Document:

EXHIBIT 4(A)

 

FARM-OUT
AGREEMENT

 

 

CANADIAN SUPERIOR

ENERGY INC.

 

December 30, 2005

Challenger Energy Corp.

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

T2P 4H2

 

Dear Sir:

 

Re: Amended
and Restated Farmout and Option Agreement

 

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

 

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

 

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

 

ARTICLE 1

INTERPRETATION

 

1.1                                                                               Definitions

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

	
  NAD 1983 – Canada

  	
  Latitude:

  	
  44°03’32.1709”N

  
	
   

  	
  Longitude:

  	
  59°38’46.1338”W

  
	
   

  	
  Northing:

  	
  4883889.4

  
	
   

  	
  Easting:

  	
  768631.00

  
	
   

  	
  (UTM Zone 20)

  	
   

  

 

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

 

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

 

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

 

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

 

(z)                                   “Permitted Encumbrances” means:

 

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

 

(ii)                                  the
Ardal Overriding Royalty;

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

1.2                                                                               Interpretation

 

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

 

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

 

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

 

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

 

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

 

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

 

(f)                                    time
shall be of the essence; and

 

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

 

1.3                                                                               Business
Day

 

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

 

1.4                                                                               Governing
Law and Attornment

 

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

 

5

 

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

 

1.5                                                                               Conflicts

 

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

 

1.6                                                                               Schedule

 

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

 

	
  Schedule “A”

  	
  Mariner Licence,
  Marauder Licence and Marconi Licence

  
	
  Schedule “B”

  	
  Operating Agreement
  with Accounting Procedure

  
	
  Schedule “C”

  	
  Ardal Overriding
  Royalty Agreement

  
	
  Schedule “D”

  	
  Block 5(c) Participation

  
	
  Schedule “E”

  	
  MGB Participation

  

 

1.7                                                                               Harmonized Taxes

 

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

 

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

 

6

 

ARTICLE 2

FARMOUT

 

2.1                                                                               Agreement
to Farmout

 

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

 

ARTICLE 3

CNE TRINIDAD RIGHTS

 

3.1                                                                               Agreement
to Enter into Participation Agreements

 

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

 

ARTICLE 4

WARRANTY OF TITLE

 

4.1                                                                               Title
Documents and Warranty

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

ARTICLE 5

TEST WELL AND EARNING

 

5.1                                                                               Commitment
to Drill Test Well

 

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

 

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

 

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

 

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

 

5.2                                                                               Financial Contributions

 

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

 

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

 

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

 

8

 

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

 

5.3                                                                               Earning
of Mariner Farmout Interest

 

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

 

ARTICLE 6

SEISMIC DATA

 

6.1                                                                               Canadian  Superior Seismic Data

 

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

 

6.2                                                                               Third
Party Trade Seismic Data

 

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

 

ARTICLE 7

OPTION TO PARTICIPATE IN MARCONI AND MARAUDER

 

7.1                                                                               Option

 

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

 

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

 

9

 

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

 

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

 

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

 

7.3                                                                               Option to Participate in Seismic Program(s)

 

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

 

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

 

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

 

ARTICLE 8

TITLE AND OPERATIONAL MATTERS

 

8.1                                                                               Transfer
and Registration of Farmout Interests

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

8.3                                                                               Test Well Operator’s Authority

 

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

 

	
  Article 1

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

  
	
   

  	
   

  
	
  Article 4

  	
  Operator

  
	
   

  	
   

  
	
  Article 8

  	
  Default

  
	
   

  	
   

  
	
  Article 14

  	
  Relationship of Parties

  
	
   

  	
   

  
	
  Article 15

  	
  Venture Information

  
	
   

  	
   

  
	
  Article 16

  	
  Force Majeure

  
	
   

  	
   

  
	
  Accounting Procedure

  	
  Entire Document

  

 

8.4                                                                               Subsequent Operations

 

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

 

11

 

8.5                                                                               Exchange
of Information

 

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

 

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

 

ARTICLE 9

TERMINATION

 

9.1                                                                               Termination
by Canadian Superior

 

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

 

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

 

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

 

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

 

9.2                                                                               Termination
by CNE

 

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

 

9.3                                                                               Consequences
of Termination

 

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

 

ARTICLE 10

NOTICES

 

10.1                                                                        Notice

 

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

 

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

 

12

 

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

 

	
  Canadian Superior
  Energy Inc.:

  	
  Suite 3300, 400 -
  3rd Avenue SW

  
	
   

  	
  Calgary, Alberta T2P
  4H2

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  President

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  
	
   

  	
   

  
	
  Challenger Energy Corp.

  	
  Suite 3300, 400 –
  3rd Avenue SW

  
	
   

  	
  Calgary, Alberta T2P
  4H2

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  

 

10.2                                                                        Deemed
Delivery

 

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

 

10.3                                                                        Change
of Address

 

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

 

ARTICLE 11

LIABILITY AND INDEMNITY

 

11.1                                                                        Liability
of and Indemnification

 

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

 

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

 

13

 

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

 

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

 

ARTICLE 12

COVENANTS

 

12.1                                                                        Covenants

 

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

 

ARTICLE 13

MISCELLANEOUS

 

13.1                                                                        Amendments

 

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

 

13.2                                                                        Waiver
in Writing

 

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

 

13.3                                                                        Delay
Not Waiver

 

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

 

13.4                                                                        Acceptance
of Payment Not Waiver

 

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

 

14

 

13.5                                                                        Primacy of Farmout Agreement

 

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

 

13.6                                                                        Entire Agreement

 

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

 

13.7                                                                        Further Assurances

 

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

 

13.8                                                                        Assignment

 

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

 

13.9                                                                        Enurement

 

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

 

13.10                                                                 Counterpart Execution

 

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

 

13.11                                                                 Delivery

 

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

 

13.12                                                                 Severability

 

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

 

13.13                                                                 Limitation
of Actions

 

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

 

15

 

13.14                                                                 Press
Releases

 

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

 

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

 

12.15                                                                 Authority

 

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

 

 

Sincerely,

 

CANADIAN SUPERIOR
ENERGY INC.

 

 

	
  By:

  	
  /s/ Michael E. Coolen

  	
   

  	
  /s/ T.J. Harp Dir.

  	
   

  
	
   

  	
  Michael E. Coolen,
  Director

  	
   

  	
  T.J. Harp

  

 

 

AGREED AND ACCEPTED this 30
day of December, 2005

 

 

CHALLENGER
ENERGY CORP.,

 

 

	
  By:

  	
  /s/ Neil MacKenzie

  	
   

  
	
   

  	
  President

  	
   

  

 

16

 

[Schedules
intentionally deleted]EXHIBIT 4(B)

 

PARTICIPATION AGREEMENT

 

 

AMENDED AND
RESTATED PARTICIPATION AGREEMENT

 

This Agreement dated this 30th day of December, 2005.

 

Between:

 

CHALLENGER
ENERGY CORP., a corporation incorporated under the laws of
Alberta, Canada (hereinafter “CNE”)

 

- and –

 

CANADIAN
SUPERIOR ENERGY INC., a
corporation incorporated under
the laws of Alberta, Canada and having an office in the City of Calgary
(hereinafter “Canadian Superior”)

 

WHEREAS each Party recognizes the abilities and
expertise that the other Party possesses with respect to the exploration and
development of oil and gas properties;

 

AND WHEREAS
each Party wishes to
secure the benefits of the abilities and expertise offered by the other Party
and to apply such benefits collectively to the Project;

 

AND WHEREAS
CNE has agreed to
participate with Canadian Superior in the Mariner Test Well as defined in a
Farmout and Option Agreement between the Parties and dated November 17,
2004 as amended and restated as of the date hereof (“Mariner Farmout”);

 

AND WHEREAS
in furtherance of the
foregoing mutually beneficial opportunities, Canadian Superior has entered into
a Production Sharing Contract with respect to the Lands;

 

AND
WHEREAS, in
consideration of the terms and provisions of the Rights Issuance the Parties
have agreed to amend, restate and extend the provisions of the Participation
Agreement dated November 17, 2004 made between them in respect of the
joint participation by them in the acquisition, exploration and development of
the Lands (the “Prior Agreement”);

 

AND WHEREAS
the Parties wish to
confirm the terms of the Parties’ agreement and more formally provide for the
respective rights, obligations and benefits of each of them in connection with
the acquisition, exploration and development of the Lands;

 

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

 

ARTICLE 1

INTERPRETATION

 

1.1                                                                               Definitions

 

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

 

(a)                                  “Affiliate” means a subsidiary company, a parent
company, or a sister company of or to a Party hereto. For the purposes of this
definition:

 

(i)                                     a parent company is a company that controls
or ultimately controls a Party hereto;

 

 

(ii)           a sister company is a company that is
controlled by or ultimately controlled by the same parent company as a Party
hereto;

 

(iii)          a subsidiary company is a company controlled
by a Party hereto, a parent company or a sister company; and

 

(iv)          “control” means that a company owns at least
50% of share capital (either directly or through other companies which confers
upon it a majority of the votes at the shareholders’ meetings) of a company which
is controlled or which has a common majority shareholder.

 

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

 

(c)                                  “AMI Interests” means any right or interest in and/or to any Petroleum
Substances related to the Area of Mutual Interest;

 

(d)                                 “Area of Mutual Interest” means all lands within the area designated as
such on Schedule “C” attached hereto;

 

(e)                                  “Block 5(c)” means that area of land located offshore
Trinidad and designated as “Block 5(c) in the Competitive Bidding Order;

 

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

 

(g)                                 “Commitment” has the meaning ascribed to it in Section 3.1;

 

(h)                                 “Competitive Bidding Order” means the Petroleum Regulations (Competitive
Bidding) Order, 2003 made by the Minister of the Ministry;

 

(i)                                     “Effective Date” means the 17th day of November 2004;

 

(j)                                     “Existing Data Package” means the seismic data, well information,
reports, studies and other documentation made available to Canadian Superior
from the Ministry prior to submitting a bid on Block 5(c) at the
Competitive Bidding Order;

 

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

 

(l)                                     “Lands” means Block 5 (c) and the right to
produce Petroleum Substances therefrom;

 

(m)                               “Ministry” means the Ministry of Energy and Energy
Industries of Trinidad;

 

(n)                                 “Operator” shall have the meaning ascribed to it in the
Joint Operating Agreement;

 

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

 

2

 

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

 

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

 

(r)                                    “Project” means the joint acquisition, exploration and
development of Block 5(c);

 

(s)                                  “Production Sharing Contract”
means that agreement between
the President of Trinidad, the Minister of the Ministry and Canadian Superior
for the Lands, a copy of which is attached as Schedule “A” hereto, all
schedules attached thereto and any agreement entered into between the
aforementioned parties concerning the Lands, and if applicable, any documents
replacing and/or amending the said agreement;

 

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

 

(u)                                 “Regulatory Authority” means a government, or a government
department, agency or other authority including courts, tribunals, boards or
panels having apparent or actual jurisdiction over the Parties, the Lands, the
Title Documents, and the Production Sharing Contract or otherwise in relation
to the subject matter hereof, including without limitation the Ministry;

 

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

 

(w)                               “Third Party” means a Person other than a Party;

 

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

 

(y)                                 “Trinidad” means the Republic of Trinidad and Tobago;

 

(z)                                   “Working Interest” means with respect to each Party, the
following undivided interest of such Party in the rights and obligations
derived from the Production Sharing Contract and shall be:

 

	
  CNE

  	
   

  	
  25%

  	
   

  

 

3

 

	
  Canadian Superior

  	
   

  	
  75%

  	
   

  

 

(aa)                            “Work Programme” shall have the meaning ascribed to it in the Production Sharing
Contract;

 

1.2                                                                               Interpretation

 

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

 

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

 

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

 

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

 

(d)                                 with the exception of the amount set out in
clauses 4.1(a) and 4.1(b)(ii), all monetary amounts are expressed in
lawful currency of the Canada;

 

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

 

(f)                                    time shall be of the essence; and

 

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

 

1.3                                                                               Business Day

 

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

 

1.4                                                                               Governing Law

 

Regardless of where executed
or delivered, this Agreement and the rights and obligations of the Parties
hereunder shall be governed by, and construed and interpreted in accordance
with the laws of Alberta, Canada.

 

1.5                                                                               Conflicts

 

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

 

1.6                                                                               Schedules

 

The following Schedules are
attached to and form part of this Agreement:

 

4

 

	
  Schedule “A”

  	
  Production Sharing Contract

  
	
  Schedule “B”

  	
  Joint Operating Agreement

  
	
  Schedule “C”

  	
  Area of Mutual Interest

  

 

ARTICLE 2
PARTICIPATION

 

2.1                                                                               Grant of Participation
Rights

 

The Parties acknowledge that
CNE has agreed to participate with Canadian Superior in certain operations
described in the Mariner Farmout. In consideration of entering into the Mariner
Farmout, the premises hereof and the payment of $1.00 by CNE to Canadian
Superior, the receipt of which is hereby acknowledged, Canadian Superior hereby
grants to CNE the participation rights described in Section 4 of this
Agreement.

 

2.2                                                                               Agreement to Participate

 

CNE hereby acknowledges that
Canadian Superior has fulfilled the Commitment set out in clause 3.1 of the
Prior Agreement and agrees to participate with Canadian Superior in the
acquisition, exploration and development of the Lands and the Project, in
accordance with the provisions hereof.

 

2.3                                                                               Rights Issuance

 

Canadian Superior agrees
that it shall cooperate fully with CNE in all matters relating to the Rights
Issuance and that it will take such steps as are required to give effect to it
in as timely a manner as possible.

 

2.4                                                                               Interest Held in Trust

 

(a)                                  Canadian Superior agrees that Canadian
Superior holds and stands possessed, and will continue to hold and stand
possessed of the interest of CNE in and to the Production Sharing Contract, the
Lands, and the Title Documents and Canadian Superior shall hold such interests
in trust for and on behalf of CNE.

 

(b)                                 Canadian Superior covenants and agrees that
it will not sell, assign, transfer, convey, encumber or surrender the
Production Sharing Contract, the Lands, and the Title Documents insofar as same
affects or relates to the interests held in trust hereunder for CNE, except
upon the written instructions of CNE.

 

ARTICLE 3

DELIVERY OF INFORMATION

 

3.1                                                                               Delivery of Existing Data
Package to CNE

 

Provided that CNE has
complied with the provisions of clause 4.1(a) hereof:

 

(a)                                  As soon as is reasonably practical following
such compliance by CNE. Canadian Superior shall, at Canadian Superior’s
expense, deliver to CNE a copy of: i) the Existing Data Package, ii) geological
and geophysical mapping of the Lands, iii) interpreted seismic sections
covering the Land, iv) a complete copy of the bid and any revisions of the bid
submitted to the Ministry on

 

5

 

Block 5(c). and v) a copy of information, documents
and all other data generated by Canadian Superior respecting the Lands; and

 

(b)                                 Canadian Superior shall deliver copies of all
data and documents acquired or produced by or on behalf of Canadian Superior in
fulfilling the Commitment and copies of all Regulatory fillings made in respect
of same to CNE or the nominee of CNE immediately upon Canadian Superior’s
receipt of such data and documents.

 

ARTICLE 4

WORK PROGRAMME PARTICIPATION

 

4.1                                                                               CNE Initial Commitment

 

(a)                                  on or before April 1, 2006 CNE shall pay
to Canadian Superior the sum of Two Million Five Hundred Thousand
(US$2,500,000.00) Dollars US to be credited to CNE’s one third share of the costs
incurred to date by Canadian Superior in respect of the Production Sharing
Contract;

 

(b)                                 on the earlier of;

 

(i)                                     April 30, 2006; or

 

(ii)                                  within 14 business days of CNE having
successfully raised a minimum of Twelve Million (US $12,000,000.00) Dollars US
by way of the Rights Issuance

 

CNE shall pay to Canadian
Superior the balance of CNE’s one-third share of the costs incurred by Canadian
Superior to that date in respect of the Production Sharing Contract;

 

(c)                                  CNE shall, not less than 10 business days
prior to the scheduled spud date of the first Exploration Well to be drilled
pursuant to the Work Programme (as defined in the Production Sharing Contract),
pay to Canadian Superior one third of the anticipated dry hole costs of such
first Exploration Well, provided that if drilling operations arc not commenced
within 30 days of such payment, such monies shall be returned to CNE forthwith.
For greater clarity, the Parties acknowledge that in calculating such
anticipated dry hole costs, no amounts in respect of anticipated testing or
completing costs of such well shall be included; and

 

(d)                                 CNE further commits to participate for one
third of the balance of the costs directly attributable to the Work Programme
and the second and third Exploration Wells drilled pursuant thereto.

 

(e)                                  During the course of the Work Programme
Canadian Superior shall consult on a regular basis (no less often than monthly)
with CNE concerning progress and fulfillment of the Work Programme and Canadian
Superior’s activities as Operator in respect thereof.

 

4.2                                                                               Default/Early Termination

 

(a)                                  In the event that CNE fails to pay when due
the amounts required pursuant to clause 4.2(c) above, this Agreement shall
terminate without further notice, and CNE shall have forfeited its right to participate
in the Project or to earn any interest hereunder.

 

(b)                                 In all other respects, should CNE fail to pay
within 30 days any other amounts payable by it pursuant to this Article 4
during the Work Programme, Canadian Superior shall be entitled to give notice
of such default (the “Default Notice”) to CNE. Should CNE fail to remedy such
default

 

6

 

within 30 days of the date
the Default Notice is issued, the provisions of Article 8 of the Joint Operating
Agreement shall apply.

 

4.3                                                                               Ongoing Participation

 

In the event that CNE has
complied with the provisions of clause 4.1 hereof, upon completion of the Work
Programme:

 

(a)                                  all rights, duties, obligations, elections
and privileges to which Canadian Superior is entitled under the Production
Sharing Contract shall be shared and may be separately exercised by each Party
as to their Working Interest;

 

(b)                                 the Parties agree that Canadian Superior
shall be Operator and shall represent CNE under the Production Sharing Contract
until CNE is formally recognized by the Ministry; and

 

(c)                                  all benefits and obligations arising from any
and all operations conducted by the Parties on or in respect of the Lands, including
without limitation all revenues from sales of Petroleum Substances produced
therefrom and all costs and expenses (including without limitation the Crown
Royalty and all applicable operating expenses) associated therewith, shall be
shared by the Parties on the basis of their Working Interest, and shall be
governed by and conducted in accordance with the Joint Operating Agreement.
Notwithstanding the generality of the foregoing, to the extent that the parties
are entitled to apply the Cost Recovery provisions of Article 18 of the Production
Sharing Contract to the costs of the Project, such recovered costs shall be for
the account of, and be credited to, the parties in the same proportions that
such costs were originally borne by them.

 

ARTICLE 5

TITLE AND OPERATIONAL MATTERS

 

5.1                                                                               Transfer and Registration of
Earned Interests

 

(a)                                  Canadian Superior agrees to use its best
efforts to transfer and convey to CNE the interests CNE is entitled to
hereunder and shall use documentation in form and content acceptable to
CNE to complete such task, and Canadian Superior shall execute, deliver and
register as required under the Regulations or otherwise by a Regulatory
Authority, all assignments, transfers and other documents as may be
necessary to fully and properly transfer and convey such interests to CNE, when
requested to do so in writing by CNE, the cost of which shall be borne equally
by the parties.

 

(b)                                 Provided that CNE has earned its Working
Interest, upon receipt of a Notice from CNE, Canadian Superior agrees to use
its best efforts to have CNE recognized as a party to the Production Sharing
Contract, and any costs relating thereto shall be borne equally by the parties.

 

5.2                                                                               Joint Operating Agreement
and Appointment of Operator

 

The Parties hereby appoint
Canadian Superior as Operator under and for the purposes of the Joint Operating
Agreement. Canadian Superior shall properly perform and discharge its
duties and obligations as Operator in accordance with the terms of this
Agreement, the Production Sharing Contract and good offshore oilfield
practices. In addition to the applicability of Article 8 of the Joint
Operating Agreement pursuant to clause 4.2(b) hereof, the following
provisions of the Joint Operating Agreement

 

7

 

and the Accounting Procedure are hereby incorporated
and shall be applicable to Article 4 hereof, the Work Program and all
costs incurred and operations conducted pursuant thereto:

 

a)                                      Joint Operating Agreement

 

	
  Article 1

  	
  Definitions (to the extent required for interpretation of the
  relevant provisions of the Joint Operating Agreement incorporated herein

  
	
   

  	
   

  
	
  Clause 4.4

  	
  Information Supplied by Operator

  
	
   

  	
   

  
	
  Clause 6.7

  	
  Authorization for Expenditure Procedure

  
	
   

  	
   

  
	
  Article 15

  	
  Venture Information – Confidentiality
  – Intellectual Property

  
	
   

  	
   

  
	
  Article 16

  	
  Force Majcure

  

 

b)                                     Accounting Procedure

 

All provisions

 

5.3                                                                               Access to Pipelines

 

In consideration of CNE
paying to Canadian Superior its proportionate share of all costs and expenses
related thereto, Canadian Superior shall provide to CNE access, on the same
basis and terms as Canadian Superior, to any pipelines as may be necessary
to transport all Petroleum Substances produced from the Lands to any applicable
sales point(s) for such Petroleum Substances.

 

5.4                                                                               Marketing of Petroleum
Substances

 

Canadian Superior shall
provide to CNE access, on the same basis and terms as Canadian Superior, to any
marketing arrangements for Petroleum Substances produced from the Lands.

 

ARTICLE 6

ENCUMBRANCES

 

6.1                                                                               No Encumbrances

 

At all times while this
Agreement remains in force, neither Party shall do or cause to be done any act,
or make or cause to be made any act or omission, whereby the Title Documents or
any of them become encumbered in such a way as to adversely affect the Title
Documents or any of them or to make them or the Lands subject to termination or
forfeiture in any respect, except as may be expressly provided for in the
Production Sharing Contract.

 

ARTICLE 7

LIABILITY AND INDEMNITY

 

7.1                                                                               Canadian Superior’s Responsibility

 

Canadian Superior will:

 

8

 

(a)                                  be liable to CNE for all losses, costs,
damages and expenses whatsoever (whether contractual or otherwise), excepting
consequential damages, that CNE may suffer, sustain, pay or incur and in addition

 

(b)                                 indemnify and hold harmless CNE against all
actions, causes of action, proceedings, claims, demands, losses, costs, damages
and expenses whatsoever that may be brought against or suffered by CNE, or
that it may sustain, pay or incur;

 

insofar as they are, in
respect of operations or activities conducted by Canadian Superior or on behalf
of Canadian Superior hereunder, a result of: the gross negligence or wilful or
wanton misconduct of Canadian Superior, its employees, agents or contractors.
However, this obligation will not apply to the extent that the particular act
or omission was done or omitted to be done in accordance with CNE’s
instructions or concurrence. Costs in this Article will include legal
costs on a solicitor-client basis.

 

7.2                                                                               CNE’s Responsibility

 

CNE will:

 

(a)                                  be liable to Canadian Superior for all
losses, costs, damages and expenses whatsoever (whether contractual or
otherwise), excepting consequential damages, that Canadian Superior may suffer,
sustain, pay or incur; and, in addition

 

(b)                                 indemnify and hold harmless Canadian Superior
and its directors, officers, agents, consultants, and employees against all
actions, causes of action, proceedings, claims, demands, losses, costs, damages
and expenses whatsoever that may be brought against or suffered by
Canadian Superior, its directors, officers, agents, consultants, and employees
or that they may sustain, pay or incur;

 

insofar as they are, in
respect of operations or activities conducted by CNE or on behalf of CNE
hereunder, a result of: the gross negligence or wilful or wanton misconduct of
CNE, its employees, agents or contractors. However, this obligation will not
apply to the extent that the particular act or omission was done or omitted to
be done in accordance with Canadian Superior’s instructions or concurrence.
Costs in this Article will include legal costs on a solicitor-client
basis.

 

ARTICLE 8

NOTICES

 

8.1                                                                               Notice

 

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

 

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

 

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

 

	
  Canadian Superior Energy Inc.:

  	
  Suite 3300, 400 – 3rd Avenue SW

  Calgary, Alberta T2P 4H2

  

 

9

 

	
   

  	
  Attention:

  	
  President

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Challenger Energy Corp.

  	
  Suite 3300, 400 - 3rd Avenue SW

  Calgary, Alberta T2P 4112

  
	
   

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  President

  
	
   

  	
  Fax No.:

  	
  (403) 216-2374

  

 

8.2                                                                               Deemed Delivery

 

Any Notice given or made in
the manner set forth in Section 8.1 shall be deemed to have been given or
made and to have been received on the day of its delivery or transmission, as
the case may be, if such day is a Business Day and such Notice is received
prior to 2:00 p.m., Calgary time, and, if not, on the first Business Day
thereafter.

 

8.3                                                                               Change of Address

 

A Party may change its
address or telecopier number by Notice
to the other Party given in accordance with Section 8.1.

 

ARTICLE 9

AREA OF MUTUAL INTEREST

 

9.1                                                                               Creation of Area of Mutual
Interest

 

The Parties hereby establish
the Area of Mutual Interest. Except in accordance with the terms of this
Agreement, a Party shall not acquire any rights, directly or indirectly, in any
exploration licences, wells, or other petroleum and or natural gas interests in
the “Area of Mutual Interest” or the “AMI”) at any time for a period commencing on the Effective
Date and ending 120 days after the rig release date of the last well drilled
pursuant to the Work Programme (the “AMI Period”). For the purposes hereof each
Party shall be deemed to have acquired any AMI Interests acquired by its
Affiliates, and shall at all times be required to comply with all obligations
provided for hereunder as if those AMI Interests constituted property of that
Party.

 

9.2                                                                               Acquisition of lnterests within
AMI

 

(a)                                  If a Party (the “Acquiring Party”) acquires
an AMI Interest during the AMI Period, that Party shall, within ten (10) days
of acquiring such interest, notify in writing (the “AMI Notice”) the other
Party (the “Non-Acquiring Party”) and offer to the other Party their Working
Interest percent of the AMI Interest acquired by the Acquiring Party, on the
same terms and conditions as apply to the Acquiring Party under the applicable
licence, agreement or arrangement. The Non-Acquiring Party shall have thirty
(30) days from receipt of such AMI Notice to accept or decline to exercise its
option to acquire such interest from the Acquiring Party. To be considered a
valid AMI Notice, the AMI Notice shall contain such sufficient information and
detail of the terms and conditions of the acquisition of the AMI Interest by
the Acquiring Party such that the Non- Acquiring Party may reasonably
assess the acquisition opportunity.

 

(b)                                 If the consideration stipulated in the
licence, agreement or arrangement referred to in Section 9.2(a) of
this Agreement cannot be matched in kind by the other Party, or involves an
allocation

 

10

 

of cash value
to the applicable AMI Interest where it forms a portion only of the assets
subject to the applicable transaction, the Acquiring Party shall, in its AMI
Notice issued to the Non-Acquiring Party, set out its bona-fide estimate of the
cash equivalent of such consideration, and acceptance of the offer and payment
of the relevant portion of that cash consideration shall constitute a valid
acceptance and satisfaction of the Non-Acquiring Party’s obligations in
acquiring the share of the relevant interest.

 

(c)                                  AMI
Interests which are acquired by a Party, in compliance with the terms hereof,
with or from a Third Party shall be governed by and subject to any agreement,
that may be entered into between them with respect to those AMI Interests
separate and apart from this Agreement.

 

ARTICLE 10

COVENANTS

 

10.1                                                                        Covenants

 

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

 

ARTICLE
11

MISCELLANEOUS

 

11.1                                                                        Amendments

 

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

 

11.2                                                                        Waiver in Writing

 

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

 

11.3                                                                        Delay
Not Waiver

 

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

 

11.4                                                                        Acceptance
of Payment Not Waiver

 

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

 

11

 

11.5                                                                        Primacy of Participation Agreement

 

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

 

11.6                                                                        Entire
Agreement

 

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

 

11.7                                                                        Further Assurances

 

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

 

11.8                                                                        Assignment

 

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

 

11.9                                                                        Enurement

 

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

 

11.10                                                                 Counterpart and
Facsimile Execution

 

This Agreement may be
executed in counterpart and all counterparts shall together constitute one
and the same Agreement. Any copies executed in counterpart may be
delivered via facsimile transmission and, if so delivered, shall be considered
to be originals for all purposes.

 

11.11                                                                 Delivery

 

A Party which has executed
this Agreement may deliver it to the other Party by facsimile transmission
at its address for such transmissions set out in Section 8, and any copy
so delivered shall be deemed an original for all purposes. A Party so
delivering this Agreement shall thereafter forthwith deliver to the other Party
an original execution page hereof with its original signature located
thereon provided, however, that any failure by a Party to so deliver such
original execution page shall not affect the validity or enforceabilitv of
this Agreement against that Party.

 

11.12                                                                 Severability

 

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

 

10.13                                                                 Authority

 

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

 

12

 

IN WITNESS WHEREOF the
Parties have hereby executed this Agreement as of the year and date first above
written.

 

	
  CHALLENGER ENERGY CORP.

  
	
   

  	
   

  
	
  Per:

  	
  /s/ Neil MacKenzie

  	
   

  
	
   

  	
   

  
	
   

  
	
  CANADIAN SUPERIOR ENERGY INC.

  
	
   

  	
   

  
	
  Per:

  	
  /s/ Michael E. Coolen

  	
   

  
	
   

  	
  Michael E. Coolen, Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ T.J. Harp Dir.

  	
   

  
	
   

  	
  T.J. Harp

  	
   

  

 

13

 

[Schedules intentionally deleted]

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