THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT

Exhibit 10.17

THIRD AMENDMENT TO

PURCHASE AND SALE AGREEMENT

WHEREAS Castex Energy, Inc., Castex Energy 1995, L.P., Browning Oil Company, Inc., Flare Resources Inc., J&S Oil & Gas, LLC, Kitty Hawk Energy, L.L.C. and Rabbit Island, L.P. (collectively, “Sellers”) and Energy XXI Gulf Coast, Inc. (“Buyer”; and with Sellers, the “Parties”) did enter into that certain Purchase and Sale Agreement dated June 6, 2006, but effective June 1, 2006, as previously amended, (collectively, the “PSA”); and

WHEREAS it is the desire of the Parties to amend and supplement certain provisions thereof in connection with the Closing thereunder, which is occurring contemporaneously with the execution and delivery of this Third Amendment to Purchase and Sale Agreement (this “Third Amendment”); and

WHEREAS capitalized terms used but not defined in this Third Amendment have the same meaning as set forth in the PSA;

NOW, THEREFORE, in consideration of the mutual benefits and consideration set forth herein and other valuable cause and consideration, the Parties hereby agree as follows:

1. Exhibit A to the PSA is hereby replaced with Exhibit 1 to this Third Amendment.

2. Exhibit B to the PSA is hereby replaced with Exhibit 2 to this Third Amendment.

3. Exhibit W to the PSA (the Transition Agreement), Exhibit X to the PSA (the Exploration Agreement) and Exhibit Y to the PSA (the Lake Salvador Participation Agreement) are hereby amended to conform to the corresponding agreements executed contemporaneously herewith.

4. The Parties acknowledge that the Property Instruments listed on Exhibit A to the PSA and the Contracts listed on Exhibit E to the PSA do not cover the Sunrise, Southdown or Houma South prospects. Instead, contemporaneously herewith or earlier but effective as of June 1, 2006, (a) Castex Inc., Flare, J&S and Buyer have executed that Participation and Option Agreement [for the] Sunrise and Southdown Prospects (covering the area depicted on Exhibit 3 to this Third Amendment) with a related Assignment of Oil and Gas Lease [for the] Sunrise Prospect and a related joint operating agreement and (b) Castex Inc., Flare and Buyer have executed that Participation Agreement [for the] Houma Prospect (sometimes referred to in the PSA as Houma South and covering the area depicted on Exhibit 4 to this Third Amendment) with a related Assignment of Oil and Gas Leases [for the] Houma Prospect and a related joint operating agreement.

5. In lieu of the execution of a JOA for the area depicted on Exhibit P-2 and Exhibit P-7 of the PSA under Sections 7.04(a)(5) and 7.04(b)(5) of the PSA, (a) the applicable Sellers (Castex Inc. and/or Castex 1995) and Buyer shall execute and join in a joint operating agreement to be prepared by Apache Corporation for the Laterre 303 (formerly 302) well in the Golden

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Meadow field; (b) the applicable Sellers (Castex Inc. and/or Castex 1995) and Buyer shall execute and join in a joint operating agreement to be prepared by Apache Corporation for the LL&E 231 well in the Golden Meadow field; (c) Castex Inc., Castex 1995 and Buyer are executing contemporaneously herewith a joint operating agreement for the Laterre 234 and 235 wells and Authement 1 well at the North Golden Meadow field; and (d) Buyer ratifies the joint operating agreement referenced in paragraph 6(d) below.

6. Without limiting its obligations as to Assumed Obligations, Buyer hereby ratifies the following existing joint operating agreements: (a) that joint operating agreement dated June 1, 2005 by and between Castex Inc., J&S, Flare, CL&F Resources LP and Empire Energy Corporation for the Barataria Bay field; (b) that joint operating agreement by and between Castex Inc., as Operator, and Blue Moon Exploration Company and others for the Sabine Lake Field; (c) that joint operating agreement dated May 16, 2006 by and between Energy Partners Ltd., Apache Corporation and Castex Inc. for the East Lake Boudreaux [Barracuda] Prospect; (d) that joint operating agreement dated August 1, 2006 by and between Castex Inc. and Chevron U.S.A. Inc. for a portion of the Rabbit Island field; and (e) all other existing participation agreements and operating agreements applicable to any of the Properties.

7. The Parties acknowledge and agree that the sole Upward Adjustments are as set forth in the letter dated July 21, 2006 from Castex Inc. to Buyer and signed by Buyer on July 25, 2006 and that there are no Defect Adjustments or Downward Defect Adjustments.

8. The Parties acknowledge that the full name of J&S is mistyped in the original PSA and that its correct name is “J&S Oil & Gas, LLC”. The PSA is modified accordingly to reflect this correct spelling. J&S Oil & Gas, LLC acknowledges that it is a party to the PSA and ratifies the PSA as amended hereby.

9. The Parties acknowledge that written Consents have not been received for the following three leases in the Orange Grove [Bayou Black] Field in Terrebonne Parish (which collectively cover less than 25% of the unit known as the HLYWD 1 RB SUA created by State of Louisiana Office of Conservation Order No. 824-B-13 dated effective December 6, 2005):

In lieu of the provisions in Section 5.03(d)(4) of the PSA, the Parties agree that the Closing Amount shall not be reduced by reason of such non-Consent. The Parties acknowledge their belief and position that the failure of these lessors to deliver such Consents is unreasonable under the circumstances, where each such lease provides that any such Consent shall not be unreasonably withheld. Nonetheless, in an effort to amicably resolve these lessors’ concerns, the Parties further agree to make diligent efforts to obtain such Consents; however, Sellers shall not agree to any amendment of any such lease without Buyer’s consent, which shall not unreasonably withheld. The applicable Sellers (Castex Inc., Castex 1995, Flare and J&S) and Buyer agree that such Sellers shall not encumber or convey any such lease; that, upon Buyer’s

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request, such Sellers shall promptly assign their interests in such leases to Buyer; and that, solely as between themselves pending any such assignment to Buyer as to any such lease, Buyer shall be treated as the beneficial owner of such Sellers’ interests in such lease so that Buyer receives such Sellers’ net share of production allocable to such lease.

10. The Parties acknowledge that Chevron U.S.A. Inc. (“Chevron”) has certain discretion whether to accept the bond that Buyer is delivering contemporaneously herewith under Section 7.04(b)(7) of the PSA. In the event that Chevron for any reason does not accept such bond and release in its entirety the current bond referenced on Exhibit S to the PSA, then Buyer shall promptly, upon written request of Castex Inc., deliver to Castex Inc. a substitute bond naming Castex Inc. as the obligee thereunder.

11. Item (i) of Exhibit H of the PSA is amended to read as follows:

(i) an undivided 38.8889% of all right, title and interest of Castex Inc., Castex 1995 or Rabbit in and to the Property Instruments under Part V of Exhibit A with respect to the Rabbit Island Field INSOFAR AND ONLY INSOFAR as such Property Instruments cover the geographic area shown outlined in red on the plat attached hereto as Exhibit P-7 limited as to those depths at or below one hundred feet (100’) below the base of the 20 Sand, as such sand is described in the State of Louisiana Department of Conservation Order No. 726-G.

Item (3)(b) of Exhibit U of the PSA is amended to read as follows:

(b) With respect to the Property Instruments under Part V of Exhibit A with respect to the Rabbit Island Field INSOFAR AND ONLY INSOFAR as such Property Instruments cover the geographic area shown outlined in red on the plat attached hereto as Exhibit P-7 limited as to those depths at or below one hundred feet (100’) below the base of the 20 Sand, as such sand is described in the State of Louisiana Department of Conservation Order No. 726-G, the Applicable Percentage for each such Seller shall equal an undivided 61.1111% of such Seller’s right, title and interest therein and thereto.

12. All other terms and conditions of the PSA remain as written and are incorporated herein by reference.

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IN WITNESS WHEREOF, each of Buyer and Sellers has executed this Third Amendment to Purchase and Sale Agreement in the presence of the undersigned competent witnesses on July 27, 2006.

SELLERS:

BUYER:

Witnesses to all signatures above:

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Acknowledgments

STATE OF TEXAS

COUNTY OF HARRIS

Before me, the undersigned Notary Public in and for the jurisdiction listed above, appeared John R. Stoika, who, upon being duly sworn by me, did state that he is the duly authorized President of Castex Energy, Inc., a Texas corporation that is general partner of Castex Energy 1995, L.P., a Texas limited partnership, and Rabbit Island, L.P., a Texas limited partnership, and also is agent and attorney-in-fact of Browning Oil Company, Inc., a Texas corporation; Flare Resources Inc., a Texas corporation; J&S Oil & Gas, LLC, a Texas limited liability company; and Kitty Hawk Energy, L.L.C., a Louisiana limited liability company, and did sign the foregoing instrument on behalf of each such entity as the free act and deed of each such entity for the purpose and consideration therein stated.

GIVEN MY HAND AND SEAL OF OFFICE this 27th day of July 2006 in the aforesaid jurisdiction.

STATE OF TEXAS

COUNTY OF HARRIS

Before me, the undersigned Notary Public in and for the jurisdiction listed above, appeared John D. Schiller, Jr., who, upon being duly sworn by me, did state that he is the duly authorized Chairman and CEO of Energy XXI Gulf Coast, Inc., a Delaware corporation, and did sign the foregoing instrument on behalf of said corporation as the free act and deed of said corporation for the purpose and consideration therein stated.

GIVEN MY HAND AND SEAL OF OFFICE this 27th day of July 2006 in the aforesaid jurisdiction.

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Exhibit 1 to Third Amendment to Purchase and Sale Agreement

Property Instruments

Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit A (as Amended)

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Exhibit 2 to Third Amendment to Purchase and Sale Agreement

ROWs