Document:

Exhibit
10.2

 

	
   

  	
  

  	
  CHALLENGER MINERALS INC.

  A GlobalSantaFe Company

  

 

15375 Memorial Drive,
Suite 3200

Houston, Texas 77079

281-925-7200 Fax 281-925-7280

 

March 15, 2003

 

	
  Millennium Offshore Group, Inc.
  

  Attn: Mr. Kent Singleton

  5300 Memorial, Ste. 1070

  Houston, TX 77007

  	
   

  	
  Palace Exploration Company

  Attn: Mr. Bob Zinke

  1202 East 33rd St.

  Tulsa, OK 74105-2048

  
	
   

  	
   

  	
   

  
	
  Reef Global Energy I, L. P.

  Attn: Mr. Walt Dunagin

  1901 N. Central Expressway, Ste. 300
 Richardson, TX 75080

  	
   

  	
  Continental Resources, Inc.

  Attn: Mr. Phil Yancer

  302 North Independence, Ste. 700

  Enid, OK 73701

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  Attn: Mr. Jack Carlile

  4228 N. Central Expressway, Ste. 300

  Dallas, TX 75206-6345

  	
   

  	
  Cheyenne Petroleum Company

  Attn: Mr. Richard Dixon

  14000 Quail Springs Parkway, Ste. 2200

  Oklahoma City, OK 72134

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Re:       Participation
  Agreement and

  Operating Agreement

  Eugene
  Island 190 Prospect

  Offshore, Louisiana

  

 

Gentlemen:

 

This Participation Agreement is made and entered into
effective March 15, 2003, by and between Challenger Minerals Inc. (“CMI”), Reef
Global Energy I, L. P. (“Reef”), Bright & Company I, Ltd. (“Bright”),
Palace Exploration Company (“Palace”), Continental Resources, Inc.
(“Continental”) and Cheyenne Petroleum Company (“Cheyenne”), (collectively the
“Participants” and individually as a “Participant”), and Millennium Offshore
Group, Inc. (“Millennium”).  The
Participants and Millennium are sometimes collectively referred to as the
“Parties” or individually as a “Party”. 
This Participation Agreement sets forth the terms and conditions whereby
Participants may earn, and Millennium shall assign, seventy-five percent (75%)
of 6/6ths operating rights interest in all or a portion of Eugene
Island Block 190 (OCS-G 08434), as further described on Exhibit “A”, attached
hereto and made a part hereof (the “Lease”). 
In consideration of the mutual covenants and benefits to be derived here
from the Parties hereto agree as follows:

 

 

Millennium Offshore Group, Inc., et al

Eugene Island 190 Participation Agreement

March 15, 2003

 

1.                                       Shallow Test Well:  Within thirty (30) days after final
execution of this Participation Agreement by all Parties hereto subject to rig
availability and obtaining all necessary permits, Participants agree, subject
to the provisions of this Participation Agreement, to drill a well on the Lease
from the EI 190 “A” Platform to a depth of (i) 8,558’ TVD (8,908’ MD), (ii)
geo-pressure, (iii) salt or (iv) a depth sufficient to test the 8 Sand, as seen
at a depth of 8,335’ MD on the 1” induction log in the Forest Oil (Millennium)
– EI 190 A-2 Well, whichever is the lesser of such depths (the “Shallow Test
Well”), by paying 100.0% of 6/6ths of all expenses incurred in
drilling said well to Casing Point, including plugging and abandonment should
such well be a dry hole, in the following proportions: Challenger 10.0%, Palace
36.66%, Bright 5.0%, Reef 5.0%, Cheyenne 16.67%, and Continental 26.67%).  Challenger shall serve as Operator to drill
and complete said well for production through the Wellhead or abandonment if a
dry hole.  An Authority for Expenditures
(“AFE”) setting forth the bottom hole location and estimated costs of drilling
the Shallow Test Well to depth under a turnkey drilling contract from Applied
Drilling Technology Inc. (“ADTI”) is attached hereto as Exhibit “B” and made a
part hereof.  In exchange for
Participants not assuming any liability for or obligation to plug, abandon
and/or decommission any existing wells, pipelines, platforms and facilities not
drilled or installed by Participants, Participants shall pay 100.0% of 6/6ths
of all costs to drill the Shallow Test Well to Casing Point and, should
Participants so elect, to complete said well through the Wellhead.  “Wellhead” shall be defined as the point at
which a well has been drilled, production casing and tubing have been placed in
the wellbore and the wellhead to be used to produce the well has been
installed.  Subsequent to completion of
the Shallow Test Well through the Wellhead, Millennium shall immediately become
Operator of the Shallow Test Well, and Participants shall pay 75% of 6/6ths
and Millennium shall pay 25% of 6/6ths of all costs for facilities
hookup and placing the Shallow Test Well on production.  Millennium represents that it owns 100%
interest in the Lease and there are no title, environmental or access
impediments restricting the operations proposed or contemplated herein.  The terms “Operator” and “Casing Point” as
used in this Participation Agreement are defined in Articles 2.0 and 4.0 of the
Offshore Operating Agreement (“OOA”) provided for in Paragraph 9 below.

 

2.                                       Interest Earned: A dry hole earns no
interest in the Lease.  However, if, and
in the event, the Shallow Test Well is completed for production through the
Wellhead, Participants shall earn and Millennium shall assign 75.0% of 6/6ths
of the operating rights interest (in the following proportions: Challenger
7.5%, Palace 27.5%, Bright 3.75%, Reef 3.75%, Cheyenne 12.5%, Continental
20.0%), with a corresponding 53.3125% of 8/8ths net revenue interest, in a Reservoir
Protection Area (“RPA”) defined by aliquots covering tested fault blocks in an
area encompassing the entirety of all reservoirs found to be capable of
producing oil and/or gas encountered in said well from surface of the earth
down to 100’ below the stratigraphic equivalent of the total depth drilled in
said well, SAVE AND EXCEPT THEREFROM all rights outside of the RPA to any
separate oil and/or gas reservoirs, and production there from, from the surface
of the earth down to a depth of 9,000’ TVD, up dip to and in the same fault
block in which the OCS-G 08434 #5 Well is located, such area to be defined by
aliquot description (hereinafter referred to as the “Millennium Retained
Area”).  It is understood that the total
of all royalties, overriding royalties and other burdens on production from the
Lease shall not exceed 28.916667% of 8/8ths of production (i.e. a
71.083333% of 8/8ths net revenue interest).

 

2

 

3.                                       Assignment of Operating Rights to RPA:
Once the Shallow Test Well has been completed for production through the
Wellhead, the Shallow Test Well and RPA attributable thereto shall be owned in
the following proportions: Challenger 7.5%, Palace 27.5%, Bright 3.75%, Reef
3.75%, Cheyenne 12.5%, Continental 20.0% and Millennium 25.0%.  Millennium shall thereupon promptly deliver
an assignment of the interest herein provided to be earned, on the form of
assignment attached hereto as Exhibit “C” and made a part hereof, warranting
title by, through and under Millennium, but not otherwise.  Said assignment shall specifically exclude
all right, title, interests and liability associated with any presently
existing platform(s), pipeline(s), wellbore(s), and other personal property
associated with the Lease, it being understood and agreed that Participants
shall only be responsible for plugging and abandonment of the wellbore of the
Shallow Test Well and shall bear no plugging, abandonment or decommissioning
expense related to any well, facilities or pipelines which are not drilled or
installed by Participants.

 

4.                                       Deep Test Well: Within six (6) months
after commencing initial sales of production from the Shallow Test Well, or 90
days after drilling rig release if the Shallow Test Well is plugged and
abandoned as a dry hole, whichever first occurs, Participants shall notify
Millennium whether or not Participants, or any of them, elect to drill a second
test well (the “Deep Test Well”) on the Lease to a depth below 9,000’ TVD to
earn additional operating rights in the Lease. 
In the event Participants elect to drill such Deep Test Well, such well
shall be spud within seven (7) months of such commencement of sales production,
or one hundred twenty (120) days after drilling rig release if the Shallow Test
Well is plugged and abandoned as a dry hole, subject to rig availability and
obtaining all necessary permits, but in no event later than December 31,
2003.  In the event the Participants
fail to spud the Deep Test Well within such period all rights and obligations
of the Parties with respect to the Deep Test Well shall be null and void and
without further effect.  Challenger
shall serve as Operator to drill and complete said, Deep Test Well for
production through the Wellhead, or abandonment if a dry hole, and Millennium
shall immediately become operator of the Deep Test Well.  The Participants shall pay 100% of 6/6ths
of the cost to drill said well to Casing Point, as opposed to through
completion, in the following proportions: Challenger 10.0%, Palace 36.66%,
Bright 5.0%, Reef 5.0%, Cheyenne 16.67% and Continental 26.67%, from and to
surface/bottomhole locations of Participants choice on the Lease.  Subsequent to reaching Casing Point, all
costs of completing the well, facilities hookup and placing the Deep Test Well
on production shall be shared in the proportions Millennium 25.0%, Challenger
7.5%, Palace 27.5%, Bright 3.75%, Reef 3.75%, Cheyenne 12.5%, Continental 20.0%
and Millennium 25%.  If less than all
Participants elect to participate in drilling the Deep Test Well, then, in such
event, the Participants participating in such operations shall have the right
to assume any non-participating Participants share of costs under this
Paragraph, in proportion to their participating interests and/or acquire
additional partners to drill such Deep Test Well.  Subsequent to completion of the Deep Test Well through the
Wellhead, Millennium shall immediately become Operator of the Deep Test Well.

 

5.                                       Assignment of Rights Operating Rights Earned by Deep
Test Well: Upon reaching Casing Point in the Deep Test Well, the
Participants therein shall earn and Millennium shall assign 75.0% of 6/6ths
of the operating rights with a corresponding 53.3125% of 6/6ths net
revenue interest to such Participants to all depths in that portion of the
Lease in which such

 

3

 

Participants have not previously earned any interest SAVE AND EXCEPT
THEREFROM the Millennium Retained Area. 
Such assignment of the interest herein provided to be earned shall be on
the general form of assignment attached hereto as Exhibit “C” and made a part
hereof, modified with the proper description, warranting title by, through and
under Millennium, but not otherwise.  In
the event of any conflict between the RPA and rights hereinabove saved and
excepted, the rights to the RPA shall control. 
In the event a Party participating in drilling the Deep Test Well does
not participate in completing such well for production, such non-participating
party shall suffer the non-consent penalties specified in the attached
OOA.  It is understood that the total of
all royalties, overriding royalties and other burdens on production from the
Lease shall not exceed 28.916667% of 8/8ths of production (i.e. a
71.083333% of 8/8ths net revenue interest).  Said assignment shall specifically exclude
all rights, title, interests and liability associated with any presently
existing platform(s), pipeline(s), wellbore(s), and other personal property
associated with the Lease, it being understood and agreed that Participants
shall only be responsible for plugging and abandonment of wells drilled
pursuant hereto and shall bear no plugging, abandonment or decommissioning
expense related to any well, facilities or pipelines which are not drilled or
installed by Participants.  Nothing
under this Paragraph shall be construed as giving the Participants any rights
to production from completions existing prior to the effective date of this
Participation Agreement.

 

6.                                       Substitute Test Well: If, during the
drilling of the any well provided for herein, the operator encounters
impenetrable substances or conditions, including the loss of the hole due to
mechanical difficulties, which in the opinion of a reasonably prudent operator
under the same or similar conditions would render further drilling impractical
or hazardous, and such conditions prevent further drilling of the well,
Participants, or any of them, shall have the right, but not the obligation, to
participate in drilling a “Substitute Well” in order to reach the objective
depth, provided actual drilling of the Substitute Well is commenced within
ninety (90) days after abandonment of the previous well. Any Substitute Well
shall be drilled pursuant to all the terms and conditions of this Agreement.

 

7.                                       Cash Consideration: Within five (5)
days after commencement of actual drilling operations on the Shallow Test Well,
Participants shall pay to Millennium the sum of $250,000.00, in the following
proportions: Challenger $25,000.00, Palace $91,658.00, Bright $12,500.00, Reef $12,500.00,
Cheyenne $41,675.00, Continental $66,667.00, for all leasehold, geological and
geophysical costs attributable to the subject Prospect. Likewise, if said
Shallow Test Well is completed for production to the wellhead, within five (5)
days thereafter Participants therein shall pay to Millennium an additional sum
of $250,000.00, in the following proportions: 
Challenger $25,000.00, Palace $91,658.00, Bright $12,500.00, Reef
$12,500.00, Cheyenne $41,675.00, Continental $66,667.00, as a completion fee.
If less than all Participants join in completing the Shallow Test Well to the
wellhead, the Participants participating in such completion shall pay the
$250,000 Completion Fee in proportion to their participating interests. In the
event that actual drilling operations on the Shallow Test Well are not
commenced within three (3) months from the date hereof, Participants, or any of
them, shall have the option to withdraw from participation in this project
without any penalty or liability whatsoever.

 

8.                                       Production Handling Agreement: In the
event that Participants earn any interest in the Lease as herein provided, it
is understood and agreed that such Participants and Millennium will

 

4

 

enter into the Production Handling Agreement attached
hereto as Exhibit “D” and made a part hereof to process Participants’ share of
production earned pursuant to this Participation Agreement for the fees therein
provided, including production from any Subsequent Wells as provided in
Paragraph 11 below. Such fees shall be in addition to any direct charges (as
defined in the COPAS Accounting Procedure attached as Exhibit “C” to the OOA,
associated with any well drilled on the Lease in which any of the Participants
participate.  Without prejudice to a
Party’s rights to market its own production under the OOA) the Operator shall
market each Participant’s share of production with the Operator’s own
production, and on the same commercial basis, without any marketing fee payable
to Operator. In the event Millennium markets a Participants production, it
agrees not to commit a Participant’s production for any period in excess of
thirty (30) days without the written concurrence of such Participant.
Millennium represents there is no existing marketing agreement covering future
production from the Lease to which it is bound, and consequently that
Participants will not be bound by any such existing agreement as to its
interest to be earned hereunder.

 

9.                                       Offshore Operating Agreement: All
operations conducted pursuant to this Participation Agreement shall be governed
by the terms and provisions of that certain Offshore Operating Agreement, dated
March 15, 2003, attached hereto as Exhibit “E” and made a part hereof (the
“OOA”).  In the event of a conflict
between this Participation Agreement and said OOA, the terms and conditions of
this Participation Agreement shall prevail, but only to the extent of such
conflict.  Notwithstanding anything to
the contrary herein, Millennium at all times shall remain Operator of the
Lease.  With respect to all operations
performed by Challenger as Operator of the Shallow Test Well and Deep Test Well
under the terms hereof, (i) Challenger shall have all of the rights, benefits,
duties and obligations of the Operator under the OOA and (ii) Millennium shall
have all of the rights, benefits, duties and obligations of a Non-Operator
under the OOA.  With respect to all
other operations, (i) Millennium shall have all of the rights, benefits, duties
and obligations of the Operator under the OOA, and (ii) Challenger shall have
all of the rights, benefits, duties and obligations of a Non-Operator under the
OOA.

 

10.                                 ADTI Turnkey Drilling Contract:  This Participation Agreement is subject
to and conditioned upon Operator entering into a turnkey drilling contract with
ADTI no later than April 14, 2003, to drill the Shallow Test Well.  It is understood that an election to drill
the Deep Test Well and the rights and obligations imposed under this
Participation Agreement are separate and apart from the rights and obligations
related to the drilling of the Shallow Test Well.  An election to drill the Deep Test Well under this Participation
Agreement in no way relieves the Parties of the rights and obligations relating
to the Shallow Test Well.  If
Participants, or any of them, propose to timely drill the Deep Test Well, it is
understood and agreed that such well shall be drilled under a turnkey drilling
contract with ADTI.  Operator shall
timely request ADTI to submit turnkey bids for (i) completing the aforesaid
wells and (ii) drilling and completing any additional wells proposed to be
drilled on the lease.  Notwithstanding
anything to the contrary herein, Operator shall not be required to accept any
ADTI bid or contract to drill or complete any subsequent wells that are not
acceptable to all Participants participating therein.

 

11.                                 Subsequent Wells:  The Parties hereto shall be entitled to
propose the drilling of any well, or wells, drilled subsequent to the Shallow
Test Well and the Deep Test Well (“Subsequent Wells”) in accordance with the
terms and conditions of the OOA.  It is
further agreed that

 

5

 

Millennium shall serve as Operator for all Subsequent
Wells. Nothing contained in this Paragraph 11 is intended, or shall be
construed, to change, alter or amend the designation of Operator for the
Shallow Test Well or the Deep Test Well as previously set forth in this
Participation Agreement.

 

12.                                 Laws: 
THE PROVISIONS OF THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF LOUISIANA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD
REFER THE MATTER TO THE LAWS OF ANOTHER JURISDICTION.

 

13.                               Miscellaneous:

 

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

 

	
  Millennium Offshore Group, Inc.

  Attn: Mr. Kent Singleton

  5300 Memorial, Ste. 1070

  Houston, TX 77007

  Telephone: (713) 652-0137

  Fax: (713) 652-0482

  E-mail: ksingleton@millenniumogi.com

  	
   

  	
  Palace Exploration Company

  Attn: Mr. Bob Zinke

  1202 East 33rd St.

  Tulsa, OK 74105-2048

  Telephone: (972) 743-5096

  Fax: (972) 743-5159

  E-mail: bzinke@ztienergy.com

  
	
   

  	
   

  	
   

  
	
  Reef Global Energy I, L. P.

  Attn: Mr. Walt Dunagin

  1901 N. Central Expressway, Ste. 300

  Richardson, TX 75080

  Telephone: (972) 437-6792

  Fax: (972) 994-0369

  E-mail: walt@reefexploration.com

  	
   

  	
  Continental Resources, Inc.

  Attn: Mr. Phil Yancer

  302 North Independence, Ste. 700

  Enid, OK 73701

  Telephone: (580) 548-5174

  Fax (580) 548-5182

  E-mail: vancerpo@contres.com

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  Attn: Mr. Jack Carlile

  4228 N. Central Exprwy, Ste. 300

  Dallas, TX 75206-6345

  Telephone: (214) 559-9200

  Fax: (214) 559-0021

  E-mail: jack.carlile(@brightco.com

  	
   

  	
  Cheyenne Petroleum Company

  Attn: Mr. Richard Dixon

  14000 Quail Springs Parkway

  Oklahoma City, OK 72134

  Telephone (405) 936-6220

  Fax: (405) 936-6221

  E-mail: rfdixon@cheypet.com

  
	
   

  	
   

  	
   

  
	
  Challenger Minerals Inc.

  Attn: Mr. Reagan Newton

  15375 Memorial Dr., Suite G-200

  Houston, TX 77079

  Telephone: (281) 925-7215

  Fax: (281) 925-7281

  E-mail: reagan.newton@gsfdrill.com

  	
   

  	
   

  

 

6

 

B.                                     This
Participation Agreement constitutes the entire agreement between the Parties
with respect to the transactions contemplated herein, and supersedes all prior
oral or written agreements, commitments, understanding. or information
otherwise furnished by Millennium to Participants with respect to such
matters.  No amendment shall be binding
unless in writing and signed by representatives of each of the Parties.

 

C.                                     A
term, provision. covenant representation, warranty, or condition of this
Participation Agreement may be waived only by written instrument executed by
the Party waiving compliance.  The
failure or delay of any Party in the enforcement or exercise of the rights
granted under this Agreement shall not constitute a waiver of said rights nor
shall it be considered as a basis for estoppel.

 

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

 

E.                                      The
terms and provisions hereof shall be binding upon and inure to the benefit of
the Parties hereto and their respective heirs, successors, legal
representatives and assigns, and shall be covenants running with the lands and
Lease.  The Parties hereto agree to execute
such other instruments as may be necessary or convenient to effectively convey
the interest in the Lease, transfer operatorship and all other rights and
obligations as contemplated by this Participation Agreement and/or otherwise
effectuate the terms hereof.

 

F.                                      To
the extent permitted in its licensing agreement, Millennium shall allow the
Participants continued access to its geological and 3-D seismic data covering
the Lease and any area contiguous thereto.

 

G.                                     Notwithstanding
anything herein to the contrary, Participants shall never become liable for any
gas or production imbalances affecting the Lease, except for its proportionate
share of any imbalances that might accrue between Millennium and Participants
with regard to any well(s) drilled pursuant to this Participation Agreement.

 

IN WITNESS
WHEREOF, the
parties hereto have caused this Participation Agreement to be executed
effective as of the date first set forth above.  This Participation Agreement may be signed in counterparts and
shall be binding upon the Parties and upon their successors, representatives
and assigns.  If these terms and
conditions are acceptable, please indicate your agreement and acceptance by
signing and returning one copy of this Participation Agreement to

 

7

 

Reagan Newton, on or before April 15, 2003, or this offer shall, at
Challenger’s option, expire and be null and void.

 

Sincerely,

Challenger Minerals Inc.

 

 

Jack D. Downing

Vice President

 

8

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ D. Kent Singleton

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G., Inc.,
  General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
   

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Richard D. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

9

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G.,
  Inc., General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
  /s/ Clay V.N. Bright

  	
   

  	
  Name:

  	
   

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
   

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Richard D. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

10

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G.,
  Inc., General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
   

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
  /s/ Robert M. Zinke

  	
   

  	
  Name:

  	
  Richard D. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

11

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
  /s/ Michael J. Mauceli

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
  Manager Member

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
  Managing Member of Reef Partners 

  
	
  Date:

  	
  4/15/2003

  	
   

  	
  LLC, the General Partner of Reef Global 

  
	
   

  	
   

  	
   

  	
  Energy Ventures I, L.P.

  
	
   

  	
   

  	
   

  	
  Date:

  	
  4/15/03

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G.,
  Inc., General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
   

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Richard D. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

 

12

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G.,
  Inc., General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jack Stark

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Jack Stark

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
  SVP, Exploration

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
  April 16, 2003

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Richard D. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

13

 

AGREED TO AND ACCEPTED

 

	
  Millennium Offshore Group, Inc.

  	
   

  	
  Reef Global Energy I, L. P.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
  D. Kent Singleton

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  Bright & Company I, Ltd.

  	
   

  	
  Continental Resources, Inc.

  
	
  By:  H.G.G.,
  Inc., General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Clay V.N.
  Bright, President

  	
   

  	
  Title:

  	
   

  
	
  Name:

  	
  Clay V.N. Bright

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Cheyenne Petroleum Company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Palace Exploration Company

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Richard
  F. Dixon

  
	
  By:

  	
   

  	
   

  	
  Name:

  	
  Richard F. Dixon

  
	
  Name:

  	
  Robert M. Zinke

  	
   

  	
  Title:

  	
  Vice President

  
	
  Title:

  	
  Vice President

  	
   

  	
  Date:

  	
  4-17-03

  
	
  Date:

  	
   

  	
   

  	
   

  
																	

 

 

14Exhibit
10.3

 

	
  CORPORATE OFFICE

  	
   

  	
   

  	
   

  	
  DIVISION OFFICE

  
	
  500 DOVER BLVD., STE. 310

  LAFAYETTE, LOUISIANA 70505

  TELEPHONE:  (337) 984-2603

  FAX:  (337) 984-1082

  WEBSITE:  HTTP://WWW.PEIINC.COM

  EMAIL:
PEI@PEIINC.COM

  	
   

  	
  [LOGO]

  	
   

  	
  SUITE 500

  5850 SAN FELIPE

  HOUSTON, TEXAS 77097

  TELEPHONE:  713-975-1971

  

 

 

March 21, 2003

Mike Mauceli

Reef Exploration, Inc.

1901 Central Expressway

Suite 300

Richardson, TX 75080

 

 

Bruce Jordan

Stokes & Spiehler, Inc.

111 Rue Jean Lafitte

Lafayette, LA 70508

 

 

Re:                               St.
Mary Energy Co.; Matthew J. Guidry et al #1 Well (“Well”)(1)  Erath
Prospect (“Prospect”)

Vermilion Parish, Louisiana

Gentlemen:

 

This letter, when accepted by each of you in the space
indicated below, shall constitute an agreement, hereinafter referred to as the
TRS Agreement, among Triumph Energy, Inc. (“Triumph”), Reef Global Energy
Ventures I, L.P. (“Reef”) and Stokes & Spiehler, Inc. (“SSI”), whom may
also be hereinafter referred to collectively as TRS, regarding the
above-described Prospect and Well, to-wit:

 

1.                                       ST. MARY ENERGY AGREEMENTS.     St. Mary Energy Company (“SMEC”), as
Operator of the Well, which Well is currently drilling, has made available to
Triumph a participating interest in the Well and Prospect equal to Ten percent
(10%) of 8/8ths Working Interest and Seven and Eight-Tenths percent (7.80%) Net
Revenue Interest, so that Triumph may earn an interest in the Well and Prospect
(and the leases which make up that Prospect) all on the terms and conditions
set out in the attached Participation Agreement and letter agreement entered
into by and between SMEC and Triumph.

 

(1)    For purposes hereof, the Well shall include
the named well and any substitute well thereafter drilled pursuant to the JOA.

Guidry # 1 Agreement

 

	
   

  	
   

  	
  TEI Intitials:

  	
  /s/ DEC

  
	
   

  	
   

  	
  Reef Initials: 

  	
  /s/ MM

  
	
   

  	
   

  	
  Stokes & Spiehler:

  	
  /s/ BJ

  
						

 

1

 

2.                                       PARTICIPATION OF PARTIES TO THE TRS AGREEMENT.   Triumph, Reef and SSI have
agreed to participate in the 10% of 8/8ths working interest and resulting
rights and obligations, in the following proportions:

 

Triumph                                                                                                   30%
of 10% of 8/8ths WI = 3% of 8/8ths WI in well

Reef                                                                                                                        40%
of l0% of 8/8thsWI = 4% of 8/8ths WI in well

SSI                                                                                                                              30%
of 10% of 8/8ths WI = 3% of 8/8ths WI in well

 

3.                                       TRIUMPH AS AGENT.                   Because
SMEC desires to limit the number of parties to whom notices and billing must be
sent and the number of parties making elections, Triumph shall act as the
temporary sole record owner of the interests to be assigned pursuant to the
Participation Agreement, but in doing so Triumph shall act as agent for its own
interest and that of Reef and SSI subject to the terms and conditions set forth
in this agreement.  Triumph shall have
no liability to Reef and/or SSI for any acts or omissions on its part,
including failure to provide prompt notices, unless such acts or omissions
involve gross negligence and/or willful misconduct. All parties acknowledge
that Triumph is making its contractual participation interest available on the
same terms as it received them. Notwithstanding anything herein to the
contrary, TEI’s authority to bind Reef and SMI is limited specifically to those
actions set out herein.

 

4.                                       PAYMENTS TO TRIUMPH.     Reef and SSI agree to pay to Triumph their
proportionate shares of the St Mary Energy AFE Drilling Cost, Non-Operated
Insurance coverage, and associated Prospect Cost within 24 hrs of signing this
agreement. Costs are described in Exhibit “A”. Reef and SSI agree to promptly
pay any accrued or additional well costs incurred by Triumph pursuant to the
Participation Agreement (including costs already accrued and payable), based on
invoices to be provided by Triumph, and SSI and Reef further agree to pay a
like percentage of all subsequent well and/or land costs incurred by Triumph
pursuant to the Participation Agreement and/or the Joint Operating Agreement
(“JOA”) attached thereto as Exhibit “D”. All such payments of well costs shall
be made to Triumph pursuant to invoice from Triumph to Reef and SSI,
accompanied by any invoices and any supporting data supplied by SMEC to Triumph.
The invoices issued by Triumph shall be due and payable within a period of time
sufficient to enable Triumph to snake timely payment of the total invoices
issued by SMEC without penalty. Triumph shall, upon request of Reef and/or SSI,
provide evidence of such payment of the entirety of the SMEC invoice(s) 

 

5.                                       NO TURNKEY OBLIGATIONS.     All parties acknowledge that the AFE identified in
the Participation Agreement is an estimate only, and that no turnkey obligation
exists as between SMEC and Triumph and/or between Triumph and Reef and SSI.

 

6.                                       ELECTIONS.     Upon
the Well reaching Authorized Depth, as that term is defined in the
Participation Agreement and/or JOA, Triumph shall have various elections as set
out in the JOA and Participation Agreement. Similarly, pursuant to the JOA,
after completion or abandonment of the Initial Test Well any party to the JOA
may propose Additional Operations on the Prospect, including the sidetracking,
deepening, or plugging back of the Initial Test Well, drilling a Substitute
Test Well or development well. Such elections shall be subject to the following
agreements among the parties hereto:

 

2

 

6.1                                 At
any time Triumph is provided with an election, either in the Well, or to any
Additional Operations as provided in the JOA, to participate or not participate
in any optional procedure, Triumph shall promptly provide to Reef and SSI all
information regarding such elections and the status of the Well which has been
provided to Triumph.

 

6.2                                 The
parties agree to promptly consult as to such elections as will be made, it
being recognized that in all instances time is of the essence and elections
must be made and communicated pursuant to the terms of the JOA, from notice to
Triumph.

 

6.3                                 If
all parties to this agreement elect either to participate in any such proposed
operation, or to not participate, Triumph shall communicate such election in a
timely manner to SMEC.  Any penalties
which then applies under the Participation Agreement or JOA, including
forfeiture of all interest in the Well and Prospect, shall apply to all of the
parties hereto.

 

6.4                                 If
any party to this agreement, including Triumph, should elect not to participate
in any such operation, including an election not to complete the Well, the
other parties to this agreement shall have the right to assume its
proportionate share of the non-consenting party and any additional interest; if
any, in which case Triumph agrees to communicate the resulting election of the
group to SMEC as its own. Any such election shall, however, be subject to the
terms and conditions of the JOA. To the extent permitted by the JOA or
Participation Agreement, Triumph shall provide to each of the other parties
hereto that have elected to participate in any such operation, a recordable
assignment of the interest to which they would be entitled under this agreement
and the Participation Agreement and JOA. Accordingly, the parties recognize
that it may be necessary for Triumph to remain as nominate participant, while
having no actual further economic interest in the Well.

 

6.5                                 If
Triumph has elected not to participate in the completion of the Well, and Reef
and/or SSI has elected to participate, and Triumph is not permitted to withdraw
from the SMEC agreements and assign their interest to Reef and/or SSI, any such
party electing to participate shall hold harmless, defend and indemnify Triumph
from any and all liability for any subsequent obligations and risks related to
the Well and Prospect, including, without limitation, all costs due to SMEC,
and any costs arising out of any blowout or other loss of well control
resulting in an expenditure of costs exceeding the estimated cost of such
operation.

 

6.6                                 If
at the time any election is to be made, either in the Well or any subsequent
well, Additional Interests become available, due to the non-consent of other
participants in the Well, Triumph shall make such information available to Reef
and SSI and the parties shall independently determine the extent to which they
elect to assume each party’s proportionate share and additional interest, if
any, of the Additional Interests. (NOTE: this election should be under the same
description of terms in the JOA) If an election is made by all the participants
to this agreement to either assume the full extent of such Additional Interest,
some or none of such interest, Triumph shall communicate to SMEC the extent of
additional participation, if any, and any such participation shall be borne by
the parties hereto in proportion to their elections.

 

3

 

6.7                                 If
any of the parties hereto should make a non-uniform election as to the
Additional Interests, such disparity of participation shall be accounted for
among the parties hereto, i.e., the party or parties electing to acquire
Additional Interests shall be responsible for the increased participation and
shall hold harmless, defend and indemnify the remaining party or parties who
have elected not to assume such additional participation. In such case this
agreement shall be amended to reflect the revised participation of the parties
in all costs thereafter incurred.

 

7.                                       INSURANCE.                     Triumph
shall obtain from its insurer(s) any premium costs required to allow Triumph to
add Reef and SSI to the coverage held by Triumph, as to all such insurance as
Triumph is required to provide to SMEC, including blowout and general
comprehensive liability coverage. Triumph has been advised that such coverage
will be available from its carrier, subject to payment of the appropriate
premium and timely notice to the carrier, accompanied by information as to the
status of the well. It is expressly agreed and understood, however, that
Triumph does not warrant the sufficiency of its coverage, nor does Triumph agree
to hold harmless and indemnify either Reef and/or SSI in the event of a denial
of coverage by any carrier, or the solvency of any such carrier. Triumph agrees
to obtain from its carrier a certificate of insurance covering the entire
original participation (and to similarly obtain amendments to the coverage for
any Additional Interests thereafter assumed) and to provide a copy of such
certificate to Reef and SSI. All parties agree to bear their proportionate
shares of the cost of any such premium and any deductibles applicable to any
claim.

 

7.1                                 It
is expressly understood and agreed that if Triumph should elect not to
participate in completion of the Initial Test Well, or to participate in any
Additional Operations, and if as a result of that election Triumph should cease
to have an economic interest in the Well or any subsequent Well, the insurance
afforded under Triumph’s policy will likely not be available to Reef and/or SSI
in which case those parties will be responsible for securing their independent
coverage.

 

7.2                                 All
parties hereto shall be responsible for obtaining and/or maintaining such
additional insurance, including general liability and employer’s liability
coverage, to insure their interests beyond any insurance available through
Triumph’s carrier, it being understood that Triumph makes no representations
regarding the availability or sufficiency of any such coverage.

 

8.                                       ASSIGNMENTS.    
Subject to such consents as are required wader the SMEC
agreements, Triumph shall at its earliest convenience provide recordable
assignments to Reef and SSI of such interests as are earned in the Well,
Prospect and Leases. In the event that the terms of the JOA should require that
the Operator be permitted to continue a single billing and notice to all of the
parties hereto, Triumph agrees to continue to act as agent for the remaining
parties hereto, in which case Triumph shall provide invoices and notices to the
other parties promptly after receipt from SMEC, each party then being
responsible for payment of their share of the obligations represented by any
such invoice. To the extent permitted under the JOA, the parties hereto agree
that subsequent elections for participation in Additional Operations under the
JOA shall be dealt with pursuant to the provisions of Article 6 hereof.

 

4

 

9.                                       NO PARTNERSHIP CREATED.                  This agreement is not intended to
create and shall not be construed as creating a partnership or joint venture
among the parties. The rights, duties, and obligations of the parties under
this agreement shall be severable and not joint or collective.

 

10.                                 MISCELLANEOUS.

 

10.1                           This
Agreement shall be binding upon the parties hereto, their heirs, successors and
assigns.

 

10.2                           This
Agreement shall be governed by the laws of the State of Louisiana and any
disputes arising out of this Agreement shall be subject to arbitration in
Lafayette, Louisiana under the rules of the American Arbitration Association.

 

If this meets with your understanding of our
agreement, we would ask that each of you execute two duplicates of this
agreement where shown below and provide to us such acceptances. This agreement
may be executed in counterpart form and the separate signature pages combined.

 

	
   

  	
  Sincerely,

  
	
   

  	
  TRIUMPH ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Don E. Claxton

  	
   

  
	
   

  	
   

  
	
   

  	
  Don E. Claxton, President

  

 

 

Accepted and agreed to
this       day of March, 2003.

Reef Global Energy Ventures I, L.P.

 

 

	
  /s/ Michael J. Mauceli

  	
   

  
	
  By: Michael J. Mauceli

  
	
  Managing Member of Reef Partners LLC, the

  
	
  General Partner of Reef Global Energy Ventures I,
  L.P.

  

 

Accepted and agreed to this 21st day of March, 2003.

Stokes & Spiehler, Inc.

 

 

	
  /s/ Bruce Jordan

  	
   

  
	
  By:  Bruce
  Jordan

  
	
  Title: 
  President

  

 

5

 

Exhibit A

 

	
   

  	
   

  	
  Gross Cost

  	
   

  	
  Promoted 10% WI Cost

  	
   

  
	
  St Mary Drilling
  AFE (DHC)

  	
   

  	
  $

  	
  2,269,200

  	
   

  	
  $

  	
  302,711

  	
   

  
	
  Land Cost

  	
   

  	
  $

  	
  511,074

  	
   

  	
  $

  	
  51,107

  	
   

  
	
  Sub-Total

  	
   

  	
  $

  	
  2,780,274

  	
   

  	
  $

  	
  353,818

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Blowout
  Insurance

  	
   

  	
  NA

  	
   

  	
  $

  	
  20.650

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total DHC Cost
  to 10% WI

  	
   

  	
   

  	
   

  	
  $

  	
  374,468

  	
   

  

 

 

TEI Share of 10% WI = 30% or $112,340

Stokes & Spiehler Share of 10% WI = 30% or
$112,340

Reef Share of 10% WI = 40% or $149,788

 

6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}]]