LINE 6.30.2014 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the Quarterly Period Ended June 30, 2014



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

for the transition period from _______________ to _______________

Commission File Number: 000-51719

LINN ENERGY, LLC

(Exact name of registrant as specified in its charter)



Delaware	65-1177591
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
600 Travis, Suite 5100 Houston, Texas	77002
(Address of principal executive offices)	(Zip Code)
(281) 840-4000 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 31, 2014, there were 331,729,246 units outstanding.

TABLE OF CONTENTS



		Page

	Glossary of Terms	ii

	Part I – Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2014, and December 31, 2013	1
	Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2014, and June 30, 2013	2
	Condensed Consolidated Statement of Unitholders’ Capital for the six months ended June 30, 2014	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014, and June 30, 2013	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52

	Part II – Other Information
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57

	Signature	58

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GLOSSARY OF TERMS

As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:

Bbl. One stock tank barrel or 42 United States gallons liquid volume.

Bcf. One billion cubic feet.

Bcfe. One billion cubic feet equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.

MBbls. One thousand barrels of oil or other liquid hydrocarbons.

MBbls/d. MBbls per day.

Mcf. One thousand cubic feet.

Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMBbls. One million barrels of oil or other liquid hydrocarbons.

MMBtu. One million British thermal units.

MMcf. One million cubic feet.

MMcf/d. MMcf per day.

MMcfe. One million cubic feet equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMcfe/d. MMcfe per day.

MMMBtu. One billion British thermal units.

NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

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PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

LINN ENERGY, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2014			December 31, 2013
	(in thousands, except unit amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	38,339		$	52,171
Accounts receivable – trade, net	549,589			488,202
Derivative instruments	91,611			176,130
Other current assets	107,882			99,437
Total current assets	787,421			815,940

Noncurrent assets:
Oil and natural gas properties (successful efforts method)	18,684,209			17,888,559
Less accumulated depletion and amortization	(4,051,761		)	(3,546,284		)
	14,632,448			14,342,275

Other property and equipment	676,294			647,882
Less accumulated depreciation	(135,316		)	(110,939		)
	540,978			536,943

Derivative instruments	175,537			682,002
Other noncurrent assets	132,280			127,804
	307,817			809,806
Total noncurrent assets	15,481,243			15,689,024
Total assets	$	16,268,664		$	16,504,964

LIABILITIES AND UNITHOLDERS’ CAPITAL
Current liabilities:
Accounts payable and accrued expenses	$	860,171		$	849,624
Derivative instruments	59,907			28,176
Other accrued liabilities	138,378			163,375
Current portion of long-term debt	—			211,558
Total current liabilities	1,058,456			1,252,733

Noncurrent liabilities:
Credit facilities	3,418,175			2,733,175
Term loan	500,000			500,000
Senior notes, net	5,726,176			5,725,483
Derivative instruments	8,827			4,649
Other noncurrent liabilities	395,907			397,497
Total noncurrent liabilities	10,049,085			9,360,804

Commitments and contingencies (Note 10)

Unitholders’ capital:
331,667,975 units and 329,661,161 units issued and outstanding at June 30, 2014, and December 31, 2013, respectively	5,854,727			6,291,824
Accumulated deficit	(693,604		)	(400,397		)
	5,161,123			5,891,427
Total liabilities and unitholders’ capital	$	16,268,664		$	16,504,964

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

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LINN ENERGY, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands, except per unit amounts)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	967,850		$	488,207		$	1,906,727		$	950,939
Gains (losses) on oil and natural gas derivatives	(408,788		)	326,733			(650,281		)	218,363
Marketing revenues	30,273			17,222			60,819			27,074
Other revenues	7,616			6,663			13,273			11,509
	596,951			838,825			1,330,538			1,207,885
Expenses:
Lease operating expenses	184,901			83,584			378,934			172,305
Transportation expenses	44,854			29,298			90,484			56,481
Marketing expenses	23,274			9,360			44,346			16,734
General and administrative expenses	66,906			46,305			146,134			104,871
Exploration costs	1,551			818			2,642			3,044
Depreciation, depletion and amortization	274,435			198,629			542,236			396,070
Impairment of long-lived assets	—			(14,851		)	—			42,202
Taxes, other than income taxes	68,531			32,397			134,244			72,068
(Gains) losses on sale of assets and other, net	5,467			(959		)	8,053			2,213
	669,919			384,581			1,347,073			865,988
Other income and (expenses):
Interest expense, net of amounts capitalized	(134,300		)	(103,847		)	(268,113		)	(204,206		)
Loss on extinguishment of debt	—			(4,187		)	—			(4,187		)
Other, net	(2,549		)	(2,182		)	(4,852		)	(3,825		)
	(136,849		)	(110,216		)	(272,965		)	(212,218		)
Income (loss) before income taxes	(209,817		)	344,028			(289,500		)	129,679
Income tax expense (benefit)	(1,947		)	(1,129		)	3,707			6,407
Net income (loss)	$	(207,870	)	$	345,157		$	(293,207	)	$	123,272

Net income (loss) per unit:
Basic	$	(0.64	)	$	1.47		$	(0.91	)	$	0.52
Diluted	$	(0.64	)	$	1.46		$	(0.91	)	$	0.52
Weighted average units outstanding:
Basic	328,844			233,448			328,588			233,313
Diluted	328,844			233,910			328,588			233,800

Distributions declared per unit	$	0.725		$	0.725		$	1.45		$	1.45

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

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LINN ENERGY, LLC

CONDENSED CONSOLIDATED STATEMENT OF UNITHOLDERS’ CAPITAL

(Unaudited)



	Units	Unitholders’ Capital			Accumulated Deficit			Total Unitholders’ Capital
	(in thousands)

December 31, 2013	329,661	$	6,291,824		$	(400,397	)	$	5,891,427
Issuance of units	2,007	7,887			—			7,887
Distributions to unitholders		(480,583		)	—			(480,583		)
Unit-based compensation expenses		32,583			—			32,583
Excess tax benefit from unit-based compensation		3,016			—			3,016
Net loss		—			(293,207		)	(293,207		)
June 30, 2014	331,668	$	5,854,727		$	(693,604	)	$	5,161,123

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

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LINN ENERGY, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
	2014			2013
	(in thousands)
Cash flow from operating activities:
Net income (loss)	$	(293,207	)	$	123,272
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	542,236			396,070
Impairment of long-lived assets	—			42,202
Unit-based compensation expenses	32,583			19,575
Loss on extinguishment of debt	—			4,187
Amortization and write-off of deferred financing fees	6,202			10,905
Losses on sale of assets and other, net	3,506			16,814
Deferred income taxes	3,475			5,725
Derivatives activities:
Total (gains) losses	650,281			(218,363		)
Cash settlements	(23,123		)	144,502
Changes in assets and liabilities:
(Increase) decrease in accounts receivable – trade, net	(61,891		)	36,174
(Increase) decrease in other assets	(6,947		)	2,260
Increase (decrease) in accounts payable and accrued expenses	113,582			(5,319		)
Decrease in other liabilities	(51,062		)	(16,648		)
Net cash provided by operating activities	915,635			561,356

Cash flow from investing activities:
Acquisition of oil and natural gas properties and joint-venture funding	(25,891		)	(64,381		)
Development of oil and natural gas properties	(805,617		)	(495,899		)
Purchases of other property and equipment	(31,411		)	(55,147		)
Proceeds from sale of properties and equipment and other	(11,730		)	210,899
Net cash used in investing activities	(874,649		)	(404,528		)

Cash flow from financing activities:
Proceeds from borrowings	1,095,000			775,000
Repayments of debt	(616,124		)	(560,737		)
Distributions to unitholders	(480,583		)	(341,117		)
Financing fees and other, net	(56,127		)	(30,656		)
Excess tax benefit from unit-based compensation	3,016			591
Net cash used in financing activities	(54,818		)	(156,919		)

Net decrease in cash and cash equivalents	(13,832		)	(91		)
Cash and cash equivalents:
Beginning	52,171			1,243
Ending	$	38,339		$	1,152

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

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

Nature of Business

Linn Energy, LLC (“LINN Energy” or the “Company”) is an independent oil and natural gas company. LINN Energy’s mission is to acquire, develop and maximize cash flow from a growing portfolio of long-life oil and natural gas assets. The Company’s properties are located in the United States (“U.S.”), in the Mid-Continent, the Rockies, the Permian Basin, California, the Hugoton Basin, Michigan, Illinois and east Texas.

Principles of Consolidation and Reporting

The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission (“SEC”) rules and regulations; as such, this report should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method. The Company’s other investment is accounted for at cost.

The condensed consolidated financial statements for previous periods include certain reclassifications that were made to conform to current presentation. Such reclassifications have no impact on previously reported net income (loss), unitholders’ capital or cash flows.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, fair values of commodity derivatives and fair values of assets acquired and liabilities assumed. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers. The ASU will be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption and is effective for fiscal years beginning after December 15, 2016, and interim periods within those years (early adoption prohibited). The Company is currently evaluating the impact, if any, of the adoption of this ASU on its consolidated financial statements and related disclosures.

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 2 – Acquisitions, Joint-Venture Funding and Divestitures

For the six months ended June 30, 2014, the Company paid approximately $25 million, including interest, towards the future funding commitment related to the joint-venture agreement it entered into with an affiliate of Anadarko Petroleum Corporation (“Anadarko”) in April 2012. As of February 2014, the Company had fully funded the total commitment of $400 million.

During the six months ended June 30, 2014, the Company completed small acquisitions of oil and natural gas properties located in its various operating regions. The Company, in the aggregate, paid approximately $1 million in total consideration for these properties.

Properties Exchange – Pending

On May 20, 2014, the Company, through two of its wholly owned subsidiaries, entered into a definitive agreement to trade a portion of its Permian Basin properties to Exxon Mobil Corporation and its affiliates, including its wholly owned subsidiary XTO Energy Inc., for operating interests in the Hugoton Basin. The Company anticipates the transaction will close in the third quarter of 2014, subject to closing conditions. There can be no assurance that all of the conditions to closing will be satisfied.

Acquisitions and Divestiture – Pending

On June 27, 2014, the Company, through one of its wholly owned subsidiaries, entered into a definitive purchase and sale agreement to acquire certain oil and natural gas properties and related assets located primarily in the Rockies, Mid-Continent, east Texas, north Louisiana and south Texas from affiliates of Devon Energy Corporation for a contract price of $2.3 billion. The Company anticipates the acquisition will close in the third quarter of 2014, subject to closing conditions, and has secured $2.3 billion of committed interim financing for the acquisition, subject to final documentation. There can be no assurance that all of the conditions to closing will be satisfied.

On July 18, 2014, the Company, through one of its wholly owned subsidiaries, entered into a definitive purchase and sale agreement to acquire certain oil and natural gas properties located in the Hugoton Basin from Pioneer Natural Resources Company for a contract price of $340 million, including a deposit of $34 million paid in July 2014. The Company anticipates the acquisition will close in the third quarter of 2014, subject to closing conditions, and will be financed with borrowings under the LINN Credit Facility, as defined in Note 6. There can be no assurance that all of the conditions to closing will be satisfied.

On July 24, 2014, the Company, through one of its wholly owned subsidiaries, entered into a definitive purchase and sale agreement to sell its interests in certain non-producing oil and natural gas properties located in the Mid-Continent region for a purchase price of approximately $90 million, subject to closing adjustments. The sale is anticipated to close in the fourth quarter of 2014, subject to closing conditions. There can be no assurance that all of the conditions to closing will be satisfied. The Company plans to use the net proceeds from the sale to repay borrowings under the LINN Credit Facility.

Acquisitions – 2013

Berry Acquisition

On December 16, 2013, the Company completed the transactions contemplated by the merger agreement between the Company, LinnCo, LLC (“LinnCo”), an affiliate of LINN Energy, and Berry Petroleum Company, now Berry Petroleum Company, LLC (“Berry”), under which LinnCo acquired all of the outstanding common shares of Berry and the contribution agreement between LinnCo and the Company, under which LinnCo contributed Berry to the Company in exchange for LINN Energy units. Under the merger agreement, as amended, Berry’s shareholders received 1.68 LinnCo common shares for each Berry common share they owned, totaling 93,756,674 LinnCo common shares. Under the contribution agreement, LinnCo contributed Berry to LINN Energy in exchange for 93,756,674 newly issued LINN Energy units, after which Berry became an indirect wholly owned subsidiary of LINN Energy. The transaction has a value of approximately $4.6 billion, including the assumption of approximately $2.3 billion of Berry’s debt and net of cash acquired of approximately $451 million.

This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated fair values on the acquisition date, while transaction and integration costs associated with the acquisitions were

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

expensed as incurred. The initial accounting for the business combination is not complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition date. The results of operations of the acquisition have been included in the condensed consolidated financial statements since the acquisition date.

The following unaudited pro forma financial information presents a summary of the Company’s consolidated results of operations for the three months and six months ended June 30, 2013, assuming the Berry acquisition had been completed as of January 1, 2013, including adjustments to reflect the values assigned to the net assets acquired:



	Three Months Ended June 30, 2013		Six Months Ended June 30, 2013
	(in thousands, except per unit amounts)

Total revenues and other	$	1,161,137	$	1,806,346
Total operating expenses	$	586,909	$	1,256,821
Net income	$	441,935	$	284,615

Net income per unit:
Basic	$	1.34	$	0.86
Diluted	$	1.34	$	0.86

The pro forma condensed combined statements of operations includes adjustments to:


•	Reflect the results of Berry.


•	Reflect incremental depreciation, depletion and amortization expense, using the units-of-production method, related to oil and natural gas properties acquired and using an estimated useful life of 20 years for other property and equipment.


•	Reflect a reduction in interest expense related to the amortization of the adjustment to fair value of Berry’s debt using the effective interest method.


•	Exclude transaction costs included in the historical statements of operations for the three months and six months ended June 30, 2013, as they reflect nonrecurring charges not expected to have a continuing impact on the combined results.


•	Reflect approximately 93.8 million LINN Energy units assumed to be issued in conjunction with the transaction on January 1, 2013.

Divestiture – 2013

On May 31, 2013, the Company, through one of its wholly owned subsidiaries, together with the Company’s partners, Panther Energy, LLC and Red Willow Mid-Continent, LLC, completed the sale of its interests in certain oil and natural gas properties located in the Mid-Continent region (“Panther Operated Cleveland Properties”) to Midstates Petroleum Company, Inc. At March 31, 2013, the carrying value of the Panther Operated Cleveland Properties was reduced to fair value less costs to sell resulting in an impairment charge of approximately $57 million and the properties were classified as “assets held for sale.” On May 31, 2013, upon the completion of the sale, the Company recorded an adjustment of approximately $15 million to reduce the initial impairment charge recorded in March 2013 resulting in a total impairment charge of approximately $42 million for the six months ended June 30, 2013. The charge is included in “impairment of long-lived assets” on the condensed consolidated statement of operations. Proceeds received for the Company’s portion of its interests in the properties were approximately $219 million, net of costs to sell of approximately $2 million.

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 3 – Unitholders’ Capital

Distributions

Under the Company’s limited liability company agreement, unitholders are entitled to receive a distribution of available cash, which includes cash on hand plus borrowings less any reserves established by the Company’s Board of Directors to provide for the proper conduct of the Company’s business (including reserves for future capital expenditures, including drilling, acquisitions and anticipated future credit needs) or to fund distributions over the next four quarters. Distributions paid by the Company are presented on the condensed consolidated statement of unitholders’ capital and the condensed consolidated statements of cash flows. On July 1, 2014, the Company’s Board of Directors declared a cash distribution of $0.725 per unit with respect to the second quarter of 2014, to be paid in three equal installments of $0.2416 per unit. The first monthly distribution with respect to the second quarter of 2014, totaling approximately $80 million, was paid on July 16, 2014, to unitholders of record as of the close of business on July 11, 2014.

Note 4 – Oil and Natural Gas Properties

Oil and Natural Gas Capitalized Costs

Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:



	June 30, 2014			December 31, 2013
	(in thousands)
Proved properties:
Leasehold acquisition	$	12,329,359		$	12,277,089
Development	4,468,702			3,660,277
Unproved properties	1,886,148			1,951,193
	18,684,209			17,888,559
Less accumulated depletion and amortization	(4,051,761		)	(3,546,284		)
	$	14,632,448		$	14,342,275

Note 5 – Unit-Based Compensation

During the six months ended June 30, 2014, the Company granted 1,447,577 restricted units and 214,875 phantom units to employees, primarily as part of its annual review of its employees’ compensation, including executives, with an aggregate fair value of approximately $56 million. The restricted units and phantom units vest over three years. The Company also granted 212,524 performance units (the maximum number of units available to be earned) to certain executive officers, with an aggregate fair value of approximately $5 million. The initial 2014 performance unit awards vest 50% in two years and 50% in three years from the award date. A summary of unit-based compensation expenses included on the condensed consolidated statements of operations is presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)

General and administrative expenses	$	9,496	$	7,136	$	27,719	$	17,001
Lease operating expenses	1,587		1,177		4,864		2,574
Total unit-based compensation expenses	$	11,083	$	8,313	$	32,583	$	19,575
Income tax benefit	$	4,095	$	3,072	$	12,039	$	7,233

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 6 – Debt

The following summarizes the Company’s outstanding debt:



	June 30, 2014			December 31, 2013
	(in thousands, except percentages)

LINN credit facility ⁽¹⁾	$	2,245,000		$	1,560,000
Berry credit facility ⁽²⁾	1,173,175			1,173,175
Term loan ⁽³⁾	500,000			500,000
10.25% Berry senior notes due June 2014	—			205,257
6.50% senior notes due May 2019	750,000			750,000
6.25% senior notes due November 2019	1,800,000			1,800,000
8.625% senior notes due April 2020	1,300,000			1,300,000
6.75% Berry senior notes due November 2020	299,970			300,000
7.75% senior notes due February 2021	1,000,000			1,000,000
6.375% Berry senior notes due September 2022	599,163			600,000
Net unamortized discounts and premiums	(22,957		)	(18,216		)
Total debt, net	9,644,351			9,170,216
Less current maturities	—			(211,558		)
Total long-term debt, net	$	9,644,351		$	8,958,658


⁽¹⁾	Variable interest rates of 1.90% and 1.92% at June 30, 2014, and December 31, 2013, respectively.


⁽²⁾	Variable interest rates of 2.66% and 2.67% at June 30, 2014, and December 31, 2013, respectively.


⁽³⁾	Variable interest rates of 2.65% and 2.67% at June 30, 2014, and December 31, 2013, respectively.

Fair Value

The Company’s debt is recorded at the carrying amount in the condensed consolidated balance sheets. The carrying amounts of the Company’s Credit Facilities, as defined below, and term loan approximate fair value because the interest rates are variable and reflective of market rates. The Company uses a market approach to determine the fair value of its senior notes using estimates based on prices quoted from third-party financial institutions, which is a Level 2 fair value measurement.



	June 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)

Credit Facilities	$	3,418,175	$	3,418,175	$	2,733,175	$	2,733,175
Term loan	500,000		500,000		500,000		500,000
Senior notes, net	5,726,176		6,091,525		5,937,041		6,162,402
Total debt, net	$	9,644,351	$	10,009,700	$	9,170,216	$	9,395,577

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Credit Facilities

LINN Credit Facility

The Company’s Sixth Amended and Restated Credit Agreement (“LINN Credit Facility”) provides for a revolving credit facility up to the lesser of: (i) the then-effective borrowing base and (ii) the maximum commitment amount of $4.0 billion. At June 30, 2014, the LINN Credit Facility had a borrowing base of $4.5 billion and available borrowing capacity of approximately $1.8 billion, which includes a $5 million reduction for outstanding letters of credit. In April 2014, the Company entered into an amendment to the LINN Credit Facility to extend the maturity from April 2018 to April 2019, among other items.

Redetermination of the borrowing base under the LINN Credit Facility, based primarily on reserve reports that reflect commodity prices at such time, occurs semi-annually, in April and October. The administrative agent, at the direction of certain of the lenders, has the right to request one interim borrowing base redetermination per year. The Company also has the right to request one interim borrowing base redetermination per year, as well as the right to an additional interim redetermination each year in connection with certain acquisitions. Significant declines in commodity prices may result in a decrease in the borrowing base. The Company’s obligations under the LINN Credit Facility are secured by mortgages on certain of its material subsidiaries’ oil and natural gas properties and other personal property as well as a pledge of all ownership interests in the Company’s direct and indirect material subsidiaries. The Company is required to maintain either: 1) mortgages on properties representing at least 80% of the total value of oil and natural gas properties included on the most recent reserve report, or 2) a Collateral Coverage Ratio of at least 2.5 to 1. Collateral Coverage Ratio is defined as the ratio of the present value of future cash flows from proved reserves from the currently mortgaged properties to the lesser of: (i) the then-effective borrowing base and (ii) the maximum commitment amount. Additionally, the obligations under the LINN Credit Facility are guaranteed by all of the Company’s material subsidiaries, other than Berry, and are required to be guaranteed by any future material subsidiaries. The Company is in compliance with all financial and other covenants of the LINN Credit Facility.

At the Company’s election, interest on borrowings under the LINN Credit Facility is determined by reference to either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin between 1.5% and 2.5% per annum (depending on the then-current level of borrowings under the LINN Credit Facility) or the alternate base rate (“ABR”) plus an applicable margin between 0.5% and 1.5% per annum (depending on the then-current level of borrowings under the LINN Credit Facility). Interest is generally payable quarterly for loans bearing interest based on the ABR and at the end of the applicable interest period for loans bearing interest at LIBOR. The Company is required to pay a commitment fee to the lenders under the LINN Credit Facility, which accrues at a rate per annum between 0.375% and 0.5% (depending on the then-current level of borrowings under the LINN Credit Facility) on the average daily unused amount of the maximum commitment amount of the lenders.

In addition, the Company has a $500 million senior secured term loan with certain participants in its lender group under the LINN Credit Facility. Upon the amendment of the LINN Credit Facility in April 2014, the term loan has a maturity date of April 2019, consistent with the maturity of the LINN Credit Facility, and incurs interest based on either the LIBOR plus a margin of 2.5% per annum or the ABR plus a margin of 1.5% per annum, at the Company’s election. Interest is generally payable quarterly for loans bearing interest based on the ABR and at the end of the applicable interest period for loans bearing interest at LIBOR. The term loan may be repaid at the option of the Company without premium or penalty, subject to breakage costs. While the term loan is outstanding, the Company is required to maintain either: 1) mortgages on properties representing at least 80% of the total value of oil and natural gas properties included on the most recent reserve report, or 2) a Term Loan Collateral Coverage Ratio of at least 2.5 to 1. The Term Loan Collateral Coverage Ratio is defined as the ratio of the present value of future cash flows from proved reserves from the currently mortgaged properties to the lesser of: (i) the then-effective borrowing base and (ii) the maximum commitment amount and the aggregate amount of the term loan outstanding. The other terms and conditions of the LINN Credit Facility, including the financial and other restrictive covenants set forth therein, are applicable to the term loan.

Berry Credit Facility

Berry’s Second Amended and Restated Credit Agreement (“Berry Credit Facility”) has a borrowing base of $1.4 billion, subject to lender commitments. At June 30, 2014, lender commitments under the facility were $1.2 billion but there was less than $1 million of available borrowing capacity, including outstanding letters of credit. In February 2014, Berry entered into an amendment to the Berry Credit Facility to amend the terms of certain financial and reporting covenants, and in April 2014,

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Berry entered into an amendment to the Berry Credit Facility to extend the maturity from May 2016 to April 2019 and to amend the terms of certain financial covenants and definitions, among other items.

Redetermination of the borrowing base under the Berry Credit Facility, based primarily on reserve reports that reflect commodity prices at such time, occurs semi-annually, in April and October. The lenders under the Berry Credit Facility and Berry also have the right to request interim borrowing base redeterminations once between scheduled redeterminations. Significant declines in commodity prices may result in a decrease in the borrowing base. Berry’s obligations under the Berry Credit Facility are secured by mortgages on its oil and natural gas properties and other personal property. Berry is required to maintain mortgages on properties representing at least 80% of the present value of its oil and natural gas proved reserves.

Berry is currently in compliance with all financial and other covenants of the Berry Credit Facility. At December 31, 2013, Berry’s Current Ratio (as defined in the Berry Credit Facility), fell short of the requirement under its covenant primarily due to factors related to the transactions between the Company, LinnCo and Berry, including a reassessment of the carrying value of items on Berry’s balance sheet as of the acquisition date and updated accruals as of December 31, 2013. In February 2014, Berry received a waiver of the applicability of that covenant and any noncompliance which may have resulted as of December 31, 2013, and entered into an amendment to its credit facility to address this covenant for future periods. The shortfall and related waiver and amendment had no effect on Berry’s compliance with the indentures governing its outstanding senior notes for the quarter ended December 31, 2013, and Berry was in compliance with all of the covenants under the indentures governing its senior notes at December 31, 2013.

At Berry’s election, interest on borrowings under the Berry Credit Facility is determined by reference to either the LIBOR plus an applicable margin between 1.5% and 2.5% per annum (depending on the then-current level of borrowings under the Berry Credit Facility) or a Base Rate (as defined in the Berry Credit Facility) plus an applicable margin between 0.5% and 1.5% per annum (depending on the then-current level of borrowings under the Berry Credit Facility). Interest is generally payable quarterly for loans bearing interest based on the Base Rate and at the end of the applicable interest period for loans bearing interest at LIBOR. Berry is required to pay a commitment fee to the lenders under the Berry Credit Facility, which accrues at a rate per annum between 0.375% and 0.5% (depending on the then-current level of utilization under the Berry Credit Facility) on the average daily unused amount of the maximum commitment amount of the lenders.

The Company refers to the LINN Credit Facility and the Berry Credit Facility, collectively, as the “Credit Facilities.”

Senior Notes Due May 2019

The Company has $750 million in aggregate principal amount of 6.50% senior notes due May 2019 (the “May 2019 Senior Notes”). In an exchange offer that expired in October 2012, the Company exchanged all of its $750 million outstanding principal amount of May 2019 Senior Notes for an equal amount of new May 2019 Senior Notes. The terms of the new May 2019 Senior Notes are substantially similar in all material respects to those of the outstanding May 2019 Senior Notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding May 2019 Senior Notes do not apply to the new May 2019 Senior Notes.

Senior Notes Due November 2019

The Company has $1.8 billion in aggregate principal amount of 6.25% senior notes due November 2019 (the “November 2019 Senior Notes”). In connection with the issuance and sale of the November 2019 Senior Notes, the Company entered into a Registration Rights Agreement (“November 2019 Registration Rights Agreement”) with the initial purchasers. Under the November 2019 Registration Rights Agreement, the Company agreed to use its reasonable efforts to file with the SEC and cause to become effective a registration statement relating to an offer to issue new notes having terms substantially similar to the November 2019 Senior Notes in exchange for outstanding November 2019 Senior Notes within 400 days after the notes were issued. On March 22, 2013, the Company filed a registration statement on Form S-4 to register exchange notes that are substantially similar to the November 2019 Senior Notes. On June 2, 2014, the registration statement was declared effective and the Company commenced an offer to exchange any and all of its $1.8 billion outstanding principal amount of November 2019 Senior Notes for an equal amount of new November 2019 Senior Notes.

The terms of the new November 2019 Senior Notes are substantially similar in all material respects to those of the outstanding November 2019 Senior Notes, except that the transfer restrictions, registration rights and additional interest provisions relating

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to the outstanding November 2019 Senior Notes do not apply to the new November 2019 Senior Notes. The exchange offer expired on June 28, 2014. The effective date of the registration statement was past the deadline in the registration rights agreement, and therefore, the Company paid additional interest of approximately $15 million since the deadline.

Senior Notes Due April 2020 and Senior Notes Due February 2021

The Company has $1.3 billion in aggregate principal amount of 8.625% senior notes due April 2020 (the “April 2020 Senior Notes”) and $1.0 billion in aggregate principal amount of 7.75% senior notes due February 2021 (the “February 2021 Senior Notes,” and together with the April 2020 Senior Notes, the “2010 Issued Senior Notes”). The restrictive legends from each of the 2010 Issued Senior Notes have been removed making them freely tradable (other than with respect to persons that are affiliates of the Company), thereby terminating the Company’s obligations under each of the registration rights agreements entered into in connection with the issuance of the 2010 Issued Senior Notes.

Berry Senior Notes Due November 2020

Berry has $300 million in aggregate principal amount of 6.75% senior notes due November 2020 (the “Berry November 2020 Senior Notes”). The Berry November 2020 Senior Notes were recorded at their fair value of approximately $310 million on the Berry acquisition date including a $10 million premium which is being amortized to interest expense over the life of the related notes.

Berry Senior Notes Due September 2022

Berry has $599 million in aggregate principal amount of 6.375% senior notes due September 2022 (the “Berry September 2022 Senior Notes”). The Berry September 2022 Senior Notes were recorded at their fair value of approximately $607 million on the Berry acquisition date including a $7 million premium which is being amortized to interest expense over the life of the related notes.

Repurchases of Berry Senior Notes

In February 2014, in accordance with the indentures related to Berry’s senior notes, the Company repurchased through cash tender offers $321,000, $30,000 and $837,000 of Berry’s 10.25% senior notes due June 2014 (the “Berry June 2014 Senior Notes”), November 2020 Senior Notes and September 2022 Senior Notes, respectively.

Payment of Berry June 2014 Senior Notes

On May 30, 2014, in accordance with the provisions of the indenture related to the Berry June 2014 Senior Notes, the Company paid in full the remaining outstanding principal amount of approximately $205 million.

Senior Notes Covenants

The Company’s senior notes contain covenants that, among other things, may limit its ability to: (i) pay distributions on, purchase or redeem the Company’s units or redeem its subordinated debt; (ii) make investments; (iii) incur or guarantee additional indebtedness or issue certain types of equity securities; (iv) create certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of the Company’s assets; (vii) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. The Company is in compliance with all financial and other covenants of its senior notes.

Berry’s senior notes contain covenants that, among other things, may limit its ability to: (i) incur or guarantee additional indebtedness; (ii) pay distributions on Berry’s equity or redeem its subordinated debt; (iii) create certain liens; (iv) enter into agreements that restrict distributions or other payments from Berry’s restricted subsidiaries to Berry; (v) sell assets; (vi) engage in transactions with affiliates; and (vii) consolidate, merge or transfer all or substantially all of Berry’s assets. Berry is in compliance with all financial and other covenants of its senior notes.

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Note 7 – Derivatives

Commodity Derivatives

The Company hedges a significant portion of its forecasted production to reduce exposure to fluctuations in the prices of oil and natural gas and provide long-term cash flow predictability to manage its business, service debt and pay distributions. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. As a result, currently, the Company directly hedges only its oil and natural gas production.

The Company enters into commodity hedging transactions primarily in the form of swap contracts that are designed to provide a fixed price and, from time to time, put options that are designed to provide a fixed price floor with the opportunity for upside. The Company enters into these transactions with respect to a portion of its projected production to provide an economic hedge of the risk related to the future commodity prices received. The Company does not enter into derivative contracts for trading purposes. In connection with the Berry acquisition (see Note 2), the Company assumed certain derivative contracts that Berry had entered into prior to the acquisition date, including oil swaps, oil trade month roll swaps and oil collars through 2014, and oil basis swaps and oil three-way collars through 2015. The Company did not designate any of these contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. See Note 8 for fair value disclosures about oil and natural gas commodity derivatives.

The following table summarizes derivative positions for the periods indicated as of June 30, 2014:



	July 1 - December 31, 2014		2015		2016		2017		2018
Natural gas positions:
Fixed price swaps (NYMEX Henry Hub):
Hedged volume (MMMBtu)	49,100		118,041		121,841		120,122		36,500
Average price ($/MMBtu)	$	5.25	$	5.19	$	4.20	$	4.26	$	5.00
Put options (NYMEX Henry Hub):
Hedged volume (MMMBtu)	40,141		71,854		76,269		66,886		—
Average price ($/MMBtu)	$	5.00	$	5.00	$	5.00	$	4.88	$	—
Oil positions:
Fixed price swaps (NYMEX WTI): ⁽¹⁾
Hedged volume (MBbls)	8,485		11,599		11,465		4,755		—
Average price ($/Bbl)	$	92.44	$	96.23	$	90.56	$	89.02	$	—
Collars (NYMEX WTI):
Hedged volume (MBbls)	368		—		—		—		—
Average floor price ($/Bbl)	$	90.00	$	—	$	—	$	—	$	—
Average ceiling price ($/Bbl)	$	102.87	$	—	$	—	$	—	$	—
Three-way collars (NYMEX WTI):
Hedged volume (MBbls)	1,564		1,095		—		—		—
Short put ($/Bbl)	$	72.11	$	70.00	$	—	$	—	$	—
Long put ($/Bbl)	$	93.76	$	90.00	$	—	$	—	$	—
Short call ($/Bbl)	$	109.79	$	101.62	$	—	$	—	$	—

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	July 1 - December 31, 2014			2015			2016			2017			2018
Put options (NYMEX WTI):
Hedged volume (MBbls)	1,996			3,426			3,271			384			—
Average price ($/Bbl)	$	91.30		$	90.00		$	90.00		$	90.00		$	—
Three-way collars (ICE Brent):
Hedged volume (MBbls)	184			—			—			—			—
Short put ($/Bbl)	$	80.00		$	—		$	—		$	—		$	—
Long put ($/Bbl)	$	100.00		$	—		$	—		$	—		$	—
Short call ($/Bbl)	$	114.05		$	—		$	—		$	—		$	—
Natural gas basis differential positions: ⁽²⁾
Panhandle basis swaps:
Hedged volume (MMMBtu)	40,020			87,162			59,954			59,138			16,425
Hedged differential ($/MMBtu)	$	(0.33	)	$	(0.33	)	$	(0.32	)	$	(0.33	)	$	(0.33	)
NWPL Rockies basis swaps:
Hedged volume (MMMBtu)	20,619			43,292			46,294			38,880			10,804
Hedged differential ($/MMBtu)	$	(0.20	)	$	(0.20	)	$	(0.20	)	$	(0.19	)	$	(0.19	)
MichCon basis swaps:
Hedged volume (MMMBtu)	4,784			9,344			7,768			7,437			2,044
Hedged differential ($/MMBtu)	$	0.08		$	0.06		$	0.05		$	0.05		$	0.05
Houston Ship Channel basis swaps:
Hedged volume (MMMBtu)	2,650			4,891			4,575			3,604			986
Hedged differential ($/MMBtu)	$	(0.10	)	$	(0.10	)	$	(0.10	)	$	(0.08	)	$	(0.08	)
Permian basis swaps:
Hedged volume (MMMBtu)	2,466			5,074			4,219			4,819			1,314
Hedged differential ($/MMBtu)	$	(0.21	)	$	(0.21	)	$	(0.20	)	$	(0.20	)	$	(0.20	)
Oil basis differential positions:
ICE Brent - NYMEX WTI basis swaps:
Hedged volume (MBbls)	1,840			2,920			—			—			—
Hedged differential ($/Bbl)	$	11.60		$	11.60		$	—		$	—		$	—
Oil timing differential positions:
Trade month roll swaps (NYMEX WTI): ⁽³⁾
Hedged volume (MBbls)	4,577			7,251			7,446			6,486			—
Hedged differential ($/Bbl)	$	0.24		$	0.24		$	0.25		$	0.25		$	—

⁽¹⁾

Includes certain outstanding fixed price oil swaps of approximately 5,384 MBbls which may be extended annually at a price of $100.00 per Bbl for each of the years ending December 31, 2017, and December 31, 2018, and $90.00 per Bbl for the year ending December 31, 2019, if the counterparties determine that the strike prices are in-the-money on a designated date in each respective preceding year. The extension for each year is exercisable without respect to the other years.


⁽²⁾	Settle on the respective pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.

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⁽³⁾

The Company hedges the timing risk associated with the sales price of oil in the Mid-Continent, Hugoton Basin and Permian Basin regions. In these regions, the Company generally sells oil for the delivery month at a sales price based on the average NYMEX WTI price during that month, plus an adjustment calculated as a spread between the weighted average prices of the delivery month, the next month and the following month during the period when the delivery month is prompt (the “trade month roll”).

Settled derivatives on natural gas production for the three months and six months ended June 30, 2014, included volumes of 44,136 MMMBtu and 87,787 MMMBtu, respectively, at an average contract price of $5.14 per MMBtu. Settled derivatives on oil production for the three months and six months ended June 30, 2014, included volumes of 6,230 MBbls and 12,391 MBbls, respectively, at an average contract price of $92.39 per Bbl. Settled derivatives on natural gas production for the three months and six months ended June 30, 2013, included volumes of 43,253 MMMBtu and 86,031 MMMBtu, respectively, at an average contract price of $5.29 per MMBtu. Settled derivatives on oil production for the three months and six months ended June 30, 2013, included volumes of 3,734 MBbls and 7,426 MBbls, respectively, at an average contract price of $95.57 per Bbl. The natural gas derivatives are settled based on the closing price of NYMEX natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside FERC’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing prices of NYMEX WTI and ICE Brent crude oil for each day of the delivery month.

Balance Sheet Presentation

The Company’s commodity derivatives are presented on a net basis in “derivative instruments” on the condensed consolidated balance sheets. The following summarizes the fair value of derivatives outstanding on a gross basis:



	June 30, 2014		December 31, 2013
	(in thousands)
Assets:
Commodity derivatives	$	551,636	$	1,048,212
Liabilities:
Commodity derivatives	$	353,222	$	222,905

By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are current participants or affiliates of participants in its Credit Facilities or were participants or affiliates of participants in its Credit Facilities at the time it originally entered into the derivatives. The Credit Facilities are secured by the Company’s oil, natural gas and NGL reserves; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties. The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $552 million at June 30, 2014. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

Gains (Losses) on Derivatives

Gains and losses on derivatives were net losses of approximately $409 million and $650 million for the three months and six months ended June 30, 2014, respectively. Net losses for the three months and six months ended June 30, 2014, include cash settlement payments of approximately $9 million and $23 million, respectively. Gains and losses on derivatives were net gains of approximately $327 million and $218 million for the three months and six months ended June 30, 2013, respectively. Net gains for the three months and six months ended June 30, 2013, include cash settlement receipts of approximately $59 million and $145 million, respectively. These amounts are reported on the condensed consolidated statements of operations in “gains (losses) on oil and natural gas derivatives.”

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Note 8 – Fair Value Measurements on a Recurring Basis

The Company accounts for its commodity derivatives at fair value (see Note 7) on a recurring basis. The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those securities trade in active markets. Assumed credit risk adjustments, based on published credit ratings, public bond yield spreads and credit default swap spreads, are applied to the Company’s commodity derivatives.

The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:



	June 30, 2014
	Level 2		Netting ⁽¹⁾			Total
	(in thousands)
Assets:
Commodity derivatives	$	551,636	$	(284,488	)	$	267,148
Liabilities:
Commodity derivatives	$	353,222	$	(284,488	)	$	68,734



	December 31, 2013
	Level 2		Netting ⁽¹⁾			Total
	(in thousands)
Assets:
Commodity derivatives	$	1,048,212	$	(190,080	)	$	858,132
Liabilities:
Commodity derivatives	$	222,905	$	(190,080	)	$	32,825


⁽¹⁾	Represents counterparty netting under agreements governing such derivatives.

Note 9 – Asset Retirement Obligations

Asset retirement obligations associated with retiring tangible long-lived assets are recognized as a liability in the period in which a legal obligation is incurred and becomes determinable and are included in “other accrued liabilities” and “other noncurrent liabilities” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors (2.0% for the six months ended June 30, 2014); and (iv) a credit-adjusted risk-free interest rate (average of 5.4% for the six months ended June 30, 2014). These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

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(Unaudited)

The following presents a reconciliation of the asset retirement obligations (in thousands):



Asset retirement obligations at December 31, 2013	$	289,321
Liabilities added from drilling	5,673
Current year accretion expense	9,570
Settlements	(9,947		)
Revision of estimates	9,130
Asset retirement obligations at June 30, 2014	$	303,747

Note 10 – Commitments and Contingencies

The Company has been named as a defendant in a number of lawsuits, including claims from royalty owners related to disputed royalty payments and royalty valuations. With respect to a certain statewide class action case, the parties in this case are currently engaged in settlement negotiations and based on the current status of those negotiations, the Company estimates a range of possible loss of $1 million to $4.5 million for which an appropriate reserve has been established. For a certain statewide class action royalty payment dispute where a reserve has not yet been established, the Company has denied that it has any liability on the claims and has raised arguments and defenses that, if accepted by the court, will result in no loss to the Company. Based on the 10^th Circuit Court of Appeals’ decision to reverse class certification orders in two unrelated certification cases, the court has permitted additional limited discovery prior to the briefing and hearing on class certification. Briefing and the hearing on class certification have not yet been set by the court. As a result, the Company is unable to estimate a possible loss, or range of possible loss, if any. In addition, the Company is involved in various other disputes arising in the ordinary course of business. The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.

Prior to the Company’s acquisition of Berry, Berry became, and continues to be, a defendant in a certain statewide royalty class action case, in which the parties have entered into a settlement agreement to settle past claims for approximately $2.4 million. Subject to approval of the settlement agreement by the court, Berry and the Company anticipate distribution of settlement funds to begin late in the third quarter or early fourth quarter of 2014.

In the summer of 2013, several class action complaints were filed in the United States District Court, Southern District of Texas and the United States District Court, Southern District of New York (the “SDNY”) against LINN Energy, LinnCo, certain of their officers and directors and the various underwriters for LinnCo’s initial public offering (these cases were subsequently consolidated in the SDNY (the “Combined Actions”)). These cases collectively asserted claims based on allegations that LINN Energy made false or misleading statements relating to its hedging strategy, the cash flow available for distribution to unitholders, and LINN Energy’s energy production in its Exchange Act filings and additional claims based on alleged misstatements relating to these issues in the prospectus and registration statement for LinnCo’s initial public offering.

In November 2013, LINN Energy and the other defendants filed a motion to dismiss the Combined Actions. On July 8, 2014, the Court dismissed the plaintiff’s claims with prejudice concluding that the plaintiff failed to demonstrate any material misstatement or omission by LINN Energy or LinnCo.

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behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants (the “Parker Family Trust Action”) (the Lombardo Action, Feldman Rev. Trust Action, and Parker Family Trust Action together, the “Texas Federal Court Derivative Actions”) (the Texas State Court Derivative Action and Texas Federal Court Derivative Actions together, the “Texas Derivative Actions”). On May 28, 2014, Bill McKinnon, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants (the “McKinnon Action”) in the Delaware Court of Chancery (the “Delaware Derivative Action”) (the Delaware Derivative Action and the Texas Derivative Actions collectively, the “Derivative Actions”). The Derivative Actions assert derivative claims on behalf of LINN Energy against the individual defendants for alleged breaches of fiduciary duty, waste of corporate assets, mismanagement, abuse of control, and unjust enrichment based on factual allegations similar to those in the Combined Actions. The cases are in their preliminary stages and it is possible that additional similar actions could be filed in the District Court of Harris County, Texas, the Delaware Court of Chancery, or in other jurisdictions. As a result, the Company is unable to estimate a possible loss, or range of possible loss, if any.

During the six months ended June 30, 2014, and June 30, 2013, the Company made no significant payments to settle any legal, environmental or tax proceedings. The Company regularly analyzes current information and accrues for probable liabilities on the disposition of certain matters as necessary. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

In 2008, Lehman Brothers Holdings Inc. and Lehman Brothers Commodity Services Inc. (together “Lehman”), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. In March 2011, the Company and Lehman entered into Termination Agreements under which the Company was granted general unsecured claims against Lehman in the amount of $51 million (the “Company Claim”). In December 2011, a Chapter 11 Plan (“Lehman Plan”) was approved by the Bankruptcy Court. Based on the recovery estimates described in the approved disclosure statement relating to the Lehman Plan, the Company expects to ultimately receive a substantial portion of the Company Claim. In April 2014 and April 2013, the Company received approximately $3 million and $5 million, respectively, of the Company Claim of which both amounts are included in “gains (losses) on oil and natural gas derivatives” on the condensed consolidated statements of operations. In the aggregate, the Company has received approximately $42 million of the Company Claim and additional distributions are expected to occur in the future.

Note 11 – Earnings Per Unit

Basic earnings per unit is computed by dividing net earnings attributable to unitholders by the weighted average number of units outstanding during each period. Diluted earnings per unit is computed by adjusting the average number of units outstanding for the dilutive effect, if any, of unit equivalents. The Company uses the treasury stock method to determine the dilutive effect.

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

The following table provides a reconciliation of the numerators and denominators of the basic and diluted per unit computations for net income (loss):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands, except per unit data)

Net income (loss)	$	(207,870	)	$	345,157		$	(293,207	)	$	123,272
Allocated to participating securities	(2,154		)	(2,629		)	(4,306		)	(2,599		)
	$	(210,024	)	$	342,528		$	(297,513	)	$	120,673

Basic net income (loss) per unit	$	(0.64	)	$	1.47		$	(0.91	)	$	0.52
Diluted net income (loss) per unit	$	(0.64	)	$	1.46		$	(0.91	)	$	0.52

Basic weighted average units outstanding	328,844			233,448			328,588			233,313
Dilutive effect of unit equivalents	—			462			—			487
Diluted weighted average units outstanding	328,844			233,910			328,588			233,800

Basic units outstanding excludes the effect of weighted average anti-dilutive unit equivalents related to approximately 6 million unit options and warrants for the three months and six months ended June 30, 2014, and 3 million for the three months and six months ended June 30, 2013. All equivalent units were antidilutive for the three months and six months ended June 30, 2014.

Note 12 – Income Taxes

The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Company is not a taxable entity, it does not directly pay federal and state income taxes and recognition has not been given to federal and state income taxes for the operations of the Company. Amounts recognized for income taxes are reported in “income tax expense (benefit)” on the condensed consolidated statements of operations.

Note 13 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows

“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:



	June 30, 2014		December 31, 2013
	(in thousands)

Accrued compensation	$	31,702	$	55,257
Accrued interest	92,019		93,998
Asset retirement obligations	12,616		6,270
Other	2,041		7,850
	$	138,378	$	163,375

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:



	Six Months Ended June 30,
	2014			2013
	(in thousands)

Cash payments for interest, net of amounts capitalized	$	264,141		$	192,517
Cash payments for income taxes	$	—		$	14

Noncash investing activities:
In connection with the acquisition of oil and natural gas properties and joint-venture funding, assets were acquired and liabilities were assumed as follows:
Fair value of assets acquired	$	4,242		$	7,655
Cash (paid) received	(1,139		)	3,231
Receivables from sellers	—			1,792
Payables to sellers	—			(6,854		)
Liabilities assumed	$	3,103		$	5,824

Included in “acquisition of oil and natural gas properties and joint-venture funding” on the condensed consolidated statements of cash flows for the six months ended June 30, 2014, and June 30, 2013, is approximately $25 million and $68 million, respectively, paid by the Company towards the future funding commitment related to the joint-venture agreement entered into with Anadarko in April 2012 (see Note 2).

For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. Restricted cash of approximately $6 million is included in “other noncurrent assets” on the condensed consolidated balance sheets at June 30, 2014, and December 31, 2013, and primarily represents cash deposited by the Company into a separate account and designated for asset retirement obligations in accordance with contractual agreements.

The Company manages its working capital and cash requirements to borrow only as needed from its Credit Facilities. At December 31, 2013, net outstanding checks of approximately $48 million were reclassified and included in “accounts payable and accrued expenses” on the condensed consolidated balance sheet. At June 30, 2014, there were no net outstanding checks reclassified. The Company presents net outstanding checks as cash flows from financing activities on the condensed consolidated statements of cash flows.

Note 14 – Related Party Transactions

LinnCo

LinnCo, an affiliate of LINN Energy, was formed on April 30, 2012. LinnCo’s initial sole purpose was to own units in LINN Energy. In connection with the acquisition of Berry, LinnCo amended its limited liability company agreement to permit, among other things, the acquisition and subsequent contribution of assets to LINN Energy. All of LinnCo’s common shares are held by the public. As of June 30, 2014, LinnCo had no significant assets or operations other than those related to its interest in LINN Energy and owned approximately 39% of LINN Energy’s outstanding units.

LINN Energy has agreed to provide to LinnCo, or to pay on LinnCo’s behalf, any legal, accounting, tax advisory, financial advisory and engineering fees, printing costs or other administrative and out-of-pocket expenses incurred by LinnCo, along with any other expenses incurred in connection with any public offering of shares in LinnCo or incurred as a result of being a publicly traded entity. These expenses include costs associated with annual, quarterly and other reports to holders of LinnCo shares, tax return and Form 1099 preparation and distribution, NASDAQ listing fees, printing costs, independent auditor fees and expenses, legal counsel fees and expenses, limited liability company governance and compliance expenses and registrar and transfer agent fees. In addition, the Company has agreed to indemnify LinnCo and its officers and directors for damages

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

suffered or costs incurred (other than income taxes payable by LinnCo) in connection with carrying out LinnCo’s activities. All expenses and costs paid by LINN Energy on LinnCo’s behalf are accounted for as investment at cost.

For the three months and six months ended June 30, 2014, LinnCo incurred total general and administrative expenses and certain offering costs of approximately $749,000 and $1.5 million, respectively, all of which had been paid by LINN Energy on LinnCo’s behalf as of June 30, 2014. The expenses for the three months and six months ended June 30, 2014, include approximately $471,000 and $941,000, respectively, related to services provided by LINN Energy necessary for the conduct of LinnCo’s business, such as accounting, legal, tax, information technology and other expenses. In addition, during the six months ended June 30, 2014, LINN Energy paid approximately $11 million on LinnCo’s behalf for general and administrative expenses incurred by LinnCo in 2013.

For the three months and six months ended June 30, 2013, LinnCo incurred total general and administrative expenses and certain offering costs of approximately $3 million and $15 million, respectively, of which approximately $8 million had been paid by LINN Energy on LinnCo’s behalf as of June 30, 2013. The expenses for the three months and six months ended June 30, 2013, included approximately $2 million and $13 million, respectively, of transaction costs related to professional services rendered by third parties in connection with the Berry acquisition. The expenses for the three months and six months ended June 30, 2013, also included approximately $344,000 and $806,000, respectively, related to services provided by LINN Energy necessary for the conduct of LinnCo’s business, such as accounting, legal, tax, information technology and other expenses.

During the three months and six months ended June 30, 2014, the Company paid approximately $93 million and $186 million, respectively, in distributions to LinnCo attributable to LinnCo’s interest in LINN Energy. During the three months and six months ended June 30, 2013, the Company paid approximately $25 million and $50 million, respectively, in distributions to LinnCo attributable to LinnCo’s interest in LINN Energy.

Other

One of the Company’s directors is the President and Chief Executive Officer of Superior Energy Services, Inc. (“Superior”), which provides oilfield services to the Company. For the three months and six months ended June 30, 2014, the Company paid approximately $8 million and $12 million, respectively, and for the three months and six months ended June 30, 2013, the Company paid approximately $7 million and $13 million, respectively, to Superior and its subsidiaries for services rendered to the Company. The transactions associated with these payments were consummated on terms equivalent to those that prevail in arm’s-length transactions.

Note 15 – Subsidiary Guarantors

LINN Energy, LLC’s November 2019 Senior Notes, May 2019 Senior Notes and 2010 Issued Senior Notes are guaranteed by all of the Company’s material subsidiaries, other than Berry which is an indirect wholly owned subsidiary of the Company.

The following condensed consolidating financial information presents the financial information of LINN Energy, LLC, the guarantor subsidiaries and the non-guarantor subsidiary in accordance with SEC Regulation S-X Rule 3-10. The condensed consolidating financial information for the co-issuer, Linn Energy Finance Corp., is not presented as it has no assets, operations or cash flows. The financial information may not necessarily be indicative of the financial position or results of operations had the guarantor subsidiaries or non-guarantor subsidiary operated as independent entities. There are no restrictions on the Company’s ability to obtain cash dividends or other distributions of funds from the guarantor subsidiaries.

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

June 30, 2014



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	32		$	35,818		$	2,489		$	—		$	38,339
Accounts receivable – trade, net	—			393,012			156,577			—			549,589
Accounts receivable – affiliates	4,025,707			26,914			—			(4,052,621		)	—
Derivative instruments	—			89,541			2,070			—			91,611
Other current assets	476			77,171			30,235			—			107,882
Total current assets	4,026,215			622,456			191,371			(4,052,621		)	787,421

Noncurrent assets:
Oil and natural gas properties (successful efforts method)	—			13,558,084			5,126,125			—			18,684,209
Less accumulated depletion and amortization	—			(3,901,130		)	(150,631		)	—			(4,051,761		)
	—			9,656,954			4,975,494			—			14,632,448

Other property and equipment	—			586,438			89,856			—			676,294
Less accumulated depreciation	—			(131,526		)	(3,790		)	—			(135,316		)
	—			454,912			86,066			—			540,978

Derivative instruments	—			174,327			1,210			—			175,537
Notes receivable – affiliates	114,400			—			—			(114,400		)	—
Investments in consolidated subsidiaries	8,540,562			—			—			(8,540,562		)	—
Other noncurrent assets, net	105,004			11,072			16,204			—			132,280
	8,759,966			185,399			17,414			(8,654,962		)	307,817
Total noncurrent assets	8,759,966			10,297,265			5,078,974			(8,654,962		)	15,481,243
Total assets	$	12,786,181		$	10,919,721		$	5,270,345		$	(12,707,583	)	$	16,268,664

LIABILITIES AND UNITHOLDERS’ CAPITAL
Current liabilities:
Accounts payable and accrued expenses	$	1,822		$	570,680		$	287,669		$	—		$	860,171
Accounts payable – affiliates	—			4,026,182			26,439			(4,052,621		)	—
Derivative instruments	—			28,332			31,575			—			59,907
Other accrued liabilities	75,773			43,045			19,560			—			138,378
Total current liabilities	77,595			4,668,239			365,243			(4,052,621		)	1,058,456

Noncurrent liabilities:
Credit facilities	2,245,000			—			1,173,175			—			3,418,175
Term loan	500,000			—			—			—			500,000
Senior notes, net	4,811,496			—			914,680			—			5,726,176
Notes payable – affiliates	—			114,400			—			(114,400		)	—
Derivative instruments	—			8,827			—			—			8,827
Other noncurrent liabilities	—			211,316			184,591			—			395,907
Total noncurrent liabilities	7,556,496			334,543			2,272,446			(114,400		)	10,049,085

Unitholders’ capital:
Units issued and outstanding	5,845,694			4,833,310			2,493,923			(7,318,200		)	5,854,727
Accumulated income (deficit)	(693,604		)	1,083,629			138,733			(1,222,362		)	(693,604		)
	5,152,090			5,916,939			2,632,656			(8,540,562		)	5,161,123
Total liabilities and unitholders’ capital	$	12,786,181		$	10,919,721		$	5,270,345		$	(12,707,583	)	$	16,268,664

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2013



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	52		$	1,078		$	51,041		$	—		$	52,171
Accounts receivable – trade, net	—			365,347			122,855			—			488,202
Accounts receivable – affiliates	4,212,348			16,950			—			(4,229,298		)	—
Derivative instruments	—			170,534			5,596			—			176,130
Other current assets	330			68,274			30,833			—			99,437
Total current assets	4,212,730			622,183			210,325			(4,229,298		)	815,940

Noncurrent assets:
Oil and natural gas properties (successful efforts method)	—			13,074,900			4,813,659			—			17,888,559
Less accumulated depletion and amortization	—			(3,535,890		)	(10,394		)	—			(3,546,284		)
	—			9,539,010			4,803,265			—			14,342,275

Other property and equipment	—			564,756			83,126			—			647,882
Less accumulated depreciation	—			(110,706		)	(233		)	—			(110,939		)
	—			454,050			82,893			—			536,943

Derivative instruments	—			679,491			2,511			—			682,002
Notes receivable – affiliates	86,200			—			—			(86,200		)	—
Investments in consolidated subsidiaries	8,433,290			—			—			(8,433,290		)	—
Other noncurrent assets, net	108,785			10,968			8,051			—			127,804
	8,628,275			690,459			10,562			(8,519,490		)	809,806
Total noncurrent assets	8,628,275			10,683,519			4,896,720			(8,519,490		)	15,689,024
Total assets	$	12,841,005		$	11,305,702		$	5,107,045		$	(12,748,788	)	$	16,504,964

LIABILITIES AND UNITHOLDERS’ CAPITAL
Current liabilities:
Accounts payable and accrued expenses	$	14,529		$	587,774		$	247,321		$	—		$	849,624
Accounts payable – affiliates	—			4,212,348			16,950			(4,229,298		)	—
Derivative instruments	—			7,783			20,393			—			28,176
Other accrued liabilities	75,071			59,311			28,993			—			163,375
Current portion of long-term debt	—			—			211,558			—			211,558
Total current liabilities	89,600			4,867,216			525,215			(4,229,298		)	1,252,733

Noncurrent liabilities:
Credit facilities	1,560,000			—			1,173,175			—			2,733,175
Term loan	500,000			—			—			—			500,000
Senior notes, net	4,809,055			—			916,428			—			5,725,483
Notes payable – affiliates	—			86,200			—			(86,200		)	—
Derivative instruments	—			—			4,649			—			4,649
Other noncurrent liabilities	—			205,406			192,091			—			397,497
Total noncurrent liabilities	6,869,055			291,606			2,286,343			(86,200		)	9,360,804

Unitholders’ capital:
Units issued and outstanding	6,282,747			4,833,354			2,315,460			(7,139,737		)	6,291,824
Accumulated income (deficit)	(400,397		)	1,313,526			(19,973		)	(1,293,553		)	(400,397		)
	5,882,350			6,146,880			2,295,487			(8,433,290		)	5,891,427
Total liabilities and unitholders’ capital	$	12,841,005		$	11,305,702		$	5,107,045		$	(12,748,788	)	$	16,504,964

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2014



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	—		$	607,470		$	360,380		$	—		$	967,850
Losses on oil and natural gas derivatives	—			(383,226		)	(25,562		)	—			(408,788		)
Marketing revenues	—			17,839			12,434			—			30,273
Other revenues	—			7,607			9			—			7,616
	—			249,690			347,261			—			596,951
Expenses:
Lease operating expenses	—			91,547			93,354			—			184,901
Transportation expenses	—			37,371			7,483			—			44,854
Marketing expenses	—			13,549			9,725			—			23,274
General and administrative expenses	—			38,584			28,322			—			66,906
Exploration costs	—			1,551			—			—			1,551
Depreciation, depletion and amortization	—			196,682			77,753			—			274,435
Taxes, other than income taxes	—			45,052			23,479			—			68,531
Losses on sale of assets and other, net	—			1,210			4,257			—			5,467
	—			425,546			244,373			—			669,919
Other income and (expenses):
Interest expense, net of amounts capitalized	(111,603		)	789			(23,486		)	—			(134,300		)
Interest expense – affiliates	—			(1,859		)	—			1,859			—
Interest income – affiliates	1,859			—			—			(1,859		)	—
Equity in losses from consolidated subsidiaries	(96,084		)	—			—			96,084			—
Other, net	(2,042		)	(62		)	(445		)	—			(2,549		)
	(207,870		)	(1,132		)	(23,931		)	96,084			(136,849		)
Income (loss) before income taxes	(207,870		)	(176,988		)	78,957			96,084			(209,817		)
Income tax benefit	—			(1,896		)	(51		)	—			(1,947		)
Net income (loss)	$	(207,870	)	$	(175,092	)	$	79,008		$	96,084		$	(207,870	)

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2013



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary		Eliminations			Consolidated
	(in thousands)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	—		$	488,207		$	—	$	—		$	488,207
Gains on oil and natural gas derivatives	—			326,733			—		—			326,733
Marketing revenues	—			17,222			—		—			17,222
Other revenues	—			6,663			—		—			6,663
	—			838,825			—		—			838,825
Expenses:
Lease operating expenses	—			83,584			—		—			83,584
Transportation expenses	—			29,298			—		—			29,298
Marketing expenses	—			9,360			—		—			9,360
General and administrative expenses	—			46,305			—		—			46,305
Exploration costs	—			818			—		—			818
Depreciation, depletion and amortization	—			198,629			—		—			198,629
Impairment of long-lived assets	—			(14,851		)	—		—			(14,851		)
Taxes, other than income taxes	—			32,397			—		—			32,397
Gains on sale of assets and other, net	—			(959		)	—		—			(959		)
	—			384,581			—		—			384,581
Other income and (expenses):
Interest expense, net of amounts capitalized	(103,207		)	(640		)	—		—			(103,847		)
Interest expense – affiliates	—			(1,412		)	—		1,412			—
Interest income – affiliates	1,412			—			—		(1,412		)	—
Loss on extinguishment of debt	(4,187		)	—			—		—			(4,187		)
Equity in earnings from consolidated subsidiaries	453,288			—			—		(453,288		)	—
Other, net	(2,149		)	(33		)	—		—			(2,182		)
	345,157			(2,085		)	—		(453,288		)	(110,216		)
Income before income taxes	345,157			452,159			—		(453,288		)	344,028
Income tax benefit	—			(1,129		)	—		—			(1,129		)
Net income	$	345,157		$	453,288		$	—	$	(453,288	)	$	345,157

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2014



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	—		$	1,213,231		$	693,496		$	—		$	1,906,727
Losses on oil and natural gas derivatives	—			(628,184		)	(22,097		)	—			(650,281		)
Marketing revenues	—			33,570			27,249			—			60,819
Other revenues	—			13,280			(7		)	—			13,273
	—			631,897			698,641			—			1,330,538
Expenses:
Lease operating expenses	—			195,549			183,385			—			378,934
Transportation expenses	—			75,008			15,476			—			90,484
Marketing expenses	—			23,640			20,706			—			44,346
General and administrative expenses	—			74,321			71,813			—			146,134
Exploration costs	—			2,642			—			—			2,642
Depreciation, depletion and amortization	—			395,852			146,384			—			542,236
Taxes, other than income taxes	—			87,736			46,508			—			134,244
Losses on sale of assets and other, net	—			429			7,624			—			8,053
	—			855,177			491,896			—			1,347,073
Other income and (expenses):
Interest expense, net of amounts capitalized	(221,253		)	627			(47,487		)	—			(268,113		)
Interest expense – affiliates	—			(3,409		)	—			3,409			—
Interest income – affiliates	3,409			—			—			(3,409		)	—
Equity in losses from consolidated subsidiaries	(71,191		)	—			—			71,191			—
Other, net	(4,172		)	(46		)	(634		)	—			(4,852		)
	(293,207		)	(2,828		)	(48,121		)	71,191			(272,965		)
Income (loss) before income taxes	(293,207		)	(226,108		)	158,624			71,191			(289,500		)
Income tax expense (benefit)	—			3,789			(82		)	—			3,707
Net income (loss)	$	(293,207	)	$	(229,897	)	$	158,706		$	71,191		$	(293,207	)

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2013



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary		Eliminations			Consolidated
	(in thousands)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	—		$	950,939		$	—	$	—		$	950,939
Gains on oil and natural gas derivatives	—			218,363			—		—			218,363
Marketing revenues	—			27,074			—		—			27,074
Other revenues	—			11,509			—		—			11,509
	—			1,207,885			—		—			1,207,885
Expenses:
Lease operating expenses	—			172,305			—		—			172,305
Transportation expenses	—			56,481			—		—			56,481
Marketing expenses	—			16,734			—		—			16,734
General and administrative expenses	—			104,871			—		—			104,871
Exploration costs	—			3,044			—		—			3,044
Depreciation, depletion and amortization	—			396,070			—		—			396,070
Impairment of long-lived assets	—			42,202			—		—			42,202
Taxes, other than income taxes	—			72,068			—		—			72,068
Losses on sale of assets and other, net	724			1,489			—		—			2,213
	724			865,264			—		—			865,988
Other income and (expenses):
Interest expense, net of amounts capitalized	(204,064		)	(142		)	—		—			(204,206		)
Interest expense – affiliates	—			(2,554		)	—		2,554			—
Interest income – affiliates	2,554			—			—		(2,554		)	—
Loss on extinguishment of debt	(4,187		)	—			—		—			(4,187		)
Equity in earnings from consolidated subsidiaries	333,469			—			—		(333,469		)	—
Other, net	(3,776		)	(49		)	—		—			(3,825		)
	123,996			(2,745		)	—		(333,469		)	(212,218		)
Income before income taxes	123,272			339,876			—		(333,469		)	129,679
Income tax expense	—			6,407			—		—			6,407
Net income	$	123,272		$	333,469		$	—	$	(333,469	)	$	123,272

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2014



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
Cash flow from operating activities:
Net income (loss)	$	(293,207	)	$	(229,897	)	$	158,706		$	71,191		$	(293,207	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	—			395,852			146,384			—			542,236
Unit-based compensation expenses	—			32,583			—			—			32,583
Amortization and write-off of deferred financing fees	11,694			—			(5,492		)	—			6,202
Losses on sale of assets and other, net	—			3,506			—			—			3,506
Equity in losses from consolidated subsidiaries	71,191			—			—			(71,191		)	—
Deferred income taxes	—			3,557			(82		)	—			3,475
Derivatives activities:
Total losses	—			628,184			22,097			—			650,281
Cash settlements	—			(12,651		)	(10,472		)	—			(23,123		)
Changes in assets and liabilities:
Increase in accounts receivable – trade, net	—			(27,597		)	(34,294		)	—			(61,891		)
(Increase) decrease in accounts receivable – affiliates	220,694			(9,964		)	—			(210,730		)	—
(Increase) decrease in other assets	(146		)	(8,287		)	1,486			—			(6,947		)
Increase in accounts payable and accrued expenses	2			111,675			1,905			—			113,582
Increase (decrease) in accounts payable and accrued expenses – affiliates	—			(220,694		)	9,964			210,730			—
Increase (decrease) in other liabilities	702			(26,291		)	(25,473		)	—			(51,062		)
Net cash provided by operating activities	10,930			639,976			264,729			—			915,635

Cash flow from investing activities:
Acquisition of oil and natural gas properties and joint-venture funding	—			(25,891		)	—			—			(25,891		)
Development of oil and natural gas properties	—			(536,488		)	(269,129		)	—			(805,617		)
Purchases of other property and equipment	—			(25,786		)	(5,625		)	—			(31,411		)
Investment in affiliates	(178,463		)	—			—			178,463			—
Change in notes receivable with affiliate	(28,200		)	—			—			28,200			—
Proceeds from sale of properties and equipment and other	(12,983		)	1,253			—			—			(11,730		)
Net cash used in investing activities	(219,646		)	(586,912		)	(274,754		)	206,663			(874,649		)

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Eliminations			Consolidated
	(in thousands)
Cash flow from financing activities:
Proceeds from borrowings	1,095,000			—			—			—			1,095,000
Repayments of debt	(410,000		)	—			(206,124		)	—			(616,124		)
Distributions to unitholders	(480,583		)	—			—			—			(480,583		)
Financing fees and other, net	1,263			(46,524		)	(10,866		)	—			(56,127		)
Change in notes payable with affiliate	—			28,200			—			(28,200		)	—
Capital contributions – affiliates	—			—			178,463			(178,463		)	—
Excess tax benefit from unit-based compensation	3,016			—			—			—			3,016
Net cash provided by (used in) financing activities	208,696			(18,324		)	(38,527		)	(206,663		)	(54,818		)

Net increase (decrease) in cash and cash equivalents	(20		)	34,740			(48,552		)	—			(13,832		)
Cash and cash equivalents:
Beginning	52			1,078			51,041			—			52,171
Ending	$	32		$	35,818		$	2,489		$	—		$	38,339

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LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2013



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary		Eliminations			Consolidated
	(in thousands)
Cash flow from operating activities:
Net income	$	123,272		$	333,469		$	—	$	(333,469	)	$	123,272
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	—			396,070			—		—			396,070
Impairment of long-lived assets	—			42,202			—		—			42,202
Unit-based compensation expenses	—			19,575			—		—			19,575
Loss on extinguishment of debt	4,187			—			—		—			4,187
Amortization and write-off of deferred financing fees	10,905			—			—		—			10,905
Losses on sale of assets and other, net	—			16,814			—		—			16,814
Equity in earnings from consolidated subsidiaries	(333,469		)	—			—		333,469			—
Deferred income taxes	—			5,725			—		—			5,725
Derivatives activities:
Total gains	—			(218,363		)	—		—			(218,363		)
Cash settlements	—			144,502			—		—			144,502
Changes in assets and liabilities:
Decrease in accounts receivable – trade, net	—			36,174			—		—			36,174
Decrease in accounts receivable – affiliates	366,386			—			—		(366,386		)	—
(Increase) decrease in other assets	(100		)	2,360			—		—			2,260
Decrease in accounts payable and accrued expenses	—			(5,319		)	—		—			(5,319		)
Decrease in accounts payable and accrued expenses – affiliates	—			(366,386		)	—		366,386			—
Increase (decrease) in other liabilities	771			(17,419		)	—		—			(16,648		)
Net cash provided by operating activities	171,952			389,404			—		—			561,356

Cash flow from investing activities:
Acquisition of oil and natural gas properties and joint-venture funding	—			(64,381		)	—		—			(64,381		)
Development of oil and natural gas properties	—			(495,899		)	—		—			(495,899		)
Purchases of other property and equipment	—			(55,147		)	—		—			(55,147		)
Change in notes receivable with affiliate	(27,400		)	—			—		27,400			—
Proceeds from sale of properties and equipment and other	(8,409		)	219,308			—		—			210,899
Net cash used in investing activities	(35,809		)	(396,119		)	—		27,400			(404,528		)

Table of Contents

LINN ENERGY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)



	LINN Energy, LLC			Guarantor Subsidiaries			Non- Guarantor Subsidiary		Eliminations			Consolidated
	(in thousands)
Cash flow from financing activities:
Proceeds from borrowings	775,000			—			—		—			775,000
Repayments of debt	(560,737		)	—			—		—			(560,737		)
Distributions to unitholders	(341,117		)	—			—		—			(341,117		)
Financing fees and other, net	(9,366		)	(21,290		)	—		—			(30,656		)
Change in notes payable with affiliate	—			27,400			—		(27,400		)	—
Excess tax benefit from unit-based compensation	—			591			—		—			591
Net cash provided by (used in) financing activities	(136,220		)	6,701			—		(27,400		)	(156,919		)

Net decrease in cash and cash equivalents	(77		)	(14		)	—		—			(91		)
Cash and cash equivalents:
Beginning	107			1,136			—		—			1,243
Ending	$	30		$	1,122		$	—	$	—		$	1,152

Note 16 – SEC Inquiry

As disclosed on July 1, 2013, the Company and its affiliate, LinnCo, have been notified by the staff of the SEC that its Fort Worth Regional Office has commenced an inquiry regarding LINN Energy and LinnCo (the “SEC inquiry”). The SEC staff is investigating whether any violations of federal securities laws have occurred. The SEC staff has stated that the fact of the inquiry should not be construed as an indication that the SEC or its staff has a negative view of any entity, individual or security. Both LINN Energy and LinnCo are cooperating fully with the SEC in this matter. LINN Energy and LinnCo are unable to predict the timing or outcome of the SEC inquiry or estimate the nature or amount of any possible sanction the SEC could seek to impose, which could include a fine, penalty, or court or administrative order prohibiting specific conduct, or a potential restatement of LINN Energy’s or LinnCo’s financial statements, any of which could be material. No provision for losses has been recorded for this exposure.

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

The following discussion contains forward-looking statements that reflect the Company’s future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside the Company’s control. The Company’s actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2013, and elsewhere in the Annual Report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.

The following discussion and analysis should be read in conjunction with the financial statements and related notes included in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”

Executive Overview

LINN Energy’s mission is to acquire, develop and maximize cash flow from a growing portfolio of long-life oil and natural gas assets. LINN Energy is an independent oil and natural gas company that began operations in March 2003 and completed its initial public offering in January 2006. The Company’s properties, including those acquired in the acquisition of Berry Petroleum Company, now Berry Petroleum Company, LLC (“Berry”), are located in seven operating regions in the United States (“U.S.”):


•	Mid-Continent, which includes properties in Oklahoma, Louisiana and the eastern portion of the Texas Panhandle (including the Granite Wash and Cleveland horizontal plays);


•	Rockies, which includes properties located in Wyoming (Green River Basin and Powder River Basin), Utah (Uinta Basin), North Dakota (Williston Basin) and Colorado (Piceance Basin);


•	Permian Basin, which includes areas in west Texas and southeast New Mexico;


•	California, which includes the San Joaquin Valley Basin and the Los Angeles Basin;


•	Hugoton Basin, which includes properties located primarily in Kansas and the Shallow Texas Panhandle;


•	Michigan/Illinois, which includes the Antrim Shale formation in the northern part of Michigan and oil properties in southern Illinois; and


•	East Texas, which includes properties located in east Texas.

Results for the three months ended June 30, 2014, included the following:


•	oil, natural gas and NGL sales of approximately $968 million compared to $488 million for the second quarter of 2013;


•	average daily production of approximately 1,131 MMcfe/d compared to 780 MMcfe/d for the second quarter of 2013;


•	net loss of approximately $208 million compared to net income of $345 million for the second quarter of 2013;


•	capital expenditures, excluding acquisitions, of approximately $407 million compared to $334 million for the second quarter of 2013; and


•	268 wells drilled (all successful) compared to 145 wells drilled (all successful) for the second quarter of 2013.

Results for the six months ended June 30, 2014, included the following:


•	oil, natural gas and NGL sales of approximately $1.9 billion compared to $951 million for the six months ended June 30, 2013;


•	average daily production of approximately 1,117 MMcfe/d compared to 788 MMcfe/d for the six months ended June 30, 2013;


•	net loss of approximately $293 million compared to net income of $123 million for the six months ended June 30, 2013;


•	net cash provided by operating activities of approximately $916 million compared to $561 million for the six months ended June 30, 2013;


•	capital expenditures, excluding acquisitions, of approximately $816 million compared to $606 million for the six months ended June 30, 2013; and


•	468 wells drilled (467 successful) compared to 258 wells drilled (all successful) for the six months ended June 30, 2013.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Properties Exchange – Pending

Acquisitions and Divestiture – Pending

On July 24, 2014, the Company, through one of its wholly owned subsidiaries, entered into a definitive purchase and sale agreement to sell its interests in certain oil and natural gas properties located in the Mid-Continent region for a purchase price of approximately $90 million, subject to closing adjustments. The sale is anticipated to close in the fourth quarter of 2014, subject to closing conditions. There can be no assurance that all of the conditions to closing will be satisfied. The Company plans to use the net proceeds from the sale to repay borrowings under the LINN Credit Facility.

Financing and Liquidity

On May 30, 2014, in accordance with the provisions of the indenture related to Berry’s 10.25% senior notes due June 2014 (the “Berry June 2014 Senior Notes”), the Company paid in full the remaining outstanding principal amount of approximately $205 million.

On March 22, 2013, the Company filed a registration statement on Form S-4 to register exchange notes that are substantially similar to the 6.25% senior notes due November 2019 (the “November 2019 Senior Notes”), except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding November 2019 Senior Notes do not apply to the new November 2019 Senior Notes. On June 2, 2014, the registration statement was declared effective and the Company commenced an offer to exchange any and all of its $1.8 billion outstanding principal amount of November 2019 Senior Notes for an equal amount of new November 2019 Senior Notes. The exchange offer expired on June 28, 2014.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations

Three Months Ended June 30, 2014, Compared to Three Months Ended June 30, 2013



	Three Months Ended June 30,
	2014			2013			Variance
	(in thousands)
Revenues and other:
Natural gas sales	$	205,050		$	160,766		$	44,284
Oil sales	651,509			261,912			389,597
NGL sales	111,291			65,529			45,762
Total oil, natural gas and NGL sales	967,850			488,207			479,643
Gains (losses) on oil and natural gas derivatives	(408,788		)	326,733			(735,521		)
Marketing and other revenues	37,889			23,885			14,004
	596,951			838,825			(241,874		)
Expenses:
Lease operating expenses	184,901			83,584			101,317
Transportation expenses	44,854			29,298			15,556
Marketing expenses	23,274			9,360			13,914
General and administrative expenses ⁽¹⁾	66,906			46,305			20,601
Exploration costs	1,551			818			733
Depreciation, depletion and amortization	274,435			198,629			75,806
Impairment of long-lived assets	—			(14,851		)	14,851
Taxes, other than income taxes	68,531			32,397			36,134
(Gains) losses on sale of assets and other, net	5,467			(959		)	6,426
	669,919			384,581			285,338
Other income and (expenses)	(136,849		)	(110,216		)	(26,633		)
Income (loss) before income taxes	(209,817		)	344,028			(553,845		)
Income tax benefit	(1,947		)	(1,129		)	(818		)
Net income (loss)	$	(207,870	)	$	345,157		$	(553,027	)


⁽¹⁾	General and administrative expenses for the three months ended June 30, 2014, and June 30, 2013, include approximately $9 million and $7 million, respectively, of noncash unit-based compensation expenses.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued



	Three Months Ended June 30,
	2014		2013		Variance
Average daily production:
Natural gas (MMcf/d)	493		429		15	%
Oil (MBbls/d)	74.5		31.5		137	%
NGL (MBbls/d)	31.8		27.0		18	%
Total (MMcfe/d)	1,131		780		45	%

Weighted average prices: ⁽¹⁾
Natural gas (Mcf)	$	4.57	$	4.12	11	%
Oil (Bbl)	$	96.06	$	91.27	5	%
NGL (Bbl)	$	38.42	$	26.69	44	%

Average NYMEX prices:
Natural gas (MMBtu)	$	4.67	$	4.09	14	%
Oil (Bbl)	$	102.99	$	94.22	9	%

Costs per Mcfe of production:
Lease operating expenses	$	1.80	$	1.18	53	%
Transportation expenses	$	0.44	$	0.41	7	%
General and administrative expenses ⁽²⁾	$	0.65	$	0.65	—
Depreciation, depletion and amortization	$	2.67	$	2.80	(5	)%
Taxes, other than income taxes	$	0.67	$	0.46	46	%


⁽¹⁾	Does not include the effect of gains (losses) on derivatives.


⁽²⁾	General and administrative expenses for the three months ended June 30, 2014, and June 30, 2013, include approximately $9 million and $7 million, respectively, of noncash unit-based compensation expenses.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other

Oil, Natural Gas and NGL Sales

Oil, natural gas and NGL sales increased approximately $480 million or 98% to approximately $968 million for the three months ended June 30, 2014, from approximately $488 million for the three months ended June 30, 2013, due to higher production volumes and higher NGL, oil and natural gas prices. Higher NGL, oil and natural gas prices resulted in an increase in revenues of approximately $34 million, $33 million and $20 million, respectively.

Average daily production volumes increased to approximately 1,131 MMcfe/d for the three months ended June 30, 2014, from 780 MMcfe/d for the three months ended June 30, 2013. Higher oil, natural gas and NGL production volumes resulted in an increase in revenues of approximately $357 million, $24 million and $12 million, respectively.

The following table sets forth average daily production by region:



	Three Months Ended June 30,
	2014	2013	Variance
Average daily production (MMcfe/d):
Mid-Continent	297	315	(18	)	(6	)%
Rockies	278	173	105		61	%
Permian Basin	169	84	85		101	%
California	172	13	159		1,262	%
Hugoton Basin	151	140	11		8	%
Michigan/Illinois	33	33	—		—
East Texas	31	22	9		41	%
	1,131	780	351		45	%

The decrease in average daily production volumes in the Mid-Continent region primarily reflects a reduction of approximately 9 MMcfe/d of production volumes related to the sale of the Panther Operated Cleveland Properties on May 31, 2013, and decreased development capital spending in the Granite Wash. The increase in average daily production volumes in the Rockies region primarily reflects the impact of the Berry acquisition in December 2013 and development capital spending. The increase in average daily production volumes in the Permian Basin region primarily reflects the impact of an acquisition in October 2013, the Berry acquisition and development capital spending. The increase in average daily production volumes in the California and East Texas regions primarily reflects the impact of the Berry acquisition. The increase in average daily production volumes in the Hugoton Basin region primarily reflects development capital spending. The Michigan/Illinois region consists of a low-decline asset base and continues to produce at consistent levels.

Gains (Losses) on Oil and Natural Gas Derivatives

Losses on oil and natural gas derivatives were approximately $409 million for the three months ended June 30, 2014, compared to gains of approximately $327 million for the three months ended June 30, 2013, representing a variance of approximately $736 million. Losses on oil and natural gas derivatives were primarily due to changes in fair value on unsettled derivative contracts and lower cash settlements during the period. The results for 2014 and 2013 also include gains of approximately $3 million and $5 million, respectively, related to the recoveries of a bankruptcy claim (see Note 10). The fair value on unsettled derivatives contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.

During the three months ended June 30, 2014, the Company had commodity derivative contracts for approximately 98% of its natural gas production and 92% of its oil production. During the three months ended June 30, 2013, the Company had commodity derivative contracts for approximately 111% of its natural gas production and 130% of its oil production.

The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and Note 7 and Note 8 for additional information about the Company’s commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “Counterparty Credit Risk” in “Liquidity and Capital Resources” below.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Marketing and Other Revenues

Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing and other revenues increased by approximately $14 million or 59% to approximately $38 million for the three months ended June 30, 2014, from approximately $24 million for the three months ended June 30, 2013, primarily due to electricity sales revenues generated from the Company’s California cogeneration facilities acquired and certain contracts assumed in the Berry acquisition in December 2013, as well as higher revenues generated from the Jayhawk natural gas processing plant.

Expenses

Lease Operating Expenses

Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies and workover expenses. Lease operating expenses increased by approximately $101 million or 121% to approximately $185 million for the three months ended June 30, 2014, from approximately $84 million for the three months ended June 30, 2013. Lease operating expenses increased primarily due to costs associated with properties acquired in the Berry acquisition. Lease operating expenses per Mcfe also increased to $1.80 per Mcfe for the three months ended June 30, 2014, from $1.18 per Mcfe for the three months ended June 30, 2013, primarily due to higher rates on newly acquired oil properties.

Transportation Expenses

Transportation expenses increased by approximately $16 million or 53% to approximately $45 million for the three months ended June 30, 2014, from approximately $29 million for the three months ended June 30, 2013, primarily due to the Berry acquisition.

Marketing Expenses

Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses increased by approximately $14 million or 149% to approximately $23 million for the three months ended June 30, 2014, from approximately $9 million for the three months ended June 30, 2013, primarily due to electricity generation expenses incurred from the Company’s California cogeneration facilities acquired and certain contracts assumed in the Berry acquisition, as well as higher expenses associated with the Jayhawk natural gas processing plant.

General and Administrative Expenses

General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses increased by approximately $21 million or 45% to approximately $67 million for the three months ended June 30, 2014, from approximately $46 million for the three months ended June 30, 2013. The increase was primarily due to higher salaries and benefits related expenses, primarily driven by increased employee headcount and unit-based compensation, higher professional services expenses and higher various other administrative expenses partially offset by lower non-payroll related acquisition expenses. Although general and administrative expenses increased, the unit rate remained consistent at $0.65 per Mcfe for the three months ended June 30, 2014, and 2013.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization increased by approximately $75 million or 38% to approximately $274 million for the three months ended June 30, 2014, from approximately $199 million for the three months ended June 30, 2013. Higher total production volumes were the primary reason for the increased expense. Depreciation, depletion and amortization per Mcfe decreased to $2.67 per Mcfe for the three months ended June 30, 2014, from $2.80 per Mcfe for the three months ended June 30, 2013.

Impairment of Long-Lived Assets

The Company recorded no impairment charge for the three months ended June 30, 2014. During the three months ended June 30, 2013, the Company recorded an adjustment of approximately $15 million to reduce the initial impairment charge recorded in March 2013 to reflect the fair value less costs to sell the Panther Operated Cleveland Properties sold in May 2013 (see Note 2). At March 31, 2013, the carrying value of the Panther Operated Cleveland Properties was reduced to fair value less costs to sell resulting in an impairment charge of approximately $57 million and the properties were classified as “assets held for sale.”

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Taxes, Other Than Income Taxes



	Three Months Ended June 30,
	2014		2013		Variance
	(in thousands)

Severance taxes	$	35,765	$	22,736	$	13,029
Ad valorem taxes	28,046		9,476		18,570
California carbon allowances	4,607		178		4,429
Other	113		7		106
	$	68,531	$	32,397	$	36,134

Taxes, other than income taxes increased by approximately $36 million or 112% for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. Severance taxes, which are a function of revenues generated from production, increased primarily due to higher production volumes and higher NGL, oil and natural gas prices. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, as well as California carbon allowances, increased primarily due to the Berry acquisition.

Other Income and (Expenses)



	Three Months Ended June 30,
	2014			2013			Variance
	(in thousands)

Interest expense, net of amounts capitalized	$	(134,300	)	$	(103,847	)	$	(30,453	)
Loss on extinguishment of debt	—			(4,187		)	4,187
Other, net	(2,549		)	(2,182		)	(367		)
	$	(136,849	)	$	(110,216	)	$	(26,633	)

Other income and (expenses) increased by approximately $27 million for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. Interest expense increased primarily due to higher outstanding debt during the period and higher amortization of financing fees and expenses associated with amendments made to the Company’s Credit Facilities during 2013 and 2014. In addition, for the three months ended June 30, 2013, the Company recorded a loss on extinguishment of debt of approximately $4 million as a result of the redemption of the remaining outstanding 2017 Senior Notes. See “Debt” in “Liquidity and Capital Resources” below for additional details.

Income Tax Expense (Benefit)

The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. The Company recognized an income tax benefit of approximately $2 million and $1 million for the three months ended June 30, 2014, and June 30, 2013, respectively. Income tax benefit increased primarily due to lower income from the Company’s taxable subsidiaries during the three months ended June 30, 2014, compared to the same period in 2013.

Net Income (Loss)

Net income decreased by approximately $553 million to a net loss of approximately $208 million for the three months ended June 30, 2014, from net income of approximately $345 million for the three months ended June 30, 2013. The decrease was primarily due to higher losses on oil and natural gas derivatives and higher expenses, including interest, partially offset by higher production revenues. See discussions above for explanations of variances.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Results of Operations

Six Months Ended June 30, 2014, Compared to Six Months Ended June 30, 2013



	Six Months Ended June 30,
	2014			2013			Variance
	(in thousands)
Revenues and other:
Natural gas sales	$	431,739		$	295,510		$	136,229
Oil sales	1,247,154			503,710			743,444
NGL sales	227,834			151,719			76,115
Total oil, natural gas and NGL sales	1,906,727			950,939			955,788
Gains (losses) on oil and natural gas derivatives	(650,281		)	218,363			(868,644		)
Marketing and other revenues	74,092			38,583			35,509
	1,330,538			1,207,885			122,653
Expenses:
Lease operating expenses	378,934			172,305			206,629
Transportation expenses	90,484			56,481			34,003
Marketing expenses	44,346			16,734			27,612
General and administrative expenses ⁽¹⁾	146,134			104,871			41,263
Exploration costs	2,642			3,044			(402		)
Depreciation, depletion and amortization	542,236			396,070			146,166
Impairment of long-lived assets	—			42,202			(42,202		)
Taxes, other than income taxes	134,244			72,068			62,176
Losses on sale of assets and other, net	8,053			2,213			5,840
	1,347,073			865,988			481,085
Other income and (expenses)	(272,965		)	(212,218		)	(60,747		)
Income (loss) before income taxes	(289,500		)	129,679			(419,179		)
Income tax expense	3,707			6,407			(2,700		)
Net income (loss)	$	(293,207	)	$	123,272		$	(416,479	)


⁽¹⁾	General and administrative expenses for the six months ended June 30, 2014, and June 30, 2013, include approximately $28 million and $17 million, respectively, of noncash unit-based compensation expenses.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued



	Six Months Ended June 30,
	2014		2013		Variance
Average daily production:
Natural gas (MMcf/d)	487		436		12	%
Oil (MBbls/d)	72.9		30.8		137	%
NGL (MBbls/d)	32.2		27.8		16	%
Total (MMcfe/d)	1,117		788		42	%

Weighted average prices: ⁽¹⁾
Natural gas (Mcf)	$	4.90	$	3.75	31	%
Oil (Bbl)	$	94.55	$	90.23	5	%
NGL (Bbl)	$	39.14	$	30.12	30	%

Average NYMEX prices:
Natural gas (MMBtu)	$	4.80	$	3.71	29	%
Oil (Bbl)	$	100.84	$	94.30	7	%

Costs per Mcfe of production:
Lease operating expenses	$	1.87	$	1.21	55	%
Transportation expenses	$	0.45	$	0.40	13	%
General and administrative expenses ⁽²⁾	$	0.72	$	0.74	(3	)%
Depreciation, depletion and amortization	$	2.68	$	2.78	(4	)%
Taxes, other than income taxes	$	0.66	$	0.51	29	%


⁽¹⁾	Does not include the effect of gains (losses) on derivatives.


⁽²⁾	General and administrative expenses for the six months ended June 30, 2014, and June 30, 2013, include approximately $28 million and $17 million, respectively, of noncash unit-based compensation expenses.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Revenues and Other

Oil, Natural Gas and NGL Sales

Oil, natural gas and NGL sales increased approximately $956 million or 101% to approximately $1.9 billion for the six months ended June 30, 2014, from approximately $951 million for the six months ended June 30, 2013, due to higher production volumes and higher natural gas, oil and NGL prices. Higher natural gas, oil and NGL prices resulted in an increase in revenues of approximately $101 million, $57 million and $52 million, respectively.

Average daily production volumes increased to 1,117 MMcfe/d for the six months ended June 30, 2014, from 788 MMcfe/d for the six months ended June 30, 2013. Higher oil, natural gas and NGL production volumes resulted in an increase in revenues of approximately $687 million, $35 million and $24 million, respectively.

The following sets forth average daily production by region:



	Six Months Ended June 30,
	2014	2013	Variance
Average daily production (MMcfe/d):
Mid-Continent	300	321	(21	)	(7	)%
Rockies	275	177	98		55	%
Permian Basin	167	82	85		104	%
California	164	12	152		1,214	%
Hugoton Basin	147	141	6		4	%
Michigan/Illinois	33	34	(1	)	(2	)%
East Texas	31	21	10		46	%
	1,117	788	329		42	%

The decrease in average daily production volumes in the Mid-Continent region primarily reflects a reduction of approximately 14 MMcfe/d of production volumes related to the sale of the Panther Operated Cleveland Properties on May 31, 2013, and decreased development capital spending in the Granite Wash. The increase in average daily production volumes in the Rockies region primarily reflects the impact of the Berry acquisition in December 2013 and development capital spending. The increase in average daily production volumes in the Permian Basin region primarily reflects the impact of an acquisition in October 2013, the Berry acquisition and development capital spending. The increase in average daily production volumes in the California and East Texas regions primarily reflects the impact of the Berry acquisition. The increase in average daily production volumes in the Hugoton Basin region primarily reflects development capital spending. The Michigan/Illinois region consists of a low-decline asset base and continues to produce at consistent levels.

Gains (Losses) on Oil and Natural Gas Derivatives

Losses on oil and natural gas derivatives were approximately $650 million for the six months ended June 30, 2014, compared to gains of approximately $218 million for the six months ended June 30, 2013, representing a variance of approximately $868 million. Losses on oil and natural gas derivatives were primarily due to changes in fair value on unsettled derivatives contracts and lower cash settlements during the period. The results for 2014 and 2013 also include gains of approximately $3 million and $5 million, respectively, related to the recoveries of a bankruptcy claim (see Note 10). The fair value on unsettled derivatives contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.

During the six months ended June 30, 2014, the Company had commodity derivative contracts for approximately 100% of its natural gas production and 94% of its oil production. During the six months ended June 30, 2013, the Company had commodity derivative contracts for approximately 109% of its natural gas production and 133% of its oil production.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Marketing and Other Revenues

Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing and other revenues increased by approximately $35 million or 92% to approximately $74 million for the six months ended June 30, 2014, from approximately $39 million for the six months ended June 30, 2013, primarily due to electricity sales revenues generated by the Company’s California cogeneration facilities acquired and certain contracts assumed in the Berry acquisition in December 2013, as well as higher revenues generated from the Jayhawk natural gas processing plant.

Expenses

Lease Operating Expenses

Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies and workover expenses. Lease operating expenses increased by approximately $207 million or 120% to approximately $379 million for the six months ended June 30, 2014, from approximately $172 million for the six months ended June 30, 2013. Lease operating expenses increased primarily due to costs associated with properties acquired in the Berry acquisition. Lease operating expenses per Mcfe also increased to $1.87 per Mcfe for the six months ended June 30, 2014, from $1.21 per Mcfe for the six months ended June 30, 2013, primarily due to higher rates on newly acquired oil properties.

Transportation Expenses

Transportation expenses increased by approximately $34 million or 60% to approximately $90 million for the six months ended June 30, 2014, from approximately $56 million for the six months ended June 30, 2013, primarily due to the Berry acquisition.

Marketing Expenses

Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses increased by approximately $27 million or 165% to approximately $44 million for the six months ended June 30, 2014, from approximately $17 million for the six months ended June 30, 2013, primarily due to electricity generation expenses incurred from the Company’s California cogeneration facilities acquired and certain contracts assumed in the Berry acquisition, as well as higher expenses associated with the Jayhawk natural gas processing plant.

General and Administrative Expenses

General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses increased by approximately $41 million or 39% to approximately $146 million for the six months ended June 30, 2014, from approximately $105 million for the six months ended June 30, 2013. The increase was primarily due to higher salaries and benefits related expenses, primarily driven by increased employee headcount and unit-based compensation, higher professional services expenses and higher various other administrative expenses partially offset by lower non-payroll related acquisition expenses. Although general and administrative expenses increased, the unit rate decreased slightly to $0.72 per Mcfe for the six months ended June 30, 2014, from $0.74 per Mcfe for the six months ended June 30, 2013.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization increased by approximately $146 million or 37% to approximately $542 million for the six months ended June 30, 2014, from approximately $396 million for the six months ended June 30, 2013. Higher total production volumes were the primary reason for the increased expense. Depreciation, depletion and amortization per Mcfe decreased to $2.68 per Mcfe for the six months ended June 30, 2014, from $2.78 per Mcfe for the six months ended June 30, 2013.

Impairment of Long-Lived Assets

The Company recorded no impairment charge for the six months ended June 30, 2014. During the six months ended June 30, 2013, the Company recorded a noncash impairment charge, before and after tax, of approximately $42 million associated with the write-down of the carrying value of the Panther Operated Cleveland Properties sold in May 2013 (see Note 2).

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Taxes, Other Than Income Taxes



	Six Months Ended June 30,
	2014		2013		Variance
	(in thousands)

Severance taxes	$	67,881	$	43,388	$	24,493
Ad valorem taxes	57,122		28,484		28,638
California carbon allowances	9,126		178		8,948
Other	115		18		97
	$	134,244	$	72,068	$	62,176

Taxes, other than income taxes increased by approximately $62 million or 86% for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. Severance taxes, which are a function of revenues generated from production, increased primarily due to higher production volumes and higher natural gas, oil and NGL prices. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, as well as California carbon allowances, increased primarily due to the Berry acquisition.

Other Income and (Expenses)



	Six Months Ended June 30,
	2014			2013			Variance
	(in thousands)

Interest expense, net of amounts capitalized	$	(268,113	)	$	(204,206	)	$	(63,907	)
Loss on extinguishment of debt	—			(4,187		)	4,187
Other, net	(4,852		)	(3,825		)	(1,027		)
	$	(272,965	)	$	(212,218	)	$	(60,747	)

Other income and (expenses) increased by approximately $61 million for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. Interest expense increased primarily due to higher outstanding debt during the period and higher amortization of financing fees and expenses associated with amendments made to the Company’s Credit Facilities during 2013 and 2014. In addition, for the six months ended June 30, 2013, the Company recorded a loss on extinguishment of debt of approximately $4 million as a result of the redemption of the remaining outstanding 2017 Senior Notes. See “Debt” in “Liquidity and Capital Resources” below for additional details.

Income Tax Expense (Benefit)

The Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Company’s subsidiaries are Subchapter C-corporations subject to federal and state income taxes. The Company recognized income tax expense of approximately $4 million and $6 million for the six months ended June 30, 2014, and June 30, 2013, respectively. Income tax expense decreased primarily due to lower income from the Company’s taxable subsidiaries during the six months ended June 30, 2014, compared to the same period in 2013.

Net Income (Loss)

Net income decreased by approximately $416 million to a net loss of approximately $293 million for the six months ended June 30, 2014, from net income of approximately $123 million for the six months ended June 30, 2013. The decrease was primarily due to higher losses on oil and natural gas derivatives and higher expenses, including interest, partially offset by higher production revenues. See discussions above for explanations of variances.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Liquidity and Capital Resources

The Company utilizes funds from debt and equity offerings, borrowings under its Credit Facilities and net cash provided by operating activities for capital resources and liquidity. To date, the primary use of capital has been for acquisitions and the development of oil and natural gas properties. For the six months ended June 30, 2014, the Company’s total capital expenditures, excluding acquisitions, were approximately $816 million. For 2014, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $1.6 billion, including approximately $1.55 billion related to its oil and natural gas capital program and approximately $35 million related to its plant and pipeline capital. This estimate reflects amounts for the development of properties associated with acquisitions (see Note 2), is under continuous review and subject to ongoing adjustments. The Company expects to fund these capital expenditures primarily with net cash provided by operating activities and bank borrowings. At June 30, 2014, there was approximately $1.8 billion of available borrowing capacity under the Company’s Credit Facilities but less than $1 million available under the Berry Credit Facility.

As the Company pursues growth, it continually monitors the capital resources available to meet future financial obligations and planned capital expenditures. The Company’s future success in growing reserves and production volumes will be highly dependent on the capital resources available and its success in drilling for or acquiring additional reserves. The Company actively reviews acquisition opportunities on an ongoing basis. If the Company were to make significant additional acquisitions for cash, it would need to borrow additional amounts under its Credit Facilities, if available, or obtain additional debt or equity financing. The Company has secured $2.3 billion of committed interim financing for the pending acquisition of oil and natural gas properties from Devon, subject to final documentation. The acquisition is intended to be financed ultimately through the sale of the Company’s Granite Wash assets as well as certain non-producing acreage in its portfolio. The Company’s Credit Facilities and indentures governing its senior notes impose certain restrictions on the Company’s ability to obtain additional debt financing. Based upon current expectations, the Company believes its liquidity and capital resources will be sufficient to conduct its business and operations.

Statements of Cash Flows

The following is a comparative cash flow summary:



	Six Months Ended June 30,
	2014			2013			Variance
	(in thousands)
Net cash:
Provided by operating activities	$	915,635		$	561,356		$	354,279
Used in investing activities	(874,649		)	(404,528		)	(470,121		)
Used in financing activities	(54,818		)	(156,919		)	102,101
Net decrease in cash and cash equivalents	$	(13,832	)	$	(91	)	$	(13,741	)

Operating Activities

Cash provided by operating activities for the six months ended June 30, 2014, was approximately $916 million, compared to approximately $561 million for the six months ended June 30, 2013. The increase was primarily due to higher production related revenues principally due to increased production volumes and higher commodity prices, partially offset by higher expenses and lower cash settlements on derivatives.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Investing Activities

The following provides a comparative summary of cash flow from investing activities:



	Six Months Ended June 30,
	2014			2013
	(in thousands)
Cash flow from investing activities:
Acquisition of oil and natural gas properties and joint-venture funding	$	(25,891	)	$	(64,381	)
Capital expenditures	(837,028		)	(551,046		)
Proceeds from sale of properties and equipment and other	(11,730		)	210,899
	$	(874,649	)	$	(404,528	)

The primary use of cash in investing activities is for capital spending, including acquisitions and the development of the Company’s oil and natural gas properties. Capital expenditures increased primarily due to development activities of properties in the Rockies, California and Permian Basin regions.

Financing Activities

Cash used in financing activities for the six months ended June 30, 2014, was approximately $55 million, compared to approximately $157 million for the six months ended June 30, 2013. The decrease in net cash used in financing activities was primarily attributable to higher net borrowings partially offset by higher distributions to unitholders during the six months ended June 30, 2014. The following provides a comparative summary of proceeds from borrowings and repayments of debt:



	Six Months Ended June 30,
	2014			2013
	(in thousands)
Proceeds from borrowings:
LINN Credit Facility	$	1,095,000		$	775,000
Repayments of debt:
LINN Credit Facility	$	(410,000	)	$	(520,000	)
Senior notes	(206,124		)	(40,737		)
	$	(616,124	)	$	(560,737	)

Debt

As of June 30, 2014, the Company was in compliance with all financial and other covenants of its Credit Facilities. If an event of default would occur and were continuing, the Company would be unable to make borrowings and its financial condition and liquidity would be adversely affected. For information related to the Credit Facilities, see Note 6.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The Company depends, in part, on its Credit Facilities for future capital needs. At June 30, 2014, there was approximately $1.8 billion of available borrowing capacity under the Company’s Credit Facilities but less than $1 million available under the Berry Credit Facility. In addition, the Company has drawn on the LINN Credit Facility to fund or partially fund cash distribution payments. Absent such borrowings, the Company would have at times experienced a shortfall in cash available to pay the declared cash distribution amount. If an event of default occurs and is continuing under the Credit Facilities, the Company would be unable to make borrowings to fund distributions. For additional information, see “Distribution Practices” below.

Upon the amendment of the LINN Credit Facility in April 2014, the $500 million senior secured term loan’s maturity was also extended from April 2018 to April 2019.

In February 2014, in accordance with the indentures related to Berry’s senior notes, the Company repurchased through cash tender offers $321,000, $30,000 and $837,000 of Berry’s June 2014 Senior Notes, November 2020 Senior Notes and September 2022 Senior Notes, respectively.

The Company plans to file Berry’s stand-alone financial statements with the Securities and Exchange Commission at a later date.

On March 22, 2013, the Company filed a registration statement on Form S-4 to register exchange notes that are substantially similar to the November 2019 Senior Notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding November 2019 Senior Notes do not apply to the new November 2019 Senior Notes. On June 2, 2014, the registration statement was declared effective and the Company commenced an offer to exchange any and all of its $1.8 billion outstanding principal amount of November 2019 Senior Notes for an equal amount of new November 2019 Senior Notes. The exchange offer expired on June 28, 2014.

The Company has secured $2.3 billion of committed interim financing for the pending acquisition of oil and natural gas properties from Devon, subject to final documentation. The acquisition is intended to be financed ultimately through the sale of the Company’s Granite Wash assets as well as certain non-producing acreage in its portfolio.

Counterparty Credit Risk

The Company accounts for its commodity derivatives at fair value. The Company’s counterparties are current participants or affiliates of participants in its Credit Facilities or were participants or affiliates of participants in its Credit Facilities at the time it originally entered into the derivatives. The LINN Credit Facility is secured by LINN Energy’s oil, natural gas and NGL reserves and the Berry Credit Facility is secured by Berry’s oil, natural gas and NGL reserves; therefore, the Company is not required to post any collateral. The Company does not receive collateral from its counterparties. The Company minimizes the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Distributions



Date Paid	Distributions Per Unit		Total Distributions
			(in millions)

June 2014	$	0.2416	$	80
May 2014	$	0.2416	$	80
April 2014	$	0.2416	$	80
March 2014	$	0.2416	$	80
February 2014	$	0.2416	$	80
January 2014	$	0.2416	$	80

On July 1, 2014, the Company’s Board of Directors declared a cash distribution of $0.725 per unit with respect to the second quarter of 2014, to be paid in three equal installments of $0.2416 per unit. The first monthly distribution with respect to the second quarter of 2014, totaling approximately $80 million, was paid on July 16, 2014, to unitholders of record as of the close of business on July 11, 2014.

Off-Balance Sheet Arrangements

The Company does not currently have any off-balance sheet arrangements.

Contingencies

See Part II. Item 1. “Legal Proceedings” for information regarding legal proceedings that the Company is party to and any contingencies related to these legal proceedings.

Commitments and Contractual Obligations

The Company has contractual obligations for long-term debt, operating leases and other long-term liabilities that were summarized in the table of contractual obligations in the 2013 Annual Report on Form 10-K. With the exceptions of: (i) the Company’s payment of the remaining outstanding principal amount of the Berry June 2014 Senior Notes; (ii) an amendment to the LINN Credit Facility and term loan that extended the maturity dates from April 2018 to April 2019; and (iii) an amendment to the Berry Credit Facility that extended the maturity date from May 2016 to April 2019, there have been no significant changes to the Company’s contractual obligations from December 31, 2013. See Note 6 for additional information about the Company’s debt instruments.

Distribution Practices

The Company’s Board of Directors determines the appropriate level of distributions on a periodic basis in accordance with the provisions of the Company’s limited liability company agreement. Management considers the timing and size of planned capital expenditures and long-term views about expected results in determining the amount of its distributions. Capital spending and resulting production and net cash provided by operating activities do not typically occur evenly throughout the year due to a variety of factors which are difficult to predict, including rig availability, weather, well performance, the timing of completions and the commodity price environment. Consistent with practices common to publicly traded partnerships, the Company’s Board of Directors historically has not varied the distribution it declares from period to period based on uneven net cash provided by operating activities. The Company’s Board of Directors reviews historical financial results and forecasts for future periods, including development activities, as well as considers the impact of significant acquisitions in making a determination to increase, decrease or maintain the current level of distribution. To date in 2014, the Company’s Board of Directors has considered past shortfalls and the current excess of net cash provided by operating activities after distributions and discretionary adjustments as well as forecasts of expected future net cash provided by operating activities and has decided

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

to maintain the distribution at its current level. If shortfalls are sustained over time and forecasts demonstrate expectations for continued future shortfalls, the Company’s Board of Directors may determine to reduce, suspend or discontinue paying distributions.

The Company intends to fund interest expense, a portion of its oil and natural gas development costs and distributions to unitholders from net cash provided by operating activities. The Company funds premiums paid for derivatives, acquisitions and other capital expenditures primarily with proceeds from debt or equity offerings, borrowings under the LINN Credit Facility or other external sources of funding. Although it is the Company’s practice to acquire or modify derivative instruments with external sources of funding, any cash settlements on derivatives are reported as operating cash flows and may be used to fund distributions. See below for details regarding the discretionary adjustments considered by the Company’s Board of Directors in assessing the appropriate distribution amount for each period, as well as the extent to which sources of funding have been sufficient for the periods presented:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)

Net cash provided by operating activities	$	481,153		$	226,762		$	915,635		$	561,356
Distributions to unitholders	(240,510		)	(170,163		)	(480,583		)	(341,117		)
Excess of net cash provided by operating activities after distributions to unitholders	240,643			56,599			435,052			220,239
Discretionary adjustments considered by the Board of Directors:
Discretionary reductions for a portion of oil and natural gas development costs ⁽¹⁾	(199,448		)	(111,912		)	(392,868		)	(222,210		)
Cash recoveries of bankruptcy claim ⁽²⁾	(2,913		)	(5,073		)	(2,913		)	(5,073		)
Cash paid for acquisitions or divestitures – revenues less operating expenses ⁽³⁾	—			(6,790		)	—			(6,790		)
Provision for legal matters ⁽⁴⁾	2,400			—			1,598			—
Changes in operating assets and liabilities and other, net ⁽⁵⁾	(8,626		)	49,132			(11,806		)	(24,630		)
Excess (shortfall) of net cash provided by operating activities after distributions to unitholders and discretionary adjustments considered by the Board of Directors ⁽⁶⁾	$	32,056		$	(18,044	)	$	29,063		$	(38,464	)

⁽¹⁾

Represent discretionary reductions for a portion of oil and natural gas development costs, an estimated component of total development costs, which are amounts established by the Board of Directors at the end of each year for the following year, allocated across four quarters, that are intended to fully offset declines in production and proved developed producing reserves during the year as compared to the prior year. The portion of oil and natural gas development costs includes estimated drilling and development costs associated with projects to convert a portion of non-producing reserves to producing status. However, the amounts do not include the historical cost of acquired properties as those amounts have already been spent in prior periods, were financed primarily with external sources of funding and do not affect the Company’s ability to pay distributions in the current period. The Company’s existing reserves, inventory of drilling locations and production levels will decline over time as a result of development and production activities. Consequently, if the Company were to limit its total capital expenditures to this portion of oil and natural gas development costs and not acquire new reserves, total reserves would decrease over time, resulting in an inability to maintain production at current levels, which could adversely affect the Company’s ability to pay a distribution at the current level or at all. However, the Company’s current total reserves do not include reserve additions that may result from converting existing probable and possible resources to additional proved reserves, potential additional discoveries or technological advancements on the Company’s existing acreage position.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

See below for total development of oil and natural gas properties as presented in the statements of cash flows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)

Total development of oil and natural gas properties	$	410,774	$	260,095	$	805,617	$	495,899


⁽²⁾	Represent the recoveries of a bankruptcy claim against Lehman Brothers which was not a transaction occurring in the ordinary course of the Company’s business.

⁽³⁾

Represents adjustments to the purchase price of acquisitions and divestitures, based on the Company’s contractual right to revenues less operating expenses for periods from the effective date of a transaction to the closing date of a transaction. When the Company is the buyer, it is legally entitled to revenues less operating expenses generated during this period, and the Company’s Board of Directors has historically made a discretionary adjustment to include this cash in the amount available for distribution. Conversely, when the Company is the seller, the Company’s Board of Directors has historically made a discretionary adjustment to reduce this cash from the amount available for distribution during the period.


⁽⁴⁾	Represents reserves and settlements related to legal matters.

⁽⁵⁾

Represents primarily working capital adjustments. These adjustments may or may not impact cash provided by (used in) operating activities during the respective period, but are included as discretionary adjustments considered by the Company’s Board of Directors as the Board historically has not varied the distribution it declares period to period based on uneven cash flows. The Company’s Board of Directors, when determining the appropriate level of cash distributions, excluded the impact of the timing of cash receipts and payments; as such, this adjustment is necessary to show the historical amounts considered by the Company’s Board of Directors in assessing the appropriate distribution amount for each period.


⁽⁶⁾	Represents the excess (shortfall) of net operating cash flow after distributions to unitholders and discretionary adjustments. Any excess is retained by the Company for future operations, future capital expenditures, future debt service or other future obligations. Any shortfall is funded with cash on hand and/or borrowings under the LINN Credit Facility.

Any cash generated by Berry is currently being used by Berry to fund its activities and is not currently being distributed to LINN Energy for further distribution to its unitholders. To the extent that Berry generates cash in excess of its needs, the indentures governing Berry’s senior notes limit the amount it may distribute to LINN Energy to the amount available under a “restricted payments basket,” and Berry may not distribute any such amounts unless it is permitted by the indentures to incur additional debt pursuant to the consolidated coverage ratio test set forth in the Berry indentures. Berry’s restricted payments basket was approximately $266 million at June 30, 2014, and may be increased in accordance with the terms of the Berry indentures by, among other things, 50% of Berry’s future net income, reductions in its indebtedness and restricted investments, and future capital contributions.

A summary of the significant sources and uses of funding for the respective periods is presented below:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)

Net cash provided by operating activities	$	481,153		$	226,762		$	915,635		$	561,356
Distributions to unitholders	(240,510		)	(170,163		)	(480,583		)	(341,117		)
Excess of net operating cash flow after distributions to unitholders	240,643			56,599			435,052			220,239
Plus (less):
Net cash provided by financing activities (excluding distributions to unitholders)	163,006			64,048			425,765			184,198
Acquisition of oil and natural gas properties and joint-venture funding	(546		)	(49,253		)	(25,891		)	(64,381		)
Development of oil and natural gas properties	(410,774		)	(260,095		)	(805,617		)	(495,899		)
Purchases of other property and equipment	(21,260		)	(29,304		)	(31,411		)	(55,147		)
Proceeds from sale of properties and equipment and other	(1,044		)	213,123			(11,730		)	210,899
Net decrease in cash and cash equivalents	$	(29,975	)	$	(4,882	)	$	(13,832	)	$	(91	)

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that are believed to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Actual results may differ from these estimates and assumptions used in the preparation of the financial statements.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1 of Notes to Condensed Consolidated Financial Statements.

Cautionary Statement

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include content about the Company’s:


•	business strategy;


•	acquisition strategy;


•	financial strategy;


•	effects of the pending SEC inquiry and other legal proceedings;


•	ability to maintain or grow distributions;


•	drilling locations;


•	oil, natural gas and NGL reserves;


•	realized oil, natural gas and NGL prices;


•	production volumes;


•	capital expenditures;


•	economic and competitive advantages;


•	credit and capital market conditions;


•	regulatory changes;


•	lease operating expenses, general and administrative expenses and development costs;


•	future operating results, including results of acquired properties;


•	plans, objectives, expectations and intentions; and


•	integration of acquired businesses and operations, which may take longer than anticipated, may be more costly than anticipated as a result of unexpected factors or events and may have an unanticipated adverse effect on the Company’s business.

All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements. These forward-looking statements may be found in Item 2. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the forward-looking statements or events will occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors set forth in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2013, and elsewhere in the Annual Report. The forward-looking statements speak only as of the date made and,

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how the Company views and manages its ongoing market risk exposures. All of the Company’s market risk sensitive instruments were entered into for purposes other than trading.

The following should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s 2013 Annual Report on Form 10-K. The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”

Commodity Price Risk

An important part of the Company’s business strategy includes hedging a significant portion of its forecasted production to reduce exposure to fluctuations in the prices of oil and natural gas and provide long-term cash flow predictability to manage its business, service debt and pay distributions. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. As a result, currently, the Company directly hedges only its oil and natural gas production. By removing a significant portion of the price volatility associated with future production, the Company expects to mitigate, but not eliminate, the potential effects of variability in net cash provided by operating activities due to fluctuations in commodity prices.

The Company maintains a substantial portion of its hedges in the form of swap contracts. From time to time, the Company has chosen to purchase put option contracts primarily in connection with acquisition activity to hedge volumes in excess of those already hedged with swap contracts. The appropriate level of production to be hedged is an ongoing consideration and is based on a variety of factors, including current and future expected commodity market prices, cost and availability of put option contracts, the level of acquisition activity and the Company’s overall risk profile, including leverage and size and scale considerations. As a result, the appropriate percentage of production volumes to be hedged may change over time. The Company did not purchase any put options in 2013 or to date in 2014.

In certain historical periods, the Company paid an incremental premium to increase the fixed price floors on existing put options because the Company typically hedges multiple years in advance and in some cases commodity prices had increased significantly beyond the initial hedge prices. As a result, the Company determined that the existing put option strike prices did not provide reasonable downside protection in the context of the current market.

At June 30, 2014, the fair value of fixed price swaps, put option contracts, collars and three-way collars was a net asset of approximately $197 million. A 10% increase in the index oil and natural gas prices above the June 30, 2014, prices would result in a net liability of approximately $494 million, which represents a decrease in the fair value of approximately $691 million; conversely, a 10% decrease in the index oil and natural gas prices below June 30, 2014, prices would result in a net asset of approximately $888 million, which represents an increase in the fair value of approximately $691 million.

At December 31, 2013, the fair value of fixed price swaps, put option contracts, collars and three-way collars was a net asset of approximately $751 million. A 10% increase in the index oil and natural gas prices above December 31, 2013, prices would result in a net liability of approximately $15 million, which represents a decrease in the fair value of approximately $766 million; conversely, a 10% decrease in the index oil and natural gas prices below December 31, 2013, prices would result in a net asset of approximately $1.5 billion, which represents an increase in the fair value of approximately $781 million.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk - Continued

The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets.

The prices of oil, natural gas and NGL have been extremely volatile, and the Company expects this volatility to continue. Prices for these commodities may fluctuate widely in response to relatively minor changes in the supply of and demand for such commodities, market uncertainty and a variety of additional factors that are beyond its control. Actual gains or losses recognized related to the Company’s derivative contracts will likely differ from those estimated at June 30, 2014, and December 31, 2013, and will depend exclusively on the price of the commodities on the specified settlement dates provided by the derivative contracts.

The Company cannot be assured that its counterparties will be able to perform under its derivative contracts. If a counterparty fails to perform and the derivative arrangement is terminated, the Company’s cash flow and ability to pay distributions could be impacted.

Interest Rate Risk

At June 30, 2014, the Company had long-term debt outstanding under its Credit Facilities and term loan of approximately $3.9 billion which incurred interest at floating rates (see Note 6). A 1% increase in the London Interbank Offered Rate (“LIBOR”) would result in an estimated $39 million increase in annual interest expense.

At December 31, 2013, the Company had long-term debt outstanding under its Credit Facilities and term loan of approximately $3.2 billion which incurred interest at floating rates. A 1% increase in the LIBOR would result in an estimated $32 million increase in annual interest expense.

Counterparty Credit Risk

The Company accounts for its commodity derivatives at fair value on a recurring basis (see Note 8). The fair value of these derivative financial instruments includes the impact of assumed credit risk adjustments, which are based on the Company’s and counterparties’ published credit ratings, public bond yield spreads and credit default swap spreads, as applicable.

At June 30, 2014, the average public bond yield spread utilized to estimate the impact of the Company’s credit risk on derivative liabilities was approximately 1.22%. A 1% increase in the average public bond yield spread would result in an estimated $1 million increase in net income for the six months ended June 30, 2014. At June 30, 2014, the credit default swap spreads utilized to estimate the impact of counterparties’ credit risk on derivative assets ranged between 0% and 2.30%. A 1% increase in each of the counterparties’ credit default swap spreads would result in an estimated $3 million decrease in net income for the six months ended June 30, 2014.

At December 31, 2013, the average public bond yield spread utilized to estimate the impact of the Company’s credit risk on derivative liabilities was approximately 1.21%. A 1% increase in the average public bond yield spread would result in an estimated $188,000 increase in net income for the year ended December 31, 2013. At December 31, 2013, the credit default swap spreads utilized to estimate the impact of counterparties’ credit risk on derivative assets ranged between 0% and 2.68%. A 1% increase in each of the counterparties’ credit default swap spreads would result in an estimated $16 million decrease in net income for the year ended December 31, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Audit Committee of the Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the

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Item 4. Controls and Procedures - Continued

desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2014.

Changes in the Company’s Internal Control Over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the condensed consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There were no changes in the Company’s internal controls over financial reporting during the second quarter of 2014 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company continues to integrate certain business operations, information systems, processes and related internal control over financial reporting as a result of the acquisition of Berry Petroleum Company, now Berry Petroleum Company, LLC. The Company will continue to assess the effectiveness of its internal control over financial reporting as integration activities continue.

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Part II - Other Information


Item 1.	Legal Proceedings

On July 10, 2013, Judy Mesirov, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against Mark E. Ellis, Kolja Rockov, David B. Rottino, Arden L. Walker, Jr., Charlene A. Ripley, Michael C. Linn, Joseph P. McCoy, George A. Alcorn, Terrence S. Jacobs, David D. Dunlap, Jeffrey C. Swoveland, and Linda M. Stephens in the District Court of Harris County, Texas (the “Mesirov Action”). On July 12, 2013, John Peters, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants in the District Court of Harris County, Texas (the “Peters Action”). On August 26, 2013, Joseph Abdalla, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants in the District Court of Harris County, Texas (the “Abdalla Action”) (the Mesirov Action, Peters Action, and Abdalla Actions together, the “Texas State Court Derivative Actions”). On August 19, 2013, the Charlote J. Lombardo Trust of 2004, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants in the United States District Court for the Southern District of Texas (the “Lombardo Action”). On September 30, 2013, the Thelma Feldman Rev. Trust, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants (the “Feldman Rev. Trust Action”). On October 21, 2013, the Parker Family Trust of 2012, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants (the “Parker Family Trust Action”) (the Lombardo Action, Feldman Rev. Trust Action, and Parker Family Trust Action together, the “Texas Federal Court Derivative Actions”) (the Texas State Court Derivative Action and Texas Federal Court Derivative Actions together, the “Texas Derivative Actions”). On May 28, 2014, Bill McKinnon, derivatively on behalf of nominal defendant LINN Energy, filed a shareholder derivative petition against many of the same defendants (the “McKinnon Action”) in the Delaware Court of Chancery (the “Delaware Derivative Action”) (the Delaware Derivative Action and the Texas Derivative Actions collectively, the “Derivative Actions”). The Derivative Actions assert derivative claims on behalf of LINN Energy against the individual defendants for alleged breaches of fiduciary duty, waste of corporate assets, mismanagement, abuse of control, and unjust enrichment based on factual allegations similar to those in the Combined Actions. The cases are in their preliminary stages and it is possible that additional similar actions could be filed in the District Court of Harris County,

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Item 1. Legal Proceedings - Continued

Texas, the Delaware Court of Chancery, or in other jurisdictions. As a result, the Company is unable to estimate a possible loss, or range of possible loss, if any.


Item 1A.	Risk Factors

Our business has many risks. Factors that could materially adversely affect our business, financial condition, results of operations, liquidity or the trading price of our units are described in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. Except as set forth below, as of the date of this report, these risk factors have not changed materially. This information should be considered carefully, together with other information in this report and other reports and materials we file with the United States Securities and Exchange Commission.

Unitholders are required to pay taxes on their share of our taxable income, including their share of ordinary income and capital gain upon dispositions of properties by us, even if they do not receive any cash distributions from us. A unitholder’s share of our taxable income, gain, loss and deduction, or specific items thereof, may be substantially different than the unitholder’s interest in our economic profits.

Our unitholders are required to pay federal income taxes and, in some cases, state and local income taxes on their share of our taxable income, whether or not they receive any cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from their share of our taxable income.

For example, we may sell a portion of our properties and use the proceeds to pay down debt or acquire other properties rather than distributing the proceeds to our unitholders, and some or all of our unitholders may be allocated substantial taxable income with respect to that sale. A unitholder’s share of our taxable income upon a disposition of property by us may be ordinary income or capital gain or some combination thereof. Even where we dispose of properties that are capital assets, what otherwise would be capital gains may be recharacterized as ordinary income in order to “recapture” ordinary deductions that were previously allocated to that unitholder related to the same property.

In particular, as announced in June 2014, we plan to divest certain of our higher decline, capital intensive properties and acquire more mature, long-life oil and natural gas properties with lower decline rates. If we are unable to complete these transactions in a tax efficient manner or we receive proceeds from the sale of those properties in excess of the purchase price for the acquisition portion of those transactions, we may have substantial taxable income to allocate to some or all of our unitholders.

A unitholder’s share of our taxable income and gain (or specific items thereof) may be substantially greater than, or our tax losses and deductions (or specific items thereof) may be substantially less than, the unitholder’s interest in our economic profits. This may occur, for example, in the case of a unitholder who purchases units at a time when the value of our units or of one or more of our properties is relatively low or a unitholder who acquires units directly from us in exchange for property whose fair market value exceeds its tax basis at the time of the exchange.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

In October 2008, the Board of Directors of the Company authorized the repurchase of up to $100 million of the Company’s outstanding units from time to time on the open market or in negotiated purchases. The repurchase plan does not obligate the Company to acquire any specific number of units and may be discontinued at any time. The Company did not repurchase any units during the six months ended June 30, 2014. At June 30, 2014, approximately $56 million was available for unit repurchase under the program. In August 2014, the Board of Directors of the Company increased the repurchase authorization to up to $250 million of the Company’s outstanding units.

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Item 3.	Defaults Upon Senior Securities

None


Item 4.	Mine Safety Disclosures

Not applicable


Item 5.	Other Information

None

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Item 6.	Exhibits



Exhibit Number		Description
2.1†	—	Exchange Agreement by and among Linn Energy Holdings, LLC, Berry Petroleum Company, LLC, XTO Energy Inc., ExxonMobil Oil Corporation, Mobil E&P U.S. Development Corporation and Exxon Mobil Corporation, dated as of May 20, 2014 (incorporated herein by reference to Exhibit 2.5 to Amendment No. 2 to Registration Statement on Form S-4 (File No. 333-187458) filed on May 28, 2014)
2.2†	—	First Amendment to Exchange Agreement by and among Linn Energy Holdings, LLC, Berry Petroleum Company, LLC, XTO Energy Inc., ExxonMobil Oil Corporation, Mobil E&P U.S. Development Corporation and Exxon Mobil Corporation, dated as of May 22, 2014 (incorporated herein by reference to Exhibit 2.6 to Amendment No. 2 to Registration Statement on Form S-4 (File No. 333-187458) filed on May 28, 2014)
2.3*†	—	Purchase and Sale Agreement by and between Devon Energy Production, L.P. and Devon Uinta Basin Corporation, as seller, and Linn Energy Holdings, LLC as buyer, executed as of June 27, 2014
10.1	—	Third Amendment to Sixth Amended and Restated Credit Agreement, dated April 30, 2014, among Linn Energy, LLC as Borrower, Wells Fargo Bank, National Association as Administrative Agent, and the Lenders and agents party thereto (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed on May 1, 2014)
10.2	—	Ninth Amendment to Second Amended and Restated Credit Agreement of Berry Petroleum Company, LLC, dated April 30, 2014, among Berry Petroleum Company, LLC as Borrower, Wells Fargo Bank, National Association as Administrative Agent, and the Lenders and agents party thereto (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed on May 1, 2014)
31.1*	—	Section 302 Certification of Mark E. Ellis, Chairman, President and Chief Executive Officer of Linn Energy, LLC
31.2*	—	Section 302 Certification of Kolja Rockov, Executive Vice President and Chief Financial Officer of Linn Energy, LLC
32.1*	—	Section 906 Certification of Mark E. Ellis, Chairman, President and Chief Executive Officer of Linn Energy, LLC
32.2*	—	Section 906 Certification of Kolja Rockov, Executive Vice President and Chief Financial Officer of Linn Energy, LLC
101.INS**	—	XBRL Instance Document
101.SCH**	—	XBRL Taxonomy Extension Schema Document
101.CAL**	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE**	—	XBRL Taxonomy Extension Presentation Linkbase Document


*	Filed herewith.


**	Furnished herewith.


†	The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the Securities and Exchange Commission upon request.

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SIGNATURE

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



	LINN ENERGY, LLC
	(Registrant)

Date: August 7, 2014	/s/ David B. Rottino
	David B. Rottino
	Executive Vice President, Business Development and Chief Accounting Officer
	(As Duly Authorized Officer and Chief Accounting Officer)

Exhibit 2.3 Devon PSA

Exhibit 2.3

Execution Version

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

DEVON ENERGY PRODUCTION COMPANY, L.P.

and

DEVON UINTA BASIN CORPORATION

as Seller,

and

LINN ENERGY HOLDINGS, LLC

as Buyer

EXECUTED ON JUNE 27, 2014

US 2403442

TABLE OF CONTENTS



		Page
ARTICLE I	DEFINITIONS AND INTERPRETATION	1
1.1	Defined Terms	1
1.2	References and Rules of Construction	1
ARTICLE II	PURCHASE AND SALE	2
2.1	Purchase and Sale	2
2.2	Excluded Assets	3
2.3	Revenues and Expenses	3
ARTICLE III	Purchase Price	4
3.1	Purchase Price	4
3.2	[Reserved]	4
3.3	Adjustment to Purchase Price	4
3.4	Adjustment Methodology	6
3.5	Preliminary Settlement Statement	6
3.6	Final Settlement Statement	7
3.7	Disputes	7
3.8	Allocation of Purchase Price / Allocated Values	8
3.9	Allocation for Imbalances at Closing	8
ARTICLE IV	ACCESS / DISCLAIMERS	8
4.1	Access	8
4.2	Confidentiality	11
4.3	Disclaimers	11
ARTICLE V	TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS	12
5.1	General Disclaimer of Title Warranties and Representations	12
5.2	Special Warranty	13
5.3	Notice of Title Defects; Defect Adjustments	13
5.4	Casualty or Condemnation Loss	18
5.5	Preferential Purchase Rights and Consents to Assign	18
ARTICLE VI	ENVIRONMENTAL MATTERS	20
6.1	Environmental Defects	20
6.2	NORM, Asbestos, Wastes and Other Substances	23
ARTICLE VII	REPRESENTATIONS AND WARRANTIES OF SELLER	23
7.1	Organization, Existence and Qualification	23
7.2	Authorization, Approval and Enforceability	24
7.3	No Conflicts	24
7.4	Consents	24
7.5	Bankruptcy	24
7.6	Litigation	25
7.7	Material Contracts	25
7.8	No Violation of Laws	26



7.9	Preferential Rights	26
7.10	Payment of Burdens	26
7.11	Imbalances	26
7.12	Current Commitments	26
7.13	Tax Matters	26
7.14	Brokers’ Fees	26
ARTICLE VIII	REPRESENTATIONS AND WARRANTIES OF BUYER	27
8.1	Organization, Existence and Qualification	27
8.2	Authorization, Approval and Enforceability	27
8.3	No Conflicts	27
8.4	Consents	28
8.5	Bankruptcy	28
8.6	Litigation	28
8.7	Regulatory	28
8.8	Financing	28
8.9	Independent Evaluation	29
8.10	Brokers’ Fees	29
8.11	Accredited Investor	29
ARTICLE IX	CERTAIN AGREEMENTS	29
9.1	Conduct of Business	29
9.2	Successor Operator	30
9.3	Governmental Bonds	31
9.4	Record Retention	31
9.5	Guarantees	31
9.6	Knowledge of Breach	31
9.7	Amendment to Schedules	32
9.8	Employees	32
9.9	Regulatory Matters	33
9.10	EnLink Agreements	33
9.11	SWN Assets	33
9.12	Financial Statements	34
ARTICLE X	BUYER’S CONDITIONS TO CLOSING	34
10.1	Representations	34
10.2	Performance	34
10.3	No Legal Proceedings	35
10.4	Title Defects and Environmental Defects	35
10.5	Closing Deliverables	35
ARTICLE XI	SELLER’S CONDITIONS TO CLOSING	35
11.1	Representations	35
11.2	Performance	35
11.3	No Legal Proceedings	35
11.4	Title Defects and Environmental Defects	36
11.5	Closing Deliverables	36



ARTICLE XII	CLOSING	36
12.1	Date of Closing	36
12.2	Place of Closing	36
12.3	Closing Obligations	36
12.4	Records	38
ARTICLE XIII	ASSUMPTION; INDEMNIFICATION; SURVIVAL	38
13.1	Assumption by Buyer; Specified Obligations	38
13.2	Indemnities of Seller	39
13.3	Indemnities of Buyer	39
13.4	Limitation on Liability	40
13.5	Express Negligence	40
13.6	Exclusive Remedy	40
13.7	Indemnification Procedures	41
13.8	Survival	42
13.9	Non-Compensatory Damages	43
13.10	Waiver of Right to Rescission	43
13.11	Insurance	43
13.12	Disclaimer of Application of Anti-Indemnity Statutes	44
ARTICLE XIV	TERMINATION, DEFAULT AND REMEDIES	44
14.1	Right of Termination	44
14.2	Effect of Termination	44
14.3	Return of Documentation and Confidentiality	45
ARTICLE XV	MISCELLANEOUS	45
15.1	Appendices, Exhibits and Schedules	45
15.2	Expenses and Taxes	45
15.3	Assignment	47
15.4	Preparation of Agreement	47
15.5	Publicity	47
15.6	Notices	47
15.7	Further Cooperation	48
15.8	Filings, Notices and Certain Governmental Approvals	49
15.9	Entire Agreement; Non-Reliance; Conflicts	49
15.10	Successors and Permitted Assigns	50
15.11	Parties in Interest	50
15.12	Amendment	50
15.13	Waiver; Rights Cumulative	50
15.14	Governing Law; Jurisdiction; Venue; Jury Waiver	50
15.15	Severability	52
15.16	Removal of Name	52
15.17	Counterparts	52
15.18	Several Liability of Seller	52
15.19	Like-Kind Exchange	52
15.20	Specific Performance	53
15.21	Non-Recourse	53

iii

LIST OF APPENDICES, EXHIBITS AND SCHEDULES



Appendices
Appendix I	―	Definitions

Exhibits
Exhibit A	―	Leases
Exhibit A-1	―	Fee Minerals
Exhibit A-3	―	Easements and Surface Interests
Exhibit A-4	―	Field Offices and Other Real Property
Exhibit A-5	―	Pipeline and Gathering Systems
Exhibit B	―	Wells and Well Locations
Exhibit C	―	Personal Property
Exhibit D	―	Form of Assignment and Bill of Sale
Exhibit E	―	Excluded Assets
Exhibit F	―	Salt Water Disposal Wells and Evaporation Pits
Exhibit G	―	Form of SWN Assignment
Exhibit H	―	Form of Seismic License Agreement
Exhibit I	―	Form of Mineral Deed
Exhibit J	―	Form of Surface Deed
Exhibit K	―	[Reserved]
Exhibit L	―	Form of DGS Assignment
Exhibit M	―	Form of EnLink NGL Marketing Agreement
Exhibit N	―	SWN Assets
Exhibit O	―	Target Formations
Schedules
Schedule 2.1	―	List of Counties
Schedule 7.4	―	Seller Consents
Schedule 7.6	―	Litigation
Schedule 7.7	―	Material Contracts
Schedule 7.8	―	Violation of Laws
Schedule 7.9	―	Preferential Rights
Schedule 7.10	―	Royalties
Schedule 7.11	―	Imbalances
Schedule 7.12	―	Current Commitments
Schedule 7.13	―	Tax Matters
Schedule 7.15	―	Certain Equipment Matters
Schedule 7.16	―	Payout Information
Schedule 7.17	―	Condemnation Proceedings
Schedule 7.18	―	Plugging and Abandonment
Schedule 9.1	―	Conduct of Business
Schedule 9.5	―	Guarantees
Schedule 9.8	―	Designated Employees

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance herewith, this “Agreement”) is entered into this 27th day of June, 2014 (the “Execution Date”), between Devon Energy Production Company, L.P., an Oklahoma limited partnership (“DEPCO”) and Devon Uinta Basin Corporation, a Delaware corporation (“Devon Uinta” and, collectively with DEPCO, “Seller”), and Linn Energy Holdings, LLC, a Delaware limited liability company (“Buyer”). Buyer and Seller may be referred to collectively as the “Parties” or individually as a “Party.”

Recitals

Seller desires to sell and assign, and Buyer desires to purchase and pay for, all of the Conveyed Interests (as defined hereinafter) effective as of the Effective Time (as defined hereinafter).

NOW, THEREFORE, for and in consideration of the mutual agreements herein contained, the benefits to be derived by each Party, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

1.1 Defined Terms. Capitalized terms used herein shall have the meanings given such terms in Appendix I, unless the context otherwise requires.

1.2 References and Rules of Construction. All references in this Agreement to Exhibits, Appendices, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Appendices, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Exhibits, Appendices, Schedules, Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder,” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited. The words “this Article,” “this Section,” and “this subsection,” and words of similar import, refer only to Article, Section or subsection hereof in which such words occur. The word “including” (in its various forms) means including without limitation. All references to “$” or “dollars” shall be deemed references to United States dollars. Each accounting term not defined herein, and each accounting term partly defined herein, to the extent not defined, will have the meaning given to it under GAAP. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. References to any agreement (including this Agreement) shall mean such agreement as it may be amended,

supplemented or otherwise modified from time to time. References to any date shall mean such date in Oklahoma City, Oklahoma and for purposes of calculating the period of time in which any notice or action is to be given or undertaken hereunder, such period shall be deemed to begin at 12:01 A.M. on the applicable date in Oklahoma City, Oklahoma.

ARTICLE II

PURCHASE AND SALE

2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase and pay for, as of the Effective Time, all of Seller’s right, title and interest in and to the interests and properties described in Section 2.1(a) through Section 2.1(n) (such right, title and interest, less and except the Excluded Assets, collectively, the “Conveyed Interests”):

(a) all of the oil and gas leases covering lands in those counties as set forth in Schedule 2.1 , including all of the oil and gas leases described in Exhibit A, together with any and all other right, title and interest of Seller in and to the leasehold estates created thereby subject to the terms, conditions, covenants and obligations set forth in such leases and/or Exhibit A (such interest in such leases, the “Leases”), and all rights and interests in the lands covered by the Leases and any lands pooled or unitized therewith (such lands, the “Lands”);

(b) all wells located on any of the Lands (such interest in such wells, including the wells set forth in Exhibit B, the “Wells”), and all Hydrocarbons produced therefrom or allocated thereto from and after the Effective Time;

(c) all fee mineral interests that are part of producing Units, including those described in Exhibit A-1 (such interest, the “Fee Minerals”);

(d) all rights and interests in, under or derived from all unitization and pooling agreements, declarations and orders in effect with respect to any of the Leases or Wells and the units created thereby (the “Units”) (the Leases, the Lands, the Fee Minerals, the Units and the Wells being collectively referred to hereinafter as the “Properties” or individually as a “Property”);

(e) to the extent that they may be assigned, all permits, licenses, servitudes, easements, rights-of-way, surface leases, other surface interests and surface rights to the extent appurtenant to or used primarily in connection with the ownership, operation, production, gathering, treatment, processing, storing, sale or disposal of Hydrocarbons or produced water from the Properties or any of the Conveyed Interests, including those described on Exhibit A-3;

(f) all equipment, machinery, fixtures and other personal, movable and mixed property, operational or nonoperational, known or unknown, located on any of the Properties or other Conveyed Interests or that is used or held for use primarily in connection therewith, including those items listed in Exhibit C, and including well equipment, casing, tubing, pumps, motors, machinery, platforms, rods, tanks, boilers, fixtures, compression equipment, flowlines, pipelines, gathering systems associated with the Wells, manifolds, processing and separation facilities, pads, structures, materials, and other items primarily used in the operation thereof (collectively, the “Personal Property”);

(g) the field offices and other real property described on Exhibit A-4 and any Personal Property located thereon;

(h) all pipelines and gathering systems described on Exhibit A-5;

(i) all salt water disposal wells and evaporation pits that are located on the Lands, including those described on Exhibit F;

(j) to the extent assignable, all Applicable Contracts and all rights thereunder insofar and only insofar to the extent relating to the Conveyed Interests;

(k) all Imbalances relating to the Conveyed Interests;

(l) all of the files, records, information and data, whether written or electronically stored, primarily relating to the Conveyed Interests in Seller’s or its Affiliates’ possession, including: (i) land and title records (including abstracts of title, title opinions and title curative documents); (ii) Applicable Contract files; (iii) correspondence; (iv) operations, environmental, production and accounting records and (v) facility and well records (collectively, “Records”);

(m) all of Seller’s right, title and interest in and to all claims and causes of action (including claims for adjustments or refunds) to the extent attributable to (A) the Conveyed Interests insofar as initially accruing from and after the Effective Time, and (B) any of the Assumed Obligations; and

(n) all Hydrocarbons in storage or existing in stock tanks, pipelines and/or plants (including inventory).

2.2 Excluded Assets. Seller shall reserve and retain all of the Excluded Assets.

2.3 Revenues and Expenses.

(a) Except as expressly provided otherwise in this Agreement, Seller shall remain entitled to all of the rights of ownership (including the right to all production, proceeds of production, and other proceeds) and shall remain responsible (by payment, through the adjustments to the Purchase Price under this Agreement or otherwise) for all Operating Expenses, in each case attributable to the Conveyed Interests for the period of time prior to the Effective Time. Except as expressly provided otherwise in this Agreement, and subject to the occurrence of Closing, Buyer shall be entitled to all of the rights of ownership (including the right to all production, proceeds of production, and other proceeds), and shall be responsible for (by payment, through the adjustments to the Purchase Price under this Agreement or otherwise) (i) all Operating Expenses, in each case attributable to the Conveyed Interests for the period of time commencing at the Effective Time, and (ii) all Operating Expenses relating to each Well that has not been completed and placed on production prior to the Effective Time, whether or not such expenses were incurred before or after the Effective Time (the “Designated Well Costs”). Such amounts which are received or paid prior to Closing shall be accounted for in the Preliminary Settlement Statement or Final Settlement Statement, as applicable; provided, however, that the Preliminary Settlement Statement may contain estimated amounts. Such

amounts which are received or paid after Closing but prior to the date of the Final Settlement Statement shall be accounted for in the Final Settlement Statement.

(b) After the Parties’ agreement upon the Final Settlement Statement, (i) if either Party receives monies belonging to the other Party, including proceeds of production, then such amount shall, within 30 days after the end of the calendar month in which such amounts were received, be paid over to the proper Party, (ii) if either Party pays monies for Operating Expenses which are the obligation of the other Party, then such other Party shall, within 30 days after the end of the calendar month in which the applicable invoice and proof of payment of such invoice were received, reimburse the Party which paid such Operating Expenses, (iii) if a Party receives an invoice of an expense or obligation (other than an invoice of an expense or obligation with respect to Asset Taxes or Income Taxes) which is owed by the other Party, such Party receiving the invoice shall promptly forward such invoice to the Party obligated to pay the same, and (iv) if an invoice or other evidence of an obligation (other than an obligation with respect to Asset Taxes or Income Taxes) is received by a Party, which is partially an obligation of both Seller and Buyer, then the Parties shall consult with each other, and each shall promptly pay its portion of such obligation to the obligee thereof.

(c) Each of Seller and Buyer shall be permitted to offset any Operating Expenses owed by such Party to the other Party pursuant to this Section 2.3 against amounts owing by the second Party to the first Party pursuant to this Section 2.3, but not otherwise.

ARTICLE III

PURCHASE PRICE

3.1 Purchase Price. The purchase price for the transfer of the Conveyed Interests and the transactions contemplated hereby shall be Two Billion Three Hundred Million Dollars ($2,300,000,000) (the “Purchase Price”), as adjusted pursuant to this Agreement and payable by Buyer to Seller at Closing by wire transfer in immediately available funds to a bank account of Seller (the details of which shall be provided by Seller to Buyer in the Preliminary Settlement Statement).

3.2 [Reserved].

3.3 Adjustment to Purchase Price. The Purchase Price shall be adjusted as follows (without duplication), and the resulting amount shall be herein called the “Adjusted Purchase Price”:

(a) The Purchase Price shall be adjusted upward by the following amounts:

(i) an amount equal to the value of all Hydrocarbons attributable to the Conveyed Interests in storage or existing in stock tanks, pipelines and/or plants (including inventory), in each case that are, as of the Effective Time, (A) upstream of the pipeline connection or (B) upstream of the sales meter, if any, the value to be based upon the contract price in effect as of the Effective Time (or the price paid to Seller in connection with the sale of such Hydrocarbons, if there is no contract price, during the Interim Period), net of (i) amounts payable as Burdens on such production and (ii) any Asset Taxes on such Hydrocarbons economically borne by Buyer but not taken into account pursuant to Section 3.3(b)(ii);

(ii) an amount equal to all Operating Expenses and all other costs and expenses that are attributable to the Conveyed Interests (other than Overhead Costs, Asset Taxes and Income Taxes) incurred by Seller during the period of time commencing at the Effective Time, whether paid before or after the Effective Time, including (A) Burdens, (B) bond and insurance premiums paid by or on behalf of Seller with respect to the period of time commencing at the Effective Time, and (C) rentals and other lease maintenance payments;

(iii) an amount equal to all of the Designated Well Costs paid by Seller, whether paid before or after the Effective Time;

(iv) the Title Benefit Amounts of any Title Benefits for which the Title Benefit Amounts have been determined;

(v) the amount of all Asset Taxes allocated to Buyer in accordance with Section 15.2 but that are paid or otherwise economically borne by Seller;

(vi) subject to Section 3.9, to the extent that Seller is underproduced as shown with respect to the net Well Imbalances set forth in Schedule 7.11, as complete and final settlement of all Well Imbalances attributable to the Conveyed Interests, the sum of $930,348.16 which is an amount equal to the product of the underproduced volumes times $4.48/MMBtu;

(vii) subject to Section 3.9, to the extent that Seller has overdelivered any Hydrocarbons as of the Effective Time as shown with respect to the net Pipeline Imbalances set forth in Schedule 7.11, as complete and final settlement of all Pipeline Imbalances attributable to the Conveyed Interests, the sum of $2,702,636.16 which is an amount equal to the product of the overdelivered volumes times $4.48/MMBtu;

(viii) the portion of the Overhead Costs attributable to the Conveyed Interests from and after the Effective Time up to the Closing Date; and

(ix) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by Seller and Buyer.

(b) The Purchase Price shall be adjusted downward by the following amounts:

(i) an amount equal to all proceeds actually received by Seller attributable to the sale of Hydrocarbons (A) produced from or allocable to the Conveyed Interests during the period of time commencing at the Effective Time or (B) contained in storage or existing in stock tanks, pipelines and/or plants (including inventory) as of the Effective Time for which an upward Purchase Price adjustment was made pursuant to Section 3.3(a)(i), (in each case) net of expenses (other than Operating Expenses and other expenses taken into account pursuant to Section 3.3(a), Income Taxes and Asset Taxes) directly incurred in earning or receiving such proceeds;

(ii) the amount of all Asset Taxes allocated to Seller in accordance with Section 15.2 but that are paid or otherwise economically borne by Buyer;

(iii) if Seller makes the election under Section 5.3(d)(i) with respect to a Title Defect, the Title Defect Amount with respect to such Title Defect if the Title Defect Amount has been determined;

(iv) if Seller makes the election under Section 6.1(b)(i) with respect to an Environmental Defect, the Remediation Amount with respect to such Environmental Defect if the Remediation Amount has been determined prior to Closing;

(v) the Allocated Value of the Conveyed Interests excluded from the transactions contemplated hereby pursuant to Sections 5.3(d)(ii), 5.5(b)(i)(A), 5.5(b)(ii) or 6.1(b)(ii);

(vi) an amount equal to all proceeds from sales of any of the Conveyed Interests (other than asset swap transactions made by Seller in accordance with Section 9.1(b)(iii)) during the Interim Period; provided that Buyer pays Seller the Allocated Value (as the same may be adjusted pursuant to the terms of this Agreement) for such Conveyed Interests at Closing;

(vii) subject to Section 3.9, to the extent that Seller is overproduced as shown with respect to the net Well Imbalances set forth in Schedule 7.11, as complete and final settlement of all Well Imbalances attributable to the Conveyed Interests, the sum of $0 which is an amount equal to the product of the overproduced volumes times $4.48/MMBtu;

(viii) subject to Section 3.9, to the extent that Seller has underdelivered any Hydrocarbons as of the Effective Time as shown with respect to the net Pipeline Imbalances set forth in Schedule 7.11, as complete and final settlement of all Pipeline Imbalances attributable to the Conveyed Interests, the sum of $0 which is an amount equal to the product of the underdelivered volumes times $4.48/MMBtu;

(ix) an amount equal to all proceeds from sales of Hydrocarbons relating to the Conveyed Interests and payable to owners of Working Interests, royalties, overriding royalties and other similar interests (in each case) that are held by Seller in suspense as of the Closing Date; and

(x) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by Seller and Buyer.

3.4 Adjustment Methodology. When available, actual figures will be used for the adjustments to the Purchase Price at Closing. To the extent actual figures are not available, estimates will be used subject to final adjustments in accordance with Section 3.6 and Section 3.7.

3.5 Preliminary Settlement Statement. Not less than five Business Days prior to Closing, Seller shall prepare and submit to Buyer for review a draft settlement statement (the “Preliminary Settlement Statement”) that shall set forth the Adjusted Purchase Price, reflecting each adjustment made in accordance with this Agreement as of the date of preparation of such Preliminary Settlement Statement and the calculation of the adjustments used to determine such amount, together with the designation of Seller’s accounts for the wire transfers of funds as set

forth in Section 3.1 and Section 12.3(d). Within two Business Days after receipt of the Preliminary Settlement Statement, Buyer will deliver to Seller a written report containing all changes, with explanation therefor, that Buyer proposes to be made to the Preliminary Settlement Statement, if any. The Parties shall in good faith attempt to agree on the Preliminary Settlement Statement as soon as possible after Seller’s receipt of Buyer’s written report. The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust the Purchase Price at Closing; provided that if the Parties do not agree on an adjustment set forth in the Preliminary Settlement Statement prior to the Closing, the amount of such adjustment set forth in the Preliminary Settlement Statement as presented by Seller will be used to adjust the Purchase Price at Closing.

3.6 Final Settlement Statement.

(a) On or before 240 days after the Closing, Seller shall deliver to Buyer a final settlement statement (the “Final Settlement Statement”) prepared by Seller based on actual income and expenses during the Interim Period and which takes into account all final adjustments made to the Purchase Price and shows the resulting final Adjusted Purchase Price (the “Final Price”). The Final Settlement Statement shall set forth the actual proration of the amounts required by this Agreement. As soon as practicable, and in any event within 30 days after receipt of the Final Settlement Statement, Buyer will deliver to Seller a written report containing any proposed changes to the Final Settlement Statement and an explanation of any such changes and the reasons therefor (the “Dispute Notice”). Any changes not so specified in the Dispute Notice shall be deemed waived and Seller’s determinations with respect to all such elements of the Final Settlement Statement that are not addressed specifically in the Dispute Notice shall prevail. If Buyer fails to timely deliver a Dispute Notice to Seller containing changes Buyer proposes to be made to the Final Settlement Statement, the Final Settlement Statement as delivered by Seller will be deemed to be correct and mutually agreed upon by the Parties, and will be final and binding on the Parties and not subject to further audit or arbitration. If the Final Price set forth in the Final Settlement Statement is mutually agreed upon by Seller and Buyer, the Final Settlement Statement and the Final Price shall be final and binding on the Parties, subject to the provisions of Section 2.3(b). Any difference in the Adjusted Purchase Price as paid at Closing pursuant to the Preliminary Settlement Statement and the Final Price shall be paid by the owing Party to the owed Party within 10 days after final determination of such owed amounts in accordance herewith. All amounts paid pursuant to this Section 3.6 shall be delivered in United States currency by wire transfer of immediately available funds to the account specified in writing by the relevant Party.

(b) Subject to matters for which a Party has an indemnity obligation pursuant to Article XIII, the Final Settlement Statement shall be the final accounting for any and all Operating Expenses, and there shall be no adjustment for, or obligation to pay, any Operating Expenses between the Parties following the Final Settlement Statement.

3.7 Disputes. If Seller and Buyer are unable to resolve the matters addressed in the Dispute Notice (if any), each of Buyer and Seller shall within 14 Business Days after the delivery of such Dispute Notice, summarize its position with regard to such dispute in a written document of 20 pages or less and submit such summaries to the Houston office of Deloitte & Touche LLP, or such other Person as the Parties may mutually select (the “Accounting

Arbitrator”), together with the Dispute Notice, the Final Settlement Statement and any other documentation such Party may desire to submit. Within 20 Business Days after receiving the Parties’ respective submissions, the Accounting Arbitrator shall render a decision choosing either Seller’s position or Buyer’s position with respect to each matter addressed in any Dispute Notice, based on the materials submitted to the Accounting Arbitrator as described above. Any decision rendered by the Accounting Arbitrator pursuant hereto shall be final, conclusive and binding on Seller and Buyer and will be enforceable against the Parties in any court of competent jurisdiction. The costs of the Accounting Arbitrator shall be borne pro rata between the Parties with each Party being responsible for the Accounting Arbitrator’s costs to the extent the Accounting Arbitrator has not selected such Party’s position on an aggregate dollar basis with respect to all amounts submitted for resolution by the Accounting Arbitrator.

3.8 Allocation of Purchase Price / Allocated Values.

(a) On or prior to July 9, 2014, Buyer shall deliver to Seller an updated version of Exhibit B, solely for the purpose of adding the allocation of the Purchase Price among Wells and Well Locations to be set forth under the column titled “Allocated Value” in Exhibit B (the “Allocated Values”); provided that in allocating the Purchase Price among Wells and Well Locations, Buyer shall act reasonably. Buyer and Seller agree that such allocation is reasonable and shall not take positions inconsistent therewith, including in notices to holders of Preferential Purchase Rights. Seller, however, makes no representations or warranties as to the accuracy of such values. Disputes under this Section 3.8 shall be resolved under the procedures described in Section 3.7 hereof.

(b) For purposes of Income Taxes, Asset Taxes, and other Taxes, Buyer and Seller shall use commercially reasonable efforts to agree to an allocation schedule within 90 days following the Closing Date. Such allocation schedule shall be reasonably consistent with the Allocated Values, as adjusted pursuant to this Agreement. Buyer and Seller shall report the purchase and sale of the Conveyed Interests consistently with any such agreed allocation schedule unless otherwise required by applicable Law.

3.9 Allocation for Imbalances at Closing. If, prior to Closing, either Party discovers an error in the Imbalances set forth in Schedule 7.11, then the Purchase Price shall be further adjusted at Closing pursuant to Sections 3.3(a)(vi), 3.3(a)(vii), 3.3(b)(vii) or 3.3(b)(viii), as applicable, and Schedule 7.11 will be deemed amended immediately prior to Closing to reflect the Imbalances for which the Purchase Price is so adjusted.

ARTICLE IV

ACCESS / DISCLAIMERS

4.1 Access.

(a) From and after the Execution Date and up to and including the Defect Claim Date (or earlier termination of this Agreement pursuant to the terms herein) but subject to the other provisions of this Section 4.1 and obtaining of any required consents of Third Parties, including Third Party operators of the Properties (with respect to which consents Seller shall not be obligated to expend any monies), Seller shall afford to Buyer and its authorized

representatives (“Buyer’s Representatives”) reasonable access, during normal business hours, to the Properties and all Records in Seller’s possession at such time to the extent necessary to conduct the title or environmental review described in Article V and Article VI. All investigations and due diligence conducted by Buyer or any Buyer’s Representative shall be conducted at Buyer’s sole cost, risk and expense and any conclusions made from any examination done by Buyer or any Buyer’s Representative shall result from Buyer’s own independent review and judgment.

(b) From the Execution Date to the Defect Claim Date, Buyer’s inspection right with respect to the Environmental Condition of the Properties shall be limited to undertake a Phase I Environmental Site Assessment of the Properties conducted by a reputable environmental consulting or engineering firm approved in advance in writing by Seller and may include only visual inspections and record reviews relating to the Properties. In conducting such inspection, Buyer shall not operate any equipment or conduct any testing or sampling of soil, groundwater or other materials (including any testing or sampling for Hazardous Substances, Hydrocarbons or NORM). Seller or Seller’s designee shall have the right to be present during any stage of the assessment. Buyer shall give Seller reasonable prior written notice before gaining physical access to any of the Conveyed Interests, and Seller or its designee shall have the right but not the obligation to accompany Buyer and Buyer’s Representatives whenever Buyer and/or Buyer’s Representative gain physical access to any Conveyed Interests. Notwithstanding anything contained herein to the contrary, Buyer shall not have access to, and shall not be permitted to conduct any inspections (including any Phase I Environmental Site Assessment) with respect to, any Conveyed Interests with respect to which Seller does not have the authority to grant access for such due diligence; provided that Seller shall request access rights from Third Parties for Buyer to conduct such inspections (including any Phase I Environmental Site Assessment) with respect to, such Conveyed Interests.

(c) Buyer shall coordinate its access rights, environmental property assessments and physical inspections of the Conveyed Interests with Seller and all Third Party operators, as applicable, to minimize any inconvenience to or interruption of the conduct of business by Seller or any such Third Party operator. Buyer shall abide by Seller’s, and any Third Party operator’s, safety rules, regulations and operating policies while conducting its due diligence evaluation of the Conveyed Interests, including any environmental or other inspection or assessment of the Conveyed Interests and, to the extent required by Seller or any Third Party operator, execute and deliver any access and bonding agreement required by Seller or any such Third Party operator, in each case before conducting Buyer’s assessment on such Conveyed Interest in accordance with this Section 4.1. Buyer hereby indemnifies, defends, and holds harmless each of the operators of the Conveyed Interests and each Seller Indemnified Party from and against any and all Liabilities arising out of, resulting from or relating to any field visit, environmental assessment or other due diligence activity conducted by Buyer or any Buyer’s Representative with respect to the Conveyed Interests, EVEN IF SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, IN WHOLE OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF, OR THE VIOLATION OF LAW BY, A MEMBER OF THE SELLER INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES TO THE EXTENT ACTUALLY RESULTING FROM THE GROSS NEGLIGENCE OR

WILLFUL MISCONDUCT OF ANY SUCH OPERATOR OF THE CONVEYED INTERESTS OR A MEMBER OF THE SELLER INDEMNIFIED PARTIES.

(d) Buyer acknowledges that any entry into Seller’s offices or onto the Conveyed Interests shall be at Buyer’s sole risk, cost and expense, and, subject to the terms hereof, that none of the Seller Indemnified Parties shall be liable in any way for any injury, loss or damage arising out of such entry that may occur to Buyer or any of Buyer’s Representatives pursuant to this Agreement. Buyer hereby fully waives and releases any and all Liabilities against all of the Seller Indemnified Parties for any injury, death, loss or damage to any of Buyer’s Representatives or their property in connection with Buyer’s due diligence activities, EVEN IF SUCH LIABILITIES ARISE OUT OF OR RESULT FROM, IN WHOLE OR IN PART, THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF, OR THE VIOLATION OF LAW BY, A MEMBER OF THE SELLER INDEMNIFIED PARTIES, EXCEPTING ONLY LIABILITIES ACTUALLY RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A MEMBER OF THE SELLER INDEMNIFIED PARTIES.

(e) Buyer agrees to promptly provide Seller, but in no event less than five days after receipt or creation thereof by Buyer or any of Buyer’s Representatives (including Buyer’s environmental consulting or engineering firm), copies of all final reports prepared by Buyer and/or any of Buyer’s Representatives, which contain data collected or generated from Buyer’s and/or any of Buyer’s Representatives’ due diligence with respect to the Conveyed Interests, including all environmental and title reports. Seller shall not be deemed by its receipt of said documents or otherwise to have made any representation or warranty, express, implied or statutory, as to the condition of the Conveyed Interests or to the accuracy of said documents or the information contained therein.

(f) Upon completion of Buyer’s due diligence, Buyer shall at its sole cost and expense and without any cost or expense to Seller or any of its Affiliates (i) repair all damage done to any Conveyed Interests in connection with Buyer’s and/or any of Buyer’s Representatives’ due diligence (including due diligence conducted by Buyer’s environmental consulting or engineering firm), (ii) restore the Conveyed Interests to the approximate same condition as, or better condition than, they were prior to commencement of any such due diligence, and (iii) remove all equipment, tools or other property brought onto the Conveyed Interests in connection with such due diligence. Any disturbance to the Conveyed Interests (including the leasehold associated therewith) resulting from such due diligence will be promptly corrected by Buyer at Buyer’s sole cost and expense.

(g) During all periods that Buyer and/or any of Buyer’s Representatives (including Buyer’s environmental consulting or engineering firm) are on the Conveyed Interests, Buyer shall maintain, at its sole cost and expense, and with insurers reasonably satisfactory to Seller, policies of insurance of the types and in the amounts reasonably requested by Seller. Coverage under all insurance required to be carried by Buyer hereunder will (i) be primary insurance, (ii) list the Seller Indemnified Parties as additional insureds, (iii) waive subrogation against the Seller Indemnified Parties, and (iv) provide for 15 days prior written notice to Seller in the event of cancellation, expiration, or modification of the policy or reduction in coverage.

Upon request by Seller, Buyer shall provide evidence of such insurance to Seller prior to entering the Conveyed Interests.

4.2 Confidentiality. Buyer acknowledges that, pursuant to its right of access to the Records or the Conveyed Interests, Buyer and/or Buyer’s Representatives (including Buyer’s environmental consulting or engineering firm) will become privy to confidential and other information of Seller and/or Seller’s Affiliates and Buyer shall ensure that such confidential information (a) shall not be used for any purpose other than in connection with the transactions contemplated by this Agreement and (b) shall be held confidential by Buyer and Buyer’s Representatives (including Buyer’s environmental consulting or engineering firm) in accordance with the terms of the Confidentiality Agreement. If the Closing should occur, the foregoing confidentiality restriction on Buyer, including the Confidentiality Agreement, shall terminate as of the Closing Date (except as to (i) such portion of the Conveyed Interests that are not conveyed to Buyer pursuant to the provisions of this Agreement, (ii) the Excluded Assets, and (iii) information related to Seller, Seller’s Affiliates, or to any assets other than the Conveyed Interests).

4.3 Disclaimers.

(a) EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY SET FORTH IN ARTICLE VII AND IN THE ASSIGNMENTS AND THE MINERAL DEED DELIVERED AT CLOSING (i) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO BUYER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO BUYER BY A MEMBER OF THE SELLER INDEMNIFIED PARTIES).

(b) EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE VII, AND IN THE ASSIGNMENTS AND THE MINERAL DEED DELIVERED AT CLOSING AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) TITLE TO ANY OF THE CONVEYED INTERESTS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING, GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE CONVEYED INTERESTS, (iii) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE CONVEYED INTERESTS, (iv) ANY ESTIMATES OF THE VALUE OF THE CONVEYED INTERESTS OR FUTURE REVENUES TO BE GENERATED BY THE CONVEYED INTERESTS, (v) THE PRODUCTION OF OR ABILITY TO PRODUCE HYDROCARBONS FROM THE CONVEYED INTERESTS, (vi) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE CONVEYED INTERESTS, (vii) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY SELLER OR

THIRD PARTIES WITH RESPECT TO THE CONVEYED INTERESTS, (viii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO BUYER OR ITS AFFILIATES, OR ITS OR THEIR RESPECTIVE EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO AND (ix) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT. EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY REPRESENTED OTHERWISE IN ARTICLE VII AND IN THE ASSIGNMENTS AND THE MINERAL DEED, SELLER FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE CONVEYED INTERESTS, RIGHTS OF A PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT BUYER SHALL BE DEEMED TO BE OBTAINING THE CONVEYED INTERESTS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS OR DEFECTS (KNOWN OR UNKNOWN, LATENT, DISCOVERABLE OR UNDISCOVERABLE), AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE.

(c) (i) SELLER HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE CONVEYED INTERESTS, (ii) NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND (iii) SUBJECT TO BUYER’S RIGHTS UNDER SECTION 6.1, BUYER SHALL BE DEEMED TO BE TAKING THE CONVEYED INTERESTS “AS IS” AND “WHERE IS” WITH ALL FAULTS FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS AS BUYER DEEMS APPROPRIATE.

(d) SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 4.3 ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.

ARTICLE V

TITLE MATTERS; CASUALTIES; TRANSFER RESTRICTIONS

5.1 General Disclaimer of Title Warranties and Representations. Except for the special warranty of title set forth in the Assignments and the Mineral Deed, and without limiting Buyer’s remedies for Title Defects set forth in this Article V, Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s title to any of the

Conveyed Interests, and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Conveyed Interests (a) before Closing, shall be as set forth in Section 5.3 and (b) from and after Closing, shall be pursuant to the contractual special warranty of title set forth in the Assignments.

5.2 Special Warranty. The Assignments delivered at Closing will contain a special warranty of title with regard to the Conveyed Interests whereby Seller shall warrant Defensible Title to the Conveyed Interests unto Buyer against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Seller, but not otherwise, subject, however, to the Permitted Encumbrances. The Mineral Deed delivered at Closing will contain a special warranty of title with regard to the Conveyed Interests specified therein whereby DEPCO shall warrant Defensible Title to such Conveyed Interests unto Buyer against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under DEPCO, but not otherwise, subject, however, to the Permitted Encumbrances.

5.3 Notice of Title Defects; Defect Adjustments.

(a) Title Defect Notices. On or before the Defect Claim Date, Buyer must deliver claim notices to Seller meeting the requirements of this Section 5.3(a) (collectively, the “Title Defect Notices” and, individually, a “Title Defect Notice”) setting forth any matters which, in Buyer’s reasonable opinion, constitute Title Defects and which Buyer intends to assert as a Title Defect pursuant to this Section 5.3(a). For all purposes of this Agreement and notwithstanding anything herein to the contrary, Buyer shall be deemed to have waived, and Seller shall have no liability for, any Title Defect which Buyer fails to assert as a Title Defect by a properly delivered Title Defect Notice received by Seller on or before the Defect Claim Date; provided, however, that, for purposes of Seller’s special warranty of title set forth in the Assignments, such waiver shall not apply to any matter that, prior to the Defect Claim Date, is neither reflected of record in the applicable counties or in the applicable state or federal records nor discovered by any of Buyer’s or any of its Affiliates’ employees, title attorneys, landmen or other title examiners while conducting Buyer’s due diligence with respect to the Conveyed Interests. To be effective, each Title Defect Notice shall be in writing, and shall include (i) a description of the alleged Title Defect and the Conveyed Interest (including the legal description of such Conveyed Interest and the Leases applicable to such Conveyed Interest), or portion thereof (including by the currently producing formation or Target Formation as applicable), affected by such alleged Title Defect (each a “Title Defect Property”), (ii) the Allocated Value of each Title Defect Property, (iii) supporting documents reasonably necessary for Seller to verify the existence of the alleged Title Defect, (iv) Buyer’s preferred manner of curing such Title Defect and Buyer’s proposed documentation for such cure and (v) the amount by which Buyer reasonably believes the Allocated Value of each Title Defect Property is reduced by such alleged Title Defect and the computations upon which Buyer’s belief is based. To give Seller an opportunity to commence reviewing and curing Title Defects, Buyer agrees to use reasonable efforts to give Seller, on or before the end of each calendar week prior to the Defect Claim Date, written notice of all alleged Title Defects (as well as any claims that would be claims under the special warranty set forth in the Assignments) discovered by Buyer during the preceding calendar week, which notice may be preliminary in nature and supplemented prior to the Defect Claim Date. Buyer shall also, promptly upon discovery, furnish Seller with written notice of any Title Benefit which is discovered by any of Buyer’s or any of its Affiliates’ employees, title

attorneys, landmen or other title examiners while conducting Buyer’s due diligence with respect to the Conveyed Interests prior to the Defect Claim Date.

(b) Title Benefit Notices. Seller shall have the right, but not the obligation, to deliver to Buyer on or before the Defect Claim Date with respect to each Title Benefit a notice (a “Title Benefit Notice”) including (1) a description of the alleged Title Benefit and the Conveyed Interest, or portion thereof, affected by such alleged Title Benefit (each a “Title Benefit Property”), and (2) the amount by which Seller reasonably believes the Allocated Value of such Title Benefit Property is increased by such alleged Title Benefit, and the computations upon which Seller’s belief is based. Other than any Title Benefits referred to in the Assignments and any Title Benefits which Buyer is required to report to Seller pursuant to Section 5.3(a), Seller shall be deemed to have waived any Title Benefit which Seller fails to assert as a Title Benefit by a Title Benefit Notice delivered to Buyer on or before the Defect Claim Date.

(c) Seller’s Right to Cure. Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure any properly asserted Title Defects at any time prior to 180 days after the Closing Date (the “Cure Period”). During the period of time from Closing to the expiration of the Cure Period, Buyer agrees to afford Seller and its officers, employees and other authorized representatives reasonable access, during normal business hours, to the Conveyed Interests and all Records in Buyer’s or any of its Affiliates’ possession in order to facilitate Seller’s attempt to cure any such Title Defects. No reduction shall be made to the Purchase Price with respect to any Title Defect for which Seller has provided notice to Buyer prior to or on the Closing Date that Seller intends to attempt to cure the Title Defect during the Cure Period. An election by Seller to attempt to cure a Title Defect shall be without prejudice to its rights under Section 5.3(j) and shall not constitute an admission against interest or a waiver of Seller’s right to dispute the existence, nature or value of, or cost to cure, the alleged Title Defect.

(d) Remedies for Title Defects. Subject to Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto, and subject to the rights of the Parties pursuant to Section 14.1(e), in the event that any Title Defect timely asserted by Buyer in accordance with Section 5.3(a) is not waived in writing by Buyer or cured during the Cure Period, Seller shall, at its sole option but subject to Buyer’s agreement in the case of the remedy described in Section 5.3(d)(iii), elect to:

(i) subject to the Individual Title Defect Threshold and the Aggregate Deductible, reduce the Purchase Price or the Final Price, as applicable, by the Title Defect Amount determined pursuant to Section 5.3(g) or Section 5.3(j);

(ii) retain the entirety of the Title Defect Property that is subject to such Title Defect, together with all associated Conveyed Interests, or if the Title Defect Property has been assigned to Buyer, have Buyer reassign to Seller, with special warranty of title against claims by, through or under Buyer, but not otherwise, the Title Defect Property that is subject to such Title Defect, together with all associated Conveyed Interests, and, concurrently therewith, the Purchase Price or the Final Price, as applicable, shall be reduced by an amount equal to the Allocated Value of such Title Defect Property and such associated Conveyed Interests;

(iii) if and only if Buyer agrees to this remedy in its sole discretion, indemnify Buyer against all Liability (up to the Allocated Value of the applicable Title Defect Property) resulting from such Title Defect with respect to such Title Defect Property pursuant to an indemnity agreement prepared by Seller in a form and substance reasonably acceptable to Buyer (a “Title Indemnity Agreement”); or

(iv) if applicable, terminate this Agreement pursuant to Section 14.1(e).

(e) Remedies for Title Benefits. With respect to each Title Benefit Property reported under Section 5.3(b), the Purchase Price shall be increased by an amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value for such Title Benefit Property caused by such Title Benefit, as determined pursuant to Section 5.3(h) or Section 5.3(j).

(f) Exclusive Remedy. Except for Buyer’s rights under Seller’s special warranty of title in the Assignments delivered at Closing and Buyer’s right to terminate this Agreement pursuant to Section 14.1(e), Section 5.3(d) shall be the exclusive right and remedy of Buyer with respect to Seller’s failure to have Defensible Title with respect to any Well, Well Location, or Lease or any other title matter with respect to any Conveyed Interest, and Buyer hereby waives any and all other rights or remedies with respect thereto.

(g) Title Defect Amount. The amount by which the Allocated Value of a Title Defect Property is reduced as a result of the existence of a Title Defect shall be the “Title Defect Amount” for such Title Defect Property and shall be determined in accordance with the following terms and conditions (without duplication):

(i) if Buyer and Seller agree on the Title Defect Amount, then that amount shall be the Title Defect Amount;

(ii) if the Title Defect is an Encumbrance that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;

(iii) if the Title Defect represents a discrepancy between (A) Seller’s Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest set forth for such Title Defect Property in Exhibit B, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest set forth for such Title Defect Property in Exhibit B;

(iv) if the Title Defect represents an increase of (A) Seller’s Working Interest for any Title Defect Property over (B) the Working Interest set forth for such Title Defect Property in Exhibit B, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Working Interest increase and the denominator of which is the Work Interest set forth for such Title Defect Property in Exhibit B;

(v) if the Title Defect represents an obligation or Encumbrance upon or other defect in title to the Title Defect Property of a type not described above, then the Title

Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation; provided, however, that if such Title Defect is reasonably capable of being cured, the Title Defect Amount shall not be greater than the lesser of (A) the reasonable cost and expense of curing such Title Defect and (B) the Allocated Value of the Title Defect Property;

(vi) the Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of any costs or losses included in another Title Defect Amount hereunder; and

(vii) notwithstanding anything to the contrary in this Article V, the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of such Title Defect Property.

(h) Title Benefit Amount. The Title Benefit Amount resulting from a Title Benefit shall be determined in accordance with the following methodology, terms and conditions (without duplication):

(i) if Buyer and Seller agree on the Title Benefit Amount, then that amount shall be the Title Benefit Amount;

(ii) if the Title Benefit represents a discrepancy between (A) Seller’s Net Revenue Interest for any Title Benefit Property and (B) the Net Revenue Interest set forth for such Title Benefit Property in Exhibit B, then the Title Benefit Amount shall be the product of the Allocated Value of such Title Benefit Property multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest set forth for such Title Benefit Property in Exhibit B;

(iii) if the Title Benefit represents a decrease of (A) Seller’s Working Interest for any Title Benefit Property over (B) the Working Interest set forth for such Title Benefit Property in Exhibit B, then the Title Benefit Amount shall be the product of the Allocated Value of such Title Benefit Property multiplied by a fraction, the numerator of which is the Working Interest decrease and the denominator of which is the Work Interest set forth for such Title Benefit Property in Exhibit B; and

(iv) if the Title Benefit is of a type not described above, then the Title Benefit Amounts shall be determined by taking into account the Allocated Value of the Title Benefit Property, the portion of such Title Benefit Property affected by such Title Benefit, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of such Title Benefit Property, the values placed upon the Title Benefit by Buyer and Seller and such other reasonable factors as are necessary to make a proper evaluation.

(i) Title Defect Threshold and Deductible. Notwithstanding anything herein to the contrary, (i) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller hereunder for any individual Title Defect for which the Title Defect

Amount does not exceed $100,000 (“Individual Title Defect Threshold”); and (ii) in no event shall there be any adjustment to the Purchase Price or other remedies provided by Seller hereunder for any Title Defect for which the Title Defect Amount exceeds the Individual Title Defect Threshold unless (A) the amount of the sum of (1) the aggregate Title Defect Amounts of all such Title Defects that exceed the Individual Title Defect Threshold (but excluding any Title Defect Amounts attributable to Title Defects cured by Seller or Title Defect Properties retained by or reassigned to Seller, as applicable, pursuant to Section 5.3(d)(ii)), plus (2) the aggregate Remediation Amounts of all Environmental Defects that exceed the Individual Environmental Threshold (but excluding any Remediation Amounts attributable to Conveyed Interests subject to Environmental Defects that are retained by Seller pursuant to Section 6.1(b)(ii) and any Environmental Defects cured by Seller), exceeds (B) the Aggregate Deductible, after which point Buyer shall be entitled to adjustments to the Purchase Price or other applicable remedies available hereunder, but only to the extent that the amount by which the aggregate amount of such Title Defect Amounts and Remediation Amounts exceeds the Aggregate Deductible. For the avoidance of doubt, if Seller elects to retain any Title Defect Property or to have Buyer reassign any Title Defect Property pursuant to Section 5.3(d)(ii), the Title Defect Amount relating to the Conveyed Interest attributable to such Title Defect Property will not be counted towards the Aggregate Deductible and will not be considered for purposes of Section 10.4 or Section 11.4.

(j) Title Dispute Resolution. Seller and Buyer shall attempt to agree on matters regarding (i) all Title Defects, Title Benefits, Title Defect Amounts and Title Benefit Amounts, and (ii) the adequacy of any curative materials provided by Seller to cure any alleged Title Defect (collectively “Title Disputes”) prior to Closing. If Seller and Buyer are unable to agree by Closing (or by the Title Dispute Date if Seller elects to attempt to cure an alleged Title Defect after Closing), the Title Disputes shall be exclusively and finally resolved pursuant to this Section 5.3(j). There shall be a single arbitrator, who shall be a title attorney with at least 10 years’ experience in oil and gas titles involving properties in any of the regional areas in which the Title Defect Properties or Title Benefit Properties, as applicable, are located, in each case as selected by the mutual agreement of Buyer and Seller within 15 days after Closing or the Title Dispute Date, as applicable (the “Title Arbitrator”). If the Parties do not mutually agree upon the Title Arbitrator in accordance with this Section 5.3(j), the Houston office of the AAA shall appoint the Title Arbitrator under such conditions as the AAA in its sole discretion deems necessary or advisable. The place of arbitration shall be Houston, and the arbitration shall be conducted in accordance with the AAA Rules, to the extent such rules do not conflict with the terms of this Section 5.3(j). The Title Arbitrator’s determination shall be made within 30 days after submission of Title Disputes and shall be final and binding upon both Parties, without right of appeal. In making his determination with respect to any Title Dispute, the Title Arbitrator shall be bound by the rules set forth in Section 5.3(g) and Section 5.3(h) and, subject to the foregoing, may consider such other matters as, in the opinion of the Title Arbitrator, are necessary to make a proper determination. The Title Arbitrator, however, may not award Buyer a greater Title Defect Amount than the Title Defect Amount claimed by Buyer in its applicable Title Defect Notice. The Title Arbitrator shall act as an expert for the limited purpose of determining the specific Title Disputes submitted by either Party, and the Title Arbitrator may not award damages, interest or penalties to either Party with respect to any matter. Seller and Buyer shall each bear its own legal fees and other costs of presenting its case to the Title Arbitrator. Each of Seller and Buyer shall bear one-half of the costs and expenses of the Title

Arbitrator. To the extent the award of the Title Arbitrator with respect to any Title Defect Amount or Title Benefit Amount is not taken into account as an adjustment to the Purchase Price pursuant to Section 3.5 or Section 3.6, then within 10 days after the Title Arbitrator delivers written notice to Buyer and Seller of his award with respect to a Title Dispute, and, subject to Section 5.3(i), (i) Buyer shall pay to Seller the amount, if any, so awarded by the Title Arbitrator to Seller and (ii) Seller shall pay to Buyer the amount, if any, so awarded by the Title Arbitrator to Buyer. Nothing herein shall operate to cause Closing to be delayed on account of any arbitration that may be conducted pursuant to this Section 5.3(j), and, to the extent any adjustments are not agreed upon by the Parties as of Closing, the Purchase Price shall not be adjusted therefor at Closing and subsequent adjustments to the Purchase Price, if any, will be made pursuant to Section 3.7 or this Section 5.3(j).

5.4 Casualty or Condemnation Loss.

(a) Notwithstanding anything herein to the contrary, from and after the Effective Time, if Closing occurs, Buyer shall assume all risk of loss with respect to production of Hydrocarbons through normal depletion (including watering out of any well, collapsed casing or sand infiltration of any well) and the depreciation of Personal Property due to ordinary wear and tear, in each case, with respect to the Conveyed Interests, and Buyer shall not assert such matters as Casualty Losses or Title Defects hereunder.

(b) If, after the Execution Date but prior to the Closing Date, any portion of the Conveyed Interests is damaged or destroyed by fire or other casualty or is taken in condemnation or under right of eminent domain (each, a “Casualty Loss”), and the Closing thereafter occurs, Seller, at Closing, shall pay to Buyer all sums actually paid to Seller by Third Parties by reason of any Casualty Loss insofar as with respect to the Conveyed Interests and shall assign, transfer and set over to Buyer or subrogate Buyer to all of Seller’s right, title and interest (if any) in insurance claims, unpaid awards, and other rights against Third Parties (excluding any Liabilities, other than insurance claims, of or against any Seller Indemnified Party) arising out of such Casualty Loss insofar as with respect to the Conveyed Interests; provided, however, that Seller shall reserve and retain (and Buyer shall assign to Seller) all right, title, interest and claims against Third Parties for the recovery of Seller’s costs and expenses incurred prior to Closing in repairing such Casualty Loss and/or pursuing or asserting any such insurance claims or other rights against Third Parties.

5.5 Preferential Purchase Rights and Consents to Assign.

(a) With respect to each Preferential Purchase Right set forth in Schedule 7.9, not later than 10 days after the Execution Date (and, with respect to each Preferential Purchase Right that is not set forth in Schedule 7.9 but is discovered by either Party after the Execution Date and before the Closing Date, not later than five days after the discovery thereof), Seller shall send to the holder of each such Preferential Purchase Right a notice in material compliance with the contractual provisions applicable to such Preferential Purchase Right.

(i) If, prior to Closing, any holder of a Preferential Purchase Right notifies Seller that it intends to consummate the purchase of the Conveyed Interest to which its Preferential Purchase Right applies, then the Conveyed Interest subject to such Preferential

Purchase Right shall be excluded from the Conveyed Interests to be assigned to Buyer at Closing (but only to the extent of the portion of such Conveyed Interest affected by the Preferential Purchase Right), and the Purchase Price shall be reduced by the Allocated Value of the Conveyed Interest (or portion thereof) so excluded. Seller shall be entitled to all proceeds paid by any Person exercising a Preferential Purchase Right prior to Closing. If such holder of such Preferential Purchase Right thereafter fails to consummate the purchase of the Conveyed Interest (or portion thereof) covered by such Preferential Purchase Right on or before the end of the period of time for closing such sale but no later than 180 days following the Closing Date, (A) Seller shall so notify Buyer, (B) Buyer shall purchase, on or before 10 days following receipt of such notice, such Conveyed Interest (or portion thereof) that was so excluded from the Conveyed Interests to be assigned to Buyer at Closing, under the terms of this Agreement and for a price equal to the amount by which the Purchase Price was reduced at Closing with respect to such excluded Conveyed Interest (or portion thereof), and (C) Seller shall assign to Buyer the Conveyed Interest (or portion thereof) so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment. If, as of Closing, the time for exercising a Preferential Purchase Right has not expired and such Preferential Purchase Right has not been exercised or waived, then the Conveyed Interest subject to such Preferential Purchase Right shall be included in the Conveyed Interests to be assigned to Buyer at Closing, and Buyer shall be solely responsible for complying with the terms of such Preferential Purchase Right and shall be entitled to the proceeds, if any, associated with the exercise of such Preferential Purchase Right.

(ii) All Conveyed Interests for which any applicable Preferential Purchase Right has been waived, or as to which the period to exercise the applicable Preferential Purchase Right has expired, in each case, prior to Closing, shall be sold to Buyer at Closing pursuant to the provisions of this Agreement.

(b) With respect to each Consent set forth in Schedule 7.4, Seller, not later than 10 days after the Execution Date (and, with respect to each Consent that is not set forth in Schedule 7.4 but is discovered by either Party after the Execution Date and before the Closing Date, not later than five days after the discovery thereof), shall send to the holder of each such Consent a notice in material compliance with the contractual provisions applicable to such Consent seeking such holder’s consent to the transactions contemplated hereby.

(i) If (A) Seller fails to obtain a Consent set forth in Schedule 7.4 (or any Consent that is not set forth in Schedule 7.4 but is discovered by either Party after the Execution Date and before the Closing Date) prior to Closing and the failure to obtain such Consent would cause (1) the assignment of the Conveyed Interests affected thereby to Buyer to be void or (2) the termination of a Lease under the express terms thereof or (B) a Consent requested by Seller is denied in writing, then, in each case, the Conveyed Interest (or portion thereof) affected by such un-obtained Consent shall be excluded from the Conveyed Interests to be assigned to Buyer at Closing, and the Purchase Price shall be reduced by the Allocated Value of such Conveyed Interest (or portion thereof) so excluded. In the event that any such Consent (with respect to a Conveyed Interest excluded pursuant to this Section 5.5(b)(i)) that was not obtained prior to Closing is obtained within 180 days following the Closing Date, then, within 10 Business Days after such Consent is obtained, (x) Buyer shall purchase the Conveyed Interest (or portion thereof) that was so excluded as a result of such previously un-obtained Consent and pay to Seller the amount by which the Purchase Price was reduced at Closing with respect to the

Conveyed Interest (or portion thereof) so excluded and (y) Seller shall assign to Buyer the Conveyed Interest (or portion thereof) so excluded at Closing pursuant to an instrument in substantially the same form as the Assignment.

(ii) If Seller fails to obtain a Consent set forth in Schedule 7.4 (or any Consent that is not set forth in Schedule 7.4 but is discovered by either Party after the Execution Date and before the Closing Date) prior to Closing and (A) the failure to obtain such Consent would not cause (1) the assignment of the Conveyed Interest (or portion thereof) affected thereby to Buyer to be void or (2) the termination of a Lease under the express terms thereof and (B) such Consent requested by Seller is not denied in writing by the holder thereof, then the Conveyed Interest (or portion thereof) subject to such un-obtained Consent shall nevertheless be assigned by Seller to Buyer at Closing as part of the Conveyed Interests and Buyer shall have no claim against, and Seller shall have no Liability for, the failure to obtain such Consent.

(iii) Prior to Closing, Seller and Buyer shall use their commercially reasonable efforts to obtain all Consents listed in Schedule 7.4 (and any Consent that is not set forth in Schedule 7.4 but is discovered by either Party after the Execution Date and before the Closing Date); provided, however, that neither Party shall be required to incur any Liability or pay any money in order to obtain any such Consent. Subject to the foregoing, Buyer agrees to provide Seller with any information or documentation that may be reasonably requested by Seller and/or the Third Party holder(s) of such Consents in order to facilitate the process of obtaining such Consents.

ARTICLE VI

ENVIRONMENTAL MATTERS

6.1 Environmental Defects.

(a) Assertions of Environmental Defects. Buyer must deliver claim notices to Seller meeting the requirements of this Section 6.1(a) (collectively the “Environmental Defect Notices” and individually an “Environmental Defect Notice”) not later than the Defect Claim Date setting forth any matters which, in Buyer’s reasonable opinion, constitute Environmental Defects and which Buyer intends to assert as Environmental Defects pursuant to this Section 6.1. For all purposes of this Agreement, Buyer shall be deemed to have waived, and Seller shall have no liability for, any Environmental Defect which Buyer fails to assert as an Environmental Defect by a properly delivered Environmental Defect Notice received by Seller on or before the Defect Claim Date, with such liabilities being “Buyer’s Environmental Liabilities.” To be effective, each Environmental Defect Notice shall be in writing and shall include (i) a description of the matter constituting the alleged Environmental Condition (including the applicable Environmental Law violated or implicated thereby) and the Conveyed Interests affected by such alleged Environmental Condition, (ii) the Allocated Value of the Conveyed Interests (or portions thereof) affected by such alleged Environmental Condition, (iii) supporting documents reasonably necessary for Seller to verify the existence of such alleged Environmental Condition, and (iv) a calculation of the Remediation Amount (itemized in reasonable detail) that Buyer asserts is attributable to such alleged Environmental Condition. Buyer’s calculation of the Remediation Amount included in the Environmental Defect Notice must describe in reasonable detail the Remediation proposed for the alleged Environmental Condition that gives rise to the

asserted Environmental Defect and identify all assumptions used by Buyer in calculating the Remediation Amount, including the standards that Buyer asserts must be met to comply with Environmental Laws. Notwithstanding anything to the contrary in this Article VI, the aggregate Remediation Amounts attributable to the effects of all Environmental Defects upon any single Conveyed Interest shall not exceed the Allocated Value of such Conveyed Interest. Seller shall have the right, but not the obligation, to cure any asserted Environmental Defect on or before the expiration of the Cure Period. No reduction shall be made to the Purchase Price with respect to any asserted Environmental Defect for which Seller has provided notice to Buyer prior to or on the Closing Date that Seller intends to attempt to cure the asserted Environmental Defect during the Cure Period. To give Seller an opportunity to commence reviewing and curing Environmental Defects, Buyer agrees to use reasonable efforts to give Seller, on or before the end of each calendar week prior to the Defect Claim Date, written notice of all alleged Environmental Defects discovered by Buyer during the preceding calendar week, which notice may be preliminary in nature and supplemented prior to the Defect Claim Date.

(b) Remedies for Environmental Defects. Subject to Seller’s continuing right to dispute the existence of an Environmental Defect and/or the Remediation Amount asserted with respect thereto, and subject to the rights of the Parties pursuant to Section 14.1(e), in the event that any Environmental Defect timely asserted by Buyer in accordance with Section 6.1(a) is not waived in writing by Buyer or cured prior to Closing, Seller shall, at its sole option but subject to Buyer’s agreement in the case of the remedy described in Section 6.1(b)(iii), elect to:

(i) Subject to the Individual Environmental Threshold and the Aggregate Deductible, reduce the Purchase Price by the Remediation Amount;

(ii) retain the entirety of the Conveyed Interest that is subject to such Environmental Defect, together with all associated Conveyed Interests, in which event the Purchase Price shall be reduced by an amount equal to the Allocated Value of such Conveyed Interest and such associated Conveyed Interests;

(iii) if and only if Buyer agrees to this remedy in its sole discretion, to indemnify Buyer against all Liability resulting from such Environmental Defect with respect to the Conveyed Interests pursuant to an indemnity agreement prepared by Seller in a form and substance reasonably acceptable to Buyer (each, an “Environmental Indemnity Agreement”); or

(iv) if applicable, terminate this Agreement pursuant to Section 14.1(e).

If Seller elects the option set forth in clause (i) above, Buyer shall be deemed to have assumed responsibility for all of the costs and expenses attributable to the Remediation of the Environmental Condition attributable to such Environmental Defect and for all Liabilities with respect thereto and Buyer’s obligations with respect to the foregoing shall be deemed to constitute Assumed Obligations.

(c) Exclusive Remedy. Except for Buyer’s rights to terminate this Agreement pursuant to Section 14.1(e), the provisions set forth in Section 6.1(b) shall be the exclusive right and remedy of Buyer with respect to any Environmental Defect with respect to any Conveyed Interest or other environmental matter.

(d) Environmental Deductibles. Notwithstanding anything herein to the contrary, (i) in no event shall there be any adjustment to the Purchase Price or other remedies provided by Seller for any individual Environmental Defect for which the Remediation Amount does not exceed $200,000 (the “Individual Environmental Threshold”); and (ii) in no event shall there be any adjustment to the Purchase Price or other remedies provided by Seller for any Environmental Defect for which the Remediation Amount exceeds the Individual Environmental Threshold unless (A) the amount of the sum of (1) the aggregate Remediation Amounts of all such Environmental Defects that exceed the Individual Environmental Threshold (but excluding any Remediation Amounts attributable to any Environmental Defects cured by Seller and Conveyed Interests retained by Seller pursuant to Section 6.1(b)(ii)) plus (2) the aggregate Title Defect Amounts of all Title Defects that exceed the Individual Title Defect Threshold (but excluding any Title Defect Amounts attributable to Title Defects cured by Seller and Title Defect Properties retained by or reassigned to Seller, as applicable, pursuant to Section 5.3(d)(ii)), exceeds (B) the Aggregate Deductible, after which point Buyer shall be entitled to adjustments to the Purchase Price or other applicable remedies available hereunder, but only with respect to the amount by which the aggregate amount of such Remediation Amounts and Title Defect Amounts exceeds the Aggregate Deductible. For the avoidance of doubt, if Seller elects to retain any Conveyed Interest related to any Environmental Defect pursuant to Section 6.1(b)(ii), then (x) the Purchase Price shall be reduced by the Allocated Value of such retained Conveyed Interest and (y) the Remediation Amount for the Environmental Defect relating to such retained Conveyed Interest will not be counted towards the Aggregate Deductible.

(e) Environmental Dispute Resolution. Seller and Buyer shall attempt to agree on all Environmental Defects and Remediation Amounts prior to Closing. If Seller and Buyer are unable to agree by Closing, the Environmental Defects and/or Remediation Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 6.1(e). There shall be a single arbitrator, who shall be an environmental attorney with at least 10 years’ experience in environmental matters involving oil and gas producing properties in any of the regional areas in which the affected Conveyed Interests are located, as selected by the mutual agreement of Buyer and Seller within 15 days after the Closing Date (the “Environmental Arbitrator”). If the Parties do not mutually agree upon the Environmental Arbitrator in accordance with this Section 6.1(e), the Houston office of the AAA shall appoint such Environmental Arbitrator under such conditions as the AAA in its sole discretion deems necessary or advisable. The place of arbitration shall be Houston, and the arbitration shall be conducted in accordance with the AAA Rules, to the extent such rules do not conflict with the terms of this Section 6.1(e). The Environmental Arbitrator’s determination shall be made within 30 days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Environmental Arbitrator shall be bound by the rules set forth in this Section 6.1 and, subject to the foregoing, may consider such other matters as in the opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination. The Environmental Arbitrator, however, may not award Buyer a greater Remediation Amount than the Remediation Amount claimed by Buyer in its applicable Environmental Defect Notice. The Environmental Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Environmental Defects and/or Remediation Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Seller and Buyer shall each bear its own legal fees and other costs of presenting its case to the Environmental Arbitrator. Each of Seller and Buyer shall bear

one-half of the costs and expenses of the Environmental Arbitrator. To the extent that the award of the Environmental Arbitrator with respect to any Remediation Amount is not taken into account as an adjustment to the Purchase Price pursuant to Section 3.5 or Section 3.6, then within ten 10 days after the Environmental Arbitrator delivers written notice to Buyer and Seller of his award with respect to any Remediation Amount, and, subject to Section 6.1(d), (i) Buyer shall pay to Seller the amount, if any, so awarded by the Environmental Arbitrator to Seller and (ii) Seller shall pay to Buyer the amount, if any, so awarded by the Environmental Arbitrator to Buyer. Nothing herein shall operate to cause Closing to be delayed on account of any arbitration conducted pursuant to this Section 6.1(e), and, to the extent any adjustments are not agreed upon by the Parties as of Closing, the Purchase Price shall not be adjusted therefor at Closing and subsequent adjustments to the Purchase Price, if any, will be made pursuant to Section 3.7 or this Section 6.1(e).

6.2 NORM, Asbestos, Wastes and Other Substances. Buyer acknowledges that the Conveyed Interests have been used for exploration, development, and production of oil and gas and that there may be petroleum, produced water, wastes, or other substances or materials located in, on or under the Conveyed Interests or associated with the Conveyed Interests. Equipment and sites included in the Conveyed Interests may contain asbestos, NORM or other Hazardous Substances. NORM may affix or attach itself to the inside of wells, materials, and equipment as scale, or in other forms. The wells, materials, and equipment located on the Conveyed Interests or included in the Conveyed Interests may contain asbestos, NORM and other wastes or Hazardous Substances. NORM containing material and/or other wastes or Hazardous Substances may have come in contact with various environmental media, including water, soils or sediment. Special procedures may be required for the assessment, remediation, removal, transportation, or disposal of any affected environmental media, wastes, asbestos, NORM and other Hazardous Substances from the Conveyed Interests. Notwithstanding anything herein to the contrary, Buyer shall not be permitted to claim any Environmental Defect on the account of the presence of NORM or asbestos-containing materials that are non-friable, unless and only to the extent such presence of NORM or asbestos-containing materials that are non-friable constitutes an Environmental Condition resulting in a violation of Environmental Laws or to the extent such NORM or asbestos-containing material is present on out of service surface equipment included in the Conveyed Interests.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to the matters specifically listed or disclosed in the Schedules (as added, supplemented or amended pursuant to Section 9.7), Seller represents and warrants to Buyer as follows:

7.1 Organization, Existence and Qualification.

(a) DEPCO is a limited partnership duly formed and validly existing under the Laws of the State of Oklahoma. DEPCO has all requisite power and authority to own and operate its property (including its interests in the Conveyed Interests) and to carry on its business as now conducted. DEPCO is duly licensed or qualified to do business as a foreign limited partnership in all jurisdictions in which it carries on business or owns assets and such

qualification is required by Law, except where the failure to be so qualified would not have a Material Adverse Effect.

(b) Devon Uinta is a corporation duly formed and validly existing under the Laws of the State of Delaware. Devon Uinta has all requisite power and authority to own and operate its property (including its interests in the Conveyed Interests) and to carry on its business as now conducted. Devon Uinta is duly licensed or qualified to do business as a foreign corporation in all jurisdictions in which it carries on business or owns assets and such qualification is required by Law, except where the failure to be so qualified would not have a Material Adverse Effect.

7.2 Authorization, Approval and Enforceability. Seller has full power and authority to enter into and perform this Agreement and the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by Seller of this Agreement have been duly and validly authorized and approved by all necessary limited partnership action on the part of Seller. Assuming the due authorization, execution and delivery by the other parties to such documents, this Agreement is, and the Transaction Documents to which Seller is a party when executed and delivered by Seller will be, the valid and binding obligations of Seller and enforceable against Seller in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

7.3 No Conflicts. Assuming the receipt of all Consents and the waiver of, or compliance with, all Preferential Purchase Rights applicable to the transactions contemplated hereby, the execution, delivery, and performance by Seller of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated herein and therein will not (a) conflict with or result in a breach of any provisions of the organizational documents of Seller or (b) except for Permitted Encumbrances, result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation, or acceleration under any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, or other Applicable Contract to which Seller is a party or by which Seller or the Conveyed Interests may be bound or (c) violate any Law applicable to Seller or any of the Conveyed Interests, except in the case of clauses (b) and (c) where such default, Encumbrance, termination, cancellation, acceleration or violation would not have a Material Adverse Effect.

7.4 Consents. Except (a) as set forth in Schedule 7.4, (b) for Customary Post-Closing Consents, (c) under Contracts that are terminable without payment of any fee upon not greater than 90 days’ notice, (d) for any Preferential Purchase Rights applicable to the transactions contemplated by this Agreement that are set forth in Schedule 7.9, and (e) as described in Section 9.9, there are no restrictions to assignment, including requirements for consents from Third Parties to any assignment (in each case), that Seller is required to obtain in connection with the transfer of the Conveyed Interests by Seller to Buyer or the consummation of the transactions contemplated by this Agreement by Seller (each, a “Consent”), except where any restriction on assignment would not have a Material Adverse Effect.

7.5 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Seller’s Knowledge, threatened in writing against Seller.

7.6 Litigation. Except as set forth in Schedule 7.6, there is no suit, action, litigation or arbitration by any Person or before any Governmental Authority pending or, to Seller’s Knowledge, threatened in writing against Seller with respect to the Conveyed Interests or otherwise relating to the Conveyed Interests. As of the Execution Date, there is no investigation, lawsuit, action, litigation or arbitration by any Person or before any Governmental Authority pending, or to Seller’s Knowledge, threatened against Seller or any of its Affiliates that has or would have a material adverse effect upon the ability of Seller to consummate the transactions contemplated by this Agreement or perform its obligations hereunder

7.7 Material Contracts.

(a) Schedule 7.7 sets forth as of the Execution Date all Applicable Contracts of the type described below (collectively, the “Material Contracts”):

(i) any Applicable Contract that can reasonably be expected to result in aggregate payments by Seller of more than $250,000 during the remainder of the current or any subsequent fiscal year (based solely on the terms thereof and current volumes, without regard to any expected increase in volumes or revenues);

(ii) any Applicable Contract that can reasonably be expected to result in aggregate revenues to Seller of more than $250,000 during the remainder of the current or any subsequent fiscal year (based solely on the terms thereof and current volumes, without regard to any expected increase in volumes or revenues);

(iii) any Hydrocarbon purchase and sale, transportation, gathering, treating, processing or similar Applicable Contract that is not terminable without penalty on 90 days’ or less notice;

(iv) any indenture, mortgage, loan, credit or sale-leaseback or similar Applicable Contract that can reasonably be expected to result in aggregate payments by Seller during the current or any subsequent fiscal year;

(v) any Applicable Contract that constitutes a lease under which Seller is the lessor or the lessee of real or personal property which lease (A) cannot be terminated by Seller without penalty upon 90 days’ or less notice and (B) involves an annual base rental of more than $250,000;

(vi) any Applicable Contract with any Affiliate of Seller which will be binding on Buyer after the Closing Date and will not be terminable by Buyer within 30 days’ or less notice;

(vii) any farmout agreement, area of mutual interest agreement, exploration agreement, participation agreement, joint operating agreement or similar Applicable Contract where the primary obligation thereunder has not fully been performed; and

(viii) any Applicable Contract for the sale of gas containing a take-or-pay, advance payment, prepayment or similar provision or requiring gas to be gathered, delivered, processed or transported without then or thereafter receiving full payment therefor.

(b) Except as set forth in Schedule 7.7 and except for such matters that would not have a Material Adverse Effect, there exists no default under any Material Contract by Seller or, to Seller’s Knowledge, by any other Person that is a party to such Material Contract, and no event has occurred that with notice or lapse of time or both would constitute any default under any such Material Contract by Seller or, to Seller’s Knowledge, any other Person who is a party to such Material Contract.

7.8 No Violation of Laws. Except as set forth in Schedule 7.8 and except where such violations would not have a Material Adverse Effect, to Seller’s Knowledge as of the Execution Date, Seller is not in violation of any applicable Laws with respect to its ownership and operation of the Conveyed Interests. For the avoidance of doubt, this Section 7.8 does not include any matters with respect to Environmental Laws or Tax Laws, which shall be exclusively addressed in Article VI and Section 7.13, respectively.

7.9 Preferential Rights. Except as set forth in Schedule 7.9, there are no preferential purchase rights, rights of first refusal or other similar rights that are applicable to the transfer of the Conveyed Interests in connection with the transactions contemplated hereby (each a “Preferential Purchase Right”).

7.10 Payment of Burdens. Except as would not have a Material Adverse Effect, except for such items that are not yet due or are being held in suspense for which the Purchase Price will be adjusted in accordance herewith pursuant to Section 3.3(b)(ix) and except as set forth on Schedule 7.10, Seller has paid all Burdens due by Seller with respect to the Conveyed Interests, or if not paid, is contesting such Burdens described in Schedule 7.10 in good faith in the normal course of business.

7.11 Imbalances. To Seller’s Knowledge, Schedule 7.11 sets forth all material Imbalances associated with the Conveyed Interests as of the Effective Time.

7.12 Current Commitments. Schedule 7.12 sets forth, as of the Execution Date, all approved authorizations for expenditures and other approved capital commitments, individually equal to or greater than $200,000 (net to Seller’s interest) (the “AFEs”) relating to the Conveyed Interests to drill or rework any Wells or for other capital expenditures pursuant to any of the Material Contracts for which all of the activities anticipated in such AFEs have not been completed by the Execution Date.

7.13 Tax Matters. Except as set forth in Schedule 7.13, during the period of Seller’s ownership of the Conveyed Interests, all Asset Taxes that have become due and payable by Seller before the Effective Time have been properly paid, other than any Asset Taxes that are being contested in good faith. Except as set forth in Schedule 7.13, no transfer of any part of the Conveyed Interests pursuant to this Agreement will be treated as a transfer of an interest in a partnership for Tax purposes. Each partnership listed on Schedule 7.13 has in effect a valid election under Section 754 of the Code.

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

7.15 Equipment. To Seller's Knowledge, except as set forth in Schedule 7.15, the Personal Property has been maintained in operable repair, working order and operating condition and is adequate for normal operation of the Assets consistent with current practices, ordinary wear and tear excepted.

7.16 Payouts. To Seller's Knowledge, Schedule 7.16 contains a complete and accurate list of the status of any “payout” balance, as of the Effective Date, for the Seller operated Wells subject to a reversion or other adjustment at some level of cost recovery or payout (or passage of time or other event other than termination of a Lease by its terms).

7.17 Condemnation. Except as set forth in Schedule 7.17, there is no actual or threatened taking (whether permanent, temporary, whole or partial) of any part of the Conveyed Interests by reason of condemnation or the threat of condemnation.

7.18 Plugging and Abandonment. Except as set forth in Schedule 7.18, Seller has not abandoned, or agreed to abandon, any wells included in the Conveyed Interests since the Effective Date and to Seller’s Knowledge there are no dry holes, or otherwise inactive wells, located on the Lands, other than wells that have been properly plugged and abandoned.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller the following:

8.1 Organization, Existence and Qualification. Buyer is a limited liability company, duly formed, validly existing and in good standing under the Laws of the State of Delaware and has all requisite power and authority to own and operate its property and to carry on its business as now conducted. Buyer is duly licensed or qualified to do business as a foreign limited liability company in all jurisdictions in which it carries on business or owns assets and such qualification is required by Law except where the failure to be so qualified would not have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations hereunder.

8.2 Authorization, Approval and Enforceability. Buyer has full power and authority to enter into and perform this Agreement, the Transaction Documents to which it is a party and the transactions contemplated herein and therein. The execution, delivery, and performance by Buyer of this Agreement and the Transaction Documents have been duly and validly authorized and approved by all necessary limited liability company action on the part of Buyer. This Agreement is, and the Transaction Documents to which Buyer is a party, when executed and delivered by Buyer, will be the valid and binding obligations of Buyer and enforceable against Buyer in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar Laws, as well as to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

8.3 No Conflicts. The execution, delivery, and performance by Buyer of this Agreement and the Transaction Documents to which it is a party and the consummation of the transactions contemplated herein and therein will not (a) conflict with or result in a breach of any provisions of the organizational or other governing documents of Buyer or (b) result in a default or the creation of any Encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or other agreement to which Buyer is a party or by which Buyer or any of its property may be bound or (c) violate any Law applicable to Buyer or any of its property, except in the case of clauses (b) and (c) where such default, Encumbrance, termination, cancellation, acceleration or violation would not, individually or in the aggregate, have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations hereunder.

8.4 Consents. Except as described in Section 9.9, there are no consents or other restrictions on assignment, including requirements for consents from Third Parties to any assignment, in each case, that Buyer is required to obtain in connection with the consummation of the transactions contemplated by this Agreement by Buyer.

8.5 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to Buyer’s Knowledge, threatened against Buyer or any Affiliate of Buyer. Buyer is not insolvent.

8.6 Litigation. As of the Execution Date, there is no investigation, lawsuit, action, litigation or arbitration by any Person or before any Governmental Authority pending, or to Buyer’s Knowledge, threatened against Buyer or any of its Affiliates that has or would have a material adverse effect upon the ability of Buyer to consummate the transactions contemplated by this Agreement or perform its obligations hereunder.

8.7 Regulatory. Buyer (or, if applicable, its affiliate Linn Operating, Inc.) is and hereafter shall continue to be qualified under Law to own and assume operatorship of the Conveyed Interests in all jurisdictions where the Conveyed Interests are located, and the consummation of the transactions contemplated by this Agreement will not cause Buyer to be disqualified as such an owner or operator. To the extent required by any Laws, Buyer has maintained, currently has, and will hereafter continue to maintain, lease bonds, area-wide bonds or any other surety bonds as may be required by, and in accordance with, all Laws governing the ownership and operation of the Conveyed Interests and has filed any and all reports necessary for such ownership and/or operation with all Governmental Authorities having jurisdiction over such ownership and/or operation. To Buyer’s Knowledge, there is no fact or condition with respect to Buyer or its obligations hereunder that may cause any Governmental Authority to withhold its unconditional approval of the transactions contemplated hereby to the extent approval by such Governmental Authority is required by Law.

8.8 Financing. Buyer has, and Buyer shall have as of the Closing Date, sufficient cash in immediately available funds with which to pay the Purchase Price, consummate the transactions contemplated by this Agreement and perform its obligations under this Agreement and the Transaction Documents. Buyer expressly acknowledges that the failure to have sufficient funds shall in no event be a condition to the performance of its obligations hereunder,

and in no event shall the Buyer’s failure to perform its obligations hereunder be excused by failure to receive funds from any source.

8.9 Independent Evaluation. Buyer (a) is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities, (b) is capable of evaluating, and hereby acknowledges that it has so evaluated, the merits and risks of the Conveyed Interests, Buyer’s acquisition, ownership, and operation thereof, and its obligations hereunder, and (c) is able to bear the economic risks associated with the Conveyed Interests, Buyer’s acquisition, ownership, and operation thereof, and its obligations hereunder. In making its decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer (i) has relied or shall rely solely on its own independent investigation and evaluation of the Conveyed Interests and the advice of its own legal, Tax, economic, environmental, engineering, geological and geophysical advisors and the express provisions of this Agreement and not on any comments, statements, projections or other materials made or given by any representatives or consultants or advisors of Seller or any Affiliates of Seller, and (ii) has satisfied or shall satisfy itself through its own due diligence as to the environmental and physical condition of and contractual arrangements and other matters affecting the Conveyed Interests. Buyer has no knowledge of any fact that results in the breach of any representation, warranty or covenant of Seller given hereunder.

8.10 Brokers’ Fees. None of Buyer or Buyer’s Affiliates has incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement or the Transaction Documents for which Seller or any of Seller’s Affiliates has or shall have any responsibility.

8.11 Accredited Investor. Buyer is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended, and will acquire the Conveyed Interests for its own account and not with a view to a sale, distribution, or other disposition thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or any other applicable securities Laws.

ARTICLE IX

CERTAIN AGREEMENTS

9.1 Conduct of Business. Except (w) as set forth in Schedule 9.1, (x) for the operations covered by the AFEs and other capital commitments described in Schedule 7.12, (y) for actions taken in connection with emergency situations or to maintain a Lease, and/or (z) as expressly contemplated by this Agreement or as expressly consented to by Buyer (which consent shall not be unreasonably delayed, withheld or conditioned),

(a) Seller shall, from and after the Execution Date until Closing:

(i) maintain or cause its Affiliates to maintain, and if Seller or one of its Affiliates is the operator thereof, operate, the Conveyed Interests in the usual and ordinary manner consistent with its past practice;

(ii) maintain the books of account and Records relating to the Conveyed Interests in the usual and ordinary manner, in accordance with its usual accounting practices;

(iii) use commercially reasonable efforts to maintain in full force and effect all Leases, except for swaps of equivalent acreage and except where any such Lease terminates pursuant to its existing terms or where a reasonably prudent operator would not maintain the same; and

(iv) maintain insurance coverage on the Conveyed Interests in the amounts and types currently in force.

(b) Seller shall not, from and after the Execution Date until Closing:

(i) except in the case of any Contracts that are crude oil, condensate, and natural gas purchase and sale, gathering, transportation, and marketing arrangements entered into in the ordinary course of business, enter into an Applicable Contract that, if entered into on or prior to the Execution Date, would be required to be listed in Schedule 7.7, or materially amend the terms of any Material Contract;

(ii) terminate (unless such Material Contract terminates pursuant to its stated terms) or materially amend the terms of any Material Contract;

(iii) not propose any operation reasonably expected to cost Seller in excess of $200,000;

(iv) consent to any operation proposed by a Third Party that is reasonably to cost Seller in excess of $200,000;

(v) transfer, sell, mortgage, pledge or dispose of the Conveyed Interests (or permit any Affiliate to do any of the foregoing), other than (A) the transfer, sale, or disposal of Hydrocarbons in the ordinary course of business, (B) sales of equipment that is no longer necessary or desirable in the operation of the Conveyed Interests or for which replacement equipment has been, or will be on or prior to Closing, obtained, and (C) acreage trades or swaps for acreage of approximately equivalent value; and

(vi) commit to do any of the foregoing.

(c) Buyer acknowledges that Seller owns undivided interests in certain of the properties comprising the Conveyed Interests with respect to which it is not the operator, and Buyer agrees that the acts or omissions of any other Working Interest owner (including any operator) or any other Person who is not Seller or an Affiliate of Seller shall not constitute a breach of the provisions of this Section 9.1, and no action required by a vote of Working Interest owners shall constitute such a breach so long as Seller has voted its interest in a manner that complies with the provisions of this Section 9.1.

9.2 Successor Operator. Buyer acknowledges that it desires to succeed Seller as operator of those Conveyed Interests or any portion thereof that Seller may presently operate.

Buyer further acknowledges and agrees that Seller does not covenant or warrant that Buyer shall become successor operator of such Conveyed Interests. Seller agrees, however, that, as to the Conveyed Interests it operates, it shall use its commercially reasonable efforts to designate, to the extent legally possible and permitted under any applicable joint operating agreement, Buyer (through its affiliate Linn Operating, Inc.) as successor operator of such Conveyed Interests effective as of Closing.

9.3 Governmental Bonds. Buyer acknowledges that none of the bonds, letters of credit and guarantees, if any, posted by Seller or its Affiliates with any Governmental Authority and/or relating to the Conveyed Interests are transferable to Buyer. On or before the Closing Date, Buyer shall obtain, or cause to be obtained in the name of Buyer (or, if applicable, its affiliate Linn Operating, Inc.), replacements for such bonds, letters of credit and guarantees to the extent such replacements are necessary (a) for Buyer’s ownership of the Conveyed Interests, and (b) to permit the cancellation of the bonds, letters of credit and guarantees posted by Seller and/or any Affiliate of Seller with respect to the Conveyed Interests. In addition, at or prior to Closing, Buyer shall deliver to Seller evidence of the posting of bonds or other security with all applicable Governmental Authorities meeting the requirements of such Governmental Authorities to own and, if applicable, operate the Conveyed Interests.

9.4 Record Retention. Buyer shall and shall cause its successors and assigns to, for a period of seven years following Closing (or, in the case of Records related to Tax matters, until the expiration of the period of time set forth in the applicable statute of limitations), (a) retain the Records, (b) provide Seller, its Affiliates and its and their respective officers, employees and representatives with access to the Records during normal business hours for review and copying at Seller’s expense, and (c) provide Seller, its Affiliates and its and their respective officers, employees and representatives with access, during normal business hours, to materials received or produced after Closing relating to any indemnity claim made under Section 13.2 for review and copying at Seller’s expense. At the end of such seven-year period and prior to destroying any of the Records, Buyer shall notify Seller in writing in advance of such destruction and provide Seller a reasonable opportunity to copy any or all of such Records at Seller’s expense.

9.5 Guarantees. Buyer shall cooperate with Seller in order to cause Seller and its Affiliates to be released, as of the Closing Date, from all guarantees, including any performance bonds previously put in place by Seller, including as set forth in Schedule 9.5 (the “Guarantees”). Without limiting the foregoing, if required by a counterparty to any Guarantee, Buyer shall, and, if applicable, shall cause its Affiliates to, provide, effective as of the Closing Date or such later date as may be required by such counterparty, substitute guarantee or similar arrangements for all periods covered by the Guarantees, which guarantee or similar arrangements shall (a) constitute a type of security, and (b) be provided by a party whose creditworthiness is, in each case, equivalent to or better than that required by the counterparty to such Guarantee. In the event that any counterparty to any such Guarantee does not release Seller or any of its Affiliates, then, from and after Closing, Buyer shall indemnify Seller or any Affiliate of Seller, as applicable, against all amounts incurred by Seller or any Affiliate of Seller, as applicable, under such Guarantee (and all costs incurred in connection with such Guarantee) if applicable to the Conveyed Interests acquired by Buyer. Notwithstanding anything to the contrary contained in this Agreement, any cash placed in escrow by Seller or any Affiliate of Seller pursuant to the

Guarantees must be returned to Seller as soon as practicable and shall be deemed an Excluded Asset for all purposes hereunder.

9.6 Knowledge of Breach. Buyer will notify Seller promptly and in reasonable detail promptly after Buyer or any Affiliate or Buyer, or any of their respective officers or representatives, obtains knowledge that any representation, warranty, covenant, or other agreement of Seller contained in this Agreement is, becomes, or will be untrue, or has been or may be breached, as applicable, in any material respect on or before the Closing Date.

9.7 Amendment to Schedules. Buyer agrees that, with respect to the representations and warranties of Seller contained in this Agreement, Seller shall have the continuing right until the Closing Date to add, supplement or amend the Schedules to its representations and warranties with respect to any matter hereafter arising or discovered which, if existing or known on the Execution Date or thereafter, would have been required to be set forth or described in such Schedules. Notwithstanding the foregoing, for all purposes of this Agreement, including for purposes of determining whether the conditions set forth in Article X have been fulfilled and whether Seller owes Buyer an indemnity under Article XIII, the Schedules to Seller’s representations and warranties contained in this Agreement shall be deemed to include only that information contained therein on the Execution Date and shall be deemed to exclude all information contained in any addition, supplement or amendment thereto; provided, however, that if Closing shall occur, then all matters disclosed pursuant to any such addition, supplement or amendment at or prior to the Closing Date that arose in the ordinary course of business shall be waived and Buyer shall not be entitled to make a claim with respect thereto pursuant to the terms of this Agreement or otherwise.

9.8 Employees.

(a) From and after the Execution Date until the date that is 12 calendar months after the earlier to occur of (a) the Closing Date and (b) the termination of this Agreement pursuant to Section 14.1, except to the extent set forth in Section 9.8(b), Buyer will not, and will cause its Affiliates not to, directly or indirectly, solicit for employment or employ (including as a consultant) any officer, employee, or field personnel of or under contract to Seller or any Affiliate of Seller without obtaining the prior written consent of Seller.

(b) Schedule 9.8 sets forth a list of employees, or field personnel of or under contract to Seller or any Affiliate of Seller to whom Buyer shall offer employment to be effective as of 12:01 A.M. on the Closing Date (or with respect to any individual on Schedule 9.8 who is on a leave of absence, effective as of 12:01 A.M. on such later date as such individual is released to return to work or is entitled to be restored to employment). Each offer of employment must be made no later than 21 Business Days after the Execution Date and provide for (i) salary or wage rate, (ii) bonus and other compensation, and (iii) participation in employment benefit plans and arrangements that are, in each case for a period of at least 12 months after the Closing Date, substantially equivalent on an aggregate basis to what was provided to such individual immediately prior to the Closing Date.

(c) In the event that any individuals on Schedule 9.8 become employed by a Third Party acquiring any of the Assets from Buyer in connection with such acquisition, Buyer

shall obtain from such Third Party at the closing of such acquisition a written agreement by such Third Party to comply with the provisions of this Section 9.8 with respect to such individuals. Such written agreement shall be in a form reasonably acceptable to Seller and shall expressly permit Seller to rely on its provisions. In the event that all of the terms and conditions of this Section 9.8(c) are satisfied, Buyer shall be released from its obligations under Section 9.8(b) with respect to the individual(s) hired by the Third Party.

9.9 Regulatory Matters. Seller and Buyer shall (a) make or cause to be made an appropriate filing of a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) with respect to the transactions contemplated hereby as promptly as practicable, but in no event later than 10 Business Days, after the Execution Date, Seller and Buyer shall request early termination of the HSR Act waiting period on the Notification and Report Form, and Seller and Buyer shall bear their own costs and expenses incurred in connection with such filings, provided that Buyer shall pay any filing fees in connection therewith, and (b) use their commercially reasonable efforts to respond at the earliest practicable date to any requests for additional information made by the Antitrust Division of the Department of Justice (the “DOJ”), the Federal Trade Commission (the “FTC”) or any other Governmental Authority, to take all actions necessary to cause the waiting periods under the HSR Act and any other Laws to terminate or expire at the earliest possible date, to resist in good faith, at each of their respective cost and expense, any assertion that the transactions contemplated hereby constitute a violation of Laws, and to eliminate every impediment under any Laws that may be asserted by any Governmental Authority so as to enable the Closing to occur as soon as reasonably possible in accordance herewith, all to the end of expediting consummation of the transactions contemplated hereby. In connection with this Section 9.9, the Parties shall, to the extent permitted by Laws, (i) cooperate in all respects with each other in connection with any filing, submission, investigation or inquiry, (ii) promptly inform the other Party of any communication received by such Party from, or given by such Party to, the DOJ or the FTC or any other Governmental Authority and of any material communication received or given in connection with any proceeding by a private party, in each case, regarding the transactions contemplated hereby, (iii) have the right to review in advance, and to the extent practicable each shall consult the other on, any filing made with, or written materials to be submitted to, the DOJ, the FTC or any other Governmental Authority or, in connection with any proceeding by a private party, any other Person, in connection with the transactions contemplated hereby, and (iv) consult with each other in advance of any meeting, discussion, telephone call or conference with the DOJ, the FTC or any other Governmental Authority or, in connection with any proceeding by a private party, with any other Person, and to the extent not expressly prohibited by the DOJ, the FTC or any other Governmental Authority or person, give the other Party the opportunity to attend and participate in such meetings and conferences, in each case, regarding the transactions contemplated hereby.

9.10 EnLink Agreements. At Closing Seller shall cause Devon Gas Services, L.P. to assign to Buyer that certain Gas Gathering and Processing Contract, dated as of March 7, 2014, by and between Devon Gas Services, L.P. and EnLink Midstream Services, LLC pursuant to the form of assignment attached to this Agreement as Exhibit L (the “DGS Assignment”). At Closing Buyer shall execute and deliver the natural gas liquids processing agreement attached at Exhibit M (the “EnLink NGL Marketing Agreement”).

9.11 SWN Assets. At Closing Seller shall cause Devon Gas Services, L.P. and Southwestern Gas Pipeline, Inc. to assign to Buyer those certain gathering assets as described in more detail on Exhibit N (the “SWN Assets”) pursuant to the form of assignment attached to this Agreement as Exhibit G (the “SWN Assignment”).

9.12 Financial Statements.

(a) Seller acknowledges that Buyer and/or its Affiliates may be required to include statements of revenues and direct operating expenses and other financial information relating to the Conveyed Interests (the “Financial Statements”) in documents filed with the SEC by Buyer and/or its Affiliates pursuant to the Securities Act of 1933, as amended, and that such Financial Statements may be required to be audited. In that regard, Seller shall provide Buyer reasonable access to such records (to the extent such information is available) and personnel of Seller as Buyer may reasonably request to enable Buyer, and its representatives and accountants, at Buyer’s sole cost and expense, to create and audit any Financial Statements that Buyer deems necessary. Notwithstanding the foregoing, (i) Seller shall in no event be required to create new records relating to the Conveyed Interests and (ii) the access to be provided to Buyer pursuant to this Section 9.12 shall not interfere with Seller's ability to prepare its own financial statements or its regular conduct of business and shall be made available during Seller's normal business hours.

(b) Seller shall consent to the inclusion or incorporation by reference of the Financial Statements in any registration statement, report or other document of Buyer or any of its Affiliates to be filed with the SEC in which Buyer or such Affiliate reasonably determines that the Financial Statements are required to be included or incorporated by reference to satisfy any rule or regulation of the SEC or to satisfy relevant disclosure obligations under the Securities Act or the Securities Exchange Act of 1934, as amended. Upon request of Buyer, Seller shall request the external audit firm that audits the Financial Statements (the “Audit Firm”) to consent to the inclusion or incorporation by reference of its audit opinion with respect to the audited Financial Statements in any such registration statement, report or other document. Seller shall use its commercially reasonable efforts to provide Buyer and Buyer's independent accountants with access to (i) audit work papers of Seller's independent accountants and (ii) management representation letters provided by Seller to Seller's independent accountants.

ARTICLE X

BUYER’S CONDITIONS TO CLOSING

The obligations of Buyer to consummate the transactions provided for herein are subject, at the option of Buyer, to the fulfillment by Seller or waiver by Buyer, on or prior to Closing of each of the following conditions precedent:

10.1 Representations. The representations and warranties of Seller set forth in Article VII shall be true and correct (without regard to materiality or Material Adverse Effect qualifiers) on and as of the Closing Date as though such representations and warranties had been made or given on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date), except for those breaches, if any, of such representations and warranties that in the aggregate would not have a Material Adverse Effect.

10.2 Performance. Seller shall have materially performed or complied with all obligations, agreements, and covenants contained in this Agreement as to which performance or compliance by Seller is required prior to or at the Closing Date.

10.3 No Legal Proceedings. No material suit, action, litigation or other proceeding instituted by any Third Party shall be pending before any Governmental Authority seeking to restrain, prohibit, enjoin, or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement.

10.4 Title Defects and Environmental Defects. In each case subject to the Individual Title Threshold, the Individual Environmental Threshold and the Aggregate Deductible, as applicable, the sum of (a) all Title Defect Amounts determined under Section 5.3(d)(i) prior to the Closing or if not so determined prior to the Closing, as determined by Seller in its reasonable opinion, and the sum of all Purchase Price adjustments pursuant to Section 5.3(d)(ii) prior to the Closing, less the sum of all Title Benefit Amounts determined under Section 5.3(b) prior to the Closing, plus (b) all Remediation Amounts for Environmental Defects determined under Section 6.1(b)(i) prior to the Closing or if not so determined prior to the Closing, as determined by Seller in its reasonable opinion (provided, however, if the Remediation Amounts asserted in good faith by Buyer in accordance with Section 6.1(a) with respect to such Environmental Defects cause the 25% threshold in this Section 10.4 to be reached, then the Closing will be delayed until the Parties mutually agree on such Remediation Amounts or such amounts are determined pursuant to Section 6.1(e)), and the sum of all Purchase Price adjustments pursuant to Section 6.1(b)(ii), shall be less than 25% of the Purchase Price.

10.5 Closing Deliverables. Seller shall have delivered (or be ready, willing and able to deliver at Closing) to Buyer the documents and other items required to be delivered by Seller under Section 12.3.

ARTICLE XI

SELLER’S CONDITIONS TO CLOSING

The obligations of Seller to consummate the transactions provided for herein are subject, at the option of Seller, to the fulfillment by Buyer or waiver by Seller, on or prior to Closing of each of the following conditions precedent:

11.1 Representations. The representations and warranties of Buyer set forth in Article VIII shall be true and correct in all material respects (without regard to materiality qualifiers) on and as of the Closing, with the same force and effect as though such representations and warranties had been made or given on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date).

11.2 Performance. Buyer shall have materially performed or complied with all obligations, agreements, and covenants contained in this Agreement as to which performance or compliance by Buyer is required prior to or at the Closing Date.

11.3 No Legal Proceedings. No material suit, action, litigation or other proceeding instituted by any Third Party shall be pending before any Governmental Authority seeking to

restrain, prohibit, or declare illegal, or seeking substantial damages in connection with, the transactions contemplated by this Agreement.

11.4 Title Defects and Environmental Defects. In each case subject to the Individual Title Threshold, the Individual Environmental Threshold and the Aggregate Deductible, as applicable, the sum of (a) all Title Defect Amounts determined under Section 5.3(d)(i) prior to the Closing or if not so determined prior to the Closing, as determined by Seller in its reasonable opinion, and the sum of all Purchase Price adjustments pursuant to Section 5.3(d)(ii) prior to the Closing, less the sum of all Title Benefit Amounts determined under Section 5.3(b) prior to the Closing, plus (b) all Remediation Amounts for Environmental Defects determined under Section 6.1(b)(i) prior to the Closing or if not so determined prior to the Closing, as determined by Seller in its reasonable opinion (provided, however, if the Remediation Amounts asserted in good faith by Buyer in accordance with Section 6.1(a) with respect to such Environmental Defects cause the 25% threshold in this Section 11.4 to be reached, then the Closing will be delayed until the Parties mutually agree on such Remediation Amounts or such amounts are determined pursuant to Section 6.1(e)), and the sum of all Purchase Price adjustments pursuant to Section 6.1(b)(ii), shall be less than 25% of the Purchase Price.

11.5 Closing Deliverables. Buyer shall have delivered (or be ready, willing and able to deliver at Closing) to Seller the documents and other items required to be delivered by Buyer under Section 12.3.

ARTICLE XII

CLOSING

12.1 Date of Closing. Subject to the conditions stated in this Agreement, the sale by Seller and the purchase by Buyer of the Conveyed Interests pursuant to this Agreement (the “Closing”) shall occur on or before August 29, 2014, or such other date as Buyer and Seller may agree upon in writing. The date on which the Closing actually occurs shall be the “Closing Date.”

12.2 Place of Closing. Closing shall be held at the offices of Seller at 333 W. Sheridan Ave, Oklahoma City, OK 73102-5010, or such other location as Buyer and Seller may agree upon in writing.

12.3 Closing Obligations. At Closing, the following documents shall be delivered and the following events shall occur, the execution of each document and the occurrence of each event being a condition precedent to the others and each being deemed to have occurred simultaneously with the others:

(a) Seller and Buyer shall execute and deliver the Assignment, in sufficient counterparts to facilitate recording in the applicable counties, covering the Conveyed Interests;

(b) Seller and Buyer shall execute and deliver assignments, on appropriate forms, of federal Leases, state Leases and Indian Leases comprising portions of the Conveyed Interests, if any, in sufficient counterparts to facilitate filing with the applicable Governmental Authority;

(d) Buyer shall deliver to Seller, to the accounts designated in the Preliminary Settlement Statement, by direct bank or wire transfer in same day funds, the Adjusted Purchase Price;

(e) Seller and Buyer shall execute and deliver the License Agreement;

(f) Seller and Buyer shall execute and deliver the Deeds, in sufficient counterparts to facilitate recording in the applicable counties;

(g) Seller and Buyer shall execute and deliver the Transition Services Agreement;

(h) Seller shall cause Devon Gas Services, L.P. to execute and deliver the DGS Assignment;

(i) Buyer shall execute and deliver the DGS Assignment and the EnLink NGL Marketing Agreement;

(j) Seller shall cause Devon Gas Services, L.P. and Southwestern Gas Pipeline, Inc. to execute and deliver the SWN Assignment;

(k) Buyer shall execute and deliver the SWN Assignment;

(l) Seller shall deliver, on forms supplied by Buyer and reasonably acceptable to Seller, transfer orders or letters in lieu thereof directing all purchasers of production to make payment to Buyer of proceeds attributable to production from the Conveyed Interests from and after the Effective Time, for delivery by Buyer to the purchaser of production;

(m) Seller shall deliver an executed certificate of non-foreign status that meets the requirements set forth in Treasury Regulation § 1.1445-2(b)(2);

(n) To the extent required under any Law or Governmental Authority for any federal or state Lease, Seller and Buyer shall deliver federal and state change of operator forms designating Buyer as the operator of the Wells and the Leases currently operated by Seller;

(o) An authorized officer of Seller shall execute and deliver a certificate, dated as of Closing Date, certifying that the conditions set forth in Section 10.1 and Section 10.2 have been fulfilled and, if applicable, any exceptions to such conditions that have been waived by Buyer;

(p) An authorized officer of Buyer shall execute and deliver a certificate, dated as of Closing, certifying that the conditions set forth in Section 11.1 and Section 11.2 have been fulfilled and, if applicable, any exceptions to such conditions that have been waived by Seller;

(q) Buyer shall deliver any instruments and documents required by Sections 9.3 and/or 9.5;

(r) Seller and Buyer shall execute and deliver any other agreements, instruments and documents that are required by other terms of this Agreement to be executed and/or delivered at Closing.

12.4 Records. In addition to the obligations set forth under Section 12.3 above, but notwithstanding anything herein to the contrary, no later than 30 Business Days following the Closing Date, Seller shall make available to Buyer the Records for pickup from Seller’s offices during normal business hours.

ARTICLE XIII

ASSUMPTION; INDEMNIFICATION; SURVIVAL

13.1 Assumption by Buyer; Specified Obligations.

(a) Without limiting Buyer’s rights to indemnity under this Article XIII and Buyer’s rights under any Title Indemnity Agreement or Environmental Indemnity Agreement, from and after Closing, Buyer assumes and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid and discharged) all obligations and Liabilities, known or unknown, arising from, based upon, related to or associated with the Conveyed Interests, regardless of whether such obligations or Liabilities arose prior to, at or after the Effective Time, including obligations and Liabilities relating in any manner to the use, ownership or operation of the Conveyed Interests, including obligations to (a) furnish makeup gas and/or settle Imbalances according to the terms of applicable gas sales, processing, gathering or transportation Contracts, (b) pay Working Interests, royalties, overriding royalties and other interest owners’ revenues or proceeds attributable to sales of Hydrocarbons, including those held in suspense (including those amounts for which the Purchase Price was adjusted pursuant to Section 3.3(b)(ix)), (c) Decommission the Conveyed Interests (the “Decommissioning Obligations”), (d) subject to Seller’s obligations under Article VI, clean up, restore and/or Remediate the premises covered by or related to the Conveyed Interests in accordance with applicable Contracts and Laws, (e) perform all obligations applicable to or imposed on the lessee, owner, or operator under the Leases and the Applicable Contracts, or as required by any Law, (f) subject to Article VI, Environmental Conditions, Environmental Defects and Buyer’s Environmental Liabilities, and (g) the matters set forth on Schedule 7.6 – PART A (all of said obligations and Liabilities, subject to the exclusion below, herein being referred to as the “Assumed Obligations”); provided that Buyer does not assume any obligations or Liabilities of Seller to the extent that they are Specified Obligations or attributable to or arise out of the ownership, use or operation of the Excluded Assets.

(b) Upon Closing, and except for the Assumed Obligations, with respect to specific Claims for the following for which a valid Claim Notice is given within the applicable survival period as set forth in Section 13.8, each Seller, severally but not jointly, retains and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid and discharged) all obligations and Liabilities, arising from, based upon, related to or associated with (i) Seller’s failure to properly, timely and legally pay, in accordance with the terms of any Lease

and applicable Laws, all Burdens with respect to the Conveyed Interests due by Seller and attributable to Seller’s ownership of the Conveyed Interests prior to the Effective Time (other than for amounts held in suspense for which the Purchase Price was adjusted pursuant to Section 3.3(b)(ix)); (ii) personal injury or wrongful death attributable to Seller’s operation of the Conveyed Interests prior to the Closing Date; (iii) Operating Expenses for which Seller is responsible pursuant to Section 2.3, (iv) the Excluded Assets, (v) offsite waste transportation or disposal occurring prior to the Closing Date, (vi) Asset Taxes for which Seller is responsible pursuant to Section 15.2(b) (taking into account, and without duplication of, (A) such Asset Taxes effectively borne by Seller as a result of Purchase Price adjustments made pursuant to Section 3.3 and (B) any payments made from one Party to the other in respect of Asset Taxes pursuant to Section 15.2(d)), and (vii) the matters set forth on Schedule 7.6 – PART B (all of said Liabilities herein being referred to as the “Specified Obligations”).

13.2 Indemnities of Seller. Effective as of Closing, subject to the limitations set forth in Section 13.4 and Section 13.8, each Seller, severally but not jointly (as set forth in Section 15.18), shall be responsible for, shall pay on a current basis, and hereby defends, indemnifies, holds harmless and forever releases Buyer and its Affiliates, and all of its and their respective stockholders, partners, members, directors, officers, managers, employees, attorneys, consultants, agents and representatives (collectively, the “Buyer Indemnified Parties”) from and against any and all Liabilities, whether or not relating to Third Party claims or incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder, arising from, based upon, related to or associated with:

(a) any breach by Seller of its representations or warranties contained in Article VII;

(b) any breach by Seller of its covenants and agreements under this Agreement; or

13.3 Indemnities of Buyer. Effective as of Closing, Buyer and its successors and assigns shall assume and be responsible for, shall pay on a current basis, and hereby defends, indemnifies, holds harmless and forever releases Seller and its Affiliates, and all of their respective stockholders, partners, members, directors, officers, managers, employees, attorneys, consultants, agents and representatives (collectively, the “Seller Indemnified Parties”) from and against any and all Liabilities, whether or not relating to Third Party claims or incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder arising from, based upon, related to or associated with:

(a) any breach by Buyer of its representations or warranties contained in Article VIII;

(b) any breach by Buyer of its covenants and agreements under this Agreement; or

13.4 Limitation on Liability.

(a) Seller shall not have any liability for any indemnification under Section 13.2 of this Agreement (i) for any individual Liability unless the amount with respect to such Liability exceeds $100,000, and (ii) until and unless the aggregate amount of all Liabilities exceeding the threshold described in clause (i) above and for which Claim Notices are delivered by Buyer exceeds the Indemnity Deductible, and then only to the extent such Liabilities exceed the Indemnity Deductible; provided that (x) the adjustments to the Purchase Price under Sections 3.3, 3.5, 3.6 or 3.7 and any payments in respect thereof, (y) any breach of Sections 7.1, 7.2, 7.13 or 7.14, or (z) any indemnity owed for Specified Obligations shall not be limited by this Section 13.4(a).

(b) Notwithstanding anything to the contrary contained in this Agreement, Seller shall not be required to indemnify Buyer for aggregate Liabilities in excess of an amount equal to 15% of the Purchase Price; provided that (x) the adjustments to the Purchase Price under Sections 3.3, 3.5, 3.6 or 3.7 and any payments in respect thereof, (y) any breach of Sections 7.1, 7.2, 7.13 or 7.14, or (z) any indemnity owed for Specified Obligations shall not be limited by this Section 13.4(a).

13.5 Express Negligence. EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 4.1(c), 4.1(d), 4.3 AND 9.5, THE DEFENSE, INDEMNIFICATION, HOLD HARMLESS, RELEASE, ASSUMED OBLIGATIONS AND LIMITATION OF LIABILITY PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE OR RESULTED SOLELY OR IN PART FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF OR BY ANY INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS “CONSPICUOUS.”

13.6 Exclusive Remedy. Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, Sections 4.1(c), 9.5, 13.2 and 13.3, the Assignments and any Title Indemnity Agreement or Environmental Indemnity Agreement entered into by the Parties contain the Parties’ exclusive remedies against each other with respect to the transactions contemplated hereby, including breaches of the representations, warranties, covenants and agreements of the Parties contained in this Agreement or in any document or certificate delivered pursuant to this Agreement. Except as specified in Section 4.1(c), Section 13.2 and any Title Indemnity Agreement or Environmental Indemnity Agreement entered into by the Parties, effective as of Closing, Buyer, on its own behalf and on behalf of the Buyer Indemnified Parties, hereby releases, remises and forever discharges Seller and its Affiliates and all of such Persons’ equityholders, partners, members, directors, officers, employees, agents, advisors, and representatives from any and all suits, legal or administrative proceedings, claims, demands, damages, losses, costs, Liabilities, interest or causes of action whatsoever, at Law or in equity, known or unknown, which Buyer or the Buyer Indemnified Parties might now or subsequently have, based on, relating to or arising out of this Agreement, the transactions contemplated by this Agreement, the ownership, use or operation of any of the Conveyed Interests prior to Closing or

the condition, quality, status or nature of any of the Conveyed Interests prior to Closing, including rights to contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and any similar Environmental Law, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages, common law rights of contribution and rights under insurance maintained by Seller or any of its Affiliates (except as provided in Section 5.4).

13.7 Indemnification Procedures. All claims for indemnification under Sections 4.1(c), 9.5, 13.2 and 13.3 shall be asserted and resolved as follows:

(a) For purposes of Section 4.1(c), Section 9.5 and this Article XIII, the term “Indemnifying Party” when used in connection with particular Liabilities shall mean the Party or Parties having an obligation to indemnify another Party and/or other Person(s) with respect to such Liabilities pursuant to Section 4.1(c), Section 9.5 or this Article XIII, and the term “Indemnified Party” when used in connection with particular Liabilities shall mean the Party and/or other Person(s) having the right to be indemnified with respect to such Liabilities by the Indemnifying Party pursuant to Section 4.1(c), Section 9.5 or this Article XIII.

(b) To make a claim for indemnification under Sections 4.1(c), 9.5, 13.2 or 13.3, an Indemnified Party shall notify the Indemnifying Party in writing of its claim under this Section 13.7, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “Third Party Claim”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 13.7(b) shall not relieve the Indemnifying Party of its obligations under Sections 4.1(c), 9.5, 13.2 or 13.3 (as applicable) except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the Indemnifying Party’s ability to defend against the Third Party Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

(c) In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its obligation to defend and indemnify the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such 30-day period, at the expense of the Indemnifying Party, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.

(d) If the Indemnifying Party admits its obligation to defend and indemnify the Indemnified Party against a Third Party Claim, it shall have the right and obligation to diligently defend and indemnify, at its sole cost and expense, the Indemnified Party against such

Third Party Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, at its own expense, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 13.7(d). An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all Liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).

(e) If the Indemnifying Party does not admit its obligation or admits its obligation to defend and indemnify the Indemnified Party against a Third Party Claim, but fails to diligently prosecute, indemnify against or settle such Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to admit its liability and assume the defense of the Third Party Claim at any time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its obligation to defend and indemnify the Indemnified Party against a Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for 10 days following receipt of such notice to i) admit in writing its obligation to indemnify the Indemnified Party from and against the liability and consent to such settlement, ii) if liability is so admitted, reject, in its reasonable judgment, the proposed settlement, or iii) deny liability. Any failure by the Indemnifying Party to respond to such notice shall be deemed to be an election under subsection (i) above.

(f) In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its liability for such Liability or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within such 30-day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the Indemnifying Party hereunder.

13.8 Survival.

(a) Except for the Specified Representations, the representations and warranties set forth in Section 7.13 and the special warranty of title included in the Assignments, the representations and warranties of Seller in Article VII and Buyer in Article VIII and the covenants and agreements of the Parties in Section 9.1 and Section 12.4, shall in each case terminate on the date that is nine calendar months from the Closing Date. The Specified Representations shall survive Closing without time limit. The representations and warranties set forth in Section 7.13 shall survive until 30 days after the expiration of the period of time set forth in the statute of limitations. The special warranty of title included in the Assignments shall survive for the period set forth in the Assignments. Subject to the foregoing and as set forth in

Section 13.8(b), the remainder of this Agreement shall survive Closing without time limit. Representations, warranties, covenants and agreements shall be of no further force or effect after the date of their expiration, provided that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date.

(b) The indemnities in Sections 13.2(a), 13.2(b), 13.3(a) and 13.3(b) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification. Seller’s indemnities set forth in Section 13.2(c) shall survive the Closing for a period of three years from the Closing Date; provided, however, that (i) Seller’s indemnities set forth in Section 13.2(c) relating to the portions of the Specified Obligations defined in item (i) of Section 13.1(b) shall survive until 30 days after the expiration of the period of time set forth in the statute of limitations regarding same and Seller’s indemnities set forth in Section 13.2(c) relating to the portions of the Specified Obligations defined in item (iv) of Section 13.1(b) shall survive without time limit. Buyer’s indemnity set forth in Sections 4.1(c), 9.5 and 13.3(c) shall survive the Closing without time limit and shall be deemed covenants running with the Conveyed Interests (provided that Buyer and its successors and assigns shall not be released from any of, and shall remain jointly and severally liable to the Seller Indemnified Parties for, the obligations and Liabilities of Buyer under such Sections of this Agreement upon any transfer or assignment of any Conveyed Interest). Notwithstanding the foregoing, there shall be no termination of any bona fide claim asserted pursuant to the indemnities in Sections 13.2(a) and 13.2(b) or Sections 13.3(a) through 13.3(c) prior to the date of termination for such indemnity.

13.9 Non-Compensatory Damages. None of the Buyer Indemnified Parties nor Seller Indemnified Parties shall be entitled to recover from Seller or Buyer, or their respective Affiliates, any indirect, consequential, punitive, exemplary, remote or speculative damages or damages for lost profits of any kind arising under or in connection with this Agreement or the transactions contemplated hereby, except to the extent any such Party suffers such damages to a Third Party, which damages (including costs of defense and reasonable attorneys’ fees incurred in connection with defending against such damages) shall not be excluded by this provision as to recovery hereunder. Subject to the preceding sentence, Buyer, on behalf of each of the Buyer Indemnified Parties, and Seller, on behalf of each of the Seller Indemnified Parties, waive any right to recover punitive, special, indirect, exemplary, or consequential damages, remote or speculative, or damages for lost profits of any kind, arising in connection with or with respect to this Agreement or the transactions contemplated hereby.

13.10 Waiver of Right to Rescission. Seller and Buyer acknowledge that, following Closing, the payment of money, as limited by the terms of this Agreement, shall be adequate compensation for breach of any representation, warranty, covenant or agreement contained herein or for any other claim arising in connection with or with respect to the transactions contemplated by this Agreement. As the payment of money shall be adequate compensation, following Closing, Buyer and Seller waive any right to rescind this Agreement or any of the transactions contemplated hereby.

13.11 Insurance. The amount of any Liabilities for which any of the Buyer Indemnified Parties is entitled to indemnification under this Agreement or in connection with or

with respect to the transactions contemplated by this Agreement shall be reduced by any corresponding insurance proceeds from insurance policies carried by Buyer realized or that could reasonably be expected to be realized by Buyer if a claim were properly pursued under the relevant insurance arrangements.

13.12 Disclaimer of Application of Anti-Indemnity Statutes. The Parties acknowledge and agree that the provisions of any anti-indemnity statute relating to oilfield services and associated activities shall not be applicable to this Agreement and/or the transactions contemplated hereby.

ARTICLE XIV

TERMINATION, DEFAULT AND REMEDIES

14.1 Right of Termination. This Agreement and the transactions contemplated herein may be terminated at any time prior to Closing:

(a) by the mutual prior written consent of Seller and Buyer;

(b) by either Seller or Buyer if Closing has not occurred on or before September 30, 2014 (or such later date as agreed to in writing by Seller and Buyer);

(c) by Seller, at Seller’s option, if any of the conditions set forth in Article XI have not been satisfied on or before the Closing Date;

(d) by Buyer, at Buyer’s option, if any of the conditions set forth in Article X have not been satisfied on or before the Closing Date and, following written notice thereof from Buyer to Seller specifying the reason such condition is unsatisfied (including any breach by Seller of this Agreement), such condition remains unsatisfied for a period of 10 Business Days after Seller’s receipt of written notice thereof from Buyer; or

(e) by Buyer if the condition set forth in Section 10.4 has not been satisfied on or before the Closing Date or by Seller if the condition set forth in Section 11.4 is not satisfied on or before the Closing Date;

provided, however, that neither Party shall be entitled to terminate this Agreement pursuant to Sections 14.1(b) through (d) above if such Party or its Affiliates are, at such time, in material breach of this Agreement.

14.2 Effect of Termination. If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 14.1 hereof, then, except for the provisions of Article I, Sections 4.1(c) through 4.1(g), 4.2, 4.3, 9.8, 13.9, this Section 14.2, Section 14.3, Article XV (other than Sections 15.2(b), 15.7, and 15.8) and such of the defined terms in Appendix I to give context to the surviving provisions, this Agreement shall forthwith become void and the Parties shall have no liability or obligation hereunder except and to the extent such termination results from the material breach by a Party of any of its covenants or agreements hereunder in which case the other Party shall have the right to seek all remedies available at law or in equity, including specific performance, for such material breach and shall

be entitled to recover court costs and attorneys’ fees in addition to any other relief to which such Party may be entitled.

14.3 Return of Documentation and Confidentiality. Upon termination of this Agreement, Buyer shall destroy or return to Seller all title, engineering, geological and geophysical data, environmental assessments and/or reports, maps and other information furnished by or no behalf of Seller to Buyer or prepared by or on behalf of Buyer in connection with its due diligence investigation of the Conveyed Interests, in each case, in accordance with the Confidentiality Agreement and, if Buyer elects to destroy any such information, an officer of Buyer shall certify the destruction of such information to Seller in writing.

ARTICLE XV

MISCELLANEOUS

15.1 Appendices, Exhibits and Schedules. All of the Appendices, Exhibits and Schedules referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement. Each Party to this Agreement and its counsel has received a complete set of Appendices, Exhibits and Schedules prior to and as of the execution of this Agreement.

15.2 Expenses and Taxes.

(a) Except as otherwise specifically provided herein, all fees, costs and expenses incurred by the Parties in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs and expenses.

(b) Seller shall be allocated and bear all Asset Taxes for any period or portion thereof ending prior to the Effective Time, and Buyer shall be allocated and bear all Asset Taxes for any period or portion thereof that begins at or after the Effective Time. Each Party shall be responsible for its own Income Taxes.

(c) For purposes of Section 15.2(b), (i) Asset Taxes that are attributable to the severance or production of Hydrocarbons shall be allocated to the period in which the severance or production giving rise to such Asset Taxes occurred, (ii) Asset Taxes that are based upon or related to income or receipts or imposed on a transactional basis (other than such Asset Taxes described in clause (i)), shall be allocated to the period in which the transaction giving rise to such Asset Taxes occurred, and (iii) Asset Taxes that are ad valorem, property or other Asset Taxes imposed on a periodic basis pertaining to a Straddle Period shall be allocated between the portion of such Straddle Period ending immediately prior to the date on which the Effective Time occurs and the portion of such Straddle Period beginning on the date on which the Effective Time occurs by prorating each such Asset Tax based on the number of days in the applicable Straddle Period that occur before the date on which the Effective Time occurs, on the one hand, and the number of days in such Straddle Period that occur on or after the date on which the Effective Time occurs, on the other hand. For purposes of clause (iii) of the preceding sentence, the period for such Asset Taxes shall begin on the date on which ownership of the

applicable Conveyed Interests gives rise to liability for the particular Asset Tax and shall end on the day before the next such date.

(d) To the extent the actual amount of an Asset Tax is not determinable at the Closing or at the time of the determination of the Final Settlement Statement pursuant to Section 3.6, as applicable, (i) the Parties shall utilize the most recent information available in estimating the amount of such Asset Tax for purposes of such adjustment, and (ii) upon the later determination of the actual amount of such Asset Tax, timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Asset Tax that is allocable to such Party under Section 15.2(b). Buyer shall be responsible for the preparation and timely filing of any Tax Returns and the payment to the applicable Taxing Authority of all Asset Taxes that become due and payable on or after the Closing Date, and Buyer shall indemnify and hold Seller harmless for any failure to file such Tax Returns and to make such payments; except Seller shall be responsible for the payment of all ad valorem, real property and personal property taxes for the Straddle Period on Conveyed Interests operated by Seller, provided that Buyer shall reimburse Seller for any such Taxes that are allocated to Buyer pursuant to Section 15.2(b).

(e) All required documentary, filing and recording fees and expenses in connection with the filing and recording of the assignments, conveyances or other instruments required to convey title to the Conveyed Interests to Buyer shall be borne by Buyer. Any and all sales, use, transfer, stamp, documentary, registration or similar Taxes incurred or imposed with respect to the transactions described in this Agreement (collectively, “Transfer Taxes”) shall be borne by Buyer, provided that Seller shall pay or cause to be paid to the applicable Governmental Authorities any Transfer Taxes that it is required by law to collect and remit. Buyer shall indemnify and hold Seller harmless from and against such Transfer Taxes within thirty (30) days of Seller's written demand therefor. If Seller (not Buyer) is required by applicable law to appeal or protest the assessment of Transfer Taxes, the appeal or protest of such proposed assessment shall be treated as an item for which Seller is entitled to indemnification and if Buyer provides a written request and instructs Seller to do so, Seller shall prosecute the protest or appeal; in such event Buyer shall pay all out-of-pocket expenses of Seller (including attorneys’ fees) incurred by Seller in connection with such appeal or protest. Seller and Buyer shall reasonably cooperate in good faith to minimize, to the extent permissible under applicable law, the amount of any such Transfer Taxes.

(f) The Parties shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns and any audit, litigation, or other proceeding with respect to Taxes relating to the Conveyed Interests. Such cooperation shall include the retention and (upon another Party’s request) the provision of records and information that are relevant to any such Tax Return or audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided under this Agreement. The Parties agree to retain all books and records with respect to Tax matters pertinent to the Conveyed Interests relating to any Tax period beginning before the Closing Date until the expiration of the statute of limitations of the respective Tax periods and to abide by all record retention agreements entered into with any Governmental Authority.

15.3 Assignment. Subject to the provisions of Section 15.19, this Agreement may not be assigned by Buyer without the prior written consent of Seller; provided, however, at any time prior to three Business Days prior to the Closing Date, Buyer may, by written notice to Seller, direct Seller to assign Buyer’s interest in this Agreement or all or a portion of the Conveyed Interests and Assumed Obligations to one or more Affiliates of Buyer. Such assignment shall not relieve Buyer of any obligations and responsibilities hereunder, including obligations and responsibilities arising following such assignment. Any assignment or other transfer by Buyer or its successors and assigns of any of the Conveyed Interests shall not relieve Buyer or its successors or assigns of any of their obligations (including indemnity obligations) hereunder, as to the Conveyed Interests so assigned or transferred.

15.4 Preparation of Agreement. Both Seller and Buyer and their respective counsel participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.

15.5 Publicity. Seller and Buyer shall promptly consult with each other with regard to all press releases or other public or private announcements issued or made at or prior to Closing concerning this Agreement or the transactions contemplated herein, and, except as may be required by applicable Laws or the applicable rules and regulations of any Governmental Authority or stock exchange, neither Buyer nor Seller shall issue any such press release or other public or private announcement without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed.

15.6 Notices. All notices and communications required or permitted to be given hereunder shall be given in writing and shall be delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail, Federal Express or United Parcel Service Express Delivery or by certified or registered United States Mail with all postage fully prepaid, or sent by facsimile transmission (provided any such facsimile transmission is confirmed either orally or by written confirmation), or sent by electronic mail (“email”) transmission (provided that receipt of such email is requested and received, excluding automatic receipts) addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:



If to Seller:

	Devon Energy Production Company, L.P. 333 W. Sheridan Ave Oklahoma City, OK 73102-5010 Attention: David Harris, Senior Vice President, Business Development Fax: (405) 552-1401 Email: David.Harris@dvn.com



With a copy to:

	Devon Energy Production Company, L.P. 333 W. Sheridan Ave Oklahoma City, OK 73102-5010 Attention: Lyndon Taylor, Executive Vice President and General Counsel Fax: (405) 552-1400 Email: Lyndon.Taylor@dvn.com

If to Buyer:

	Linn Energy Holdings, LLC 600 Travis, Suite 5100 Houston, Texas 77002 Attention: David Beathard, Vice President, Business Development and Strategic Planning Fax: (832) 426-5909 Email: dbeathard@linnenergy.com

With a copy to:

	Linn Energy Holdings, LLC 600 Travis, Suite 5100 Houston, Texas 77002 Attention: Candice Wells, Vice President, General Counsel and Corporate Secretary Fax: (832) 426-5956 Email: cwells@linnenergy.com

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile or email transmission during normal business hours on a Business Day (or if delivered or transmitted after normal business hours on a Business Day or on a day other than a Business Day, then on the next Business Day), or upon actual receipt by the addressee during normal business hours on a Business Day after such notice has either been delivered to an overnight courier or deposited in the United States Mail or with Federal Express or United Parcel Service, as the case may be (or if delivered after normal business hours on a Business Day or on a day other than a Business Day, then on the next Business Day). Either Party may change their contact information for notice by giving written notice to the other Party in the manner provided in this Section 15.6. If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day.

15.7 Further Cooperation. Until the second anniversary of Closing, Buyer and Seller shall execute and deliver, or shall cause to be executed and delivered from time to time, such

further instruments of conveyance and transfer, and shall take such other actions as either Party may reasonably request, to convey and deliver the Conveyed Interests to Buyer, to perfect Buyer’s title thereto, and to accomplish the orderly transfer of the Conveyed Interests to Buyer in the manner contemplated by this Agreement.

15.8 Filings, Notices and Certain Governmental Approvals. Promptly after Closing, Buyer shall (a) record all assignments executed at Closing in the records of the applicable Governmental Authority (including any federal or state agencies, if applicable), (b) if applicable, send notices to vendors supplying goods and services for the Conveyed Interests and to the operator of such Conveyed Interests of the assignment of such Conveyed Interests to Buyer, (c) actively pursue the unconditional approval of all applicable Governmental Authorities of the assignment of the Conveyed Interests to Buyer and (d) actively pursue all other consents and approvals that may be required in connection with the assignment of the Conveyed Interests to Buyer and the assumption of the Liabilities assumed by Buyer hereunder, in each case, that shall not have been obtained prior to Closing. Buyer obligates itself to take any and all action required by any Governmental Authority in order to obtain such unconditional approval, including the posting of any and all bonds or other security that may be required in excess of its existing lease, pipeline or area-wide bond.

15.9 Entire Agreement; Non-Reliance; Conflicts. THIS AGREEMENT, THE APPENDICES, EXHIBITS AND SCHEDULES HERETO, THE TRANSACTION DOCUMENTS AND THE CONFIDENTIALITY AGREEMENT COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR THE TRANSACTION DOCUMENTS, AND NEITHER PARTY SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. EACH PARTY ACKNOWLEDGES THAT, IN ENTERING INTO THIS AGREEMENT, IT HAS RELIED SOLELY ON THE PROMISES, AGREEMENTS, STATEMENTS OR REPRESENTATIONS THAT ARE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE TRANSACTION DOCUMENTS AND THAT NEITHER PARTY HAD ANY DUTY TO MAKE ANY PROMISES, AGREEMENTS, STATEMENTS OR REPRESENTATIONS THAT ARE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE TRANSACTION DOCUMENTS. EACH PARTY ALSO ACKNOWLEDGES THAT, IN ENTERING THIS AGREEMENT, IT HAS NOT RELIED ON ANY PROMISES, AGREEMENTS, STATEMENTS OR REPRESENTATIONS THAT ARE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE TRANSACTION DOCUMENTS. IN THE EVENT OF A CONFLICT BETWEEN: (A) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY SCHEDULE OR EXHIBIT HERETO; OR (B) THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS AND PROVISIONS OF ANY TRANSACTION DOCUMENT, THE TERMS AND PROVISIONS OF THIS AGREEMENT SHALL GOVERN AND CONTROL, PROVIDED, HOWEVER,

THAT THE INCLUSION IN ANY OF THE SCHEDULES OR EXHIBITS HERETO OR ANY TRANSACTION DOCUMENT OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 15.9.

15.10 Successors and Permitted Assigns. This Agreement shall be binding upon and inure to the benefit of Buyer and Seller and their respective successors and permitted assigns.

15.11 Parties in Interest. Notwithstanding anything contained in this Agreement, nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the Parties or their respective successors and permitted assigns, or the Parties’ respective related Indemnified Parties hereunder any rights, remedies, obligations or Liabilities under or by reason of this Agreement; provided that (i) only a Party and its successors and permitted assigns will have the right to enforce the provisions of this Agreement on its own behalf or on behalf of any of its related Indemnified Parties (but shall not be obligated to do so) and (ii) the Financial Sources shall be deemed third-Person beneficiaries of Sections 15.11, 15.14(b) and 15.21 hereof, each of which shall be enforceable by each Financing Source and, to the extent enforced thereby, construed in accordance with, and governed by, the Laws of the State of New York without reference to the conflict of Laws principles thereof, and none of which shall be amended or otherwise modified in any way that adversely affects the rights of any Financing Source without prior written consent of the Financing Sources.

15.12 Amendment. This Agreement may be amended, restated, supplemented or otherwise modified only by an instrument in writing executed by all of the Parties and expressly identified as an amendment, restatement, supplement or modification.

15.13 Waiver; Rights Cumulative. Any of the terms, covenants, representations, warranties, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of either Party, or their respective officers, employees, agents, or representatives, and no failure by a Party to exercise any of its rights under this Agreement, shall, in any such case, operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by either Party of any condition, or any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation, or warranty. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.

15.14 Governing Law; Jurisdiction; Venue; Jury Waiver.

(a) THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE RIGHTS, DUTIES AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO AND THERETO SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE

OF TEXAS (EXCEPT THAT, WITH RESPECT TO ISSUES RELATING TO REAL PROPERTY FOR PROPERTIES LOCATED IN A SPECIFIC STATE, THE LAWS OF SUCH STATE SHALL GOVERN), EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE FEDERAL COURTS OF THE UNITED STATES LOCATED IN HOUSTON, TEXAS OR THE STATE COURTS LOCATED IN HOUSTON, TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT, THE TRANSACTION DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY SHALL BE EXCLUSIVELY LITIGATED IN SUCH COURTS DESCRIBED ABOVE HAVING SITES IN HOUSTON, TEXAS AND EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS SOLELY IN RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH PARTY HERETO VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY LAW, THAT A FINAL AND NONAPPEALABLE JUDGMENT AGAINST A PARTY IN ANY ACTION OR PROCEEDING CONTEMPLATED ABOVE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND AMOUNT OF SUCH JUDGMENT. TO THE EXTENT THAT EITHER PARTY OR ANY OF ITS AFFILIATES HAS ACQUIRED, OR HEREAFTER MAY ACQUIRE, ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PARTY (ON ITS OWN BEHALF AND ON BEHALF OF ITS AFFILIATES) HEREBY IRREVOCABLY (I) WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS WITH RESPECT TO THIS AGREEMENT AND (II) SUBMITS TO THE PERSONAL JURISDICTION OF ANY COURT DESCRIBED IN THIS SECTION 15.14.

(b) Financing Sources Disputes. Notwithstanding anything herein to the contrary, each of the Parties hereto agrees that it will not bring or support any action, cause of action, claim, cross-claim or third-Person claim of any kind or description, whether in Law or in equity, whether in contract or in tort or otherwise, against the Financing Sources in any way relating to the Agreement or the Debt Financing, including any dispute arising out of or relating in any way to the Debt Financing or the performance thereof, in any forum other than the Supreme Court of the State of New York, County of New York, or, if under the applicable Law exclusive jurisdiction is vested in the federal courts, the United States District Court for the

Southern District of New York (and appellate courts thereof). Each of the Parties hereto irrevocably agrees to waive trial by jury in any action, cause of action, claim, cross-claim or third-Person claim referred to in this paragraph.

15.15 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to either Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

15.16 Removal of Name. As promptly as practicable, but in any case within 60 days after the Transition Period or such earlier time as may be required by applicable Law, Buyer shall eliminate the names “Seller” and any variants thereof from the Conveyed Interests and, except with respect to such grace period for eliminating existing usage, shall have no right to use any logos, trademarks or trade names belonging to Seller or any of its Affiliates.

15.17 Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by facsimile or other electronic transmission shall be deemed an original signature hereto.

15.18 Several Liability of Seller. Notwithstanding anything in this Agreement to the contrary, the obligations of Seller under this Agreement shall be shared severally, and not jointly, by DEPCO and Devon Uinta to the extent of their respective interests in the Conveyed Interests relevant to the obligation in question. As an example, if an indemnity obligation of Seller under Section 13.2 relates only to Conveyed Interests owned by Devon Uinta, Devon Uinta alone would be responsible for 100% of such indemnity obligation. As another example, if an indemnity obligation of Seller under Section 13.2 relates 70% to Conveyed Interests owned by DEPCO and 30% to Conveyed Interests owned by Devon Uinta, DEPCO would be responsible for 70% of such indemnity obligation and Devon Uinta would be responsible for 30% of such indemnity obligation.

15.19 Like-Kind Exchange. Buyer and Seller agree that either or both of Seller and Buyer may elect to treat the acquisition or sale of the Conveyed Interests as an exchange of like-kind property under Section 1031 of the Code (an “Exchange”), provided that the Closing shall not be delayed by reason of the Exchange. Each Party agrees to use reasonable efforts to cooperate with the other Party in the completion of such an Exchange including an Exchange subject to the procedures outlined in Treasury Regulation § 1.1031(k)-1 and/or Internal Revenue Service Revenue Procedure 2000-37. Each of Seller and Buyer shall have the right at any time prior to Closing to assign all or a part of its rights under this Agreement to a qualified intermediary (as that term is defined in Treasury Regulation § 1.1031(k)-1(g)(4)(iii)) or an exchange accommodation titleholder (as that term is defined in Internal Revenue Service Revenue Procedure 2000-37) to effect an Exchange. In connection with any such Exchange, any

exchange accommodation titleholder shall have taken all steps necessary to own the Conveyed Interests under applicable Law. Each Party acknowledges and agrees that neither an assignment of a Party’s rights under this Agreement nor any other actions taken by a Party or any other Person in connection with the Exchange shall release either Party from, or modify, any of its liabilities and obligations (including indemnity obligations to the other Party) under this Agreement, and neither Party makes any representations as to any particular Tax treatment that may be afforded to any other Party by reason of such assignment or any other actions taken in connection with the Exchange. Either Party electing to treat the acquisition or sale of the Conveyed Interests as an Exchange shall be obligated to pay all additional costs incurred hereunder as a result of the Exchange, and in consideration for the cooperation of the other Party, the Party electing Exchange treatment shall agree to pay all costs associated with the Exchange and to indemnify and hold the other Party, its Affiliates, and their respective former, current and future partners, members, shareholders, owners, officers, directors, managers, employees, agents and representatives harmless from and against any and all liabilities and Taxes arising out of, based upon, attributable to or resulting from the Exchange or transactions or actions taken in connection with the Exchange that would not have been incurred by the other Party but for the electing Party’s Exchange election.

15.20 Specific Performance. The Parties agree that if any of the provisions of this Agreement are not performed by a Party in accordance with their specific terms, the other Party shall be entitled to specific performance of the terms hereof, in addition to any other remedy available at law or in equity.

15.21 Non-Recourse. Notwithstanding anything to the contrary herein, except to the extent a named party to this Agreement (and then only to the extent of the specific obligations undertaken by such named party in this Agreement), (a) no past, present or future director, officer, employee, incorporator, member, partner, stockholder, Financing Source, agent, attorney, advisor or representative or Affiliate of any named party to this Agreement, in their respective capacities as such, and (b) no past, present or future director, officer, employee, incorporator, member, partner, stockholder, Financing Source, agent, attorney, advisor or representative or Affiliate of any of the foregoing, in their respective capacities as such, shall have any liability (whether in contract, tort, equity or otherwise) for any one or more of the representations, warranties, covenants, agreements or other obligations or liabilities of any one or more Seller or Buyer under this Agreement (whether for indemnification or otherwise) of or for any claim based on, arising out of, or related to this Agreement or the Debt Financing.

[Remainder of page intentionally left blank. Signature page follows.]

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the date first above written.



	Seller:

	DEVON ENERGY PRODUCTION COMPANY, L.P.


	By:	/s/ Thomas L. Mitchell
	Name:	Thomas L. Mitchell
	Title:	Executive Vice President


	DEVON UINTA BASIN CORPORATION


	By:	/s/ David G. Harris
	Name:	David G. Harris
	Title:	Vice President





	Buyer:

	LINN ENERGY HOLDINGS, LLC


	By:	/s/ David B. Rottino
	Name:	David B. Rottino
	Title:	Executive Vice President, Business Development and Chief Accounting Officer

SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT

APPENDIX I

Definitions

Capitalized terms used in this Agreement shall have the meanings set forth in this Appendix I unless the context requires otherwise.

“AAA” means the American Arbitration Association.

“AAA Rules” means the Commercial Arbitration Rules of the AAA.

“Accounting Arbitrator” has the meaning set forth in Section 3.7.

“Adjusted Purchase Price” has the meaning set forth in Section 3.3.

“AFEs” has the meaning set forth in Section 7.12.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person. The term “control” and its derivatives with respect to any Person mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Aggregate Deductible” means three percent (3%) of the Purchase Price.

“Agreement” has the meaning set forth in the first paragraph herein.

“Allocated Values” has the meaning set forth in Section 3.8(a).

“Applicable Contracts” means all Contracts to which Seller is a party or is bound relating to any of the Conveyed Interests and (in each case) that will be binding on Buyer after the Closing, including: communitization agreements; net profits agreements; production payment agreements; area of mutual interest agreements; joint venture agreements; confidentiality agreements; farmin and farmout agreements; bottom hole agreements; crude oil, condensate, and natural gas purchase and sale, gathering, transportation, and marketing agreements; hydrocarbon storage agreements; acreage contribution agreements; operating agreements; balancing agreements; pooling declarations or agreements; unitization agreements; processing agreements; saltwater disposal agreements; facilities or equipment leases; and other similar contracts and agreements, but exclusive of any master service agreements and Contracts relating to the Excluded Assets.

“Asset Taxes” means ad valorem, property, excise, severance, production, sales, use, or similar Taxes (excluding, for the avoidance of doubt, any Income Taxes and Transfer Taxes) based upon or measured by the ownership or operation of the Conveyed Interests or the production of Hydrocarbons therefrom or the receipt of proceeds therefrom.

“Assignment” means the Assignment and Bill of Sale from Seller to Buyer, pertaining to the Conveyed Interests, substantially in the form attached to this Agreement as Exhibit D.

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“Assumed Obligations” has the meaning set forth in Section 13.1(a).

“Audit Firm” has the meaning set forth in Section 9.12(b).

“Burden” means any and all royalties (including lessor’s royalty), overriding royalties, production payments, net profits interests and other burdens upon, measured by or payable out of production (excluding, for the avoidance of doubt, any Taxes).

“Business Day” means any day (other than Saturday or Sunday) on which commercial banks in Oklahoma City, Oklahoma are generally open for business.

“Buyer” has the meaning set forth in the first paragraph herein.

“Buyer Indemnified Parties” has the meaning set forth in Section 13.2.

“Buyer’s Environmental Liabilities” has the meaning set forth in Section 6.1(a).

“Buyer’s Representatives” has the meaning set forth in Section 4.1(a).

“Casualty Loss” has the meaning set forth in Section 5.4(b).

“Claim Notice” has the meaning set forth in Section 13.7(b).

“Closing” has the meaning set forth in Section 12.1.

“Closing Date” has the meaning set forth in Section 12.1.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

“Confidentiality Agreement” shall mean that certain Confidentiality Agreement, dated as of May 28, 2014, by and between DEPCO and Buyer.

“Consent” has the meaning set forth in Section 7.4.

“Contract” means any written or oral contract, agreement or any other legally binding arrangement, but excluding, however, any Lease, easement, right-of-way, permit or other instrument creating or evidencing an interest in the Conveyed Interests or any real or immovable property related to or used in connection with the operations of any Conveyed Interests.

“Conveyed Interests” has the meaning set forth in Section 2.1.

“Cure Period” has the meaning set forth in Section 5.3(c).

“Customary Post-Closing Consents” means the consents and approvals from Governmental Authorities for the assignment of the Conveyed Interests to Buyer that are customarily obtained after the assignment of properties similar to the Conveyed Interests.

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“Debt Financing” means the debt financing incurred or intended to be incurred pursuant to the commitment letter from the Financing Sources.

“Decommissioning Obligations” has the meaning set forth in Section 13.1(a).

“Deeds” means, collectively, the Oil, Gas, and Mineral Deed from DEPCO to Buyer, pertaining to the Fee Minerals, substantially in the form attached to this Agreement as Exhibit I (the “Mineral Deed”) and the Quitclaim Deed from DEPCO to Buyer, pertaining to the applicable surface fee interests included in the Conveyed Interests, substantially in the form attached to this Agreement as Exhibit J (the “Surface Deed”).

“Defect Claim Date” means on or before 5:00 P.M. (Central Time) on the date that is 45 days after the Execution Date.

“Defensible Title” means such title of Seller with respect to the Leases, Wells and Well Locations that, as of the Effective Time, and subject to Permitted Encumbrances:

(a) with respect to each currently producing formation or applicable Target Formation set forth in Exhibit B for a Well or each applicable Target Formation set forth in Exhibit B for a Well Location (in each case, subject to any reservations, limitations or depth restrictions described in Exhibit B), entitles Seller to receive not less than the Net Revenue Interest set forth in Exhibit B for such producing formation or applicable Target Formation, except for (i) decreases in connection with those operations in which Seller or its successors or assigns may from and after the Execution Date elect to be a non-consenting co-owner, (ii) decreases resulting from the establishment or amendment from and after the Execution Date of pools or units in accordance with this Agreement, and (iii) decreases required to allow other Working Interest owners to make up past underproduction or pipelines to make up past under deliveries;

(b) with respect to each currently producing formation or applicable Target Formation set forth in Exhibit B for a Well or each applicable Target Formation set forth in Exhibit B for a Well Location (in each case, subject to any reservations, limitations or depth restrictions described in Exhibit B), obligates Seller to bear not more than the Working Interest set forth in Exhibit B for such producing formation or applicable Target Formation, except (i) increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements, or (ii) increases to the extent that such increases are accompanied by a proportionate increase in Seller’s Net Revenue Interest; and

“DEPCO” has the meaning set forth in the first paragraph herein.

“Designated Well Costs” has the meaning set forth in Section 2.3(a).

“Devon Uinta” has the meaning set forth in the first paragraph herein.

“DGS Assignment” has the meaning set forth in Section 9.10.

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“Dispute Notice” has the meaning set forth in Section 3.6(a).

“DOJ” has the meaning set forth in Section 9.9.

“Effective Time” means 7:00 A.M. (Central Time) on April 1, 2014.

“email” has the meaning set forth in Section 15.6.

“Encumbrance” means any lien, mortgage, security interest, pledge, charge or similar encumbrance.

“EnLink NGL Marketing Agreement” has the meaning set forth in Section 9.10.

“Environmental Arbitrator” has the meaning set forth in Section 6.1(e).

“Environmental Condition” means (a) a condition existing on the Execution Date with respect to the air, soil, subsurface, surface waters, ground waters and/or sediments that causes a Conveyed Interest (or Seller with respect to a Conveyed Interest) not to be in compliance with any Environmental Law, or (b) the existence as of the Execution Date with respect to the Conveyed Interests or the operation thereof of any environmental pollution, contamination or degradation where remedial or corrective action is presently required (or if known, would be presently required) under Environmental Laws.

“Environmental Defect” means an Environmental Condition with respect to a Conveyed Interest.

“Environmental Defect Notice” has the meaning set forth in Section 6.1(a).

“Environmental Indemnity Agreement” has the meaning set forth in Section 6.1(b)(iii).

“Environmental Laws” means all Laws in effect as of the Execution Date, including common law, relating to the protection of the environment, including those Laws relating to the storage, handling, and use of Hazardous Substances and those Laws relating to the generation, processing, treatment, storage, transportation, disposal or other management thereof. The term “Environmental Laws” does not include (a) good or desirable operating practices or standards that may be employed or adopted by other oil and gas well operators or recommended by a Governmental Authority, or (b) the Occupational Safety and Health Act of 1970, 29 U.S.C. § 651 et seq., as amended, or any other Law governing worker safety or workplace conditions.

“Exchange” has the meaning set forth in Section 15.19.

“Excluded Assets” means (a) all of Seller’s corporate minute books, financial records and other business records that relate to Seller’s business generally (including the ownership and operation of the Conveyed Interests); (b) to the extent that they do not relate to the Assumed Obligations for which Buyer is providing indemnification hereunder, all trade credits, all accounts, all receivables of Seller and all other proceeds, income or revenues of Seller attributable to the Conveyed Interests and attributable to any period of time prior to the Effective Time; (c) to the extent that they do not relate to the Assumed Obligations for which Buyer is

APPENDIX I

PAGE 4

providing indemnification hereunder, all claims and causes of action of Seller arising under or with respect to any Contracts that are attributable to periods of time prior to the Effective Time (including claims for adjustments or refunds); (d) subject to Section 5.4 and to the extent that they do not relate to the Assumed Obligations for which Buyer is providing indemnification hereunder, all rights and interests of Seller (i) under any policy or agreement of insurance or indemnity, (ii) under any bond, or (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events or damage to or destruction of property; (e) Seller’s rights with respect to all Hydrocarbons produced and sold from the Conveyed Interests with respect to all periods prior to the Effective Time; (f) all claims of Seller or any of its Affiliates for refunds of, rights to receive funds from any Governmental Authority, or loss carry forwards or credits with respect to (i) Asset Taxes attributable to any period (or portion thereof) prior to the Effective Time, (ii) Income Taxes, or (iii) any Taxes attributable to the Excluded Assets; (g) all information technology assets, including desktop computers, laptop computers, servers, networking equipment and any associated peripherals and other computer hardware, computer software, all radio and telephone equipment, SCADA and measurement technology, smartphones, tablets and other mobility devices (such as MiFi and SCADA controllers), well communication devices, and any other information technology systems; (h) all of Seller’s proprietary computer software, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (i) all documents and instruments of Seller that may be protected by an attorney-client privilege or any attorney work product doctrine; (j) all data that cannot be disclosed to Buyer as a result of confidentiality arrangements under agreements with Third Parties; (k) all audit rights or obligations of Seller arising under any of the Applicable Contracts or otherwise with respect to any period prior to the Effective Time or to any of the Excluded Assets, except for any Imbalances assumed by Buyer; (l) all geophysical and other seismic and related technical data and information relating to the Conveyed Interests; (m) documents prepared or received by Seller or its Affiliates with respect to (i) lists of prospective purchasers for such transactions compiled by Seller, (ii) bids submitted by other prospective purchasers of the Conveyed Interests, (iii) analyses by Seller or its Affiliates of any bids submitted by any prospective purchaser, (iv) correspondence between or among Seller, its representatives, and any prospective purchaser other than Buyer, and (v) correspondence between Seller or any of its representatives with respect to any of the bids, the prospective purchasers or the transactions contemplated by this Agreement; (n) except for field offices described on Exhibit A-4, any offices, office leases and any personal property located in or on such offices or office leases; (o) any leases, rights and other assets specifically listed in Exhibit E; (p) any Hedge Contracts; (q) any debt instruments; (r) any overriding royalty interests not contributing to a producing Unit (determined as of the Effective Time) and any right to production revenues associated therewith; (s) any refund pursuant to the settlement in connection with DSR Investments, LLC v. Devon Energy Production Company, LP and Devon Energy Corporation (District Court for Dewey County, Oklahoma); and (t) any assets described in Section 2.1(g) that are not assignable.

“Execution Date” has the meaning set forth in the first paragraph herein.

“Fee Minerals” has the meaning set forth in Section 2.1(c).

“Final Price” has the meaning set forth in Section 3.6(a).

“Final Settlement Statement” has the meaning set forth in Section 3.6(a).

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PAGE 5

“Financial Statements” has the meaning set forth in Section 9.12(a).

“Financing Sources” means the financial institutions that have committed to provide or otherwise entered into agreements in connection with the Debt Financing in connection with the transactions contemplated by this Agreement, including the parties named in the related commitment letter, any joinder agreements and the fee letter contemplated therein or credit agreements relating thereto (and their respective successors and permitted assigns).

“FTC” has the meaning set forth in Section 9.9.

“GAAP” means generally accepted accounting principles in the United States as interpreted as of the Execution Date.

“Governmental Authority” means any federal, state, local, municipal, tribal or other government; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, regulatory or Taxing Authority or power; and any court or governmental tribunal, including any tribal authority having or asserting jurisdiction.

“Guarantees” has the meaning set forth in Section 9.5.

“Hazardous Substances” means any pollutants, contaminants, toxins or hazardous or extremely hazardous substances, materials, wastes, constituents, compounds, or chemicals that are regulated by, or may form the basis of liability under, any Environmental Laws, including NORM and other substances referenced in Section 6.2.

“Hedge Contract” means any Contract to which Seller or any of its Affiliates is a party with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

“HSR Act” has the meaning set forth in Section 9.9.

“Hydrocarbons” means oil and gas and other hydrocarbons (including condensate) produced or processed in association therewith (whether or not such item is in liquid or gaseous form), or any combination thereof, and any minerals produced in association therewith.

“Imbalances” means all Well Imbalances and Pipeline Imbalances.

“Income Taxes” means any income, franchise and similar Taxes.

“Indemnified Party” has the meaning set forth in Section 13.7(a).

“Indemnifying Party” has the meaning set forth in Section 13.7(a).

“Indemnity Deductible” means three percent (3%) of the Purchase Price.

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“Individual Environmental Threshold” has the meaning set forth in Section 6.1(d).

“Individual Title Defect Threshold” has the meaning set forth in Section 5.3(i).

“Interim Period” means that period of time commencing at the Effective Time and ending at 7:00 A.M. (Central Time) on the Closing Date.

“Knowledge” means with respect to Seller, the actual knowledge (without investigation) of the following Persons: Tony Vaughn, Bill Penhall, David Harris, Jack Richards and Carl Strickler.

“Lands” has the meaning set forth in Section 2.1(a).

“Law” means any applicable statute, law, rule, regulation, ordinance, order, code, ruling, writ, injunction, decree or other official act of or by any Governmental Authority.

“Leases” has the meaning set forth in Section 2.1(a).

“Liabilities” means any and all claims, obligations, causes of action, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines, costs, and expenses, including any attorneys’ fees, legal or other expenses incurred in connection therewith, including liabilities, costs, losses and damages for personal injury, death, property damage, environmental damage, or Remediation.

“License Agreement” shall mean that certain seismic license agreement, substantially in the form attached hereto as Exhibit H.

“Material Adverse Effect” means an event or circumstance that, individually or in the aggregate, results in a material adverse effect on the ownership, operation or value of the Conveyed Interest, taken as a whole and as currently operated as of the Execution Date or a material adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement and perform its obligations hereunder; provided, however, that the term “Material Adverse Effect” shall not include any material adverse effect resulting from: (a) entering into this Agreement or the announcement of the transactions contemplated by this Agreement; (b) any action or omission of Seller taken in accordance with the terms of this Agreement or with the prior consent of Buyer; (c) changes in general market, economic, financial, or political conditions (including changes in commodity prices, fuel supply or transportation markets, interests or rates), regardless of location; (d) changes in conditions or developments generally applicable to the oil and gas industry; (e) acts of God, including hurricanes, storms or other naturally occurring events; (f) acts or failures to act of a Governmental Authority; (g) civil unrest, any outbreak of disease or hostilities, terrorist activities or war or any similar disorder; (h) matters that are cured or no longer exist by the earlier of Closing and the termination of this Agreement; (i) any reclassification or recalculation of reserves in the ordinary course of business; (j) changes in the prices of any Hydrocarbons; (k) a change in Laws and any interpretations thereof from and after the Execution Date; and (l) natural declines in well performance.

“Material Contracts” has the meaning set forth in Section 7.7(a).

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“Net Revenue Interest” means, with respect to any Well or Well Location set forth in Exhibit B, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Well Location (in each case, limited to the applicable currently producing formation or Target Formation as described in the definition of “Defensible Title” and subject to any reservations, limitations or depth restrictions described in Exhibit B), after giving effect to all Burdens.

“NORM” means naturally occurring radioactive material.

“Operating Expenses” means (other than the Designated Well Costs) all operating expenses (including costs of insurance) and all capital expenditures incurred in the ownership and operation of the Conveyed Interests in the ordinary course of business and, where applicable, in accordance with the relevant operating or unit agreement, if any, and overhead costs charged to the Conveyed Interests under the relevant operating agreement or unit agreement, if any, but excluding Liabilities attributable to (a) personal injury or death, property damage, or violation of any Law, (b) Decommissioning Obligations, (c) environmental matters, including obligations to remediate any contamination of water or Personal Property under applicable Environmental Laws, (d) obligations with respect to Imbalances, (e) obligations to pay Working Interests, royalties, overriding royalties or other interest owners revenues or proceeds attributable to sales of Hydrocarbons relating to the Conveyed Interests, including those held in suspense, and (f) Income Taxes and Asset Taxes.

“Overhead Costs” means an amount equal to $2,500,000 per calendar month during the Interim Period.

“Party” and “Parties” has the meaning set forth in the first paragraph herein.

“Permitted Encumbrances” means:

(a) the terms and conditions of all Leases and all Burdens if the net cumulative effect of such Leases and Burdens does not (i) materially interfere with the operation or use of any of the Conveyed Interests (as currently operated and used), (ii) operate to reduce the Net Revenue Interest of Seller with respect to any Well or Well Location to an amount less than the Net Revenue Interest set forth in Exhibit B for such Well or Well Location, and (iii) does not obligate Seller to bear a Working Interest with respect to any Well or Well Location in any amount greater than the Working Interest set forth in Exhibit B for such Well or Well Location (unless the Net Revenue Interest for such Well or Well Location is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest);

(b) preferential rights to purchase and required consents to assignment and similar agreements (but only as applicable to the transfer to Buyer);

(d) Customary Post-Closing Consents;

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(e) conventional rights of reassignment;

(f) such Title Defects as Buyer may have waived or is deemed to have waived pursuant to the terms of this Agreement;

(g) all Laws and all rights reserved to or vested in any Governmental Authority (i) to control or regulate any Conveyed Interest in any manner; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the Conveyed Interests; (iii) to use such property in a manner which does not materially impair the use of such property for the purposes for which it is currently owned and operated; or (iv) to enforce any obligations or duties affecting the Conveyed Interests to any Governmental Authority with respect to any right, power, franchise, grant, license or permit;

(h) rights of a common owner of any interest in rights-of-way, permits or easements held by Seller and such common owner as tenants in common or through common ownership;

(i) easements, conditions, covenants, restrictions, servitudes, permits, rights-of-way, surface leases, and other rights in the Conveyed Interests for the purpose of operations, facilities, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines, removal of timber, grazing, logging operations, canals, ditches, reservoirs and other like purposes, or for the joint or common use of real estate, rights-of-way, facilities and equipment, which, in each case, do not materially impair the operation or use of the Conveyed Interests as currently operated and used;

(j) vendors, carriers, warehousemen’s, repairmen’s, mechanics’, workmen’s, materialmen’s, construction or other like liens arising by operation of Law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings by or on behalf of Seller;

(k) liens created under the Conveyed Interests or operating agreements or by operation of Law in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings by or on behalf of Seller;

(l) with respect to any interest in the Conveyed Interests acquired through compulsory pooling, failure of the records of any Governmental Authority to reflect Seller as the owner of any Conveyed Interests;

(m) any Encumbrance affecting the Conveyed Interests that is discharged by Seller at or prior to Closing;

(n) any matters referenced in Schedule 7.6, if the net cumulative effect of such matters (i) does not materially interfere with the operation or use of any of the Conveyed Interests (as currently operated and used or projected to be operated or used), (ii) does

APPENDIX I

PAGE 9

not reduce the Net Revenue Interest of Seller with respect to any Well or Well Location to an amount less than the Net Revenue Interest set forth in Exhibit B for such Well or Well Location, and (iii) does not obligate Seller to bear a Working Interest in any amount greater than the Working Interest set forth in Exhibit B for such Well or Well Location (unless the Net Revenue Interest for such Lease, Well or Well Location is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest)

(o) mortgage liens burdening a lessor’s interest in the Conveyed Interests; and

(p) the terms and conditions of all Contracts (including the Applicable Contracts) if the net cumulative of such Contracts (i) do not materially interfere with the operation or use of any of the Conveyed Interests (as currently operated and used), (ii) do not reduce the Net Revenue Interest of Seller with respect to any Well or Well Location to an amount less than the Net Revenue Interest set forth in Exhibit B for such Well or Well Location, and (iii) do not obligate Seller to bear a Working Interest in any amount greater than the Working Interest set forth in Exhibit B for such Well or Well Location (unless the Net Revenue Interest for such Lease, Well or Well Location is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest);

(q) all other Encumbrances, instruments, obligations, defects and irregularities affecting the Conveyed Interests that individually or in the aggregate (i) do not materially interfere with the operation or use of any of the Conveyed Interests (as currently operated and used or projected to be operated or used), (ii) do not reduce the Net Revenue Interest of Seller with respect to any Well or Well Location to an amount less than the Net Revenue Interest set forth in Exhibit B for such Well or Well Location, and (iii) do not obligate Seller to bear a Working Interest in any amount greater than the Working Interest set forth in Exhibit B for such Well or Well Location (unless the Net Revenue Interest for such Lease, Well or Well Location is greater than the Net Revenue Interest set forth in Exhibit B in the same or greater proportion as any increase in such Working Interest).

“Person” means any individual, firm, corporation, company, partnership (general and limited), limited liability company, joint venture, association, trust, estate, unincorporated organization, Governmental Authority or any other entity.

“Personal Property” has the meaning set forth in Section 2.1(f).

“Phase I Environmental Site Assessment” means an environmental site assessment performed pursuant to ASTM Standard E1527, or any similar environmental assessment that does not involve any invasive, sampling or testing activities.

“Pipeline Imbalance” means any marketing imbalance between the quantity of Hydrocarbons attributable to the Conveyed Interests required to be delivered by Seller under any Contract relating to the purchase and sale, gathering, transportation, storage, processing (including any production handling and processing at a separation facility) or marketing of

APPENDIX I

PAGE 10

Hydrocarbons and the quantity of Hydrocarbons attributable to the Conveyed Interests actually delivered by Seller pursuant to the relevant Contract, together with any appurtenant rights and obligations concerning production balancing at the delivery point into the relevant sale, gathering, transportation, storage or processing facility.

“Preferential Purchase Right” has the meaning set forth in Section 7.9.

“Preliminary Settlement Statement” has the meaning set forth in Section 3.5.

“Property” or “Properties” has the meaning set forth in Section 2.1(d).

“Purchase Price” has the meaning set forth in Section 3.1.

“Records” has the meaning set forth in Section 2.1(l).

“Release” shall mean any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, injecting, escaping, leaching, dumping or disposing of any Hazardous Substances into the environment.

“Remediation” means, with respect to an Environmental Condition, the implementation and completion of any remedial, removal, response, construction, closure, disposal or other corrective actions, including monitoring, to the extent but only to the extent required under Environmental Laws to correct or remove such Environmental Condition.

“Remediation Amount” means, with respect to an Environmental Condition, the present value as of the Closing Date (using an annual discount rate of 10%) of the cost (net to Seller’s interest prior to the consummation of the transactions contemplated by this Agreement) of the most cost-effective Remediation of such Environmental Condition.

“Seller” has the meaning set forth in the first paragraph herein.

“Seller Indemnified Parties” has the meaning set forth in Section 13.3.

“Specified Obligations” has the meaning set forth in Section 13.1(b).

“Specified Representations” means the representations and warranties in Sections 7.1, 7.2, 7.14, 8.1, 8.2, 8.10, and 8.11.

“Straddle Period” means any Tax period beginning before and ending on or after the date on which the Effective Time occurs.

“SWN Assets” has the meaning set forth in Section 9.11.

“SWN Assignment” has the meaning set forth in Section 9.11.

“Target Formations” has the meaning set forth in Exhibit O, which shall be mutually and reasonably agreed to by the Parties by July 9, 2014.

APPENDIX I

PAGE 11

“Taxes” means any taxes, assessments, unclaimed property or escheat obligations and other governmental charges imposed by any Governmental Authority, including income, profits, gross receipts, employment, stamp, occupation, premium, alternative or add-on minimum, ad valorem, real property, personal property, transfer, real property transfer, value added, sales, use, customs, duties, capital stock, franchise, excise, withholding, social security (or similar), unemployment, disability, payroll, windfall profit, severance, production, estimated or other tax, including any interest, penalty or addition thereto, whether disputed or not.

“Taxing Authority” means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision, including any governmental or quasi-governmental entity or agency that imposes, or is charged with collecting, social security or similar charges or premiums.

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Third Party” means any Person other than a Party or an Affiliate of a Party.

“Third Party Claim” has the meaning set forth in Section 13.7(b).

“Title Arbitrator” has the meaning set forth in Section 5.3(j).

“Title Benefit” means, with respect to each Well and Well Location shown in Exhibit B, any right, circumstance or condition that operates (a) to increase the Net Revenue Interest of Seller above that shown for such Well or Well Location in Exhibit B to the extent the same does not cause a greater than proportionate increase in Seller’s Working Interest therein above that shown in Exhibit B, or (b) to decrease the Working Interest of Seller in any Well or Well Location below that shown for such Well or Well Location in Exhibit B to the extent the same causes a decrease in Seller’s Working Interest that is proportionately greater than the decrease in Seller’s Net Revenue Interest therein below that shown in Exhibit B.

“Title Benefit Amount” has the meaning set forth in Section 5.3(e).

“Title Benefit Notice” has the meaning set forth in Section 5.3(b).

“Title Benefit Property” has the meaning set forth in Section 5.3(b).

“Title Defect” means any Encumbrance, defect or other matter that causes Seller not to have Defensible Title in and to the Wells or the Well Locations as of the Effective Time, without duplication; provided that the following shall not be considered Title Defects:

(a) defects arising out of the lack of corporate or other entity authorization unless Buyer provides affirmative evidence that such corporate or other entity action was not authorized and results in another Person’s actual and superior claim of title to the relevant Conveyed Interest;

APPENDIX I

PAGE 12

(b) defects based on a gap in Seller’s chain of title in the federal, state, county or parish records or other records of a Governmental Authority as to the Leases, unless Buyer affirmatively shows such gap to exist in such records by an abstract of title, title opinion or landman’s title chain, which documents (if any) shall be included in a Title Defect Notice (for the avoidance of doubt, a non-certified, cursory or limited title chain will satisfy this requirement);

(c) defects based upon the failure to record any federal or state Leases or any assignments of interests in such Leases in any applicable public records;

(d) defects based on the failure to recite marital status in a document or omission of successors or heirship or estate proceedings;

(e) defects that have been cured by applicable Laws of limitations or prescription;

(f) any Encumbrance or loss of title resulting from Seller’s conduct of business in compliance with this Agreement;

(g) defects based upon the exercise of any Preferential Purchase Rights or failure to obtain any Consents but only in connection with the proposed transfer to Buyer;

(h) defects arising from any change in applicable Law after the Execution Date, including changes that would raise the minimum landowner royalty;

(i) defects arising from any prior oil and gas lease taken more than fifteen (15) years prior to the Effective Date relating to the lands covered by a Lease not being surrendered of record, unless Buyer provides affirmative evidence that such prior oil and gas lease is still in effect and results in another Person’s actual and superior claim of title to the relevant Lease or Well;

(j) defects or irregularities resulting from or related to probate proceedings or the lack thereof, which defects or irregularities have been outstanding for five years or more;

(k) defects arising from or relating to the outcome of minimum royalty or related litigation set forth in Schedule 7.6;

(l) defects that affect only which Person has the right to receive royalty payments rather than the amount or the proper payment of such royalty payment;

(m) defects based solely on (i) lack of information in Seller’s files, or (ii) references to an unrecorded document(s) to which neither Seller nor any Affiliate of Seller is a party, if such document is dated earlier than January 1, 1960 and is not in Seller’s files;

APPENDIX I

PAGE 13

(n) defects arising from a mortgage encumbering the oil, gas or mineral estate of any lessor unless a complaint of foreclosure has been duly filed or any similar action taken by the mortgagee thereunder and in such case such mortgage has not been subordinated to the Lease applicable to such Conveyed Interest;

(o) defects or irregularities that would customarily be waived by a reasonable owner or operator of oil and gas properties;

(p) defects arising out of lack of survey, unless a survey is expressly required by applicable Laws; and

(q) to the extent a defect or irregularity applies to the currently producing formation, defects or irregularities which for a period of seven (7) years or more have, not delayed or prevented Seller (or its predecessor, if owned by Seller less than seven (7) years) from receiving its Net Revenue Interest share of the proceeds of production or caused it to bear a share of expenses and costs greater than its Working Interest share from any Unit or Well.

“Title Defect Amount” has the meaning set forth in Section 5.3(g).

“Title Defect Notice” has the meaning set forth in Section 5.3(a).

“Title Defect Property” has the meaning set forth in Section 5.3(a).

“Title Disputes” has the meaning set forth in Section 5.3(j).

“Title Dispute Date” means on or before 5:00 P.M. (Central Time) on the date that is 30 days after the expiration of the Cure Period.

“Title Indemnity Agreement” has the meaning set forth in Section 5.3(d)(iii).

“Transaction Documents” means those documents executed pursuant to or in connection with this Agreement.

“Transition Period” shall mean the period of time for which certain transition services are provided by Seller pursuant to the Transition Services Agreement covering three production months after Closing.

“Transition Services Agreement” shall mean a transition services agreement pertaining to the Conveyed Interests that will be entered into by the Parties at Closing in a form mutually agreed upon by the Parties prior to Closing.

“Transfer Taxes” has the meaning set forth in Section 15.2(e).

“Treasury Regulations” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.

APPENDIX I

PAGE 14

“Units” has the meaning set forth in Section 2.1(d).

“Well Imbalance” means any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocable to the interests of Seller therein and the shares of production from the relevant Well to which Seller is entitled, together with any appurtenant rights and obligations concerning future in kind and/or cash balancing at the wellhead.

“Wells” has the meaning set forth in Section 2.1(b).

“Well Location” means each well location set forth in Exhibit B.

“Working Interest” means, with respect to any Well or Well Location set forth in Exhibit B, the interest in and to such Well or Well Location that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Well or Well Location (in each case, limited to the applicable currently producing formation or Target Formation as described in the definition of “Defensible Title” and subject to any reservations, limitations or depth restrictions described in Exhibit B), but without regard to the effect of any Burdens.

APPENDIX I

PAGE 15

Exhibit A

Leases

EXHIBIT A

PAGE 1

Exhibit A-1

Fee Minerals

EXHIBIT A-1

PAGE 1

Exhibit A-3

Easements and Surface Interests

EXHIBIT A-3

PAGE 1

Exhibit A-4

Field Offices and Other Real Property

EXHIBIT A-4

PAGE 1

Exhibit A-5

Pipeline and Gathering Systems

EXHIBIT A-5

PAGE 1

Exhibit B

Wells and Well Locations

EXHIBIT B

PAGE 1

Exhibit C

Personal Property

EXHIBIT C

PAGE 1

Exhibit D

Form of Assignment and Bill of Sale

EXHIBIT D

PAGE 1

Exhibit E

Excluded Assets

EXHIBIT E

PAGE 1

Exhibit F

Salt Water Disposal Wells and Evaporation Pits

EXHIBIT F

PAGE 1

Exhibit G

Form of SWN Assignment

EXHIBIT G

PAGE 1

Exhibit H

Form of Seismic License Agreement

EXHIBIT H

PAGE 1

Exhibit I

Form of Mineral Deed

EXHIBIT I

PAGE 1

Exhibit J

Form of Surface Deed

EXHIBIT J

PAGE 1

Exhibit K

[Reserved]

EXHIBIT K

PAGE 1

Exhibit L

Form of DGS Assignment

EXHIBIT L

PAGE 1

Exhibit M

Form of EnLink NGL Marketing Agreement

EXHIBIT M

PAGE 1

Exhibit N

SWN Assets

EXHIBIT N

PAGE 1

Exhibit O

Target Formations

EXHIBIT O

PAGE 1

Exhibit 31.1 Q2 2014

Exhibit 31.1

I, Mark E. Ellis, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Linn Energy, LLC (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2014



/s/ Mark E. Ellis
Mark E. Ellis
Chairman, President and Chief Executive Officer

Exhibit 31.2 Q2 2014

Exhibit 31.2

I, Kolja Rockov, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Linn Energy, LLC (the “registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2014



/s/ Kolja Rockov
Kolja Rockov
Executive Vice President and Chief Financial Officer

Exhibit 32.1 Q2 2014

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Linn Energy, LLC (the “Company”) on Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark E. Ellis, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: August 7, 2014	/s/ Mark E. Ellis
	Mark E. Ellis
	Chairman, President and Chief Executive Officer

Exhibit 32.2 Q2 2014

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Linn Energy, LLC (the “Company”) on Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kolja Rockov, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: August 7, 2014	/s/ Kolja Rockov
	Kolja Rockov
	Executive Vice President and Chief Financial Officer

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