Form of Mortgage

Exhibit 10.4


FORM OF

MORTGAGE, DEED OF TRUST,

SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

FROM _________________ , AS MORTGAGOR,

TO JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT FOR THE LENDERS, AS MORTGAGEE,

OR, ALTERNATIVELY, TO

J. SCOTT FOWLER, TRUSTEE,

FOR THE BENEFIT OF

JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT FOR THE LENDERS DATED EFFECTIVE AS OF _____________

THIS MORTGAGE IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE COVERING MINERALS, AS-EXTRACTED COLLATERAL AND THE LIKE (INCLUDING OIL AND GAS), ACCOUNTS RESULTING FROM THE SALE OF MINERALS, AS-EXTRACTED COLLATERAL AND THE LIKE (INCLUDING OIL AND GAS), AND GOODS WHICH ARE, OR ARE TO BECOME, FIXTURES ON THE REAL/IMMOVABLE PROPERTY HEREIN DESCRIBED. THE OIL AND GAS INTERESTS OR ACCOUNTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED AT THE WELLHEADS LOCATED ON THE REAL/IMMOVABLE PROPERTY DESCRIBED IN EXHIBIT A ATTACHED HERETO. THIS MORTGAGE IS TO BE RECORDED IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTY OR PARISH RECORDER OF EACH COUNTY OR PARISH IN EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL COVERED HEREBY. THE REAL/IMMOVABLE PROPERTY SUBJECT HERETO IS DESCRIBED IN EXHIBIT A ATTACHED HERETO.

THIS MORTGAGE CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

MORTGAGOR OWNS A RECORD INTEREST IN THE MORTGAGED PROPERTY .

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE, WHERE PERMITTED BY LAW, MAY ALLOW MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE .


EMPLOYER IDENTIFICATION NUMBER OF MORTGAGOR:

ORGANIZATIONAL IDENTIFICATION NUMBER OF MORTGAGOR: NONE

EMPLOYER IDENTIFICATION NUMBER OF MORTGAGEE: 36-0899825

MORTGAGE, DEED OF TRUST,

SECURITY AGREEMENT, FINANCING STATEMENT

AND ASSIGNMENT OF PRODUCTION


THIS MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION (this " Mortgage" ) is from _____________________, a _____________, as Mortgagor (" Mortgagor" ), to JPMORGAN CHASE BANK, N.A. , successor by merger to Bank One, NA (Main Office Chicago), a national banking association, as Administrative Agent (" Administrative Agent" ) for the Lenders (as hereinafter defined), or, alternatively, to J. SCOTT FOWLER, an individual resident of Dallas County, Texas, as Trustee (" Trustee" ) for the benefit of JPMORGAN CHASE BANK, N.A. , a national banking association, as Administrative Agent for the Lenders. In its capacity as Administrative Agent for the Lenders, JPMorgan Chase Bank, N.A., is hereinafter referred to as " Mortgagee" . The addresses of Mortgagor and Mortgagee are set forth in Section 7.14 hereof.

RECITALS:

WHEREAS, pursuant to the terms of the Credit Agreement (defined below), Mortgagor is required to execute and deliver this Mortgage pursuant to which, among other things, the Mortgaged Property (defined below) is granted and assigned by Mortgagor to Mortgagee to further secure the Secured Indebtedness (defined below).


NOW, THEREFORE, in consideration of the sum of $10.00 and other good and valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of which are hereby acknowledged and confessed by Mortgagor, Mortgagor hereby agrees as follows:


ARTICLE 1

DEFINITIONS


1.1 Certain Defined Terms . For all purposes of this Mortgage, unless the context otherwise requires:

" Accounts and Contract Rights" shall mean all accounts (including accounts in the form of joint interest billings under applicable operating agreements), contract rights and general intangibles of Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of, Mortgagor, or Mortgagor' s successors in interest, relating to or arising from the ownership, operation and development of the Mortgaged Property and to the production, processing, treating, sale, purchase, exchange or transportation of Hydrocarbons (defined below) produced or to be produced from or attributable to the Mortgaged Property or any units or pooled interest units in which all or a portion of the Mortgaged Property forms a part, together with all accounts and proceeds accruing to Mortgagor attributable to the sale of Hydrocarbons produced from the Mortgaged Property or any units or pooled interest units in which all or a portion of the Mortgaged Property forms a part.

" Article" shall mean and refer to an Article of this Mortgage, unless specifically indicated otherwise.


2

" Code" shall mean the Uniform Commercial Code in effect in each of the jurisdictions where the Mortgaged Property or a portion thereof is situated.

" Credit Agreement" shall mean that certain Sixth Restated Credit Agreement dated as of June 22, 2005, by and among Mortgagor, certain affiliates of Mortgagor, and the Lenders, as the same may be amended or restated from time to time.

" Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.


" Effective Date" shall mean ___________.

" Event of Default" shall mean any event of default under the Credit Agreement.

" Excepted Liens" shall mean with respect to the Mortgaged Property:


(a) Liens securing the payment of the Obligations;


(b) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;


(c) Liens in connection with workers' compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;


(d) statutory landlord' s liens, operators' , vendors' , carriers' , warehousemen' s, repairmen' s, mechanics' , suppliers' , workers' , materialmen' s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;


(e) contractual Liens that arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair


3

the use of the Mortgaged Property for the purposes for which the Mortgaged Property is held by Mortgagor or materially impair the value of the Mortgaged Property;


(f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in the Mortgaged Property for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, which in the aggregate do not materially impair the use of the Mortgaged Property for the purposes of which the Mortgaged Property is held by Mortgagor or materially impair the value of the Mortgaged Property; and

(g) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by any Credit Party in the ordinary course of business covering only the Mortgaged Property under lease.

" Exhibit A" shall mean, unless specifically indicated otherwise, Exhibit A attached hereto and incorporated herein by reference for all purposes.


" Gas Balancing Agreement" means any agreement or arrangement whereby Mortgagor, or any other party having an interest in any Hydrocarbons to be produced from Hydrocarbon Interests in which Mortgagor or any other Credit Party owns an interest, has a right to take more or less than its proportionate share of production therefrom.

" Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasolines, natural gasoline, condensate, distillate, as-extracted collateral and all other liquid or gaseous hydrocarbons produced or to be produced in conjunction therewith, and all products, by-products and all other substances derived therefrom or the processing thereof, and all other minerals and substances, including, but not limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium and any and all other minerals, ores, or substances of value and the products and proceeds therefrom, including, without limitation, all gas resulting from the in-situ combustion of coal or lignite.

" Lands" shall mean the lands described in Exhibit A and shall include any lands, the description of which is contained in Exhibit A or incorporated in Exhibit A by reference to another instrument or document, including, without limitation, all lands described in the Oil and Gas Leases, and shall also include any lands now or hereafter unitized, pooled, spaced or otherwise combined, whether by statute, order, agreement, declaration or otherwise, with lands the description of which is contained in Exhibit A or is incorporated in Exhibit A by reference.

" Lenders" shall mean the lending institutions (i) listed on Annex I of the Credit Agreement as having a Commitment, and/or (ii) which may hereafter become a party to the Credit Agreement pursuant to the provisions of Section 12.04 thereof, and their respective successors and assigns.


" Lien" shall mean any lien, pledge, charge or security interest.

" Loan" shall mean, with respect to a Lender, such Lender' s loan made pursuant to Article II of the Credit Agreement (or any conversion or continuation thereof).


4

" Loan Documents" shall have the meaning ascribed to such term in the Credit Agreement.


" Material Adverse Effect" shall mean a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Mortgagor, individually, or Borrowers and their Subsidiaries taken as a whole, (ii) the ability of any Borrower to fully, completely and timely perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder.


" Material Gas Imbalance" means, with respect to all Gas Balancing Agreements to which Mortgagor or any other Credit Party is a party or by which any Hydrocarbon Interests owned by Mortgagor or any other Credit Party is bound, a net gas imbalance to the Credit Parties in excess of 50 mmcf equivalent in the aggregate.

" Mortgaged Property" shall have the meaning stated in Article 2 of this Mortgage.

" Net Revenue Interest" shall mean Mortgagor' s share of all Hydrocarbons produced from the Lands, after deducting the appropriate proportionate part of all lessors' royalties, overriding royalties, production payments and other payments out of or measured by production which burden Mortgagor' s share of all such production, subject to non-consent provisions contained in joint operating agreements.

" Notes" shall mean the revolving promissory notes issued or to be issued under the Credit Agreement to each Lender, respectively, to evidence the indebtedness to such Lender arising by reason of the Loans, together with all modifications, renewals, restatements and extensions thereof or any part thereof.

" Obligations" shall mean all present and future indebtedness, obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of Mortgagor or any other Credit Party to any Lender or any Affiliate of any Lender arising pursuant to the Loan Documents, or arising pursuant to any commodity, interest rate, currency or other swap, option, collar, futures contract or other contract pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions and any other commodity price hedging agreements by and between Mortgagor and any Lender or any Affiliate of any Lender and all interest accrued on any of the foregoing, and reasonable costs, expenses, and attorneys' fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several.


" Oil and Gas Leases" shall mean oil, gas and mineral leases, oil and gas leases, oil leases, gas leases, other mineral leases, subleases, top leases, any rights resulting in an ownership interest in Hydrocarbons and all operating rights relating to any of the foregoing (whether operated by virtue of such leases, or assignments or applicable operating agreements), and all other interests pertaining to any of the foregoing, including, without limitation, all royalty and overriding royalty interests, production payments and net profit interests, mineral fee interests, and all reversionary, remainder, carried and contingent interests relating to any of the


5

foregoing and all other rights therein which are described and/or to which reference may be made on Exhibit A and/or which cover or relate to any of the Lands.


" Operating Equipment" shall mean all Personal Property and fixtures affixed or situated upon all or any part of the Mortgaged Property, including, without limitation, all surface or subsurface machinery, equipment, facilities or other property of whatsoever kind or nature now or hereafter located on any of the Lands which are useful for the production, treatment, storage or transportation of oil or gas, including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, rods, pumping units and engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading racks and shipping facilities.


" Person" shall mean any individual, corporation, partnership, limited liability company, association, trust, other entity or organization, or any court or governmental department, commission, board, bureau, agency, or instrumentality of any nation or of any province, state, commonwealth, nation, territory, possession, county, parish, or municipality, whether nor or hereafter constituted or existing.

" Revolving Commitment" shall mean (a) for all Lenders, the lesser of (i) $450,000,000 or (ii) the Borrowing Base in effect from time to time, in each case as reduced from time to time pursuant to Section 2.07 of the Credit Agreement, and (b) as to any Lender, its obligation to make Loans under the Credit Agreement and purchase participations in Letters of Credit issued thereunder by the Issuing Bank in amounts not exceeding, in the aggregate, an amount equal to such Lender' s Applicable Percentage times the total Commitments for all Lenders as of any date. The Commitment of each Lender under the Credit Agreement shall be adjusted from time to time to reflect assignments made by such Lender pursuant to Section 12.04 of the Credit Agreement. Each reduction in the Commitments shall result in a pro rata reduction in each Lender' s Commitment.


" Revolving Loan" shall mean a loan or loans made under the Revolving Commitment pursuant to Article II of the Credit Agreement.


" Personal Property" shall mean that portion of the Mortgaged Property that is personal property.


" Section" shall mean and refer to a section of this Mortgage, unless specifically indicated otherwise.

" Secured Indebtedness" shall have the meaning stated in Article 3 of this Mortgage.

" Subject Interests" shall have the meaning stated in Article 2 of this Mortgage.


" Well Data" shall mean all logs, drilling reports, division orders, transfer orders, operating agreements, contracts and other agreements, abstracts, title opinions, files, records,


6

seismic data, memoranda and other information in the possession or control of Mortgagor or to which Mortgagor has access relating to the Lands and/or any wells located thereon.


1.2 Other Terms . Unless otherwise defined herein, all terms with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement.

1.3 Terms Generally, Rules of Construction . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.


ARTICLE 2 GRANTING CLAUSE; MORTGAGED PROPERTY

Mortgagor, for and in consideration of the sum of $10.00 and other good and valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of which are hereby acknowledged and confessed by Mortgagor, and for and in consideration of the debt and purposes hereinafter set forth, to secure the full and complete payment and performance of the Secured Indebtedness and to secure the performance of the covenants, obligations, agreements and undertakings of Mortgagor hereinafter described, has GRANTED, BARGAINED, WARRANTED, MORTGAGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these presents does GRANT, BARGAIN, WARRANT, MORTGAGE, ASSIGN, TRANSFER and CONVEY (1) unto Trustee and Trustee' s substitutes or successors, and its and their assigns, or (2) alternatively, to the extent that any particular jurisdiction wherein a portion of the Mortgaged Property is situated does not recognize, permit or require Mortgagor to mortgage or convey the Mortgaged Property to Trustee for the benefit of Mortgagee, then, with respect to the Mortgaged Property located in such particular jurisdiction, unto Mortgagee and Mortgagee' s successors in title and assigns, with power of sale (to the extent permitted by applicable law), as herein provided, for the uses and purposes herein set forth, with warranties and covenants of title only to the extent provided herein and in the Credit Agreement, all of Mortgagor' s right, title and interest, whether now owned or hereafter acquired, in all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of equipment, general intangibles, accounts, contract rights, inventory, goods, chattel paper, instruments, documents, money, fixtures, as-extracted collateral, proceeds and products of collateral or any other Personal Property of a kind or character defined in or subject to the applicable provisions of the Code, Mortgagor hereby grants to Mortgagee a security interest therein, whether now owned or hereafter acquired, namely:

(a) all of those certain Oil and Gas Leases and Lands (all such Oil and Gas Leases and Lands being herein called the " Subject Interests ," as hereinafter further defined) which are described in Exhibit A and/or to which reference may be made in Exhibit A and/or which are covered by any of the leases described on Exhibit A , which Exhibit A is made a part of this Mortgage for all purposes, and is incorporated herein by reference as fully as if copied at length in the body of this Mortgage at this point;


(b) all rights, titles, interests and estates now owned or hereafter acquired by Mortgagor in and to (i) any and all properties now or hereafter pooled or unitized with any of the Subject Interests, and (ii) all presently existing or future operating agreements and unitization, communitization and pooling agreements and the units operated thereby to the extent the same relate to all or any part of the Subject Interests, including, without limitation, all units formed


7

under or pursuant to any applicable laws (the rights, titles, interests and estates described in this clause (b) also being included within the term " Subject Interests" as used herein);


(c) all presently existing and future agreements entered into between Mortgagor and any third party that provide for the acquisition by Mortgagor of any interest in any of the properties or interests specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A ;

(d) the Hydrocarbons (including inventory) which are in, under, upon, produced or to be produced by or attributable to the Lands;


(e) the Accounts and Contract Rights;


(f) the Operating Equipment;

(g) the Well Data;

(h) the rights and security interests of Mortgagor held by Mortgagor to secure the obligation of the first purchaser to pay the purchase price of the Hydrocarbons;

(i) all surface leases, rights-of-way, franchises, easements, servitudes, licenses, privileges, tenements, hereditaments and appurtenances now existing or in the future obtained in connection with any of the aforesaid, and all other items of value and incident thereto which Mortgagor may, at any time, have or be entitled; and

(j) all and any different and additional rights of any nature, of value or convenience in the enjoyment, development, operation or production, in any wise, of any property or interest included in any of the foregoing clauses, and in all revenues, income, rents, issues, profits and other benefits arising therefrom or from any contract now in existence or hereafter entered into pertaining thereto, and in all rights and claims accrued or to accrue for the removal by anyone of Hydrocarbons from, or other act causing damage to, any of such properties or interests.


All the aforesaid properties, rights and interests, together with any and all substitutions, replacements, corrections or amendments thereto, or renewals, extensions or ratifications thereof, or of any instrument relating thereto, and together with any additions thereto which may be subjected to the Lien of this Mortgage by means of supplements hereto, being hereinafter called the " Mortgaged Property" .

Subject, however, to (i) Excepted Liens, and (ii) the condition that Mortgagee shall not be liable in any respect for the performance of any covenant or obligation of Mortgagor with respect to the Mortgaged Property.


TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and its successors, legal representatives and assigns, forever, subject to Section 7.3 hereof, to secure, in each such instance, the payment and performance of the Secured Indebtedness and the Obligations.


8

ARTICLE 3

SECURED INDEBTEDNESS


This Mortgage is given to secure, on a pro rata basis, the Loan and all of the Obligations under and as described in the Credit Agreement, including, without limitation:


(a) interest on all credit outstanding under the Credit Agreement at the rates provided in the Credit Agreement;


(b) the Obligations, including, without limitation, the indebtedness evidenced by the Notes executed by Mortgagor and the other Borrowers, and described as follows:

(i) that/those certain Notes in the aggregate face amount of Four Hundred and Fifty Million and No/100 Dollars ($450,000,000.00), executed by Borrowers payable to the order of the Lenders, each having a final maturity date of June 22, 2009, bearing interest as provided in the Credit Agreement and containing usual and customary provisions for collection and attorneys' fees, and any and all renewals, increases, refundings, substitutions, replacements, consolidations and/or extensions thereof or therefor, or any part thereof (including any other promissory notes made at any time representing all or any part of the Revolving Commitment).


(c) any sums advanced as expenses or costs incurred by, or on behalf of, Mortgagee or any Lender (or any receiver appointed hereunder) which are made or incurred pursuant to the terms of this Mortgage or any other Loan Documents, plus interest thereon at the rate set forth in Section 3.02 of the Credit Agreement from the date of advance or expenditure until reimbursed;

(d) payment and performance of any and all present and future obligations of Mortgagor according to the terms of any present or future Swap Agreement, including, without limitation, any present or future commodity, interest rate, currency or other swap, option, collar, futures contract or other contract pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions and any other commodity price hedging agreements by and between Mortgagor and any Lender or any Affiliate of any Lender, now existing or hereafter entered into between Mortgagor, on the one hand, and Mortgagee, any Lender, or any Affiliate of Mortgagee or any Lender, on the other hand; and

(e) all other and additional debts, obligations and liabilities of every kind and character of Mortgagor now existing or hereafter arising in connection with any of the Loan Documents (all of the obligations and indebtedness referred to in this Article 3 and all renewals, extensions and modifications thereof, and all substitutions therefor, in whole or in part, are herein sometimes referred to as the " Secured Indebtedness" ).


9

ARTICLE 4

COVENANTS, REPRESENTATIONS,

WARRANTIES AND AGREEMENTS OF MORTGAGOR


Mortgagor hereby covenants, represents, warrants and agrees that:


4.1 Payment of Indebtedness . Mortgagor will duly and punctually pay or cause to be paid when due all of the Secured Indebtedness.


4.2 Warranties . (a) Mortgagor, to the extent of the interests specified in Exhibit A , has good and defensible title, subject to Excepted Liens to each property right or interest constituting the Mortgaged Property, and has a good and legal right to make the grant and conveyance made in this Mortgage; (b) Mortgagor' s present Net Revenue Interest in the Mortgaged Property is not less than that specified in Exhibit A ; and if no interest is specified, includes all its interests however specified in and to the Oil and Gas Leases and Lands described on Exhibit A ; and (c) the Mortgaged Property is free from all Liens other than Excepted liens. Mortgagor will warrant and forever defend the Mortgaged Property unto Mortgagee and Mortgagee' s successors, legal representatives and assigns, and Trustee and Trustee' s successors, legal representatives and assigns, against every Person whomsoever lawfully claiming the same or any part thereof, and Mortgagor will maintain and preserve the Lien hereby created so long as any of the Secured Indebtedness remains unpaid, except where such failure to comply would not have a Material Adverse Effect.


4.3 Further Assurances . Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as in the reasonable discretion of Mortgagee may be necessary or desirable to carry out more effectively the purposes of this Mortgage, including, without limiting the generality of the foregoing, (a) prompt correction of any material defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, any Notes, or any other document used in connection herewith or at any time delivered to Mortgagee in connection with any Obligations, and (b) prompt execution and delivery of a ...