EXHIBIT
        10.1

       

      
      

      September
        1, 2005

       

      Falcon
        Natural Gas Corp.

      West
        Chase Center

      2500
        City
        West Blvd, Suite 300

      Houston,
        Texas 77042

      


      Attn: Mr.
        Fred Zaziski,
        President

       

      
        	
              	   RE:  	
                Participation
                  Agreement

                SLICK BEND PROSPECT(S)
                  -

                DeWitt County,
                  Texas

              


      

       

      Dear
        Mr.
        Zaziski:

      


      When
        accepted by you in the manner provided below, this letter will evidence the
        agreement between Southern
        Resource Company, A Texas Corporation,
        whose
        address is P. O. Box 6483, Corpus Christi, Texas 78466-6483, (hereinafter
        called
“Seller”) and Falcon
        Natural Gas Corp.,
        whose
        address is West Chase Center, 2500 City West Blvd., Suite 300, Houston, Texas
        77042, (hereinafter called “Purchaser”) with respect to Purchaser acquiring from
        Seller undivided interests in and to certain Oil, Gas and Mineral Leases
        to be
        acquired by Seller in the area(s)as shown on the plat attached hereto as
        Exhibit
        “B”
        and made
        a part hereof (hereinafter called “Said Leases”), and the participation by
        Seller and Purchaser in the acquisition of additional Leases within the AMI,
        and
        in the drilling of one or more wells on the AMI, in the manner hereinafter
        described. 

      


      I.

       

      Seller
        has identified at least eleven (11) oil and gas prospects in the AMI hereinafter
        described, the location of which is identified on Exhibit “B” attached hereto.
        Said Leases cover the initial prospect area, which is outlined in Red on
        Exhibit
“B.”

      


      Seller
        agrees to sell forty-seven
        percent (47%)
        of 8/8th
        working interest in Said Leases to the Purchaser, subject to the terms and
        conditions in Said Leases, and the associated trade documents to which Seller
        must adhere, more particularly described herein. Seller represents that there
        will be no depth restrictions other than those specified in Said Leases (if
        any). The working interest in Said Leases offered for sale herein shall be
        burdened by its proportionate share of all royalties and overriding royalties
        previously reserved by or conveyed to third parties, provided that Purchaser’s
        net revenue interest in Said Leases shall be not less than its proportionate
        share of 75%, unless the landowner’s royalty equals or exceeds 25%, in which
        case Purchaser’s net revenue interest in Said Leases shall be not less than its
        proportionate share of 73%. Furthermore,
        should Seller enter into a farmout agreement wherein the farmor’s overriding
        royalty interest would further reduce the net revenue interest below 73%,
        Purchaser will be provided with said farmout agreement for it’s review and
        approval of same. Should Purchaser elect not to participate, then the farmout
        agreement shall not be part of this Participation Agreement. 

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      II.

      


      The
        parties hereto agree to commence operations for the drilling of an exploratory
        well (hereinafter called “Initial Test Well”) in search of oil and gas at a
        location and a depth as more fully described in this Participation Agreement,
        and to conduct such operations with Seller, as Operator, in accordance with
        this
        Agreement and the Operating Agreement described below. Seller and Purchaser
        (hereinafter collectively called “Participants”) agree that all drilling and/or
        other oil and gas operations (including operations in the Initial Test Well,
        Substitute Well or future “Development” wells) undertaken by them (1) on any
        jointly held oil and/or gas interest, including any interests acquired pursuant
        to the Area of Mutual Interest (hereinafter called “AMI” and outlined in yellow
        on Exhibit
        “B”)
        provisions provided for below, or (2) on lands pooled with any such lands,
        shall, as among the Participants and as to their interests, be conducted
        pursuant to the terms and provisions of the Operating Agreement attached
        hereto
Exhibit
        “D” (The “Operating Agreement”).
        The
Operating
        Agreement
        shall
        become effective as of September
        1, 2005.
        If
        there is any conflict between the terms and provisions of this Participation
        Agreement and the Operating Agreement, the terms and provisions of this
        Agreement shall control. As each subsequent prospect area is identified and
        defined, a separate Operating Agreement shall be executed, using the form
        attached as Exhibit “D,” modified to reflect the parties participating therein,
        their respective percentage interests and the geographical contract area
        covered
        thereby.

      


      III.

      


      For
        and
        in consideration of Purchaser acquiring an interest in the subject prospect(s),
        Purchaser hereby agrees to the following:

      


      
        	1.  	
                Pay
                  to Seller
                  forty-seven percent (47%) of $70,000.00 or thirty-two thousand
                  nine
                  hundred and 00/100s dollars ($32,900.00)
                  representing Purchaser’s proportionate share of the geological
                  prospect(s) fee
                  attributable to the initial prospect area. Purchaser shall pay
                  the
                  prospect fee for the initial prospect upon the signing of this
                  Agreement.
                  Such amount is non-refundable, unless Seller fails, for reasons
                  other than
                  circumstances beyond its control, to commence the drilling of the
                  initial
                  test well on the initial prospect area on or before June
                  1, 2006,
                  in which case, upon (a) the return of such prospect fee, (b) delivery
                  of
                  an assignment of Purchaser’s interest in any oil and gas leases for which
                  it has paid, (c) refund of any lease money advanced by Purchaser
                  and not
                  expended, and (d) refund of any dry-hole money paid by Purchaser
                  (if any)
                  and not expended, as provided in Article V, paragraph 1, this Agreement
                  shall be deemed to be terminated, and Seller and Purchaser shall
                  have no
                  further obligation, responsibility, or recourse to each other under
                  this
                  Agreement; provided that any Operating Agreement covering such
                  prospect
                  area shall remain in effect in accordance with its terms, if there
                  are oil
                  and gas leases that are jointly owned by the parties; and provided
                  further
                  that Seller shall not be obligated to refund any prospect fee,
                  or
                  unexpended lease money, or to deliver any assignment of leases
                  to
                  Purchaser if Purchaser fails or refuses to participate in the drilling
                  of
                  the initial test well on said prospect. Within thirty (30) days
                  after the
                  log of the initial test well on the initial prospect, Purchaser
                  shall be
                  required to elect whether or not to continue to participate in
                  the
                  acquisition of leases and payment of prospect fees for subsequent
                  prospects in the AMI. If Purchaser elects to continue, it shall
                  pay to
                  Seller its forty-seven
                  percent (47%) of $280,000.00 or one hundred thirty-one thousand
                  six
                  hundred and 00/100s dollars ($131,600.00)
                  representing Purchaser’s proportionate share of the geological
                  prospect(s) fee
                  attributable to four additional prospects (if obtainable); provided
                  that
                  if Seller notifies Purchaser in writing that Seller has received
                  a bona
                  fide written offer from an unrelated third party to participate
                  in ten
                  (10) additional prospects, by paying not less than forty-seven
                  percent (47%)
                  of
                  $700,000, on terms that Seller is willing to accept, which offer
                  shall be
                  included in Seller’s notice to Purchaser, Purchaser shall be required to
                  elect whether or not to meet said offer. If Purchaser elects not
                  to
                  continue (or fails to make an election, or fails to meet any such
                  bona
                  fide third party offer) within said time, Purchaser shall have
                  no right to
                  participate in any future development of the AMI, nor any right
                  to a
                  refund of monies theretofore paid, and this agreement shall terminate;
                  provided that Purchaser shall retain all rights in the initial
                  prospect
                  area and under the Operating Agreement applicable to that prospect
                  area.
                  After initial test wells on such four additional prospects have
                  been
                  drilled, Purchaser shall be required to make a further election
                  whether or
                  not to participate in up to six (6) additional prospects (if obtainable),
                  and if so, Purchaser shall be required to pay forty-seven
                  percent (47%)
                  of
                  $420,000, or one hundred ninety-seven thousand four hundred and
                  no/100
                  dollars ($197,400.00), representing Purchaser’s proportionate share of the
                  geological prospect fees attributable to six additional prospects.
                  If
                  Purchaser elects not to continue (or fails to make an election)
                  within
                  said time, Purchaser shall have no right to participate in any
                  future
                  development of the AMI, nor any right to refund of monies theretofore
                  paid, and this agreement shall terminate; provided that Purchaser
                  shall
                  retain all its rights in the prospects in which it has participated,
                  the
                  leases for which it has paid its proportionate share, and all rights
                  under
                  the Operating Agreements applicable to those prospects. Provided,
                  that it
                  shall be a condition precedent to Purchaser’s obligation to make such
                  elections that Seller shall identify the next four or six prospects
                  which
                  it proposes to acquire and the information available to Seller
                  concerning
                  the status of such areas, and Seller agrees to use its best efforts
                  to
                  acquire leases and/or farmins covering such areas on terms acceptable
                  to
                  the parties, if obtainable. Provided further that Seller shall
                  refund the
                  prospect fee for any prospect and any unexpended lease money advance
                  by
                  Purchaser that Seller does not drill within 120
                  days
                  of
                  Purchaser’s payment of such prospect fee, if the failure to drill is for
                  reasons other than circumstances beyond its control, and provided
                  further
                  that Seller shall not be obligated to refund any prospect fee,
                  or
                  unexpended lease money, or to deliver any assignment of leases
                  to
                  Purchaser if Purchaser fails or refuses to participate in the drilling
                  of
                  the initial test well on any such prospect. Seller agrees to convene
                  regular meetings of the working interest owners and provide information
                  to
                  the working interest owners in an attempt to reach consensus on
                  the
                  selection and ranking of prospects.

              


      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	2.  	
                Pay
                  to Seller fifty-eight
                  point seventy-five percent (58.75%)
                  of
                  the actual cost of the oil, gas and mineral leases to be acquired
                  along
                  with Purchaser’s share of the actual direct cost attributable to the oil
                  and gas lease acquisition in the initial prospect area which incorporates,
                  but is not limited to, lease bonus consideration, landmans’ fees, drafting
                  fees, legal fees, survey fees, etc. Seller will invoice Purchaser
                  as
                  leases are acquired, which invoices shall be supported by appropriate
                  documentation of such actual direct costs. If Purchaser makes the
                  elections to continue in the program pursuant to paragraph 1, Purchaser
                  shall pay 58.75% of the actual cost attributable to oil and gas
                  lease
                  acquisition in the relevant prospects identified in such elections,
                  which
                  are selected and designated as provided herein. The amounts due
                  and
                  payable hereunder will be due within thirty
                  (30)
                  days receipt of the invoice. 

              


      

       

      
        	 	
                3.
                    

              	
                Pay
                  to Seller fifty-eight
                  point seventy-five percent
                  (58.75%)
                  of
                  the before casing point costs attributable to the drilling of the
                  Initial
                  Test Well to casing point (as hereinafter defined). Before casing
                  point
                  (or “Dryhole”) costs are more particularly described in column 173 of the
                  A.F.E. attached as Exhibit
                  “C”.
                  This amount must be received within ten (10) days after notice
                  has been
                  given but not more than thirty (30) days prior to commencement
                  of
                  operations on the prospect for the Initial Test Well. All operations
                  after
                  casing point will be on a prorata working interest basis, as set
                  out in
                  Exhibit
                  “A”
                  to
                  the Operating Agreement. Notwithstanding the foregoing, Seller
                  shall not
                  be required to perform hereunder nor shall Seller be liable for
                  any cost
                  or expense (except its 20% after casing point share) for so long
                  as it is
                  prevented or delayed from commencing or resuming normal operations
                  that
                  are the result from any Federal or state law or any order, rule
                  or
                  regulation of any governmental authority, any force majeure, including
                  but
                  not limited to, acts of God, inclement weather, floods, strikes,
                  the
                  scarcity or inability to obtain or to use equipment or material.
                  Should
                  such an event as referenced herein take place and, as a result
                  thereof,
                  Seller incurs any cost or expense related thereto, then the total
                  cost of
                  such an occurrence or event or will be borne pro-rata by Seller
                  and
                  Purchaser.

              


      

      


      
        	
                4.
                    

              	
                The
                  initial test well as it pertains to each prospect contemplated
                  by this
                  Agreement may be turnkeyed should the majority of working interest
                  participants, inclusive of Seller’s interest, elect to do so.
                  

              


      

      


      
        	 	
                5.
                    

              	
                Pay
                  to Seller forty-seven
                  percent (47%)
                  share of the actual costs of completing and equipping said well,
                  if an
                  election is made at Casing Point by Purchaser for a completion
                  attempt.

              


      

      


      
        	6.  	
                Casing
                  point, as used herein, is defined as the point at which (a) a subsurface
                  depth of 7,800-+
                  feet, or a depth sufficient to test the Wilcox Sand Formation as
                  seen on
                  the electric log in the Houston Natural Gas, E.L. Boldt, et al,
                  #2 Well
                  located in the J. T. Tinsley Survey, Abstract 455, in DeWitt County,
                  Texas, at subsea (6935’) or its stratigraphic equivalent, which ever is
                  the lesser depth (which depth is hereinafter called the “Objective Depth”)
                  has been reached; and (b) first open hole electric log has been
                  completed
                  so as to enable the Purchaser to evaluate the likelihood of a successful
                  completion in the test well’s probable producing
                  zone.

              


      

      


      
        	7.  	
                Seller
                  agrees, upon request of Purchaser, to establish a separate,
                  interest-bearing account, designated by the well name, and not
                  commingled
                  with Seller’s own funds, to hold the monies advanced by Purchaser and
                  other working interest owners for dry-hole and/or completion costs,
                  and to
                  use such funds only for purposes authorized under this
                  Agreement.

              


      

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      IV.

      


      Seller
        hereby agrees to assign to Purchaser an undivided forty-seven
        percent (47%)
        of 8/8th
        working interest in and of Said Leases upon execution of this Agreement and
        payment of Purchaser’s share of the geologic prospect fee and leasehold
        acquisition costs from the initial prospect. The assignment shall be in the
        form
        attached hereto as Exhibit “E,” and shall be without warranty, express or
        implied, except as to claims arising by, through or under Seller. If Purchaser
        elects to continue in the program as provided in Article III, paragraph 1
        above,
        subsequent assignments shall be made to Purchaser as additional leases are
        acquired, and the costs thereof are invoiced to and paid by Purchaser.


      


      Seller
        shall provide for Purchaser’s review upon written request prior to the spudding
        of the Initial Test Well (or any well completed by this Agreement), copies
        of
        the drillsite title information, oil and gas leases, easements, surface use
        agreements and any other documents or agreements relative to the title to
        the
        Slick Bend Prospect(s) which are within the possession or control of Seller.
        

      


      Should
        Seller, after the date of this Agreement, obtain contractual rights to seismic
        data pertaining to the Prospect Area, Seller agrees to provide Purchaser,
        its
        representatives, heirs and assigns, with access to and the right to review
        such
        data. However, the costs attributable to the acquisition of such seismic
        data
        will be borne by Purchaser as to forty-seven
        percent (47%)
        of the
        actual costs associated with such acquisition. It should be understood that,
        in
        the event Purchaser does not become party to the associated licensing agreement
        pertaining to such acquisition, Purchaser cannot retain or possess the seismic
        tapes or original data. Seller agrees to afford Purchaser the opportunity
        to
        become such licensee, if Purchaser so desires.

      


      V.

      


      Seller
        and Purchaser agree to the following terms for the drilling of the Initial
        Test
        Well to test each individual Prospect contemplated by this
        Agreement:

      


      
        	
                1.
                   

              	
                Seller
                  has agreed, and does hereby agree, to the drilling of the Initial
                  Test
                  Well to test the initial prospect contemplated by this Agreement
                  as to
                  Purchaser’s interest at an approximate location mutually agreeable to the
                  majority working interest participation, inclusive of Seller’s interest. A
                  surveyed drillsite location will be provided once the survey is
                  in the
                  possession of Seller. If Purchaser elects to continue in the program
                  pursuant to Article III, paragraph 1, as each subsequent prospect
                  is
                  presented to Purchaser, Purchaser shall make its election whether
                  or not
                  to participate in the drilling of an initial test well thereon,
                  and if it
                  does not so elect, Purchaser shall forfeit all right, title and
                  interest
                  in all oil and gas lease(s) covering that specific prospect and
                  shall have
                  no right to participate in the drilling or development of such
                  prospect;
                  provided that Purchaser must elect to participate in the drilling
                  of an
                  initial test well on the second prospect area in order to be entitled
                  to
                  continue to participate in the drilling of subsequent test wells
                  in the
                  AMI; and provided further that Purchaser’s failure to participate in an
                  initial test well after participating in the initial test well
                  for the
                  second prospect area shall not affect its right to participate
                  in initial
                  test wells on subsequent prospects. If Purchaser elects to participate,
                  and pays its agreed share of the costs associated therewith, Seller
                  shall
                  commence or cause to be commenced the drilling of said well(s),
                  and
                  continue thereafter with due diligence and in a good and workmanlike
                  manner to drill same of the Objective Depth; but shall not be obligated
                  to
                  do so if in Seller’s opinion, there is insufficient working interest
                  participation, or for any other reason, provided that Seller shall
                  refund
                  to Purchaser any dry-hole costs theretofore paid by Purchaser,
                  and shall
                  assign to Purchaser its undivided forty-seven
                  percent (47%)
                  interest in all leases in such prospect area in which Purchaser
                  has
                  participated, and refund any lease money advanced by Purchaser
                  and not
                  expended. In such event Purchaser, at its option, may withdraw
                  from
                  participating by giving Seller written notice, at which point this
                  Agreement will terminate. Once the reimbursement of the drilling
                  monies,
                  assignment of leasehold interests and refund of any unexpended
                  lease money
                  referenced herein have taken place, this Agreement shall be deemed
                  to be
                  terminated as to such prospect area, and Seller and Purchaser shall
                  have
                  no further obligation, responsibility, or recourse to each other
                  under
                  this Agreement as to such area; provided that any Operating Agreement
                  covering such prospect area shall remain in effect in accordance
                  with its
                  terms.

              


      

      


      
        	
                2.
                   

              	
                The
                  initial test well on each prospect or any substitute therefor,
                  shall (if
                  the Seller and Purchaser agree) be drilled and logged on a turnkey
                  or day
                  work basis at the sole cost, risk and expense of the Seller. If
                  the
                  parties do not agree to conduct the operations on a turnkey basis,
                  Seller
                  shall conduct such operations on an actual cost basis and Purchaser
                  shall
                  be responsible for its 58.75% share thereof. Operator firmly agrees,
                  in
                  its operations, to abide by and fully comply with all State and
                  Federal
                  laws and regulations, together will all rules and regulations of
                  any
                  governmental agency having jurisdiction of the area or field in
                  which such
                  operations are performed.

              


      

      


      
        	
                3.
                   

              	
                In
                  connection with the drilling of each test well in which it participates,
                  Purchaser shall have full and complete access to the location,
                  derrick
                  floor, drillers’ logs, electrical logs, cores and any and all information
                  gained by the drilling of such test wells, and shall receive sufficient
                  notice twenty four (24) hours prior to any testing, logging, or
                  coring in
                  order to have a representative present during each such operations
                  and
                  such notice, together with any progress drilling reports to be
                  given to
                  Purchaser or such representative as Purchaser may from time to
                  time
                  designate, at the above address or at such location or address
                  as
                  Purchaser may hereafter furnish.

              


      

      


      
        	4.  	
                Seller
                  will be relieved of its turnkey obligations (if turnkey operations
                  are
                  conducted) as specified herein upon successful acquisition of the
                  first
                  open hole electric log from surface through the Objective
                  Depth.

              


      

      


      
        	
                5.
                   

              	
                All
                  operations on any well on any prospect after the Initial Test Well
                  on that
                  prospect shall be conducted on a non-promoted basis, Purchaser
                  paying only
                  its forty
                  seven percent (47%)
                  share of the actual costs thereof, unless Purchaser and Seller
                  agree to
                  conduct such operations on a turnkey or other basis.
                  

              


      

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      VI.

      


      The
        liabilities of the parties hereto shall be several and not joint, and each
        party
        shall be responsible only for its proportionate share of the costs and
        liabilities incurred. It is not the purpose or intention of the parties hereto
        to create any partnership, tax partnership, joint venture, mining partnership,
        association, agency or any such relationship among the parties, whereby one
        party is held liable for the acts or omissions of the other party, and neither
        this Participation Agreement, the Joint Operating Agreement (Exhibit
        “D”
        attached) nor the operations conducted hereunder shall be construed or
        considered as creating any such relationship.

      


      VII.

      


      Seller
        will maintain insurance more particularly described in Exhibit
        “D”
        to the
        Joint Operating Agreement, Purchaser shall bear its proportionate share of
        the
        costs of such insurance (inclusive of deductibles if it is necessary to utilize
        said insurance). With the exception of minimum limits set by state and federal
        regulators, Purchaser may elect not to be covered by and of Seller’s insurance
        coverage provided for in the joint account by providing Operator with written
        notice and certificate of insurance, wherein Purchaser grants Operator/Seller
        with a waiver of subrogation, and is added as an additional insured to
        Purchaser’s policy(s).

      


      VIII.

      


      This
        letter agreement may not be amended except by an instrument in writing signed
        by
        all of the parties hereto.

      


      IX.

      


      The
        Seller makes no representations or warranties, expressed or implied, as to
        the
        quality, accuracy, completeness or materiality of any information pertaining
        to
        the prospect or associated well information disclosed to Purchaser in
        determining his/its decision on whether or not to participate in this prospect.
        The Purchaser expressly acknowledges the inherent risks associated with the
        acquisition, processing and interpretation of any geological, geophysical
        and
        engineering data, and that any reliance on or use of any such information
        provided or produced by Seller is at the sole risk of Purchaser. The Seller,
        its
        Affiliated Companies, their officers, directors and employees, shall have
        no
        liability whatsoever with respect to the use of or reliance upon any information
        received by the Purchaser from
        Seller pertaining to the lands more particularly described in Exhibit “A” or
“A-1” to the Joint Operating Agreement.
        The
        Parties agree that, to the extent required by the applicable law to be
        operative, the disclaimers of certain warranties contained in this Participation
        Agreement and associated Joint Operating Agreement are “conspicuous” disclaimers
        for the purposes of any applicable law, rule or order. All information provided
        or produced by Seller is presented by the Seller to the Purchaser without
        representations, recourse, covenant, or warranty of any kind, and the Seller,
        does hereby expressly disclaims all representations and warranties of any
        kind
        including without limitation warranties of title, whether express, implied,
        or
        statutory. WITHOUT LIMITATION OF THE GENERALITY OF THE IMMEDIATELY PRECEDING
        SENTENCE, SELLER EXPRESSLY DISCLAIMS AND NEGATES (A) ANY IMPLIED OR EXPRESS
        WARRANTY OF THE MERCHANTABILITY, (B) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS
        OF A PARTICULAR PURPOSE AND (C) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY
        TO
        MODELS OR SAMPLES OF MATERIALS.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      


      X.

      


      If
        any
        provision of this letter agreement shall be held illegal or invalid, this
        Participation Agreement shall be construed and enforced as if such illegal
        or
        invalid provision had not been contained herein.

      


      


      XI.

      


      The
        provisions hereof constitute the complete agreement of the parties hereto
        with
        respect to the subject matter hereof and supersede and extinguishes all previous
        agreements, whether written or oral, with respect to the lands described
        herein.

      


      XII.

      


      This
        Participation Agreement is made and entered into in Texas, is performable
        in
        Nueces County, Texas, and is governed by the laws of the State of Texas.
        The
        exclusive venue of any action arising hereunder is in Nueces County,
        Texas.

      


      XIII.

      


      This
        agreement is made subject to all valid, applicable Federal State and local
        laws,
        rules, orders and regulations of any duly constituted Federal State or local
        regulatory body of authority having jurisdiction thereof, and all development
        and other operations hereunder shall be in conformity therewith.

      


      XIV.

      


      The
        provisions hereof shall inure to the benefit of and are binding upon the
        parties
        hereto, their respective heirs, successors and assigns.

      


      If
        the
        terms and conditions of this Participation Agreement are satisfactory and
        set
        forth your understanding of our agreement, please so indicate by executing
        and
        returning the enclosed original of this Participation Agreement. If there
        is a
        conflict in the language between this Agreement and the Joint Operating
        Agreement, this Agreement shall prevail.

       

      
        	 	 	Yours
                Very Truly,
	 	
              
	  	 	SOUTHERN
                RESOURCE COMPANY,
	 	 	A Texas
                corporation
	 	 	 
	 	By:  	/s/
                 James E. Thaxton
	 	
                
                  

                

                James E. Thaxton

                President

              
	 	 


      

       

      ACCEPTED
        AND AGREED to this the 28th
        day of November, 2005.

      


      FALCON
        NATURAL GAS CORP.

       

      
        	 	 	 	 	 
	By:	 /s/ Fred
                Zaziski	 	 	 
	 	
                
Fred
                Zaziski, President 
                Tax
                  ID #: 98-0403897

              	 	 	 
	 	
                 

              	 	 	 


      

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      


      EXHIBIT
        “A”

      


      ATTACHED
        HERETO AND MADE A PART OF THAT CERTAIN PARTICIPATION AGREEMENT DATED SEPTEMBER
        1, 2005, BY AND BETWEEN SOUTHERN RESOURCE COMPANY, A TEXAS CORPORATION, and
        FALCON NATURAL GAS CORP..
        

       

       

      
        	 	
                1.

              	
                Lands
                  Subject to this
                  agreement:

              


      

      


      All
        Oil,
        Gas and Mineral Leases and associated documents outlined more particularly
        in
        Exhibit “A-1” attached hereto and made a part of this Participation Agreement
        (said exhibit shows no Leases at the present time because none have yet been
        acquire, and said exhibit shall be amended as Said Leases are
        acquired)

      


      
        	 	
                2.

              	
                Restrictions,
                  if any, as to Depth or
                  Formations:

              


      

      


      
        	 	 	
                None
                  other than those specified in the Oil & Gas Leases attached hereto as
                  Exhibit “A-1”.

              


      

      


      
        	 	
                3.

              	
                Percentages
                  and Address of the Parties to this
                  Agreement:

              


      

       

      
        	 	
                Southern Resource Company, et al

                P. O. Box 6483

                Corpus Christi, TX 78406

                53% Working Interest

              	
                 

              	Falcon Natural Gas Corp.
                West Chase Center

                2500 City West Blvd, #300

                Houston, TX 77042

                47% Working Interest

              	 
	 	 	 	 	 
	 	 	 	 	 


      

              


      
        	 	
                4.

              	
                Oil
                  and Gas Leases Subject to this
                  Agreement:

              


      

      


      
        	 	 	
                The
                  leases subject to this Agreement are outlined in RED on
                  Exhibit “B.” The Area of Mutual Interest (“AMI”) is outlined in
                  yellow
                  on
                  Exhibit “B” attached hereto and made a part hereof.
                  

              


      

      


      


      


      
        	 	/s/
                James E. Thaxton	 	/s/
                Fred Zaziski  	 
	 	James E. Thaxton,
                President	 	Fred Zaziski,
                President	 
	 	 	 	 	 
	 	SOUTHERN RESOURCE
                COMPANY,	 	FALCON NATURAL GAS
                CORP.	 
	 	A TEXAS
                CORPORATION