Contribution, Conveyance And Assumption Agreement

Exhibit 10.1


Execution Copy


CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

AMONG

ABRAXAS PETROLEUM CORPORATION

ABRAXAS GENERAL PARTNER, LLC,

ABRAXAS ENERGY PARTNERS, L.P.,

ABRAXAS ENERGY INVESTMENTS, LLC

AND

ABRAXAS OPERATING, LLC

May 25 , 2007


CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

This Contribution, Conveyance and Assumption Agreement, dated as of May 25, 2007, is entered into by and among Abraxas Petroleum Corporation, a Nevada corporation (" APC" ), Abraxas General Partner, LLC, a Delaware limited liability company (the " General Partner" ), Abraxas Energy Partners, L.P., a Delaware limited partnership (the " Partnership" ), Abraxas Energy Investments, LLC, a Texas limited liability company (" Investments" ), and Abraxas Operating, LLC, a Texas limited liability company (the " Operating LLC" ). The above-named entities are sometimes referred to in this Agreement each as a " Party" and collectively as the " Parties ." Capitalized terms used herein shall have the meanings assigned to such terms in Section 1.1.

RECITALS

A. APC, Investments and the General Partner have caused the Partnership to be formed pursuant to the Delaware Revised Uniform Limited Partnership Act (the " Delaware LP Act" ) for the purpose of engaging in any business activity that is approved by the General Partner and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware LP Act;

B. In order to accomplish the objectives and purposes in the preceding recital, each of the following actions has been taken prior to the date hereof:


1.

APC formed the General Partner under the terms of the Delaware Limited Liability Company Act (the " Delaware LLC Act" ), and contributed an aggregate of $20 to the General Partner in exchange for all of the membership interests of the General Partner.


2.

APC formed Investments under the terms of the Texas Business Organizations Code (the " TBOC" ), and contributed an aggregate of $980 to Investments in exchange for all of the membership interests of Investments.


3.

APC formed Operating LLC under the terms of the TBOC and contributed an aggregate of $1,000 to Operating LLC in exchange for all of the membership interests of Operating LLC (the " Operating LLC Interests" ).


4.

The General Partner and Investments formed the Partnership under the terms of the Delaware LP Act and (a) the General Partner contributed, as an initial capital contribution, $20 to the Partnership in exchange for 1 General Partner Unit of the Partnership (the " Initial GP Unit" ), and (b) Investments contributed, as an initial capital contribution, $980 to the Partnership in exchange for 1 Common Unit of the Partnership (the " Initial LP Unit" ).


5.

The General Partner, Investments, Operating LLC and the Partnership became Subsidiary Guarantors pursuant to the terms of the Indenture.


6.

APC, all of the Subsidiary Guarantors named in the Indenture, the General Partner, Investments, Operating LLC and the Partnership executed and delivered the Assumption and Indemnification Agreement.

C. Concurrently with the consummation of the transactions contemplated hereby and by the Assignment, each of the following actions shall occur in the order specified in Section 2.12 :


1.

APC will contribute, as an additional capital contribution, all of its right, title and interest in and to the Assets, subject to the Permitted Liens, to Operating LLC in exchange for its continued ownership of all of the Operating LLC Interests and the right to be reimbursed the Preformation Expenditures.


2.

APC will contribute, as an additional capital contribution, all of its right, title and interest in and to (a) 2.0% of the Operating LLC Interests, subject to the Existing Liens, to the General Partner, and (b) 98.0% of the Operating LLC Interests, subject to the Existing Liens, to Investments.


3.

The General Partner will contribute, as an additional capital contribution, all of its right, title and interest in and to the Operating LLC Interests owned by it, subject to the Existing Liens, to the Partnership in exchange for 227,231 General Partner Units of the Partnership, which, together with the Initial GP Unit, represent a 2.0% General Partner Interest in the Partnership.


4.

Investments will contribute, as an additional capital contribution, all of its right, title and interest in and to the Operating LLC Interests owned by it, subject to the Existing Liens, to the Partnership in exchange for 5,131,958 Common Units of the Partnership, which, together with the Initial LP Unit, represent a 45.2% Limited Partner Interest in the Partnership.


5.

In connection with the Partnership' s private placement of Common Units (the " Offering" ), the Initial Private Purchasers, pursuant to the terms of the Purchase Agreement, will contribute, as capital contributions, $100,000,000 in cash to the Partnership in exchange for 6,002,408 Common Units of the Partnership, representing, in the aggregate, a 52.8% Limited Partner Interest in the Partnership.


6.

The Partnership will enter into a $150,000,000 revolving credit facility with Socie9te9 Ge9ne9rale as Administrative Agent and Issuing Lender (the " Revolving Credit Facility" ).


7.

The proceeds of the Offering and the Revolving Credit Facility will, to the extent necessary, be applied by the Partnership to (a) pay up to eighty percent (80%) of all organization, syndication and transaction costs and expenses incurred or assumed by the Partnership and APC in connection with all of the transactions contemplated by this Agreement, the Purchase Agreement and the Partnership Agreement (including, without limitation, the fee of the placement agent and loan commitment and origination costs, expenses and fees and certain hedging costs) and the transactions contemplated hereby and thereby, which costs, fees and


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expenses are estimated to be $ 10,245,000 in the aggregate, and (b) refinance, pay-off and retire the Existing Indebtedness to the extent assumed hereby by the Partnership and Operating LLC and reimburse APC for certain Preformation Expenditures, which amount is estimated to be $147,255,000.


8.

The organizational documents of the Parties shall be amended and restated as necessary to reflect the matters set forth above and as otherwise contemplated by this Agreement.

NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the Parties undertake and agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 T erms.

The following defined terms shall have the meanings given below:

" Agreement" means this Contribution, Conveyance and Assumption Agreement.

" Affiliates" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term " control" 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 ownership of voting securities, by contract or otherwise.

" APC" has the meaning set forth in the opening paragraph of this Agreement.

" Assets" means the assets listed on Exhibit A hereto and as described in the Assignment with respect thereto.

" Assignment" means one or more Assignment and Assumption Agreement and Bill of Sale substantially in the form attached as Exhibit B .

" Assumed Liabilities" has the meaning set forth in Section 2.8 .

" Assumption and Indemnification Agreement" means that certain Assumption and Indemnification Agreement dated as of May 22, 2007 by and among APC, the Subsidiary Guarantors named in the Indenture, the General Partner, Investments, Operating LLC and the Partnership.

" Common Units" has the meaning set forth in the Partnership Agreement.

" Conflicts Committee" means the Conflicts Committee of the General Partner.

" Defensible Title" to an Asset means such title of the Operating LLC that, that (i) is free from reasonable doubt to the end that a prudent purchaser engaged in the business of the


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ownership, development and operation of producing oil and gas properties, with knowledge of all of the facts and their legal bearing, would be willing to accept and pay full value for the Asset; (ii) is deducible of record from the records of the applicable county; (iii) as to each of the leases, units or wells described in Exhibit A , entitles or obligates Operating LLC, as APC' s successor in title, to receive not less than the Net Revenue Interest of production and bear not greater than the Working Interest share of costs and expenses with respect to such leases, units or well in Exhibit A ; and (iv) is free and clear of Liens and material encumbrances and defects, except for Permitted Liens.

" Delaware LLC Act" has the meaning set forth in the Recitals of this Agreement.

" Delaware LP Act" has the meaning set forth in the Recitals of this Agreement.

" Effective Date" means May 25, 2007.

" Effective Time" means 12:01 a.m. San Antonio, Texas time onMay 25, 2007.

" Environmental Laws" has the meaning set forth in the Omnibus Agreement.

" Existing Credit Facility" means that certain Loan Agreement, dated as of October 28, 2004, by and among APC, the subsidiaries of APC signatory thereto, the lenders signatory thereto and Wells Fargo Foothill, Inc., as the Arranger and the Administrative Agent, as amended.

" Existing Indebtedness" means APC' s payment obligations and indebtedness under the Senior Notes and the Existing Credit Facility.

" Existing Liens" shall mean the Liens granted pursuant to the Indenture and the Existing Credit Facility.

" General Partner" has the meaning set forth in the opening paragraph of this Agreement.

" General Partner Interest" has the meaning set forth in the Partnership Agreement.

" General Partner Units" has the meaning set forth in the Partnership Agreement.

" Governmental Entity" means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental, or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign).

" Guarantors" shall have the meaning set forth in the Existing Credit Facility.

" Indemnified Party" means either the Partnership Group or APC, as the case may be, each in its capacity as a party entitled to indemnification in accordance with Article III.

" Indemnifying Party" means either the Partnership Group or APC, as the case may be, each in its capacity as a party from whom indemnification may be required in accordance with Article III.

" Initial GP Unit" has the meaning set forth in the Recitals of this Agreement.


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" Initial LP Unit" has the meaning set forth in the Recitals of this Agreement.

" Initial Private Purchasers" means each Person named as a purchaser in the Purchase Agreement who purchases Common Units pursuant thereto.

" Indenture" means that certain Indenture dated as of October 28, 2004 among APC, the Subsidiary Guarantors named therein and U.S. Bank National Association as Trustee, as amended and supplemented.

" Investments" has the meaning set forth in the opening paragraph of this Agreement.

" Laws" has the meaning set forth in the Omnibus Agreement.

" Liens" means mortgages, charges, pledges, liens (statutory or other), security interests, hypothecations, assignments for security, claims, or preferences or priorities or other encumbrances or similar agreements or preferential agreements of any kind or nature whatsoever serving to provide security for any obligations whether or not filed, recorded or otherwise perfected under applicable law upon or with respect to any kind of property or asset, whether real, personal or mixed, or tangible or intangible, and any right-of-way, easement, encroachment, burden, restriction, or encumbrance of any kind.

" Limited Partner Interest" has the meaning set forth in the Partnership Agreement.

" Losses" shall have the meaning set forth in Section 3.1 .

" Net Revenue Interest" (expressed in a percentage) means the proportionate share of the production of oil, gas and other hydrocarbons produced from an oil, gas and mineral lease, well or unit, as the case may be, to which the Operating LLC is entitled after deduction of all royalties, overriding royalty interests, production payments and other burdens on or payments out of production.

" Offering" has the meaning set forth in the Recitals of this Agreement.

" Omnibus Agreement" means the Omnibus Agreement dated as of the date hereof, among APC, the General Partner, Operating LLC and the Partnership.

" Operating LLC" has the meaning set forth in the opening paragraph of this Agreement.

" Operating LLC Interests" has the meaning set forth in the Recitals of this Agreement.

" Ordinary Course of Business" means an action taken by a Person if that action: (a) is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; (b) does not require authorization by the board of directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature; and (c) is similar in nature, scope and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the


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normal, day-to-day operations of other Persons that are in the same line of business as such Person.

" Party" or " Parties" has the meaning set forth in the opening paragraph of this Agreement.

" Partnership" has the meaning set forth in the opening paragraph of this Agreement.

" Partnership Agreement" means the First Amended and Restated Agreement of Limited Partnership of the Partnership, as it may be amended, supplemented or restated from time to time.

" Partnership Group" means the General Partner, the Partnership, Investments, the Operating LLC and all of their respective Subsidiaries.

" Permitted Liens" means:

(i) Liens for Taxes that are not yet delinquent or which are being contested in good faith;

(ii) normal and customary Liens of co-owners under operating agreements, unitization agreements, and pooling orders relating to the Properties which Liens do not secure amounts past due;

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

(iv) mechanic' s and materialmen' s Liens relating to the Assets, which obligations are not yet due;

(v) Liens in the ordinary course of business consisting of minor defects and irregularities in title or other restrictions (whether created by or arising out of joint operating agreements, farm-out agreements, leases and assignments, contracts for purchases of Hydrocarbons or similar agreements, or otherwise in the ordinary course of business) that are of the nature customarily accepted by prudent purchasers of oil and gas properties and that do not materially adversely affect the value of any Asset encumbered thereby if the net cumulative effect of the foregoing does not operate to reduce the Net Revenue Interests of any of the Assets to less than the Net Revenue Interest set ...