**Exhibit 10.1**

** **
|        | **Samson**                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------|
|   | Suite 1900  1301 Travis Street  Houston, TX 77002, USA  713/751-9000 (main line)  713/751-8884 (fax line) |

 

January 14, 2003

 
| Challenger Minerals Inc                      |   | Reef Global Energy I, L.P.                    |
|----------------------------------------------|--------|-----------------------------------------------|
| 15375 Memorial Drive, Suite G200             |   | 1901 N. Central Expressway, Suite 300         |
| Houston, Texas 77079                         |   | Richardson, Texas 75080                       |
| Attn:    Mr. Ron Symecko |   | Attn:    Mr. Walt Dunagin |

 

Re:                               ParticipationAgreement – OCS-G 23948

Grand Isle Area, Block 27

Offshore Louisiana

 

Gentlemen:

 

When executed by all Parties hereto in the mannerprovided below, this letter shall evidence the agreement (“the Agreement”)between Samson Offshore Company, hereinafter referred to as “SOC”, ChallengerMinerals Inc., hereinafter referred to as “CMI” and Reef Global Energy I, L.P.,hereinafter referred to as “Reef” (CMI and Reef shall sometimes be referred toindividually as “Participant” and collectively as “Participants” and all of theabove parties shall sometimes herein be referred to collectively as “theParties” and sometimes individually as “Party”) with respect to (1)Participant’s purchase from SOC of an undivided interest in and to the Oil& Gas Lease described on Exhibit “A” attached hereto and made a part hereof(the “Lease”) and (2) Participant’s participation in the drilling of a TestWell, as defined in paragraph 4 hereof, on the Lease in the manner hereinafterdescribed.

 

1.                                       PURCHASE AND SALE

 

Effective as ofthe date of execution herein by all Parties, and for the consideration setforth below, SOC hereby sells and conveys and Participants hereby purchases inthe undivided percentages indicated below the following interest in the Lease(the “Assigned Interest”):

 

| CMI  |   | 5.0% of 8/8ths |   |
|------|--------|----------------|--------|
| Reef |   | 1.5% of 8/8ths |   |

 

The Assigned Interest is subject to its proportionatepart of the burdens set forth in paragraph 6 hereof and to the Joint OperatingAgreement attached hereto as Exhibit “B” (the “JOA”).

 

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2.                                       CONSIDERATION

 

Within: two (2) business days of receipt of the fullyexecuted Ratification Letter Agreement (attached hereto as Exhibit “D”),Participants shall remit to SOC, as consideration for the Assigned Interest,the following:

 

(i)                                     From the CMI, the sum of $109,691.86representing 5% of all costs paid by Samson for the Assigned Interestattributable to the Lease acquisition, permits and regulatory filings (“LeastCosts”), and an executed original of the Authority for Expenditure (“AFE”) forthe Test Well, attached hereto as Exhibit “C”.

 

(ii)                                  From Reef, the sum of $32,907.56representing 1.5% of all costs paid by Samson for the Assigned Interestattributable to the Lease acquisition, permits and regulatory filings (“LeaseCosts”), and an executed original of the Authority for Expenditure (“AFE”) forthe Test Well, attached hereto as exhibit “C”.

 

3.                                       JOINT OPERATING AGREEMENT

 

Subject to the provisions herein, all operations onthe Lease, including the drilling of the Test Well as provided in Section 4below, will be governed by the terms of the JOA, which**names Gryphon as Operator.In the event of a conflict between the JOA and this Agreement, the terms ofthis Agreement shall prevail. Byexecution of this Agreement, Participants do hereby join in and ratify such JOAand the parties hereby agree to modify the JOA where necessary to reflectthe participation by Participants as a non-operator under said JOA. If requiredParticipants agree to promptly comply with any regulatory requirements requiredfor such participation in the Lease or Test Well.

 

4.                                       TEST WELL

 

Participants agrees to participate with Gryphon in thedrilling of the OCS-G 23948 Well # 1 being the initial well on the Lease to bedrilled as a straight hole to a total depth of 13,000’ TVD or a depthsufficient to fully evaluate the “Disc 12 Sand” (D-2sd) as defined in the El PasoOCS-G 18063 (GI 28) No. 1 Well from12,510’ MD (top) to 12,610’ MD (base), whichever is less (“Objective Depth”)with a surface and bottom hole location of 7,061’ FSL and 4,435’ FEL of GrandIsle Area, Block 27 (the “Test Well”). CMI agrees to pay 6.66666% and Reefagrees to pay 2% of the cost and expense of drilling the Test Well to theObjective Depth, which shall include, but not be limited too, the actual costsincurred in drilling, logging and completing all approved testing operations inthe Test Well, until the earlier to occur of the following: i) the actual costsof such operations exceeds the AFE; or ii) the Test Well reaches the ObjectiveDepth, approved logging and testing operations have been completed, and arecommendation is made to run casing or plug and abandon the same. Thereafter,CMI’s share of costs with respect to the Test Well and the Lease shall bereduced from 6.66666% to 5% and Reef’s share shall be reduced from 2% to 1.5%.

 

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5.                                       SUBSTITUTEWELL

 

If, after commencing the Test Well, but beforereaching the Objective Depth, there should be encountered conditions orformations, whether natural or mechanical, which render further drilling of theTest Well either impossible or impractical, and as a result operations on theTest Well are permanently abandoned, a Substitute Well may be commenced nolater than 90 days following the abandonment of the Test Well. A proposal tosidetrack the Test Well around an obstruction in the wellbore shall not beconsidered a Substitute Well but a continuation of the Test Well, unless thetargeted bottom hole location of the sidetracked well is more than 200’ from the original**proposedbottom hole location. Any Substitute Well proposal shall include**the estimated costs todrill the same to the original Objective Depth in the Test Well. CMI and Reefshall have the right and option to elect not to participate in a SubstituteWell, if proposed, however, failure to**participateshall result in a forfeiture of interestinthe Lease and the Test Well without reimbursement of costs incurredprior to such election. The time period in which both CMI’s and Reef’s election to participate**in a substitute shall be governed bythe election provisions in the Joint Operating Agreement. If such SubstituteWell is timely commenced and either CMI and/or Reef participates, theSubstitute Well shall be considered and deemed for all purposes under thisAgreement to be the Test Well including, without limitation, the apportionmentamong the Parties of the costs and expenses incurred in connection therewithpursuant to Section 4.

 

6.                                       ASSIGNMENT OF INTEREST

 

SOC shall provide Participants with an executedassignment of the Assigned Interest upon receipt by SOC of payment of the Leasecosts set forth above. Said Assignment shall be without warranty of titleexcept as to claims by,**throughor under SOC and shall be made expressly subjectto the terms and provisions of this Agreement and the attachmentshereto. Participants shall bear its proportionate share of (i) Lease royalty,(ii) a 1% of 8/8ths overriding royalty interest in**favor of Gryphon, provided,however, the net revenue interest to be delivered in such assignments ofinterest stall not be less than**82.33333%,for a proportionally reduced total net revenue interest of 4.11666% of 8/8ths for CMI, and1.235% of 8/8ths for Reef, iii) the “Discovery Bonus” as setout and defined insection 4.6(d) in the 2000 Program Agreement by and between Cheniere Energy,Incorporated (now Gryphon Exploration Company) and Samson Offshore Company.

 

7.                                       NOTICES

 

All notices provided for in this Agreement shall be inwriting and deemed received seventy-two (72) hours after deposited in the U.S.Mail. Where an election is required, all notices shall be delivered bycertified U.S. mail, return 

 

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receipt requested, telecopy, or overnight courier ormessenger with receipt confirmation, to:

 

SAMSON OFFSHORE COMPANY

1301 Travis, Suite 1900

Houston, Texas 77002

Attention:  Mr.Sonny Measley

Phone:  (713) 577-2011

###### Fax:      (713)577-2211

 

###### With a copy to

 

SAMSON OFFSHORE COMPANY

Two West Second Street

Tulsa, OK

Attention:  MrJack Canon

Phone:  (918) 591-1009

Fax:      (918) 591-1718

 

CHALLENGER MINERALS INC

15375 Memorial Drive

Houston, Texas 77079

Attention:  Mr.Ron Symecko

Phone:           (281) 925-7220

Fax:                           (281)925-7280

 

REEF GLOBAL ENERGY I, L.P.

1901 N. Central Expressway, Suite 300

Richardson, Texas 75080

Attention:  Mr.Wait Dunagin

Phone:  (972) 437-6792

Fax:      (972) 994-0369

 

Each party shall have the right to chime its addressat any time, and from time to time, by giving written notice thereof to theother Parties.

 

8.                                       SUCCESSORS AND ASSIGNS

 

This Agreement and the transfer or retransfer of aninterest in the rights hereto shall inure to the to the benefit of and bebinding upon the heirs, successors and assigns of the Parties hereto; provided,however, Participants may not transfer or assign in whole or in part, itsinterest in this Agreement without the prior written consent of SOC, whichconsent shall not be unreasonably withheld.

 

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9.                                       CONFIDENTIALITY

 

Participants agree that the terms of this Agreementshall be deemed confidential and shall not be revealed to any third partyexcept (i) to the extent disclosure maybe required by law, including, without limitation, disclosures in registrationstatements or other filings with the Securities and Exchange Commission; (ii)disclosures in any judicial or alternative dispute resolution proceedingconcerning the terms hereof; and (iii) disclosures with the written consent ofSOC, which consent shall not be unreasonably withheld.

 

This Participation Agreement may be signed incounterparts, and shall be binding upon the Parties and upon their successors,representatives and assigns.

 

Please acknowledge your agreement of the terms hereinby executing one copy of this Participation Agreement where provided below andreturning the same to this office no later than January 17, 2003. ThisParticipation Agreement shall become effective when fully executed by allParties hereto.

 

**SAMSONOFFSHORE COMPANY**

 

 
| /s/ Brian K. Ayers |           |
|--------------------|----------------|
| By:                | Brian K. Ayers |
| Title:             | Vice President |
|                    |                |  |

 

**AGREED TO AND ACCEPTED THIS 17thDAY OF JANUARY 2003.**

 

**CHALLENGERMINERALS INC**

 

 
| /s/ T.J. Morrow |        |
|-----------------|-------------|
| By:             | T.J. MORROW |
| Title:          | PRESIDENT   |
|                 |             |  |

 

**AGREED TO AND ACCEPTED THIS           DAY OF JANUARY2003.**

 

**REEF GLOBAL I, L.P.**

 

 
| /s/ Michael J. Mauceli |               |
|------------------------|--------------------|
| By:                    | Michael J. Mauceli |
| Title:                 | Managing Member    |
|                        |                    |  |

 

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## **EXHIBIT “A”**

 

**Attached to and made a part of that certainParticipation Agreement dated January 14, 2003, by and between Samson Offshore Company**and Challenger MineralsInc., et al.**

 

## **“Lease”**

 

Oil and Gas Lease**dated June 1, 2002 from the United StatesDepartment of the Interior, Minerals Management Service, as Lessor, to GryphonExploration Company and Samson Offshore Company, as Lessee, covering all ofBlock 27, Grand Isle Area, Offshore Louisiana, approximately 5000 acres more orless, and bearing serial Number OCS-G 23948.

 

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## **EXHIBIT “B”**

 

**Attached to and made a part of that certainParticipation Agreement dated January 14, 2003, by and between Samson OffshoreCompany and Challenger Minerals Inc., et al.**

## ** **

## **“Joint Operating Agreement dated June 1, 2002”**

 

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## **EXHIBIT “C”**

 

**Attached to and made a part of that certainParticipation Agreement dated January 14, 2003, by and between Samson OffshoreCompany and Challenger Minerals Inc., et al.**

 

## ***“*Authority forExpenditure”**

 

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