Exhibit 10.3

 

CORPORATE OFFICE

 

 

 

DIVISION OFFICE

500 DOVER BLVD., STE. 310
LAFAYETTE, LOUISIANA 70505
TELEPHONE:  (337) 984-2603
FAX:  (337) 984-1082
WEBSITE:  HTTP://WWW.PEIINC.COM
EMAIL:
PEI@PEIINC.COM

 

[LOGO]

 

SUITE 500
5850 SAN FELIPE
HOUSTON, TEXAS 77097
TELEPHONE:  713-975-1971

 

 

MARCH 21, 2003

Mike Mauceli
Reef Exploration, Inc.
1901 Central Expressway
Suite 300
Richardson, TX 75080

 

 

Bruce Jordan
Stokes & Spiehler, Inc.
111 Rue Jean Lafitte
Lafayette, LA 70508

 

 

Re:                               St. Mary Energy Co.; Matthew J. Guidry et al
#1 Well (“Well”)(1) Erath Prospect (“Prospect”)
Vermilion Parish, Louisiana

Gentlemen:

 

This letter, when accepted by each of you in the space indicated below, shall
constitute an agreement, hereinafter referred to as the TRS Agreement, among
Triumph Energy, Inc. (“Triumph”), Reef Global Energy Ventures I, L.P. (“Reef”)
and Stokes & Spiehler, Inc. (“SSI”), whom may also be hereinafter referred to
collectively as TRS, regarding the above-described Prospect and Well, to-wit:

 

1.                                       ST. MARY ENERGY AGREEMENTS.     St.
Mary Energy Company (“SMEC”), as Operator of the Well, which Well is currently
drilling, has made available to Triumph a participating interest in the Well and
Prospect equal to Ten percent (10%) of 8/8ths Working Interest and Seven and
Eight-Tenths percent (7.80%) Net Revenue Interest, so that Triumph may earn an
interest in the Well and Prospect (and the leases which make up that Prospect)
all on the terms and conditions set out in the attached Participation Agreement
and letter agreement entered into by and between SMEC and Triumph.

 

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(1)    For purposes hereof, the Well shall include the named well and any
substitute well thereafter drilled pursuant to the JOA.

Guidry # 1 Agreement

 

 

 

TEI Intitials:

/s/ DEC

 

 

Reef Initials:

/s/ MM

 

 

Stokes & Spiehler:

/s/ BJ

 

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2.                                       PARTICIPATION OF PARTIES TO THE TRS
AGREEMENT.   Triumph, Reef and SSI have agreed to participate in the 10% of
8/8ths working interest and resulting rights and obligations, in the following
proportions:

 

Triumph                                                                                                  
30% of 10% of 8/8ths WI = 3% of 8/8ths WI in well

Reef                                                                                                                       
40% of l0% of 8/8thsWI = 4% of 8/8ths WI in well

SSI                                                                                                                             
30% of 10% of 8/8ths WI = 3% of 8/8ths WI in well

 

3.                                       TRIUMPH AS AGENT.                  
Because SMEC desires to limit the number of parties to whom notices and billing
must be sent and the number of parties making elections, Triumph shall act as
the temporary sole record owner of the interests to be assigned pursuant to the
Participation Agreement, but in doing so Triumph shall act as agent for its own
interest and that of Reef and SSI subject to the terms and conditions set forth
in this agreement.  Triumph shall have no liability to Reef and/or SSI for any
acts or omissions on its part, including failure to provide prompt notices,
unless such acts or omissions involve gross negligence and/or willful
misconduct. All parties acknowledge that Triumph is making its contractual
participation interest available on the same terms as it received them.
Notwithstanding anything herein to the contrary, TEI’s authority to bind Reef
and SMI is limited specifically to those actions set out herein.

 

4.                                       PAYMENTS TO TRIUMPH.     Reef and SSI
agree to pay to Triumph their proportionate shares of the St Mary Energy AFE
Drilling Cost, Non-Operated Insurance coverage, and associated Prospect Cost
within 24 hrs of signing this agreement. Costs are described in Exhibit “A”.
Reef and SSI agree to promptly pay any accrued or additional well costs incurred
by Triumph pursuant to the Participation Agreement (including costs already
accrued and payable), based on invoices to be provided by Triumph, and SSI and
Reef further agree to pay a like percentage of all subsequent well and/or land
costs incurred by Triumph pursuant to the Participation Agreement and/or the
Joint Operating Agreement (“JOA”) attached thereto as Exhibit “D”. All such
payments of well costs shall be made to Triumph pursuant to invoice from Triumph
to Reef and SSI, accompanied by any invoices and any supporting data supplied by
SMEC to Triumph. The invoices issued by Triumph shall be due and payable within
a period of time sufficient to enable Triumph to snake timely payment of the
total invoices issued by SMEC without penalty. Triumph shall, upon request of
Reef and/or SSI, provide evidence of such payment of the entirety of the SMEC
invoice(s)

 

5.                                       NO TURNKEY OBLIGATIONS.     All parties
acknowledge that the AFE identified in the Participation Agreement is an
estimate only, and that no turnkey obligation exists as between SMEC and Triumph
and/or between Triumph and Reef and SSI.

 

6.                                       ELECTIONS.     Upon the Well reaching
Authorized Depth, as that term is defined in the Participation Agreement and/or
JOA, Triumph shall have various elections as set out in the JOA and
Participation Agreement. Similarly, pursuant to the JOA, after completion or
abandonment of the Initial Test Well any party to the JOA may propose Additional
Operations on the Prospect, including the sidetracking, deepening, or plugging
back of the Initial Test Well, drilling a Substitute Test Well or development
well. Such elections shall be subject to the following agreements among the
parties hereto:

 

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6.1                                 At any time Triumph is provided with an
election, either in the Well, or to any Additional Operations as provided in the
JOA, to participate or not participate in any optional procedure, Triumph shall
promptly provide to Reef and SSI all information regarding such elections and
the status of the Well which has been provided to Triumph.

 

6.2                                 The parties agree to promptly consult as to
such elections as will be made, it being recognized that in all instances time
is of the essence and elections must be made and communicated pursuant to the
terms of the JOA, from notice to Triumph.

 

6.3                                 If all parties to this agreement elect
either to participate in any such proposed operation, or to not participate,
Triumph shall communicate such election in a timely manner to SMEC.  Any
penalties which then applies under the Participation Agreement or JOA, including
forfeiture of all interest in the Well and Prospect, shall apply to all of the
parties hereto.

 

6.4                                 If any party to this agreement, including
Triumph, should elect not to participate in any such operation, including an
election not to complete the Well, the other parties to this agreement shall
have the right to assume its proportionate share of the non-consenting party and
any additional interest; if any, in which case Triumph agrees to communicate the
resulting election of the group to SMEC as its own. Any such election shall,
however, be subject to the terms and conditions of the JOA. To the extent
permitted by the JOA or Participation Agreement, Triumph shall provide to each
of the other parties hereto that have elected to participate in any such
operation, a recordable assignment of the interest to which they would be
entitled under this agreement and the Participation Agreement and JOA.
Accordingly, the parties recognize that it may be necessary for Triumph to
remain as nominate participant, while having no actual further economic interest
in the Well.

 

6.5                                 If Triumph has elected not to participate in
the completion of the Well, and Reef and/or SSI has elected to participate, and
Triumph is not permitted to withdraw from the SMEC agreements and assign their
interest to Reef and/or SSI, any such party electing to participate shall hold
harmless, defend and indemnify Triumph from any and all liability for any
subsequent obligations and risks related to the Well and Prospect, including,
without limitation, all costs due to SMEC, and any costs arising out of any
blowout or other loss of well control resulting in an expenditure of costs
exceeding the estimated cost of such operation.

 

6.6                                 If at the time any election is to be made,
either in the Well or any subsequent well, Additional Interests become
available, due to the non-consent of other participants in the Well, Triumph
shall make such information available to Reef and SSI and the parties shall
independently determine the extent to which they elect to assume each party’s
proportionate share and additional interest, if any, of the Additional
Interests. (NOTE: this election should be under the same description of terms in
the JOA) If an election is made by all the participants to this agreement to
either assume the full extent of such Additional Interest, some or none of such
interest, Triumph shall communicate to SMEC the extent of additional
participation, if any, and any such participation shall be borne by the parties
hereto in proportion to their elections.

 

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6.7                                 If any of the parties hereto should make a
non-uniform election as to the Additional Interests, such disparity of
participation shall be accounted for among the parties hereto, i.e., the party
or parties electing to acquire Additional Interests shall be responsible for the
increased participation and shall hold harmless, defend and indemnify the
remaining party or parties who have elected not to assume such additional
participation. In such case this agreement shall be amended to reflect the
revised participation of the parties in all costs thereafter incurred.

 

7.                                       INSURANCE.                     Triumph
shall obtain from its insurer(s) any premium costs required to allow Triumph to
add Reef and SSI to the coverage held by Triumph, as to all such insurance as
Triumph is required to provide to SMEC, including blowout and general
comprehensive liability coverage. Triumph has been advised that such coverage
will be available from its carrier, subject to payment of the appropriate
premium and timely notice to the carrier, accompanied by information as to the
status of the well. It is expressly agreed and understood, however, that Triumph
does not warrant the sufficiency of its coverage, nor does Triumph agree to hold
harmless and indemnify either Reef and/or SSI in the event of a denial of
coverage by any carrier, or the solvency of any such carrier. Triumph agrees to
obtain from its carrier a certificate of insurance covering the entire original
participation (and to similarly obtain amendments to the coverage for any
Additional Interests thereafter assumed) and to provide a copy of such
certificate to Reef and SSI. All parties agree to bear their proportionate
shares of the cost of any such premium and any deductibles applicable to any
claim.

 

7.1                                 It is expressly understood and agreed that
if Triumph should elect not to participate in completion of the Initial Test
Well, or to participate in any Additional Operations, and if as a result of that
election Triumph should cease to have an economic interest in the Well or any
subsequent Well, the insurance afforded under Triumph’s policy will likely not
be available to Reef and/or SSI in which case those parties will be responsible
for securing their independent coverage.

 

7.2                                 All parties hereto shall be responsible for
obtaining and/or maintaining such additional insurance, including general
liability and employer’s liability coverage, to insure their interests beyond
any insurance available through Triumph’s carrier, it being understood that
Triumph makes no representations regarding the availability or sufficiency of
any such coverage.

 

8.                                       ASSIGNMENTS.     Subject to such
consents as are required wader the SMEC agreements, Triumph shall at its
earliest convenience provide recordable assignments to Reef and SSI of such
interests as are earned in the Well, Prospect and Leases. In the event that the
terms of the JOA should require that the Operator be permitted to continue a
single billing and notice to all of the parties hereto, Triumph agrees to
continue to act as agent for the remaining parties hereto, in which case Triumph
shall provide invoices and notices to the other parties promptly after receipt
from SMEC, each party then being responsible for payment of their share of the
obligations represented by any such invoice. To the extent permitted under the
JOA, the parties hereto agree that subsequent elections for participation in
Additional Operations under the JOA shall be dealt with pursuant to the
provisions of Article 6 hereof.

 

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9.                                       NO PARTNERSHIP
CREATED.                  This agreement is not intended to create and shall not
be construed as creating a partnership or joint venture among the parties. The
rights, duties, and obligations of the parties under this agreement shall be
severable and not joint or collective.

 

10.                                 MISCELLANEOUS.

 

10.1                           This Agreement shall be binding upon the parties
hereto, their heirs, successors and assigns.

 

10.2                           This Agreement shall be governed by the laws of
the State of Louisiana and any disputes arising out of this Agreement shall be
subject to arbitration in Lafayette, Louisiana under the rules of the American
Arbitration Association.

 

If this meets with your understanding of our agreement, we would ask that each
of you execute two duplicates of this agreement where shown below and provide to
us such acceptances. This agreement may be executed in counterpart form and the
separate signature pages combined.

 

 

Sincerely,

 

TRIUMPH ENERGY, INC.

 

 

 

 

 

/s/ Don E. Claxton

 

 

 

 

Don E. Claxton, President

 

 

Accepted and agreed to this       day of March, 2003.

Reef Global Energy Ventures I, L.P.

 

 

/s/ Michael J. Mauceli

 

By: Michael J. Mauceli

Managing Member of Reef Partners LLC, the

General Partner of Reef Global Energy Ventures I, L.P.

 

Accepted and agreed to this 21st day of March, 2003.

Stokes & Spiehler, Inc.

 

 

/s/ Bruce Jordan

 

By:  Bruce Jordan

Title:  President

 

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EXHIBIT A

 

 

 

GROSS COST

 

PROMOTED 10% WI COST

 

St Mary Drilling AFE (DHC)

 

$

2,269,200

 

$

302,711

 

Land Cost

 

$

511,074

 

$

51,107

 

Sub-Total

 

$

2,780,274

 

$

353,818

 

 

 

 

 

 

 

Blowout Insurance

 

NA

 

$

20.650

 

 

 

 

 

 

 

Total DHC Cost to 10% WI

 

 

 

$

374,468

 

 

 

TEI Share of 10% WI = 30% or $112,340

Stokes & Spiehler Share of 10% WI = 30% or $112,340

Reef Share of 10% WI = 40% or $149,788

 

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