EXHIBIT 10.32



 


Exhibit
10.32


 


PARTICIPATION
AGREEMENT


NEMAHA
RIDGE PROJECT


LOGAN
COUNTY, OKLAHOMA


 


THIS
PARTICIPATION AGREEMENT (this “Agreement”), entered into this 21st day of April, 2011, is by and between Osage Exploration
& Development, Inc. whose address is 2445 Fifth Avenue Suite 310 San Diego, CA 92101 (hereafter “Osage”) and Slawson
Exploration Company, Inc., a Kansas corporation, whose principal place of business is 727 North Waco, Suite 400, Wichita, Kansas,
67203 (hereafter “SEG”J and U.S. Energy Development Corporation, whose address is 2350 North Forest Road, Getzville,
New York 14068, (hereafter “USE”). SEC! and USE shall sometimes be referred to herein as a “Participant”.
Osage and Participant shall sometimes be referred to herein individually as a “Party” and collectively as the “Parties.”


 


WHEREAS,
Osage has developed oil and gas leads and acquired certain leasehold interests covering lands within the Nemaha Ridge Project
Area (“Project Area”), located in Logan County, Oklahoma, and described on Exhibit A; and,


 


WHEREAS,
the leasehold interest leased by Osage is listed on Exhibit B; and,


 


WHEREAS,
Participants wish to participate with Osage in the leasing, drilling and development of the Project Area pursuant to the provisions
of this Agreement and the agreements through which Osage acquires leasehold rights within the Project Area.


 


NOW
THEREFORE, the Parties, for the mutual promises contained herein and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, do hereby contract and agree as follows:


 


	1.	Participation
    Interest: By execution of this Agreement, SECI and USE acquire the right to participate in and ownership of the following
    percentage working interest:
	 	SECI
    forty five percent (45%)
	 	USE
    thirty percent (30%)
	 	(the
    “Participation Interest”) in the exploration and development of the Project Area, subject to adjustment for non-
    consent and non-participation elections made by the Parties and other joint interest owners pursuant to the terms of this
    Agreement and similar agreements between Osage and other participants. Participants agree that the interest Participants acquire
    from Osage within the Project Area shall be specifically subject to the terms of the leases, options, and other agreements
    by which the leasehold interests were acquired in the Project Area by Osage, all of which shall be provided to Participants.



 



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	2.	SECI
    shall be the “Operator” of all wells in the Project area.
	 	 
	3.	Participants
    shall have a 60-day period to conduct due diligence and to confirm title to the acreage to be assigned. The amount payable
    to Osage shall be adjusted to account for defects in title to any of the acreage to be acquired at $650 per net acre affected
    by a title defect in the reasonable judgment of Participants, or Osage may, within 30 days from notice of a defective lease,
    substitute additional leases to account for the 10,000 acres being delivered.
	 	 
	4.	Initial
    Payment: Within 30 days of execution of this Agreement, each Participant shall pay Osage each Participant’s Participation
    Interest share of the leasehold acquisition costs incurred and paid by Osage through the closing of this Participation Agreement,
    at $650.00 per net mineral acre, so long as the total acquired acreage does not exceed 10,000 net acres.
	 	 
	 	Upon
    payment of the sums provided in this paragraph less any allowances for title defects, Osage shall execute and record an assignment
    conveying to Participants the Participation Interests in and to the oil and gas leases in the Project Area, including but
    not limited to those described on Exhibit “B” hereto. The assignment will be in the form of assignment attached
    hereto as Exhibit “D”. Osage shall assign its interest free of any retained override, production payment or net
    profits interests or any other burden created by Osage or any affiliate of Osage except as otherwise expressly provided for
    herein. THE ASSIGNMENT SHALL BE WITHOUT WARRANTY OF TITLE EITHER EXPRESS OR IMPLIED EXCEPT THAT OSAGE WILL WARRANT TITLE AGAINST
    ALL CLAIMS BY, THROUGH OR UNDER OSAGE, and except as otherwise expressly provided for herein.
	 	 
	5.	Participation
    Terms: As to the initial three (3) net horizontal Mississippian wells drilled in the Project Area, (the “Initial Wells”),
    Participants shall pay Participants’ proportionate share plus ten percent (10%) of expenses chargeable under the relevant
    “Operating Agreement,” as that term is hereinafter defined, through the tanks or plugging and abandonment. Thereafter
    in each Initial Well and as to all subsequent wells, Participants shall pay their Participation Interest share of all costs
    incurred, (without said additional 10%) subject to the additional terms of this Agreement and the applicable Operating Agreement
    within the Project Area as to operations in which Participants elect to participate.
	 	 
	6.	Invoicing:
    Operator will invoice the Parties monthly for its projected share of the costs incurred or to be incurred in the Project Area
    in the succeeding thirty (30) days, and the Parties agree to remit the amount invoiced within thirty (30) days of receipt.
    A reconciliation of amounts invoiced on a pre-bill basis per this paragraph and actual costs incurred shall be completed on
    a quarterly basis. Any adjustments due by either Party following reconciliation shall be paid within thirty (30) days of the
    completion of the reconciliation and notice thereof.



 



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	7.	Drilling
    Proposals: Operator shall make a good faith effort to spud the initial well no later than August 1, 2011 and shall prosecute
    the drilling of the initial well with reasonable diligence, to the depth (the “Target Depth”) sufficient to test
    the Mississippian formation and then commence to drill the lateral as proposed to the Parties.
	 	 
	 	All
    well proposals in the Project Area shall be in writing and identify the location and projected lateral of the well to be drilled,
    the objective (or objectives) to be tested, the geological and/or geophysical basis for the proposed well, and an Authority
    for Expenditure (“AFE”). The Parties hereto agree to participate in the initial Mississippian test well. Parties
    receiving proposals for wells other than the initial Mississippian well will have thirty (30,) days from the date the proposal
    is made to either (1) elect to participate as to their working interest in the proposed well, or (2) elect not to participate
    in the proposed well. Elections shall be made in writing to the Party proposing the well. Failure to timely elect shall be
    deemed to constitute an election not to participate in the proposed well. Any Party electing not to participate in any of
    the initial three Mississippian test wells in any areas outlined on Exhibit A shall forfeit all rights within the section
    including the drill site plus the 8 sections cornering or adjoining the drill site section and shall reassign to the participating
    Party, all such leasehold working interest which it owns in the drill site section plus the 8 sections cornering or adjoining
    the drill site section at no cost to the participating Party. Notwithstanding the foregoing, if a Party elects not to participate
    in one of the 3 initial wells but has agreed to participate in a previous spacing unit which includes any of the acreage of
    the drill site or the 8 sections cornering or adjoining said initial wells, said party shall retain its interest on said previous
    spacing unit.
	 	 
	 	After
    the three initial horizontal Mississippian wells have been drilled, or as to any other well that may be proposed other than
    a horizontal Mississippian well, should a Party elect not to participate in a well proposed under this paragraph, the forfeiture
    shall be a wellbore forfeiture of the drill site wellbore plus one offset location wellbore cornering or adjoining the drill
    site (as to acreage located either inside or outside the boundary of an existing spacing unit on which a producing or drilling
    well is located, or on which a well has been proposed hereunder, and in which Participant(s) has elected to participate) to
    be selected by the participating Party. Notwithstanding the foregoing, however, in order for any such forfeiture to occur
    and be binding on the non-participating Party, the participating Parties must proceed to commence and prosecute to conclusion
    the operations set out in the AFE and notice within a period of ninety (90) days after the date of the non-consent election
    of the notified Parties. The provisions of this paragraph supersede the penalty provisions of the Operating Agreement for
    failure to participate in a proposed well.



 



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	 	During
    the first year of this Agreement, and only during the first year of this Agreement, and after the two initial test wells are
    proposed, no Party may propose more than one well under this Agreement in any 90-day period, without the consent of 60% of
    the working interest owners, unless (1) the additional well proposed is to test a separate geological objective from that
    currently being tested (i.e. not the same source of supply) or (2) such additional well is proposed within six (6) months
    of the expiration of the lease or (3) the Parties have agreed to an increase in the number of proposals that may be made.
    Thereafter, proposals may be made under the terms of the Operating Agreement by the Parties.
	 	 
	8.	Funding
    Obligation - Well Costs: At least fifteen (15) days prior to the projected spud date of a well, each Party agrees to fund
    its proportionate share of estimated dry hole costs, as reflected in any applicable approved AFE, to Operator or into a segregated
    Operator account where such an account has been established, to assure payment to the drilling contractor. Failure to fund
    within twenty (20) days following receipt of written notice of a funding deficiency shall constitute, at Operator’s
    election, an election by Participant(s) not to participate in the well, and result in the penalties stated herein.
	 	 
	 	A
    Party shall likewise be obligated to advance payment for its share of estimated completion costs within forty eight (48) hours
    of commencement of completion work on any well. Failure to fund within fifteen (15) days following receipt of written notice
    of a funding deficiency for completion costs in which Participant(s) has elected to participate may, at Operator’s election,
    be deemed to constitute a modification of the non-funding Party’s election, and such non- funding Party shall be deemed
    to have elected non-consent with respect to the completion operation in the applicable well and the penalties of the Operating
    Agreement shall apply.
	 	 
	 	The
    above funding provision shall apply to any wells drilled in the Project Area.
	 	 
	 	The
    drilling of each well in the Project Area shall be governed by the applicable operating agreement in the form attached hereto
    as Exhibit C (the “Operating Agreement”). Where there is a conflict between the Operating Agreement and this Agreement,
    this Agreement will control.
	 	 
	9.	Net
    Revenue Interest: Participant(s) shall acquire from Osage a delivered 78% net revenue interest in the leasehold interest leased
    by Osage listed on Exhibit B. As to any leases acquired after the acquisition of 10,000 net acres, or closing of this Agreement,
    which ever comes first, Participant(s) shall be delivered a net revenue of 78% unless the delivered net revenue received by
    Osage is less than 78%, in which case the leasehold will be assigned to Participant at the same delivered net revenue received
    by Osage.



 



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	10.	Leasehold:
    At no administrative cost to Participant, Osage shall be responsible for acquiring the leases and shall be responsible for
    assignment of Participant’s working interest to Participant(s) in said leases. Osage shall be responsible for maintenance
    of lease records within the Project Area and shall timely remit rentals when due and comply with the other obligations of
    the lease agreements on behalf of Participant(s). Participant(s) agrees to bear its proportionate share of any rental obligations
    incurred by Osage in its behalf that accrue after closing.
	 	 
	 	As
    to any top leases included in the 10,000 net initial acres acquired, Osage shall bear all costs for exercising the purchase
    option of said top leases, at the time they vest, and shall be responsible to pay the Participant(s) $650 per net acre for
    any top leases that fail to vest.
	 	 
	11.	Billings:
    Except as otherwise provided herein, billings attributable to Participant’s interest in leases and operated wells shall
    be billed and payable pursuant to the accounting provisions of the Operating Agreement.
	 	 
	12.	AMI:
    An Area of Mutual Interest (“AMI”) shall be established within the boundaries of the Project Area. “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. The provisions of this paragraph
    shall apply for a period of thirty (36) months from the date of this Agreement. Subject only to the specific terms of this
    Agreement to the contrary, should a Party or any “Affiliate,” as that term is hereinafter defined, acquire an
    interest in any Leases in the AMI, the acquiring Party shall offer the interest at a cost of leasehold bonus or purchase price
    and directly attributable broker charges to other Parties in the Project Area proportionate to their Participation Interest
    in the Project Area. Any Leases acquired hereunder, shall become subject to the terms of this Agreement. Should an acquired
    interest lie both within and outside the AMI, for the purposes of the acquisition, the interest shall be deemed lying wholly
    within the AMI. “Affiliate” means, with respect to either Party, any other person or entity directly or indirectly
    controlling, controlled by, or under common control with, such Party. 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 or entity, whether
    through the ownership of voting securities or by contract or otherwise.



 



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	13.	Term:
    Except as otherwise provided herein, the term of this Agreement shall begin on the date hereof and continue f a period of
    three (3) years, or as to a spacing or producing unit for a well, so long as the Operating Agreement remaii in effect. Notwithstanding
    the foregoing, this agreement may be extended beyond the original term of 3 years working interest owners holding at least
    75% of said working interest elect to extend the agreement which extensio shall be for a period of 1 year and for subsequent
    periods of 1 year if so elected.
	 	 
	14.	Notices:
    All notices required hereunder shall be considered given when delivered personally or when sent by e-ma facsimile, or U.S.
    Mail properly addressed as follows:



 





	 	Slawson
    Exploration Company, Inc.
	 	727
    North Waco, Suite 400
	 	Wichita,
    KS 67203
	 	Attn:
    Coni Stokes
	 	Phone:
    (316) 263-3201 Fax: (316) 268-0702
	 	E-mail:
    cstokes @ slawsoncompanies.com
	 	 
	 	Osage
    Exploration and Development, Inc. 2445 5th Avenue, Suite 300
	 	San
    Diego, CA 92131 Attn: Kim Bradford
	 	Phone:
    (619) 677-3956
	 	Fax:
    (619) 677-3964
	 	E-mail:
    kbradford@osageexploration.com
	 	 
	 	U.S.
    Energy Development Corporation
	 	2350
    North Forest Road
	 	Getzville,
    New York 14068
	 	Attn:
    Douglas K. Walch
	 	Phone:
    716-636-0401
	 	Fax:
    716-636-0418
	 	E-mail:
    dwalch@usenergydevcorp.com


 


Notwithstanding
the foregoing, notices or deliveries by U. S. Mail shall be deemed given or made only upon receipt by the addressee. Any Party
to this Agreement may change its mailing address, telephone number, facsimile number, or email address for notice hereunder effective
the thirtieth (30th) day after the giving of notice of such change in accordance with the provisions of this paragraph.


 




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	15.	Nature
    of Agreement: The liabilities of the Parties shall be several and not joint or collective, and each Party shall be responsible
    only for its share of the costs and liabilities incurred as provided hereunder. It is not the purpose or intention of this
    Agreement to create any partnership, mining partnership, joint venture, or any other association or entity, and neither this
    Agreement nor the activities or operations hereunder shall be construed or considered as creating any such legal relationship.
    Operator shall be responsible for marketing production from the wells drilled pursuant to this Agreement and shall account
    to each participant for their proportionate share thereof. Each Party, however, shall have the right to market its production
    in kind, but in doing so shall also assume the obligations of disbursing revenue to royalty and any other burden to its interest.
	 	 
	16.	Miscellaneous
    Provisions:
	 	 
	 	Subject
    to the other provisions of this Agreement, this Agreement and all provisions hereof shall inure to the benefit of and be binding
    upon not only the Parties, but their respective heirs, successors, and assigns. The Parties may assign their rights, duties,
    and obligations hereunder, so long as any assignment by a Party hereto is expressly made subject to the terms and conditions
    herein contained.



 


	 	i.	Operator
    shall have the right to require any Party who becomes an assignor to be the authorized agent for any of its assignees.
	 	 	 
	 	ii.	The
    paragraph headings of this Agreement are inserted for convenience only and should not be considered a part of this Agreement
    or used in its interpretation.
	 	 	 
	 	iii.	This
    Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma.
	 	 	 
	 	iv.	The
    provisions of this Agreement are intended to be severable. If any term or provision hereof is illegal or invalid for any reason
    whatsoever, such illegality or invalidity shall not affect the legality or validity of the remainder of this Agreement.
	 	 	 
	 	v.	This
    Agreement constitutes the entire understanding of the Parties in respect to the subject matter hereof, in lieu of any prior
    agreement, and no amendment, modification, or alteration of the terms hereof shall be binding unless the same be in writing
    and signed by the Party(ies) against whom/which it is sought to be enforced.
	 	 	 
	 	vi.	This
    Agreement may be signed in counterparts, which, when taken together, shall have the effect of a single instrument. This Agreement,
    however, shall not be binding on any Party unless and until a single original or counterparts, of this Agreement have been
    signed by all Parties named therein. A printed faxed copy of a signature or a scanned and printed copy of a signature shall
    be deemed to be the equivalent of an original.



 



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EXHIBIT
A to PARTICIPATION AGREEMENT




 


Summary
of Net Acres at Closing




 


	Sail	 	 	7,368.60	 
	Lowry	 	 	689.71	 
	GH	 	 	1,941.71	 
	 	 	 	 	 
	Totals	 	 	10,000.02