**Exhibit 10.3**

 

**ASSIGNMENT AND ASSUMPTION AGREEMENT**

 

THIS ASSIGNMENT ANDASSUMPTION AGREEMENT (this “Agreement”) is entered into effective as ofJune 15, 2004 (“Effective Date”) by and between Reef Global EnergyI, L.P., a Nevada limited partnership (“Transferor”) and Reef GlobalEnergy III, L.P., a Nevada limited partnership (“Transferee”).

 

**Preliminary Statements**

 

WHEREAS, Transferor andTransferee are both participants in the Reef Global Energy Ventures Program;

 

WHEREAS, on March 1,2004, Transferor entered into an agreement with Challenger Minerals, Inc.,Maritech Resources, Inc., Palace Exploration Company, Palace Operating Companyand Howard Energy Co., Inc. (the “Exploration Companies”) to participatein the drilling of an oil and gas well known as the “Mobile Block 961” (the “Mobile961 Participation Agreement”), a copy of which is set forth on Exhibit 1;

 

WHEREAS, followingTransferor’s execution of the Mobile 961 Participation Agreement, it wasrecognized that Transferee was the proper party to such agreement, and thatReef Partners LLC, the managing member of both Transferor and Transferee,executed the Mobile 961 Participation Agreement on behalf of Transferor ratherthan Transferee in error;

 

WHEREAS, the purpose ofthis Agreement is to correct such error to recognize the actual intent of ReefPartners LLC on behalf of both parties; and

 

WHEREAS, in considerationof Transferor’s assignment and transfer of the Mobile 961 ParticipationAgreement, Transferee has agreed to assume certain liabilities and obligationsof Transferor arising under the Mobile 961 Participation Agreement.

 

**Agreement**

 

For good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged, theparties to this Agreement, intending to be legally bound, agree as follows:

 

**1.****                                      Assignment**.  In exchange for the assumption of theAssumed Obligations (as defined in Section 2 below), Transferor herebyconveys, transfers and assigns to Transferee, its successor and assigns,forever, all of Transferor’s rights, title, privileges and interest in and tothe Mobile 961 Prospect arising under the Mobile 961 Participation Agreement.

 

**2.****                                      Assumptionof Obligations and Liabilities by Transferee**.  In connection with the transfer to Transferee of all ofTransferor’s rights, title, privileges and interest in and to the Mobile 961Prospect arising under the Mobile 961 Participation Agreement, Transferorhereby assigns to Transferee and Transferee hereby assumes all of Transferor’sobligations and liabilities arising under Mobile 961 Participation Agreement(collectively, the “Assumed Obligations”).

 

**3.****                                      FurtherAssurances**.  Transferor andTransferee, for themselves and their respective successors and assigns,covenant and agree that they will execute and deliver such additional agreements,instruments or documents such as deeds, bills of sale, assignments, UCCfinancing statements, transfers and conveyances, powers of attorney,assurances, consents or assumptions, and will take such further actions, as arenecessary to transfer and assign more fully the Mobile 961 ParticipationAgreement and to assume more fully the Assumed Obligations.

 

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**4.****                                      GoverningLaw**. This Agreement shall be construed in accordance with and all disputeshereunder shall be governed by the laws of the State of Nevada, excluding itsconflict of law rules.

 

**5.****                                      Counterparts**.  This Agreement may be executed in one ormore counterparts, each of which shall be deemed an original for all purposesand all of which together shall constitute one and the same instrument.

 

* * * * *

 

The parties to thisAgreement have executed and delivered this Agreement as of the Effective Date.

 
| TRANSFEROR:                  |                         | TRANSFEREE: |               |
|------------------------------|------------------------------|-------------|--------------------|
|                         |                         |        |               |
| REEF GLOBAL ENERGY I,  L.P.  | REEF GLOBAL ENERGY II,  L.P. |
|                         |                         |        |               |
|                         |                         |        |               |
| By:  Reef Partners, LLC | By:  Reef Partners, LLC |
|                         |                         |        |               |
| By:                          | /s/ MICHAEL J. MAUCELI       |        | By:                | /s/ MICHAEL J. MAUCELI |   |
| Name:                        | Michael J. Mauceli           | Name:       | Michael J. Mauceli |
| Title:                       | Manager                      | Title:      | Manager            |
|                              |                              |             |                    |  |  |  |  |

 

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**EXHIBIT 1**

 

**Mobile961 Participation Agreement**

 

(See Attached)

 

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**[Challenger Minerals Inc. Letterhead]**

 

March 1, 2004

 
| **Maritech Resources, Inc.**       | **Reef Global Energy I, L. P**.        |
|------------------------------------|----------------------------------------|
| Attn:  Mr. Dave Dubiel        | Attn:  Mr. Walt Dunagin           |
| 25025 1-45 North, 6th  Floor       | 1901 N. Central  Expressway, Suite 300 |
| The Woodlands, TX  77380      | Richardson, TX  75080             |
|                               |                                   |
| **Palace Exploration Company and** | **Howard Energy Co., Inc.**            |
| **Palace Operating Company**       | Attn:  Mr. Linda Marshall         |
| Attn:  Mr. Bob Zinke          | 13561 West Bay Shore  Dr., Ste. 3000   |
| 1202 East 33rd St.                 | Traverse City, MI  49684          |
| Tulsa, OK 74105-2048               |                                   |
|                               | **Re:**                                | **Participation  Agreement and  Operating Agreement** |
|                               |                                   | **Mobile 961 (OCS-G 5761) Prospect** |
|                               |                                   | **Offshore, Alabama** |

 

Gentlemen:

 

This ParticipationAgreement is made and entered into effective March 1, 2004, by and betweenChallenger Minerals Inc. (“CMI”), Reef Global Energy I, L. P. (“Reef”), PalaceExploration Company (“Palace”), Howard Energy Co., Inc. (“Howard”)(collectively the “Participants” and individually as a “Participant”), andMaritech Resources, Inc. (“Maritech”) and Palace Operating Company (“Operator”).. The Participants and Maritech are sometimes collectively referred to as the“Parties” or individually as a “Party”. This Participation Agreement sets forththe terms and conditions whereby Participants may earn, and Maritech shallassign, 100% of 6/6ths operating rights interest in a portion ofMobile Block 961 (OCS-G 05761) as more particularly described in **Exhibit “A”**,attached hereto and made a part hereof (the “Lease”).  In consideration of the mutual covenants and benefits to bederived here from, the Parties hereto agree as follows:

 

**1.****                                      TestWell Election**:  Participantsshall have the exclusive right until July 1, 2004 to elect to drill theinitial test well (the “Test Well”) on the Lease in accordance with thisAgreement.  On or before July 1,2004, Participants shall give written notice to Maritech whether or notParticipants, or any of them, elect to drill said Test Well.  Failure to timely deliver such writtennotice to Maritech shall be deemed an election, by each party so failing, tonot participate in drilling the Test Well. Maritech shall have the right to approve any party serving as operatorof the Test Well, which approval shall not be unreasonably withheld.  Maritech represents by, through and underitself, but not otherwise, that it owns 100% of 6/6ths operatingrights interest in the Lease and that there are no title, liens, mortgages,environmental or access impediments encumbering or restricting the operationsproposed or contemplated herein.  ThisAgreement is

 

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subject to Participantsobtaining all necessary permits and authorizations for drilling and theirreview and approval of the terms and conditions of the Lease and all agreementsand other requirements affecting the Prospect and title thereto.  The only penalty or liability toParticipants for their failure to drill the Test Well shall be the loss ofrights to earn any interest hereunder.

 

**2.****                                      TestWell**:  Operations for drillingthe Test Well shall, subject to such reasonable extensions of time as may benecessary and/or convenient to obtain all necessary permits and authorizationsto drill the said Well, commence within ninety (90) days after the writtennotice required under Paragraph 1 above has been given that all Participantshave made elections whether or not to participate in drilling such Well, but inno event later than August 1, 2004. Said Test Well shall be drilled from and to mutually acceptablelocations to a depth of 1,700’ TVD/MD or a depth sufficient to test thestratigraphic equivalent of the sand seen at 1,622’ MD on the 5” electric login the Unocal – Mobile 1005 #1 Well, whichever is the lesser depth (“ObjectiveDepth”).  Participants shall pay 100% ofthe expenses of drilling the Test Well to Casing Point and, if productive, 100%of the expenses to complete same through the tanks, including the wellhead,platform, facilities and pipelines associated therewith, or plugging andabandonment, if unsuccessful, in the proportions: Challenger 5.0%, Palace62.5%, Reef 12.5% and Howard 20.0%. “Casing Point” as used in this Agreement is defined as being that pointin time when any well subject hereto has been drilled to its proposed depth, ormutually agreed to lesser depth, and all tests included in the approvedAuthority of Expenditure (“AFE”), have been performed unless waived by mutualagreement of the Parties and a recommendation is made by Operator to: (i) setcasing and complete the well, (ii) plug and abandon the well or (iii) conductother operations.  If actual drilling ofthe Test Well is not commenced by August 31, 2004, Participants and/orMaritech shall have the right and option to terminate the agreement to drillsame without any penalty or liability whatsoever other than failure to earn aninterest hereunder.

 

**3.****                                      CashConsideration**:  Within five (5)days after commencement of actual drilling of the Test Well, Operator shall payto Maritech the sum of $50,000.00, and the Participants shall promptlyreimburse Operator for such amount in the proportions: Challenger $2,500.00,Palace $31,250.00, Reef $6,250.00 and Howard $10,000.00, for all leasehold,geological, geophysical and other costs attributable to the subject Prospect.

 

**4.****                                      Assignmentof Operating Rights Earned**:  Adry hole earns no interest in the Lease. However, if the Test Well is completed for production and meets the MMSqualifications as a producible well under 30 CFR §250.116, Participants shallearn, and Maritech shall assign to Participants, 100% of 6/6ths ofthe operating rights interest, in proportion to their participation in drillingthe Test Well, subject to presently existing royalties and overriding royaltiesand reserving unto Maritech a 4.0% of 6/6ths overriding royaltyinterest, thus delivering the Lease to Participants with a 76.333% of 6/6thsnet revenue interest.  It is understoodthat the total of all royalties, overriding royalties and other burdens onproduction from the Lease, including the overriding royalty interest to bereserved by Maritech shall not exceed 23.667% of 6/6ths ofproduction.  Maritech shall assign theearned interest on the form of assignment attached hereto as **Exhibit “B”**and made a part hereof, warranting title by, through and under Maritech, butnot otherwise.  Said assignment shallspecifically exclude all rights, title, interests and liability associated withany presently existing platform(s), pipeline(s), wellbore(s), and otherpersonal

 

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property associated withthe Lease, it being understood and agreed that Participants shall only beresponsible for plugging and abandonment of the wellbore of the Test Well andshall bear no plugging, abandonment or decommissioning expense related to anywell, facilities or pipelines which are not drilled or installed byParticipants.

 

**5.****                                      ConversionElection**:  Operator shall give written notice to Maritech upon Payout of theTest Well and Maritech shall have the right, to either (a) escalate its abovereserved 4.0% of 6/6ths overriding royalty to a 5% of 6/6thsoverriding royalty interest foregoing the right to acquire an operating rightsinterest in the Lease or (b) convert all of its 4.0% of 6/6thsoverriding royalty to a 20% of 6/6ths operating rights interest inthe Lease, Test Well, platform, any facilities and pipelines, thereby extinguishing the overridingroyalty interest.  Said optionwill be on a well by well basis. Within thirty (30) days after being notifiedby Operator that the Test Well has reached Payout, Maritech shall give writtennotice of its election to Operator.  Thefailure of Maritech to timely notify Operator of its election shall be deemedMaritech’s decision to escalate its 4.0% of 6/6ths overridingroyalty to a 5% of 6/6ths overriding royalty interest.  In the event Maritech elects to convert itsoverriding royalty to a working interest, Participants shall promptly assignsuch interest to Maritech.  Payout is defined as the first day followingthe date Participants have recouped out of their shares of production, afterdeducting all royalties, overriding royalties, taxes and other burdens onproduction,  all costs attributable todrilling, testing, completing, equipping, platform costs, pipelines, productionfacilities and operating the Test Well, plus the amounts paid to Maritech underParagraph 3, above.

 

**6.****                                      SubstituteTest Well**:  If, while drillingany well provided for herein, Operator encounters impenetrable substances orconditions, including the loss of the hole due to mechanical difficulties,which in the opinion of a reasonably prudent operator under the same or similarconditions would render further drilling impractical or hazardous, and suchconditions prevent further drilling of the well,  Participants, or any of them, shall have the right, but not theobligation, to participate in drilling a “Substitute Well” in order to reachthe objective depth, provided actual drilling of the Substitute Well iscommenced within ninety (90) days after the release of the drilling rig fromthe previous well.  Any Substitute Wellshall be drilled pursuant to all the terms and conditions of this Agreement.

 

**7.****                                      OffshoreOperating Agreement**:  On a wellby well basis, all operations conducted pursuant to this ParticipationAgreement shall be governed by the terms and provisions of that certainOffshore Operating Agreement, dated March 1, 2004, attached hereto as **Exhibit “C”**and made a part hereof (the “OOA”) naming Palace Operating Company asOperator.  In the event of a conflictbetween this Participation Agreement and said OOA, the terms and conditions ofthis Participation Agreement shall prevail, but only to the extent of suchconflict.

 

**8.****                                      ProductionHandling Agreement**:  ThisAgreement is subject to and conditioned upon Participants obtaining aProduction Handling Agreement from Union Oil Company of California “Unocal” toprocess production earned pursuant to this Agreement, on terms and fees yet tobe negotiated.  Such fees shall be inaddition to any direct charges (as defined in the COPAS Accounting Procedureattached as Exhibit “C” to the OOA) associated with any well drilled on theLease in which any of the Participants participate.  Without prejudice to a Party’s rights to market its ownproduction under the OOA, the Operator shall market each Participant’s share of

 

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production with the Operator’sown production, and on the same commercial basis, without any marketing feepayable to Operator.  Operator agreesnot to commit a Participant’s production for any period in excess of thirty(30) days without the written concurrence of such Participant.  Maritech represents there is no existingmarketing agreement covering future production from the Lease to which it isbound, and consequently that Participants will not be bound by any suchexisting agreement as to its interest to be earned hereunder.

 

**9.****                                      ADTITurnkey Drilling Contract**:  ThisParticipation Agreement is further subject to and conditioned upon Operatorentering into a turnkey drilling contract with ADTI no later than July 1,2004, to drill the Test Well.  As tocompletion operations that may be conducted on the Test Well and as to drillingand/or completion operations for any subsequent well or wells proposed to bedrilled pursuant hereto, Operator shall timely request ADTI to submit a turnkeybid for each proposed operation.  In theevent Operator receives any third party bids for operations proposed hereunder,ADTI shall have the option to (i) meet the lowest competitive turnkey bid anddrill and/or complete any well on a turnkey basis or (ii) match the day workAFE generated by Operator, plus 15%, to drill or to complete such well on aturnkey basis.  In no event, however,shall Operator be obligated to accept any offer or proposal from ADTI to drillor complete any wells other than theTest Well.

 

**10.****                              ****Subsequent Wells**:  Prior to payout of the TestWell, only a Participant herein shall be entitled to propose the drilling ofany well, or wells, subsequent to the Test Well (“Subsequent Wells”) inaccordance with the terms and conditions of the OOA.  Notwithstanding anything the contrary contained in Paragraph 5above, in the event a Subsequent Well is proposed to be drilled on the Leasebefore Payout, in lieu of any other options contained herein, Maritech shallhave the right to participate as to its 20% working interest in each such SubsequentWell pursuant to and in accordance with the OOA.

 

**11.****                              ****Laws**:  THE PROVISIONS OF THIS AGREEMENT AND THERELATIONSHIP OF THE PARTIES SHALL BE GOVERNED BY AND INTERPRETED INACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA, WITHOUT REGARD TO PRINCIPLESOF CONFLICTS OF LAWS THAT WOULD REFER THE MATTER TO THE LAWS OF ANOTHERJUISDICTION.

 

**12.****                               Miscellaneous**:

 

A.                                   All notices, consents, requests,instructions, approvals and other communications provided for herein shall bedeemed to be validly given, made or served, if in writing, and deliveredpersonally or sent by courier service, telex, facsimile or certified mail, **however,in no event by e-mail**, to the addresses listed below:

 
| **Maritech Resources, Inc.**  Attn:  Mr. Matt McCarroll  25025 I-45North, 6th Floor  The Woodlands, TX  77380  Telephone: 281-364-4343  Fax: 281-364-9846  E-mail:   mmcarroll@maritechresources.com | **Howard Energy Co., Inc.**Attn:  Ms. Linda  Marshall  13561 West Bay Shore Dr., Ste. 3000  Traverse City, MI  49684  Telephone: (231) 995-7850  Fax: (231) 941-2166  E-mail:  lmarshall@howardenergy.com |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| **Palace Exploration Company**        | **Palace Exploration Company**       |
|---------------------------------------|--------------------------------------|
| **and Palace Operating Company**      | **Palace Operating Company**         |
| Attn:  Mr. Jay Brown             | Attn:  Mr. William H. Creel, II |
| Granite Park 10, Ste.  110            | 1202 East 33rd St.                   |
| 15115 Park Row                        | Tulsa, OK 74105-2048                 |
| Houston, TX 77084                     | Telephone: (918)  743-5096           |
| Telephone: (281)  829-6336            | Fax: (918) 712-8924                  |
| Fax: (281) 829-2959                   | E-mail:  bcreel@ztienergy.com        |
| E-mail:  jbrown@ztienergy.com         |                                 |
|                                  |                                 |
| **Reef Global Energy I, L. P**.       | **Challenger Minerals Inc.**         |
| Attn:  Mr. Walt Dunagin          | Attn:  Mr. Reagan Newton        |
| 1901 N. Central  Expressway, Ste. 300 | 15375 Memorial Dr.,  Suite G-200     |
| Richardson, TX  75080            | Houston, TX  77079              |
| Telephone: (972)  437-6792            | Telephone: (281)  925-7215           |
| Fax: (972) 994-0369                   | Fax: (281) 925-7281                  |
| E-mail:  walt@reefexploration.com     | E-mail:  reagan.newton@gsfdrill.com  |

 

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

 

C.                                     Aterm, provision, covenant, representation, warranty, or condition of thisParticipation Agreement may be waived only by written instrument executed bythe Party waiving compliance. The failure or delay of any Party in theenforcement or exercise of the rights granted under this Agreement shall notconstitute a waiver of said rights nor shall it be considered as a basis forestoppel.

 

D.                                    ThisParticipation Agreement, together with all of its exhibits, is intended by theParties to be a complete and final statement of the agreement of the Partieswith respect to the subject matter hereof, and supersedes any prior oral orwritten statements or agreements between the Parties hereto.

 

E.                                      Theterms and provisions hereof shall be binding upon and inure to the benefit ofthe Parties hereto and their respective heirs, successors, legalrepresentatives and assigns, and shall be covenants running with the lands andLease.  The Parties hereto agree toexecute such other instruments as may be necessary or convenient to effectivelyconvey the interest in the Lease, transfer operatorship and all other rightsand obligations as contemplated by this Participation Agreement and/orotherwise effectuate the terms hereof.

 

F.                                      Tothe extent permitted in its licensing agreement, upon ratification of theConfidentiality Agreement dated May 1, 2002 by and between Maritech and UnionOil Company of California, Maritech shall allow the Participants continuedaccess during normal business hours to its geological and 3-D seismic datacovering the Lease and any area contiguous thereto.

 

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G.                                     Notwithstandinganything herein to the contrary, Participants shall never become liable for anygas or production imbalances affecting the Lease, except for its proportionateshare of any imbalances that might accrue between Maritech and Participantswith regard to any well(s) drilled pursuant to this Participation Agreement.

 

**INWITNESS WHEREOF,**the parties hereto have caused thisParticipation Agreement to be executed effective as of the date first set forthabove.  This Participation Agreement maybe signed in counterparts and shall be binding upon the Parties and upon theirsuccessors, representatives and assigns. If these terms and conditions are acceptable, please indicate youragreement and acceptance by signing and returning one copy of thisParticipation Agreement to Reagan Newton, on or before April 1 2004, orthis offer shall, at CMI’s option, expire and be null and void.

 

Sincerely,

**Challenger Minerals Inc.**

 
| /s/ Charles B. Hauf                  |                                        |   |
|--------------------------------------|---------------------------------------------|--------|
|                                 |                                        |
| Charles B. Hauf                      |                                        |
| Vice President and  General Manager  |                                        |
|                                 |                                        |
| AGREED TO AND ACCEPTED:              |                                        |
| **Maritech  Resources, Inc.**        | **Reef Global Energy I, L. P**.             |
|                                 | By: Reef Partners LLC,  General Partner     |
|                                 |                                        |
|                                 |                                        |
| By:                                  | /s/ G.M. McCarroll                          |   | By: | /s/ Michael J. Mauceli |   |
| Name: G. M. McCarroll                | Name: Michael J. Mauceli                    |
| Title:   President         | Title: Managing Member of Reef Partners LLC |
| Date:  4/2/04                   | Date:  6/10/04                         |
|                                 |                                        |
| **Palace Exploration Company &** |                                        |
| **Palace Operating Company**         | **Howard Energy Co., Inc.**                 |
|                                 |                                        |
|                                 |                                        |
| By:                                  |                                        |   | By: |   |   |
| Name:                                | Robert M. Zinke                             | Name:  |   |   |
| Title:                               | Vice President                              | Title: |   |   |
| Date:                                |                                        |   | Date: |   |   |
|                                      |                                             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Exhibit “A”**

 

to Mobile 961(OCS-G 5761) Participation Agreement, dated March 1, 2004, by and between

ChallengerMinerals Inc., Reef Global Energy I, L. P., Palace Exploration Company and Howard Energy Co., Inc., as Participants,Palace Operating Company, as Operator and Maritech Resources, Inc.

 

Lease:  All operating rights in that certain Oil andGas Lease from the United States of America, as Lessor, to Chevron USA Inc. andUnion Oil Company of California, as Lessee, effective as of July 1, 1983,identified in the office of The Minerals Management Service, Gulf of Mexico OCSRegion, as Oil and Gas Lease of Submerged Lands under the Outer ContinentalShelf Lands Act, Serial No. OCS-G 5761, describing Block 961, Mobile Area, asshown on OCS Official Protraction Diagram, No NH16-04, covering 5,760.0 acres,more or less, INSOFAR AND ONLY INSOFAR as said Lease covers operating rights inthe S/2, NE/4, E/2NW/4, NW/4NW/4, S/2SW/4NW/4 and NW/4SW/4NW/4 from the surfaceof the earth down to a depth of 100’ below the stratigraphic equivalent of thebase of the Miocene sand seen at 2198’ in the OCS-G 5761 Mobile Block 961 #1well.

 

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