**Exhibit10.2**

 

December 16, 2002

 
| **Samson  Offshore Company**          |   | **Palace  Exploration Company**                    |
|---------------------------------------|--------|----------------------------------------------------|
| Attn:  Mr. Sonny Measley         |   | Attn:  Mr. Bob Zinke                          |   |   |
| 1301 Travis, Suite 1900               |   | 1202 East 33rd St.                                 |   |   |
| Houston, TX  77002               |   | Tulsa, OK  74105-2048                         |   |   |
|                                  |   |                                               |   |   |
| **Reef  Global Energy I, L. P.**      |   | **Fidelity  Exploration & Production Company** |
| Attn:  Mr. Walt Dunagin          |   | Attn:  Mr. George Soulis                      |   |   |
| 1901 N. Central  Expressway, Ste. 300 |   | 1700 Lincoln, Ste. 4600                            |   |   |
| Richardson, TX  75080            |   | Denver, CO  80203                             |   |   |
|                                  |   |                                               |   |   |
| **Bright  & Company I, Ltd.**     |   | **Re:**                                            |   | **Participation  Agreement and** |
| Attn:  Mr. Jack Carlile          |   |                                               |   | **Operating  Agreement** |
| 4228 N. Central  Expressway, Ste. 300 |   |                                               |   | Main Pass 57 Prospect |
| Dallas, TX  75206-6345           |   |                                               |   | Offshore, Louisiana |
|                                       |        |                                                    |  |  |  |  |

 

Gentlemen:

 

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

 

**1.             SUBJECT LEASE**

 

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

 

**2.             CONSIDERATION AND ASSIGNMENT**

 

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

 
| Challenger  Minerals Inc.                  |   | 9.375   | % |
|--------------------------------------------|--------|---------|---|
| Reef  Global Energy I, L.P.                |   | 4.6875  | % |
| Bright  & Company I, Ltd.              |   | 4.6875  | % |
| Palace  Exploration Company                |   | 23.4375 | % |
| Fidelity  Exploration & Production Co. |   | 32.8125 | % |

 

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In consideration for therights and interest to be assigned hereunder, Participants agree to pay toSamson their respective shares of $370,016.78 representing actual leaseholdbonus and rental costs, seismic/hazard survey, overhead, geological andgeophysical costs incurred in the prospect to date.  Participants share in such costs in the following proportions:  CMI - $37,001.68, Reef - $18,500.84, Bright -$18,500.84, Palace - $92,504.20 and Fidelity - $129,505.87, and agree to payunto Samson within ten (10) days after spudding of the Test Well describedbelow.  Within five (5) business daysafter receipt of the referenced payment, Samson shall deliver to Participants aproper, recordable assignment of the undivided working interests set forth inthis Section 2, in the form attached hereto as Exhibit “B”, all rights, titleand interests in and to the Subject Lease, free from any additional royalty andoverriding royalty burdens, except the Lessor’s royalty and the overridingroyalty interest set forth in Section 3. Such assignment shall warrant title by, through and under Samson, butnot otherwise, and shall be subject to this Participation Agreement and theapplicable rules, regulations, or laws of the federal agency or body havingjurisdiction over the Subject Lease. The Parties hereto agree to execute such other instruments as may benecessary or convenient to effectively convey the interest in the SubjectLease, transfer rights and obligations as contemplated by this ParticipationAgreement and/or otherwise effectuate the terms hereof.  In addition, the Parties shall reimburseCMI, as Operator, for all costs incurred for regulatory approvals to drill theTest Well, title opinions, or any other lease or legal costs necessary for thedrilling of the Test Well (“Other Costs”).

 

**3.            ****LEASEBURDENS**

 

The Subject Lease shallbe delivered by Samson to Participants with total royalty, overriding royaltyand other burdens equal to 21.2734% of 8/8ths interest, being a 78.7266% of8/8ths net revenue interest. Accordingly, the net revenue interest of each party hereto shall becalculated as follows:  Samson – 25.0%of 78.7266% of 8/8ths, CMI – 9.3750% of 78.7266% of 8/8ths, Reef – 4.6875% of78.7266% of 8/8ths, Bright – 4.6875% of 78.7266% of 8/8ths, Palace – 23.4375%of 78.7266% of 8/8ths and Fidelity 32.8125% of 78.7266% of 8/8ths.  The Parties hereby agree to bear their respectiveproportionate shares of the aforementioned lease burdens, as herein provided,and to execute applicable assignments necessary to effectuate same.

 

**4.             3-DSEISMIC REVIEW**

 

To the extent permittedin its licensing agreement, CMI shall allow the parties hereto the opportunityto review its geological and 3-D seismic data covering the south-half (S 2) ofMain Pass 57.

 

**5.             TESTWELL**

 

By executing thisParticipation Agreement, the Parties shall agree to join in the drilling of awell on the Subject Lease in accordance with both the terms of thisParticipation Agreement and of the Operating Agreement provided for in Section6 below.  The first well drilled on theSubject Lease by the Parties shall be referred to herein as the “TestWell.”  CMI shall commence, or cause tobe commenced, operations for drilling the Test Well, as Operator under saidOperating Agreement, on or before January 15, 2003.  The Test Well shall be drilled from and topresently permitted surface and bottom hole locations on the Subject Lease to adepth sufficient to test the stratigraphic equivalent of the 8,100’ Sand asseen at a depth of 8,090’ MD in the electrical log from the Main Pass 57 Total#1 Well (OCS-G 0702), or to a depth of 8,300’ TVD, whichever is thelesser depth (“Objective Depth”). Samson shall bear 20.0% of 8/8ths of the costs to Casing Point andParticipants shall bear 80% of 8/8ths, in the proportions CMI  - 10% of 8/8ths, Reef – 5% of 8/8ths, Bright– 5% of 8/8ths, Palace – 25% of 8/8ths and Fidelity – 35% of 8/8ths, of allcost of drilling the initial Test Well to Casing Point (including shallowhazard data costs incurred by Samson prior to the execution of this Agreement),and of the cost of plugging and abandoning said Well if a completion attempt isnot made.  Casing Point is defined asthe point in which the Well, substitute well or any exploratory and/ordevelopment well has been drilled to its proposed Objective Depth, or mutuallyagreed to lesser depth, and all test included in the approved Authority ofExpenditure 

 

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

 

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

 

**6.             OPERATINGAGREEMENT**

 

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

 

**7.             PARTICIPANTS’REPRESENTATIONS**

 

Participants eachrepresent and warrant that:

 

(a)                                  Theyare duly qualified or are in the process of qualifying to hold interest in oiland gas leases covering interest in the Gulf of Mexico Outer Continental Selfwhere the Subject Lease lies.

 

(b)                                 Theyhave all requisite power and authority to carry on their business as presentlyconducted, to enter into this Participation Agreement, to purchase the SubjectLease on the terms described in this Participation Agreement and to performtheir obligations hereunder.

 

(c)                                  Theyhave complied with all bond coverage requirements of the federal governmentnecessary to hold the interest to be assigned to them hereunder and haveproperly filed all instruments required by the federal government as aprerequisite to holding an interest in an oil and gas lease covering rights inthe Gulf of Mexico Outer Continental Self.

 

(d)                                 Theymeet the citizenship and other qualification criteria specified in Section256.35 of 30 CFR Ch. II (7-1-99 Edition).

 

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**8.****                                      MISCELLANEOUSCONDITIONS**

 

(a)                                  Participantsshall be solely responsible for all filings and recordings of documents andother costs related to the Subject Leases and for all fees connected therewith,and Participants shall advise Samson of the pertinent recording data.  Samson shall not be responsible for any lossto Participants because of Participants’ failure to file or record documentspromptly.  Participants shall pay allapplicable federal, state and county sales or use taxes imposed on the transferof the subject properties and shall file all returns to the necessaryauthorities.

 

(b)                                 ThisParticipation Agreement, and all instruments executed in accordance with itshall be governed by and interpreted in accordance with the laws of the Stateof Texas without regard to conflict of law rules that would direct applicationof the laws of another jurisdiction.

 

(c)                                  TheParties hereto, singularly and plural, warrant and agree that each shall useits best efforts to take or cause to be taken all such actions, as may benecessary to consummate and make effective the transaction contemplated by thisParticipation Agreement, including but not limited to obtaining any requiredgovernmental or other approvals or consents, and to assure that it will not beunder any material, corporate, legal or contractual restriction that wouldprohibit or delay the timely consummation of such transaction.

 

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

 
| Samson Offshore Company  Attn:  Mr. Sonny Measley  1301 Travis, Suite 1900  Houston, TX  77002  Telephone:  (713) 577-2011  Fax:  (713) 751-8864  Email:  smeasley@samson.com              |   | Bright & Company I,  Ltd.  Attn:  Mr. Jack Carlile  4228 N. Central Exprwy, Ste. 300  Dallas, TX  75206-6345  Telephone:  (214) 559-9200  Fax:  (214) 559-0021  Email:  jack.carlile@brightco.com |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                |   |                                                                                                                                                                                                                           |
| Challenger Minerals  Inc.  Attn:  Mr. Reagan Newton  15375 Memorial Dr., Suite G-200  Houston, TX  77079  Telephone:  (281) 925-7215  Fax:  (281) 925-7281  Email:  rhnewton@sbcglobal.net |   | Palace Operating  Company  Attn:  Mr. Bob Zinke  1202 East 33rd St.  Tulsa, OK  74105-2048  Telephone:  (972) 743-5096  Fax:  (972) 743-5159  Email:  bzinke@ztienergy.com                            |

 

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| Reef Global Energy I,  L.P.  Attn:  Mr. Walt Dunagin  1901 N. Central Exprwy., Ste. 300  Richardson, TX  75080  Telephone:  (972) 437-6792  Fax:  (972) 994-0369  Email:  walt@reefexploration.com |   | Fidelity Exploration  & Production Company  Attn:  Mr. George Soulis  1700 Lincoln, Ste. 4600  Denver, CO  80203  Telephone:  (720) 931-6448  Fax:(303) 893-1964  Email:  george.soulis@fidelityepco.com |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                             |
| For copy purposes only  send information to:                                                                                                                                                                                |   | Samson Offshore Company  Attn:  Mr. Jack Canon  Two West Second Street  Tulsa, OK  74103-3123  Telephone:  (918) 583-1791  Fax:  (918) 591-1718                                                              |

 

(e)                                  ThisParticipation Agreement constitutes the entire agreement between the Partieswith respect to the transactions contemplated herein, and supersedes all priororal or written agreements, commitments, understanding, or informationotherwise furnished by Samson to Participants with respect to suchmatters.  No amendment shall be bindingunless in writing and signed by representatives of each of the Parties.

 

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

 

(g)                                 TheParties each represent and warrant to the other that it has incurred noliability, contingent or otherwise, for broker’s or finder’s fees in connectionwith this Participation Agreement or the transactions contemplated by it forwhich the other party will have any responsibility.

 

(h)                                 Allrepresentations, promises, agreements, releases, and indemnities made in thisParticipation Agreement shall survive the Closing.

 

**9.****                                      COUNTERPARTEXECUTIONS**

 

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

 

This ParticipationAgreement is executed by the Parties effective as of the date first abovewritten (“Effective Date”).

 

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|                                                     | Sincerely,                 |
|----------------------------------------------------------|----------------------------|
|                                                     | CHALLENGER MINERALS,  INC. |
|                                                     |                       |
|                                                     |                       | /s/ T.J. Morrow |   |
|                                                     | By:                        | T. J. Morrow |   |
|                                                     | Title:                     | President |   |
|                                                     |                       |
| AGREED TO AND ACCEPTED  THIS 31st day of December, 2002, |                       |
| BRIGHT & COMPANY I,  LTD. By H.G.G., Inc.,           |                       |
| General Partner                                          |                       |
|                                                     |                       |
|                                                     | /s/ Clark N. Bright        |   |   |
| By:                                                      | Clark N. Bright            |   |   |
| Title:                                                   | President                  |   |   |
|                                                     |                       |
|                                                     |                       |
| AGREED TO AND ACCEPTED  THIS 30th day of December, 2002. |                       |
| **REEF  GLOBAL ENERGY I, L.P.**                          |                       |
|                                                     |                       |
|                                                     | /s/ Michael J. Mauceli     |   |   |
| By:                                                      | Michael J. Mauceli         |   |   |
| Title:                                                   | Chief Executive Officer    |   |   |
|                                                     |                       |
|                                                     |                       |
| AGREED TO AND ACCEPTED  THIS 23rd day of December, 2002. |                       |
| **SAMSON  OFFSHORE COMPANY**                             |                       |
|                                                     |                       |
|                                                     | /s/ J.A Canon              |   |   |
| By:                                                      | J.A. Canon                 |   |   |
| Title:                                                   | Sr. Vice President         |   |   |
|                                                     |                       |
|                                                     |                       |
| AGREED TO AND ACCEPTED  THIS 23rd day of December, 2002. |                       |
| **FIDELITY  EXPLORATION & PRODUCTION COMPANY**       |                       |
|                                                     |                       |
|                                                     | /s/ Darwin Subart          |   |   |
| By:                                                      | Darwin Subart              |   |   |
| Title:                                                   | President                  |   |   |
|                                                     |                       |
|                                                     |                       |
| AGREED TO AND ACCEPTED  THIS 20th day of December, 2002. |                       |
| **PALACE  EXPLORATION COMPANY**                          |                       |
|                                                     |                       |
|                                                     | /s/ Robert M. Zinke        |   |   |
| By:                                                      | Robert M. Zinke            |   |   |
| Title:                                                   | Vice President             |   |   |

 

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