Exhibit 10.2

 

December 16, 2002

 

Samson Offshore Company

 

Palace Exploration Company

Attn:  Mr. Sonny Measley

 

Attn:  Mr. Bob Zinke

 

 

1301 Travis, Suite 1900

 

1202 East 33rd St.

 

 

Houston, TX  77002

 

Tulsa, OK  74105-2048

 

 

 

 

 

 

 

Reef Global Energy I, L. P.

 

Fidelity Exploration & Production Company

Attn:  Mr. Walt Dunagin

 

Attn:  Mr. George Soulis

 

 

1901 N. Central Expressway, Ste. 300

 

1700 Lincoln, Ste. 4600

 

 

Richardson, TX  75080

 

Denver, CO  80203

 

 

 

 

 

 

 

Bright & Company I, Ltd.

 

Re:

 

Participation Agreement and

Attn:  Mr. Jack Carlile

 

 

 

Operating Agreement

4228 N. Central Expressway, Ste. 300

 

 

 

Main Pass 57 Prospect

Dallas, TX  75206-6345

 

 

 

Offshore, Louisiana

 

Gentlemen:

 

This Participation Agreement is made and entered into effective December 16,
2002, by and between Samson Offshore Company (“Samson”), Challenger Minerals
Inc. (“CMI”), Reef Global Energy I, L. P. (“Reef”), Bright & Company I, Ltd.
(“Bright”), Palace Exploration Company (“Palace”) and Fidelity Exploration &
Production Co. (“Fidelity”), CMI, Reef, Bright, Palace and Fidelity are
sometimes collectively referred to as “Participants” and the Participants and
Samson are sometimes collectively referred to as the “Parties.”  This
Participation Agreement sets forth below the terms and conditions whereby Samson
shall sell seventy-five percent (75%) interest in the S/2 of Main Pass 57
Prospect (OCS-G 19851), as approximately shown on Exhibit “A”, attached hereto
and made a part hereof, to Participants.

 

1.             SUBJECT LEASE

 

Samson represents, but does not warrant, that it is record title owner of 100.0%
working interest in and to that certain Oil and Gas Lease from the United States
of America, as Lessor, to Barrett Resources, as Lessee, effective as of July 1,
1988, identified in the office of The Minerals Management Service, Gulf of
Mexico OCS Region, as Oil and Gas Lease of Submerged Lands under the Outer
Continental Shelf Lands Act OCS-G 19851, describing the south half of Block 57,
Main Pass Area, as shown on OCS official Leasing Map, Louisiana Map No. 10,
being 2,497.275 acres, more or less, hereafter called the “Subject Lease.”

 

2.             CONSIDERATION AND ASSIGNMENT

 

Subject to the other terms and conditions of this Participation Agreement,
Samson agrees to sell and assign to Participants, an undivided seventy-five
percent (75.0%) working interest in and to the Subject Lease, which said working
interest shall be assigned to the Participants in the percentages opposite their
names:

 

Challenger Minerals Inc.

 

9.375

%

Reef Global Energy I, L.P.

 

4.6875

%

Bright & Company I, Ltd.

 

4.6875

%

Palace Exploration Company

 

23.4375

%

Fidelity Exploration & Production Co.

 

32.8125

%

 

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In consideration for the rights and interest to be assigned hereunder,
Participants agree to pay to Samson their respective shares of $370,016.78
representing actual leasehold bonus and rental costs, seismic/hazard survey,
overhead, geological and geophysical costs incurred in the prospect to date. 
Participants share in such costs in the following proportions:  CMI -
$37,001.68, Reef - $18,500.84, Bright - $18,500.84, Palace - $92,504.20 and
Fidelity - $129,505.87, and agree to pay unto Samson within ten (10) days after
spudding of the Test Well described below.  Within five (5) business days after
receipt of the referenced payment, Samson shall deliver to Participants a
proper, recordable assignment of the undivided working interests set forth in
this Section 2, in the form attached hereto as Exhibit “B”, all rights, title
and interests in and to the Subject Lease, free from any additional royalty and
overriding royalty burdens, except the Lessor’s royalty and the overriding
royalty interest set forth in Section 3.  Such assignment shall warrant title
by, through and under Samson, but not otherwise, and shall be subject to this
Participation Agreement and the applicable rules, regulations, or laws of the
federal agency or body having jurisdiction over the Subject Lease.  The Parties
hereto agree to execute such other instruments as may be necessary or convenient
to effectively convey the interest in the Subject Lease, transfer rights and
obligations as contemplated by this Participation Agreement and/or otherwise
effectuate the terms hereof.  In addition, the Parties shall reimburse CMI, as
Operator, for all costs incurred for regulatory approvals to drill the Test
Well, title opinions, or any other lease or legal costs necessary for the
drilling of the Test Well (“Other Costs”).

 

3.             LEASE BURDENS

 

The Subject Lease shall be delivered by Samson to Participants with total
royalty, overriding royalty and other burdens equal to 21.2734% of 8/8ths
interest, being a 78.7266% of 8/8ths net revenue interest.  Accordingly, the net
revenue interest of each party hereto shall be calculated as follows:  Samson –
25.0% of 78.7266% of 8/8ths, CMI – 9.3750% of 78.7266% of 8/8ths, Reef – 4.6875%
of 78.7266% of 8/8ths, Bright – 4.6875% of 78.7266% of 8/8ths, Palace – 23.4375%
of 78.7266% of 8/8ths and Fidelity 32.8125% of 78.7266% of 8/8ths.  The Parties
hereby agree to bear their respective proportionate shares of the aforementioned
lease burdens, as herein provided, and to execute applicable assignments
necessary to effectuate same.

 

4.             3-D SEISMIC REVIEW

 

To the extent permitted in its licensing agreement, CMI shall allow the parties
hereto the opportunity to review its geological and 3-D seismic data covering
the south-half (S 2) of Main Pass 57.

 

5.             TEST WELL

 

By executing this Participation Agreement, the Parties shall agree to join in
the drilling of a well on the Subject Lease in accordance with both the terms of
this Participation Agreement and of the Operating Agreement provided for in
Section 6 below.  The first well drilled on the Subject Lease by the Parties
shall be referred to herein as the “Test Well.”  CMI shall commence, or cause to
be commenced, operations for drilling the Test Well, as Operator under said
Operating Agreement, on or before January 15, 2003.  The Test Well shall be
drilled from and to presently permitted surface and bottom hole locations on the
Subject Lease to a depth sufficient to test the stratigraphic equivalent of the
8,100’ Sand as seen at a depth of 8,090’ MD in the electrical log from the Main
Pass 57 Total #1 Well (OCS-G 0702), or to a depth of 8,300’ TVD, whichever is
the lesser depth (“Objective Depth”).  Samson shall bear 20.0% of 8/8ths of the
costs to Casing Point and Participants shall bear 80% of 8/8ths, in the
proportions CMI  - 10% of 8/8ths, Reef – 5% of 8/8ths, Bright – 5% of 8/8ths,
Palace – 25% of 8/8ths and Fidelity – 35% of 8/8ths, of all cost of drilling the
initial Test Well to Casing Point (including shallow hazard data costs incurred
by Samson prior to the execution of this Agreement), and of the cost of plugging
and abandoning said Well if a completion attempt is not made.  Casing Point is
defined as the point in which the Well, substitute well or any exploratory
and/or development well has been drilled to its proposed Objective Depth, or
mutually agreed to lesser depth, and all test included in the approved Authority
of Expenditure

 

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(“AFE”), have been performed unless waived by mutual agreement of the Parties
and a recommendation is made by Operator to:  (i) set casing and complete the
well (ii) plug and abandon the well or (iii) conduct other operations as
provided for in the Offshore Operating Agreement referred to in Article 6
below.  Upon reaching Casing Point, all operations and elections pertaining to
the Test Well shall be governed by the Operating Agreement, with each
Participant’s rights under the Operating Agreement being based on its working
interest in the Subject Leases, as set forth above in Section 2, and Samson’s
rights being based on a 25.0% working interest.

 

An Authority for Expenditures (“AFE”) setting for the estimated costs of
drilling the Test Well to Casing Point under a turnkey drilling contract from
Applied Drilling Technology, Inc. (“ADTI”) (the “Drilling Contract”) is attached
hereto as Exhibit “C”.  Simultaneously with the return of this Agreement, the
Parties shall sign and return the AFE to CMI along with each their respective
share of their $1,803,000.00 dry hole cost set forth in said AFE.  The sharing
of such costs shall be Challenger - $180,300.00; Reef - $90,150.00; Bright -
$90,150.00; Palace - $450,750.00; Fidelity - $631,050; and Samson -
$360,000.00.  Payment may be made by check payable to Challenger Minerals Inc.,
P.O. Box 601077, Charlotte, NC  28260-1077 or by wire transfer to First Union
National Bank of North Carolina, Charlotte, NC, ABA #053000219, for credit to: 
Challenger Minerals Inc., Account # 2000000372011.

 

6.             OPERATING AGREEMENT

 

The parties hereto shall each execute and deliver to CMI the Memorandum of
Operating Agreement, Mortgage, Security Agreement, and Financing Statement as to
their respective interest, that is attached as Exhibit “D” hereto. 
Contemporaneously with the execution of this Participation Agreement, the
Parties shall execute the Offshore Operating Agreement attached hereto as
Exhibit “E” naming CMI as Operator therein.  In the event of a conflict between
this Participation Agreement and the Operating Agreement, this Participation
Agreement shall control.  As none of the Parties desire to operate the Subject
Lease subsequent to drilling and completing the Test Well, the Parties authorize
Palace Operating Company and/or Merit Energy Company to operate the Subject
Lease and Test Well should production be established thereon.

 

7.             PARTICIPANTS’ REPRESENTATIONS

 

Participants each represent and warrant that:

 

(a)                                  They are duly qualified or are in the
process of qualifying to hold interest in oil and gas leases covering interest
in the Gulf of Mexico Outer Continental Self where the Subject Lease lies.

 

(b)                                 They have all requisite power and authority
to carry on their business as presently conducted, to enter into this
Participation Agreement, to purchase the Subject Lease on the terms described in
this Participation Agreement and to perform their obligations hereunder.

 

(c)                                  They have complied with all bond coverage
requirements of the federal government necessary to hold the interest to be
assigned to them hereunder and have properly filed all instruments required by
the federal government as a prerequisite to holding an interest in an oil and
gas lease covering rights in the Gulf of Mexico Outer Continental Self.

 

(d)                                 They meet the citizenship and other
qualification criteria specified in Section 256.35 of 30 CFR Ch. II (7-1-99
Edition).

 

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8.                                      MISCELLANEOUS CONDITIONS

 

(a)                                  Participants shall be solely responsible
for all filings and recordings of documents and other costs related to the
Subject Leases and for all fees connected therewith, and Participants shall
advise Samson of the pertinent recording data.  Samson shall not be responsible
for any loss to Participants because of Participants’ failure to file or record
documents promptly.  Participants shall pay all applicable federal, state and
county sales or use taxes imposed on the transfer of the subject properties and
shall file all returns to the necessary authorities.

 

(b)                                 This Participation Agreement, and all
instruments executed in accordance with it shall be governed by and interpreted
in accordance with the laws of the State of Texas without regard to conflict of
law rules that would direct application of the laws of another jurisdiction.

 

(c)                                  The Parties hereto, singularly and plural,
warrant and agree that each shall use its best efforts to take or cause to be
taken all such actions, as may be necessary to consummate and make effective the
transaction contemplated by this Participation Agreement, including but not
limited to obtaining any required governmental or other approvals or consents,
and to assure that it will not be under any material, corporate, legal or
contractual restriction that would prohibit or delay the timely consummation of
such transaction.

 

(d)                                 All of the terms, covenants, and conditions
of this Participation Agreement shall be binding upon and inure to the benefit
of the parties hereto; their respective parents, subsidiaries, affiliates,
successors and assigns.  All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be deemed to be
validly given, made or served, if in writing, and delivered personally or sent
by courier service, telex, facsimile or certified mail to the address listed
below:

 

Samson Offshore Company
Attn:  Mr. Sonny Measley
1301 Travis, Suite 1900
Houston, TX  77002
Telephone:  (713) 577-2011
Fax:  (713) 751-8864
Email:  smeasley@samson.com

 

Bright & Company I, Ltd.
Attn:  Mr. Jack Carlile
4228 N. Central Exprwy, Ste. 300
Dallas, TX  75206-6345
Telephone:  (214) 559-9200
Fax:  (214) 559-0021
Email:  jack.carlile@brightco.com

 

 

 

Challenger Minerals Inc.
Attn:  Mr. Reagan Newton
15375 Memorial Dr., Suite G-200
Houston, TX  77079
Telephone:  (281) 925-7215
Fax:  (281) 925-7281
Email:  rhnewton@sbcglobal.net

 

Palace Operating Company
Attn:  Mr. Bob Zinke
1202 East 33rd St.
Tulsa, OK  74105-2048
Telephone:  (972) 743-5096
Fax:  (972) 743-5159
Email:  bzinke@ztienergy.com

 

4

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Reef Global Energy I, L.P.
Attn:  Mr. Walt Dunagin
1901 N. Central Exprwy., Ste. 300
Richardson, TX  75080
Telephone:  (972) 437-6792
Fax:  (972) 994-0369
Email:  walt@reefexploration.com

 

Fidelity Exploration & Production Company
Attn:  Mr. George Soulis
1700 Lincoln, Ste. 4600
Denver, CO  80203
Telephone:  (720) 931-6448
Fax:(303) 893-1964
Email:  george.soulis@fidelityepco.com

 

 

 

For copy purposes only send information to:

 

Samson Offshore Company
Attn:  Mr. Jack Canon
Two West Second Street
Tulsa, OK  74103-3123
Telephone:  (918) 583-1791
Fax:  (918) 591-1718

 

(e)                                  This Participation Agreement constitutes
the entire agreement between the Parties with respect to the transactions
contemplated herein, and supersedes all prior oral or written agreements,
commitments, understanding, or information otherwise furnished by Samson to
Participants with respect to such matters.  No amendment shall be binding unless
in writing and signed by representatives of each of the Parties.

 

(f)                                    In the event any party hereto commences
an action in a court of competent jurisdiction to enforce a right under this
Participation Agreement or commences an action for breach of any term or
provision of this Participation Agreement, then the prevailing party shall be
entitled to recover from the other party to said action any damages it has
incurred, together with any attorney’s fees and costs incurred by it as a result
of such action.

 

(g)                                 The Parties each represent and warrant to
the other that it has incurred no liability, contingent or otherwise, for
broker’s or finder’s fees in connection with this Participation Agreement or the
transactions contemplated by it for which the other party will have any
responsibility.

 

(h)                                 All representations, promises, agreements,
releases, and indemnities made in this Participation Agreement shall survive the
Closing.

 

9.                                      COUNTERPART EXECUTIONS

 

This Participation Agreement may be signed in counterparts and shall be binding
upon the Parties and upon their successors, representatives and assigns.  Each
Party may sign a counterpart copy of this Participation Agreement and extra
signature pages.  The extra sets of signature pages may be inserted into the
other Parties’ counterpart copy so as to create a composite, which will have the
same effect as if all Parties signed the same Participation Agreement.

 

This Participation Agreement is executed by the Parties effective as of the date
first above written (“Effective Date”).

 

5

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Sincerely,

 

CHALLENGER MINERALS, INC.

 

 

 

 

/s/ T.J. Morrow

 

 

By:

T. J. Morrow

 

 

Title:

President

 

 

 

AGREED TO AND ACCEPTED THIS 31st day of December, 2002,

 

BRIGHT & COMPANY I, LTD. By H.G.G., Inc.,

 

General Partner

 

 

 

 

/s/ Clark N. Bright

 

 

By:

Clark N. Bright

 

 

Title:

President

 

 

 

 

 

 

AGREED TO AND ACCEPTED THIS 30th day of December, 2002.

 

REEF GLOBAL ENERGY I, L.P.

 

 

 

 

/s/ Michael J. Mauceli

 

 

By:

Michael J. Mauceli

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

AGREED TO AND ACCEPTED THIS 23rd day of December, 2002.

 

SAMSON OFFSHORE COMPANY

 

 

 

 

/s/ J.A Canon

 

 

By:

J.A. Canon

 

 

Title:

Sr. Vice President

 

 

 

 

 

 

AGREED TO AND ACCEPTED THIS 23rd day of December, 2002.

 

FIDELITY EXPLORATION & PRODUCTION COMPANY

 

 

 

 

/s/ Darwin Subart

 

 

By:

Darwin Subart

 

 

Title:

President

 

 

 

 

 

 

AGREED TO AND ACCEPTED THIS 20th day of December, 2002.

 

PALACE EXPLORATION COMPANY

 

 

 

 

/s/ Robert M. Zinke

 

 

By:

Robert M. Zinke

 

 

Title:

Vice President

 

 

 

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