EXHIBIT 10.1

SPECIFIC TERMS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST TO THE
SECURITIES AND EXCHANGE COMMISSION.  THE OMITTED INFORMATION HAS BEEN SEPARATELY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.  THE OMITTED TERMS HAVE BEEN
MARKED AT THE APPROPRIATE PLACE WITH TWO ASTERISKS (**).

 
ASSIGNMENT AGREEMENT
 
THIS ASSIGNMENT AGREEMENT (this “Agreement”) is made effective as of March 1,
2009 (the “Effective Date”), by and between RANCHER ENERGY CORP., a Nevada
corporation (“Assignor” or “Rancher”), and MERIT ENERGY COMPANY, LLC, a Delaware
limited liability company (“Assignee” or “Merit”).
 
WHEREAS, as of the Effective Date, Assignor holds all right, title and interest,
powers and privileges in and to that certain Carbon Dioxide Sale & Purchase
Agreement dated as of February 1, 2008 by and between ExxonMobil Gas & Power
Marketing Company (a division of ExxonMobil corporation) (“Exxon”), as seller,
and Rancher Energy Corp., as buyer (the “Contract”; capitalized terms used but
not otherwise defined herein shall have the same meanings ascribed to such terms
in the Contract), which governs Exxon’s agreement to sell, and Assignor’s
agreement to purchase, certain quantities of Carbon Dioxide;
 
WHEREAS, Assignor wishes to assign to Assignee, and Assignee wishes to assume,
that portion of Assignor’s right, title and interest in and to the Contract as
it relates solely to Assignor’s right to purchase from Exxon and obligations
related thereto, a Daily Contract Quantity of thirty-seven and one-half (37.5)
MMCF per day of Carbon Dioxide during the Initial Merit Term (as hereinafter
defined), (collectively, the “Assigned Interests”); and
 
WHEREAS, Assignor also wishes to grant to Assignee, and Assignee wishes to
receive, an option to purchase a portion of the Carbon Dioxide to which Assignor
is otherwise entitled or obligated to purchase under the Contract.
 
NOW, THEREFORE, for One Hundred Dollars ($100.00) and other good and valuable
consideration including without limitation the mutual promises exchanged herein,
the receipt and sufficiency of all of which are hereby acknowledged, the parties
hereto agree as follows:
 

 
1.
Term Assignment and Assumption:      
 
(a)
As of the Effective Date, Assignor hereby TRANSFERS, CONVEYS, SELLS and ASSIGNS
to Assignee all of its right, title and interest in and to the Assigned
Interests, together with every right, privilege, and appurtenance relating to
the Assigned Interests, free and clear of all liens and encumbrances arising by,
through or under Assignor (the “Term Assignment”).  The Initial Merit Term is
hereby defined as the period beginning on the Start-Up Date and continuing for
two years thereafter.

 
 
 

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(b)
Assignor and Assignee agree that this Agreement shall have the effect of
creating two (2) contracts with Exxon that are separately performable and
separately terminable.  Assignor and Assignee agree that the parties shall
perform under the Contract as two (2) separate and distinct contracts, one as
between Assignee and Exxon with respect to the Assigned Interests (the “Merit
Contract”) and one as between Assignor and Exxon with respect to Assignor’s
remaining rights under the Contract (subject to Assignee’s other rights
hereunder, including the Options (as defined herein)).  For sake of clarity, in
the event Assignee terminates the Merit Contract in accordance with the
Assumption, Assignee shall have no obligation to purchase any Carbon Dioxide
from Assignor, but shall retain the Options and such other rights as may exist
under this Agreement (including, without limitation, those rights under Section
2(h)).

 
(c)
During the Initial Merit Term, Assignee hereby affirmatively and unconditionally
assumes all of the obligations of Assignor under or by virtue of the Assigned
Interests arising from and after the Effective Date.

 
 
(d)
Assignee hereby agrees to pay to Assignor an amount equal to (**) per MCF of
Carbon Dioxide for which Assignee is required to pay Exxon as a result of this
Assignment; provided, however, for the sake of clarity, this fee paid by
Assignee to Assignor shall not apply to (i) Make-Up Volumes, (ii) volumes not
meeting Quality Specifications, (iii) volumes for which Assignee is not
obligated to pay Exxon under the Contract, or (iv) to the extent Merit
terminates the Merit Contract in accordance with the Assumption.  Payments by
Assignee shall be made to Assignor monthly on or before the end of the month
following the month in which volumes were paid for by Assignee to Exxon.

 
 
(e)
Assignee agrees to indemnify and hold the Assignor Indemnified Parties (as
defined below) harmless from and against any and all claims, demands and causes
of action of any kind and all losses, damages, liabilities, costs and expenses
of whatever nature (including court costs and reasonable attorneys’ fees)
(collectively, “Claims”) arising out of, or incident to, or occurring in
connection with or relating to the Assigned Interests during the Initial Merit
Term, including, without limitation, any non-compliance by Assignee with the
terms and conditions of the Contract during the Initial Merit Term, but only
insofar as such Claims pertain to the Assigned Interests.  As used herein, the
“Assignor Indemnified Parties” shall mean Assignor and its successors, permitted
assigns, and their respective affiliates, subsidiaries, shareholders, members,
partners, officers, directors, employees, and agents.

 
 
(f)
Assignor agrees to indemnify, defend, and hold the Assignee Indemnified Parties
(as defined below) harmless from and against any and all Claims arising out of,
or incident to, or occurring in connection with or relating to the Assigned
Interests prior to the Effective Date and after the expiration of the Initial
Merit Term and any additional Merit Terms, including without limitation, any
non-compliance by Assignor with the terms and conditions of the Contract prior
to the Effective Date.  As used herein, the “Assignee Indemnified Parties” shall
mean Assignee and its successors, permitted assigns, and their respective
affiliates, subsidiaries, shareholders, members, partners, officers, directors,
employees, and agents.

 
 
 

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(g)
Assignor, Assignee and Exxon (by virtue of its consent hereto) each acknowledge
and agree that Assignee is accepting and assuming the Assigned Interests and
only those rights and obligations under the Contract which are essential to give
effect to the Assigned Interests conveyed to Assignee hereby during the Initial
Merit Term, including, but not limited to, Merit’s compliance with a
Proportionate Share of any Performance Assurances and, except as otherwise
expressly provided herein, all other rights, privileges, obligations and
liabilities of Assignor arising under or by virtue of the Contract (the
“Retained Exxon Agreement”) shall remain with Assignor and are expressly not
accepted or assumed by Assignee.  Assignor agrees to indemnify, defend, and hold
the Assignee Indemnified Parties harmless from and against any and all Claims
arising out of, or incident to, or occurring in connection with or relating to
the Retained Exxon Agreement, whether arising prior to or from and after the
Effective Date.

 

 
2.
Option to Purchase:      
 
(a)
During the Initial Merit Term, Merit shall have the option, in its sole
discretion, to purchase from Rancher an additional six and one half (6.5) MMCF
per day of CO2 (the “First Option”).  Merit shall exercise the First Option by
providing written notice to Rancher of the amount of additional CO2 it desires
to purchase pursuant to its option at least fifteen (15) days prior to the
beginning of the month in which such additional volumes are to be
delivered.  Any election by Merit to purchase additional CO2 pursuant to the
First Option hereunder shall be deemed to continue month to month until Merit
provides written notice to Rancher of any change at least fifteen (15) days
prior to the beginning of the calendar month in which such change is to be
effective.

 
 
(b)
During the Term of the Contract with respect to  the Retained Exxon Agreement,
but after the Initial Merit Term, to the extent Rancher is not using for its own
tertiary recovery purposes any volumes of CO2 Rancher is otherwise obligated, or
able, to purchase from Exxon under the Contract (“Excess Volumes”), Merit shall
have the option, in its sole discretion, to purchase from Rancher so much of
such Excess Volumes as is elected by Merit (the “Second Option,” and, together
with the First Option, the “Options”).  Merit shall make any such election to
purchase such Excess Volumes monthly (each, an “Additional Merit Term”) by
providing written notice of its election at least fifteen (15) days prior to the
beginning of such Additional Merit Term.  Merit’s election for the prior month
shall continue month to month unless Merit otherwise notifies Rancher in writing
at least fifteen (15) days before the end of a month of a change in such
election.  Such election under the Second Option shall include the amount of
such Excess Volumes Merit desires to purchase.

 
 
 

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(c)
Any CO2 purchased by Merit from Rancher under the Options shall be purchased at
a price equal to (**) per MCF (the “Merit Price”).  Rancher shall invoice Merit
monthly for any amounts owed to Rancher pursuant to an exercise of the Options
and Merit shall remit any undisputed amounts owed by the later of (i) the
fifteenth (15th) day of the month following delivery of such invoice or (ii)
seven (7) days of receipt of such invoice by Merit.  Merit shall make payments
by wire transfer to an account specified by Rancher.  Merit shall notify Rancher
of any disputes within twenty (20) days of receiving such invoice.  All invoices
provided by Rancher to Merit shall contain the quantities sold, the Contract
Prices paid by Rancher, and any other information reasonably requested by Merit
from time to time.  In the event Merit does not timely pay any undisputed
amounts due hereunder, Merit shall be subject to the same obligations as would
be imposed on Rancher for late payment under the Retained Exxon Agreement
(including, without limitation, interest payments and the cessation of
deliveries under Section 5.3 of the Exxon Agreement).  Except as otherwise
provided in the Retained Exxon Agreement, failure to timely make payments by
Merit shall not constitute a basis for the termination of the Options.

 
 
(d)
All CO2 purchased by Merit from Rancher under the Options shall be delivered by
Rancher to Merit at the existing flange connection between the ExxonMobil Carbon
Dioxide Pipeline at mile post 112 and the Merit Carbon Dioxide pipeline near
Baroil, Fremont County, Wyoming, and will meet the same Quality Specifications
as when acquired by Rancher under the Retained Exxon Agreement.

 
 
(e)
In the event it exercises one or both of the First Option and/or Second Option,
Merit hereby agrees to reimburse Rancher for Merit’s Proportionate Share of (i)
any reasonable third-party expenses incurred by Rancher in connection with any
performance obligations imposed on Rancher under the Retained Exxon Agreement
with respect to volumes taken pursuant to the Options, and (ii) any additional
fees charged by Exxon under the Retained Exxon Agreement not already included in
the Contract Price with respect to volumes taken pursuant to the Options, and
shall comply with its Proportionate Share of any Performance Assurances
(provided that nothing in this Agreement shall be construed to require Merit to
reimburse Rancher for any costs incurred by Rancher in connection with Rancher’s
Performance Assurances). For purposes of this Agreement, “Merit’s Proportionate
Share” shall be a percentage determined with respect to any applicable period by
dividing the MMCF of CO2 purchased by Merit from Rancher pursuant to the Options
during such period by the total MMCF of CO2 purchased by Rancher under the
Retained Exxon Agreement during such period.  Rancher shall provide written
notice to Merit of any such expenses and Merit shall pay Rancher any amounts
owed thereunder within thirty (30) days of its receipt of such notice.

 
 
(f)
Merit shall be entitled to Merit’s Proportionate Share of any GHGRR to which
Rancher is entitled under the Retained Exxon Agreement with respect to volumes
purchased pursuant to the Options.  Merit agrees to be responsible for Merit’s
Proportionate Share of any performance assurances required to be provided by
Rancher to Exxon under the Retained Exxon Agreement with respect to volumes
purchased pursuant to the Options.  Merit’s Proportionate Share of performance
assurances shall be provided at the same time and in the same manner as required
to be provided by Rancher under the Contract, so long as Rancher provides Merit
with written notice of such requirement in advance of the time such performance
assurance is to be provided under the Contract so as to reasonably allow Merit
to comply with its requirements hereunder.

 
 
 

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(g)
During the period that Merit is purchasing volumes pursuant to the Options,
Rancher shall take all actions reasonably required to comply with the terms and
conditions of the Retained Exxon Agreement and to otherwise maintain the
Retained Exxon Agreement as a valid, enforceable Agreement.  In the event
Rancher is, or anticipates it will be, unable to perform its obligations under
the Retained Exxon Agreement during such period, Rancher shall immediately
provide Merit with notice thereof, and Merit shall have the right, in its sole
discretion, to satisfy any such obligations in order to comply with or otherwise
maintain the Retained Exxon Agreement.  In any such event, Rancher shall
reimburse Merit for any third party expenses incurred by Merit (less an amount
equal to Merit’s Proportionate Share of such expenses).

 
 
(h)
In an Event of Default (as hereinafter defined) during the period that Merit is
purchasing CO2 volumes pursuant to the Options, Rancher shall be obligated, in
Merit’s sole discretion but subject to Exxon's rights and remedies and any other
terms and conditions for Exxon’s benefit only in the Retained Exxon Agreement
(including without limitation, Exxon’s right to terminate under Section 5.4(d)
of the Retained Exxon Agreement), to assign the Retained Exxon Agreement to
Merit.  Merit may exercise its election upon written notice to Rancher and
Rancher shall deliver such assignment within five (5) days after receipt of
Merit’s notice.   For purposes of this Agreement, an “Event of Default” will be
deemed to occur if Rancher:  (a) makes an assignment for the benefit of
creditors, or transfers or assigns to a creditor legal or equitable title,
however effected, to any asset comprising all or a substantial portion of
Rancher’s properties (other than cash) which is collateral or security for a
debt or guarantee obligation owed to such creditor; (b) files a voluntary
petition in bankruptcy; (c) is adjudged as bankrupt or insolvent, or has entered
against it a final order of relief in any bankruptcy or insolvency proceeding;
(d) files a petition or answer seeking for it any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation; (e) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any proceeding of this nature; (f) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of it or of all or any
substantial part of its properties; (g) within 90 days after the commencement of
any proceeding against it seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, has not had such proceeding dismissed, or if within 90 days after
the appointment without its consent or acquiescence of a trustee, receiver or
liquidator of it or of all or any substantial part of its properties, the
appointment is not vacated or stayed, or within 90 days after the expiration of
any such stay, the appointment is not vacated.

 
 
 

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(i)
Rancher shall not enter into any amendment to the Retained Exxon Agreement that
adversely affects Merit’s rights under the Options without the prior written
consent of Merit, which shall not be unreasonably withheld, conditioned or
delayed.

 
 
(j)
To the extent volumes are delivered under the Options, this Agreement
incorporates by reference the following provisions of the Contract substituting
Rancher for “Seller” and Merit for “Buyer:”  Section 7.2, Royalty Reimbursement;
Article 8, Taxes; Section 9.2, Passage of Title; Article 10, Measurement and
Computation of Volumes; Section 11.2, Disclaimer of Certain Warranties; Section
11.3, Failure of Carbon Dioxide to Meet Quality Specifications; Section 11.4,
Limitation of Liability and General Indemnities; Section 11.6, Force Majeure;
Section 11.7, Assignment; and Section 11.18, Confidentiality.  To the extent any
of the foregoing impose financial or other quantifiable obligations on Merit,
such obligations shall only be imposed on Merit on a proportionate basis in
accordance with Merit’s Proportionate Share.

 

  3.
Miscellaneous.
     
 
(a)
Merit may, in its sole discretion, file a memorandum of this Agreement in the
county records acknowledging the existence of the Term Assignment and the
Options.

 
 
(b)
Each of the parties hereto hereby represents and warrants to the other party
hereto that it has the capacity set forth on the signature pages hereof with
full power and authority to bind the party on whose behalf it is executing this
Agreement, and its authority is not inhibited by any private agreement or legal
proceeding.

 
 
(c)
Assignor hereby represents and warrants to Assignee that: (a) all of the
Assigned Interests are fully assignable, subject to obtaining Exxon’s consent;
(b) it has not assigned, transferred, mortgaged, pledged or otherwise encumbered
any of its right, title and interest in, to and under the Assigned Interests;
(c) its right, title and interest therein is free and clear of all liens and
encumbrances.  This Agreement is expressly conditioned on, and subject to those
terms and conditions contained in, Exxon’s consent to Assignor’s assignment of
the Assigned Interests, as required by the Contract, in substantially the form
of the (i) Consent to Assignment, and (ii) Assumption and Ratification of Carbon
Dioxide Sale and Purchase Agreement; Partial Interest Assignment attached hereto
as Exhibit A (the ”Assumption”) or as otherwise provided in Article 11.7 of the
Contract.  In the event Exxon does not consent within ninety (90) days of the
Effective Date, this Agreement shall terminate with no further liability or
obligation by either party.

 
 
 

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(d)
Assignor shall promptly execute and deliver such further instruments of
assignment, transfer, conveyance, endorsement, direction or authorization and
other documents as may be necessary to effectuate the purposes of this
Agreement.

 
 
(e)
This Agreement is governed by Colorado law, without regard to its conflicts of
law provisions.  This Agreement may be executed in any number of counterparts,
each of which may be executed by any one or more of the parties hereto, but all
of which shall constitute one and the same instrument, and shall be binding and
effective when all parties hereto have executed and delivered at least one
counterpart.

 
 
(f)
The terms and provisions of this Agreement shall be binding upon and inure to
the benefit of the respective parties hereto, and their respective successors
and assigns.

 
 
(g)
In the event of any conflict between the Contract and this Agreement, the
Contract shall control.

 
 
(h)
This Agreement is the complete and final agreement between the parties hereto
and supersedes all prior negotiations and agreements, whether written or
oral.  This Agreement may only be amended by written agreement signed by both
parties.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first written above.

 

 
ASSIGNOR/RANCHER:
RANCHER ENERGY CORP.,
a Nevada corporation
             
By: /s/John Works                            
Name: John Works                            
Title: President and CEO                    

 
                                                                  

STATE OF COLORADO
§
 
§
COUNTY OF DENVER
§

           The foregoing instrument was acknowledged before me by John Works,
the President and CEO of RANCHER ENERGY CORP., a Nevada corporation, on behalf
of said corporation this 17th day of March, 2009.

 
/s/Cheryl L. York
 
Notary Public in and for the State of Colorado

(SEAL)
My Commission Expires: 09/24/2011

 
 

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ASSIGNEE/MERIT:
 
MERIT ENERGY COMPANY, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
 
BY: /S/ROBERT R. MATEJEK                                     
NAME: ROBERT R. MATEJEK                                  
TITLE: PRESIDENT                                                       

STATE OF TEXAS
§
 
§
COUNTY OF DALLAS
§

           The foregoing instrument was acknowledged before me by Robert R.
Matejek, the President of MERIT ENERGY COMPANY, LLC, a Delaware limited
liability company, on behalf of said limited liability company this 16th day of
March, 2009.

 
/s/Stephanie Lott
     
Notary Public in and for the State of Texas
    (SEAL) My commission expires: 10/07/2012

 
 
 

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