Exhibit 10.1

                              REGENCY ENERGY, INC.
                                2242 SO. HWY. #83
                            CRYSTAL CITY, TEXAS 78839
                              830 - 374-9000 - OFF
                              830 - 374-0202 - FAX

                             PARTICIPATION AGREEMENT

July 8, 2006

Tidelands Exploration and Production, Inc.
1862 West Bitters - Bldg. No. 1
San Antonio, Texas 78248

Mr. Michael R. Ward

RE: SOMERSET-BENTON CITY FIELD
    A & B PIPELINE COMPANY OF TEXAS, INC.
    ATACOOSA, MEDINA AND BEXAR COUNTY, TEXAS

Dear Michael:

This letter agreement, when executed by you, shall evidence the entire agreement
between REGENCY ENERGY, INC. (hereinafter referred to as "REGENCY") and yourself
(hereinafter  referred to as  "PARTICIPANT")  pertaining to the above referenced
wells, producing and nonproducing, about to be acquired, oil and gas leases, now
owned or being acquired and the A&B Pipeline Company of Texas, Inc. (hereinafter
referred to as the "SUBJECT PROPERTIES").

                                       (1)

REGENCY  now  owns all the  rights  title  and  interest  in an to that  certain
pipeline system known as the A&B Pipeline Company of Texas,  Inc. and to certain
wells, oil and gas leases, now producing or non-producing,  described in Exhibit
"A" attached hereto and made a part hereof referred to as "Subject  Properties".
Regency herein agrees to assign an undivided fifty (50) percent working interest
in and to the "SUBJECT PROPERTIES" to the Participant for the sum of $500,000.00
(Five Hundred Thousand Dollars and No/100.  It is understood and agreed that the
final  connection  to the pipeline  system has to be completed  and at this time
that  connection has not been  completed.  For the funds above set forth,  it is
anticipated  that said necessary  connection  shall be finalized within the next
two-three weeks and until then gas sales cannot be commenced and no revenues can
be generated. Is is agreed that a gas compressor of necessary size to handle the
volume of gas indicated to be sold will be installed.  Also, an H2S analyzer and
removal system will be installed sufficient to meet the pipeline  specifications
as to H2S removal  before it goes to sales.  It is further  understood,  that in
addition to the existing  wells that are to be connected to the sales  pipeline,
REGENCY  is  continuing  to acquire  oil and gas leases and the funds  furnished


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herein shall be used only to finalize this pipeline  connection  and install the
necessary  surface  equipment to deliver the gas from the existing  wells to the
sales point.  Regency  agrees to continue to develop these  properties in a good
and  workmanlike  manner  as any  normal  prudent  operator  would  do and  keep
PARTICIPANT  notified as to the  progress  being made.  All  operations  will be
conducted  under the Rules  and  Regulations  of Texas  Railroad  Commission  in
compliance with all other State and Federal Rules and Regulations.

                                      (11)

It is understood and agreed between Regency and the  Participant,  that the sole
purpose  of  this  letter  agreement  is to  ultimately  fully  develop  an area
encompassing  this  entire  area and field,  to  re-enter  as many as  practical
plugged and abandoned  wells in an attempt to recomplete as many as practical as
producers. Participant will have the continuing option to participate in oil and
gas  lease  to be  acquired  and  each  additional  well  to be  recompleted  or
re-entered on an actual cost basis and Participant for his undivided Fifty (50%)
working  interest  share. On all oil and gas leases acquired and future wells to
be re-entered and recompleted the  Participant,  if they so desires  Participant
will share in his undivided Fifty (50%) working interest share.

                                      (111)

Simultaneously,  with the  execution  of this  Participation  Agreement  and the
payment of the funds outlined  above,  Participate  will execute a Standard Form
Operating  Agreement,  attached hereto as Exhibit "B",  wherein Regency shall be
designated  as  Operator or Record for the  Subject  Properties  and wherein all
operations  on the said  leasehold  estates  shall be conducted  pursuant to the
terms,  conditions and provisions of said  Operating  Agreement with  Accounting
Procedure  attached  thereto as Exhibit  "C" and made a part  thereof;  provided
however,  where the terms and  provisions of said Operating  Agreement  conflict
with the terms of this Participation Agreement, the terms and provisions of this
Participation Agreement shall prevail.

                                      (1V)

Regency will, after receipt of the above  referenced  funds and  simultaneously,
continue  to  diligently  pursue  the  acquisition  of as many other oil and gas
leases as is possible and Regency agrees to pursue its overall  efforts with due
diligence and in a good and workmanlike manner in accordance with the program as
set out. After successful  completion of each well to be reentered,  to promptly
connect  said well to the sales lines and  commence  to sell gas.  In  addition,
Regency agrees to continue to promptly perform the necessary work to connect the
gathering  lines from each well to the sales line so that gas sales can commence
as rapidly as possible.

                                       (V)

During the course of the  recompletion  attempt  and all  subsequent  operations
conducted on the subject lease and/or leases,  well and/or wells,  and pipeline,
Participant  and or his  authorized  representative,  shall  have  access at all
reasonable  times  to  said  lease,  leases,  wells  and  pipeline  and  to  all
information pertaining thereto.


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                                      (VI)

The parties hereto, "REGENCY" and "PARTICIPANT",  expressly do not hereby intend
to create a joint venture or partnership  association,  and this agreement shall
not be construed as creating any such legal  relationship.  The liability of the
parties hereto shall be several and not joint or collective.

Each party agrees to elect to be excluded from the  application  of Subchapter K
of Charter I of  Subtitle A of the US  Internal  Revenue  Code.  Each party also
agrees to elect to be  excluded  form the  application  of any present or future
income  tax laws of the  State,  which  there  are not  any,  in the  which  the
properties  covered  hereby are located under which an election  similar to that
provided by Section 761 of the US Internal Revenue Code can be made.

The parties  agrees that for the United States Income and any  applicable  State
Income Tax  purposes  the gains and losses from sales,  abandonments,  and other
Disposition  of the  property  and all classes of costs,  expenses  and credits,
including depreciation and depletion,  shall be shares and accounted for by each
party in the following manner.

     (a)  The  production  costs shall be allocated as deductions to the parties
          in accordance with their respective contributions to such costs.

     (b)  The  exploration  costs,   intangible  drilling  costs,  if  any,  and
          development  costs shall be allocated as  deductions to the parties in
          accordance with their respective contributions of such costs.

     (c)  The  depreciation  on tangible  equipment  shall be  allocated  to the
          parties in  accordance  with  their  respective  contributions  to the
          adjusted basis of such equipment.

     (d)  The deduction for depletion for each taxable year with respect to each
          separate property shall be determined by each party individually based
          on the income from oil and/or gas  production  allocated to each party
          hereunder, except that cost depletion shall be based on the respective
          costs of the leasehold interest attributable to the leases contributed
          by each such party.

     (e)  Gain and losses form such sale,  abandonment,  or other disposition of
          the property  (other than oil, gas, or other  hydrocarbon  substances)
          shall be  allocated  to the parties in such manner as will reflect the
          gains and losses that would have been  includable in their  respective
          income tax returns if such property  were held by the parties  outside
          of this  agreement.  The  computations  shall take into  account  each
          party's  share  of the  proceeds  derived  from  each  sale  or  other
          disposition of such property during the year,  selling  expenses,  and
          the parties respective  contributions to the unadjusted costs basis of
          such property, less any allowed or allowable depreciation, depletions,
          amortization, credits or other deductions which have been allocated to
          each party with respect to such property as provided herein.


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     (f)  The investment credit, if any, allowed by the US Internal Revenue Code
          shall be allocated to the parties in accordance with their  respective
          contributions  to qualified  investment  as defined in the US Internal
          Revenue Code.

     (g)  All other classes of costs,  expenses,  and credits not falling within
          Subsection (a), (b), (c), (d), (e) and (f) above shall be allocated to
          and accounted for by the parties in accordance  with their  respective
          contributions to such costs, expenses and credits.

     (h)  Income from the sale of oil, gas and other  minerals  produced,  saved
          and  marketed  from the subject  properties  covered  hereby  shall be
          allocated  between the  parties  hereto  pursuant to their  respective
          rights and interest under this Participation Agreement.

                                      (V11)

Until such time as this overall  program is  completed,  REGENCY is acting as an
independent  contractor,  and a: such REGENCY shall indemnify  "PARTICIPANT" and
hold them  harmless  against  any  claims  for  injuries  to person or  property
sustained  by reason of the  manner of  conducting  operations  on the  "Subject
Properties" by REGENCY and its employees and  subcontractors  until said overall
properties are finalized.  REGENCY, as independent contractor,  agrees to comply
with all rules and regulations of the laws, federal, state and local, applicable
to REGENCY  and  REGENCY'S  business,  equipment  and  personnel  engaged in the
operations covered by this Participation Agreement.

                                     (V111)

All notices  hereunder  shall be given by United  States  mail or Western  Union
Telegraph,  postage or charges  prepaid,  and addressed to the party to whom the
notice is given at the address set forth hereinbelow. Any notice hereunder shall
be deemed given when  delivered  to said  address,  or to such other  address to
which either party shall designate in writing to the party hereto.


                                      (1X)

The mutual  covenants,  agreements,  obligations  and  duties of the  respective
parties hereto,  together with the attendant  rights,  privileges,  and benefits
contemplated  to be derived  form this Letter  Agreement  shall be and  becoming
binding upon and shall inure to the respective  successors,  assigns,  heirs and
legal  representatives  of the  parties  hereto,  and  the  agreement  shall  be
construed  under the laws of the State Of Texas and as a covenant  running  with
the subject the subject leasehold lands covered hereby>

                                       (X)

If the  foregoing is  acceptable  and outlines  your full  understanding  of our
agreement, then please so Indicate by duly executing duplicate originals of this
Letter Agreement,  retaining one duplicate original for your files and returning
the other duplicate original thereof with the funds specified in Paragraph 1 and
1X above.


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Yours very truly,

REGENCY ENERGY, INC.
2242 So Hwy #83
Crystal City, Texas 78839

By: /S/ Royis Ward
Royis Ward - President

AGREED AND ACCEPTED TO THIS THE 9TH DAY OF JULY 2006

TIDELANDS EXPLORATION AND PRODUCTION, INC.
1862 W. Bitters, Bldg. 1
San Antonio, Texas 78248

By: /S/ Michael Ward
Michael Ward - President















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