to water, oil, gas or other mineral substances; and

(v) Damage, loss or destruction of equipment of any member of company group and any third party, and personal injury, illness or death of any member of company group, or any third party as a result of uncontrolled well conditions, fire, or explosion, pollution and/or radiation contamination, including but not limited to damage to or loss or destruction or replacement of any equipment, drilling rig/unit/vessel, platform or other fixed or floating structure (in the case of services provided offshore), including oil/gas production facilities or pipelines, at or around a site (including any downtime, remediation or recovery time); and

(vi) Expenses for killing or bringing a wild well under control; and

(vii) Any re-drilling, fishing or reworking costs; and

(viii) The expenses for removal and disposal of debris.

Unless, with regard to any of the foregoing (i) – (viii): (a) Any such event is solely attributable to a member of Contractor Group’s gross negligence; (b) Any such event is attributable in whole or in part to a member of Contractor Group’s willful misconduct; or (c) Such claim is in favor of a member of Contractor Group, in which event (a)-(c), CONTRACTOR AGREES TO PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS ALL MEMBERS OF COMPANY GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION

OF EVERY KIND AND CHARACTER WITHOUT LIMITATION.

(E) Company and Contractor acknowledge

and agree that neither party shall be liable for any incidental, consequential, indirect or special damages, including, but not limited to, lost profits, business interruption, or lost production, whether arising under breach of warranty or contract, strict liability, indemnity or any other theory of liability.

(F) Nothing in this paragraph 6 shall require Company to indemnify Contractor Group for any claim, action, or demand resulting solely from Contractor’s gross negligence or willful misconduct.

(G) Nothing in this paragraph 6 shall require Contractor to indemnify Company Group for any claim, action, or demand resulting solely from Company’s gross negligence or willful misconduct.

(H) Nothing in this paragraph 6 shall require either party to indemnify the other for any claim, action, or demand resulting or arising solely from a certified act of terrorism, as defined in the Terrorism Risk Insurance Act.

(I) THE TERMS AND PROVISIONS OF THIS PARAGRAPH 6 SHALL HAVE NO APPLICATION TO CLAIMS OR CAUSES OF ACTION ASSERTED AGAINST COMPANY OR CONTRACTOR BY REASON OF ANY AGREEMENT OF INDEMNITY WITH A PERSON OR ENTITY NOT A PARTY TO THIS AGREEMENT IN THOSE INSTANCES WHERE SUCH CONTRACTUAL INDEMNITIES ARE NOT RELATED OR ANCILLARY TO THE PERFORMANCE OF THE WORK CONTEMPLATED UNDER THE AGREEMENT OR ARE INDEMNITIES UNCOMMON TO COMPANY’S INDUSTRY. THE TERMS AND PROVISIONS OF


THIS PARAGRAPH 6 SHALL EXPRESSLY APPLY TO CLAIMS OR CAUSES OF ACTION ASSERTED AGAINST COMPANY OR CONTRACTOR BY REASON OF ANY AGREEMENT OF INDEMNITY WITH A PERSON OR ENTITY NOT A PARTY TO THIS CONTRACT WHERE SUCH CONTRACTUAL INDEMNITIES ARE RELATED TO OR ANCILLARY TO THE PERFORMANCE OF THE WORK CONTEMPLATED UNDER THE AGREEMENT AND OR COMPANY’S PROJECT AND ARE INDEMNITIES NOT UNCOMMON IN COMPANY’S INDUSTRY.

7. I nsurance . Contractor and Company agree that all indemnity obligations and other liabilities assumed by either party in this agreement shall be supported by liability insurance of like kind and in equal amounts as is permitted or required by applicable law, but at a minimum the amounts required as set forth in Exhibit “A”. Except where required by law, such policy amounts enumerated on Exhibit “A”, or as may actually be obtained, shall not act as a cap or limit on liability. Contractor shall secure and maintain during the term of this agreement at the Contractor’s sole expense the insurance set forth on Exhibit “A” with insurance carriers satisfactory to the Company and licensed to do business in the state where the Work is being performed. Contractor covenants that all subcontractors shall also maintain insurance set forth on Exhibit “A.” It is agreed that the monetary limited enumerated herein and in Exhibit “A” shall automatically be amended to conform to the maximum monetary limited required by the law to support the indemnity and defense obligations hereunder to ensure that they are valid and operative. Contractor hereby waives any and all rights of subrogation that it or its insurers may have against any member of Company Group. Contractor shall provide certificates of insurance, properly endorsed, as provided in Exhibit “A”.

8. Contractor’s Personnel, Equipment & Material.

(A) The Contractor shall supply and utilize only experienced, qualified personnel

when performing the Work, with each such employee, contractor or subcontractor having the requisite knowledge, skill and ability to perform such person’s duties with due diligence and care, and in a good and workmanlike manner satisfactory and acceptable in the industry. The Contractor has the duty to instruct, notify, train and equip its employees and contractors and the employees of any subcontractor as to competent, safe performance of the Work and shall at all times supervise same. Contractor shall have a safety program and routine safety training in place consistent with the best industry practices to ensure and instruct its personnel in maintaining a safe worksite. Contractor shall provide each employee, contractor, or subcontractor with personal protection equipment, in compliance with law including but not limited to providing flame resistant clothing to each person at any time a hazardous condition warrants the use of such clothing. The foregoing is a material provision of this agreement and Contractor’s breach of this subparagraph 8(A) shall be a material breach. In addition to the right to terminate any work then in progress, CONTRACTOR SHALL BE LIABLE TO AND SHALL INDEMNIFY AND DEFEND COMPANY FOR ANY AND ALL ACTUAL DAMAGES AND COSTS INCURRED BY COMPANY GROUP RESULTING FROM CONTRACTOR’S BREACH OF THIS SUBPARAGRAPH 8(A), INCLUDING ANY COSTS AND DAMAGES FOR WHICH COMPANY MUST INDEMNIFY CONTRACTOR GROUP FOR UNDER PARAGRAPH 6 ABOVE BUT EXCLUDING ANY COSTS AND DAMAGES FOR WHICH COMPANY MUST INDEMNIFY CONTRACTOR GROUP FOR UNDER PARAGRAPH 6(B) ABOVE.

(B) The Contractor shall be liable at all times for damages to or destruction of the Contractor’s equipment and


materials and hereby waives any claim against any member of Company Group for same, even if such damage or destruction is caused in whole or in part by the negligence of any member of Company Group. Any insurance policy covering owned or rented equipment or materials of the Contractor or its subcontractors (including, but not limited to, vehicles, rigs, mobile equipment, platforms, machinery, appliances and tools of any type) against loss by physical damage or theft, shall include an endorsement waiving the insurer’s right of subrogation in favor of the Company. Verification of this waiver shall be included on the Certificates of Insurance. Any renewal of the Certificates of Insurance shall contain this waiver.

9. Company’s Equipment . The Company shall be liable at all times for damages to or destruction of the Company’s equipment and materials and hereby waives any claim against any member of Contractor Group for same, even if such damage was caused by the negligence of any member of Contractor Group. Notwithstanding the foregoing, the Contractor shall examine all equipment, machinery, tools or other items furnished by the Company which are directly employed during the course of the Work. If defects come to the Contractor’s attention, then the Contractor shall immediately notify the Company of such defect or defects and shall not use the item until the defect is removed. Other than for damage or destruction of the material or equipment, the Contractor shall be deemed to have assumed all risk and liability for any mishap which may occur in connection with the use of equipment, machinery, tools or other items furnished by Company.

10. Taxes, Compliance with Law . The

Contractor agrees to obtain all permits and licenses required for the Contractor’s performance of Work under this Agreement and to pay all taxes, licenses, and fees levied or assessed on the Contractor in connection with or incident to the performance of this Agreement by any governmental agency. The Contractor agrees to require the same of its subcontractors and to be liable for any of its

subcontractors’ failures to satisfy these requirements. The Contractor agrees to reimburse the Company on demand for all such taxes or governmental charges, state or federal, which the Company may be required or deem it necessary to pay. The Company is authorized to deduct all sums so paid for such taxes and governmental charges from such amounts as may be or become due to the Contractor. Contractor shall comply with all applicable laws, ordinances, permits, rules, regulations and lease or agreement provisions. The Contractor agrees to comply with federal and state laws (including labor laws, ordinances and rules, regulations and orders of governmental agencies) applicable to Work performed under this Agreement.

11. Independent Contractor . The Contractor shall be an independent contractor with respect to the performance of all Work hereunder, and neither the Contractor nor anyone employed by the Contractor shall be deemed for any purpose to be the employee, agent, servant, or representative of the Company. The Company shall have no direction or control of the Contractor or its employees and agents except in the results to be obtained. The Work contemplated herein shall meet the approval of the Company and be subject to the general right of inspection for the Company to secure its satisfactory completion. The actual performance and supervision of all Work hereunder shall be by the Contractor, but the Company or its representatives shall have unlimited access to the operations to determine whether Work is being performed in accordance with all the provisions of this Agreement and any Work Order. The Contractor agrees to accept full and exclusive liability for the payment of any and all premiums, contributions, and taxes for Workers’ Compensation Insurance, Unemployment Insurance, health insurance, pensions, annuities and retirement benefits, now or hereafter imposed by or pursuant to federal and state laws, whether or not measured by the wages, salaries or other remuneration paid to persons employed by the Contractor in connection with the performance of the Work; and THE CONTRACTOR FURTHER AGREES TO INDEMNIFY AND HOLD THE COMPANY AND ALL OTHER INDEMNITEES HARMLESS AGAINST ANY LIABILITY FOR TAXES, CONTRIBUTIONS, OR OTHER SUCH PAYMENTS WHICH MAY BE


ASSESSED AGAINST THE COMPANY BY VIRTUE OF CONTRACTOR’S WORK HEREUNDER.

12. Default or Delay . In the event the Contractor shall unreasonably delay the performance of the Work or otherwise fail to fully perform its obligations hereunder, the Company, at its election and without prejudice to any other right or remedy, may either immediately terminate this Agreement for cause or, take over Contractor’s equipment and complete the job and pay the Contractor the reasonable value of all Work theretofore done and all materials theretofore furnished, which shall not exceed the contractual price agreed upon less any actual costs incurred by the Company to complete the Work. These remedies shall not be exclusive, however, and the exercise thereof shall not be deemed to constitute a waiver of any other rights or remedies which Company may have under applicable law in the event of Contractor’s default.

13. Hazardous Substances . It is specifically understood that the Work may involve exposure to hazardous substances, including but not limited to hydrogen sulfide gas, commonly known as sour gas. The Contractor has the duty to test, notify, provide appropriate safety equipment for and train its employees and the employees of any subcontractor as to these exposures. The Contractor has the duty to monitor a safety program addressing these points when these exposures exist and will insist that all safety measures be carried out by all such employees. The Contractor will require that all such employees wear appropriate safety equipment when the Work contemplates exposure to hazardous substances.

14. Waste . The Contractor agrees to assume responsibility for and to properly handle and dispose of all wastes generated by it in performance of the Work and to report all spills or releases to the Company immediately. Contractor will keep records of the volume and nature of all wastes generated and their disposition and shall provide such records to the Company upon request. The Contractor agrees to require the same of its subcontractors and to be liable for any of its subcontractor’s failure to comply with these requirements. CONTRACTOR SHALL INDEMNIFY COMPANY GROUP FROM ANY ACTION, CLAIM,

PENALTY, FINE, INCLUDING BUT NOT LIMITED TO ANY COSTS OF TESTING AND MONITORING, IMPOSED BY A STATE OR FEDERAL AGENCY FOR CONTRACTOR’S VIOLATION OF THIS PARAGRAPH 14.

15. Force Majeure . Neither the Company nor the Contractor shall be liable to the other for any delays or damages or any failure to act due, occasioned or caused by reason of federal or state laws or the rules, regulations or orders of any public body or official purporting to exercise authority or control respecting the Work, including the use of tools and equipment; area-wide industry strikes; Acts of God; unusually adverse weather, such as tornado or hurricane; or other extreme or unusual causes beyond the control of the Parties affected hereby. Such delays shall not be deemed to be a breach of or failure to perform under this Agreement if the party experiencing such force majeure delay notifies the other party promptly in writing of the cause for the delay, specifies therein that it is claiming a force majeure delay, and estimates therein the probable duration thereof. The party claiming a force majeure event shall take all reasonable action to remove the cause of the force majeure delay.

16. Patents . Contractor represents and warrants that the use or construction of any and all tools, equipment, and other materials furnished by Contractor and used in the work provided under any Work Order or this Agreement will not infringe upon any license or patent issued to or applied for, and CONTRACTOR AGREES TO PROTECT, DEFEND, AND INDEMNIFY COMPANY GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER IN FAVOR OF OR MADE BY ANY PATENTEE, LICENSEE, OR CLAIMANT OF ANY RIGHTS OR PRIORITY TO SUCH TOOL OR EQUIPMENT, OR THE USE OR CONSTRUCTION THEREOF, THAT MAY RESULT FROM OR ARISE OUT OF FURNISHING OR USE OF ANY SUCH TOOLS, EQUIPMENT, AND OTHER MATERIALS BY CONTRACTOR IN CONNECTION WITH SUCH WORK.

17. Notice . All notices to be given with respect to this Agreement and applicable Work Orders, unless otherwise expressly provided for, shall be in writing and sent or delivered to the Company and to the Contractor, respectively,


at the addresses below (which may be changed at any time by providing written notice as provided herein), Certified Mail, Return Receipt Requested . Notices so sent shall be deemed given upon the earlier of actual receipt or the third day following deposit with the U. S. Postal Service. All other methods of delivery of a written notice, including by fax, email, overnight courier or otherwise, will be effective only when actually received by the intended recipient.

18. Assignment . This Agreement, including payments accruing hereunder, shall not be assigned without the written consent of the Company. Notwithstanding the foregoing, Contractor may assign its interest hereunder to the extent Contractor sells all or a majority of its corporate securities or assets by providing notice to Company of same. No assignment hereunder shall relieve Contractor of its duties or liabilities under this Agreement and any Work performed by such an Assignee of Contractor shall evidence Contractor and Assignee’s joint and several liability hereunder.

19. Severability . If any provision herein is invalid or unenforceable in any jurisdiction, the other provisions herein shall remain in full force and effect in such jurisdiction and the remaining provisions herein shall be liberally construed in order to effectuate the intent of the invalid or unenforceable provision. A determination that any provision is invalid or unenforceable in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction.

20. Miscellaneous .

(A) Record Keeping . For the purposes of permitting verification by the Company of any amounts paid to or claimed by the Contractor, the Contractor shall keep and preserve, for not less than two (2) years from date of invoice all general ledgers, work orders, receipts, disbursements journals, bids, bid proposals, price lists, and supporting documentation obtained from manufacturers and suppliers in connection with performance of the Work (these items are collectively called “items”). At any time upon 24 hours advance notice to

the Contractor, the Company or its agents or representatives, including accountants, may, during regular business hours, examine or audit the items for which Company is invoiced for reimbursement.

(B) Reports. Contractor shall provide to Company an oral report, confirmed in writing as soon as practicable, of all accidents or occurrences resulting in death or injuries to Contractor’s employees, subcontractors, or any third parties, damage to Company’s property, or physical damage to the property of Contractor or any third party, arising out of or during the course of Work to be performed. Contractor shall furnish Company with a copy of all reports made by Contractor to Contractor’s insurer, governmental authorities, or to others of such accidents or occurrences.

(C) Successors and Assigns . This Agreement shall inure to and be binding upon the Parties hereto and their legal representatives, heirs, successors and permitted assigns.

(D) Payment Terms . Regardless of any contrary provision in any credit application or other agreement, Company agrees to pay Contractor for any Work at the rates set forth in the applicable work order or purchase order. Contractor shall promptly invoice Company upon the completion of any Work, but in any event shall invoice Company (i) at least once every ninety (90) days and (ii) within thirty (30) days following completion of all of the Work under any applicable work order or purchase order, and (iii) in the unlikely event that Work is completed without an applicable work order or purchase order, within ten (10) days of completion of such Work at Contractor’s best rates in the geographical area where the Work was completed. Company shall remit full payment of all undisputed portions of any and all invoices in full in United States funds by check, bank draft, money order, or bank/wire transfer payable to Contractor at its offices (or


bank account) within sixty (60) days following actual receipt of Contractor's invoice. In the event Company has a bona fide question or dispute concerning a Contractor invoice or a portion thereof, Company may withhold the disputed portion of the payment only. Company shall give written notice of any disputed amounts to Contractor specifying the reasons therefore within sixty (60) days after receipt of the applicable invoice.

(E) No delay . In no case (unless otherwise directed in writing by the Company) shall any claim or dispute, whether or not involving litigation, permit the Contractor to delay or discontinue any of the Work hereunder, but rather the Contractor shall diligently pursue the Work hereunder while awaiting the resolution of any dispute or claim; provided, however, that the Company shall not withhold, pending the resolution of any claim or dispute, the payment of any undisputed sum otherwise due Contractor under this Agreement.

(F) Attorney’s Fees . If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which it may be entitled.

(G) Counterparts . This Agreement may be executed in multiple counterparts, each of which shall, for all purposes, be deemed an original but which together shall constitute one and the same instrument.

(H) Confidentiality . Information obtained by the Contractor in the conduct of its Work under this Agreement or any Work Order shall be considered and treated as confidential and shall not be divulged by the Contractor or any of its employees to any third party without Company’s written permission.

(I) Choice of Law . This Agreement shall

be governed by and construed in accordance with the laws of the State of Texas without regard to its choice of law provisions. Venue for any dispute arising under this Agreement shall lie solely in Midland County, Texas, the county in which the parties entered into this Agreement.

(J) NO LACK OF NOTICE . BOTH PARTIES AGREE THAT THE AGREEMENT COMPLIES WITH THE REQUIREMENTS, KNOWN AS THE EXPRESS NEGLIGENCE AND CONSPICUOUSNESS RULES, TO EXPRESSLY STATE IN A CONSPICUOUS MANNER TO AFFORD FAIR AND ADEQUATE NOTICE THAT THIS AGREEMENT HAS PROVISIONS REQUIRING ONE PARTY TO BE RESPONSIBLE FOR THE NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANOTHER PERSON OR ENTITY. BOTH PARTIES REPRESENT TO EACH OTHER THAT THEY HAVE CONSULTED AN ATTORNEY CONCERNING THIS AGREEMENT OR, IF THEY HAVE NOT CONSULTED WITH AN ATTORNEY, THAT THEY WERE PROVIDED THE OPPORTUNITY AND HAD THE ABILITY TO SO CONSULT, BUT MADE AN INFORMED DECISION NOT TO DO SO; AND THEY FULLY UNDERSTAND THEIR RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT.

21. Added Special Provisions .

(A) Drugs, Alcohol & Firearms . To help ensure a safe, productive work environment, Company prohibits the use, transportation and possession of firearms, drugs and/or controlled substances, drug paraphernalia and alcoholic beverages on the Company’s premises. Illegal drugs shall include, but not be limited to, marijuana, amphetamines, barbiturates, opiates, cocaine, codeine, morphine, hallucinogenic substances (LSD) and any similar drugs and/or chemical synthetics deemed hazardous by Company. Such prohibitions shall apply to Contractor and its employees, agents, servants and subcontractors. Contractor’s employees, agents,


contractors and invitees shall abide the more stringent of Contractor’s or Company’s drug, alcohol and firearm policy. Company may request that Contractor carry out drug and alcohol tests of its employees and/or that Contractor carry out reasonable searches of individuals, their personal effects and vehicles when entering on and leaving Company’s premises at any time, at scheduled times, or at random. Individuals found in violation shall be removed from Company’s premises by Contractor immediately. Submission to such a search is strictly voluntary, however, refusal may be cause for not allowing that individual on the well site or Company’s other premises. Contractor shall (1) test at Contractor’s expense any individual involved in or related to an accident or injury on Company’s premises within twelve (12) hours of such accident or injury and (2) submit to Company any drug or alcohol test results for any individual involved in or related to an accident or injury on Company’s premises. It is Contractor’s responsibility to notify its employees, contractors, subcontractors, agents and invitees of this prohibition, the provisions of this paragraph and its enforcement and obtain any acknowledgement or release from any person in order to comply with this provision and applicable law.

(B) Contractor’s Equipment & Materials on Company’s Premises. Contractor is responsible for retrieving and removing its equipment and materials from Company’s premises or worksite following completion of the Work. Contractor shall promptly remove its equipment, materials, tools and supplies from Company’s location and may not store any equipment, materials, tools or supplies on any lease or at any yard operated or owned by Company, unless done so with Company’s express written consent and then only for the term specified therein. Any equipment, materials, tools or

supplies of Contractor not removed within thirty (30) days of written demand by Company shall (i) incur storage costs at Company rates upon demand and (ii) if said storage costs are not promptly paid when due and/or the equipment or material remains on Company’s location ten (10) days following Company’s second written notice for removal, be removed by Company, at Contractor’s sole expense, and disposed of. Company shall have no liability to Contractor for loss or damage thereto.

(C) Factoring . To the greatest extent allowed by applicable law, the anti-assignment provision provided above prohibits factoring of the Contractor’s invoices. In the event that Contractor enters into any relationship to factor its invoices despite such provision: (i) Contractor shall be in material breach of this Agreement entitling Company to terminate this Agreement for cause (without waiving any other remedy afforded to Company hereunder, in equity or by law), (ii) each invoice that is factored shall be a separate breach, and (iii) the failure of Company to immediately declare such event a breach or terminate this Agreement shall not be deemed a waiver of such breach or otherwise prevent Company from enforcing any such breach or future breach. In the event that Contractor enters into any relationship to factor its invoices despite such provision or in the event applicable law prohibits a limitation on assigning a right to receive payment: (iv) Contractor shall provide immediate written notice to Company of the factoring relationship when entered, (v) Contractor shall ensure that the factor’s right to payment is at all times subject to the terms of this Agreement and any Work Order between Company and Contractor, and (vi) CONTRACTOR WAIVES ANY CLAIM IT MAY HAVE AGAINST COMPANY AND SHALL FURTHER INDEMNIFY, DEFEND AND HOLD COMPANY HARMLESS FROM ANY AND


ALL COSTS, ATTORNEY’S FEES, EXPENSES, DAMAGES, CLAIMS AND ALL OTHER AMOUNTS INCURRED BY COMPANY AS A RESULT OF OR IN ANY WAY RELATED TO CONTRACTOR’S FACTORING OF ITS INVOICES, INCLUDING, WITHOUT ANY LIMITATION, ANY AMOUNTS CLAIMED BY CONTRACTOR TO HAVE BEEN WRONGFULLY PAID TO ITS FACTOR AND/OR ANY AMOUNTS DUE CONTRACTOR’S SUBCONTRACTORS OR SUPPLIERS FOR WHICH PAYMENT IS INCLUDED IN ANY PAYMENT MADE TO CONTRACTOR’S FACTOR. If Company receives any notification that a right to payment has been assigned and that payment is to be made to the assignee (the “factor”), Company shall forward such notification to Contractor and thereafter immediately begin making any payment due Contractor hereunder to the factor. If the Company receives written notice

from Contractor that Contractor disputes the factor’s right to receive payment(s) due Contractor hereunder, Company may, at its election, hold all such payments due the factor or Contractor hereunder in suspense until receipt of joint instruction from the factor and the Contractor, interplead the funds into a court registry in Midland County, Texas and thereafter be relieved of all liability therefore, or may, if done under the advice of counsel, continue to pay the factor until such time as Contractor obtains an order from a court of competent jurisdiction relieving Company of the obligation to pay the factor. No rights or defenses of Company under this Agreement shall be waived by any action or inaction or any oral agreement; all such rights and defenses may only be waived by Company in writing specifying specifically such waiver and identifying this paragraph by number.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the day and year first written above.

COMPANY: ADDRESS FOR NOTICE AND INVOICING:

CAPITAN ENERGY, INC.,a Texas Corporation

By:_____________________________ P. O. Box 2476Name:___________________________ Carlsbad, New Mexico 88221-2746Title:____________________________ Attn: ____________________________

CONTRACTOR: ADDRESS FOR NOTICE AND PAYMENT:

__________________________a(n) ____________________________ __________________________By:_____________________________ __________________________Name:___________________________Title:____________________________ Attn: ____________________________


EXHIBIT “A”

A. Statutory Workers’ Compensation Insurance and Employer’s Liability Insurance in full compliance with applicable State and Federal laws and regulations where the Work is to be performed. This policy shall include a waiver of subrogation in favor of the indemnities (as defined in the Agreement). The Employer’s Liability Insurance shall have minimum limits of:

$1,000,000 Each Accident$1,000,000 Disease — Policy Limit$1,000,000 Disease — Each Occurrence

B. Commercial General Liability Insurance with minimum limits of:$1,000,000 Per occurrence$2,000,000 General aggregate$1,000,000 Products/completed operations aggregate

The policy will be on a form acceptable to the Company, be endorsed to include the indemnitees as additional insureds, include a waiver of all rights of subrogation against the indemnitees and state that this insurance is primary as regards any other insurance carried by any indemnitee. The policy will include the following coverages:

I. Surface Damage for Blowout or Explosion;II. Premises/Operations;III. Independent Contractors;IV. Broad Form Contractual Liability (insuring the indemnity obligations in the Agreement);V. Completed Operations Coverage and/or Products Liability Coverage for a period of two (2) years

following the date of the final completion of the Work for each job performed;VI. Underground Property Damage Coverage; andVII. Personal Injury Liability.

C. Comprehensive Commercial Automobile Liability Insurance with minimum limits of $1,000,000 combined single limit. The policy shall be on a standard form written to cover all owned, hired and non-owned automobiles, be endorsed to include the indemnitees as additional insureds, include a waiver of all rights of subrogation against the indemnitees and state that this insurance is primary insurance as regards any other insurance carried by any indemnitee.

D. Umbrella Liability Insurance written on a following form umbrella excess basis above A, B and C with minimum limits of $5,000,000. This policy shall be endorsed to include the indemnitees as additional insureds and include a waiver of all rights of subrogation against the indemnitees.

E. If the Contractor performs work or renders services in, on or with relation to navigable waters, the Contractor shall carry insurance as set forth on Attachment “1” to this Exhibit “A” attached hereto and made a part herein for all purposes.

F. The Contractor will require all of its subcontractors to procure insurance coverage (including all endorsements and waivers) as that required of the Contractor under the Agreement.

G. In the event Contractor is a self-insurer and the Company has consented to the Contractor being a self-insurer as to any one or more of the risks to which coverage is herein required, evidence of such consent must be in writing and approved by a representative of the Company authorized to enter into such consent agreement. Furthermore, if the Contractor (or any of its subcontractors) self-insures a risk as set forth in this section, the Contractor (or any of its subcontractors) hereby waives any claim for damage or loss as to that risk in favor of the indemnities.

Evidence of the above coverage, or self-insurance, represented by Certificates of Insurance, or documents verifying the self-insurance, must be furnished to the Company prior to the Contractor starting Work. Certificates of


Insurance shall specify the additional insured status mentioned above as well as waiver of subrogation. Such Certificates of Insurance shall state that the Company will be notified in writing thirty (30) days prior to cancellation, material change or non-renewal of insurance. Renewal Certificates of Insurance will be furnished thirty (30) days prior to expiration of any coverage and will comply with the requirements stated above. It is expressly understood that the self-insurance permitted above does not contemplate the revocation of any State Workers’ Compensation Act and does not relieve the Contractor (or any of its subcontractors) of its statutory obligations under such Act.


ATTACHMENT “1”TO

EXHIBIT “A”

Insurance Requirements Applicable toContractors who Perform Work or Render Services

in, on or with Relation to Navigable Water

1. Workers’ Compensation and Employer’s Liability

a. Compliance with the United States Longshoreman’s and Harbor Worker’s Compensation Act, as amended, including protection with respect to the extension of said Act under the Outer Continental Shelf Lands Act.

b. Maritime Liability coverage as provided for under the Jones Act and Death on the High Seas Act, with coverage for transportation, wages, maintenance and cure, with limits of $500,000 each person and $500,000 each accident.

2. Commercial General Liability providing coverage and conditions outlined in Section 7.B of the Agreement, in addition to the following:

a. Endorsement providing claim “in rem” shall be treated as a claim against the insured.b. Policy territory to include Gulf of Mexico (or other offshore if applicable).c. Deletion of Watercraft exclusion from General Liability and Contractual Liability coverage part

for watercraft exposure not covered by P & I policy in item 4 below.

3. Hull and Machinery Insurance in an amount less than the actual value of each vessel owned or chartered by Contractor and used in performing work or rendering services under this Agreement. Said insurance shall include full Tower’s Liability with the Sistership Clause unamended.

4. Protection and Indemnity Insurance on the Standard Ocean Form (SP 23) (or equivalent) in amounts of not less than $1,000,000.00, including coverage for crew (where coverage under Worker’s Compensation laws is not applicable), employees of the owner, passengers and third parties.

5. Full Collision Liability Insurance with Sistership Clause unamended, with a total minimum limit of $1,000,000.00.

6. Vessels in U.S. waters must certify that vessel owners and/or operators are in compliance with Federal Water Pollution Control Act, as amended, and Water Quality Improvement Act of 1970.

7. The insurance coverage described in this Attachment “1” to Exhibit “A” shall include a waiver of subrogation in favor of the indemnitees. The insurance policies under Subsections 2, 3 and 4 of the Attachment “1” to Exhibit “A” shall include appropriate navigation limits covering all work places. Policies carried by owners of vessels chartered by Contractor shall satisfy the requirements of Subsections 2, 3 and 4 of this Attachment “1” to Exhibit “A” provided they afford Contractor and Company full protection and meet the requirements hereof in all other respects. The insurance policies under Subsections 2, 3 and 4 of this Attachment “1” to Exhibit “A” shall include the indemnitees as additional insureds, and state that this insurance is primary insurance as regards any other insurance carried by any indemnitees.


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