1

February 3, 2015

STATE OF NEW MEXICO COUNTY OF SANTA FE FIRST JUDICIAL DISTRICT COURT PHILLIS IDEAL and COLLINS PARTNERS, LTD., Plaintiffs, vs. Case No. No. D-0101-CV-2003-02310 BP AMERICA PRODUCTION COMPANY, Defendant.

SETTLEMENT AGREEMENT BETWEEN PLAINTIFFS AND DEFENDANT

This Settlement Agreement is entered into between Plaintiffs Phillis Ideal and Collins

Partners Ltd., individually and on behalf of the certified Class (“Plaintiffs”) as defined

below and BP America Production Company ("Defendant BP"), and is subject to approval

by the First Judicial District Court, County of Santa Fe, State of New Mexico (the “District

Court”). This agreement is referred to herein as the “Settlement Agreement”. The

Plaintiffs and Class Members in the Action (as defined herein) and Defendant BP are

referred to herein as the "Settling Parties" or "Parties".

RECITALS

WHEREAS, Plaintiffs filed the Action (as defined herein) in the District Court on

December 22, 2003. Plaintiffs alleged that Defendant BP underpaid owners of royalty and

overriding royalty interests in coal seam or coalbed methane gas (“CBM”) produced from

the Fruitland formation in the San Juan Basin in northwestern New Mexico and burdening

oil and gas leases held by Defendant BP. Specifically, Plaintiffs alleged that Defendant BP

2

(a) improperly deducted certain costs and expenses necessary to place CBM in marketable

condition before calculating royalties and overriding royalties; (b) improperly deducted other

post production costs in excess of those actually and reasonably incurred; and (c) failed to

compute and pay certain members of the Class whose overriding royalty instruments

specify that their overriding royalties shall be computed and paid at the same time and in

the same manner as royalties payable to the United States or other similar clause.

Plaintiffs alleged that the time period covered by their claims started from approximately

January 1, 1989 to the present;1

WHEREAS, on February 23, 2010, the District Court entered its Order Certifying

Class Action, a copy of which is attached hereto as Exhibit A and incorporated by this

reference herein(the “Class Certification Order”). On August 6, 2010, notice was sent to

the prospective class members pursuant to the order of the District Court (the "First

Notice"). A list of the Class Members to whom notice was sent is attached as Exhibit B.

The Class Members were afforded the opportunity to opt-out of this Action, and certain

Class Members did so. A List of the Class Members who properly opted-out is attached

hereto as Exhibit C;2

WHEREAS, subsequently, on September 17, 2012, the District Court entered a

Stipulated Order Approving Forms of Supplemental Notice To Prospective Class

Members, a copy of which is attached hereto as Exhibit D and incorporated by this

reference herein. On October 2, 2012, a supplemental notice was mailed to the

prospective class members pursuant to the order of the District Court (the "Supplemental

Notice"). A list of the Class Members to whom the supplemental notice was sent is

1 During the pendency of the case, the District Court entered summary judgment in favor of Defendant BP, dismissing the Class Claims before December 22, 1997. 2 The opt-out lists will conform to any final determination of the District Court concerning the untimely opt-outs.

3

attached as Exhibit E. The Class Members to whom the supplemental notice were sent

were afforded the opportunity to opt-out of this Action, and some did. A List of the Class

Members to whom the supplemental notice was sent and who opted-out is attached hereto

as Exhibit F;

WHEREAS, Defendant BP has denied all material allegations of the complaints

filed in the Action and has raised numerous affirmative defenses;

WHEREAS, Class Counsel (as defined herein) have aggressively litigated this class

action for about twelve years, conducted an extensive investigation of the facts,

circumstances, and transactions involved in the Action, and the named Plaintiffs and

Class Counsel, being well advised, believe the settlement set forth herein (the

“Settlement”) to be fair, reasonable and acceptable. Defendant BP has produced data,

information and material to Plaintiffs relating to class certification issues and the payment

of royalties and overriding royalties to Class Members. For example, Plaintiffs’ extensive

discovery and investigation includes deposing various corporate representatives of

Defendant BP, consulting with accounting and marketing experts, preparing and

reviewing the pleadings filed in the Action, researching the law applicable to this Action,

fully litigating numerous discovery motions and dispositive motions, and fully preparing

for a jury trial scheduled to begin on January 12, 2015;

WHEREAS, pursuant to the order of the District Court, the parties engaged in

extensive and contentious settlement negotiations and mediation sessions with Judge

James Hall (retired) that resulted in a settlement and the execution of a Confidential

Memorandum of Understanding (“MOU”) on January 9, 2015;

WHEREAS, Class Counsel believe that the Class Claims (defined herein) have merit

and are supported by the evidence. Plaintiffs are prepared to vigorously prosecute the

4

claims raised in this action against Defendant BP. However, Class Counsel recognize the

risks and uncertainties of prosecuting any action and the expense and length of

proceedings necessary to prosecute the Action through trial and appeals. Class Counsel

believe this proposed Settlement Agreement confers significant benefits to the Class

Members. Based upon their evaluation, and as a result of extensive, lengthy and difficult

arms-length negotiations with Defendant BP, Class Counsel are satisfied that the terms and

conditions of this proposed Settlement Agreement are fair, reasonable, adequate and in the

best interests of the Class Members, as defined herein;

WHEREAS, Defendant BP admits no wrongdoing concerning Class Claims and

has in the past and is prepared to continue in the future to vigorously defend against

those claims. Nevertheless, taking into consideration the cost and expense of further

proceedings, the strengths and weaknesses of the Class Claims and Defendant's

defenses, the uncertainties and risks associated with further litigation, and other

appropriate factors, Defendant desires to effectuate the Settlement in order to avoid

further expense, inconvenience, and the distraction of burdensome and protracted

litigation, to obtain the orders contemplated by this Settlement Agreement, and to

finally resolve certa in claims which were or could have been alleged in the Action

against Defendant BP;

WHEREAS, except for the Reserved Claims (as defined herein), the Parties

have voluntarily agreed to settle the Action after consultation with competent legal

counsel of their own selection; and

WHEREAS, the parties entered into the Confidential MOU agreeing to the material

terms of the Settlement, and agreed that the final terms of the Settlement would be

embodied in a definitive settlement agreement.

5

NOW, THEREFORE, IT IS HEREBY AGREED by the Settling Parties that,

subject to final approval by the District Court and entry of the Final Order, the

Released Claims shall be released, settled and dismissed with prejudice and on the

merits, subject to the following terms and conditions:

SECTION 1.0 -- DEFINITIONS.

Unless otherwise expressly provided in this Settlement Agreement, the following

terms, as used in this Settlement Agreement, have the following meanings:

1.1 “Action” means the litigation filed by the Plaintiffs and entitled Phillis Ideal and

Collins Partners, LTD., a Texas Limited Partnership v. BP America Production Company

filed in the First Judicial District Court, County of Santa Fe, State of New Mexico, Case No.

D-0101-CV-2003-02310.

1.2 "Administrative Expenses" means the full and complete fees and costs of

the Settlement Administrator and any accountants retained by him or her, including without

limitation the cost of the settlement notices and claims administration (including any

expenses of the Settlement Administrator).

1.3 “Defendant BP” means BP America Production Company, its current and

former parents, their predecessors, affiliates, assigns, successors, subsidiaries and its

members, partners, officers, directors, agents, representatives, and employees.

1.4 “CBM” means coal seam or coalbed methane gas produced only from the

Fruitland formation in the San Juan Basin in New Mexico during the Class Period. “CBM”

shall not be construed to include natural gas produced from the Fruitland Sands formation.

1.5 "CBM Royalty Deductions" means costs incurred prior to the gas being

acceptable into the interstate pipeline including gathering, field transportation, marketing

fees, compression, decompression, dehydration, processing or treatment, fuel (plant and

6

pipeline) and Natural Gas Processor's tax and taken before the remittance of all non same

as fed royalties and overriding royalties due to the Class Members by Defendant BP.

1.6 “Class” means the class certified under the Class Certification Order.

1.7 “Class Counsel” means Peifer, Hanson & Mullins, P.A.; The Eaves Law

Firm, P.A.; Sutin, Thayer & Browne, P.C.; and Mary E. Walta, P.C., counsel to the

Plaintiffs.

1.8 “Class Members” means all members of the Class identified in the First

Notice, the Supplemental Notice, or the Class Settlement Notice, or to whom the

Publication Notice is directed who did not opt out of the Action. "Class Members" and "the

Plaintiffs" does not include any person or entity who was not previously specifically

identified on the attached class lists (Exhibits B, E and G, hereto). The Class Members'

claims are set forth in the Sixth Amended Class Action Complaint For Violation Of Oil And

Gas Proceeds Payment Act, et al. filed in the Action. As discussed below, the Plaintiffs will

compile and provide to the First Judicial District a list of additional Class Members, if any,

who elect to “opt-out” after mailing of the Class Settlement Notice and publication of the

Publication Notice.

1.9 “Class Period” means the period from January 1, 1989 to the date of

Preliminary Approval.3

1.10 “Class Settlement Notice” means the notice to Class Members of the Final

Approval Hearing and terms of the Settlement, substantially in the form attached as Exhibit

H to this Settlement Agreement, and as approved by the District Court, advising the Class

Members of their rights concerning this Settlement and other procedures appropriate for

obtaining Final Approval of this Settlement Agreement..

3 See footnote 1 above.

7

1.11 “Court Approval” means the entry by the District Court in the Action of a

final order of approval, in the form of an order to be agreed upon by the Parties after

notice to the Class Members and a f inal approval hearing, signifying final approval of

this Settlement Agreement in accordance with Rule 1-023(E) NMRA.

1.12 "Deductions from Settlement Amount" means the Class Members’

compensation, Class Representatives' incentive awards, Class Counsel’s attorneys' fees

(as approved by the District Court), applicable New Mexico gross receipts taxes, and

reimbursement of Class Counsel of all actual expenses of this litigation (as approved by the

District Court), any other litigation costs of Plaintiffs, and all applicable taxes, if any,

assessable on the Settlement Amount or any portion thereof.

1.13 “Distribution Check” means a check payable to an Eligible Class Member in

the net amount that is payable to such Eligible Class Member pursuant to the Plan of

Allocation.

1.14 “Distribution Date” means each date on which Distribution Checks are sent

to Eligible Class Members.

1.15 The "District Court" means the First Judicial District Court, County of Santa

Fe, State of New Mexico.

1.16 “Eligible Class Member” means each of the Class Members entitled to

receive a Distribution Check pursuant to the Plan of Allocation.

1.17 “Endorsement Language” means the release language contained on

each payment check to an Eligible Class Member stating that:

By endorsing this Distribution Check, payee represents and warrants that the payee is or was the owner of the Released Claims hereby released, has not assigned or otherwise transferred the Released Claims to anyone else, and will indemnify the Class Representatives, Class Counsel for the Class Members and Defendant BP against a claim by anyone else as the owner of that Released Claim.

8

1.18 "Escrow Account" means that special interest-bearing “Qualified

Settlement Fund” (as defined in Section 1.468B-1(a) of the U.S. Treasury Regulations)

account established at Bank of America by the Settlement Administrator.

1.19 “Final Approval” means that the Court Approval has become final, either by

exhaustion of any time for a member of the Class who has properly and timely objected

to the Stipulation and Settlement to appeal the Court Approval, with no appeal being

filed, by completion of any appeals filed by members of the Class which appeals have

been resolved favorably, or, if there are no objections to the Settlement, by the District

Court's entry of the Final Order.

1.20 “Final Fairness Hearing” means the hearing before the District Court at

which the District Court shall consider:

A. Whether this Settlement Agreement, including the Exhibits to this

Agreement, should be approved as fair, adequate, and reasonable;

B. Whether a Final Order should be entered;

C. Whether the application of Class Counsel for payment of attorneys’

fees plus New Mexico gross receipts taxes, and all costs and expenses, should be

approved;

D. Whether the application for payment of an incentive award to the

Class Representative should be approved; and,

E. Any other matters addressed by the District Court in conjunction with

items (A) - (D) of this paragraph.

1.21 “Final Order” means the Final Order, Judgment of Dismissal and Release

to be drafted by Class Counsel and counsel for Defendant BP.

1.22 “First Notice” means the notice of class certification sent to Class

9

Members on August 6, 2010.

1.23 “MOU” means the Confidential Memorandum of Understanding entered into

by the Settling Parties in this action dated January 9, 2015.

1.24 “Net Settlement Amount” means the Settlement Amount less the Class

Representative’s incentive awards, Class Counsel’s attorneys’ fees and New Mexico gross

receipts taxes (as approved by the District Count), reimbursement of Class Counsel of all

actual expenses of the Action (as approved by the District Court), any other approved costs

and expenses of Plaintiffs and all appropriate taxes, if any, assessable on the Settlement

Amount or any portion thereof.

1.25 "New Settlement Funds" means the portion of the Settlement Amount paid

by Defendant BP in the amount of Fifty-Five Million Dollars ($55,000,000.00).

1.26 “Parties” means the Class Members and Defendant BP.

1.27 The "Plaintiffs" means Phillis Ideal and Collins Partners, Ltd., individually

and on behalf of the Class.

1.28 The “Plan of Allocation” means the document subject to approval by the

District Court describing the distribution of the proceeds of the Net Settlement Amount.

1.29 "Prior Settlement Funds" means the sum of approximately Ten Million Four

Hundred Thousand Dollars ($10.4 million) Defendant BP already paid to Same as Fed

Class Members during the pending lawsuit which Defendant BP described as “prior period

adjustments” made in 2013 and credited as partial payment of the Settlement Amount.

Those payments were the subject of a partial summary judgment entered in this case in

favor of the Class by the District Court on November 5, 2014.

1.30 “Preliminary Approval” means the preliminary approval of the Settlement

Agreement by the District Court pursuant to an Order Granting Preliminary Approval.

10

1.31 “Publication Notice” means the notice of settlement published to Class

Members after Preliminary Approval of the Settlement Agreement. The Publication Notice

is attached as Exhibit I to this Settlement Agreement. The Publication Notice will allow

Class Members who did not receive the First Notice or Supplemental Notice to opt out of

the Class, as well as to object to the Settlement Agreement or to make a claim pursuant to

the Plan of Allocation.

1.32 “Qualified Settlement Fund” means the Settlement Amount which is to be

deposited in a Qualified Settlement Fund pursuant to, and within the meaning of, Sections

1.468B-1 et seq. of the Regulations of the United States Department of the Treasury.

1.33 “Released Claims” means all claims that were asserted in the Action or

could have been asserted in the Action by the Class Members, whether arising from

contract, tort, statute or in law or equity, with respect to the Subject Royalty Obligations

burdening Defendant BP's production, whether operated or non-operated, of CBM from the

Fruitland formation in the San Juan Basin in New Mexico during the Class Period, other

than the Reserved Claims, including acts, omissions, or failures to act related to the Action.

other than the Reserved Claims.

1.34 “Reserved Claims” means:

A. Any and all claims against Defendant BP insofar as they apply to non-

CBM (i.e. conventional) natural gas, oil or natural gas liquids produced from non-Fruitland

formations in the San Juan Basin in northwestern New Mexico, including but not limited to

the Steven J. Abraham, et al., v. BP America Production Company, U.S.D.C. -- NM case

no. CIV-09-961 WDS/KBM ("Abraham") settlement. All claims concerning conventional gas

or hydrocarbons other than natural gas produced from the Fruitland formation are

specifically excluded from this settlement and are not released. Also excluded from this

11

settlement and not released are claims concerning natural gas produced from the Fruitland

Sands formation;

B. Any claims arising out of ordinary course of business mistakes and

corrections of mathematical errors by Defendant BP for which Defendant BP may make

prior period adjustments as may be necessary and appropriate in the ordinary course of

business;

C. Except for the claims subject to and covered by the Future Royalty

Methodology provided in paragraph 3, any claims arising from Subject Royalty Obligations

burdening production of CBM from the Fruitland formation in the San Juan Basin after the

Class Period;

D. Any claims by Class Members regarding royalty or overriding royalty

interests that burden oil and gas leases held by Defendant BP and producing CBM

(whether operated and paid by BP or by third-parties) for which Defendant BP has not

provided, with respect to such interests, names, addresses, current decimal ownership

percentages, tax identification numbers, and volumes of CBM attributable thereto, and

information reasonably necessary in order for the Settlement Administrator and Class

Counsel may make an allocation to such interests pursuant to the Plan of Allocation; and

E. Any claims arising out of the enforcement of the Settlement

Agreement.

1.35 “Royalty Interests” means royalty and overriding royalty interests owned by

the Class Members.

1.36 "Same as Fed Class Members" means all Class Members whose leases,

overriding royalty instruments or assignments expressly require that royalties be computed

12

and paid on the same basis as royalties are computed and paid to the United States of

America.

1.37 “Settlement Administrator” means the person or entity that Class

Counsel retains, and the District Court approves, to provide any services in connection

with performing the terms of this Settlement Agreement.

1.38 “Settlement Amount” means the total sum of $65.4 million consisting of the

combined Prior Settlement Funds and the New Settlement Funds.

1.39 “Settling Parties” means the Plaintiffs and Defendant BP.

1.40 “Subject Royalty Obligations” means obligations arising from those leases,

assignments or other agreements of the Class Members containing the terms of the royalty

and overriding royalty interests that burden oil and gas leases held by Defendant BP in the

San Juan Basin in New Mexico that produce CBM, including without limitation, any

obligations express or implied relating to the calculation, disclosure, payment or remittance

of royalties.

1.41 "Supplemental Notice" means the supplemental notice that was mailed on

October 2, 2012 to prospective class members pursuant to an order of the District Court.

SECTION 2.0 -- MUTUAL INTENT TO IMPLEMENT THIS SETTLEMENT AGREEMENT PROMPTLY. 2.1 It is the mutual intent of the Settling Parties to consummate this Settlement

Agreement promptly.

A. The Settling Parties will cooperate in good faith and exercise their

reasonable best efforts to effectuate and implement all of the terms and conditions of this

Settlement Agreement within the time periods set out herein. The Settling Parties agree to

use their reasonable best efforts to prepare any other documents necessary to implement

and consummate this settlement including, but not limited to, a Class Settlement Notice to

13

members of the Class, Publication Notice to class members, Preliminary and Final Approval

Orders, and related documents to be submitted to the District Court for Preliminary and

Final Approval as may be necessary to effectuate the purposes and intent of this

Settlement Agreement;

B. The Class Members shall be bound by the Settlement Agreement and

all proceedings, orders and judgments in the Action if the Settlement Agreement is

approved and becomes Final;

C. The Settling Parties shall jointly submit this Settlement Agreement,

including the Exhibits attached to this Agreement, to the District Court for preliminary

approval as soon as is reasonably practical;

D. Upon submission of the Settlement Agreement for Preliminary

Approval, the Settling Parties shall request that the District Court enter an Order of

Preliminary Approval;

E. In proceedings before the District Court (and before any appellate

courts, if necessary), the parties shall take all steps reasonably necessary to obtain final

approval of the Settlement;

F. The Settling Parties shall agree to entry of a Final Order by the District

Court following the Final Fairness Hearing; and

G. The Settling Parties specifically agree to cooperate and share

information reasonably available in the ordinary course of business and calculated to locate

Class Members or their lawful successors or assigns and to calculate payments pursuant to

the Plan of Allocation. Specifically as to Defendant BP, it is required only to provide

information kept in the ordinary course of business regarding: (i) identification of the Class

Member and their BP owner number; (ii) the last known address of each identified Class

14

Member; (iii) the social security number or federal tax ID number for each identified Class

Member. Defendant BP is not expected to conduct chain of title, title searches or prepare

abstract reports or opinions concerning ownership interests of a Class Member.

SECTION 3.0 -- RELIEF FOR THE CLASS.

3.1 Settlement Amount. In consideration for this Settlement Agreement, and in

full and final settlement of the Released Claims (and excluding the Reserved Claims),

Defendant BP shall make payment of the New Settlement Funds in good funds by wire

transfer as provided in Section 3.5 of this Settlement Agreement.

3.2 Costs, Fees, Expenses and Taxes Included. The Settlement Amount

includes the Class Members’ compensation, Class Representative's incentive awards,

Class Counsel’s attorneys' fees plus gross receipts taxes (as approved by the District

Court) and reimbursement of Class Counsel of all actual expenses of this Action (as

approved by the District Court), any other litigation costs of Plaintiffs, and all applicable

taxes, if any, assessable on the Settlement Amount or any portion thereof.

3.3 Costs of Administration. In addition to the Settlement Amount, Defendant

BP shall pay reasonable Administrative Expenses. Such fees and costs shall not exceed

the aggregate sum of $350,000.00. The Settlement Administrator and accountant shall

submit monthly itemized statements of fees and costs to Plaintiff’s counsel and counsel for

BP.

3.4 Plan of Allocation. The distribution of the Net Settlement Amount shall be

administered pursuant to a Plan of Allocation which is attached as Exhibit J to this

Settlement Agreement and is subject to the approval of the District Court. Defendant BP

shall have no participatory or approval rights with respect to the Plan of Allocation, and the

District Court’s rejection of Plaintiffs' Plan of Allocation shall not affect the validity or

15

enforceability of this Settlement Agreement. Defendant BP takes no position with respect

to the form and/or substance of Plaintiffs’ Plan of Allocation and shall have no responsibility

for the implementation of Plaintiffs’ Plan of Allocation. Subject to the District Court's

authority to disapprove the Settlement, the District Court's refusal to approve a particular

Plan of Allocation shall not otherwise affect the validity or enforceability of the Settlement

Agreement. With respect to the Plan of Allocation:

A. In order to implement the Plan of Allocation, and within thirty (30)

calendar days after preliminary approval of the Settlement Agreement, Defendant BP shall

provide Class Counsel and the Settlement Administrator an accurate updated owner list of

all Class Members' royalties and overriding royalties for CBM from the Fruitland formation

in the San Juan Basin in New Mexico, including Class Member addresses, and Class

Member taxpayer identification numbers. To the extent that other information is required to

identify Class Members or to calculate payments pursuant to the proposed Plan of

Allocation and provided that the information is reasonably available to Defendant BP, then

Defendant BP will cooperate in good faith to provide that information;

B. In the event of the death or disability of a Class Member, Defendant

BP will provide reasonable information from the current accounting system for the

reissuance of settlement checks to the Class Member's estate, heirs, trustees, guardians or

conservators. Defendant BP is not expected to conduct chain of title, title searches or

prepare abstract reports or opinions concerning ownership interests of a Class Member.

C. Class Counsel, and the Settlement Administrator under direction of the

District Court, will be responsible for the general supervision and administration of this

Settlement with respect to notification to the Class. The Settlement Administrator will be

responsible for issuing the checks from the Net Settlement Amount to the Class Members,

16

though the Settlement Administrator is excused from issuing checks to any Class Member,

if the Net Settlement Amount payable to such Class Member for the entirety of the Class

Period is less than ten dollars ($10.00);

D. Each settlement check issued by the Settlement Administrator shall

include the Endorsement Language. The Settlement Administrator will provide to Class

Counsel and Defendant BP copies of the endorsements on the distribution checks;

E. The Plan of Allocation shall contain provisions for additional

distributions to the Class Members and/or the cy pres of undistributed Settlement Amounts;

and

F. None of the Settlement Amount is allocated to increase the prices or

values or the volumes of CBM produced by Defendant BP during the Class Period.

3.5 Escrow. Within ten (10) business days of Preliminary Approval, Defendant

BP will deposit – by wire transfer according to instructions to be provided by Class Counsel

-- the New Settlement Funds into the Escrow Account. The Settlement Amount shall be

held in the Escrow Account and subject to the terms and conditions of an escrow

agreement and instructions, a copy of which is attached as Exhibit K to this Settlement

Agreement (the “Escrow Agreement and Instructions”). Defendant BP and the named

Plaintiffs shall have the right to audit amounts paid from the Escrow Account. Class

Representatives' incentive awards, Class Counsel’s attorneys’ fees (as approved by the

District Court), reimbursement of Class Counsel of all actual expenses of the Action (as

approved by the District Court), any other litigation costs of Plaintiffs and all applicable

taxes (including without limitation to New Mexico gross receipts taxes), if any, shall be paid

from the Escrow Account within fourteen (14) days after Final Approval. The balance of

the Net Settlement Amount shall be disbursed to Class Members as provided in the Court-

17

approved Plan of Allocation after Final Approval. In no event, however, shall any money

be disbursed to Class Members or paid out for class representatives’ incentive awards,

Class Counsel’s attorneys’ fees, reimbursement of Class Counsel of actual expenses,

reimbursement of other litigation costs of Plaintiffs, applicable taxes, if any, until the time

for the Parties to exercise their termination rights pursuant to Section 5.4 has passed

without the Parties exercising such rights.

3.6 Future Royalty Methodology. After Final Approval by the District Court, the

CBM Royalty Deductions shall be subject to the following terms:

A. Defendant BP shall eliminate all deductions from the calculation,

payment and remittance of all royalties and overriding royalties due on CBM production to

the Class Members by Defendant BP for: (1) gathering fees (including gathering, field

transportation, marketing fees, compression, decompression, dehydration, processing,

treatment and natural gas processor's taxes) and fuel for company-operated gathering

systems; and (2) third-party gathering fees (including gathering, field transportation,

marketing fees, compression, decompression, dehydration, processing, treatment and

natural gas processor's taxes);

B. Notwithstanding the provisions of Paragraph 3.6 A, based on

Defendant BP's representation that the majority of the CBM at issue is processed through

the Val Verde and Milagro treatment plants and that the current contracts with the Val

Verde and Milagro plants expire no earlier than 2019, Defendant BP will have the right to

continue to deduct pipeline fuel and plant fuel charges Defendant BP incurs on CBM

production, in the form of its existing contractual third-party fuel charges and volumetric

reductions for fuel;

C. Defendant BP will have the right to continue to deduct third-party

18

charges for the extraction of NGLs attributable to CBM production at the non-Blanco plants

and Defendant BP will have the right to deduct the previously agreed upon Abraham

settlement [specifically Section 3 "Reduction of Processing Cost Royalty Deduction" in the

Abraham Settlement Agreement] processing costs related to the Blanco plant (about 8.1

cents per gallon);

D. These payment methodology changes shall be effective for the

January 2015 production month. Defendant BP shall fully implement the Future Royalty

Methodology by January 1, 2016, and make a prior period adjustment for 2015 to account

for the difference between its current royalty payment methodology and the Future Royalty

Payment Methodology. If for any reason Defendant BP fails to make the prior period

adjustments when due, it will also pay applicable interest under the Proceeds Payment

Act;

E. All Class Members whose leases, overriding royalty instruments or

assignments require that royalties be computed and paid on the same basis as royalties

are paid to the United States of America (the Same as Fed Method) shall be unaffected by

the Future Royalty Methodology. Such Same as Fed royalty owners should be paid

pursuant to Defendant BP's obligations for the calculation of such royalties and overriding

royalties as provided in the underlying assignments.

F. Defendant BP shall implement this Future Royalty Methodology in

accordance with the provisions set forth in subsection 3.6 D. above, and will employ this

Future Royalty Methodology until the earliest of the following:

(i) the Court of Appeals for the State of New Mexico issues an opinion

ruling on the deductibility or non-deductibility of any or all of the CBM Royalty Deductions

for which the New Mexico Supreme Court denies certiorari; or

19

(ii) New Mexico Supreme Court issues an opinion ruling on the

deductibility or non-deductibility of any or all of the CBM Royalty Deductions; or

(iii) the fifth anniversary of the date of Final Approval of this

settlement by the District Court;

(iv) in any event, Defendant BP’s obligations under the Future

Royalty Payment Methodology shall completely expire no later than the fifth anniversary of

the date of the Final Approval of this settlement by the District Court.

G. Provided that Defendant BP fully complies with the provisions of the

Future Royalty Methodology set forth above, during the subject 5 year period, unless an

intervening final New Mexico appellate opinion decides the deductibility or non-deductibility

of any or all of the CBM Royalty Deductions, then Defendant BP shall not be liable to the

Class regarding the propriety of the CBM Royalty Deductions being taken during the

period that the Future Royalty Methodology applies, except as provided in subsection 3.6

D., above. Likewise, Defendant BP shall not assert that the Future Royalty Methodology is

binding upon the Class for any time period other than expressly provided herein. Provided

that Defendant BP fully complies with the provisions of the Future Royalty Methodology set

forth above, the parties understand and agree that there will be no retroactive changes or

adjustments to payments made in accordance with the Future Royalty Methodology

specified herein;

H. If pursuant to subsection 3.6 F (i) and (ii), one of those events occurs

before Defendant BP has fully implemented the Future Royalty Methodology, then

Defendant BP agrees that it will nevertheless comply with and make the prior period

adjustments pursuant to the Future Royalty Methodology for the time period before those

events occur; and

20

I. All of BP's obligations regarding the Future Royalty Methodology shall

be binding upon BP's successors-in-interest.

SECTION 4.0 -- ATTORNEYS’ FEES AND EXPENSES AND CLASS REPRESENTATIVES INCENTIVE AWARDS.

4.1 Attorney Fee Application. Class Counsel intend to apply to the District

Court for an award of attorneys’ fees plus applicable New Mexico gross receipts taxes

thereon incurred in prosecuting Class Claims and for services rendered up to and including

the date this Settlement is final, with such award to be paid out of the Escrow Account.

Any such application for an award of attorneys’ fees shall not exceed one-third (33 and 1/3

percent) of the total Settlement Amount, plus applicable New Mexico gross receipts taxes

thereon. If the Final Order is appealed, Class Counsel’s attorneys’ fees and litigation and

other expenses as awarded by the District Court shall be increased by their proportionate

share of any interest earned on, or earnings derived from the Escrow Account from the

date the Final Order is entered by the District Court, until the attorneys’ fees and litigation

expenses are paid. For purposes of the foregoing sentence, the phrase “proportionate

share” means the ratio of the sum of Class Counsel’s attorneys’ fees and litigation

expenses to the total of the principal amount of the Settlement Amount.

4.2 Costs and Expenses. At the Final Fairness Hearing, Class Counsel may

apply to the District Court for reimbursement of reasonable out of pocket litigation

expenses, to include expenses incurred up to the Final Fairness Hearing, distribution of

the Settlement Amount to the Class and completion of the administration of the Settlement

Amount as ordered by the District Court. Such litigation expenses shall be paid from the

Escrow Account at the time specified in Section 4.4.

4.3 Class Representatives' Compensation. Subject to approval and

modification by the District Court, the Class Representatives shall each be entitled to seek

21

court approval of a payment of up to $125,000 out of the Settlement Amount for services

as class representatives, within fourteen (14) days after Final Approval, in addition to any

amounts due to them as Class relief to be paid by the Settlement Administrator from the

corpus of the Escrow Account. District Court approval of Class Representatives'

compensation in an amount less than stated herein shall not negate any other provisions

of this Settlement Agreement, which shall remain fully effective and enforceable.

4.4 Fees, Costs and Expenses. Any costs of suit or attorneys’ fees approved

by the District Court shall, within fourteen (14) days after Final Approval, and the expiration

of the time for the Parties to exercise their termination rights pursuant to Section 5.4

without the Parties exercising their termination rights, be paid from the Escrow Account.

District Court approval of an attorneys’ fee and/or costs in an amount less than the amount

requested by Class Counsel - or the District Court’s disallowance of any award of fees or

expenses - shall not negate any other provisions of this Settlement Agreement, which shall

remain fully effective and enforceable.

4.5 Approval by the Court. All fees, costs and expenses to be deducted from

the Settlement Amount must be approved by the District Court. Defendant BP shall take

no position on any application for fees and reimbursement of costs or expenses made by

Class Counsel or by the Class Representatives or any application for awards out of the

Escrow Account to the Class Representatives. This Settlement Agreement is not

contingent on the District Court’s approval of any application for such fees, expenses or

awards out of the Settlement Amount.

SECTION 5.0 -- ADMINISTRATION.

5.1 Settlement Administrator. Class Counsel has selected KCC Class Action

Services LLC (together with its affiliates) to act as Settlement Administrator. The

22

Settlement Administrator, acting pursuant to the Escrow Agreement and Instructions, shall

be responsible for the general supervision and administration of the Settlement Amount

deposited in the Escrow Account, the allocation (in accordance with the Plan of Allocation)

and distribution of the Settlement Amount and any required notification of Class Members

regarding the Settlement. All fees, costs and expenses to be disbursed from the Escrow

Account must be approved by the District Court. The Settlement Administrator shall be

permitted, with the approval of the Parties, to retain accountants and legal counsel to

assist in its administration of the Settlement and the Escrow Agreement and Instructions.

Subject to satisfaction of its duties and obligations under this Settlement Agreement,

Settlement Administrator, or any successor hereafter appointed, may resign and shall be

discharged of its duties upon the appointment of a successor Settlement Administrator, as

Class Counsel, with the consent of Defendant BP, shall determine. Each such successor

Settlement Administrator shall have all the power, authority, rights and privileges hereby

conferred upon the original Settlement Administrator, and the term “Settlement

Administrator” as used herein shall be deemed to include such successor Settlement

Administrator.

Class Counsel and the Settlement Administrator shall be responsible for

communicating distributing, allocating and administering any matters pertaining to the

settlement and the Settlement Amount among or with Class Members or any persons

claiming to be a part of the Class. Defendant BP shall refer all inquiries concerning the

Settlement Agreement to the Settlement Administrator or Class Counsel.

In accordance with the settlement approval provisions of Rule 1-023 NMRA, notice

of this settlement, as approved by the District Court, will be provided to all Class Members

as ordered by the District Court.

23

5.2 Court Approval. Promptly after the execution of this Settlement Agreement,

the Parties shall submit this Settlement Agreement and supporting papers, including the

Plan of Allocation, to the District Court.

The Plaintiffs shall (i) file with the District Court a Motion for Order of Preliminary

Approval, (ii) submit to the District Court an Order Granting Preliminary Approval in the

form attached as Exhibit L to this Settlement Agreement, and (iii) jointly request the

District Court to enter an Order establishing procedures for notice to the Class Members

for Final Approval, and other procedures appropriate for obtaining Court Approval of this

Settlement Agreement.

5.3 Reasonable Best Efforts. The Parties agree to make reasonable best

efforts to do all things reasonably necessary to secure Preliminary Approval and Final

Approval of this Settlement Agreement by the District Court at the earliest possible date

and to effectuate immediately such Court Approval, if granted; provided that the foregoing

shall not require Defendant BP to provide any additional consideration (excepting the

Administrative Expenses) or to take or forebear from taking any action for the benefit of the

Class Members. The Settling Parties specifically agree to cooperate and share information

reasonably available in the ordinary course of business and calculated to locate Class

Members or their lawful successors or assigns and to calculate payments pursuant to the

Plan of Allocation.

5.4 Termination. If the substance of this Settlement Agreement or a material

provision of the Settlement Agreement does not receive Final Approval or is materially

modified by the District Court, then Class Counsel, any Class Representative or Defendant

BP may, at his, her or its option, declare the Settlement Agreement null and void by written

notice to the District Court and to counsel for the other parties filed and served within ten

24

(10) business days of the entry of an order not granting District Court approval or Final

Approval or having the effect of disapproving or materially modifying the terms of the

Settlement Agreement. If this Settlement Agreement is terminated pursuant to this Section

5.4, or for any other valid reason under this Settlement Agreement, then the New

Settlement Funds shall be returned to Defendant BP by the Settlement Administrator and

the Parties will be restored to their respective positions in the Action as of the date of this

Settlement Agreement. In that event, the litigation will proceed as if this Settlement

Agreement had never been executed, and this Settlement Agreement and

representations made in conjunction with this Settlement Agreement may not be used

in the Action or otherwise for any purpose. Except for termination of the settlement as

set forth in above, no portion of the corpus of the New Settlement Funds or the interest

thereon shall be returned to Defendant BP. The funds and interest thereon shall be

disbursed pursuant to the terms of the Settlement Agreement and the Plan of

Allocation.

5.5 Stay. The Parties agree that all proceedings other than those directed

toward settlement of this action shall be held in abeyance.

5.6 Class Notice of Settlement; Objections. In accordance with the settlement

approval provisions of Rule 1-023 NMRA, the Class Settlement Notice and publication of

the Publication Notice (along with a website link to this Settlement Agreement, exhibits and

the First Notice) shall be provided to all Class Members by the Settlement Administrator.

Any Class Member may object to the Settlement by filing a written objection with the District

Court and mailing it to Class Counsel and to Defendant BP's Counsel, by first-class mail

postmarked no later than fifteen (15) calendar days prior to the Final Fairness Hearing. The

objection must set forth: (a) an identification of the action, e.g. Ideal v. BP America

25

Production Company; (b) the Class Member’s full name, address, (c) information sufficient

to identify the Class Member’s ownership interest; and (d) in clear and concise terms, the

legal and factual arguments supporting the objection.

5.7 Allocation and Distribution. To the extent practicable and consistent with

the principle that only actual Class Members should be paid, the distribution of the Net

Settlement Amount will be made in accordance with the procedures to be set forth in the

Settlement Agreement and Plan of Allocation, subject to approval by the District Court.

The Plan of Allocation, when approved by the District Court shall govern distribution of the

Net Settlement Amount.

5.8 Sole Recourse. Except as otherwise provided in this agreement, all

approved payments to Eligible Class Members, Class Representatives, Class Counsel, and

any other payments in connection with this Settlement, after the Effective Date, shall be

paid exclusively from the New Settlement Funds. This provision shall not be construed to

preclude Class Counsel from applying for an attorneys’ fee award from the New Settlement

Funds based on 33 1/3% of the Prior Settlement Funds. With the exception of

Administrative Expenses and Future Royalty Payment Methodology, in no event shall

Defendant BP be liable for any payment other that the $55 million payment. The sole

recourse of any person claiming any payment from the Settlement, any right to payment

under or in any way related to this Agreement or to any matter related in any way to the

Released Claims including, without limitation, Class Members, Class Counsel, or any

person claiming by, through, or on behalf of any of the foregoing, or any costs of litigation or

resulting from a dispute among the Eligible Class Members regarding the distributions of

the Settlement Amount shall be against the Escrow Account.

26

5.9 Termination; Refunds. If any Party terminates this Settlement Agreement

pursuant to Section 5.4 of this Settlement Agreement, if this Settlement Agreement is

terminated by the District Court or if the Settlement Agreement does not receive Final

Approval, then (i) the balance of the New Settlement Funds in the Escrow Account shall be

returned immediately to Defendant BP by wire transfer of good funds, as further described

in the Escrow Agreement, and (ii) Defendant BP shall not be entitled to any refund of funds

already expended for Administrative Expenses, if any. Except for a termination, the entire

balance of the New Settlement Funds and interest thereon shall be disbursed pursuant to

the terms of this Settlement Agreement and the Plan of Allocation.

SECTION 6.0 -- RELEASE IN FAVOR OF DEFENDANT BP.

Upon the later to occur of Final Approval, expiration of the time for the Parties to

exercise their termination rights without the Parties exercising their termination rights and

deposit by Defendant BP of the Settlement Amount into the Escrow Account, the Class

Representatives and each Class Member shall be conclusively deemed to have fully,

finally, completely, irrevocably, unconditionally and forever released and discharged

Defendant BP from liability on and for all of the Released Claims. Such release will be

effective as of the date of Final Approval. Excluded from the Released Claims are the

Reserved Claims.

SECTION 7.0 -- DISMISSAL.

In connection with the motion for Final Approval, Class Counsel shall provide to

Defendant BP's counsel a Final Order that includes an order dismissing with prejudice the

Released Claims. The proposed order of dismissal shall dismiss all Released Claims (but

not the Reserved Claims) in the Action with respect to Defendant BP with prejudice and

such order of dismissal will extinguish any liability of Defendant BP with respect to such

27

Released Claims.

SECTION 8.0 -- NO ADMISSION OF LIABILITY.

This Settlement Agreement represents the proposed settlement of disputed claims

and does not constitute, nor shall it be construed as, an admission of the correctness of any

position asserted by any party, nor an admission of liability or of any wrongdoing by any

party or as an admission of any strengths or weaknesses of the claims of the Plaintiffs or

Defendant BP's defenses, nor evidence of custom and practice in the oil and gas industry.

In addition, this Settlement Agreement, nor any statement, transaction or proceeding in

connection with the negotiation, execution, or implementation of the MOU or the Settlement

Agreement will be intended to be or construed as or deemed to be evidence of an

admission or concession by Defendant BP of any liability or wrongdoing or of the truth of

any allegations against Defendant BP, of any evidence that Defendant BP accedes in

certification of a class for purposes other than settlement, and none of them shall be

admissible in evidence for any such purpose in any proceeding.

The Settling Parties agree that, except as agreed to herein, this settlement in no way

impairs the Class Members’ rights to future royalties or overriding royalties from the

production of oil or gas from their respective Royalty Interests.

SECTION 9.0 – MISCELLANEOUS.

9.1 Confidentiality. Except to alert the District Court of the need to schedule a

hearing on the preliminary approval of this settlement, no Party shall initiate any publicity

relating to or making any public comment regarding this Agreement or settlement until the

District Court has issued the Preliminary Approval Order.

9.2 Public Statements. Defendant BP will have the ability in its sole discretion

to approve or reject any press releases, notices or any other public statements that may be

28

made by Class Counsel and the Class Representatives relating in any way to the MOU or

the Settlement Agreement. Class Counsel and the Class Representatives will have the

ability in their sole discretion to approve or reject any press releases, notices or any other

public statements that may be made by Defendant BP relating in any way to the MOU or

the Settlement Agreement. Public statements do not include briefs or filings with the

District Court in connection with seeking Preliminary Approval, Final Approval or District

Court oversight and administration of the settlement or filings with or disclosures to any

governmental agency.

9.3 Jurisdiction; Governing Law. The District Court shall retain exclusive and

continuing jurisdiction with respect to implementation and enforcement of the terms and

conditions of this Settlement Agreement, for the sole purpose of assuring that all benefits

hereunder are properly provided, and all Parties to this Settlement Agreement submit to the

jurisdiction of the District Court for such purposes. This Settlement Agreement shall be

interpreted and enforced under and in accordance with the laws of the State of New

Mexico. To avoid doubt, the District Court does not have or retain jurisdiction over any

Reserved Claim other than the Reserved Claim set forth in Section 1.33(E).

9.4 Authority. Each Party represents (a) that he, she or it has authority to enter

into this Settlement Agreement, (b) that the signatory below signing on his, her or its behalf

is authorized to sign on behalf of such Party for which he or she has signed, subject to

Final Approval of this Settlement Agreement by the District Court and (c) assuming the due

authorization, execution, and delivery of this Settlement Agreement by the other Parties,

this Settlement Agreement constitutes the legal, valid, and binding obligations of such

Party, enforceable against such Party in accordance with its terms.

9.5 Binding Agreement. This Settlement Agreement shall be binding upon and

29

inure to the benefit of the Parties’ successors and assigns. Neither this Settlement

Agreement nor any of the rights, interests, or obligations hereunder shall be assigned, in

whole or in part, by any of the Parties without the prior written consent of each of the other

Parties, other than an assignment by will or by the laws of descent and distribution, and

any attempted assignment in violation of this provision shall be null and void.

9.6 Enforcement. The Parties agree and intend that this Settlement Agreement

is binding and fully enforceable and that, once signed by all Parties with appropriate

authority, no Party may withdraw or seek to alter the material terms of this Settlement

Agreement, except as authorized under Section 5.4, above.

9.7 Non-Disparagement. Neither Settling Party will knowingly disparage the

litigation or the settlement, the application for attorney fees or the application for incentive

awards. Defendant BP will take no position regarding Class Counsel's proposed fee and

expense application, proposed incentive awards or the proposed Plan of Allocation.

9.8 Reliance. The Plaintiffs' willingness to enter into this Settlement is, in part,

made in reliance upon the accuracy of the data and other information Defendant BP has

provided during discovery in the Action. The data and information Defendant BP has

provided during discovery in the Action to Class Counsel and experts engaged by Plaintiffs

is the same data and information that Defendant BP has provided to its own experts

engaged in connection with the Action. Defendant BP represents that to the best of its

knowledge the information it has provided is accurate.

9.9 Nature of Settled Claims. The Settling Parties expressly recognize that the

Settlement Amount does not include any payments for the adjustment to the value, price or

volumes of the CBM from the Fruitland formation underlying the San Juan Basin of New

Mexico from which deductions were taken from the royalties and overriding royalties due to

30

the Class Members.

9.10 Counterparts. This Settlement Agreement may be executed in

counterparts, each of which is hereby deemed an original, but all of which together shall

constitute one and the same instrument.

9.11 Entire Agreement. This Settlement Agreement and the exhibits hereto

(the “Exhibits”), constitute the entire agreement and obligation between and among the

Parties with respect to the claims and defenses in the Action and Released Claims, and

supersede all prior oral and written settlement negotiations, agreements,

understandings, discussions and communications between and among the Parties with

respect to the subject matter hereof, and specifically replace and supersede the MOU.

Except for this Settlement Agreement and the Exhibits, there are no other warranties,

representations, covenants, promises, undertakings or understandings by or among the

Parties to this Settlement Agreement related in any way to the Settlement. Any

modification or waiver of, deletion or addition to the terms of this Settlement Agreement

must be in writing, mutually agreed upon, signed by or on behalf of all Parties or their

successors in interest and approved by the District Court in this Action.

9.12 Incorporation by Reference. All of the Exhibits are material and integral

parts of this Settlement Agreement and are fully incorporated herein by reference.

9.13 Advice of Counsel. Each Party acknowledges that he, she or it has been

and is being fully advised by competent legal counsel of such Party’s own choice and

fully understand the terms and conditions of this Settlement Agreement, and the

meaning and import thereof, and that such Party’s execution of this Settlement

Agreement is with the advice of such Party’s counsel and of such Party’s own free will.

9.14 Construction. The provisions of this Settlement Agreement shall, where

31

possible, be interpreted in a manner to sustain their legality and enforceability.

9.15 No Further Accounting or Readjustment. Except as provided in this

Settlement Agreement, Defendant BP shall not be required to retroactively account, adjust,

make prior period adjustments, or provide amended check stub or royalty remittances for

the payments to be made to the Class Members pursuant to the Plan of Allocation.

Defendant BP agrees that it will not attempt to reduce or recapture the New Settlement

Funds through any subsequent recalculations or adjustments of Class Members' royalty

payment accounts. Defendant BP agrees that it will not attempt to reduce or recapture

those Prior Settlement Funds from the Same as Fed Class Members and that the Prior

Settlement Funds shall not be subject to recalculation by Defendant BP. However,

Defendant BP shall be allowed to take prior period adjustments, both favorable and

unfavorable, as volumes or prices may be revised in the normal course of business.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

32

THIS SETTLEMENT AGREEMENT has been executed by the undersigned as of

______________, 2015.

NAMED PLAINTIFF:

__________________________ Phillis Ideal

NAMED PLAINTIFF:

__________________________ Collins Partners, Ltd. By: Michael Collins

APPROVED: ______________________________ Charles R. Peifer Robert E. Hanson Matthew R. Hoyt PEIFER, HANSON & MULLINS, P.A. Post Office Box 25245 Albuquerque, NM 87125-5245 Telephone: (505) 247-4800 THE EAVES LAW FIRM, P.A. John M. Eaves Post Office Box 35670 Albuquerque, NM 87176-5670 Telephone: (505) 888-4300 SUTIN, THAYER & BROWNE, P.C. Derek V. Larson Post Office Box 1945 Albuquerque, NM 87103-1945 Telephone: (505) 883-3371 MARY E. WALTA, P.C. Mary E. Walta P.O. Box 32958 Santa Fe, NM 87594-2958 Telephone: (505) 983-6269 Counsel for Plaintiffs and the Class

33

BP AMERICA PRODUCTION COMPANY: By: __________________________

Name: _______________________

Title: ________________________

APPROVED: ____________________________________ Scott S. Barker WHEELER TRIGG O’DONNELL LLP 370 Seventeenth Street, Suite 4500 Denver, Colorado 80202 Telephone: (303) 244-1800 barker@wtotrial.com HOLLAND & HART, LLP Bradford C. Berge Adam G. Rankin Post Office Box 2208 Santa Fe, New Mexico 87504-2208 Telephone: (505) 988-4421 bberge@hollandhart.com agrankin@hollandhart.com HOLLAND & HART, LLP Christopher A. Chrisman 555 17th Street, Suite 3200 Denver, Colorado 80202-3979 Telephone: (303) 295-8013 cachrisman@hollandhart.com Attorneys For Defendant BP