**Exhibit10.3**

 
| **CORPORATE OFFICE**                                                                                                                                                        |   |   |   | **DIVISION OFFICE**                                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------|
| 500 DOVER BLVD., STE. 310  LAFAYETTE, LOUISIANA 70505  TELEPHONE:  (337) 984-2603  FAX:  (337) 984-1082WEBSITE:  HTTP://WWW.PEIINC.COM  EMAIL:PEI@PEIINC.COM |   | [LOGO] |   | SUITE 500  5850 SAN FELIPE  HOUSTON, TEXAS 77097  TELEPHONE:  713-975-1971 |

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# March 21, 2003

Mike MauceliReef Exploration, Inc.1901 Central ExpresswaySuite 300Richardson, TX 75080

 

 

Bruce JordanStokes & Spiehler, Inc.111 Rue Jean LafitteLafayette, LA 70508

 

 

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

Gentlemen:

 

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

 

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

 

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

Guidry # 1 Agreement

 
|   |   | TEI Intitials:         | /s/ DEC |
|--------|--------|------------------------|---------|
|   |   | Reef Initials:         | /s/ MM  |
|   |   | Stokes & Spiehler: | /s/ BJ  |
|        |        |                        |         |  |  |

 

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

 

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

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

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

 

3.                                       **TRIUMPH AS AGENT.****                  **BecauseSMEC desires to limit the number of parties to whom notices and billing must besent and the number of parties making elections, Triumph shall act as thetemporary sole record owner of the interests to be assigned pursuant to theParticipation Agreement, but in doing so Triumph shall act as agent for its owninterest and that of Reef and SSI subject to the terms and conditions set forthin this agreement.  Triumph shall haveno liability to Reef and/or SSI for any acts or omissions on its part,including failure to provide prompt notices, unless such acts or omissionsinvolve gross negligence and/or willful misconduct. All parties acknowledgethat Triumph is making its contractual participation interest available on thesame terms as it received them. Notwithstanding anything herein to thecontrary, TEI’s authority to bind Reef and SMI is limited specifically to thoseactions set out herein.

 

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

 

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

 

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

 

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6.1                                 Atany time Triumph is provided with an election, either in the Well, or to anyAdditional Operations as provided in the JOA, to participate or not participatein any optional procedure, Triumph shall promptly provide to Reef and SSI allinformation regarding such elections and the status of the Well which has beenprovided to Triumph.

 

6.2                                 Theparties agree to promptly consult as to such elections as will be made, itbeing recognized that in all instances time is of the essence and electionsmust be made and communicated pursuant to the terms of the JOA, from notice toTriumph.

 

6.3                                 Ifall parties to this agreement elect either to participate in any such proposedoperation, or to not participate, Triumph shall communicate such election in atimely manner to SMEC.  Any penaltieswhich then applies under the Participation Agreement or JOA, includingforfeiture of all interest in the Well and Prospect, shall apply to all of theparties hereto.

 

6.4                                 Ifany party to this agreement, including Triumph, should elect not to participatein any such operation, including an election not to complete the Well, theother parties to this agreement shall have the right to assume itsproportionate share of the non-consenting party and any additional interest; ifany, in which case Triumph agrees to communicate the resulting election of thegroup to SMEC as its own. Any such election shall, however, be subject to theterms and conditions of the JOA. To the extent permitted by the JOA orParticipation Agreement, Triumph shall provide to each of the other partieshereto that have elected to participate in any such operation, a recordableassignment of the interest to which they would be entitled under this agreementand the Participation Agreement and JOA. Accordingly, the parties recognizethat it may be necessary for Triumph to remain as nominate participant, whilehaving no actual further economic interest in the Well.

 

6.5                                 IfTriumph has elected not to participate in the completion of the Well, and Reefand/or SSI has elected to participate, and Triumph is not permitted to withdrawfrom the SMEC agreements and assign their interest to Reef and/or SSI, any suchparty electing to participate shall hold harmless, defend and indemnify Triumphfrom any and all liability for any subsequent obligations and risks related tothe Well and Prospect, including, without limitation, all costs due to SMEC,and any costs arising out of any blowout or other loss of well controlresulting in an expenditure of costs exceeding the estimated cost of suchoperation.

 

6.6                                 Ifat the time any election is to be made, either in the Well or any subsequentwell, Additional Interests become available, due to the non-consent of otherparticipants in the Well, Triumph shall make such information available to Reefand SSI and the parties shall independently determine the extent to which theyelect to assume each party’s proportionate share and additional interest, ifany, of the Additional Interests. (NOTE: this election should be under the samedescription of terms in the JOA) If an election is made by all the participantsto this agreement to either assume the full extent of such Additional Interest,some or none of such interest, Triumph shall communicate to SMEC the extent ofadditional participation, if any, and any such participation shall be borne bythe parties hereto in proportion to their elections.

 

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6.7                                 Ifany of the parties hereto should make a non-uniform election as to theAdditional Interests, such disparity of participation shall be accounted foramong the parties hereto, i.e., the party or parties electing to acquireAdditional Interests shall be responsible for the increased participation andshall hold harmless, defend and indemnify the remaining party or parties whohave elected not to assume such additional participation. In such case thisagreement shall be amended to reflect the revised participation of the partiesin all costs thereafter incurred.

 

7.                                       **INSURANCE.****                    **Triumphshall obtain from its insurer(s) any premium costs required to allow Triumph toadd Reef and SSI to the coverage held by Triumph, as to all such insurance asTriumph is required to provide to SMEC, including blowout and generalcomprehensive liability coverage. Triumph has been advised that such coveragewill be available from its carrier, subject to payment of the appropriatepremium and timely notice to the carrier, accompanied by information as to thestatus of the well. It is expressly agreed and understood, however, thatTriumph does not warrant the sufficiency of its coverage, nor does Triumph agreeto hold harmless and indemnify either Reef and/or SSI in the event of a denialof coverage by any carrier, or the solvency of any such carrier. Triumph agreesto obtain from its carrier a certificate of insurance covering the entireoriginal participation (and to similarly obtain amendments to the coverage forany Additional Interests thereafter assumed) and to provide a copy of suchcertificate to Reef and SSI. All parties agree to bear their proportionateshares of the cost of any such premium and any deductibles applicable to anyclaim.

 

7.1                                 Itis expressly understood and agreed that if Triumph should elect not toparticipate in completion of the Initial Test Well, or to participate in anyAdditional Operations, and if as a result of that election Triumph should ceaseto have an economic interest in the Well or any subsequent Well, the insuranceafforded under Triumph’s policy will likely not be available to Reef and/or SSIin which case those parties will be responsible for securing their independentcoverage.

 

7.2                                 Allparties hereto shall be responsible for obtaining and/or maintaining suchadditional insurance, including general liability and employer’s liabilitycoverage, to insure their interests beyond any insurance available throughTriumph’s carrier, it being understood that Triumph makes no representationsregarding the availability or sufficiency of any such coverage.

 

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

 

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9.                                       **NO PARTNERSHIP CREATED.**                  This agreement is not intended tocreate and shall not be construed as creating a partnership or joint ventureamong the parties. The rights, duties, and obligations of the parties underthis agreement shall be severable and not joint or collective.

 

10.                                 **MISCELLANEOUS.**

 

10.1                           ThisAgreement shall be binding upon the parties hereto, their heirs, successors andassigns.

 

10.2                           ThisAgreement shall be governed by the laws of the State of Louisiana and anydisputes arising out of this Agreement shall be subject to arbitration inLafayette, Louisiana under the rules of the American Arbitration Association.

 

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

 
|   | Sincerely,                |
|--------|---------------------------|
|   | **TRIUMPH ENERGY, INC**.  |
|   |                      |
|   |                      |
|   | /s/ Don E. Claxton        |   |
|   |                      |
|   | Don E. Claxton, President |

 

 

Accepted and agreed tothis       day of March, 2003.

**Reef Global Energy Ventures I, L.P.**

 

 
| /s/ Michael J. Mauceli                                  |   |
|---------------------------------------------------------|--------|
| By: Michael J. Mauceli                                  |
| Managing Member of Reef Partners LLC, the               |
| General Partner of Reef Global Energy Ventures I,  L.P. |

 

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

**Stokes & Spiehler, Inc.**

 

 
| /s/ Bruce Jordan        |   |
|-------------------------|--------|
| By:  Bruce  Jordan |
| Title:   President |

 

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##### Exhibit A

 
|                        |   | **Gross Cost** |      | **Promoted 10% WI Cost** |    |
|-----------------------------|--------|----------------|-----------|--------------------------|---------|
| St Mary Drilling  AFE (DHC) |   | $              | 2,269,200 |                     | $       | 302,711 |   |
| Land Cost                   |   | $              | 511,074   |                     | $       | 51,107 |   |
| Sub-Total                   |   | $              | 2,780,274 |                     | $       | 353,818 |   |
|                        |   |           |      |                     |    |
| Blowout  Insurance          |   | NA             |      | $                        | 20.650  |   |
|                        |   |           |      |                     |    |
| Total DHC Cost  to 10% WI   |   |           |      | $                        | 374,468 |   |

 

 

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

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

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

 

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