Exhibit 10.2
 
LEASE ACQUISITION

AND

PARTICIPATION AGREEMENT
 
BETWEEN

FORT PECK ENERGY COMPANY, LLC

AND

SAMSON OIL AND GAS USA MONTANA, INC.
 
DATED AS OF JUNE 22, 2011
 
 
 

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TABLE OF CONTENTS
 
Article I. AGREEMENT FOR PURCHASE AND SALE
2
Section 1.1   Agreement for Purchase and Sale
2
Section 1.2   Access to Records
3
Section 1.3   On-Site Inspection
3
Section 1.4   Confidentiality
4
Section 1.5   Disclaimer
5
Section 1.6   Purchase Price for Initial Leases
5
Section 1.7   Conditions Precedent to Closing
5
Section 1.8   Closing
6
Section 1.9   Termination
7
Section 1.10    Liabilities Upon Termination
7
Section 1.11    In-Process Leases
8
Section 1.12    Option to Exclude River Acreage
8
Section 1.13    Option to Purchase Additional Acreage
8
Section 1.14    Sales by Buyer of Block A Purchased Acreage
10
Section 1.15    Tag-Along Right
10
Article II. TITLE MATTERS
11
Section 2.1   Certain Definitions
11
Section 2.2   Title Defect
12
Section 2.3   Consents
13
Section 2.4   Special Warranty of Title; Subrogation of Warranties
14
Section 2.5   Title Benefit
14
Article III. DRILLING COMMITMENT
14
Section 3.1   Initial Test Wells
14
Section 3.2   Force Majeure
17
Section 3.3   Additional Drilling
17
Article IV. SELLER’S PARTICIPATION OPTION
18
Section 4.1   Seller’s Participation Option
18
Article V. AREA OF MUTUAL INTEREST
19
Section 5.1   Area of Mutual Interest
19
Section 5.2   Marketing AMI Leases to Third Parties
21
Section 5.3   Seller’s AMI Option
21
Section 5.4   Mattelin Property
21
Article VI. OPERATORSHIP
22
Section 6.1   Joint Operating Agreement
22
Article VII. SELLER’S REPRESENTATIONS AND WARRANTIES
22
Section 7.1   Seller’s Representations and Warranties
22
Article VIII. BUYER’S REPRESENTATIONS AND WARRANTIES
24
Section 8.1   Buyer’s Representations And Warranties
24
Article IX. POST-CLOSING OBLIGATIONS
25
Section 9.1   Post-Closing Obligations
25
Article X. DISCLAIMERS
25
Section 10.1     Disclaimer; Title; Condition and Fitness of the Properties
25
Section 10.2     Information About the Properties
26

   
 
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Article XI. MISCELLANEOUS
26
Section 11.1     Exhibits and Schedules
26
Section 11.2     Expenses
26
Section 11.3     Notices
26
Section 11.4     Amendments
28
Section 11.5     Headings
28
Section 11.6     Counterparts/Fax Signatures
28
Section 11.7     References
28
Section 11.8     Governing Law; Wavier of Jury Trial
28
Section 11.9     Arbitration
28
Section 11.10   Entire Agreement
29
Section 11.11   Binding Effect
29
Section 11.12   No Third-Party Beneficiaries
29
Section 11.13   Survival
29
Section 11.14   Waiver
29
Section 11.15   Limitation on Damages
30
Section 11.16   Severability
30
Section 11.17   Announcements
30
Section 11.18   Transfer Taxes and Recording Fees
30
Section 11.19   Relationship of the Parties
30
Section 11.20   Further Assurances
30

 
EXHIBITS AND SCHEDULES:
 
Exhibit A
Plat of Block A
Exhibit B
Initial Acreage
Exhibit C
Initial Leases (WI and Net Acres)
Exhibit D
Form of Assignment
Exhibit E
AMI
Exhibit F
JOA
Exhibit G
Technical Requirements
Exhibit H
In-Process Leases
Exhibit I
Mattelin Leases

 

 
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INDEX OF DEFINITIONS
 
Acreage Deficiency
13
Acreage Participation Option
18
Actual Acres
13
Affected Party
17
Agreement
1
AMI
19
AMI Assignment
20
AMI Leases
19
AMI Purchase Price
20
AMI Term
19
Area of Mutual Interest
19
Assignment
6
BIA
7
Block A
1
Block A Purchased Acreage
9
Buyer
1
Buyer’s Drilling Costs
17
Claims
4
Closing
6
Closing Date
6
Closing Statement
5
Cure Period
13
Defensible Title
11
Divestiture
9
Divestiture Agreement
10
Divestiture Lands
10
Divestiture Offer
10
Drilling and Completion
17
Due Diligence Materials
4
Effective Date
1
Environmental Assessment
3
Environmental Defect
3
Environmental Defect Notice
3
First Test Well
14
Force Majeure
17
Fort Peck AMI Agreement
12
Hull Lease
16
Initial Acreage
2
Initial Leases
2
In-Process Leases
7
Intended Acres
13
Intended Initial Net Acres
2
Joint Operating Agreement
22
Lease Burdens
2
Mattelin Lease
21
Net Acre Deficit
8
Net Acre Surplus
8
Net Acres
2
Net Revenue Interest
11
Non-Acquiring Party
20
Objective Depth
14
Option
8
Option Acres
9
Option Allowance
8
Option Closing Date
9
Option Closing Statement
9
Option Exercise Notice
9
Option Lease
9
Option Price
9
Option Termination Date
9
Optional Acreage
9
Opt-Out Lands
19
Participating Interest
20
Parties
1
Party
1
Permitted Encumbrances
11
Production Notice
17
Property Records
3
Prospective Purchaser
10
Purchase Price
5
Remaining Acreage
8
Remaining Block A Purchased Acreage
18
Replaced Lease(s)
8
Restricted Period
10
Second Test Well
15
Seller
1
Stabilized Production
17
Stimulation Well
21
Substitute Well
15
Substitution Lease
8
Substitution Notice
8
Substitution Period
8
Tag-Along Right
10
Target Lands
19
Target Lease Terms
19
Target Meeting
19

 
 
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Test Well
14
Test Well Option Price
18
Test Wells
14
Title Benefit
14
Title Defect
12
Title Defect Notice
12
Title Examination Period
12
Undivided Divestiture Interest
10
Well Costs
18
Well Information
18

  
 
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EXECUTION VERSION

LEASE ACQUISITION AND PARTICIPATION AGREEMENT
 
This Lease Acquisition and Participation Agreement (“Agreement”), dated this
22nd day of June, 2011 (the “Effective Date”), is by and between Fort Peck
Energy Company, LLC, a Delaware limited liability company (“Seller”), and SAMSON
OIL AND GAS USA MONTANA, INC., a Colorado corporation (“Buyer”).  Each of Seller
and Buyer is sometimes referred to herein as a “Party” and they are sometimes
collectively referred to herein as the “Parties.”

WITNESSETH

WHEREAS, Seller is the owner of certain oil and gas leases covering lands in
Daniels, Roosevelt, Sheridan, and Valley Counties, Montana; and

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, oil and gas leases covering not less than 20,000 Net Acres (as defined
herein) out of the area known as the “Fort Peck East Exploration Area — Block
A”, which area is shown on Exhibit A attached hereto (“Block A”), together with
the option to acquire oil and gas leases covering up to an additional 20,000 Net
Acres out of Seller’s remaining acreage, all as more fully described herein; and

WHEREAS, Seller desires to retain the option, but not the obligation, to
participate for a 33.3% interest in either or both of the initial two wells
drilled by Buyer on the acquired leases, together with the option to purchase an
undivided 33.3% interest in any remaining acreage acquired by Buyer from Seller
that was not included in the spacing units for such initial two wells; and

WHEREAS, Seller and Buyer desire to establish an area of mutual interest and to
provide for the potential acquisition of additional leases within such area of
mutual interest under terms mutually agreeable to Seller and Buyer.

NOW, THEREFORE, for and in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:

 
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ARTICLE I.
 
AGREEMENT FOR PURCHASE AND SALE
 
Section 1.1           Agreement for Purchase and Sale.
 
(a)           Subject to the terms and conditions of this Agreement and the
reservations and exceptions set forth herein, Buyer agrees to purchase from
Seller, and Seller agrees to sell, assign and deliver to Buyer, all of Seller’s
right, title and interest in and to oil and gas leases (the “Initial Leases”)
covering the lands within Block A described in Exhibit B attached hereto (such
lands being collectively referred to herein as the “Initial Acreage”).  The
approximate number of Net Acres covered by the Initial Leases, in the aggregate,
before giving effect to any substitutions or exclusions as provided herein, is
20,028.406 Net Acres (the “Intended Initial Net Acres”).
 
(b)           Seller shall use reasonable efforts to deliver Defensible Title
(as defined herein) to 100% of the Initial Leases.  To the extent, Seller is
able to deliver Defensible Title (as defined herein) to Initial Leases covering
at least 90%, but less than 100%, of the Intended Initial Net Acres, then:  (i)
Seller may assign to Buyer all of its right, title and interest in other oil and
gas leases covering an approximately equivalent number of Net Acres in adjoining
(to the extent possible) lands in Block A in substitution for the Net Acres in
the Initial Leases as to which Seller is unable to deliver Defensible Title, or
(ii) Buyer, in its sole discretion, may elect to waive any title defect(s).  To
the extent Seller is unable to deliver Defensible Title to Initial Leases
covering at least 90% of the Intended Initial Net Acres, then either Party may
terminate this Agreement upon written notice to the other Party delivered prior
to Closing, and upon such termination neither Party shall have any further
obligation or liability to the other Party hereunder.
 
(c)           Notwithstanding any other provision hereof, Seller shall reserve
from the assignment(s) of the Initial Leases and, if applicable, the Mattelin
Leases, an overriding royalty interest in the Initial Leases and the Mattelin
Leases equal to the positive difference, if any, between 20% and lease burdens
existing as of the effective date of such assignment, including, without
limitation, lessors’ royalties, overriding royalties, and similar burdens on or
measured by production from the Initial Leases (“Lease Burdens”).
 
(d)           If prior to Closing either Party notifies the other Party of any
Initial Lease as to which Seller’s Net Revenue Interest is less than 80% (or
such lower Net Revenue Interest with respect to such Lease as may be specified
in Exhibit C), proportionately reduced in the event Seller’s working interest in
such Lease is less than 100% or the subject lease covers less than 100% of the
mineral estate in the lands covered thereby, then, unless such defect is waived
by Buyer or cured prior to Closing, the affected lease shall be excluded from
the Initial Leases delivered at Closing and, at Seller’s election, either (i)
the Purchase Price payable by Buyer at Closing shall be reduced by the price
allocable to such excluded lease, or (ii) Seller shall assign to Buyer all of
its right, title and interest in other oil and gas leases covering an
approximately equivalent number of Net Acres in adjoining (to the extent
possible) lands in Block A in substitution for the Net Acres in the affected
leases.  Except with respect to breaches of Seller’s special warranty of title,
the provisions of this Section 1.1 shall be Buyer’s sole and exclusive remedies
for Title Defects of which Buyer has actual knowledge prior to Closing.  For
purposes of the foregoing sentence, Buyer’s actual knowledge shall mean the
actual knowledge of an executive officer of Buyer or of Conrad Woodland or Tracy
Butzen.
 
(e)           For purposes of this Agreement, “Net Acres” shall mean with
respect to a lease (i) the undivided interest of Seller in the leasehold estate
created by the applicable lease multiplied by (ii) the number of acres covered
by the lease multiplied by (iii) the lessor’s percentage interest in the oil and
gas mineral estate in the land covered by the lease.
 
 
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Section 1.2           Access to Records.
 
(a)           As used herein, “Property Records” means all of Seller’s lease
files, abstracts, title opinions, title memoranda and contract files, insofar as
they are directly related to the Initial Leases, including all leases, surface
agreements and related contracts thereto; provided, however, that the Property
Records shall not include Seller’s internal memoranda, notes, and
correspondence.
 
(b)           Seller shall make the Property Records available to Buyer at the
offices of Seller during Seller’s normal business hours.  Subject to the consent
and cooperation of third parties, Seller will assist Buyer in Buyer’s efforts to
obtain, at Buyer’s expense, such additional information from such third parties
as Buyer may reasonably request.  Buyer may inspect the Property Records and
such additional information only to the extent that it may do so without
violating any obligation of confidence or contractual commitment of Seller to a
third party.  Seller shall use commercially reasonable efforts, but at no cost
or expense to Seller, to obtain the necessary consents to allow Buyer’s
examination of any confidential information that is material to the transaction
contemplated by this Agreement.
 
Section 1.3           On-Site Inspection.
 
(a)           Seller hereby consents to Buyer conducting, prior to Closing and
upon advance notice to Seller, at Buyer’s sole risk and expense, on-site
inspections and an ASTM Phase One Environmental Assessment (the “Environmental
Assessment”) of the Initial Acreage.  In connection with the Environmental
Assessment, Buyer agrees not to interfere with the normal operations on the
Initial Acreage and agrees to comply with all requirements and safety policies
of the operator.  Seller shall be provided at least forty-eight (48) hours’
prior notice of any such inspection, and Seller’s representative(s) shall have
the right to witness all such inspections.  Buyer may not, without the prior
written consent of Seller, conduct any borings or other invasive tests or
examinations with respect to the Initial Acreage.  The cost and expense of the
Environmental Assessment shall be borne solely by Buyer.  With respect to any
samples taken in connection with the Environmental Assessment, Buyer shall take
split samples, providing one of each such sample, properly labeled and
identified, to Seller.
 
 
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(b)           If the Environmental Assessment identifies any condition or
conditions on or of the Initial Leases which, in the aggregate, cause them to be
not in compliance in any material respect with any applicable federal, state or
local environmental laws (an “Environmental Defect”), Buyer shall notify Seller
prior to the Closing of such alleged Environmental Defect.  To be effective,
such notice (the “Environmental Defect Notice”) must (i) be in writing, (ii) be
received by Seller prior to Closing, (iii) describe the Environmental Defect in
reasonable detail, including identification of the Initial Lease(s) affected
thereby and the environmental laws allegedly violated; (iii) include Buyer’s
proposed curative for such Environmental Defect; and (iv) include a copy of the
Environmental Assessment or other report identifying the Environmental Defect
prepared by a reputable environmental consultant with experience conducting
environmental assessments covering oil and gas leases located in the State of
Montana.  Any matters that may otherwise constitute Environmental Defects, but
of which Seller has not been specifically notified by Buyer in accordance with
the foregoing, shall be deemed to have been waived by Buyer for all
purposes.  Upon the receipt of an effective Environmental Defect Notice from
Buyer, Seller shall have the option, but not the obligation, to attempt to cure
such Environmental Defect at any time prior to the Closing, in which event
Seller may, upon written notice to Buyer, extend the Closing by up to thirty
(30) days, during which period Seller shall endeavor to cure such Environmental
Defect(s).  Alternatively, if Buyer and Seller so agree in writing, Seller may
elect to cure the Environmental Defect post-Closing, at Seller’s expense, in
which event the Closing shall not be extended and Seller shall, at Seller’s
expense, use commercially reasonable best efforts post-Closing to cure the
Environmental Defect in a timely manner.  If Seller elects to attempt to cure an
Environmental Defect, Seller may implement the lowest cost reasonable effective
remedy for such Environmental Defect which is consistent with applicable
environmental laws, taking into account that non-permanent remedies may be the
most cost effective curative reasonably available.  Unless (i) Seller cures such
Environmental Defects prior to Closing (as Closing may be extended as provided
above); (ii) Seller and Buyer agree in writing that such Environmental Defects
may be cured post-Closing, as provided above; or (iii) Buyer waives such
Environmental Defect(s), then the lease(s) affected thereby shall be excluded
from this Agreement and the Purchase Price shall be reduced by an amount equal
to the price payable for such lease pursuant to Section 1.6(a); provided,
however, that either Party may, upon written notice to the other, terminate this
Agreement if, after giving effect to such exclusions, the remaining Initial
Leases cover less than 85% of the Intended Initial Net Acres.
 
(c)           Buyer hereby RELEASES and INDEMNIFIES and SHALL DEFEND AND HOLD
HARMLESS Seller and its respective members, managers, employees, agents,
representatives, contractors, successors, and assigns) (the “Indemnified
Parties”) from and against any and all claims, demands, actions, causes of
action, suits, and other legal proceedings, judgments, assessments, damages,
penalties, fines, costs, and expenses (including reasonable attorneys’ fees)
(collectively, “Claims”) arising from Buyer’s inspection of the Initial Acreage,
including, without limitation, Claims for personal injuries to or death of any
person or damage to the property of any person, except for injuries, death or
damage to property caused by the gross negligence or willful misconduct of the
Indemnified Parties.  THE FOREGOING INDEMNITY INCLUDES, AND THE PARTIES INTEND
IT TO INCLUDE, AN INDEMNIFICATION OF THE INDEMNIFIED PARTIES FROM AND AGAINST
CLAIMS ARISING OUT OF OR RESULTING, IN WHOLE OR PART, FROM THE CONDITION OF THE
INITIAL ACREAGE OR THE SOLE, JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE (BUT
NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OR STRICT LIABILITY OF, ANY OF THE
INDEMNIFIED PARTIES.
 
Section 1.4           Confidentiality.  Buyer shall keep any data or information
acquired by Buyer in the course of its due diligence examination (including,
without limitation, information acquired pursuant to its review of the Property
Records and its conduct of the Environmental Assessment) and any reports or
results generated from such due diligence examination (the “Due Diligence
Materials”) strictly confidential and shall not disclose any of such data,
information or results to any governmental authority or other third party unless
required by law or regulation and then only after written notice to Seller of
the determination of the need for disclosure.  If Buyer becomes legally
compelled to disclose any of the Due Diligence Materials, Buyer shall use all
commercially reasonable efforts to provide Seller with notice sufficiently prior
to any such disclosure so as to allow Seller, at Seller’s expense, to file any
protective order, or seek any other remedy, as it deems appropriate under the
circumstances.  Buyer shall use the Due Diligence Materials only in connection
with the transactions contemplated by this Agreement.  If this Agreement is
terminated prior to the Closing, Buyer shall, upon Seller’s request, deliver the
Due Diligence Materials to Seller, which Due Diligence Materials shall become
the sole property of Seller.
 
 
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Section 1.5          Disclaimer.  Except for the representations and warranties
contained in this Agreement, Seller makes no warranty or representation of any
kind as to the Property Records or any information contained therein.  Buyer
agrees that any conclusions drawn from the Property Records shall be the result
of its own independent review and judgment.
 
Section 1.6           Purchase Price for Initial Leases.
 
(a)           Purchase Price.  The purchase price payable by Buyer to Seller for
the Initial Leases (the “Purchase Price”) shall be an amount equal to the sum of
the following:  (a) with respect to those Initial Leases acquired by Seller
prior to the Effective Date, the purchase price shall be $175 per Net Acre,
multiplied by the number of Net Acres covered by such Initial Leases, as set
forth in Exhibit C; and (b) with respect to those Initial Leases acquired by
Seller between the Effective Date and the Closing Date, the purchase price shall
be (i) $175 per Net Acre multiplied by the number of Net Acres covered by such
Initial Leases, or (ii) if greater, the lease bonus, first year rental payment
and other acquisition costs actually paid by Seller for such Initial Leases plus
any additional actual costs paid by the Seller to acquire the Initial Leases for
each Net Acre, provided that Seller shall have obtained Buyer’s approval of the
costs described in this clause (ii) above.  The Purchase Price shall be paid at
Closing, as defined herein, by wire transfer of immediately available
funds.  The Purchase Price shall reimburse Seller for lease bonus and the first
year rental payments paid by Seller for the Initial Leases.  Buyer shall assume,
and bear responsibility for payment of, all other obligations under such Initial
Leases.
 
(b)           Closing Statement.  At least three (3) business days prior to
Closing, Seller shall deliver to Buyer a closing statement (“Closing Statement”)
setting out the calculation of the Purchase Price, including, with respect to
each Initial Lease, the number of Net Acres covered thereby and the purchase
price payable therefor.
 
Section 1.7           Conditions Precedent to Closing.
 
(a)           Seller’s Conditions.  The obligations of Seller at Closing are
subject, at the option of Seller, to the satisfaction or waiver at or prior to
Closing of the following conditions precedent:
 
(i)           All representations and warranties of Buyer contained in Article
VIII shall be true and correct in all material respects on and as of the Closing
Date, and Buyer shall have performed and satisfied all covenants and agreements
required by this Agreement to be performed and satisfied by Buyer at or prior to
the Closing in all material respects;
 
(ii)          Buyer stands ready, willing and able to Close with Seller;
 
(iii)         No order has been entered by any court or governmental agency
having jurisdiction over the Parties or the subject matter of this Agreement
that restrains or prohibits the transactions contemplated by this Agreement that
remains in effect on the Closing Date; and
 
 
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(iv)          Seller has not given notice of termination pursuant to Sections
1.1(b) or 1.3(b).
 
(b)          Buyer’s Conditions.  The obligations of Buyer at the Closing are
subject, at the option of Buyer, to the satisfaction or waiver at or prior to
Closing of the following conditions precedent:
 
(i)           All representations and warranties of Seller contained in Article
VII shall be true and correct in all material respects on and as of the Closing
Date, and Seller shall have performed and satisfied all covenants and agreements
required by this Agreement to be performed and satisfied by Seller at or prior
to the Closing in all material respects;
 
(ii)          Seller stands ready, willing and able to Close with Buyer;
 
(iii)         No order has been entered by any court or governmental agency
having jurisdiction over the Parties or the subject matter of this Agreement
that restrains or prohibits the purchase and sale contemplated by this Agreement
and that remains in effect at the time of Closing; and
 
(iv)         Seller has not given notice of termination pursuant to Sections
1.1(b) or 1.3(b).
 
Section 1.8           Closing.
 
(a)           Closing Date.  Unless extended pursuant to Section 1.3(b), Closing
of the purchase and sale of the Initial Leases (the “Closing”) shall occur at a
mutually agreeable time and place within thirty (30) days following the
Effective Date.  The date on which Closing occurs is referred to herein as the
“Closing Date.”
 
(b)           Closing Deliveries.  At Closing, the following shall occur:
 
(i)           Buyer shall deliver to Seller, by wire transfer of immediately
available funds, the Purchase Price for the Initial Leases;
 
(ii)           Buyer and Seller shall execute and acknowledge, and Seller shall
deliver to Buyer, an Assignment and Bill of Sale, substantially in the form of
Exhibit D attached hereto (the “Assignment”) in sufficient counterparts to
facilitate recording;
 
(iii)           Buyer and Seller shall execute such governmental assignment
forms as may be necessary to effect the assignment of the Initial Leases to
Buyer; and
 
(iv)           Seller shall execute and deliver to Buyer a certificate of
Seller’s non-foreign status and certifying that Seller is not subject to
withholding under Section 1445 of the Internal Revenue Code, as amended.
 
 
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Section 1.9           Termination.  This Agreement may be terminated prior to
Closing, upon written notice to the other Party, in accordance with the
following provisions:
 
(a)           By mutual consent of Buyer and Seller;
 
(b)           By Buyer or Seller, as the case may be, pursuant to Sections
1.1(b) or 1.3(b);
 
(c)           By Seller, if Seller’s conditions set forth in Section 1.7(a) are
not satisfied through no fault of Seller, or are not waived by Seller, as of the
Closing Date;
 
(d)           By Buyer, if Buyer’s conditions set forth in Section 1.7(b) are
not satisfied through no fault of Buyer, or are not waived by Buyer, as of the
Closing Date; or
 
(e)           By Seller, if Closing has not occurred within thirty (30) days
following the Effective Date, as the Closing date may be extended pursuant to
Section 1.3(b), through no fault of Seller, provided, Seller is not in material
default under this Agreement and is ready, willing and able to Close.
 
Section 1.10         Liabilities Upon Termination.
 
(a)           Buyer’s Default.  Subject to Section 1.10(c), if Closing does not
occur because (i) Buyer wrongfully fails to tender performance at Closing or
otherwise materially breaches this Agreement prior to Closing, or (ii) Seller
terminates this Agreement as of right pursuant to Section 1.9(e), and if Seller
is not in material default under this Agreement and is ready, willing and able
to Close, Seller shall be entitled to an amount equal to $175 multiplied by the
number of Net Acres covered by the Initial Leases.  Buyer’s failure to Close
shall not be considered wrongful if Buyer’s conditions under Section 1.7(b) are
not satisfied through no fault of Buyer and are not waived by Buyer.
 
(b)           Seller’s Default.  Subject to Section 1.10(c), if Closing does not
occur because Seller wrongfully fails to tender performance at Closing or
otherwise materially breaches this Agreement prior to Closing, and if Buyer is
not in material default under this Agreement and is ready, willing and able to
Close, Buyer shall retain all of its legal and equitable remedies for Seller’s
breach of this Agreement including, without limitation, specific
performance.  Seller’s failure to close shall not be considered wrongful if
Seller’s conditions under Section 1.7(a) are not satisfied through no fault of
Seller and are not waived by Seller.
 
(c)           Other Termination.  If this Agreement is terminated pursuant to
Sections 1.9(a) or 1.9(b), each Party shall release the other Party from any and
all liability for termination of this Agreement.
 
 
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Section 1.11         In-Process Leases.  Certain oil and gas leases covering
lands in Block A, as described in Exhibit H (the “In-Process Leases”), have been
signed by Seller and delivered to the Bureau of Indian Affairs (“BIA”) for
execution and issuance, but as of the Effective Date, have not been issued to
Seller.  The Parties agree that Exhibit H may be supplemented from time to time
by Seller up until two (2) business days prior to Closing.  During the period
between the Effective Date and the commencement of drilling of the First Test
Well (the “Substitution Period”), Seller shall notify Buyer from time to time in
writing as In-Process Leases are issued to Seller by the BIA, such notices to be
provided by Seller within five (5) business days after Seller’s receipt of the
issued Lease.  Buyer may, from time to time, deliver to Seller during the
Substitution Period a written notice (“Substitution Notice”) to elect the
substitution of one or more of the In-Process Leases (a “Substitution Lease”)
for Initial Leases covering approximately the same number of Net Acres (the
“Replaced Lease(s)”).  In the event a Substitution Notice is delivered to Seller
prior to Closing, (a) the Substitution Lease(s) described therein shall be
deemed for all purposes to be Initial Lease(s), and shall be included in the
assignment of the Initial Leases delivered at Closing, and (b) the Replaced
Lease(s) shall be deemed to be included in the Remaining Acreage, as defined
herein.  In the event a Substitution Notice is delivered during the period
between Closing and the conclusion of the Substitution Period, then within ten
(10) business days following Seller’s receipt of a timely delivered Substitution
Notice, (x) Buyer shall reassign the Replaced Lease(s) to Seller, free and clear
of all liens, claims and encumbrances arising by, through or under Buyer, and
such Replaced Lease(s) shall thereafter be deemed to be included in the
Remaining Acreage; and (y) Seller shall assign the Substitution Lease(s) to
Buyer, by an Assignment substantially in the form of Exhibit D, subject to
Seller’s retained overriding royalty interest, if applicable, as provided in
Section 1.1(c), and the Substitution Lease(s) shall thereafter be deemed to be
included in the Initial Leases.  If at the conclusion of the Substitution
Period, (i) the number of Net Acres covered by the Substitution Leases exceeds
the number of Net Acres covered by the Replaced Leases (a “Net Acre Surplus”),
then within ten (10) days after the end of the Substitution Period, Buyer shall
pay Seller an amount equal to the Net Acre Surplus multiplied by $175, or (ii)
the number of Net Acres covered by the Substitution Leases is less than the
number of Net Acres covered by the Replaced Leases (the “Net Acre Deficit”),
then within ten (10) days after the end of the Substitution Period, Seller shall
pay Buyer an amount equal to the Net Acre Deficit multiplied by $175.
 
Section 1.12         Option to Exclude River Acreage.  Notwithstanding any other
provision hereof, Seller shall have the option, upon written notice delivered to
Buyer at any time prior to the first anniversary of the Closing Date to exclude
from this Agreement up to 1000 acres of Block A Acreage located within
designated spacing units along the riparian boundaries of the Missouri River or
the Big Muddy River.  In the event Seller so excludes such acreage it shall
substitute an approximately equal number of Net Acres in Block A, in the same
manner as provided in Section 1.11 above with regard to Substitution Leases.
 
Section 1.13         Option to Purchase Additional Acreage.
 
(a)           Subject to the same terms of this Agreement with respect to the
purchase of the Initial Leases and except as otherwise indicated herein, in
addition to the Initial Leases, Seller hereby grants to Buyer the option (the
“Option”), but not the obligation, to purchase all of Seller’s leasehold
interest in the remaining acreage in Block A (“Remaining Acreage”), which shall
not exceed an additional 20,000 Net Acres within Block A, plus an allowance of
up to 320 Net Acres, in the aggregate, if necessary to include all the Net Acres
in any particular section (the “Option Allowance”).  Notwithstanding the
foregoing, if Seller’s Remaining Acreage in Block A prior to Buyer’s exercise of
the Option exceeds 20,000 Net Acres, Seller shall designate the 20,000 Net Acres
and the Option Allowance subject to the Option and shall notify Buyer of such
designation within five (5) business days after Seller’s receipt of Buyer’s
Option Exercise Notice, as herein defined. In the event Buyer exercises the
Option, the lands as to which Buyer exercises the Option shall be referred to
herein as the “Optional Acreage” (the Initial Acreage, the Mattelin Leases (if
acquired, as provided in Section 5.4) and the Optional Acreage being
collectively referred to herein as the “Block A Purchased Acreage”).  
 
 
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(b)           The purchase price for the Optional Acreage (the “Option Price”)
shall be (a) with respect to those leases covering Optional Acreage (“Option
Leases”) acquired by Seller prior to the Effective Date, the purchase price
shall be $225 per Net Acre, multiplied by the number of Net Acres comprising the
Optional Acreage (the “Option Acres”); and (b) with respect to those Option
Leases acquired by Seller between the Effective Date and the Closing Date, the
purchase price shall be (i) $225 per Net Acre multiplied by the number of Net
Acres covered by such Option Leases, or (ii) if greater, the lease bonus, first
year rental payment and other acquisition costs actually paid by Seller for such
Option Leases plus any additional actual costs paid by the Seller to acquire the
Option Leases,  provided that Seller shall have obtained Buyer’s approval of the
costs described in this clause (ii) above.
 
(c)           The Option may be exercised by Buyer upon written notice (the
“Option Exercise Notice”) delivered to Seller within ten (10) business days
following the date which is 120 days after (i) the date on which initial
perforation or fracture stimulation, as applicable, of the Second Test Well is
completed or, (ii) if such Well is not completed as a producing well, the date
on which drilling operations for such well have ceased and the rig is ready to
be moved off the location (the “Option Termination Date”).  If the Option is not
timely exercised, it shall automatically expire on the Option Termination Date.
 
(d)           If the Option is timely exercised, then within ten (10) business
days following the exercise of the Option, Seller shall deliver to Buyer a
closing statement (“Option Closing Statement”) setting out (i) with respect to
each lease included in the Optional Acreage (each, an “Option Lease”), the
number of Option Acres covered thereby, and (ii) the calculation of the Option
Price to be paid by Buyer for the Optional Acreage.  Within ten (10) business
days after receipt of the Option Closing Statement, (i) Buyer shall pay the
Option Price to Seller by wire transfer of immediately available funds; and (ii)
Seller shall execute, acknowledge and deliver to Buyer an Assignment of Seller’s
interest in the Optional Acreage, such Assignment to be substantially in the
form of Exhibit D attached hereto.  The date on which closing of the purchase
pursuant to the Option occurs is referred to herein as the “Option Closing
Date.”
 
(e)           Notwithstanding any other provision hereof, Seller shall reserve
from the assignment(s) of the Option Leases an overriding royalty interest in
such Option Leases equal to the positive difference, if any, between 20% and
Lease Burdens.
 
 
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Section 1.14         Sales by Buyer of Block A Purchased Acreage.  Buyer shall
not sell, assign, transfer, exchange or otherwise transfer or dispose of all or
any portion of Buyer’s right, title or interest in and to the Block A Purchased
Acreage (including, without limitation, any indirect transfer by merger of Buyer
with or into a third party, or sale of all or substantially all of the issued
and outstanding shares of Buyer to a third party) (a “Divestiture”) at any time
prior to Seller’s receipt of a Production Notice with respect to the Second Test
Well, as defined herein, or if the Second Test Well is not completed as a
producing well, the date on which drilling operations for such well have ceased
and the rig is ready to be moved off the location (the “Restricted Period”),
without Seller’s prior written consent.  If during the Restricted Period Buyer
enters into an agreement with respect to a Divestiture (a “Divestiture
Agreement”) for which the prior written consent of Seller is obtained, then upon
consummation of such Divestiture, Buyer shall pay to Seller an amount equal to
33.3% of the positive difference, if any, between (i) the purchase price and
other consideration received by Buyer in consideration for the sale of the
Buyer’s interest in the Block A Purchased Acreage so transferred in the
permitted Divestiture; and (ii) the Purchase Price, or Option Price, as
applicable, paid by Buyer to Seller for such divested acreage; provided that
such Divestiture shall be subject to, and Seller shall at all times retain, its
rights to exercise the participation options provided in Article IV herein and
any and all right, title and interest acquired by Seller through exercise of
such options and any such interests of the Seller owned or exercisable by Seller
shall not be included in any sale by Buyer pursuant to this Section 1.14 unless
otherwise previously approved and agreed to in writing by Seller.  If during the
Restricted Period Buyer enters into a Divesture Agreement without the prior
written consent of Seller, Buyer shall immediately remit to Seller 100% of the
proceeds and other consideration received by Buyer from such Divestiture.
 
Section 1.15         Tag-Along Right.  In the event an unrelated third party
purchaser (the “Prospective Purchaser”) makes an offer (the “Divestiture Offer”)
to Buyer to acquire all or any portion of Buyer’s right, title or interest in
and to all or any portion of the Block A Purchased Acreage (the portion of the
Block A Purchased Acreage subject to the Divestiture Offer being referred to
herein as the “Divestiture Lands”) during or after the Restricted Period, Buyer
shall immediately deliver to Seller a notice setting forth the terms and
conditions of the Divestiture Offer, including a true and complete copy of any
offer letters, proposals, agreements, schedules, exhibits or other materials
relating thereto.  Upon receipt of the notice of the Divestiture Offer from
Buyer, Seller shall have ten (10) business days to elect, upon written notice to
Buyer, to participate in the Divestiture Offer and to sell to the Prospective
Purchaser all or a portion of the Divestiture Lands then owned by Seller under
the same terms and conditions (the “Tag-Along Right”).  In the event Seller
elects to exercise the Tag-Along Right, the Prospective Purchaser shall be
required to purchase all of Seller’s interest in the Divestiture Lands under the
same terms and conditions as it offered to purchase Buyer’s interest therein;
provided, however, that if the Prospective Purchaser proposed to purchase only
an undivided portion of Buyer’s interest in the Divestiture Lands (the
“Undivided Divestiture Interest”) and such Prospective Purchaser is unwilling to
purchase a greater undivided interest in the Divestiture Lands, then the
Prospective Purchaser shall purchase (i) from Buyer 66.7% of the Undivided
Divestiture Interest; and (ii) from Seller, 33.3% of the Undivided Divestiture
Interest.  Notwithstanding any other provision hereof, this Section 1.13 shall
not apply to a transfer, exchange or disposition arising from any indirect
transfer (x) by merger of Buyer with or into an affiliate of Buyer or sale or
other transfer of all or substantially all of the issued and outstanding shares
of Buyer to an affiliate of Buyer; or (y) by merger of Buyer with or into third
party or sale or other transfer of all or substantially all of the issued and
outstanding shares of Buyer to a third party, provided that the Block A
Purchased Acreage does not, at the time of such transfer, comprise substantially
all of the assets of Buyer.  For purposes of the foregoing sentence the Block A
Purchased Acreage shall be deemed to comprise substantially all of the assets of
Buyer if the reasonably determined value thereof comprises 90% or more of the
aggregate value of all of Buyer’s assets.
 
 
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ARTICLE II.
TITLE MATTERS
 
Section 2.1           Certain Definitions.  As used in this Agreement, each of
the following terms has the meaning provided below:
 
(a)           “Defensible Title” means, with respect to the Block A Purchased
Acreage, such beneficial, legal and record title ownership of the units, leases
and lands related thereto that, subject to and except for Permitted Encumbrances
as defined in Section 2.1(b):
 
(i)           entitles Seller to a share of the hydrocarbons produced, saved and
marketed from each lease included in the Block A Purchased Acreage (subject to
any depth limitations specified in the subject lease) and throughout the
duration of the productive life of such lease, after satisfaction of all
royalties, overriding royalties, nonparticipating royalties, net profits
interests or other similar burdens on or measured by production of hydrocarbons
(a “Net Revenue Interest”), of not less than the Net Revenue Interest share
shown in Exhibit C with respect to such lease except as otherwise specifically
set forth in such Exhibit;
 
(ii)          entitles Seller to the number of Net Acres covered by a lease as
set forth in the Closing Statement, or the Option Closing Statement, as
applicable for that lease; and
 
(iii)          is free and clear of all liens and encumbrances.
 
In addition, title to any lease comprising the Initial Acreage or Optional
Acreage shall not be considered to be Defensible Title unless (y) an
Environmental Assessment applicable to the lease has been issued by the Bureau
of Indian Affairs in compliance with the National Environmental Policy Act, to
the extent applicable; and (z) if the lease covers allottee lands, the consent
from the requisite percentage of the mineral interest owned by allottees in
lands covered by the lease has been obtained, pursuant to Pub. L. 106-462 (114
Stat. 1992).

(b)           “Permitted Encumbrances” means the following:
 
(i)           lessors’ royalties, overriding royalties, net profits interests,
production payments, reversionary interests and similar burdens if the net
cumulative effect of such burdens does not operate to reduce the Seller’s Net
Revenue Interest, on a lease-by-lease basis, below 80% (or such lower Net
Revenue Interest with respect to a Lease as may be specified in Exhibit C),
proportionately reduced in the event Seller’s working interest in the subject
lease is less than 100% or the subject lease covers less than 100% of the
mineral estate in the lands covered thereby;
 
(ii)          all rights to consent by, required notices to, filings with, or
other actions by federal, state or local governmental bodies, in connection with
the conveyance of the applicable lease if the same are customarily sought after
Closing;
 
(iii)         rights of reassignment contained in any agreement providing for
reassignment upon the surrender or expiration of any option or lease;
 
 
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(iv)         easements, rights of way, servitudes, permits, surface leases and
other rights with respect to surface operations, on, over or in respect of any
of the Initial Leases or the Option Leases or any restriction on access thereto
that do not materially interfere with the operation of the affected lease;
 
(v)           liens created under deeds of trust, mortgages and similar
instruments by the lessor under a lease covering the lessor’s surface and
mineral interests in the land covered thereby which would customarily be
accepted in taking oil and gas leases or purchasing undeveloped oil and gas
leases and for which the lessee would customarily seek a subordination of such
lien to the oil and gas leasehold estate prior to conducting drilling activities
on the lease;
 
(vi)          liens for taxes or assessments not yet due and delinquent or, if
delinquent, that are being contested in good faith in the normal course of
business;
 
(vii)        such Title Defects as Buyer has waived;
 
(viii)       minor defects and irregularities in title or other restrictions
that are of the nature customarily accepted by prudent purchasers of oil and gas
properties and do not materially affect the value of any lease encumbered
thereby or materially impair the ability of the lessee to use any such property
in its operations; provided the effect thereof does not operate to reduce the
Net Revenue Interest in such lease below 80% (or such lower Net Revenue Interest
with respect to a lease as may be specified in Exhibit C), proportionately
reduced in the event Seller’s working interest in the subject lease is less than
100% or the subject lease covers less than 100% of the mineral estate in the
lands covered thereby; and
 
(ix)          Area of Mutual Interest Agreement, dated as of March 12, 2009, by
and between Fort Peck Energy Company and the Assiniboine and Sioux Tribes of the
Fort Peck Indian Reservation (the “Fort Peck AMI Agreement”), and the terms and
provisions of the Initial Leases.
 
(c)           “Title Defect” means any lien, encumbrance, adverse claim,
default, expiration, failure, defect in or objection to real property title,
other than Permitted Encumbrances, that alone or in combination with other
defects renders Seller’s title to be less than Defensible Title.
 
Section 2.2            Title Defect.
 
(a)           For a period of twelve (12) months following the Effective Date
(the “Title Examination Period”), Buyer shall have the right to notify Seller in
writing of any Title Defects identified by Buyer that cause Seller to have less
than Defensible Title to the Block A Purchased Acreage.  To be effective, such
notice (the “Title Defect Notice”) must (i) be in writing, (ii) be received by
Seller prior to the expiration of the Title Examination Period, (iii) describe
the Title Defect in reasonable detail (including any alleged deficiency in the
Net Revenue Interest or any alleged Acreage Deficiency), (iv) identify the
specific leases affected by such Title Defect, (v) include the value of such
Title Defect as determined by Buyer in good faith; provided that such value
shall in no event exceed the amount paid by Buyer therefor; and (vi) include a
copy of a drill site title opinion rendered by an attorney licensed in the state
of Montana (such opinion to be prepared at Buyer’s cost and expense) identifying
the Title Defect.  Any matters that may otherwise constitute Title Defects, but
of which Seller has not been specifically notified by Buyer in accordance with
the foregoing, shall be deemed to have been waived by Buyer for all purposes.
 
 
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(b)          Upon the receipt of an effective Title Defect Notice from Buyer,
Seller shall have the option, but not the obligation, to attempt to cure such
Title Defect(s).  The cost of such cure or attempted cure of such Title Defect
shall be borne by Seller.
 
(i)           With respect to each Title Defect that consists of an Acreage
Deficiency, as defined below, that is not cured within 180 days following
receipt of the Title Defect Notice (the “Cure Period”), Seller shall, at
Seller’s election, either (i) refund to Seller an amount equal to the price per
net acre paid by Seller with respect to the affected lease, multiplied by a
fraction, the numerator of which is the difference between the number of Net
Acres to have been assigned by Seller to Buyer pursuant hereto and for which
Buyer paid (“Intended Acres”) and the actual Net Acres so assigned (“Actual
Acres”) (such difference being referred to herein as the “Acreage Deficiency”),
and the denominator of which is the Intended Acres; or (ii) assign to Buyer
additional Block A leases, or portions thereof, for which Seller has Defensible
Title and reasonably acceptable to Buyer, covering Net Acres at least equal to
the Acreage Deficiency.
 
(ii)          With respect to each Title Defect that is not cured prior to
expiration of the Cure Period that consists of the Net Revenue Interest assigned
to Buyer in the affected lease being less than 80% (or such lower Net Revenue
Interest with respect to a lease as may be specified in Exhibit C),
proportionately reduced to the extent that Seller assigned less than the entire
working interest in the affected lease or the affected lease covers less than
the entire mineral estate, (x) Buyer may, at Buyer’s election, waive the Title
Defect, in which case Buyer shall accept the lease without adjustment or refund
of the Purchase Price paid therefor; (y) Buyer may, at Buyer’s election, reject
the affected lease, in which case Buyer shall reassign the affected lease to
Seller, free and clear of all liens, claims and encumbrances arising by, through
or under Buyer, and Seller shall refund to Buyer an amount equal to the Purchase
Price paid by Buyer for such lease; or (z) Seller may remove the affected lease
from the Initial Leases to be delivered at Closing and instead assign to Buyer
replacement Block A leases, or portions thereof, for which Seller has Defensible
Title and reasonably acceptable to Buyer, covering Net Acres at least equal to
the Net Acres covered by the affected lease and having a Net Revenue Interest of
at least 80% (or such lower Net Revenue Interest with respect to the affected
lease as may be specified in Exhibit C).
 
Section 2.3           Consents.  Sellers shall use commercially reasonable
efforts to obtain all required consents to assignment of the Initial Leases and,
if applicable, the Option Leases.  Except for consents and approvals which are
customarily obtained post-Closing (including without limitation federal, state
or other governmental approvals), if a consent to assign any lease has not been
obtained as of the Closing Date, with respect to the Initial Leases, or the
Option Closing Date, with respect to the Option Leases, as applicable, then at
Buyer’s election, the affected lease(s) shall be (a) conveyed to Buyer and the
respective consents obtained by Buyer post-Closing and Buyer shall assume the
risk of not obtaining such consents (provided that after Closing Seller shall
continue to cooperate with Buyer to obtain such consent(s), or (b) held by
Seller on behalf of Buyer until such consent(s) have been obtained; provided,
however, that if such consents are not obtained within 120 days after the
Closing Date or, with respect to the Optional Acreage, within 120 days after the
Option Closing Date, then Seller may retain the affected leases and refund Buyer
the purchase price paid therefor.
 
 
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Section 2.4           Special Warranty of Title; Subrogation of Warranties.  The
assignments delivered by Seller to Buyer pursuant hereto shall provide that,
subject to Permitted Encumbrances, Seller shall warrant Defensible Title to the
leases free and clear of liens, claims and encumbrances arising by, through or
under Seller, but not otherwise.  Sellers shall grant to Buyer, its successors
and assigns, full power and right of substitution and subrogation in and to all
covenants, indemnities and warranties (including warranties of title) given or
made by preceding owners, vendors, or others with respect to the subject
leases.  Buyer acknowledges and agrees that, except with respect to breaches of
Seller’s special warranty of title, Buyer’s sole remedy for any defect of title,
including any Title Defect, with respect to any of the leases assigned to it
shall be as set forth in Section 2.2.
 
Section 2.5           Title Benefit.  If during the Title Examination Period
Seller determines that the Actual Acres covered by a lease exceed the Intended
Acres (a “Title Benefit”) with respect to a lease assigned by Seller to Buyer,
Seller shall notify Buyer in writing prior to the expiration of the Title
Examination Period.  Within thirty (30) days following notification of the Title
Benefit, Buyer shall pay Seller an amount equal to the amount by which Actual
Acres exceed Intended Acres, multiplied by the purchase price per acre paid by
Buyer for the affected lease.
 
ARTICLE III.
DRILLING COMMITMENT
 
Section 3.1           Initial Test Wells.
 
(a)           Subject to Force Majeure, as defined herein, Buyer commits to (i)
drill two (2) initial test wells (each, a “Test Well” and, collectively, the
“Test Wells”) on the Initial Acreage or the Mattelin Leases, each Test Well (or
a Substitute Well therefor) to be drilled to a depth sufficient to test the
Middle Bakken and Three Forks formations (“Objective Depth”) and (ii) to run
three (3) thirty foot (30’) core barrels for each Test Well from the top of the
Middle Bakken through the top 18 meters, approximately, of the Three Forks
formation.  Seller shall have the right to review any recovered core, but such
recovered core shall be jointly owned by Buyer and Seller and Buyer shall retain
possession of such recovered core, as Operator of the Test Wells.  Buyer shall
use commercially reasonable best efforts to drill each of the two (2) initial
Test Wells a minimum lateral length of at least 4,500 feet and comply with the
technical requirements set forth on Exhibit G attached hereto.  In the event
Buyer completes either or both of the Test Wells, Buyer shall perform
multi-stage fracture stimulation of such completed Test Well(s); provided,
however, that Buyer shall not be required to conduct such fracture stimulation
if a reasonable, prudent operator would not conduct such operation for fear of
placing the hole, life or property in jeopardy.
 
(b)           Subject to Force Majeure, drilling of the first Test Well on the
Initial Acreage or the Mattelin Leases (the “First Test Well”) shall be
commenced before the later to occur of (i) October 1, 2011 or (ii) three (3)
months following receipt of a drilling permit for such well; provided that Buyer
shall use commercially reasonable efforts to cooperate with Seller in obtaining
a drilling permit for the First Test Well as soon as possible after the
Effective Date.
 
 
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(c)           Subject to Force Majeure, drilling of the second well on the
Initial Acreage or the Mattelin Leases (the “Second Test Well”) shall be
commenced before the later to occur of (i) December 31, 2011 or (ii) three (3)
months following receipt of a drilling permit for such well; provided that Buyer
shall use commercially reasonable efforts to cooperate with Seller to obtain a
drilling permit for the Second Test Well as soon as possible after the
completion of drilling of the First Test Well.
 
(d)           At least 75% of the surface acres included in any unit in which
the First Test Well or the Second Test Well is drilled shall be comprised of
Block A Purchased Acreage.
 
(e)           In the event Buyer fails to timely commence either the First Test
Well or the Second Test Well within the respective time periods provided above,
or thereafter fails to drill either Test Well (or a Substitute Well therefor) to
the Objective Depth, such failure shall be deemed a material breach of this
Agreement and, in the event of such breach, Seller may, upon written notice to
Buyer, terminate this Agreement and, upon such termination:
 
(i)           If this Agreement is terminated due to Buyer’s failure to timely
commence the First Test Well or failure to drill the First Test Well (or a
Substitute Well therefor) to the Objective Depth, then Buyer shall immediately
relinquish and reassign to Seller all right, title and interest in and to the
Initial Leases and the Mattelin Leases, free and clear of all liens, claims or
encumbrances arising by, through or under Buyer, provided however, that Buyer
shall retain all interest in the Hull Lease, as defined herein.
 
(ii)           If Buyer timely drills the First Test Well (or a Substitute Well
therefor) to the Objective Depth but this Agreement is terminated due to Buyer’s
failure to timely commence the Second Test Well or failure to drill the Second
Test Well (or a Substitute Well therefor) to the Objective Depth, then Buyer
shall immediately relinquish and reassign to Seller all right, title and
interest in and to the Initial Leases and the Mattelin Leases, free and clear of
all liens, claims or encumbrances arising by, through or under Buyer, provided,
however, that Buyer shall retain (y) its interest in the First Test Well and the
Initial Leases and the Mattelin Leases insofar and only insofar as they are
included in the spacing unit for the First Test Well, and (z) all interest in
the Hull Lease, as defined herein, subject to Seller’s overriding royalty
interest and participation rights therein pursuant to Section 3.1(h), if
applicable.
 
(iii)           If, prior to reaching the Objective Depth, a Test Well
encounters mechanical difficulties, heaving shale, rock salt, excessive
saltwater flow, practicably impenetrable formations or other conditions in the
hole that would cause a reasonably prudent operator under the same or similar
circumstances to discontinue drilling and to abandon such Test Well, Buyer shall
have the right, within one hundred twenty (120) days after the rig was released
from the last operation on such Test Well, to commence drilling of a substitute
well therefor (“Substitute Well”) at a location selected by Buyer on the Initial
Leases.  If a Substitute Well is timely commenced and drilled to the Objective
Depth, then such Substitute Well shall in all respects be considered as if it
were the Test Well for which it is substituted.
 
 
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(f)           In the event drilling permits for the First Test Well are not
obtained, whether due to Force Majeure or otherwise, within twelve (12) months
after the Closing Date, then Seller may, upon written notice to Buyer terminate
this Agreement, provided that the failure to obtain such permit is not as a
result of a material breach of this Agreement by Seller.  In the event drilling
permits for the First Test Well are not obtained, whether due to Force Majeure
or otherwise, within 24 months after the Closing Date, then Buyer may, upon
written notice to Seller terminate this Agreement, provided that the failure to
obtain such permit is not as a result of a material breach of this Agreement by
Buyer.  Within fifteen (15) days after either such termination, (i) Buyer shall
reassign to Seller all right, title and interest in and to the Initial Leases
and the Mattelin Leases, free and clear of all liens, claims or encumbrances
arising by, through or under Buyer, provided however, that Buyer shall retain
all interest in the Hull Lease, as defined herein, and (ii) if the failure to
obtain such drilling permits is the result of Force Majeure or Seller’s material
breach of this Agreement, Seller shall refund the Purchase Price to Buyer, by
wire transfer of immediately available funds.
 
(g)           In the event drilling permits for the Second Test Well are not
obtained, whether due to Force Majeure or otherwise, within six (6) months after
the date on which the drilling permit for the First Test Well is obtained, then
Seller may, upon written notice to Buyer, terminate this Agreement, provided
that the failure to obtain such permit is not as a result of a material breach
of this Agreement by Seller.  Within fifteen (15) days after such termination,
(i) Buyer shall reassign to Seller all right, title and interest in and to the
Initial Leases and the Mattelin Leases, free and clear of all liens, claims or
encumbrances arising by, through or under Buyer; provided, however, that Buyer
shall retain its interest in the First Test Well and the Initial Leases and the
Mattelin Leases insofar and only insofar as they are included in the spacing
unit for the First Test Well; and (ii) if the failure to obtain such drilling
permits is the result of Force Majeure or Seller’s material breach of this
Agreement, Seller shall refund the Purchase Price to Buyer, by wire transfer of
immediately available funds; provided, however, that Seller shall retain (y)
that portion of the Purchase Price attributable to the Initial Leases and the
Mattelin Leases insofar and only insofar as they are included in the spacing
unit for the First Test Well,  and (z) all interest in the Hull Lease, as
defined herein, subject to Seller’s overriding royalty interest and
participation rights therein pursuant to Section 3.1(h), if applicable.
 
(h)           Notwithstanding any other provision hereof, the Parties agree that
for the purposes of this Section 3.1, either or both of the Test Wells may be
drilled on acreage comprised in whole, or in part, of that certain oil and gas
lease owned by Buyer, dated July 10, 2006, recorded at Reception No. 371647 of
the records of Roosevelt County, Montana, by and between Elizabeth M. Hull, as
lessor, and East Fort Peck Exploration, as lessee, insofar as it covers
approximately 960 acres in Section 3, Township 28 North, Range 54 East, and
Section 35, Township 29 North, Range 54 East, Roosevelt County, Montana (the
“Hull Lease”), and such Hull Lease shall be deemed to be included in the Initial
Acreage for the purposes of this Section 3.1.  In the event that either or both
of the Test Wells is drilled on lands comprised in whole or in part of the Hull
Lease, then (i) Seller’s Test Well participation option pursuant to Section
4.1(a) and its Acreage Participation Option pursuant to Section 4.1(b) shall
extend to and apply to the Hull Lease; (ii) in the event Buyer exercises any
such participation option, the Tag-Along .Right pursuant to Section 1.15 shall
apply to the Hull Lease, and (iii) Buyer shall assign to Seller an overriding
royalty interest in and to the Hull Lease equal to the positive difference, if
any, between 20% and Lease Burdens thereon existing as of the Effective Date, in
each case as though the Hull Lease were an Initial Lease.  For the avoidance of
doubt, the Hull Lease shall not be deemed to be an Initial Lease, but shall be
treated in the same manner as an Initial Lease to the extent expressly so
provided in this Section 3.1(h).
 
 
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Section 3.2           Force Majeure.
 
(a)           If either Party (an “Affected Party”) is rendered unable, in whole
or in part, by Force Majeure to carry out its obligations under this Agreement,
other than the obligation to make money payments, the Affected Party shall give
the other Party prompt written notice of the force majeure with reasonably full
particulars concerning it; thereupon, the obligations of the Affected Party,
insofar as they are affected by the Force Majeure, shall be suspended during,
but no longer than, the continuance of the Force Majeure.  The Affected Party
shall use best efforts to remove the Force Majeure situation as quickly as
possible.  The requirement that any Force Majeure shall be remedied as quickly
as possible shall not require the settlement of strikes, lockouts, or other
labor difficulty by the Affected Party, and the manner in which such
difficulties are handled shall be entirely within the discretion of the Affected
Party concerned.
 
(b)           Notwithstanding the foregoing, in the event drilling permits for
the Test Wells are not timely obtained due to Force Majeure, this Agreement may
nevertheless be terminated in accordance with Section 3.1(f) or Section
3.1(g), as applicable, provided that the remedies for termination upon the
occurrence of an event of Force Majeure, as set out in Section 3.1(f) or Section
3.1(g), as applicable, shall apply.
 
(c)           As used herein, the term “Force Majeure” shall mean an act of God,
strike, lockout, or other industrial disturbance, act of public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay or inaction, including but not limited to delay in
obtaining necessary permits, approvals or orders from the Bureau of Land
Management, the Montana Board of Oil and Gas Conservation, or any other federal,
tribal, state or local governmental agency or body, or any regulatory delay
caused by such governmental agencies or bodies, in each case only to the extent
such delay or inaction is not due to any act or omission of the Affected Party,
and any other cause, whether of the kind specifically enumerated above or
otherwise, in each case which is not reasonably within the control of the
Affected Party.
 
Section 3.3           Additional Drilling.  The Parties may drill additional
wells pursuant to Section 6.1 hereof.
 
 
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ARTICLE IV.
SELLER’S PARTICIPATION OPTION
 
Section 4.1           Seller’s Participation Option.
 
(a)           Test Well Participation Option.  Within thirty (30) days after
each Test Well has been drilled, stimulated and completed, placed on production
and achieved Stabilized Production, as herein defined (“Drilling and
Completion”), Buyer shall provide Seller written notice of such Drilling and
Completion (each, a “Production Notice”).  As used herein, “Stabilized
Production” shall mean that point in time at which hydrocarbons are produced in
paying quantities from the Test Well during at least 20 days of each calendar
month for a period of 3 calendar months.  Each Production Notice shall include a
statement of the costs incurred by Buyer to drill, complete and stimulate the
subject Test Well, equip the Test Well for production and transport the
production to the point of sale (“Buyer’s Drilling Costs”).  Upon delivery of
each Production Notice and a subsequent written notice provided within ninety
(90) days thereafter (the “90 Day Notice”), Buyer shall also provide detailed
history for such Test Well, including (i) daily drilling and completion reports,
(ii) offset activity information, to the extent reasonably available to Buyer,
(iii) well activity following Drilling and Completion, (iv) daily production
reports (including reports on all fluid), and (v) any and all other material
information or information reasonably requested by Seller and available to Buyer
that permit Seller to make an informed decision to participate in the Test Well
(the “Well Information”).  Within fourteen (14) days following receipt of the 90
Day Notice, Seller shall have the option, but not the obligation, to acquire
from Buyer an undivided 33.3% interest in the Test Well covered by such
Production Notice, such option to be exercised by Seller upon written notice to
Buyer delivered within such fourteen (14) day period.  Seller may make its
elections with respect to each Test Well separately.  In the event Seller
exercises such option, Seller shall, within fourteen (14) days, pay to Buyer an
amount (the “Test Well Option Price”) equal to 33.3% of Buyer’s Drilling Costs
and the lease acquisition costs paid by Buyer for the leases included in the
spacing unit for such Test Well (collectively, “Well Costs”), and Buyer shall
execute, acknowledge and deliver to Seller an assignment of an undivided 33.3%
interest in (i) the subject Test Well, (ii) any related equipment and (iii) the
leases included in the spacing unit for such Test Well, such assignment to be
free and clear of all liens, claims or encumbrances arising by, through or under
Buyer and to be effective as of the date of first sales of production from such
Test Well.   The Test Well Option Price payable by Seller shall be adjusted
downward by an amount equal to the proceeds received by Buyer from sales of
hydrocarbons attributable to Seller’s 33.3% interest in such Test Well, from the
date of first sales from such Test Well.
 
(b)           Acreage Participation Option.  In addition to the option provided
in subparagraph (a) above, Seller shall have the option (the “Acreage
Participation Option”) to acquire an undivided 33.3% working interest in that
portion of the Block A Purchased Acreage that has not been included in the
spacing units for the First Test Well and the Second Test Well (the “Remaining
Block A Purchased Acreage”), which Acreage Participation Option may be exercised
(i) as to the Initial Acreage, at any time on or before fourteen (14) days
following Seller’s receipt of the 90 Day Notice for the Second Test Well and the
Well Information for the Second Test Well reasonably requested by Seller, and
(ii) as to the Optional Acreage, at any time on or before 90 days after Buyer’s
exercise of its Option pursuant to Section 1.13.  In the event Seller exercises
such option, (x) Seller shall, within fourteen (14) days after Seller’s exercise
of the option, pay to Buyer an amount equal to 33.3% of the Purchase Price or
Option Price, as applicable, paid by Buyer pursuant hereto for the leases
included in the Remaining Block A Purchased Acreage, and (y) Buyer shall
execute, acknowledge and deliver to Seller an assignment of an undivided 33.3%
interest in such leases, such assignment to be free and clear of liens, claims
and encumbrances arising by, through or under Buyer.
 
 
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ARTICLE V.
AREA OF MUTUAL INTEREST
 
Section 5.1           Area of Mutual Interest.
 
(a)           The Parties hereby create an area of mutual interest (“Area of
Mutual Interest” or “AMI”) covering all lands located within the boundaries of
the area depicted on the map attached as Exhibit E hereto.  The term of the AMI
(the “AMI Term”) shall commence on the Effective Date and shall end on the
second anniversary of the Closing Date.
 
(b)           Promptly after the Effective Date, Buyer and Seller shall, upon
mutual written agreement, designate up to 50,000 Net Acres within the AMI (the
“Target Lands”) over which they may mutually endeavor to acquire leases.  The
designated Target Lands may be modified or supplemented from time to time upon
mutual written agreement of the Parties.  During the AMI Term, Buyer and Seller
shall meet at least monthly by teleconference or in person at Seller’s office in
Poplar, Montana or another mutually acceptable location (the “Target
Meeting”)  Seller shall prepare and circulate an agenda for each Target Meeting
(which agenda shall include discussion items requested by Buyer) at least three
(3) business days prior to the meeting.  Seller shall be the chair of each
Target Meeting and shall keep written minutes thereof, copies of which shall be
furnished to Buyer, detailing the actions taken and decisions made at the Target
Meeting.  At the Target Meetings, Buyer and Seller shall discuss the acquisition
of leases covering the Target Lands, the status of leasing activities within the
Target Lands, including the description of leases acquired and outstanding lease
offers, and, if known to the Seller, identification of changes in availability
of acreage or of ownership of leases or acreage within the Target Lands.  When
determining whether to acquire additional Target Lands, Buyer and Seller shall
mutually establish during the Target Meeting:  (i) leasing priorities for such
Target Lands, (ii) a proposed timeline for leasing such Target Lands, (iii) the
maximum bonus price to be paid for such Target Lands, and (iv) the minimum
acceptable lease terms and any other terms regarding leasing of such Target
Lands, as mutually agreed upon by the Seller and Buyer (collectively, the
“Target Lease Terms”).  Thereafter, the Target Lease Terms may be modified at
any time upon mutual agreement of the Parties.
 
(c)           Either Party may acquire leases covering the Target Lands.  Leases
covering lands within the AMI and acquired by either Party during the AMI Term
are referred to herein as the “AMI Leases”.
 
(d)           At any time following the Parties’ agreement on Target Lease Terms
for particular Target Lands, but in any event prior to the acquisition by either
Party of an AMI Lease covering such Target Lands, Seller may notify Buyer that
it will not participate in acquiring leasehold interests in such Target Lands
(the “Opt-Out Lands”).  In such event, if Buyer still wishes to acquire the
Opt-Out Lands, Seller may continue to assist in the acquisition of leases
covering the Opt-Out Lands on behalf of Buyer, but it shall have no obligation
to acquire or retain for itself any working interest in the Opt-Out Lands.  If
during the AMI Term Seller acquires leases covering the Opt-Out Lands conforming
to the Target Lease Terms, Seller shall sell to Buyer, and Buyer shall purchase
from Seller, all of Seller’s interest therein for the AMI Purchase Price.  If
during the AMI Term Buyer acquires leases covering the Opt-Out Lands, Seller
shall have no right or obligation to purchase any interest therein from Buyer,
and Buyer shall retain all of its interest therein, subject to Seller’s
overriding royalty interest pursuant to Section 5.1(h) herein.
 
 
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(e)           Except as otherwise provided herein, the Party acquiring an AMI
Lease during the AMI Term (the “Acquiring Party”) agrees to sell, and the other
Party (the “Non-Acquiring Party”) agrees to purchase its respective
Participating Interest, as defined herein, in, the AMI Lease for a purchase
price (the “AMI Purchase Price”) equal to the sum of (i) the Non-Acquiring
Party’s respective Participating Interest share of the lease bonus and first
year rental paid by the Acquiring Party for the AMI Lease, together with any
other amounts paid by the Acquiring Party to acquire the AMI Lease, plus in the
case where Seller is the Acquiring Party, (ii) $50 per net acre; provided,
however, that unless the Non-Acquiring Party’s prior approval is obtained, the
Non-Acquiring Party shall have no obligation to purchase from the Acquiring
Party any AMI Leases (x) in which the Net Revenue Interest in the subject lease
is less than 80% (subject to proportionate reduction in the event that the
acquired working interest in the lease is less than 100% or the lease covers
less than the entire mineral estate in the lands covered thereby) or (y) which
is acquired for a higher bonus or on other terms materially less favorable than
those agreed to by the Parties as set forth in Section 5.1(b).  The Acquiring
Party shall pay the lease bonus and first year rental for the leases comprising
the AMI Leases acquired by it, subject to the Non-Acquiring Party’s obligation
to reimburse the Acquiring Party for the Non-Acquiring Party’s Participating
Interest share thereof, as provided above, and the Non-Acquiring Party shall
assume, and bear responsibility for payment of its Participating Interest share
of all other obligations under the leases comprising the AMI Leases.
 
(f)           As used herein, the term “Participating Interest” shall mean with
respect to Buyer, 66.7%, and with respect to Seller, 33.3%; provided, however,
that as to the Opt-Out Lands, Participating Interest shall mean, with respect to
Buyer, 100%, and with respect to Seller, 0%.
 
(g)           The Acquiring Party shall notify the Non-Acquiring Party of its
acquisition of AMI Leases (including acquisitions of leases covering Opt-Out
Lands) at least quarterly during the AMI Term, and within thirty (30) days after
Non-Acquiring Party’s receipt of an acquisition notice from the Acquiring Party
specifying the interests acquired and the amounts paid by the Acquiring Party
therefor, the Non-Acquiring Party shall pay to the Acquiring Party the AMI
Purchase Price therefor, pursuant to Section 5.1(e), and the Acquiring Party
shall execute, acknowledge and deliver to the Non-Acquiring Party assignments
(each an “AMI Assignment”) of the Non-Acquiring Party’s Participating Interest
in the AMI Leases.
 
(h)           Notwithstanding any other provision hereof, Seller shall reserve
or be assigned, as applicable, an overriding royalty interest in each of the AMI
Leases (including any leases covering Opt-Out Lands), equal to the positive
difference, if any, between 20% and lease burdens existing as of the effective
date of such assignment, including, without limitation, lessors’ royalties,
overriding royalties, and similar burdens on or measured by production from the
AMI Leases.  Such overriding royalty interest shall apply to each AMI Lease,
regardless of whether such AMI Lease was initially acquired by Buyer or Seller
and notwithstanding Seller’s election not to participate in the acquisition of
leases covering the Opt-Out Lands.
 
 
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(i)            If Buyer identifies any Title Defects with respect to AMI
Lease(s) covered by an AMI Assignment within the earlier to occur of twenty-four
(24) months following the effective date of such assignment or the commencement
of the drilling of a well on a spacing unit which includes lands covered
thereby, Buyer shall provide Seller a Title Defect Notice in accordance with the
provisions of Section 2.2(a), and for a period of 180 days following receipt of
such Notice, Seller shall have the right, but not the obligation, to attempt to
cure the Title Defect.  The cost of such title curative shall be borne by Buyer
in proportion to its Participating Share with respect to the affected AMI
Lease.  In the event Seller is unable to cure the Title Defect, all further
losses, costs and liabilities arising from or relating to the Title Defect shall
be borne by Buyer in proportion to its Participating Share with respect to the
affected AMI Lease.
 
Section 5.2           Marketing AMI Leases to Third Parties.  Buyer shall have
the option, but not the obligation, to drill an appraisal well (the “Stimulation
Well”) on the acreage within the AMI assigned to it by Seller.  In the event the
drilling of a Stimulation Well is not commenced within twenty-four (24) months
after the Effective Date, then Buyer and Seller agree to reasonably cooperate
with one another to locate a third party to participate in the development of
the AMI Leases, with the mutual goal of maximizing the economic returns within
the AMI for both Buyer and Seller.  Seller shall lead the effort to locate a
third party participant, but Seller shall have no liability to Buyer in the
event it is unable to locate such a third party participant.
 
Section 5.3           Seller’s AMI Option.  For the initial Stimulation Well
drilled in the AMI Leases, Seller shall assign to Buyer Seller’s retained 33.3%
interest in the leases included in the drill site spacing unit designated by the
applicable governmental agency for such well, and if no such spacing unit
designation exists, then Seller shall assign its retained 33.3% interest in the
640 acres upon which the drill site is located.  Within thirty (30) days after
the Drilling and Completion of the initial Stimulation Well, Buyer shall provide
Seller a Production Notice and a 90 Day Notice, each such notice to be
accompanied by a statement of Buyer’s Drilling Costs for such well and the Well
Information.  Within fourteen (14) days following the receipt of the 90 Day
Notice, Seller shall have the option, but not the obligation, to acquire from
Buyer an undivided 33.3% interest in the initial Stimulation Well, such option
to be exercised by Seller upon written notice to Buyer delivered within such
fourteen (14) day period.  In the event Seller exercises such option, Seller
shall, within fourteen (14) days pay to Buyer an amount equal to 33.3% of
Buyer’s Well Costs, and Buyer shall execute, acknowledge and deliver to Seller
an assignment of an undivided 33.3% interest in (i) the initial Stimulation
Well, (ii) any related equipment and (iii) the leases included in the spacing
unit for the initial Stimulation Well, such assignment to be free and clear of
all liens, claims or encumbrances arising by, through or under Buyer and to be
effective as of the date of first sales of production from the initial
Stimulation Well.
 
Section 5.4          Mattelin Property.  The Parties acknowledge that Seller is
currently in discussions with the Mattelin Mineral Trust, as mineral owner, to
acquire oil and gas leases covering approximately 2,527 Net Acres, as more
particularly described in Exhibit I (the “Mattelin Leases”).  Subject to the
provisions of this Section 5.4, Seller agrees to use good faith commercial
efforts to acquire the Mattelin Leases on or before Closing.  Seller shall
obtain Buyer’s prior written approval of the final terms of any Mattelin Lease,
whereupon Seller shall acquire such Mattelin Lease, and notwithstanding any
other provision hereof, Seller shall bear up to $100 per Net Acre of acquisition
costs for such Mattelin Lease, and Buyer shall bear any acquisition costs
therefor over $100 per Net Acre.  Seller shall notify Buyer upon consummation of
such acquisition and within five (5) business days after receipt of such notice,
Buyer shall pay to Seller its share of the acquisition costs for such Mattelin
Lease and Seller shall deliver to Buyer an assignment of an undivided 66.7%
interest in the Mattelin Lease, subject to Seller’s retained overriding royalty
interest provided in Section 5.1(h).
 
 
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ARTICLE VI.
OPERATORSHIP
 
Section 6.1           Joint Operating Agreement.  To the extent not subject to
an existing joint operating agreement, the Parties’ interests in the Block A
Purchased Acreage and in the AMI shall be subject to a joint operating agreement
substantially in the form of Exhibit F attached hereto (the “Joint Operating
Agreement”).  Buyer shall be designated the Operator under the Joint Operating
Agreement.  Notwithstanding the foregoing, Buyer shall subcontract with Seller
on mutually acceptable, customary commercial terms, to provide services in
connection with obtaining necessary regulatory permits in connection with the
drilling of wells hereunder, including, without limitation, the First Test Well
and the Second Test Well.  After the completion of drilling of the Second Test
Well, either Party shall have the right, but not the obligation, to propose the
drilling of additional wells within the Block A Purchased Acreage and the AMI
Leases.  Each well proposal shall be in writing, and shall include the depth and
location of the proposed well, a description (including acreage boundaries) of
the structural feature (seismically defined, where available) targeted by the
proposed well, an AFE setting out a reasonable estimate of the anticipated costs
of the proposed well, and an executable joint operating agreement (an
“Additional Joint Operating Agreement”), substantially in the form of Exhibit F,
which shall provide for a Contract Area covering the spacing unit for the
proposed well.  All of the Parties, whether or not they intend to participate in
the proposed well, shall execute the Additional Joint Operating Agreement, and
all further operations for the proposed well shall thereafter be controlled by
the terms of such Additional Joint Operating Agreement.  Buyer shall be
designated the operator under any Additional Joint Operating Agreement.  In the
event of a conflict between the terms of this Agreement and any joint operating
agreement under this Section 6.1, this Agreement will control.
 
ARTICLE VII.
SELLER’S REPRESENTATIONS AND WARRANTIES
 
Section 7.1          Seller’s Representations and Warranties.  Seller makes the
following representations and warranties:
 
(a)           Organization and Standing.  Seller is a limited liability company
duly organized, validly existing and in good standing under the laws of Delaware
and is duly qualified to carry on its business in the State(s) where lands
covered by Block A and the AMI are located.
 
 
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(b)          Power.  Seller has all requisite power and authority to carry on
its business as presently conducted.  The execution and delivery of this
Agreement does not, and the fulfillment of and compliance with the terms and
conditions hereof will not, as of the Closing Date, violate, or be in conflict
with, any material provision of Seller’s governing documents, or any material
provision of any agreement or instrument to which Seller is a party or by which
it is bound, or any judgment, decree, order, statute, rule or regulation
applicable to Seller.
 
(c)           Authorization and Enforceability.  This Agreement constitutes
Seller’s legal, valid and binding obligation, enforceable in accordance with its
terms, subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws for the protection of creditors, as
well as to general principles of equity, regardless whether such enforceability
is considered in a proceeding in equity or at law.
 
(d)           Liability for Brokers’ Fees.  Seller has not incurred any
liability, contingent or otherwise, for brokers’ or finders’ fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
 
(e)           Lawsuits and Claims.  Except as disclosed in Schedule 7.1(e),
there is no written demand or lawsuit, nor any compliance order, notice of
probable violation or similar governmental action, pending or threatened before
any court or governmental agency that (i) would result in a material impairment
or loss of title to any part of the Initial Leases or impairment of the value
thereof, (ii) seeks the imposition of substantial damages with respect to the
Initial Acreage, or (iii) would materially hinder or impede the operation of the
Initial Acreage.
 
(f)           Compliance with Laws.  Seller is not in violation of, and Seller
has received no notice that Seller is alleged to be in violation of, any law,
rule, regulation, order, permit, certificate, writ, judgment, stipulation,
injunction, decree, determination, award, or decision of any court, government,
or governmental agency or instrumentality, or arbitrator binding upon Seller
which violation or alleged violation is reasonably likely to have an adverse
effect on:  (1) the Initial Acreage or its value; or (2) the ability of Seller
to perform under this Agreement.
 
(g)           Taxes.  Seller has paid in full all taxes, assessments, and other
charges assessed or imposed on Seller with respect to the Initial Leases by any
local, state, tribal, or federal taxing authority, other than income or sales
taxes, except those that are not yet past due and payable.
 
(h)           Allegations of Breach or Default.  Seller is not in breach or
default in any material respect, and Seller has received no notice that it is
alleged to be in breach or default in any material respect, under the terms of
any leases or related contracts comprising a part of or affecting the Initial
Acreage, which breach or default has not been cured by Closing, and the Initial
Leases are in full force and effect and Seller has made all payments (including
any applicable bonus, delay rentals, or similar payments) due thereunder or
required to be made by Seller to maintain the Initial Leases in effect.
 
(i)           Non-Producing.  The Initial Leases are non-producing and Seller
has not engaged in any oil or gas production or development activities on any of
the Initial Leases.
 
 
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(j)           No Production Dedications.  No Hydrocarbons to be produced from
the Initial Acreage are subject to any hydrocarbon sales, purchase or exchange
contracts and no third party has any call upon, option to purchase, take-or-pay
obligations, dedication rights or similar rights with respect to the
Hydrocarbons to be produced from the Initial Acreage.
 
(k)           Consents and Preferential Purchase Rights. Except for the Fort
Peck AMI Agreement, none of the Initial Acreage, including any lease thereon, or
any portion thereof, is subject to any area of mutual interest requirements,
preferential rights to purchase or restrictions on assignment or required
third-party consents to assignment, which may be applicable to the transactions
contemplated by this Agreement.
 
ARTICLE VIII.
BUYER’S REPRESENTATIONS AND WARRANTIES
 
Section 8.1          Buyer’s Representations And Warranties.  Buyer makes the
following representations and warranties:
 
(a)           Organization and Standing.  Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Colorado and is duly
qualified to carry on its business in the State(s) where lands covered by Block
A and the AMI are located.
 
(b)           Power.  Buyer has all requisite power and authority to carry on
its business as presently conducted.  The execution and delivery of this
Agreement does not, and the fulfillment of and compliance with the terms and
conditions hereof will not, as of the Closing Date, violate, or be in conflict
with, any material provision of Buyer’s governing documents, or any material
provision of any agreement or instrument to which Buyer is a party or by which
it is bound, or any judgment, decree, order, statute, rule or regulation
applicable to Buyer.
 
(c)           Authorization and Enforceability.  This Agreement constitutes
Buyer’s legal, valid and binding obligation, enforceable in accordance with its
terms, subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws for the protection of creditors, as
well as to general principles of equity, regardless whether such enforceability
is considered in a proceeding in equity or at law.
 
(d)          Liability for Brokers’ Fees.  Buyer has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to the
transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
 
(e)           Buyer’s Evaluation.  Buyer is an experienced and knowledgeable
investor in the oil and gas business.  Buyer has been advised by and has relied
solely upon its own expertise in legal, tax and other professional counsel
concerning the transaction contemplated by this Agreement, the Initial Acreage
and the Optional Acreage and the value thereof.
 
(f)           Qualified to Hold Leases.  Buyer is eligible under all applicable
laws and regulations to own leases covering the Initial Acreage and the Optional
Acreage.
 
 
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ARTICLE IX.
POST-CLOSING OBLIGATIONS
 
Section 9.1           Post-Closing Obligations.  Seller and Buyer shall have the
following post-Closing obligations:
 
(a)           Property Records.  Within sixty (60) days after Closing, Seller
shall deliver to Buyer the originals of the Property Records at a location
designated by Buyer.  Any transportation, postage or delivery costs from
Seller’s offices shall be at Buyer’s sole cost, risk and expense.
 
(b)           Further Assurances.  Seller and Buyer agree to execute and deliver
from time to time such further instruments and do such other acts as may be
reasonably requested and necessary to effectuate the purposes of this Agreement.
 
ARTICLE X.
DISCLAIMERS
 
Section 10.1         Disclaimer; Title; Condition and Fitness of the
Properties.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE
ASSIGNMENT DELIVERED PURSUANT HERETO, SELLER WILL CONVEY TO BUYER THE INITIAL
ACREAGE AND, IF APPLICABLE, THE OPTIONAL ACREAGE, WITHOUT ANY EXPRESS,
STATUTORY, OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WITHOUT
LIMITATION WARRANTIES RELATING TO (i) TITLE, (ii) THE CONDITION OF THE PROPERTY,
(iii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OF THE PROPERTY, (iv)
ANY IMPLIED OR EXPRESS WARRANTY OF THE FITNESS OF THE PROPERTY FOR A PARTICULAR
PURPOSE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES
OF MATERIALS, (vi) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE ADJUSTED PURCHASE PRICE, (vii) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM VICES OR DEFECTS, WHETHER KNOWN OR
UNKNOWN, (viii) ANY IMPLIED WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT, (ix) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW
NOW OR HEREAFTER IN EFFECT, (x) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ANY
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, OR PROTECTION
OF THE ENVIRONMENT OR HEALTH, AND (xi) ANY RIGHTS OF BUYER UNDER STATUTES TO
CLAIM DIMINUTION OF VALUE.  EXCEPT AS SET FORTH IN THIS AGREEMENT OR IN THE
ASSIGNMENT, BUYER WILL ACCEPT THE PROPERTY “AS IS,” “WHERE IS,” AND “WITH ALL
FAULTS” AND IN ITS PRESENT CONDITION AND STATE OF REPAIR. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO
(a) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME, OR DELIVERABILITY OF ANY OIL,
GAS, OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER, OR ATTRIBUTABLE TO THE
PROPERTY, (b) THE PHYSICAL, OPERATING, REGULATORY COMPLIANCE, SAFETY, OR
ENVIRONMENTAL CONDITION OF THE PROPERTY, OR (c) THE GEOLOGICAL OR ENGINEERING
CONDITION OF THE PROPERTY OR ANY VALUE THEREOF.
 
 
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Section 10.2         Information About the Properties.  Except as expressly set
forth in this Agreement, each Party disclaims all liability and responsibility
for any representation, warranty, statement, or communication (oral or written)
to any other Party (including any information contained in any opinion,
information, or advice that may have been provided to any such Party by any
employee, officer, director, agent, consultant, engineer, or engineering firm,
trustee, representative, partner, member, beneficiary, stockholder, or
contractor of such disclaiming Party or its affiliates) wherever and however
made, including those made in any data room and any supplements or amendments
thereto or during any negotiations with respect to this Agreement.  EXCEPT AS
SET FORTH IN THIS AGREEMENT OR IN THE ASSIGNMENT, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, STATUTORY, OR IMPLIED, AS TO (i) THE ACCURACY,
COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION, OR RECORDS FURNISHED TO
BUYER IN CONNECTION WITH THE PROPERTY, (ii) THE PRESENCE, QUALITY, AND QUANTITY
OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTY, (iii) THE ABILITY
OF THE PROPERTY TO PRODUCE HYDROCARBONS, (iv) THE PRESENT OR FUTURE VALUE OF THE
ANTICIPATED INCOME, COSTS, OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTY,
OR (v) THE ENVIRONMENTAL CONDITION OF THE PROPERTY.
 
ARTICLE XI.
MISCELLANEOUS
 
Section 11.1         Exhibits and Schedules. The Exhibits and Schedules to this
Agreement are hereby incorporated in this Agreement by reference and constitute
a part of this Agreement.
 
Section 11.2        Expenses.  Except as otherwise specifically provided, all
fees, costs and expenses incurred by Buyer or Sellers in negotiating this
Agreement or in consummating the transactions contemplated by this Agreement
shall be paid by the Party incurring the same, including, without limitation,
engineering, land, title, legal and accounting fees, costs and
expenses.  Without limiting the generality of the foregoing, to the extent that
prior to the Effective Date Buyer has incurred costs and expenses in connection
with preliminary well site work, well assessment, well locations, and scouting,
such costs and expenses shall be borne solely by Buyer; provided, that, in the
event Seller elects to exercise its participation option pursuant to Section
4.1, Seller shall bear its share of any such costs which are acquisition costs.
 
Section 11.3        Notices.  All notices and communications required or
permitted under this Agreement shall be in writing and addressed as set forth
below.  Any communication or delivery hereunder shall be deemed to have been
duly made and the receiving Party charged with notice (i) if personally
delivered, when received, (ii) if sent by facsimile transmission, when received,
(iii) if mailed, five business days after mailing, certified mail, return
receipt requested, or (iv) if sent by overnight courier, one day after
sending.  All notices shall be addressed as follows:
 
 
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If to Seller:

Fort Peck Energy Company, LLC
317 C East Street
Poplar, MT  59255
Attn:  Mr. Lynn Becker
Telephone:  (406) 768-3093
Fax:  (406) 768-3504
Email:  Becker@NARPLLC.com

With copies to:

Andrews Kurth LLP
600 Travis, Suite 4200
Houston, TX 77002
Attention:  Cheryl S. Phillips
Telephone: (713) 220-4200
Fax: (713) 220-4285
Email: cphillips@andrewskurth.com

If to Buyer:

Samson Oil and Gas USA Montana, Inc.
1331 17th Street, Suite 710
Denver, CO 80202
Attn:  Terry Barr
Telephone:  (303) 296-3994
Fax:  (303) 295-1961
Email:  terry.barr@samsonoilandgas.com

With copies to:

Davis Graham & Stubbs LLP
1550 17th Street, Suite 500
Denver, CO  80202
Attn:  Greg Danielson
Telephone:  (303) 892-7438
Fax:  (303-893-1379
Email:  greg.danielson@dgslaw.com

Any Party may, by written notice so delivered to the other Parties, change the
address or individual to which delivery shall thereafter be made.
 
 
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Section 11.4       Amendments.  Except for waivers specifically provided for in
this Agreement, this Agreement may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the Party to be charged with
such amendment or waiver and delivered by such Party to the Party claiming the
benefit of such amendment or waiver.
 
Section 11.5         Headings.  The headings of the Articles and Sections of
this Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.
 
Section 11.6         Counterparts/Fax Signatures.  This Agreement may be
executed by Buyer and Sellers in any number of counterparts, each of which shall
be deemed an original instrument, but all of which together shall constitute but
one and the same instrument.  Signatures exchanged by fax or .pdf signatures
shall be considered binding.
 
Section 11.7        References.  References made in this Agreement, including
use of a pronoun, shall be deemed to include where applicable, masculine,
feminine, singular or plural, individuals or entities.  As used in this
Agreement, “person” shall mean any natural person, corporation, partnership,
trust, limited liability company, court, agency, government, board, commission,
estate or other entity or authority.
 
Section 11.8       Governing Law; Wavier of Jury Trial.  This Agreement and the
transactions contemplated hereby shall be construed in accordance with, and
governed by, the laws of the State of Texas, without regard to its conflicts of
laws rules; provided, however, the laws of the State where the subject leases
are located shall control the Assignment with respect to conveyance matters and
other real property matters necessarily subject to the laws of the State where
the subject leases are located.  EACH OF THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
 
Section 11.9         Arbitration.  Except as otherwise indicated herein, any
claim, controversy or dispute arising out of, relating to, or in connection with
the Agreement or the agreements and transactions contemplated hereby, by Buyer
or Seller, including the interpretation, validity, termination or breach
thereof, shall be resolved solely through binding arbitration in accordance with
the dispute resolution procedures set forth in this Section 11.9.  The Parties
covenant that they shall not resort to court remedies except as provided for in
this Section 11.9, or for preliminary relief in aid of arbitration. Except as
otherwise provided in this Agreement, the following provisions shall apply to
any arbitrations conducted pursuant to this Agreement:
 
(a)           Within ten (10) days after written demand by either party for
arbitration, each party shall appoint one arbitrator.  The two arbitrators so
appointed shall then appoint a third arbitrator.  If either party shall fail to
appoint an arbitrator within the time stated, or if the two arbitrators so
appointed fail within ten (10) days after the appointment of the second of them
to agree on a third arbitrator, the arbitrator or arbitrators necessary to
complete a panel of three (3) arbitrators shall be appointed pursuant to the
commercial arbitration rules specified by the AAA.  All arbitrators must be
neutral disinterested parties who have never been officers, directors or
employees or attorneys of the parties or any of their Affiliates, must have not
less than ten (10) years experience in the oil and gas industry, and must have a
formal financial/accounting, petroleum engineering, land or legal education.
 
 
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(b)           The arbitration proceeding shall be governed by Texas law and
shall be conducted in accordance with the Commercial Arbitration Rules of the
AAA with discovery to be conducted in accordance with the Federal Rules of Civil
Procedure, and with any disputes over the scope of discovery to be determined by
the arbitrators.
 
(c)           The arbitration proceeding shall be held in Denver, Colorado and a
hearing shall be held no later than sixty (60) days after submission of the
matter to arbitration, and a written decision shall be rendered by the
arbitrators within thirty (30) days of the hearing.
 
(d)           At the hearing, the parties shall present such evidence and
witnesses as they may choose, with or without counsel.  Adherence to formal
rules of evidence shall not be required but the arbitration panel shall consider
any evidence and testimony that it determines to be relevant, in accordance with
procedures that it determines to be appropriate.
 
(e)           Any award entered in the arbitration shall be made by a written
opinion stating the reasons and basis for the award made and may include an
award of reasonable costs and attorney’s fees if the arbitrator panel so
determines.
 
(f)           The costs incurred in employing the arbitrators, including the
arbitrators’ retention of any independent qualified experts, shall be borne 50%
by the Seller and 50% by Buyer.
 
(g)           The arbitrator’s award may be filed in any court of competent
jurisdiction and may be enforced by any party as a final judgment of such court.
 
Section 11.10       Entire Agreement.  This Agreement constitutes the entire
understanding among the Parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter.
 
Section 11.11       Binding Effect.  This Agreement shall be binding upon, and
shall inure to the benefit of, the Parties hereto, and their respective
successors and assigns.
 
Section 11.12       No Third-Party Beneficiaries.  This Agreement is intended
only to benefit the Parties hereto and their respective permitted successors and
assigns.
 
Section 11.13       Survival.  All representations and warranties in this
Agreement shall survive for a period of one (1) year following the Closing Date.
 
Section 11.14       Waiver.  The waiver or failure of any Party to enforce any
provision of this Agreement shall not be construed or operate as a waiver of any
further breach of such provision or of any other provision of this Agreement.
 
 
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Section 11.15       Limitation on Damages.  The Parties hereto expressly waive
any and all rights to consequential, special, incidental, punitive or exemplary
damages, or loss of profits resulting from any breach of this Agreement.
 
Section 11.16       Severability.  It is the intent of the Parties that the
provisions contained in this Agreement shall be severable.  Should any
provisions, in whole or in part, be held invalid as a matter of law, such
holding shall not affect the other portions of this Agreement, and such portions
that are not invalid shall be given effect without the invalid portion.
 
Section 11.17      Announcements.  Except as and to the extent required by law,
neither Buyer nor Seller will make any press release or announcement with
respect to this Agreement or the transactions contemplated hereby without the
prior consent of the other Party, such consent not to be unreasonably withheld
or delayed; provided, however, if a Party is required to make such a public
announcement or statement by law or under the rules and regulations of the New
York Stock Exchange (or other public stock exchange of similar reputation and
standing) on which the shares of such Party or any of its Affiliates are listed,
then the same may be made without the approval of the other Party.  The opinion
of counsel of the Party making such announcement or statement shall be
conclusive evidence of such requirement by law or rules or regulations.
 
Section 11.18       Transfer Taxes and Recording Fees.  Buyer shall pay all
sales, transfer, use or similar taxes , if any, occasioned by the sale or
transfer of the Initial Acreage and the Optional Acreage and all documentary,
transfer, filing, licensing, and recording fees required in connection with the
processing, filing, licensing or recording of any assignments, titles or bills
of sale.
 
Section 11.19      Relationship of the Parties.  This Agreement shall not be
deemed or construed to create an agency relationship between the Parties.  This
Agreement is not intended to create, and shall not be construed to create, a
mining, joint venture, tax or other partnership or association or to render the
Parties liable as partners.  However, if for federal income tax purposes, this
Agreement and the operations conducted by the parties pursuant hereto are
regarded as having created a partnership, each party thereby affected elects to
be excluded from the application of all of the provisions of Subchapter “K”,
Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended
(hereinafter referred to as the “Code”), as permitted and authorized by Section
761 of the Code and the regulations promulgated thereunder.  Should there be any
requirement that each Party thereby affected give further evidence of this
election, each such party shall execute such documents and furnish such other
evidence as may be required by the Internal Revenue Service or as may be
necessary to evidence this election.  No Party shall give any notice or take any
other action inconsistent with the election made hereby.
 
Section 11.20      Further Assurances.  From time to time after Closing, Seller
and Buyer shall each execute, acknowledge and deliver to the other such further
instruments and take such other action as may be reasonably requested in order
to accomplish more effectively the purposes of the transactions contemplated by
this Agreement.
 
[Signature Page Follows]

 
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IN WITNESS WHEREOF the Parties have executed this Agreement effective as of the
Effective Time.
 
SELLER:
 
FORT PECK ENERGY COMPANY, LLC, a Delaware limited liability company
   
By:
Native American Resource Partners, LLC, as Manager
   
By:
/s/ John P. Jurrius
Name:  John P. Jurrius
Title:  President and Chief Executive Officer

BUYER:
 
SAMSON OIL AND GAS USA MONTANA, INC., a Colorado corporation
   
By:
/s/ Terence Barr
Name:  Terence Barr
Title:  President and Chief Executive Officer

 
 
 

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