LA\2674271.3

SECOND AMENDED AND RESTATED OPERATING AGREEMENT

FOR

SANTA MARIA ENERGY, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY

TABLE OF CONTENTS

Page ARTICLE 1: DEFINITIONS ........................................................................................................... 1 ARTICLE II: ORGANIZATION .................................................................................................... 5

2.1 Articles of Organization .......................................................................................... 5 2.2 Name of Company ................................................................................................... 5 2.3 Address of Company ............................................................................................... 5 2.4 Agent for Service of Process ................................................................................... 5 2.5 Business Purpose ..................................................................................................... 5 2.6 Limited Liability Company ..................................................................................... 6 2. 7 Term of Company's Existence ................................................................................ 6 2.8 Manager. .................................................................................................................. 6

ARTICLE III: CAPITAL AND CAPITAL CONTRIBUTIONS .................................................... 6 3.1 Additional Contributions ......................................................................................... 6 3.2 Capital Accounts ...................................................................................................... 6 3.3 Withdrawals ............................................................................................................. 7 3.4 No Interest. .............................................................................................................. 7 3.5 Limited Liability ...................................................................................................... 7

ARTICLE IV: ALLOCATIONS AND DISTRIBUTIONS ............................................................ 7 4.1 Allocation of Profits and Losses .............................................................................. 7 4.2 Definition of "Profits and Losses" ........................................................................... 8 4.3 Special Allocations -- Definitions ........................................................................... 8 4.4 Certain Special Allocations ..................................................................................... 9 4.5 Allocations of Member Nonrecourse Deductions ................................................. 10 4.6 Allocations of Profits from Capital Events ............................................................ 10 4. 7 Allocations of Losses from Capital Events ........................................................... 10 4.8 Allocations Respecting Asset Distributions .......................................................... 1 0 4.9 Allocations Respecting Contributed Property ....................................................... 10 4.10 Allocations Between Assignor and Assignee ........................................................ 11 4.11 Revaluation of Company Assets ............................................................................ 11 4.12 Compliance with Law and Regulations ....................................... .......................... 11 4.13 Distribution of Available Cash from Business Operations ................................... 11 4.14 Distribution of Available Cash from Capital Events ............................................. 12 4.15 Distribution ofNoncash Proceeds ......................................................................... 12 4.16 Distribution of Liquidating Proceeds .................................................................... 12

ARTICLE V: MANAGEMENT ................................................................................................... 12 5.1 Member as Member-Manager. .............................................................................. 12 5.2 Officers of the Company ....................................................................................... 12 5.3 Authority of Officers ............................................................................................. 14 5.4 Title to Assets ........................................................................................................ 14 5.5 Banking .................................................................................................................. 14

ARTICLE VI: ACCOUNTS AND ACCOUNTING .................................................................... 15 6.1 Accounts ................................................................................................................ 15 6.2 Accounting ............................................................................................................. 15 6.3 Records .................................................................................................................. 15 6.4 Financial Statements .............................................................................................. 15

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6.5 Income Tax Returns ............................................................................................... 16 6.6 Tax Matters Partner ............................................................................................... 16 6.7 Authority to be Exercised by Tax Matters Partner. ............................................... 16

ARTICLE VII: DISSOLUTION AND WINDING UP ................................................................ 16 7.1 Events of Dissolution ............................................................................................. 16 7.2 Winding Up ........................................................................................................... 17 7.3 Deficits ................................................................................................................... 17

ARTICLE VIII: INDEMNIFICATION ........................................................................................ 17 8.1 Indemnification ...................................................................................................... 17

ARTICLE IX: GENERAL PROVISIONS .................................................................................... 18 9.1 Entire Agreement; Amendment. ............................................................................ 18 9.2 Governing Law; Severability ................................................................................. 18 9.3 Binding Effect. ....................................................................................................... 18 9.4 Number and Gender. .............................................................................................. 19 9.5 Further Assurances ................................................................................................ 19 9.6 Member's Other Business ..................................................................................... 19 9. 7 Titles and Headings ............................................................................................... 19 9.8 Time of the Essence ............................................................................................... 19 9.9 No Third Party Beneficiary ................................................................................... 19

EXHIBIT "A" OFFICER APPOINTMENTS

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SECOND AMENDED AND RESTATED OPERATING AGREEMENT

OF SANTA MARIA ENERGY, LLC,

A CALIFORNIA LIMITED LIABILITY COMPANY

THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") is entered into as of April 1, 2012, by SANTA MARIA PACIFIC HOLDINGS, LLC, a Delaware limited liability company (the "Member"), with reference to the following facts.

RECITALS

A. The Company (as defined herein) was originally formed as a California limited liability company on May 25, 2006, and its members entered into that certain Operating Agreement of the Company dated on or about January 1, 2007, as subsequently amended by that certain First Amendment to Operating Agreement dated April 1, 2007 and that certain Second Amendment to Operating Agreement dated December 16, 2008 (collectively, the "Prior Operating Agreement").

B. The Member acquired all of the outstanding membership interests of the Company effective December 16, 2008, becoming the sole member of the Company.

C. The Company changed its name from "Gitte-Ten, LLC" to "Santa Maria Energy, LLC" as of March 28, 2012 pursuant to that certain Limited Liability Company Certificate of Amendment filed with the State of California on March 28, 2012.

D. Pursuant to that Certificate of Merger filed with the State of California on March 29, 2012 and effective as of March 31, 2012, and those certain Agreements of Merger between the Company and each ofthe Merged Entities (as defined below), each effective as ofMarch 31, 2012, the Company merged with the Merged Entities, with the Company being the surviving entity.

E. The Member now enters into this Agreement to amend, restate and supersede the prior Operating Agreement of the Company.

AGREEMENT

NOW THEREFORE, the Member agrees as follows:

ARTICLE 1: DEFINITIONS

Capitalized terms used in this Agreement have the meanings specified in this Article or elsewhere in this Agreement and when not so defined shall have the meanings set forth in Section 17001 of the Act.

1.1 "Act" means the Beverly-Killea Limited Liability Company Act (California Corporations Code § § 17000-17655), including amendments from time to time.

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1.2 "Adjusted Capital Account Deficit" is defined in Article IV, Section 4.3.1.

1.3 "Affiliate" of the Member means (1) any Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member. The term "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through membership, ownership of voting securities, by contract, or otherwise.

1.4 "Agreement" means this Second Amended and Restated Operating Agreement, as originally executed and as amended from time to time.

1.5 "Articles of Organization" is defined in Section 17001(b) of the Act, as applied to the Company.

1.6 "Assignee" means a person who has acquired an Economic Interest in the Company, by way of a Transfer in accordance with the terms of this Agreement, but who has not become a Member.

1.7 "Available Cash" means all net revenues from the Company's operations, including net proceeds from all sales, refinancings, and other dispositions of Company property that the Member-Manager, in the Member-Manager's sole discretion, deems in excess of the amount reasonably necessary for the operating requirements of the Company, including debt reduction and Reserves.

1.8 "Book Depreciation" is defined in Article IV, Section 4.3.2.

1.9 "Capital Account" means, with respect to the Member, the account reflecting the capital interest of the Member in the Company, consisting of the Member's initial Capital Contribution maintained and adjusted in accordance with Article III, Section 3 .2.

1.10 "Capital Contribution" means, with respect to any Member, the amount of the money and the Fair Market Value of any property (other than money) contributed to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take "subject to" under IRC Section 752) in consideration of the Percentage Interest held by the Member. A Capital Contribution shall not be deemed a loan.

1.11 "Capital Event" means a sale or disposition of any of the Company's capital assets, the receipt of insurance and other proceeds derived from the involuntary conversion of Company property, the receipt of proceeds from a refinancing of Company property, or a similar event with respect to Company property or assets.

1.12 "Code" or "IRC" means the Internal Revenue Code of 1986, as amended, and any successor provision.

1.13 "Company" means the company named m Article II, Section 2.2 of this Agreement.

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1.14 "Company Minimum Gain" is defined in Article IV, Section 4.3.3.

1.15 "Corporations Code" ("Corp C") means the California Corporations Code.

1.16 "Economic Interest" means a Person's right to share in the income, gains, losses, deductions, credit or similar items of, and to receive distributions from, the Company, but does not include any other rights of the Member, including the right to vote or to participate m management.

1.17 "Encumber" means the act of creating or purporting to create an Encumbrance, whether or not perfected under applicable law.

1.18 "Encumbrance" means, with respect to any Membership Interest, or any element thereof, a mortgage, pledge, security interest, lien, proxy coupled with an interest (other than as contemplated in this Agreement), option, or preferential right to purchase.

1.19 "Gross Asset Value" means, with respect to any item of property of the Company, the item's adjusted basis for federal income tax purposes, except as follows:

(a) The initial Gross Asset Value of any property contributed by the Member to the Company shall be the fair market value of such property, as determined by the Member;

(b) The Gross Asset Value of any item of Company property distributed to the Member shall be the fair market value of such item of property on the date of distribution; and

(c) The Gross Asset Value of any item of Company property shall be subject to the adjustments specified in Article IV, Section 4.11.

1.20 "Holdco LLC Agreement" means the Limited Liability Company Agreement of Santa Maria Pacific Holdings, LLC, a Delaware limited liability company, as may be amended from time to time.

1.21 "Involuntary Transfer" means, with respect to any Membership Interest, or any element thereof, any Transfer or Encumbrance, whether by operation of law, pursuant to court order, foreclosure of a security interest, execution of a judgment or other legal process, or otherwise, including a purported transfer to or from a trustee in bankruptcy, receiver, or assignee for the benefit of creditors.

1.22 "Kayne Investors" is defined in the Holdco LLC Agreement.

1.23 "Loss" is defined in Article IV, Section 4.2.

1.24 "Member" means the Person identified as such in the preamble to this Agreement, who is the sole member of the Company.

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1.25 "Member-Manager" means the Member, acting in its capacity as the sole manager of the Company in accordance with Article II, Section 2.8 and Article V.

1.26 "Member Nonrecourse Debt" is defined in Article IV, Section 4.3.4.

1.27 "Member Nonrecourse Debt Minimum Gain" is defined in Article IV, Section 4.3.5.

1.28 "Member Nonrecourse Deductions" is defined in Article IV, Section 4.3.6.

1.29 "Membership Interest" means the Member's rights in the Company, collectively, including the Member's Economic Interest, the right to participate in management, and any right to information concerning the business and affairs of the Company.

1.30 "Merged Entities" means and includes: (a) Escolle Properties, LLC; (b) NW Casmalia Properties, LLC; (c) Orcutt Properties, LLC; (d) Santa Maria Valley Properties, LLC; and (e) Santa Maria Pacific, LLC, each, a California limited liability company.

1.31 "Nonrecourse Deductions" is defined in Article IV, Section 4.3.7.

1.32 "Nonrecourse Liability" is defined in Article IV, Section 4.3.8.

1.33 "Notice" means a written notice required or permitted under this Agreement. A notice shall be deemed given or sent when deposited, as certified mail or for overnight delivery, postage and fees prepaid, in the United States mails; when delivered to Federal Express, United Parcel Service, DHL WorldWide Express, or Airborne Express, for overnight delivery, charges prepaid or charged to the sender's account; when personally delivered to the recipient; when transmitted by electronic means, and such transmission is electronically confirmed as having been successfully transmitted; or when delivered to the home or office of a recipient in the care of a person whom the sender has reason to believe will promptly communicate the notice to the recipient.

1.34 "Person" means an individual, partnership, limited partnership, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.

1.35 "Preferred Units" is defined in the Holdco LLC Agreement.

1.36 "Profits" and "Losses" are defined in Article IV, Section 4.2.

1.37 "Prior Operating Agreement" is defined in the recitals hereto.

1.38 "Redemption" is defined in the Holdco LLC Agreement.

1.39 "Regulations" ("Reg") means the income tax regulations promulgated by the United States Department ofthe Treasury and published in the Federal Register for the purpose of interpreting and applying the provisions of the Code, as such Regulations may be amended from time to time, including corresponding provisions of applicable successor regulations.

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1.40 "Reserves" means the aggregate of reserve accounts that the Member-Manager, in the Member-Manager's sole discretion, deems reasonably necessary to meet accrued or contingent liabilities of the Company, reasonably anticipated operating expenses, and working capital requirements.

1.41 "Successor in Interest" means an Assignee, a successor of a Person by merger or otherwise by operation of law, or a transferee of all or substantially all of the business or assets of a Person.

1.42 "Tax Item" means each item of income, gain, loss, deduction, or credit, or item thereof, of the Company.

1.43 "Tax Matters Partner" means such Person as may be designated under Article VI, Section 6.6.

1.44 "Transfer" means, with respect to a Membership Interest or any element of a Membership Interest, any sale, assignment, gift, Involuntary Transfer, Encumbrance, or other disposition of such a Membership Interest or any element of such Membership Interest, directly or indirectly, other than an Encumbrance that is expressly permitted under this Agreement.

ARTICLE II: ORGANIZATION

2.1 Articles of Organization.

The Member-Manager previously caused Restated Articles of Organization to be filed with the California Secretary of State.

2.2 Name of Company.

The name of the Company is Santa Maria Energy, LLC.

2.3 Address of Company.

The principal executive office of the Company shall be 2811 Airpark Drive, Santa Maria, California, 93455 or such other place or places as may be determined by the Member-Manager from time to time.

2.4 Agent for Service of Process.

The Company shall at all times maintain an agent for service of process on the Company in California. The Member-Manager may from time to time change the Company's agent for service ofprocess.

2.5 Business Purpose.

The primary nature and purposes of the business to be conducted by the Company are: (i) to acquire, develop, own, and to that end hold, improve, mortgage, maintain, refinance, manage, lease and dispose of oil, gas and mineral leasehold interests; (ii) to engage in the

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development and production of oil and gas resources under such leasehold interests; (iii) to hold, acquire and sell, as investment property, publicly traded securities, interests in a closely held corporation, partnership, limited liability company or trust, or other entity; and (iv) to do all things and engage in such other activities related or incidental thereto as are reasonable or necessary to accomplish such purposes, all consistent with the lawful activities for which a limited liability company may be organized under the laws of the State of California.

2.6 Limited Liability Company.

The Member intends the Company to be a limited liability company under the Act.

2.7 Term of Company's Existence.

The term of existence of the Company shall continue until terminated by the provisions of this Agreement or as provided by law.

2.8 Manager.

The Member shall be the sole manager of the Company and shall, in such capacity, be referred to as the "Member-Manager."

ARTICLE III: CAPITAL AND CAPITAL CONTRIBUTIONS

3.1 Additional Contributions.

The Member shall not be required to make any additional Capital Contributions.

3.2 Capital Accounts.

A Capital Account for the Member shall be maintained and adjusted in accordance with the following provisions:

3.2.1 The Member's Capital Account shall be increased by the Member's Capital Contributions, Profits, and any items in the nature of income or gain that are specially allocated to that Member pursuant to Article IV.

3.2.2 The Member's Capital Account shall be increased by the amount of any Company liabilities assumed by that Member subject to and in accordance with the provisions of Reg. § 1. 704-l(b )(2)(iv).

3.2.3 The Member's Capital Account shall be decreased by (a) the amount of cash or property distributed to the Member; (b) the Fair Market Value of any property of the Company so distributed, net of liabilities secured by such distributed property that the Member is considered to assume or to be subject to under IRC section 752; and (c) the amount of any items in the nature of expenses or losses that are specially allocated to the Member pursuant to Article IV.

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3.2.4 The Member's Capital Account shall be reduced by the Member's share of any expenditures of the Company described in IRC section 705(a)(2)(8) or which are treated as IRC section 705(a)(2)(8) expenditures pursuant to Reg section 1.704-l(b)(2)(iv)(i) (including syndication expenses and losses nondeductible under IRC sections 267(a)(l) or 707(b)).

3.2.5 If any Economic Interest (or portion thereof) is transferred, the transferee of such Economic Interest or portion shall succeed to the transferor's Capital Account attributable to such interest or portion.

3.2.6 The principal amount of a promissory note that is not readily traded on an established securities market and that is contributed to the Company by the maker of the note shall not be included in the Capital Account of any Person until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Reg section 1.704-l(b)(2)(iv)(d)(2).

3.2.7 The Member's Capital Account shall be increased or decreased as necessary to reflect a revaluation of the Company's property assets in accordance with the requirements of Reg sections 1.704-1(b)(2)(iv)(f) and 1.704-1(b)(2)(iv)(g), including the special rules under Reg. section 1.701-1 (b)(4), as applicable. The provisions of this Agreement respecting the maintenance of Capital Accounts are intended to comply with Reg section 1. 704-1 (b) and shall be interpreted and applied in a manner consistent with those Regulations.

3.3 Withdrawals.

The Member shall not be entitled to withdraw any part of the Member's Capital Contribution or to receive any distributions, whether of money or property, from the Company except as provided in this Agreement

3.4 No Interest.

No interest shall be paid on Capital Contributions or on the balance of the Member's Capital Account

3.5 Limited Liability.

The Member shall not be bound by, or be personally liable for, the expenses, liabilities, or obligations of the Company except as otherwise provided in the Act or in this Agreement.

ARTICLE IV: ALLOCATIONS AND DISTRIBUTIONS

4.1 Allocation of Profits and Losses.

The Profits and Losses of the Company and all items of Company income, gain, loss, deduction, or credit shall be allocated, for Company book purposes and for tax purposes, to the Member.

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4.2 Definition of "Profits and Losses".

As used in this Agreement, "Profits and Losses" means, for each fiscal year or other period specified in this Agreement, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with IRC section 703(a), including all Tax Items required to be stated separately pursuant to IRC section 703(a)(l), with the following adjustments:

4.2.1 Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;

4.2.2 Any expenditures of the Company described in IRC section 705(a)(2)(B) or treated as IRC section 705(a)(2)(B) expenditures pursuant to Reg section 1.704-l(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses shall be subtracted from such taxable income or shall increase such loss.

4.2.3 Notwithstanding the foregoing provisions of this Section 4.2, any items of income, gain, loss, or deduction that are specially allocated shall not be taken into account in computing Profits or Losses under Section 4.1.

4.3 Special Allocations -- Definitions.

The following definitions shall apply with respect to this Article IV.

4.3.1 "Adjusted Capital Account Deficit" means the deficit balance, if any, in the Member's Capital Account as of the end of the relevant fiscal year of the Company, after the Member's Capital Account has been adjusted as follows: (1) the Member's Capital Account shall be increased by the amount of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain; and (2) the Member's Capital Account shall be decreased by the amount of the items described in Reg sections 1.704-l(b)(2)(ii)(d)(4), (5), and (6).

This definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Reg section 1. 704-1 (b )(2)(ii)( d) and shall be interpreted consistently with such Regulation.

4.3 .2 "Book Depreciation" means, with respect to any item of Company property for a given fiscal year, a percentage of depreciation or other cost recovery deduction allowable for federal income tax purposes for such item during that fiscal year equal to the result (expressed as a percentage) obtained by dividing (1) the Fair Market Value of that item at the beginning of the fiscal year (or the acquisition date during the fiscal year), by (2) the federal adjusted tax basis of the item at the beginning of the fiscal year (or the acquisition date during the fiscal year). If the adjusted tax basis of an item is zero, the Member-Manager may determine Book Depreciation, provided that it does so in a reasonable and consistent manner.

4.3.3 "Company Minimum Gain" has the meaning set forth m Reg section 1. 704-2( d) (I).

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4.3 .4 "Member Nonrecourse Debt" is defined in Reg section 1. 704-2(b )( 4).

4.3.5 "Member Nonrecourse Debt Minimum Gain" for a fiscal year of the Company means the net increase in Minimum Gain attributable to Member Nonrecourse Debt, determined as set forth in Reg section 1. 704-2(i)(2).

4.3.6 "Member Nonrecourse Deductions" has the meaning set forth in Reg section 1. 704-2(i)(2). For any fiscal year of the Company, the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt equals the net increase during that fiscal year in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt during that fiscal year, reduced (but not below zero) by the amount of any distributions during such year to the Member bearing the economic risk of loss for such Member Nonrecourse Debt if such distributions are both from the proceeds of such Member Nonrecourse Debt and are allocable to an increase in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, all as determined according to the provisions of Reg section 1.704-2(i)(2). In determining Member Nonrecourse Deductions, the ordering rules of Reg section 1. 704-2U) shall be followed.

4.3.7 "Nonrecourse Deductions" has the meaning set forth in Reg section 1.704-2(c). The amount ofNonrecourse Deductions for a Company fiscal year equals the net increase in the amount of Company Minimum Gain during that fiscal year, reduced (but not below zero) by the aggregate amount of any distributions during that fiscal year of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain.

4.3.8 "Nonrecourse Liability" is defined in Reg section 1.752-1(a)(2).

4.4 Certain Special Allocations.

The following special allocations shall be made in the following order:

4.4.1 Company Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during a fiscal year, the Member shall be allocated, before any other allocation under this Section, items of Company income and gain for such fiscal year equal to the net decrease in Company Minimum Gain as determined in accordance with Reg section 1.704-2(g)(2).

4.4.2 Member Nonrecourse Debt Minimum Gain Chargeback. If there is a net decrease in Member Nonrecourse Debt Minimum Gain during a fiscal year, the Member shall be allocated items of Company income and gain for such year (and, if necessary, subsequent years) equal to the net decrease in Member Nonrecourse Debt Minimum Gain. The Member's share of net decrease in Member Nonrecourse Debt Minimum Gain shall be determined pursuant to Reg section 1.704-2(g)(2). The Member shall not be subject to the foregoing chargeback to the extent permitted under Reg section 1.704-2(i)(4).

4.4.3 Qualified Income Offset. If the Member unexpectedly receives an adjustment, allocation, or distribution described in Reg § 1. 704-1 (b )(2)(ii)( d)( 4), ( 5), or ( 6), the Member shall be allocated items of Company income and gain (consisting of a pro rata portion of each item of Company income, including gross income and gain for such fiscal year) in an

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amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustment, allocation, or distribution.

4.5 Allocations of Member Nonrecourse Deductions.

Member Nonrecourse Deductions for any fiscal year of the Company shall be allocated to the Member, provided that any Member Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Member in accordance with Reg section 1.704-2(i)(2).

4.6 Allocations of Profits from Capital Events.

In any fiscal year of the Company, Profits in excess of Losses of the Company resulting from a Capital Event in that Fiscal Year shall be allocated to the Member.

4.7 Allocations of Losses from Capital Events.

In any fiscal year of the Company, Losses in excess of Profits of the Company, resulting from a Capital Event in that fiscal year, shall be allocated to the Member. For this purpose, the Member's Capital Account shall be reduced by the adjustments set forth in Reg section 1.704-l(b)(2)(ii)(d)(4), (5), and (6).

4.8 Allocations Respecting Asset Distributions.

Any unrealized appreciation or unrealized depreciation in the values of Company property distributed in kind to the Member shall be deemed to be Profits or Losses realized by the Company immediately prior to the distribution of the property and such Profits or Losses shall be allocated to the Member's Capital Account. Any property so distributed shall be treated as a distribution to the Member to the extent of the Fair Market Value of the property, less the amount of any liability secured by and related to the property. Nothing contained in this Agreement is intended to treat or cause such distributions to be treated as sales for value. For the purposes of this Section 4.8, "unrealized appreciation" or "unrealized depreciation" shall mean the difference between the Fair Market Value of such property and the Company's federal adjusted tax basis for such property.

4.9 Allocations Respecting Contributed Property.

Any item of income, gain, loss, or deduction with respect to any property (other than cash) that has been contributed by the Member to the capital of the Company, or that has been revalued pursuant to the provisions of Article III, Section 3.3.7, and that is required or permitted to be allocated to the Member for income tax purposes under IRC section 704(c) in order to take into account the variation between the tax basis of such property and its Fair Market Value at the time of its contribution, shall be allocated solely for income tax purposes in the manner required or permitted under IRC section 704(c) using the "traditional" method described in Reg section 1.704-3(b), except that any other method allowable under applicable Regulations may be used for any contribution of property with respect to which there is such a determination made by the Member.

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4.10 Allocations Between Assignor and Assignee.

In the case of a Transfer of an Economic Interest during any fiscal year of the Company, the Member and Assignee shall each be allocated Profits or Losses based on the number of days each held the Economic Interest during that fiscal year. If the Member and Assignee agree to a different proration, Profits or Losses from a Capital Event during that fiscal year shall be allocated to the holder of the Interest on the day such Capital Event occurred. If an Assignee makes a subsequent assignment, such Assignee shall be considered an "Assigning Member" with respect to the subsequent Assignee for purposes of the aforesaid allocations.

4.11 Revaluation of Company Assets.

4.11.1 The Gross Asset Value of all Company property shall be adjusted as of the following times: (1) the acquisition of an interest or additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (2) the distribution of money or other property (other than a de minimis amount) by the Company to the Member as consideration for an Economic Interest in the Company; and (3) the liquidation of the Company within the meaning of Reg section 1.704-l(b)(2)(ii)(g); provided, however, that adjustments under clauses (1) and (2) above shall be made only in the event of a revaluation of Company property under Article III, Section 3.3.7 m accordance with Reg section 1.704-1(b)(2)(iv)(f).

4.11.2 The Gross Asset Value of Company property shall be increased or decreased to reflect adjustments to the adjusted tax basis of such property pursuant to IRC section 732, IRC section 733, or IRC section 743, subject to the limitations imposed by IRC section 755 and Reg section 1.704-l(b)(2)(iv)(m); and

4.11.3 If the Gross Asset Value of an item of property has been determined or adjusted pursuant to Article I, Section 1.22 or Paragraph (a) or (b) of this Section 4.11, such Gross Asset Value shall be adjusted by the Book Depreciation, if any, taken into account with respect to such property for purposes of computing Profits and Losses.

4.12 Compliance with Law and Regulations.

It is the intent of the Member that its allocations of Company Tax Items be determined in accordance with this Agreement to the fullest extent permitted by IRC sections 704(b) and 704(c). Notwithstanding anything to the contrary contained in this Agreement, if the Company is advised that, as a result of the adoption of new or amended regulations pursuant to IRC sections 704(b) and 704( c), or the issuance of authorized interpretations, the allocations provided in this Agreement are unlikely to be respected for federal income tax purposes, the Member­Manager is hereby granted the power to amend the allocation provisions of this Agreement, on advice of accountants and legal counsel, to the minimum extent necessary to cause such allocation provisions to be respected for federal income tax purposes.

4.13 Distribution of Available Cash from Business Operations.

All A vail able Cash, other than revenues or proceeds from a Capital Event or the dissolution of the Company, shall be distributed to the Member. The Member intends that

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Available Cash shall be distributed as soon as practicable following the Member-Manager's determination that such cash is available for distribution.

4.14 Distribution of Available Cash from Capital Events.

All Available Cash resulting from a Capital Event (as distinguished from normal business operations or the dissolution of the Company) shall be distributed to the Member. The Member intends that Available Cash shall be distributed as soon as practicable following the Member­Manager's determination that such cash is available for distribution.

4.15 Distribution of Noncash Proceeds.

If the proceeds from a sale or other disposition of an item of Company property consist of property other than cash, the value of that property shall be as determined by the Member­Manager. If such noncash proceeds are subsequently reduced to cash, such cash shall be taken into account by the Member-Manager in determining Available Cash and the Member-Manager shall determine whether such cash has resulted from operations or from a Capital Event.

4.16 Distribution of Liquidating Proceeds.

Notwithstanding any other provisions of this Agreement to the contrary, when there is a distribution in liquidation of the Company, or when the Member's interest is liquidated, all items of income and loss first shall be allocated to the Member's Capital Account under this Article IV, and other credits and deductions to the Member's Capital Accounts shall be made before the final distribution is made. The final distribution to the Member shall be made as provided in Article IX, Section 9 .2.4 of this Agreement. The provisions of this Section 4.16 and Article IX, Section 9.2.4 shall be construed in accordance with the requirements of Reg section 1. 704-1 (b )(2)(ii)(b )(2).

ARTICLE V: MANAGEMENT

5.1 Member as Member-Manager.

The business of the Company shall be managed by the Member as the Member-Manager.

5.2 Officers of the Company.

The initial officers of the Company shall be designated by the Member-Manager. The additional or successor officers of the Company shall be chosen by the Member-Manager and shall consist of at least a President, a Secretary and a Treasurer. The Member-Manager may also choose one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. The Member-Manager may appoint such other officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Member-Manager. The salaries of all officers and agents of the Company shall be fixed by or in the manner prescribed by the Member-Manager. The officers of the Company shall hold office until their successors are chosen and qualified. Any officer may be removed at any time, with or without cause, by the Member-Manager. Any vacancy occurring in

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any office of the Company shall be tilled by the Member-Manager. The initial officers of the Company designated by the Member-Manager are listed on Exhibit "A" hereto. The officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Member-Manager not inconsistent with this Agreement, are agents of the Company for the purpose of the Company's business and, subject to Section 5.3, the actions of the officers taken in accordance with such powers shall bind the Company.

5.2.1 President. The President shall be the chief executive officer of the Company, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Member-Manager are carried into effect. The President or any other officer authorized by the President or the Member-Manager shall execute all bonds, mortgages and other contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; or (ii) where signing and execution thereof shall be expressly delegated by the Member-Manager to some other officer or agent of the Company.

5.2.2 Vice President. In the absence of the President or in the event of the President's inability to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Member-Manager, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Member-Manager may from time to time prescribe.

5.2.3 Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall record all the proceedings of the meetings of the Company in a book to be kept for that purpose and shall perform like duties for any committees when required, and shall perform such other duties as may be prescribed by the Member-Manager or the President, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Member-Manager (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Member­Manager may from time to time prescribe.

5.2.4 Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Member-Manager. The Treasurer shall disburse the funds of the Company as may be ordered by the Member-Manager, taking proper vouchers for such disbursements, and shall render to the President and to the Member-Manager, at its regular meetings or when the Member-Manager so requires, an account of all of the Treasurer's transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Member-Manager (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the

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event of the Treasurer's inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Member­Manager may from time to time prescribe.

5.3 Authority of Officers.

The officers shall be entitled to exercise authority (including the authority delegated under Section 5.2) only as specifically delegated by the Member-Manager after the date of this Agreement; provided, however, the officer (or any of them) shall be permitted to engage in the following actions on behalf of the Company without specific delegation by or consent of the Member-Manager:

5.3.1 Confession of a judgment against the Company or the settlement of any litigation in an amount not in excess of $5,000 for any claim or related group of claims;

5.3.2 Any purchase of real property or any lease of real property with lease terms not in excess of $10,000 per year;

5.3.3 Any sale of assets of the Company involving total consideration not in excess of$1 0,000;

5.3.4 Any transaction by the Company involving the incurrence of any indebtedness for borrowed money not in excess of $7,500, the entry into any capital lease not in excess of $7,500, unless such transaction or capital lease has previously been provided for and approved in the Pre-Approved Annual Budget (as defined in the Holdco LLC Agreement); and

5.3 .5 The incurring of any contractual obligation or series of related contractual obligations with a total cost of not more than $7,500, or the making of any capital expenditures or series of related capital expenditures not in excess of $7,500, unless such contractual obligation or capital expenditure has previously been provided for and approved in the Pre­Approved Annual Budget.

5.4 Title to Assets.

The Member-Manager and the officers shall cause all assets of the Company, whether real or personal, to be held in the name of the Company.

5.5 Banking.

All funds of the Company shall be deposited in one or more accounts with one or more recognized financial institutions in the name of the Company, at such locations as determined by the President. Withdrawal from such accounts shall require the signature of the President, the Treasurer or such other person or persons as the Member-Manager may designate from time to time.

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ARTICLE VI: ACCOUNTS AND ACCOUNTING

6.1 Accounts.

Complete books of account of the Company's business, in which each Company transaction shall be fully and accurately entered, shall be kept at the Company's principal executive office and at such other locations as the Member-Manager shall determine from time to time.

6.2 Accounting.

Financial books and records of the Company shall be kept on the method of accounting advised by the Company's certified public accountants, which shall be the method of accounting followed by the Company for federal income tax purposes. The financial statements of the Company shall be appropriate and adequate for the Company's business and for carrying out the provisions of this Agreement. The fiscal year of the Company shall be January 1 through December 31.

6.3 Records.

At all times during the term of existence of the Company, and beyond such term, if the Member-Manager deems it necessary, the Member-Manager shall keep or cause to be kept at the Company's principal executive office the books of account referred to in Section 6.2, together with:

6.3.1 A copy of the Articles of Organization, as amended;

6.3.2 Copies of the Company's federal, state, and local mcome tax or information returns and reports, if any, for the six most recent taxable years;

6.3.3 An original executed copy of this Agreement, as amended;

6.3.4 Financial statements of the Company for the three (3) most recent fiscal years; and

6.3.5 The books and records of the Company as they relate to the Company's internal affairs for the current and past three (3) fiscal years.

If the Member-Manager deems that any of the foregoing items shall be kept beyond the term of existence of the Company, the repository of said items shall be as designated by the Member-Manager.

6.4 Financial Statements.

At the end of each fiscal year of the Company the books of the Company shall be closed and statements reflecting the financial condition of the Company and its Profits or Losses shall be prepared.

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6.5 Income Tax Returns.

No later than ninety (90) days after the end of each taxable year of the Company, the Company's otlicers shall provide to the Member all Company information necessary for the Member to complete its federal and state income tax or information returns. The Member shall receive a copy of the Company's federal, state, and local income tax or information returns for each year within ten (1 0) days of their finalization.

6.6 Tax Matters Partner.

The Member-Manager shall appoint an individual to act as the Tax Matters Partner ("Partner") of the Company pursuant to IRC section 6231(a)(7). The initial Partner shall be David Pratt.

6.7 Authority to be Exercised by Tax Matters Partner.

The Partner shall promptly notify the Member if any tax return or report of the Company is audited or if any adjustments are proposed by any Governmental Entity. In addition, the Partner shall promptly furnish to the Member all notices concerning administrative or judicial proceedings relating to federal income tax matters as required under the Internal Revenue Code. During the pendency of any such administrative or judicial proceeding, the Partner shall furnish to the Member periodic reports, not less often than monthly, concerning the status of any such proceeding. Without the prior written consent of the Member and, at all times prior to the Redemption of all Preferred Units, the Kayne Investors, the Partner shall not extend the statute of limitations, file a request for administrative adjustment, file suit concerning any tax refund or deficiency relating to any Company administrative adjustment or enter into any settlement agreement relating to any Company item of income, gain, loss, deduction or credit for any Fiscal Year of the Company. Without limiting the foregoing, the Partner is hereby authorized to take any action on behalf of the Member or the Company in connection with any administrative or judicial tax proceeding to the extent permitted by law or regulations, including retaining tax advisers (at the expense of the Company) to whom the Partner may delegate such rights and duties as deemed necessary and appropriate.

ARTICLE VII: DISSOLUTION AND WINDING UP

7.1 Events of Dissolution.

The Company shall be dissolved upon the first to occur ofthe following events:

7.1.1 The expiration of the term of existence, if any, of the Company.

7 .1.2 The written action of the Member to dissolve the Company.

7 .1.3 The sale or other disposition of substantially all of the Company's assets.

7 .1.4 Entry of a decree of judicial dissolution under Corp C section 173 51.

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7.2 Winding Up.

On the dissolution of the Company, the Company shall engage in no further business other than that necessary to wind up the business and affairs of the Company. The Member­Manager shall wind up the affairs of the Company by the appointment of delegates. The delegates winding up the affairs of the Company (the "Delegates") shall give Notice of the commencement of winding up by mail to all known creditors and claimants against the Company whose addresses appear in the records of the Company. After paying or adequately providing for the payment of all known debts of the Company (except debts owing to the Member), the remaining assets of the Company shall be distributed or applied in the following order:

7.2.1 To pay the expenses of liquidation.

7.2.2 To the establishment of reasonable reserves by the Delegates for contingent liabilities or obligations of the Company. Upon the Delegates' determination that such reserves are no longer necessary, said reserves shall be distributed as provided in this Section 7 .2.

7.2.3 To repay outstanding loans to the Member. If there are insufficient funds to pay such loans in full, such repayment shall first be credited to unpaid principal and the remainder shall be credited to accrued and unpaid interest.

7.2.4 To pay the Member's Positive Capital Account Balance as provided in Article IV, Section 4.16.

7.3 Deficits.

The Member shall look solely to the assets of the Company for the return of the Member's investment.

ARTICLE VIII: INDEMNIFICATION

8.1 Indemnification.

The Company shall have the power to indemnify any Person who was or is a party, or who is threatened to be made a party, to any Proceeding by reason of the fact that such Person was or is a Member, Member-Manager, officer, employee, Delegate or other agent of the Company, or was or is serving at the request of the Company as a director, officer, employee, or other Agent of another limited liability company, corporation, partnership, joint venture, trust, or other enterprise, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred by such Person in connection with such proceeding, if such Person acted in good faith and in a manner that such Person reasonably believed to be in the best interests of the Company, and, in the case of a criminal proceeding, such Person had no reasonable cause to believe that the Person's conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Person did not act in good faith and in a manner that such Person reasonably believed to be in the best interests of the Company, or that the Person had reasonabJe cause to believe that th{{ Person's conduct was unlawful.

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To the extent that an agent of the Company has been successful on the merits in defense of any Proceeding, or in defense of any claim, issue, or matter in any such Proceeding, the agent shall be indemnified against expenses actually and reasonably incurred in connection with the Proceeding. In all other cases, indemnification shall be provided by the Company only if authorized in the specific case by the Member.

"Agent," as used in this Section 8.1, shall include a trustee or other fiduciary of a plan, trust, or other entity or arrangement described in Corp C section 207(f).

"Proceeding," as used in this Section 8.1, means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative.

Expenses of each Person indemnified under this Agreement actually and reasonably incurred in connection with the defense or settlement of a proceeding may be paid by the Company in advance of the final disposition of such proceeding, as authorized by the Member­Manager upon receipt of an undertaking by such Person to repay such amount unless it shall ultimately be determined that such Person is entitled to be indemnified by the Company. "Expenses," as used in this Section 8.1, includes, without limitation, attorney fees and expenses of establishing a right to indemnification, if any, under this Section 8.1.

ARTICLE IX: GENERAL PROVISIONS

9.1 Entire Agreement; Amendment.

This Agreement constitutes the complete and exclusive agreement of the Member with respect to the subject matter of this Agreement, and it shall not be modified or amended in any respect except by a written instrument executed by the Member. This Agreement replaces and supersedes all prior written and oral agreements by and among any former members and/or managers of the Company.

9.2 Governing Law; Severability.

This Agreement shall be construed and enforced in accordance with the internal laws of the State of California. Venue for any action or proceeding arising out of or related to this Agreement shall be the County of Santa Barbara, California. If any provision of this Agreement is determined by any court of competent jurisdiction or arbitrator to be invalid, illegal, or unenforceable to any extent, that provision shall, if possible, be construed as though more narrowly drawn, if a narrower construction would avoid such invalidity, illegality, or unenforceability or, if that is not possible, such provision shall, to the extent of such invalidity, illegality, or unenforceability, be severed, and the remaining provisions of this Agreement shall remain in effect.

9.3 Binding Effect.

This Agreement shall be binding on and inure to the benefit of the Member and its permitted successors and assigns.

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9.4 Number and Gender.

Whenever used in this Agreement, the singular shall include the plural and the plural shall include the singular, and the neuter gender shall include the male and female as well as a trust, fim 1, company, or corporation, all as the context and meaning of this Agreement may rcqmre.

9.5 Further Assurances.

The Member shall do any and all other acts and things reasonably necessary in connection with the performance of its obligations under this Agreement and to carry out the intent of the intent of this Agreement.

9.6 Member's Other Business.

Except as provided in this Agreement, no provision of this Agreement shall be construed to limit in any manner the Member in the carrying on of its other businesses or activities.

9.7 Titles and Headings.

The article, section, and paragraph titles and headings contained in this Agreement are inserted as matter of convenience and for ease of reference only and shall be disregarded for all other purposes, including the construction or enforcement of this Agreement or any of its provisions.

9.8 Time of the Essence.

Time is of the essence of every provision of this Agreement that specifies a time for performance.

9.9 No Third Party Beneficiary.

This Agreement is made solely for the benefit of the Member and its permitted successors and assigns, and no other person or entity shall have or acquire any right by virtue of this Agreement

(Signature page follows)

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IN WITNESS WHEREOF, the Member has executed or caused to be executed this Agreement on the day and year first above written.

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"Member"

SANTA MARTA PACIFIC IIOLDINGS, LLC, a Delaware limited liability company

13y: David I,. Pratt Title: President

President: David L. Pratt

VP- Operations: Terry Hurst

EXHIBIT "A"

OFFICER APPOINTMENTS

VP - Finance & Administration: Kevin McMillan

VP - Legal & Corporate Affairs and Assistant Secretary: Beth A. Marino

VP - Reservoir Engineering and Secretary: Ramon Elias

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