Exhibit 10.1

 

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Samson

 

Suite 1900
1301 Travis Street
Houston, TX 77002, USA
713/751-9000 (main line)
713/751-8884 (fax line)

 

January 14, 2003

 

Challenger Minerals Inc

 

Reef Global Energy I, L.P.

15375 Memorial Drive, Suite G200

 

1901 N. Central Expressway, Suite 300

Houston, Texas 77079

 

Richardson, Texas 75080

Attn:    Mr. Ron Symecko

 

Attn:    Mr. Walt Dunagin

 

Re:                               Participation Agreement – OCS-G 23948

Grand Isle Area, Block 27

Offshore Louisiana

 

Gentlemen:

 

When executed by all Parties hereto in the manner provided below, this letter
shall evidence the agreement (“the Agreement”) between Samson Offshore Company,
hereinafter referred to as “SOC”, Challenger Minerals Inc., hereinafter referred
to as “CMI” and Reef Global Energy I, L.P., hereinafter referred to as “Reef”
(CMI and Reef shall sometimes be referred to individually as “Participant” and
collectively as “Participants” and all of the above parties shall sometimes
herein be referred to collectively as “the Parties” and sometimes individually
as “Party”) with respect to (1) Participant’s purchase from SOC of an undivided
interest in and to the Oil & Gas Lease described on Exhibit “A” attached hereto
and made a part hereof (the “Lease”) and (2) Participant’s participation in the
drilling of a Test Well, as defined in paragraph 4 hereof, on the Lease in the
manner hereinafter described.

 

1.                                       PURCHASE AND SALE

 

Effective as of the date of execution herein by all Parties, and for the
consideration set forth below, SOC hereby sells and conveys and Participants
hereby purchases in the undivided percentages indicated below the following
interest in the Lease (the “Assigned Interest”):

 

CMI

 

5.0% of 8/8ths

 

REEF

 

1.5% OF 8/8THS

 

 

The Assigned Interest is subject to its proportionate part of the burdens set
forth in paragraph 6 hereof and to the Joint Operating Agreement attached hereto
as Exhibit “B” (the “JOA”).

 

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2.                                       CONSIDERATION

 

Within: two (2) business days of receipt of the fully executed Ratification
Letter Agreement (attached hereto as Exhibit “D”), Participants shall remit to
SOC, as consideration for the Assigned Interest, the following:

 

(i)                                     From the CMI, the sum of $109,691.86
representing 5% of all costs paid by Samson for the Assigned Interest
attributable to the Lease acquisition, permits and regulatory filings (“Least
Costs”), and an executed original of the Authority for Expenditure (“AFE”) for
the Test Well, attached hereto as Exhibit “C”.

 

(ii)                                  From Reef, the sum of $32,907.56
representing 1.5% of all costs paid by Samson for the Assigned Interest
attributable to the Lease acquisition, permits and regulatory filings (“Lease
Costs”), and an executed original of the Authority for Expenditure (“AFE”) for
the Test Well, attached hereto as exhibit “C”.

 

3.                                       JOINT OPERATING AGREEMENT

 

Subject to the provisions herein, all operations on the Lease, including the
drilling of the Test Well as provided in Section 4 below, will be governed by
the terms of the JOA, which names Gryphon as Operator. In the event of a
conflict between the JOA and this Agreement, the terms of this Agreement shall
prevail. By execution of this Agreement, Participants do hereby join in and
ratify such JOA and the parties hereby agree to modify the JOA where necessary
to reflect the participation by Participants as a non-operator under said JOA.
If required Participants agree to promptly comply with any regulatory
requirements required for such participation in the Lease or Test Well.

 

4.                                       TEST WELL

 

Participants agrees to participate with Gryphon in the drilling of the OCS-G
23948 Well # 1 being the initial well on the Lease to be drilled as a straight
hole to a total depth of 13,000’ TVD or a depth sufficient to fully evaluate the
“Disc 12 Sand” (D-2sd) as defined in the El Paso OCS-G 18063 (GI 28) No. 1 Well
from 12,510’ MD (top) to 12,610’ MD (base), whichever is less (“Objective
Depth”) with a surface and bottom hole location of 7,061’ FSL and 4,435’ FEL of
Grand Isle Area, Block 27 (the “Test Well”). CMI agrees to pay 6.66666% and Reef
agrees to pay 2% of the cost and expense of drilling the Test Well to the
Objective Depth, which shall include, but not be limited too, the actual costs
incurred in drilling, logging and completing all approved testing operations in
the Test Well, until the earlier to occur of the following: i) the actual costs
of such operations exceeds the AFE; or ii) the Test Well reaches the Objective
Depth, approved logging and testing operations have been completed, and a
recommendation is made to run casing or plug and abandon the same. Thereafter,
CMI’s share of costs with respect to the Test Well and the Lease shall be
reduced from 6.66666% to 5% and Reef’s share shall be reduced from 2% to 1.5%.

 

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5.                                       SUBSTITUTE WELL

 

If, after commencing the Test Well, but before reaching the Objective Depth,
there should be encountered conditions or formations, whether natural or
mechanical, which render further drilling of the Test Well either impossible or
impractical, and as a result operations on the Test Well are permanently
abandoned, a Substitute Well may be commenced no later than 90 days following
the abandonment of the Test Well. A proposal to sidetrack the Test Well around
an obstruction in the wellbore shall not be considered a Substitute Well but a
continuation of the Test Well, unless the targeted bottom hole location of the
sidetracked well is more than 200’ from the original proposed bottom hole
location. Any Substitute Well proposal shall include the estimated costs to
drill the same to the original Objective Depth in the Test Well. CMI and Reef
shall have the right and option to elect not to participate in a Substitute
Well, if proposed, however, failure to participate shall result in a forfeiture
of interest inthe Lease and the Test Well without reimbursement of costs
incurred prior to such election. The time period in which both CMI’s and Reef’s
election to participate in a substitute shall be governed by the election
provisions in the Joint Operating Agreement. If such Substitute Well is timely
commenced and either CMI and/or Reef participates, the Substitute Well shall be
considered and deemed for all purposes under this Agreement to be the Test Well
including, without limitation, the apportionment among the Parties of the costs
and expenses incurred in connection therewith pursuant to Section 4.

 

6.                                       ASSIGNMENT OF INTEREST

 

SOC shall provide Participants with an executed assignment of the Assigned
Interest upon receipt by SOC of payment of the Lease costs set forth above. Said
Assignment shall be without warranty of title except as to claims by, through or
under SOC and shall be made expressly subject to the terms and provisions of
this Agreement and the attachments hereto. Participants shall bear its
proportionate share of (i) Lease royalty, (ii) a 1% of 8/8ths overriding royalty
interest in favor of Gryphon, provided, however, the net revenue interest to be
delivered in such assignments of interest stall not be less than 82.33333%, for
a proportionally reduced total net revenue interest of 4.11666% of 8/8ths for
CMI, and 1.235% of 8/8ths for Reef, iii) the “Discovery Bonus” as setout and
defined in section 4.6(d) in the 2000 Program Agreement by and between Cheniere
Energy, Incorporated (now Gryphon Exploration Company) and Samson Offshore
Company.

 

7.                                       NOTICES

 

All notices provided for in this Agreement shall be in writing and deemed
received seventy-two (72) hours after deposited in the U.S. Mail. Where an
election is required, all notices shall be delivered by certified U.S. mail,
return

 

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receipt requested, telecopy, or overnight courier or messenger with receipt
confirmation, to:

 

SAMSON OFFSHORE COMPANY

1301 Travis, Suite 1900

Houston, Texas 77002

Attention:  Mr. Sonny Measley

Phone:  (713) 577-2011

FAX:      (713) 577-2211

 

WITH A COPY TO

 

SAMSON OFFSHORE COMPANY

Two West Second Street

Tulsa, OK

Attention:  Mr Jack Canon

Phone:  (918) 591-1009

Fax:      (918) 591-1718

 

CHALLENGER MINERALS INC

15375 Memorial Drive

Houston, Texas 77079

Attention:  Mr. Ron Symecko

Phone:           (281) 925-7220

Fax:                           (281) 925-7280

 

REEF GLOBAL ENERGY I, L.P.

1901 N. Central Expressway, Suite 300

Richardson, Texas 75080

Attention:  Mr. Wait Dunagin

Phone:  (972) 437-6792

Fax:      (972) 994-0369

 

Each party shall have the right to chime its address at any time, and from time
to time, by giving written notice thereof to the other Parties.

 

8.                                       SUCCESSORS AND ASSIGNS

 

This Agreement and the transfer or retransfer of an interest in the rights
hereto shall inure to the to the benefit of and be binding upon the heirs,
successors and assigns of the Parties hereto; provided, however, Participants
may not transfer or assign in whole or in part, its interest in this Agreement
without the prior written consent of SOC, which consent shall not be
unreasonably withheld.

 

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9.                                       CONFIDENTIALITY

 

Participants agree that the terms of this Agreement shall be deemed confidential
and shall not be revealed to any third party except (i) to the extent disclosure
may be required by law, including, without limitation, disclosures in
registration statements or other filings with the Securities and Exchange
Commission; (ii) disclosures in any judicial or alternative dispute resolution
proceeding concerning the terms hereof; and (iii) disclosures with the written
consent of SOC, which consent shall not be unreasonably withheld.

 

This Participation Agreement may be signed in counterparts, and shall be binding
upon the Parties and upon their successors, representatives and assigns.

 

Please acknowledge your agreement of the terms herein by executing one copy of
this Participation Agreement where provided below and returning the same to this
office no later than January 17, 2003. This Participation Agreement shall become
effective when fully executed by all Parties hereto.

 

SAMSON OFFSHORE COMPANY

 

 

/s/ Brian K. Ayers

 

By:

Brian K. Ayers

Title:

Vice President

 

AGREED TO AND ACCEPTED THIS 17th DAY OF JANUARY 2003.

 

CHALLENGER MINERALS INC

 

 

/s/ T.J. Morrow

 

By:

T.J. MORROW

Title:

PRESIDENT

 

AGREED TO AND ACCEPTED THIS            DAY OF JANUARY 2003.

 

REEF GLOBAL I, L.P.

 

 

/s/ Michael J. Mauceli

 

By:

Michael J. Mauceli

Title:

Managing Member

 

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EXHIBIT “A”

 

Attached to and made a part of that certain Participation Agreement dated
January 14, 2003, by and between Samson Offshore Company and Challenger Minerals
Inc., et al.

 

“LEASE”

 

Oil and Gas Lease dated June 1, 2002 from the United States Department of the
Interior, Minerals Management Service, as Lessor, to Gryphon Exploration Company
and Samson Offshore Company, as Lessee, covering all of Block 27, Grand Isle
Area, Offshore Louisiana, approximately 5000 acres more or less, and bearing
serial Number OCS-G 23948.

 

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EXHIBIT “B”

 

Attached to and made a part of that certain Participation Agreement dated
January 14, 2003, by and between Samson Offshore Company and Challenger Minerals
Inc., et al.

 

“JOINT OPERATING AGREEMENT DATED JUNE 1, 2002”

 

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EXHIBIT “C”

 

Attached to and made a part of that certain Participation Agreement dated
January 14, 2003, by and between Samson Offshore Company and Challenger Minerals
Inc., et al.

 

“AUTHORITY FOR EXPENDITURE”

 

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