EXHIBIT 4(A)


 


FARM-OUT
AGREEMENT


 

















 


CANADIAN SUPERIOR

ENERGY INC.


 


December 30, 2005


Challenger Energy Corp.


Suite 1000, 400 – 3rd Avenue S.W. Calgary, Alberta


T2P 4H2


 


Dear Sir:


 


Re: Amended
and Restated Farmout and Option Agreement


 


WHEREAS,
effective November 17, 2004 Canadian Superior Energy Inc. (“Canadian Superior”)
and Challenger Energy Corp. (“CNE”) entered into an agreement (the “Prior Mariner
Agreement”) for the purpose of establishing the terms and conditions on which Canadian
Superior and CNE jointly participate in the drilling of the Mariner Test Well, may jointly
participate in the Option Well(s) (as such terms are hereinafter defined), and under
which CNE acquired a right to participate in certain projects located in the Republic
of Trinidad and Tobago;


 


AND WHEREAS,
in consideration of the terms and provisions of the Rights Issuance the Parties
have agreed to amend and restate the terms of the Prior Mariner Agreement;


 


NOW THEREFORE,
in consideration of the premises and the mutual covenants set forth herein, the
Parties hereto do covenant and agree as follows:


 


ARTICLE 1

INTERPRETATION


 


1.1                                                                               Definitions


 


Capitalized words and
phrases used in this Agreement, including in the recitals hereto and the Schedules,
have the meaning set forth in this Section 1.1, namely:


 


(a)                                  “Abandon” means the proper plugging and abandonment of the Mariner
Test Well, including the salvage of salvageable material and equipment therefrom
and the restoration of the well site, all in accordance with the Regulations and
good offshore oilfield practices;


 


(b)                                 “Accord Acts” means, collectively, the Canada-Nova Scotia. Offshore
Petroleum Resources Accord Implementation Act, S.N.S 1988, c. 28, and the Canada-Nova
Scotia Offshore Petroleum Resources Accord Implementation Act, S.C. 1988, c. 28,
as amended from time to time, and includes any successor Regulations thereto, in
whole or in part;


 


(c)                                  “After Earned Interest” means with respect to CNE an undivided
twenty five percent (25%) interest and with respect to Canadian Superior an undivided
seventy five percent (75%) interest;


 


(d)                                 “Agreement” means the main body of this agreement together with
all Schedules and attachments hereto, as amended from time to time;


 

















 


(e)                                  “Ardal Overriding Royalty” means the 0.5% gross overriding royalty
pertaining to the Mariner Lands granted by Canadian Superior to Ardal Petroleum
Inc. under a certain Purchase of Exploration Prospects and Participation Agreement
between Canadian Superior and Ardal Petroleum Inc. dated September 21, 2000
(a copy of such agreement is attached as Schedule “C” hereto);


 


(f)                                    “Business Day” means any day other than a Saturday,
Sunday or statutory holiday in Calgary, Alberta;


 


(g)                                 “Cap” means the installation of such production-quality casing,
plugs and equipment as are necessary to enable the well to be used for the production
of Petroleum Substances at a later date;


 


(h)                                 “CNSOPB” means the Canada-Nova Scotia Offshore Petroleum Board
constituted pursuant to the Accord Acts, and includes any successor body or agency
thereto;


 


(i)                                     “Earning Period” means the period during which CNE has the right
to earn the Mariner Farmout Interest pursuant hereto, which period commences on
the Effective Date and expires on the time at which earning thereof occurs and subject
to any earlier termination of this Agreement by a Party in accordance with its right
to do so as may be provided herein;


 


(j)                                     “Effective Date” means November 17, 2004;


 


(k)                                  “Farmout” has the meaning ascribed thereto in Section 2.1;


 


(1)                                  “Financial Responsibility Guidelines” means the Guidelines Respecting
Financial Responsibility Requirements for Work or Activity in the Newfoundland and
Nova Scotia Offshore Areas, dated December 2000 and issued by the CNSOPB, as
the same may be amended from time to time and includes any replacement guidelines
issued therefor;


 


(m)                               “Initial Drilling Program” means the drilling and Capping or Abandoning
of the Mariner Test Well subject
to and in accordance with the Regulations, the Mariner Licence and the terms and
conditions of this Agreement;


 


(n)                                 “Marauder Licence” means Exploration Licence 2415 issued by the
CNSOPB in the name of and beneficially held 100% by Canadian Superior, as more particularly
described in Part 2 of Schedule “A” hereto;


 


(o)                                 “Marauder Farmout Interest” means an undivided twenty five percent
(25%) interest in and to the Marauder Licence and the applicable portion of the
Option Lands;


 


(p)                                 “Marconi Licence” means Exploration Licence 2416 issued by the
CNSOPB in the name of and beneficially held 100% by Canadian Superior, as more particularly
described in Part 3 of Schedule “A” hereto;


 


(q)                                 “Marconi Farmout Interest” means an undivided twenty five percent
(25%) interest in and to the Marconi Licence and the applicable portion of the Option
Lands;


 


(r)                                    “Mariner Licence” means Exploration Licence 2409 issued by the
CNSOPB in the name of and beneficially held 100% by Canadian Superior, as more particularly described in Part 1
of Schedule “A” hereto;


 


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(s)                                  “Mariner Farmout Interest” means an undivided twenty five percent
(25%) interest in and to the Mariner Licence and the Mariner Lands;


 


(t)                                    “Mariner Lands” means all lands within and subject to the Mariner
Licence;


 


(u)                                 “Mariner Test Well” means the initial well to be drilled to the
Test Well Depth at the following coordinates on the Mariner Lands (or, if drilling
at such location is not possible or practical in the circumstances, the most proximate
location thereto at which drilling is both possible and practical in the circumstances):


 


	
  NAD 1983 – Canada

  	
  Latitude:

  	
  44°03’32.1709”N

  
	
   

  	
  Longitude:

  	
  59°38’46.1338”W

  
	
   

  	
  Northing:

  	
  4883889.4

  
	
   

  	
  Easting:

  	
  768631.00

  
	
   

  	
  (UTM Zone 20)

  	
   

  



 


(v)                                 “Operating Agreement” means the 2002 Model Form International
Operating Agreement distributed by the Association of International Petroleum Negotiators
(“AIPN”) along with the 2004 AIPN Model Form International Accounting Procedure
(“Accounting Procedure”) copies of which are attached and marked as Schedule “B”
hereto with specific agreed upon elections indicated in the documents;


 


(w)                               “Option Lands” means all lands within and subject to the Marauder
Licence and/or the Marconi Licence, if applicable;


 


(x)                                   “Participating Interest” means, subject to the provisions of
this Agreement applicable thereto, Canadian Superior and potential partners as to
an undivided 66.67% interest and CNE as to an undivided 33.33% interest;


 


(y)                                 “Party” means a party bound by this Agreement;


 


(z)                                   “Permitted Encumbrances” means:


 


(i)                                     the
royalties payable or royalty share deliverable pursuant to the Regulations;


 


(ii)                                  the
Ardal Overriding Royalty;


 


(iii)                               the terms and conditions
of the Mariner Licence;


 


(iv)                              liens,
privileges or other encumbrances imposed or permitted by the Regulations such as
carriers’ liens, warehousemen’s liens, builders’ liens and other liens, privileges
or other charges of a similar nature; provided such liens, privileges and other
charges relate to obligations not due or delinquent;


 


(v)                                 liens
for taxes, assessments, duties, fees, premiums, imposts, levies and other charges
imposed by any Regulatory Authority that are not at such date due or delinquent
or the validity of which is being contested at the time in good faith by appropriate
proceedings diligently conducted and there is no imminent risk of forfeiture;


 


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(vi)                              public
and statutory obligations which are not due or delinquent or the validity of which
is being contested at the time in good faith by appropriate proceedings diligently
conducted and such obligations do not cause a material adverse effect on the Parties;
and


 


(vii)                           liens, privileges or other encumbrances
imposed or created in respect of Royalties;


 


(aa)                            “Person” means a natural person, corporation, company, partnership,
trust, unincorporated association, sole proprietorship, union, government or governmental
department, ministry, board, commission or agency;


 


(bb)                          “Petroleum Substances” means petroleum, natural gas, natural
gas liquids, condensate and every other mineral or substance, or any of them, in
which an interest in or right to explore for is granted or acquired under the Title
Documents;


 


(cc)                            “Regulations” means all laws, statutes, regulations, accords,
instruments, agreements, orders or documents of a regulatory nature issued, made
or granted by a Regulatory Authority from time to time;


 


(dd)                          “Regulatory Authority”
means a government, or a government department, agency or other authority including
courts, tribunals, boards or panels having apparent or actual jurisdiction over
the Parties, the Mariner Licence or otherwise in relation to the subject matter
hereof, including without limitation the CNSOPB;


 


(ee)                            “Rig Release” means the point in time at which the Parties cease
incurring costs to the drilling contractor in respect of the Mariner Test Well provided
that if a delineation well is drilled from the same surface location as the Test
Well then in such event “Rig Release” shall mean the point in time that the repositioning
of the rig derrick occurs in order to drill such delineation well without moving
the hull of the rig;


 


(ff)                                “Rights Issuance” means the proposed issuance by CNE to Canadian
Superior (and, subsequently, to Canadian Superior’s shareholders) (to occur immediately
following the completion by CNE of a registration statement with the Securities
and Exchange Commission, but in any event, no later than December 31, 2006)
of the right to acquire common shares in the share capital of CNE, either by way
of right, warrant or convertible preferred share, or such other matter of convertible
security of CNE as mutually agreed to between Canadian Superior and CNE, acting
reasonably, such rights to be distributed by Canadian Superior to its shareholders
by way of an in specie dividend and/or distribution, subject
to requisite regulatory approvals, as applicable, and subject to compliance with
all requisite securities laws;


 


(gg)                          “Subject Interest” means an undivided 100% interest in and to
the Mariner Land and the Option Lands;


 


(hh)                          “Test” means an operation, conducted to the reasonable satisfaction
of the Parties and any Regulatory Authority, undertaken in respect of the Mariner
Test Well to evaluate the presence of Petroleum Substances in an interpreted geological
structure or stratigraphic trap and to evaluate the capacity thereof to produce
Petroleum Substances from the Mariner Test Well;


 


(ii)                                  “Test Well Depth” means a minimum of 5000 metres subsea or such
other depth as the Parties mutually agree upon;


 


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(jj)                                  “Title Documents” means any and all documents of title, including
but not limited to the Mariner Licence, the Marauder Licence and the Marconi Licence,
under and by virtue of which the holder thereof is entitled to explore for, win,
take, remove, or sell Petroleum Substances produced from the Mariner Lands and Option
Lands, and any and all renewals, extensions or continuations thereof, or further
documents of title issued pursuant to, subsequent to, or in substitution therefor
in whole or in part, from time to time; and


 


(kk)                            “Well Data” means, with respect to the Mariner Test Well and
any Option Well, all data gathered in connection with the Initial Drilling Program,
drilling, logging, Capping and Abandonment and Test, if applicable.


 


1.2                                                                               Interpretation


 


In this Agreement,
unless the contrary intention appears from the context or express provisions of
this Agreement:


 


(a)                                  the
inclusion of headings and a table of contents are for convenience of reference only
and are not to be considered or taken into account in construing the provisions
of this Agreement or to in any way qualify, modify or explain the effect of any
such provisions;


 


(b)                                 references
to an Article, Section or Schedule are references to an Article, Section or
Schedule, as the case may be, in this Agreement;


 


(c)                                  words
importing the singular shall include the plural and vice versa and
words importing a particular gender shall include all genders;


 


(d)                                 all
monetary amounts are expressed in Canadian currency;


 


(e)                                  where
a period of time is specified, dated or calculated from a date or event, the period
shall be calculated excluding such date or the date on which such event occurs,
as the case may be;


 


(f)                                    time
shall be of the essence; and


 


(g)                                 where
a term is defined in this Agreement, a derivative of that term shall have a corresponding
meaning unless the context otherwise requires.


 


1.3                                                                               Business
Day


 


If, pursuant to this
Agreement, a notice must be given or an action taken within a specified period or
on or before a specified date and such period ends on, or such date falls on, a
day that is not a Business Day, such notice may be given or such action may be
taken on the next succeeding Business Day.


 


1.4                                                                               Governing
Law and Attornment


 


Regardless of where
executed or delivered, this Agreement and the rights and obligations of the Parties
hereunder shall be governed by, and construed and interpreted in accordance with,
the Regulations applicable in the Province of Alberta and the federal laws of Canada
applicable therein, provided that those Regulations of the Province of Nova Scotia
governing the Mariner Licence, the Marauder Licence and the Marconi Licence shall
be applied in accordance with their terms. Subject thereto, the Parties hereby expressly
attorn to the jurisdiction of the Courts of Alberta, and all Courts of


 


5

















 


Appeal therefrom, with respect
to all matters or disputes pertaining to or arising out of this Agreement, the rights
and obligations of the Parties hereunder or the subject matter hereof in this regard
any choice of law principles applicable in the Province of Alberta shall not be
applied to exclude the jurisdiction of the Courts of Alberta with respect hereto.


 


1.5                                                                               Conflicts


 


If there is a conflict
or inconsistency between any provision of the main body of this Agreement and the
Schedules, the provision contained in the main body of this Agreement shall govern
and prevail to the extent of the conflict or inconsistency.


 


1.6                                                                               Schedule


 


The following Schedules
is attached to and forms part of this Agreement:


 


	
  Schedule “A”

  	
  Mariner Licence,
  Marauder Licence and Marconi Licence

  
	
  Schedule “B”

  	
  Operating Agreement
  with Accounting Procedure

  
	
  Schedule “C”

  	
  Ardal Overriding
  Royalty Agreement

  
	
  Schedule “D”

  	
  Block 5(c) Participation

  
	
  Schedule “E”

  	
  MGB Participation

  



 


1.7                                                                               Harmonized Taxes


 


Subject to the remaining
provisions of this Section 1.7, CNE acknowledges that it is responsible for
paying any federal Goods and Services Tax (“GST”) or other taxes (other than income
taxes), fees, charges or assessments which may be imposed by any governmental
authority (such GST and other taxes hereinafter collectively referred to as “Taxes”)
and which may be payable in connection with any operations or other activities
carried out pursuant to this Agreement. Prior to earning the Mariner Farmout Interest
and/or the Marauder Farmout Interest and/or the Marconi Farmout Interest, CNE and
Canadian Superior shall each be responsible for and shall pay its Participating
Interest of all Taxes payable in connection with operations or activities carried
out on or in respect of the Mariner Lands and the Option Lands, if applicable.


 


After earning the Mariner
Farmout Interest and/or the Marauder Farmout Interest and/or the Marconi Farmout
Interest, Canadian Superior and CNE shall be responsible for and shall pay their
After Earned Interest share of all such Taxes. The Parties agree to elect in prescribed
form (and to file the same if required) pursuant to subsection 273(1) of
the Excise Tax Act (Canada), and any comparable provisions
applicable under the Regulations of Nova Scotia, such that the Operator shall, for
and on behalf of the Parties, administer all transactions arising out of or pertaining
to operations conducted pursuant hereto and that are subject to the GST and provincial
sales tax harmonized therewith, and the Operator shall collect all amounts or make
all payments relating thereto as applicable. Each Party hereby agrees to be bound
by such election, when made, for the duration of the term of this Agreement and
the Operating Agreement, provided that if a Party elects to take its After Earned
Interest share of Petroleum Substances in kind, such GST and other harmonized sales
tax election shall be revoked or remade to allow such Party to administer such transactions
and payments related to that portion of production taken in kind that were the responsibility
of the Operator. All references to “Operator” in this Section 1.7 shall be
interpreted to mean the Test Well Operator under this Agreement at all times prior
to the Operating Agreement coming into effect.


 


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ARTICLE 2

FARMOUT


 


2.1                                                                               Agreement
to Farmout


 


Canadian Superior hereby
agrees to farmout (the “Farmout”) all of its right, title, estate and interest in
and to the Mariner Farmout Interest, the Marauder Farmout Interest and the Marconi
Farmout Interest to CNE in accordance with and subject to the terms and conditions
set forth herein.


 


ARTICLE 3

CNE TRINIDAD RIGHTS


 


3.1                                                                               Agreement
to Enter into Participation Agreements


 


Canadian Superior and
CNE hereby agree to execute contemporaneously with this Agreement the following
two agreements: i) an Amended and Restated Participation Agreement dated December 30,
2005 concerning Block 5(c), (as defined in such agreement), a copy of which is attached
as Schedule “D” hereto (“Block 5(c) Participation”), and; ii) an Amended
and Restated Participation in a Farmout Agreement dated December 30, 2005 concerning
the Mayaro Bay Lands and the Guayaguayare Bay Lands (as such terms are defined in
such agreement), a copy of which is attached as Schedule “E” hereto (“MGB Participation”).


 


ARTICLE 4

WARRANTY OF TITLE


 


4.1                                                                               Title
Documents and Warranty


 


(a)                                  CNE
acknowledges that it has examined and is satisfied with the Title Documents, including
but not limited to all indicia of Canadian Superior’s title to the Lands, Option
Lands and Licences.


 


(b)                                 Canadian
Superior does not convey, purport, promise, represent or agree to convey to CNE
any better right, title or interest in and to any of the Mariner Lands, Mariner
Licence, Marauder Licence, Marconi Licence or the Option Lands than that which it
now has by virtue of its interest therein and thereto as conferred by the Title
Documents, provided that Canadian Superior does represent and warrant to CNE that
Canadian Superior:


 


(i)            has not encumbered
the Mariner Farmout Interest, the Marauder Farmout Interest or the Marconi Farmout
Interest in any manner except for the Permitted Encumbrances;


 


(ii)           has not, as
of the Effective Date, received any notice of default in respect of the Mariner
Licence, the Marauder Licence or the Marconi Licence from any Regulatory Authority
under the Regulations in respect thereof; and


 


(iii)          has
complied with all of the terms of the Title Documents in all material respects and
has not received any notice from any Person to the contrary.


 


(c)                                  During
the Earning Period in respect of the Subject Interest, and thereafter in respect
of the Mariner Farmout Interest and/or the Marauder Farmout Interest and/or the
Marconi Farmout Interest, neither Party shall do or cause to be done any act, or
make or cause to be made any act or omission, whereby the Title Documents, the Mariner
Lands or the Option Lands become


 


7

















 


encumbered (other than
by a Permitted Encumbrance) in such a way as to adversely affect any of them or
make them or the Mariner Lands, Mariner Licence, Option Lands, Marauder Licence
or the Marconi Licence subject to termination or forfeiture in any respect.


 


(d)                                 Except
as otherwise provided herein, if the interest of any Party in the Subject Interest
or the Title Documents is now or hereafter becomes encumbered by any royalty, overriding
royalty, production payment or other charge, burden or encumbrance, such charge,
burden or encumbrance shall be charged to and paid entirely by the Party whose interest
is or becomes so encumbered.


 


ARTICLE 5

TEST WELL AND EARNING


 


5.1                                                                               Commitment
to Drill Test Well


 


Subject to rig availability
and approval of the CNSOPB (both
of which Canadian Superior shall pursue with reasonable commercial diligence), on
or before September 30, 2007, the Parties shall commence drilling the Mariner
Test Well. The Mariner Test Well shall be drilled to the Test Well Depth and shall
be continuously drilled and Capped or Abandoned in accordance with the terms of
this Agreement, the Regulations and good offshore oilfield practices. Each Party
shall be responsible for and shall pay its Participating interest share of the costs
and expenses associated with the Initial Drilling Program as follows:


 


(a)                                  CNE
shall pay its Participating Interest share of the projected dry hole cost of the
Mariner Test Well not less than 10 days prior to the spud date of such well; and


 


(b)                                 CNE
shall pay its Participating Interest share of the balance of the costs and expenses
associated with the Initial Drilling Program on a cash call basis.


 


If Canadian Superior and CNE
mutually elect to drill the Mariner Test Well to a depth greater than the Test Well
Depth, each Party shall continue to he responsible for and shall pay its Participating
Interest share of the costs and expenses associated with drilling the Mariner Test
Well to such greater depth and thereafter Capping or Abandoning the Mariner Test
Well. If the Parties mutually agree to Test the Mariner Test Well the cost of such
operation shall be borne by the Parties in accordance to their Participating Interest.


 


5.2                                                                               Financial Contributions


 


Each of the Parties
shall be responsible for posting or depositing with the appropriate Regulatory Authority
their respective Participating Interest of all financial assurances as may be
required under or pursuant to the Financial Responsibility Guidelines and the Regulations
in connection with the drilling of the Mariner Test Well. The Parties shall, acting
jointly and in a commercially reasonable manner in the circumstances, determine
the manner in which their respective Participating Interest of such financial assurances
are provided which may include:


 


(i)            each of CNE
and Canadian Superior posting its respective Participating Interest share of such
financial assurances directly with such Regulatory Authority;


 


(ii)           Canadian Superior
posting 100% of such financial assurances and CNE reimbursing its Participating
Interest share thereof to Canadian Superior; or


 


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(iii)                               a combination of subparagraphs
(i) and (ii) above.


 


5.3                                                                               Earning
of Mariner Farmout Interest


 


Once CNE has fully
complied with its obligations set forth in this Article 5 and provided that
it is not in default of any of its other obligations contained in this Agreement,
once Rig Release occurs at the Mariner Test Well, CNE shall have earned the Mariner
Farmout Interest, subject at all times to the Permitted Encumbrances. Thereafter,
except as otherwise provided herein, all operations conducted by the Parties on
or in respect of the Mariner Lands shall be shared by the Parties on the basis of
their respective After Earned Interests therein and shall be governed by and conducted
in accordance with the Operating Agreement. PROVIDED THAT in the event that CNE
fails to pay when due the amount required pursuant to clause 5.1(a) above,
this Agreement shall terminate without further notice, and CNE shall have forfeited
its right to earn any interest hereunder.


 


ARTICLE 6

SEISMIC DATA


 


6.1                                                                               Canadian  Superior Seismic Data


 


Provided that CNE has
fulfilled its obligations with respect to the Mariner Test Well and that it is not
in default of any of its other obligations contained in this Agreement, CNE shall
have the right to a copy of, but not an ownership interest in, all proprietary seismic
data owned by Canadian Superior as of the Effective Date and located on the Mariner
Land.


 


6.2                                                                               Third
Party Trade Seismic Data


 


CNE acknowledges that
Canadian Superior may be obligated to acquire one or more licensed copies of
other non-proprietary seismic data owned by Geophysical Service Incorporated for
CNE in respect of the Mariner Land and Option Land. CNE agrees that it shall (i) be
responsible for and shall pay all fees required to obtain such copies and (ii) execute
and deliver all agreements or other documents that may be required in connection
therewith.


 


ARTICLE 7

OPTION TO PARTICIPATE IN MARCONI AND MARAUDER


 


7.1                                                                               Option


 


Provided CNE has earned
the Mariner Farmout Interest, CNE shall have the option, but not the obligation,
to elect to participate in the drilling of a well on the Option Lands to earn an
interest in the Option Lands. Prior to drilling or causing a well to be drilled
on the Option Land (“Option Well”), Canadian Superior shall provide CNE written
notice of such intention to drill or cause a well to be drilled (“Well Notice”).
The Well Notice shall contain all relevant information necessary for CNE to make
an informed decision to participate or not in the particular Option Well including
but not limited to: a geological and geophysical discussion along with supporting
data, economic data, expected well performance data, expected reservoir data, exact
location, detailed cost estimate, estimate of commencement date, estimated duration
of the drilling operation and expected total depth. Within 120 days from receipt
of delivery of each Well Notice, CNE shall have the option to elect, by written
notice to Canadian Superior, to either:


 


(a)                                  participate
for its Participating Interest in the Option Well(s) on a well by well basis; or


 


9

















 


(b)                                 terminate
such option to participate in such Option Well.


 


7.2                                                                               Interests
of Parties in the Event CNE Participates in Option Well(s)


 


In the event CNE elected
pursuant to Section 7.1 (a) of this Agreement and once CNE participates
in the drilling, Capping or Abandoning of the applicable Option Well for its Participating
Interest then once Rig Release occurs at the Option Well, CNE shall have earned
the Marauder Farmout Interest if the Option Well is located on the Marauder Licence
or the Marconi Farmout Interest if the Option Well is located on the Marconi Licence,
subject at all times to the Permitted Encumbrances. Thereafter, except as otherwise
provided herein, all operations conducted by the Parties on or in respect of the
Option Lands, shall be shared by the Parties on the basis of their respective After
Earned Interest therein and shall be governed by and conducted in accordance with
the Operating Agreement.


 


7.3                                                                               Option to Participate in Seismic Program(s)


 


After the Effective
Date, in the event Canadian Superior acquires proprietary or trade seismic data
over the Option Lands, CNE shall have the option, but not the obligation, to elect
to participate in the acquisition of such seismic data. Prior to acquiring proprietary
or trade seismic data on the Option Land (“Option Seismic”), Canadian Superior shall
provide CNE written notice of its intention to acquire such Option Seismic (“Seismic
Notice”). The Seismic Notice shall contain all relevant information necessary for
CNE to make an informed decision to participate or not in the acquisition of the
particular Option Seismic including but not limited to: a geological and geophysical
discussion along with supporting data, economic data, vendor information, acquisition
parameters, exact location of the data, detailed cost estimate, estimate of commencement
date, and estimated duration of the acquisition operation (if applicable). Within
120 days from receipt of delivery of each Seismic Notice, CNE shall have the option
to elect, by written notice to Canadian Superior, to either:


 


(a)                                  participate
for its Participating Interest in the Option Seismic on a case by case basis; or


 


(b)                                 terminate
such option to participate in such Option Seismic.


 


ARTICLE 8

TITLE AND OPERATIONAL MATTERS


 


8.1                                                                               Transfer
and Registration of Farmout Interests


 


(a)                                  Once
CNE has earned the Mariner Farmout Interest in accordance with the terms of this
Agreement, and provided that CNE is not in default of any of its obligations hereunder,
Canadian Superior shall, by documentation in form and content acceptable to
CNE acting reasonably, convey the Mariner Farmout Interest to CNE.


 


(b)                                 Once
CNE has earned the Marauder Farmout Interest and/or the Marconi Farmout Interest
in accordance with the terms of this Agreement, and provided that CNE is not in
default of any of its obligations hereunder, Canadian Superior shall, by documentation
in form and content acceptable to CNE acting reasonably, convey either or both
the Marauder Farmout Interest and/or the Marconi Farmout Interest, as applicable,
to CNE.


 


(c)                                  In
addition to the conveyance contemplated in Section 8.1 (a) and (b), once
CNE has earned the Mariner Farmout Interest and/or the Marauder Farmout Interest
and/or the Marconi Farmout Interest, Canadian Superior shall, subject to the Regulations,
use all commercially reasonable efforts in the circumstances to have CNE recognised
with the appropriate Regulatory Authority in


 


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the Mariner Licence
and if applicable and/or the Marauder Licence and/or the Marconi Licence, together
with any other Title Documents that may be applicable thereto. Canadian Superior
makes no representations or warranties as to when or if such recognition will occur.
Until CNE becomes a recognised party in and to the Mariner Licence, the Marauder
Licence, and the Marconi Licence and any other Title Document applicable thereto,
Canadian Superior shall hold, as bare trustee and on and subject to the terms and
conditions set forth in this Agreement and any terms of the Regulations applicable
thereto, the applicable beneficial interest therein earned by CNE pursuant to this
Agreement.


 


8.2                                                                               Operation
of Mariner Test Well and Option Well(s)


 


(a)                                  The
Parties hereby appoint Canadian Superior as the operator of the Mariner Test Well
and any and all Option Well(s) (the “Test Well Operator”). Canadian Superior shall
properly perform and discharge its duties and obligations as Test Well Operator
in accordance with the terms of this Agreement, the Regulations, and good offshore
oilfield practices


 


8.3                                                                               Test Well Operator’s Authority


 


Subject to the terms
and conditions of this Agreement, and prior to CNE earning the Mariner Farmout Interest
and/or the Marauder Farmout Interest and/or the Marconi Farmout Interest, as applicable
the following provisions of the Operating Agreement shall apply to the drilling
of the Mariner Test Well and the Option Well(s) together with any associated operations
conducted under this Agreement on the Mariner Lands and Option Lands:


 


	
  Article 1

  	
  Definitions (to the
  extent required for interpretation of the relevant provisions of the
  Operating Agreement adopted by this Section 8.3)

  
	
   

  	
   

  
	
  Article 4

  	
  Operator

  
	
   

  	
   

  
	
  Article 8

  	
  Default

  
	
   

  	
   

  
	
  Article 14

  	
  Relationship of Parties

  
	
   

  	
   

  
	
  Article 15

  	
  Venture Information

  
	
   

  	
   

  
	
  Article 16

  	
  Force Majeure

  
	
   

  	
   

  
	
  Accounting Procedure

  	
  Entire Document

  



 


8.4                                                                               Subsequent Operations


 


Once CNE has earned
the Mariner Farmout Interest and/or the Marauder Farmout Interest and/or the Marconi
Farmout Interest, as applicable, and provided that CNE is not in default of any
of its obligations hereunder at the relevant time, the Parties shall appoint Canadian
Superior as the operator in respect of the Mariner Lands and/or the Option Lands
together with all other subsequent operations conducted thereon, in all cases subject
to the provisions of the Operating Agreement. Canadian Superior shall accept such
appointment and covenants that it shall properly perform and discharge its
duties and obligations as Operator in accordance with the terms of the Operating
Agreement, the Regulations and good offshore oilfield practices.


 


11

















 


8.5                                                                               Exchange
of Information


 


(a)                                  Canadian
Superior shall provide all Well Data to CNE upon such Well Data immediately upon
being available to Canadian Superior.


 


(b)                                 In
addition, upon reasonable notice from CNE, Canadian Superior shall allow authorized
representatives of CNE access to the site of the Mariner Test Well and any Option
Well, including platform floor access privileges, at CNE’s sole cost, risk
and expense.


 


ARTICLE 9

TERMINATION


 


9.1                                                                               Termination
by Canadian Superior


 


Canadian Superior may,
by Notice to CNE, terminate this Agreement if:


 


(a)                                  CNE
fails to participate in the drilling of the Mariner Test Well; or


 


(b)                                 CNE
is in default of any of the other material terms and conditions of this Agreement
and CNE has not remedied such default within thirty (30) Business Days after receipt
of Notice thereof from Canadian Superior. PROVIDED THAT in the case of an alleged
monetary default Canadian Superior shall be entitled to deliver such Notice of Default
only if CNE has failed to pay within 30 days any amount due to be paid by it pursuant
to the provisions of this Agreement.


 


(c)                                  Notwithstanding
the foregoing, upon earning by the CNE of any interest available to it pursuant
to this Agreement, the default provisions of the Operating Agreement shall apply
to all further operations in respect of such earned interest(s) and the respective
obligations of the parties in relation thereto.


 


9.2                                                                               Termination
by CNE


 


CNE may, by Notice
to CNE, terminate this Agreement if Canadian Superior fails to commence drilling
operations on the Mariner Test Well on or before September 30, 2007.


 


9.3                                                                               Consequences
of Termination


 


Termination of this
Agreement shall not affect any of the obligations and liabilities of the Parties
arising, accrued or accruing at or prior to the time of termination.


 


ARTICLE 10

NOTICES


 


10.1                                                                        Notice


 


All demands, notices
or other communications to be given in connection with this Agreement (“Notice”)
shall be in writing and shall be sufficiently given or made if:


 


(a)                                  delivered
to the intended recipient personally or by courier during normal business hours
on a Business Day at the intended recipient’s address as set forth below; or


 


12

















 


(b)                                 sent
by facsimile transmission or sent to the intended recipient by other means of recorded
electronic communication:


 


	
  Canadian Superior
  Energy Inc.:

  	
  Suite 3300, 400 -
  3rd Avenue SW

  
	
   

  	
  Calgary, Alberta T2P
  4H2

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  President

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  
	
   

  	
   

  
	
  Challenger Energy Corp.

  	
  Suite 3300, 400 –
  3rd Avenue SW

  
	
   

  	
  Calgary, Alberta T2P
  4H2

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  



 


10.2                                                                        Deemed
Delivery


 


Any Notice given or
made in the manner set forth in Section 10.1 shall be deemed to have been given
or made and to have been received on the day of its delivery or transmission, as
the case may be, if such day is a Business Day and such Notice is received
prior to 2:00 p.m., Calgary time, and, if not, on the first Business Day thereafter.


 


10.3                                                                        Change
of Address


 


A Party may change
its address or telecopier number by Notice to the other Party given in accordance
with Section 10.1.


 


ARTICLE 11

LIABILITY AND INDEMNITY


 


11.1                                                                        Liability
of and Indemnification


 


(a)                                  CNE
shall be liable to Canadian Superior for all losses, costs, damages and expenses
whatsoever, excepting consequential damages, which Canadian Superior may suffer,
sustain, pay or incur and, as a separate and independent covenant, shall indemnify
and save harmless Canadian Superior from and against all actions, proceedings, claims
demands, losses, costs, damages and expenses whatsoever which may be brought
against or suffered by Canadian Superior or which it may sustain, pay or incur
by reason of any matter or thing arising out of or in any way attributable to the
gross negligence or wilful or wanton misconduct of CNE in respect of operations
carried on by CNE, its servants, agents, employees, independent contractors, licencees
or other workers or representatives of any kind in respect of the Mariner Test Well
and/or any Option Well.


 


(b)                                 Canadian
Superior shall be liable to CNE for all losses, costs, damages and expenses whatsoever,
excepting consequential damages, which CNE may suffer, sustain, pay or incur
and, as a separate and independent covenant, shall indemnify and save harmless CNE
from and against all actions, proceedings, claims demands, losses, costs, damages
and expenses whatsoever which may be brought against or suffered by CNE or
which it may sustain, pay or incur by reason of any matter or thing arising
out of or in any way attributable to the gross negligence or wilful or wanton misconduct
of Canadian Superior in respect of operations carried on by Canadian


 


13

















 


Superior, its servants,
agents, employees, independent contractors, licencees or other workers or representatives
of any kind in respect of the Mariner Test Well and/or any Option Well.


 


(c)                                  Notwithstanding
Sections 11.1 (a) and (b), at such time, if any, that CNE earns the Mariner
Farmout Interest or the Marauder Farmout Interest or the Marconi Farmout Interest,
as applicable, the wells and all other operations conducted on the Mariner Lands
or the Option Lands, as applicable shall be operated under and governed by the Operating
Agreement including the liability and indemnification provisions thereof. If CNE
earns the Marauder Farmout Interest and/or the Marconi Farmout Interest in addition
to the Mariner Farmout Interest, the Operating Agreement shall apply separately
and independently to each of the Mariner Lands and the Option Lands and shall be
deemed to constitute a separate and independent agreement between the Parties in
respect of each such parcel of lands.


 


ARTICLE 12

COVENANTS


 


12.1                                                                        Covenants


 


The Parties will use
their reasonable commercial efforts to proceed with the Rights Issuance contemplated
pursuant to this Agreement.


 


ARTICLE 13

MISCELLANEOUS


 


13.1                                                                        Amendments


 


All amendments to this
Agreement shall be made in a written instrument signed by both Parties.


 


13.2                                                                        Waiver
in Writing


 


No waiver of any provision,
or the breach of any provision, of this Agreement shall be effective unless contained
in a written instrument signed by the Party granting the waiver. Such waiver shall
affect only the matter specifically identified in the instrument granting the waiver
and shall not extend to any other matter, provision or breach.


 


13.3                                                                        Delay
Not Waiver


 


The failure of a Party
to give Notice to any other Party or to take any other steps in exercising any right,
or in respect of the breach or nonfulfillment of any provision of this Agreement,
shall not operate as a waiver of that right, breach or provision nor shall any single
or partial exercise of any right preclude any other or future exercise of that right
or the exercise of any other right, whether in law or in equity or otherwise.


 


13.4                                                                        Acceptance
of Payment Not Waiver


 


Acceptance of payment
by a Party after the breach or nonfulfillment of any provision of this Agreement
by another Party shall not constitute a waiver of the provisions of this Agreement,
other than any breach cured by such payment.


 


14

















 


13.5                                                                        Primacy of Farmout Agreement


 


In the event of a conflict
between the provisions of this Agreement and the Operating Agreement, the provisions
of this Agreement shall prevail.


 


13.6                                                                        Entire Agreement


 


This Agreement constitutes
the entire agreement of the Parties in respect of the subject matter hereof and
supersedes all prior oral or written agreements and understandings of the Parties.


 


13.7                                                                        Further Assurances


 


Each Party shall do
all such things and execute and deliver all such further instruments as the other
Parties may reasonably request to give effect to and implement this Agreement.


 


13.8                                                                        Assignment


 


This Agreement may not
be assigned by either Party without the prior written consent of the other Party,
which consent shall not be unreasonably delayed or withhold.


 


13.9                                                                        Enurement


 


This Agreement is binding
upon and shall enure to the benefit of the Parties hereto and their respective successors
and permitted assigns.


 


13.10                                                                 Counterpart Execution


 


This Agreement may be
executed in counterpart and all counterparts shall together constitute one
and the same Agreement.


 


13.11                                                                 Delivery


 


A Party which has executed
this Agreement may deliver it to the other Party by facsimile transmission
at its address for such transmissions set out in Article 10, and any copy so
delivered shall be deemed an original for all purposes. A Party so delivering this
Agreement shall thereafter forthwith deliver to the other Party an original execution
page hereof with its original signature located thereon provided, however,
that any failure by a Party to so deliver such original execution page shall
not affect the validity or enforceability of this Agreement against that Party.


 


13.12                                                                 Severability


 


The invalidity or unenforceability
of any Section or provision of this Agreement shall not affect the validity
or enforceability of any other Section, provision or whole of this Agreement.


 


13.13                                                                 Limitation
of Actions


 


The Parties hereby
acknowledge and agree that the limitation period of two (2) years provided
in Section 3(l) of the Limitations Act, S.A. 1996, c. L-15.l, as amended (the
“Limitations Act”), for any claim (as such term is defined in the Limitations Act)
arising in connection with this Agreement shall be extended by an additional four
(4) years in accordance with this Agreement and with Section 7 of the
Limitations Act.


 


15

















 


13.14                                                                 Press
Releases


 


Each Party agrees not
to make any public announcement concerning this Agreement or any of the matters
contemplated herein, except as may be required by law, without the consent
of the other Party regarding the proposed announcement, which consent shall not
be unreasonably withheld.


 


Please indicate your
agreement to the foregoing by signing and dating both copies of this letter in the
space provided below and returning one copy to the undersigned.


 


12.15                                                                 Authority


 


Each of the Parties
agrees and acknowledges that it has the requisite capacity, power and authority
to enter into this Agreement and to take such further steps as are required to give
effect to the provisions hereof.


 


 


Sincerely,


 


CANADIAN SUPERIOR
ENERGY INC.


 


 


	
  By:

  	
  /s/ Michael E. Coolen

  	
   

  	
  /s/ T.J. Harp Dir.

  	
   

  
	
   

  	
  Michael E. Coolen,
  Director

  	
   

  	
  T.J. Harp

  



 


 


AGREED AND ACCEPTED this 30
day of December, 2005


 


 


CHALLENGER
ENERGY CORP.,


 


 


	
  By:

  	
  /s/ Neil MacKenzie

  	
   

  
	
   

  	
  President

  	
   

  



 


16

















 


[Schedules
intentionally deleted]