<PAGE>
                                                                   EXHIBIT 10.25

                            EXPLORATION PARTICIPATION
                                    AGREEMENT

                                 By and Between

                      El Paso Production Oil & Gas Company

                     El Paso Production Oil & Gas USA, L.P.


                                       And


                           Ramshorn Investments, Inc.



                                    PROSPECTS

                                    Andromeda
                                     Cabeza
                                    Liverpool
                                    Mesquite
                                East San Salvador
                                  Mad Island UT
                                  Pebble Beach
                              N. Sako (Los Indios)
                              S. Sako (Los Indios)

<PAGE>

                            EXPLORATION PARTICIPATION
                                    AGREEMENT

This Exploration Participation Agreement is dated as of November 6, 2003, and is
by and between El Paso Production Oil & Gas Company, El Paso Production Oil &
Gas USA, L.P. (collectively "EL PASO") and Ramshorn Investments, Inc.
("PARTICIPANT"), hereinafter referred to singularly as "Party" and jointly as
"Parties."

                                    RECITALS

WHEREAS, El Paso represents, but does not warrant, that it is the owner of a
working interest in various oil and gas leases and lease options located within
the Prospects as are more fully described in Exhibits A-1 through A-9; and

WHEREAS, Participant has expressed a desire to earn an interest in the Prospects
and participate in the joint exploration and development of the Prospects as
described in Exhibits A-1 through A-9 and establish areas of mutual interest.

NOW, THEREFORE, in consideration of the premises and of the mutual promises
exchanged and contained within this Agreement, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:

                                    SECTION 1
                                    EXHIBITS

All references in this Agreement to Exhibits without further qualification shall
mean the Exhibits listed below and attached to this Agreement. Each of the
Exhibits listed below are made part of this Agreement and shall be deemed
incorporated into this Agreement by this reference as if the full text of each
Exhibit were contained within the body of this Agreement. If any provision of
any Exhibit is inconsistent with any provision contained in the body of this
Agreement, then the provisions in the body of this Agreement shall prevail.

<Table>
<S>                   <C>                         <C>
    Exhibit A-1   -   Andromeda                   Plat and lease schedule
    Exhibit A-2   -   Cabeza                      Plat and lease schedule
    Exhibit A-3   -   Liverpool                   Plat and lease schedule
    Exhibit A-4   -   Mesquite                    Plat and lease schedule
    Exhibit A-5   -   E. San Salvador             Plat and lease schedule
    Exhibit A-6   -   Mad Island UT               Plat and lease schedule
    Exhibit A-7   -   Pebble Beach                Plat and lease schedule
    Exhibit A-8   -   N. Sako (Los Indios)        Plat and lease schedule
    Exhibit A-9   -   S. Sako (Los Indios)        Plat and lease schedule
    Exhibit B     -   Commitment Well List
    Exhibit C     -   Joint Operating Agreement
    Exhibit D     -   Form of Assignment
</Table>

<PAGE>

<Table>
<S>                   <C>
    Exhibit E-1   -   East Quinn
    Exhibit E-2   -   Kimber (Los Indios)
</Table>

                                    SECTION 2
                                   DEFINITIONS

As used in this Agreement, the following terms have the meanings here ascribed
to them.

2.1 "AFE" means the authority for expenditure which sets forth the estimated
cost of drilling and completing an oil and gas well.

2.2 "Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of any Person, whether through the ownership of voting securities
or by contract or otherwise. "Person" means an individual, partnership (whether
general or limited), limited liability company, corporation, trust, estate,
unincorporated association, nominee, joint venture or other entity.

2.3 "Agreement" means this Exploration Participation Agreement, together with
its attached Exhibits.

2.4 "Area of mutual interest" or "AMI" means the land within the heavy dark line
marked on the relevant plat, being one of the plats attached hereto as Exhibits
A-1 through A-9. There are nine (9) AMI's covered by this Agreement..

2.5 To "commence" a well means to have a drilling rig on location and to
commence turning the drill bit to the right.

2.6 "Commitment Wells" means the wells described on Exhibit "B". Each of these
wells will be considered an "Initial Well" as that term is described in article
VI A of the Operating Agreement.

2.7 "Effective Date" means September 1, 2003.

2.8 "El Paso" is defined on page 1.

2.9 "El Paso's Original Share" means El Paso's cost bearing interest in a
Commitment Well based upon El Paso's interest in the Leases covering such
Commitment Well prior to the assignment to Participant described in subsection
3.3.

2.10 "Estimated Completion Cost" means the good faith estimate of costs to run
the production string of casing and install related equipment reasonable
necessary for the well to be

<PAGE>

capable of producing oil and gas to the tanks or pipelines (including the
construction of tanks or pipeline connections), as set forth in the AFE for such
Commitment Well.

2.11 "Estimated Drilling Cost" means the good faith estimate of costs to drill
and log a Commitment Well to the total objective depth, as set forth in the AFE
for a Commitment Well.

2.12 "Estimated P&A Cost" means El Paso's good faith estimate of the plugging
and abandonment costs for a Commitment Well.

2.13 "Leases" means oil and gas leases, mineral interests, royalty interests,
net profits interests, options or agreements to acquire or earn the foregoing
such as farmins, farmouts, participation agreements and similar agreements.

2.14 "Oil and Gas" (whether capitalized or not) means the oil, gas, casinghead
gas, gas condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith and all other liquid or gaseous
hydrocarbons.

2.15 "Operating Agreement" means the applicable operating agreements covering a
Prospect, the form of which is attached hereto as Exhibit B.

2.16 "Participant" is defined on page 1.

2.17 "Party" and "Parties" are defined on page 1.

2.18 "Prospect" means the land within the heavy dark line marked on the relevant
plat, being one of the plats attached hereto as Exhibits A-1 through A-9. There
are nine (9) Prospects covered by this Agreement.

2.19 "Through the tanks" means all operations necessary to drill and complete a
well and install related equipment reasonably necessary for the well to be
capable of producing oil and gas to tanks or pipelines, including but not
limited to any well control operations, sidetracking, deepening and
environmental remediation.

                                    SECTION 3
                        PARTICIPATION IN COMMITMENT WELLS

3.1 COMMITMENT WELLS: Participant agrees to participate in the Commitment Wells
proposed by El Paso on or before September 1, 2004 and which are commenced on or
before December 31, 2004. Participant shall not have the option to elect not to
participate in the drilling and completion "through the tanks" of a Commitment
Well even if the relevant Operating Agreement or the AFE has a provision that
purports to allow Participant to elect not to participate. Participant shall not
have the right to make any other elections set forth in the relevant Operating
Agreement regarding such Commitment Well until such Commitment Well has been
drilled and completed "through the tanks" or abandoned as a dry hole. These
restrictions apply only to the Commitment Wells.

<PAGE>

Participant assumes the liability for and shall pay El Paso for TWENTY-FIVE
percent (25%) of El Paso's Original Share of the cost of drilling and completing
each Commitment Well "through the tanks," and plugging and abandoning any
Commitment Well that is a dry hole, including but not limited to the cost of
sidetracking, deepening, well control, environmental remediation and any
unanticipated costs. If El Paso receives either a direct refund of any of these
costs from a third party or insurance proceeds that includes Participants share
of such costs, then Participant will benefit to the same percentage that they
paid for such costs.

El Paso shall have the sole right to determine the final design, location, and
depth of each Commitment Well. El Paso shall propose a Commitment Well by
submitting an AFE for such well to Participant.

3.2 PAYMENT. Within five (5) days of the receipt of the AFE for a Commitment
Well, Participant will pay by wire transfer an amount equal to TWENTY-FIVE
percent (25%) of El Paso's Original Share of the Estimated Drilling Cost. Within
five (5) days of the receipt of notice that El Paso will attempt to complete a
Commitment Well, Participant will pay by wire transfer an amount equal to
TWENTY-FIVE percent (25%) of El Paso's Original Share of the Estimated
Completion Cost. Within five (5) days of the receipt of a notice from El Paso
that a Commitment Well will be plugged and abandoned as a dry hole, Participant
will pay by wire transfer an amount equal to TWENTY-FIVE percent (25%) of the
Estimated P&A Cost as set forth in such notice. If a Commitment Well is
completed "through the tanks", then all subsequent costs will be paid in
accordance with the relevant Operating Agreement.

If the actual cost of drilling and completing a Commitment Well "through the
tanks," and plugging and abandoning the Commitment Well if it is a dry hole, is
not equal to the sum of the Estimated Drilling Cost, Estimated Completion Cost
and Estimated P&A Cost paid by Participant with respect to that well, then El
Paso will invoice Participant for TWENTY-FIVE percent (25%) of El Paso's
Original Share of the amount by which actual costs exceed such Estimated Costs
or refund to Participant TWENTY-FIVE percent (25%) of El Paso's Original Share
of the amount by which such Estimated Costs exceed actual costs. Such invoice or
refund shall occur within 15 days after the date on which the amount of such
invoice or refund can be calculated.

3.3 INTERESTS EARNED AND ASSIGNMENT. By participating in a Commitment Well,
timely paying Estimated Drilling Cost for such Commitment Well, and timely
executing and delivering the Operating Agreement for the relevant Prospect to El
Paso, Participant shall earn an undivided TWELVE-AND-ONE-HALF percent (12.5%) of
El Paso's Original Share in the Leases in the Prospect in which such Commitment
Well is located. Within 5 days after receipt of payment of the Estimated
Drilling Cost for such Commitment Well, and the execution and delivery by
Participant of the Operating Agreement for the Prospect in which such Commitment
Well is located, El Paso will execute and record an assignment conveying an
undivided TWELVE-AND-ONE-HALF percent (12.5%) of El Paso's Original Share in and
to the Leases described on the relevant Prospect Exhibit attached hereto plus
any additional Leases that may be acquired by El Paso within such Prospect prior
to the date of such assignment. Any Leases that have expired before the date of
such assignment shall be excluded from the assignment.

<PAGE>

The assignment will be on the form of the assignment attached hereto as Exhibit
"D". El Paso shall assign its interest free of any retained override, production
payment or net profits payable to or any burden created by El Paso or any
Affiliate of El Paso. The Assignment will be made WITHOUT WARRANTY OF TITLE
EITHER EXPRESS OR IMPLIED EXCEPT THAT EL PASO WILL WARRANT TITLE AGAINST ALL
CLAIMS BY, THROUGH OR UNDER EL PASO.

3.4 OPERATING AGREEMENTS. Except as otherwise provided herein, operations on
each Prospect will be conducted pursuant to, and the relationship of the Parties
with respect to each Prospect shall be governed by, the terms and provisions of
the Operating Agreement for each Prospect, a model of which is attached as
Exhibit "C." Participant shall pay its proportionate share of the costs of
operations on the Prospect, other than as provided in Sections 3.1 and 3.2
above, based upon Participant's ownership interest in the relevant Leases. Each
Operating Agreement shall designate El Paso or an El Paso affiliate as operator.
Should El Paso enter into an operating agreement with a third party on all or
part of a Prospect prior to the execution of the Operating Agreement for such
Prospect, then the Operating Agreement covering such Prospect shall be made
subject to such prior operating agreement.

3.5 INFORMATION. In connection with the drilling of the Commitment Wells,
Participant shall have free and unrestricted access, including the opportunity
to occupy available space on transportation utilized by Participant for travel
to and from the Commitment Wells, to the derrick floor, at Participant's sole
cost, risk and expense, to observe drilling, logging, coring, testing, and other
operations, to inspect core samples, to verify drilling depths and conditions,
and to review results of all tests, electrical logging surveys and other
downhole evaluation surveys.

                                    SECTION 4
                               LEASE ACQUISITIONS

4.1 NO LEASE ACQUISITIONS BY PARTICIPANT. Participant will not acquire any
interest in any Lease within a Prospect (except from El Paso pursuant to this
Agreement) or contact any party owning rights within a Prospect for any reason
prior to the date of the assignment from El Paso to Participant for the relevant
Prospect and the execution of an Operating Agreement for such Prospect. If
Participant obtains an interest in a Lease within a Prospect in violation of the
preceding sentence, then Participant shall, within 30 days of securing such
interest, disclose to El Paso the terms conditions and costs associated with
such interest. El Paso shall then have 15 days to elect to acquire ONE HUNDRED
percent (100%) of such interest at no cost. El Paso's obligation to assign
interests in Leases to Participant pursuant to Section 3.3 above shall include
the Leases acquired by El Paso from Participant pursuant to this Section.

                                    SECTION 5
                  FAILURE TO PROPOSE OR DRILL COMMITMENT WELLS

<PAGE>

5.1 PROPOSAL BY PARTICIPANT. If El Paso fails to propose the drilling of any
Commitment Well on or before September 1, 2004 then Participant shall have the
right to propose any such Commitment Well during the period from September 2,
2004 until October 1, 2004 by delivering to El Paso during such time period an
AFE for such Commitment Well and an executed Operating Agreement for the
Prospect in which the Commitment Well is located. If Participant proposes the
drilling of such Commitment Well during this time period, then El Paso shall
have the right to elect to participate or not participate in such well as
provided in the Operating Agreement. If El Paso elects to participate in the
well, then Participant shall pay its share of costs of the well as provided in
section 3.1 and 3.2 above and earn the interests as provided in section 3.3
above. If El Paso elects not to participate in such Commitment Well, then
Participant shall be liable for and shall pay for ONE HUNDRED percent (100%) of
the cost of drilling such Commitment Well that is attributable to El Paso's
Original Share of such Commitment Well. Upon payment of such costs of the well
in the manner and time frame set forth in article 3.2 above (i) Participant
shall earn an undivided TWELVE-AND-ONE-HALF percent (12.5%) of El Paso's
Original Share in the Leases in the Prospect in which such Commitment Well is
located as provided in Section 3.3 above, (ii) Participant shall be entitled to
receive the non-consent penalty provided for in the Operating Agreement as to
SEVENTY FIVE percent (75%) of El Paso's Original Share in the Commitment Well,
and (iii) El Paso remaining TWELVE-AND-ONE-HALF percent (12.5%) of El Paso's
Original Share in such Commitment Well shall not be subject to the non-consent
penalty in the Operating Agreement and El Paso shall not be obligated to pay any
costs of such Commitment Well "through the tanks."

5.2 NO DRILLING. El Paso shall use reasonable efforts to commence all timely
proposed Commitment Wells on or before December 31, 2004; provided however, El
Paso shall not be liable to Participant for any damages or liabilities for El
Paso's failure to timely commence a Commitment Well for any reason or no reason
at all. If a timely proposed Commitment Well is not commenced on or before
December 31, 2004, then the term of this Agreement INSOFAR AND ONLY INSOFAR as
it relates to the Prospect in which such Commitment Well is located shall
automatically be extended to June 1, 2005. If Participant had made a payment of
the Estimated Drilling Costs for a Commitment Well which was not commenced on or
before December 31, 2004, then El Paso shall either (i) deliver to Participant
notice that El Paso will commence the drilling of such Commitment Well on or
before February 1, 2005, or (ii) notify Participant that El Paso shall refund
such Estimated Drilling Costs to Participant upon the reassignment of the Leases
in the Prospect for such Commitment Well that had been conveyed to Participant
by El Paso. If El Paso does not commence such Commitment Well on or before
February 1, 2005, then, pending the actual commencement of such Commitment Well,
El Paso shall refund such Estimated Drilling Costs to Participant upon the
reassignment of the Leases in the Prospect for such Commitment Well that had
been conveyed to Participant by El Paso.

If a timely proposed Commitment Well is not commenced on or before June 1, 2005,
then El Paso will so notify Participant and (i) El Paso shall refund to
Participant any Estimated Drilling Costs paid by Participant on such Commitment
Well which had not been previously refunded (ii) Participant shall reassign the
Leases in the Prospect for such Commitment Well that had been conveyed to
Participant by El Paso, and (iii) the Prospect in which such Commitment Well is
located will be no longer subject to this Agreement and Participant shall have
no further

<PAGE>

rights to earn any interest in such Prospect. If an Operating Agreement covering
such Prospect had been executed by the Parties, then such Operating Agreement
shall automatically terminate and be null and void.

5.3 NO PROPOSAL. If El Paso fails to propose the drilling of any Commitment Well
on or before September 1, 2004 and Participant does not timely propose the
drilling of such Commitment Well, then El Paso will so notify Participant and
the Prospect will be no longer subject to this Agreement and Participant shall
have no further rights to earn any interests in such Prospect.

                                    SECTION 6
                                   DISCLAIMERS

6.1 INFORMATION ABOUT THE COMMITMENT WELLS. El Paso disclaims all liability and
responsibility for any representation, warranty (other than the representations
and warranties specifically set forth in this Agreement), statements or
communications (orally or in writing) to Participant, including any information
contained in any opinion, information or advice that may have been provided to
Participant by any employee, officer, director, agent, consultant, engineer or
engineering firm, trustee, representative, partner, member, beneficiary,
stockholder or contractor of El Paso wherever and however made, including those
made in any meeting, presentation, data room or internet site and any
supplements or amendments thereto or during any negotiations with respect to
this Agreement or any confidentiality agreement previously executed by El Paso
and Participant with respect to the Commitment Wells. EL PASO MAKES NO WARRANTY
OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
PARTICIPANT IN CONNECTION WITH THE COMMITMENT WELLS, INCLUDING WITHOUT
LIMITATION SEISMIC DATA AND EL PASO'S INTERPRETATION AND OTHER ANALYSIS THEREOF;
(ii) THE PRESENCE, QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY)
ATTRIBUTABLE TO THE COMMITMENT WELLS; (iii) THE ABILITY OF THE COMMITMENT WELLS
TO PRODUCE HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE
RATES AND RECOMPLETION OPPORTUNITIES; (iv) THE PRESENT OR FUTURE VALUE OF THE
ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE COMMITMENT
WELLS; AND (v) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR. ANY
DATA, INFORMATION OR OTHER RECORDS FURNISHED BY EL PASO ARE PROVIDED TO
PARTICIPANT AS A CONVENIENCE AND PARTICIPANT'S RELIANCE ON OR USE OF THE SAME IS
AT PARTICIPANT'S SOLE RISK.

6.2 INDEPENDENT INVESTIGATION. Participant has made its own independent
investigation, analysis and evaluation of the transactions contemplated by this
Agreement (including Participant's own estimate and appraisal of the extent and
value of the Oil and Gas reserves attributable to the Commitment Wells and the
costs to explore for and develop the reserves if found). Participant has had, or
will have prior to Closing and Participant has had or will have

<PAGE>

prior to acceptance of this Agreement, access to all information necessary to
perform its investigation and has not relied on any representations by El Paso
(other than the representations specifically set forth in this Agreement). El
Paso has provided Participant and its experts the opportunity to review El
Paso's data on the Commitment Wells and Participant has reviewed such data that
it deems necessary. Participant understands and acknowledges that El Paso is not
guaranteeing the actual costs of other vendors supplying services to the
Commitment Wells.

6.3 NO WARRANTY OF TITLE. El Paso makes no representation or warranty of title
except El Paso warrants title against all claims by, through or under El Paso,
to any interests in the Leases within the Prospects and shall not be responsible
or liable to Participant if El Paso's title to such interest does not exist or
fails for any reason, including but not limited to failure to pay rentals,
minimum royalties or other lease maintenance payments or perform any condition
of a lease, or if El Paso is unable to acquire such interest.

6.4 DELAY RENTALS. During the term of this Agreement and prior to the effective
date of any Operating Agreement covering a Prospect executed by the Parties, El
Paso shall pay or tender (or cause to be paid or tendered) all rentals, minimum
royalties and other lease maintenance payments, if any, which may hereafter
become due under the terms of the said leases covered by this Agreement in such
Prospect, but shall have no liability to Participant for failure to make any
such payment or tender or to make same timely or properly, unless such failure
is due to the gross negligence or willful misconduct of El Paso. Prior to such
effective date, El Paso will be responsible for all rental costs on the Leases
within such Prospect without reimbursement from Participant. After such
effective date, all rentals on the Leases within such Prospect will be paid and
reimbursed in accordance with the terms of the respective Operating Agreements.

                                    SECTION 7
                                 TAX PARTNERSHIP

7.1 TAX PARTNERSHIP. Attached to each Operating Agreement will be a Tax
Partnership as Exhibit "G". It is the intent and the Party will take such steps
as necessary to operate these Prospects as separate Tax Partnerships, pursuant
to the Tax Partnership Agreements described herein.

                                    SECTION 8
                                   USE OF RIGS

8.1 SERVICES OF AFFILIATES OF RAMSHORN. If Participant and its affiliates
satisfy, in El Paso's reasonable opinion, El Paso's standards and requirements
as set forth below, then until October 31, 2006, El Paso will employ Participant
or its affiliates under the terms of that certain Master Drilling Contract
between Sonat Exploration Company and Nabors Drilling USA, Inc. dated August 19,
1997, as amended from time to time, or that certain IADC Drilling Contract
between Coastal Oil & Gas Corporation and Nabors Drilling USA, Inc. dated
September 15, 1997, as amended from time to time, to drill the wells covered by
this Agreement or the

<PAGE>

Operating Agreements. This Section 8.1 shall survive the termination of this
Agreement until October 31, 2006, after which time the parties will negotiate in
good faith the continued use of rigs for wells covered by this Agreement or the
Operating Agreements; provided however, neither El Paso not Participant shall be
under any obligation to the other to enter into any agreement regarding the use
of such rigs after October 31, 2006.

To be employed in the drilling of a well (to be determined on a well by well
basis), Participant must be able to supply a quality drilling rig capable of
efficiently drilling to the proposed depth manned by competent and efficient
crews. The rig must be capable of being rigged up and ready to commence drilling
on or before El Paso's estimated spud date. If El Paso and Participant have not
agreed to drilling rates, then Participant's rates for a well must also be at
competitive rates for the type of rig, the proposed depth and the efficiency of
the rig and crew in drilling such well.

Notwithstanding anything to the contrary above, El Paso shall retain the right
to drill any well using any of the two rigs it currently has committed or under
contract with Grey Wolf.

                                    SECTION 9
                                   ASSIGNMENT

9.1 ASSIGNMENT. This Agreement may not be assigned by Participant other than to
an Affiliate. Subject to subsection 9.2 below, Participant may assign its rights
in and to any interest in a Lease that has been assigned to it by El Paso
pursuant to Section 3.3.

9.2 PREFERENTIAL RIGHT TO PURCHASE. If Participant desires to transfer, sell,
farm out, assign, or otherwise dispose of all or part of its interest in a Lease
that has been assigned to it by El Paso pursuant to Section 3.3. Participant
shall promptly give written notice to El Paso with full information about the
proposed transaction, including, but not limited to, the name and address of the
prospective transferee (who must be ready, willing, and able to acquire the
interest and deliver the stated consideration therefor), the consideration and
all terms related to the transfer. In the case of a package sale of oil and gas
interests that includes all or part of Participant's interest in such Leases, or
if the proposed transaction is structured as a non-simultaneous, like-kind
exchange under Section 1031 of the Internal Revenue Code of 1986, as amended
("Code"), the interest that is subject to this preferential right shall be
separately valued and the notice shall state the value attributed to the
interest by the prospective transferee. El Paso shall have an optional prior
right, for a period of thirty (30) days after receipt of the notice, to elect to
purchase or acquire on the same terms and conditions, or on equivalent terms for
a non-cash transaction, all of such interests that the Participant is proposing
to transfer. This preferential right shall apply separately to each Lease or
part thereof covered by this Agreement, regardless of whether it is included in
the proposed transaction along with other oil and gas interests, whether as a
sale, farm out, or non-simultaneous, like-kind exchange, and no provision in
this Agreement shall be interpreted to defeat this preferential right. Upon
exercise of this preferential right, El Paso shall agree to perform all
obligations of the prospective transferee under the proposed transaction only
for such interest subject to the proposed transaction. This preferential right,
however, shall not exist or apply when Participant proposes (a) to mortgage

<PAGE>

its interest; (b) to dispose of or transfer its interest to an Affiliate by (i)
merger, (ii) reorganization, or (iii) consolidation; (c) to sell all, or
substantially all, of its exploration and production properties located in the
United States of America; or (d) to transfer the interest under a property
exchange transaction other than a non-simultaneous, like-kind exchange under
Section 1031 of the Code. If the proposed transaction is not consummated within
six (6) months after receipt of the notice by El Paso, the interest shall again
be governed by this subsection and the preferential right shall again arise for
the offered interest as herein described.

                                   SECTION 10
                       PARTICIPANT'S FAVORED NATION STATUS

10.1 FAVORED NATIONS. Subject to the exceptions listed below, if El Paso has
entered, or enters into a transaction prior to the completion of the Commitment
Well or the plugging and abandonment of the Commitment Well within a Prospect,
in which El Paso conveys or has conveyed any interest or any part of its
interest in any wells, leases or lands in any part of such Prospect on terms
more favorable to a third party than the terms of this Agreement pertaining to
(i) the promote (i.e. 25% for 12.5% through the tanks), (ii) the proportionate
costs borne on any well or (iii) the proportion of net revenue interest earned
to costs borne on any well, lease or prospect (a "Better Agreement"), then El
Paso will provide the details of such transaction to Participant. Participant
will have 15 days from the date of the receipt of such details by Participant to
elect in writing to remove such Prospect from this Agreement and enter into a
new agreement with El Paso (a "New Agreement") substantially the same as such
Better Agreement INSOFAR AND ONLY INSOFAR as the Better Agreement covers such
Prospect, with all appropriate recalculations and adjustments to be promptly
made by El Paso and Participant and all further necessary actions to be taken
promptly by El Paso and Participant to put them in the same position as if this
Agreement did not cover such Prospect ab initio and such New Agreement had been
executed contemporaneously with this Agreement. Participant's failure to respond
in writing within such 15 day period will be deemed an election not to convert
to the New Agreement on such Prospect.

Notwithstanding the foregoing paragraph, Participant shall not have the right to
elect to convert to the New Agreement on such Prospect under the following
situations:

         (i) The Better Agreement contains more favorable terms as a result of a
         reciprocal trade involving said third party's prospects, leasehold or
         wells, independent of the location of the same either within such
         Prospect or outside such Prospect, or

         (ii) The Better Agreement contains more favorable terms as a result of
         a merger, reorganization, consolidation or sale of all or substantially
         all of El Paso's assets to a subsidiary or parent company or to a
         subsidiary of a parent company, or to a company in which El Paso owns a
         majority of the stock.

10.2 TERM OF FAVORED NATIONS. The provisions of Section 10.1 shall terminate as
to each Prospect upon the completion of the Commitment Well or the plugging and
abandonment of the Commitment Well within such Prospect.

<PAGE>

10.3 RIGHT OF FIRST REFUSAL ON EAST QUINN AND KIMBER. If El Paso elects to drill
a well on the East Quinn and Kimber (Los Indios) prospects, as outlined on plats
attached as Exhibits E-1 and E-2 within two years from the date of this
Agreement, then Participant shall have the option, but not the obligation to
enter into an exploration participation agreement substantially in the form of
this Agreement covering such prospect. Participant shall have five (5) business
days after receipt of notice of El Paso's decision to drill such well to elect
in writing to enter into such an exploration participation agreement. A failure
to make an election shall be deemed to be an election not to enter into such
exploration participation agreement. An election not to enter into such
exploration participation agreement on one prospect is not a waiver of the right
to enter into such exploration participation agreement on the other prospect.

10.4 PRESENTATIONS ON FUTURE PROSPECTS. If El Paso presents a promoted prospect
to a party that is not an affiliate of El Paso prior to November 1, 2005, then
El Paso shall offer to make the same presentation on such promoted prospect to
Participant. Participant shall have five (5) business days after receipt of
notice of such presentation to elect in writing to attend a presentation of a
promoted prospect at El Paso's offices. Participant shall execute a
confidentiality agreement covering such promoted prospect before the
presentation to Participant. A failure to make an election shall be deemed to be
an election not to attend the presentation. An election not to attend a
presentation on one promoted prospect is not a waiver of the right to attend
future presentations of promoted prospects.

Neither El Paso nor Participant shall be under any obligation to the other to
enter into any agreement on such promoted prospect.

A "promoted prospect" means one or more leases grouped together by El Paso as
potentially containing hydrocarbons in commercial quantities in one or more
geological formations in which a participant may earn an undivided interest in
such leases by paying a greater proportion of the drilling costs and other costs
than the costs attributable to the undivided interest in the leases which may be
earned by the participant.

                                   SECTION 11
                                    INSURANCE

11.1 INSURANCE. As to all operations hereunder prior to the completion of the
Commitment Well or the plugging and abandonment of the Commitment Well within a
Prospect, El Paso shall carry for the benefit and protection of the parties
hereto, the following:

         a)       Worker's Compensation as required by the laws of the state in
                  which the operations are conducted and Employer's Liability
                  insurance with minimum limits of $1,000,000 each
                  accident/disease per employee. Worker's Compensation and
                  Employer's Liability insurance to include coverage for all
                  claims under the United State Longshoremen's and Harbor
                  Worker's Act, the Jones Act, OCSLA, "in rem", and alternate
                  employer/borrowed servant.

<PAGE>

         b)       Comprehensive General Liability insurance in the amount of
                  $5,000,000, including coverage for Premises/Operations,
                  Independent Contractors, Personal Injury, Products/Completed
                  Operations, Blanket Contractual Liability, Explosion/Collapse,
                  Sudden and Accidental Pollution and "in rem".

         c)       Umbrella (excess of underlying insurance coverage mentioned
                  above) with a combined limit per occurrence coverage of not
                  less than $10,000,000.

To the extent permitted by law, every such insurance policy shall contain a
waiver on the part of the insurance carrier of all rights, by subrogation or
otherwise, against Participant. To the extent permitted by law, Participant
shall also be named as additional insured in each such policy.

11.2 EXCLUSION. The above insurance shall cover Participant only in its capacity
as an oil and gas lessee, as a co-owner in an oil and gas well, and as a
non-operator and shall not cover Participant as a drilling contractor or other
supplier of materials or services on an oil and gas well or related activities.

                                   SECTION 12
                                 CONFIDENTIALITY

12.1 CONTRACT AND OPERATIONS STRICTLY CONFIDENTIAL. Any information disclosed to
Participant by El Paso regarding the Prospects shall be deemed to be covered by
that certain confidentiality agreement dated April 23, 2003 by and between El
Paso and Participant. That Agreement is hereby ratified and confirmed by the
Parties.

                                   SECTION 13
                                  MISCELLANEOUS

13.1 TERM. This Agreement shall terminate on March 1, 2005 except for any
liabilities and obligations accruing on or prior to such date, which shall
survive the termination of this Agreement.

13.2 VALIDITY AND SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under the present or future laws effective
during the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal, invalid or
unenforceable provisions, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.

13.3 NEGOTIATED INSTRUMENT. This Agreement represents a negotiated agreement and
no portion shall be construed for or against either Party by virtue of its
having been drafted by that Party.

<PAGE>

13.4 SECURITIES ACT. Participant (a) understands that the oil and gas leases
have not been, and will not be, registered under the Securities Act of 1933 (the
"Securities Act"), or under any, state securities laws, and are being offered
and sold in reliance upon certain federal and state exemptions, (b) is acquiring
an interest in the oil and gas leases solely for Participant's own account for
investment purposes, and not with a view to the distribution thereof, (c) is a
sophisticated investor with knowledge and experience in business and financial
matters, (d) has received certain information concerning the oil and gas leases
and has had the opportunity to obtain additional information as desired to
evaluate the merits and the risks inherent in holding an interest in the oil and
gas leases, (e) is able to bear the economic risk and lack of liquidity inherent
in holding an interest in the oil and gas leases, and (f) is an accredited
investor as defined in Regulation D promulgated under the Securities Act.

13.5 WAIVER OF DECEPTIVE TRADE PRACTICES ACTS. PARTICIPANT WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES ACT SECTION 17.41 et seq., TEXAS BUSINESS &
COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS, AND UNDER SIMILAR
STATUTES ADOPTED IN OTHER STATES, TO THE EXTENT THEY HAVE APPLICABILITY TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. AFTER CONSULTATION WITH AN ATTORNEY
OF ITS SELECTION, PARTICIPANT CONSENTS TO THIS WAIVER.

13.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. NOT INCLUDING, HOWEVER, ANY OF
ITS CONFLICTS OF LAW RULES WHICH WOULD DIRECT OR REFER TO THE LAWS OF ANOTHER
JURISDICTION.

13.7 AMENDMENTS. Any amendment hereto shall become effective only upon the
express written consent of El Paso and Participant, at which time it shall
become effective as to all Party hereto. No amendment, modification or
alteration of the terms hereof shall be binding unless the same is in writing
and is in accordance with this subsection.

13.8 NOTICES. Except as otherwise expressly provided in this Agreement, all
notices, payments, demands, requests or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and may be
given either (i) in person, (ii) by United States mail, certified or registered,
return receipt requested, postage prepaid, (iii) by prepaid telegram, telex,
cable, telecopy, or similar means (with signed confirming copy to follow by
mail), or (iv) by any other method permitted by law, as follows:

           IF TO EL PASO:                     IF TO PARTICIPANT

           Nine Greenway Plaza                515 W. Greens Road, Suite 1000
           Houston, Texas  77046              Houston, Texas 77067
           Attention:  J. T. Elzner           Attention: J.R. "Digger" Smith
           Telephone:  832.676.7817           Telephone: 281 775 8527
           Fax:  832.676.1353                 Fax: 281 775 8414

<PAGE>

                                              With copy to:

                                              Law Department
                                              515 W. Greens Road, Suite 1000
                                              Houston, Texas 77067
                                              Attention: Bruce M. Taten
                                              Telephone: 281 775 8556
                                              Fax: 281 775 8431

14.9 ENTIRE AGREEMENT. This Agreement, its Exhibits, and other documents
executed in accordance with this Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof.

Executed as of the date first written above.

                                        El Paso Production Oil & Gas Company


                                        By: /s/ Jon R. Nelsen
                                            ------------------------------------
                                            Jon R. Nelsen, Attorney in Fact


                                        El Paso Production Oil & Gas USA, L.P.
                                        By El Paso Production Oil & Gas Company
                                                 its General Partner

                                        By: /s/ Jon R. Nelsen
                                            ------------------------------------
                                            Jon R. Nelsen, Attorney in Fact


                                        Ramshorn Investments, Inc.


                                        By: /s/ Jordan R. Smith
                                            ------------------------------------
                                        Name: Jordan R. Smith
                                              ----------------------------------
                                        Title: President
                                               ---------------------------------