Document:

Exhibit
10.1

 

	
   

  	
  [CMI LOGO]

  	
   

  	
  CHALLENGER
  MINERALS INC.

  

A GlobalSantaFe
Company

 

	
  15375 Memorial Drive

  	
   

  	
  Langlands House

  
	
  Suite G200

  	
   

  	
  Huntly Street

  
	
  Houston, Texas  77079

  	
   

  	
  Aberdeen AB10
  1SH

  
	
  USA

  	
   

  	
  Scotland

  
	
  Tel (281) 925 7200

  	
   

  	
  Tel +44 (0) 1224
  654400

  
	
  Fax (281) 925 7280

  	
   

  	
  Fax +44 (0) 1224
  654478

  

 

December 4, 2003

 

By mail and fax to (972) 994-0369

 

Reef
Partners LLC

1901 N. Central
Expressway, Suite 300

Richardson, TX  75080

 

Attn:                    Mr. H. Walt
Dunagin

Vice
President - Land

 

Re:                               Reef/CMI
North Sea Joint Venture Agreement - New

Reef
/CMI Gulf of Mexico Joint Venture Agreement - Amended

 

Dear Walt,

 

Pursuant to our recent
discussions with Reef Partners LLC (“Reef”), Challenger Minerals Inc. (“CMI”)
is requesting your timely approval of the following proposal to amend the
current Reef/CMI Gulf of Mexico Joint Venture Agreement and to provide for Reef
entering the CMI North Sea Joint Venture under a new and separate agreement:

 

1.                                       Upon
Reef’s approval and execution of the attached Joint Venture Agreement for the
CMI North Sea JV program, Reef will enter the CMI North Sea JV program for 5%
participation interest, effective December 1, 2003 for a three-year term,
conditioned upon your approval of this proposal that shall amend Reef’s current
CMI Gulf of Mexico JV Agreement, which became effective January 31, 2002,
by reducing Reef’s participation interest in the CMI Gulf of Mexico (“GOM”)
Exploration JV program to 7.5% and by continuing Reef’s 12.5% participation
interest in the CMI GOM Field Development JV program.

 

2.                                       To
accomplish the above, Reef hereby relinquishes to CMI a 5% participation
interest carved out of Reef’s 12.5% participation interest in the CMI GOM
Exploration JV program (under the current GOM JV Agreement effective
January 30, 2002 referenced above) in exchange for Reef’s new 5%
participation interest in the CMI North Sea JV, with no increase in the U.S.
$375,000.00 annual funding level currently being paid to CMI by Reef as its
Participation Fee under its GOM JV Agreement, as follows.  Reef shall pay an annual Participation Fee
in the amount of U.S. $75,000.00 for 5% participation interest under Paragraph
3 of the attached new North Sea JV Agreement. 
Reef’s annual Participation Fee under Paragraph 3 of the current
GOM JV Agreement shall be reduced by such U.S. $75,000.00 to the

 

 

Reef Partners LLC

December 4,
2003

 

amount of U.S.
$300,000.00, effective with the Participation Fee payment due on
January 30, 2004 for the third Participation Year.  For your convenience, CMI will continue to
invoice Reef for each such fee payment.

 

3.                                       Reef
shall have the option, but not the obligation, to add one additional year to
the term of its current GOM JV Agreement as amended herein.  Unless Reef provides CMI written notice on
or before May 31, 2004, that it elects to exercise such option, Reef shall be
deemed not to have exercised such option; provided, that in no event shall Reef
have fewer than ten days after receipt of written notice from CMI during May
2004 requesting Reef’s election, to consider whether to exercise such
option.  Reef’s exercise of such option
shall extend such agreement’s term to a new Termination Date of
January 30, 2006, and require Reef to pay an additional annual
Participation Fee in the amount of U.S. $300,000.00 on or before
January 30, 2005, for a fourth Participation Year commencing
January 31, 2005 and ending January 30, 2006.

 

4.                                       Reef’s
current GOM JV Agreement effective January 32, 2002, shall remain in full
force and effect except as expressly amended by this agreement.

 

If this proposal is
acceptable to Reef, please have your authorized representative execute as
provided below and fax back an executed copy hereof, and of the attached North
Sea JV agreement, to the undersigned at (281) 925-7216 by Friday, December 12, 2003, then mail
back both executed agreements at your convenience.  CMI appreciates your confidence in us by expanding your
participation in the CMI Joint Venture programs.  We look forward to bringing you up to date as to pending North
Sea prospect opportunities at your earliest convenience.

 

Sincerely,

Challenger
Minerals Inc.

 

	
   

  	
  /s/
  Paul F. Nielsen

  	
   

  
	
  Paul F. Nielsen

  
	
  Land Manager

  

 

Enclosure

 

AGREED TO AND ACCEPTED
this 11 day of December, 2003:

 

Reef Partners LLC

 

	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  
	
  Its:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
  Xc:

  	
  Mr. Tom Morrow

  	
  Mr. Chuck Hauf

  
	
   

  	
  Mr. Jack Downing

  	
  Mr. Ron Symecko

  
	
   

  	
  Mr. Jon Goodale

  	
  Mr. Al Schneider

  
				

 

2Exhibit 10.2

 

	
   

  	
  [CMI LOGO]

  	
   

  	
  CHALLENGER MINERALS INC.

  

A GlobalSantaFe Company

 

	
  15375 Memorial Drive

  	
   

  	
  Langlands House

  
	
  Suite G200

  	
   

  	
  Huntly Street

  
	
  Houston, Texas  77079

  	
   

  	
  Aberdeen AB10 1SH

  
	
  USA

  	
   

  	
  Scotland

  
	
  Tel (281) 925 7200

  	
   

  	
  Tel +44 (0) 1224 654400

  
	
  Fax (281) 925 7280

  	
   

  	
  Fax +44 (0) 1224 654478

  

 

4 December 2003

 

Reef Partners
LLC

1901 N. Central Expressway, Suite 300

Richardson, TX 75080

 

Attn:                    Mr. H. Walt Dunagin

Vice President - Land

 

Re:                               Reef /CMI North Sea
Joint Venture Agreement

North Sea & Atlantic Margin

 

Gentlemen:

 

Challenger Minerals Inc. (“CMI”), a California corporation, and Reef
Partners LLC (“Reef”), a Nevada Limited Liability Company, collectively
referred to herein as the “Parties” or individually as a “Party”, desire to
enter into this agreement (“Agreement”) to facilitate the review of, and
participation in, Prospects in the North Sea Region, as defined in Paragraph 2
below.  The terms and conditions
governing this Agreement are as follows:

 

1.                                       Term: 
Unless earlier terminated under the other provisions hereof, the term of
this Agreement shall be for a period of three (3) years commencing 1
December 2003 (“Effective Date”) and expiring 30 November 2006
(“Termination Date”), each of which years commencing with the Effective Date or
its anniversary shall be deemed a “Participation Year”; provided, however, that
the confidentiality and non-competition provisions hereof shall survive
termination of this Agreement for the contractual time period provided herein
or in any applicable agreement with a third party to which Reef is or becomes
bound or, if no such period is provided for, then for a period of two (2) years
after the expiration date hereof.

 

2.                                       Prospects:  Reef shall have the right and option, but not the obligation, to
acquire up to five percent (5%) of the interest made available to CMI in all
offshore Prospects located in the North Sea Region, as defined below, as such
Prospects are identified and initially reviewed by CMI during the term of this
Agreement (“CMI North Sea Joint Venture”), subject however to the provisions of
Paragraph 16 below regarding lapse of Prospects and of Paragraph 4.F. below as
to potential exclusion of Reef by the Selling Party as to any particular
Prospect for reasons that may include but are not limited to Reef’s failure to
commit to participate for a minimum percentage interest in the Prospect or due
to the number of CMI North Sea Joint Venture partners desiring to participate
therein.  For the

 

 

Reef Partners LLC

4 December 2003

 

purposes of this Agreement, a “Prospect” is defined as (a) an interest
in a well or wells located in offshore waters in the “North Sea Region”,
defined herein to cover the North Sea and the Atlantic Ocean continental shelf
margin of the countries of the United Kingdom, Ireland, Denmark, the
Netherlands, Norway and Germany, or (b) a participation right or other interest
in a lease, license or other agreement relating to the offshore waters of the
North Sea Region, in either case regarding geologic targets in a specific
geographic area related to a identified geologic structure, and/or
stratigraphic interval or other trapping mechanism, and which is believed to be
susceptible to commercial development of oil, gas and other minerals in
accordance with standard and accepted industry practices from an open water
drilling location or platform.  All
existing Prospects previously or currently under review by CMI (except as to
participation interest remaining available as of the Effective Date) and leases
currently owned in whole or part by CMI are excluded from this Agreement.

 

3.                                       Participation Fee:  In consideration of its rights hereunder to
consider participation in Prospects, Reef shall pay CMI as a Participation Fee
the total sum of U.S. $225,000.00 during the term of this Agreement, in three
equal annual payments of U.S. $75,000.00 each payable to CMI on or before 1
December in the years 2003, 2004 and 2005; provided, that the first such
payment shall not be due until a date five (5) business days after this
Agreement is fully executed.  Other than
such Participation Fee, there shall be no fees or burdens in favor of CMI as to
the interest Reef may elect to acquire in any Prospect, and no obligation upon
Reef to acquire an interest in any particular Prospect or in a minimum number
of Prospects during the term of this Agreement.

 

4.                                       Opportunity Evaluation:  CMI shall use its reasonable efforts to
identify, evaluate and provide Reef with notice of potential opportunities to
participate in Prospects.  Upon
presentation to CMI of a potential opportunity to participate in a Prospect
generated by a third party or upon generation of such a Prospect by CMI (such
third parties, or CMI in the event it generates such a Prospect, being
collectively called “Selling Parties”), CMI shall determine if or when a potential
Prospect may be worthy of further consideration, and as to each such potential
Prospect, CMI shall promptly notify Reef, providing a brief description of the
Prospect, to include (when available) the initial well location, name of
Operator, estimated leasehold, seismic and initial well costs, water depth and
reserve potential (collectively, the “Initial Prospect Information”).  Reef shall then promptly advise CMI whether
Reef is already pursuing the Prospect; and, if such is the case, Reef shall promptly
advise CMI as to whether it will continue to pursue the Prospect on its own or
jointly with CMI under either the terms of this Agreement or on other mutually
acceptable terms.  If Reef elects to
continue to pursue the Prospect on its own, the parties shall endeavor in good
faith to resolve any areas of competition, if possible.  If Reef does not so notify CMI of its
separate pursuit of any such potential Prospect(s) within ten (10) days after
such initial notice by CMI (or such shorter period for Reef’s decision as is
required, in CMI’s opinion, to prevent loss of an opportunity to acquire an
interest in a Prospect), CMI and Reef shall jointly proceed as otherwise set
forth in this Agreement.  With respect to any evaluations to be conducted by
either Party hereunder, either

 

2

 

individually or jointly, including an Initial
Prospect Review or a further review under this Paragraph 4, each Party hereby
acknowledges that any such review, and the methodologies employed therein, are
necessarily subjective.  Accordingly,
except as provided in Paragraph 4.B below, neither Party makes any
representation or warranty (whether express, implied, statutory or otherwise)
as to the accuracy, completeness or sufficiency of any such evaluation, and
each Party disclaims any liability for accuracy of any Prospect evaluation
conducted by the other Party during the term of this Agreement.  Each Party represents and warrants that it
is independently qualified to make a decision whether to invest in any
particular Prospect regardless as to whether it participates in or conducts an
evaluation.

 

A.                                   Once CMI determines
that a Prospect merits a detailed geo-technical review with the Selling Party
(“Initial Prospect Review”), it shall promptly notify Reef and coordinate with
Reef’s technical personnel in scheduling the Initial Prospect Review as soon as
practicable.

 

B.                                     In conducting the
Initial Prospect Review, and all subsequent geo-technical evaluations, CMI and
Reef shall make a good faith effort to share data, knowledge, expertise and
work product except as, and to the extent, such sharing may be restricted or
prohibited by third-party Confidentiality Agreements (“CAs”) and/or Area of
Mutual Interest Agreements (“AMIAs”), to which both CMI and Reef are not
similarly bound.  In such cases, Reef
will be requested to sign and return expeditiously the CA or AMIA to CMI before
prospect reports or data will be sent to Reef. 
In the event that Reef is unable to participate in an Initial Prospect
Review, CMI, as soon as practicable thereafter, shall make a good faith effort
to review with Reef the Selling Party’s data and interpretations and CMI’s data
and interpretations regarding the Prospect in question, subject to any
restraints posed by such third party CAs and/or AMIAs.

 

C.                                     Following the
Initial Prospect Review or other review, if conducted, and if not, as soon as
practical after Reef’s receipt of the Initial Prospect Information from
CMI, either CMI or Reef may propose pursuing participation in a Prospect
by providing written notice of such intent to the other Party.  The Party receiving such written
notification shall have no less than five (5) business days (or such shorter
response time as is required, in CMI’s opinion, to prevent loss of an
opportunity to acquire an interest in a Prospect) within which to advise the
other Party as to whether it wishes to pursue the Prospect and if so, its
desired percentage of working interest, whether or not the parties have
conducted an Initial Prospect Review or other review.  In the event that CMI and the Other Participants (as defined in
Paragraph 7 below) do not wish to pursue the Prospect, then Reef shall have the
right to pursue the Prospect for its own account.  Upon CMI’s request, Reef shall advise CMI the status of its
pursuit of such opportunity. In the event that Reef decides to submit a formal
participation offer to the Selling Party, Reef shall submit a copy thereof to
CMI, and CMI shall have twenty-four (24)

 

3

 

hours within which to elect to pursue the Prospect jointly with Reef in
accordance with this Agreement. If the participation opportunity originated
through a request by the Selling Party for a turnkey bid from CMI’s affiliate,
Applied Drilling Technology Inc. (“ADTI”), then CMI shall control the timing
and content of offers to participate in the Prospect.

 

D.                                    In the event that
both CMI and Reef desire to pursue participation in a Prospect, they (together
with any Other Participants that may also desire to pursue such participation)
shall jointly develop and agree as to the terms and conditions of a written
participation, offer to the Selling Party. 
CMI shall have sole responsibility for direct negotiations with the
Selling Party unless it requests the assistance of Reef.   Reef agrees not to directly contact the
Selling Party regarding the Prospect during the negotiation process unless
otherwise agreed to by CMI.  However,
CMI shall keep Reef advised of the progress of ongoing negotiations and shall
solicit Reef’s input and suggestions regarding counter-offers or subsequent
revisions to original offers. 
Notwithstanding any provision to the contrary herein, if CMI determines
any situation merits negotiation with a Selling Party sooner than the response
time periods provided for herein in order to avoid loss of an opportunity to
acquire an interest in a Prospect, CMI shall have the right to do so and shall
advise Reef of the progress thereof.

 

E.                                      Subject to the
provisions of Paragraph 4.D. above, Reef shall be an active participant with
CMI in drafting, reviewing, and formalizing Participation Agreements, Joint
Operating Agreements, Farmout Agreements and all other contracts relating to
Reef’s participation in a Prospect under this Agreement.  In the event of disagreement between CMI and
Reef as to contract terms and provisions, however, CMI will make the final
decision as to what is ultimately included in all agreements, with each Party
reserving the right not to participate in the prospect as outlined in Paragraph
5 below.  CMI shall advise the Selling
Party of Reef’s involvement with CMI prior to the formulation of any such
contracts, and Reef shall be a signatory party to all agreements executed
between CMI and Selling Party.  CMI and
Reef shall each be entitled to concurrently receive, directly from the Selling
Party, an assignment of any ownership interest acquired in a Prospect.

 

F.                                      In the event that
a Selling Party (other than CMI) does not wish to include Reef as a candidate
for working interest participation, then CMI shall so advise Reef, advising the
reasons given by the Selling Party.  If
the concerns raised by the Selling Party cannot be amicably resolved, CMI shall
have the right to pursue the Prospect for its own account (subject to similar
rights of Other Participants) and the Prospect shall not be covered by this
Agreement.

 

G.                                     Except for Reef’s
obligation to pay to CMI the Participation Fee as provided in Paragraph 3
above, and for CMI’s obligation at its expense to furnish to Reef the

 

4

 

Initial Prospect Information and other reports and data as provided in
this Agreement, each Party shall bear its own expenses hereunder, including but
not limited to those associated with the evaluation of each Prospect and any
subsequent negotiation of a Participation Agreement or other agreement with a
Selling Party.

 

5.                                       Right to Withdraw:  CMI and Reef acknowledge that, at any time
and for any reason during the process contemplated by Paragraph 4 above (prior
to the execution of a binding participation agreement with a Selling Party),
either Party may elect to discontinue the effort to participate in a
Prospect.  In the event either CMI or
Reef elects not to participate in a Prospect, the other party shall be free to
continue to pursue the Prospect for its own account (subject to similar rights
of Other Participants), and the non-participating Party shall not compete
directly or indirectly against the other Party (or any participating Other
Participants) in pursuing the Prospect for a period of two (2) years from the
date of such election not to participate.

 

6.                                       Personnel:  During the term of this Agreement, CMI will provide and maintain
a technically proficient, multi-disciplined, veteran staff comprising geology,
geophysics, reservoir engineering and land expertise to screen and evaluate
Prospects.

 

7.                                       Other Participants:  To facilitate the review of and
participation in Prospects, CMI has entered into similar North Sea Region joint
venture agreements with certain third parties (“Other Participants”).  The joint venture agreements entered into by
CMI with Reef and with the Other Participants shall be collectively referred to
as the “CMI North Sea Joint Venture”. 
CMI and Reef agree that CMI reserves the right to terminate, amend or
renew its joint venture agreement with any of the Other Participants and to
enter into new joint venture agreements with other third parties.  The mention within this Agreement of Other
Participants in the CMI North Sea Joint Venture is solely to provide Reef with
notice of the existence of such Other Participants and their right to be
allocated interests in Prospects under similar joint venture agreements with
CMI.  The only relationship created
pursuant to this Agreement, express or implied, is between Reef and CMI.  In no event shall it be construed that this
Agreement has created any relationship, obligation or liability between Reef
and any of the Other Participants.  The
term “Other Participants” in this Agreement shall also include CMI as to
its own CMI Interest in the CMI North Sea Joint Venture, the “CMI Interest”
being defined as the percentage interest in the CMI North Sea Joint Venture
remaining after deducting the sum, of respective percentage interests in the
CMI North Sea Joint Venture collectively held by Reef, under this Agreement,
and by Other Participants (for this purpose, excluding CMI).

 

8.                                       Additional Interest:  In the event that Reef has notified CMI
under the provisions hereof that it desires to acquire an interest in a  Prospect exceeding its “Original Interest”,
defined as the maximum interest available to Reef under the provisions of
Paragraph 2 above, and additional interest remains available in such Prospect
due to the failure of one or more of the Other Participants to commit to
acquire the full percentage interest to

 

5

 

which it/they are entitled, then in that event Reef shall have
preferential right to acquire an “Additional Interest” in such Prospect,
defined as an interest therein over and above Reef’s Original Interest and
being a percentage of such remaining available interest not to exceed Reef’s
proportionate share thereof relative to each participating Other
Participant’s interest in the CMI North Sea Joint Venture.  As for its Original Interest, Reef’s right
to acquire an Additional Interest is subject to Selling Party’s acceptance of
Reef’s participation in such Prospect as stated in Paragraphs 2 and 4.F.
above.  In the event that Reef should
not participate in a Prospect, or should participate in such Prospect but at a
participation percentage less than the maximum to which it is entitled under
this Agreement, the additional interest as to which Reef is entitled but elects
not to pursue shall be distributed to the Other Participants under the
provisions of this Paragraph 8.

 

9.                                       Prospect Summaries:  In order to provide for a smooth flow of
information between the parties, CMI shall timely provide to Reef on a regular
basis (usually weekly) a prospect summary containing Initial Prospect
Information or updated information covering one or more Prospects. Such
prospect summaries shall be subject to the confidentiality provisions of
Paragraph 14 below. CMI shall regularly provide to Reef additional prospect
summaries or updates, or additional prospect data, as it deems appropriate,
subject to the same confidentiality provisions.

 

10.                                 Elections and Confidential Information:

 

A.                                   CMI and Reef shall
provide each other with copies of all elections made pursuant to joint
operating agreements or any other agreements governing the drilling,
development and operation of Prospects. 
CMI and Reef agree to freely share geological, geophysical, engineering
and other technical data and information concerning the exploration,
development and production of the Prospects except when prohibited by third
party confidentiality agreements.  All
such data shall be held strictly confidential by Reef and CMI, and both parties
agree to abide by the terms and conditions of any confidentiality agreements
with the Selling Party and other Prospect participants.  Subject to the provisions of governing
confidentiality and similar agreements (as described in Paragraph 4.B. above)
with Selling Party, all data and information regarding Prospects that are
disclosed by one Party to the other under this Agreement shall be held strictly
confidential by the non-disclosing Party; provided, however, that this
provision shall not apply to data and information that is (a) already in the public
domain, (b) already in a Party’s possession at the time of disclosure, (c)
developed by a Party without the benefit or use of the confidential data, (d)
disclosed by a third party that has the lawful right to make such disclosure,
or (e) required to be disclosed in response to a judicial or administrative
process from a court or governmental body with lawful authority to demand the
production of same.  In the event that a claim is asserted against CMI or
Reef as a result of are alleged violation of this provision by the other Party,
the Party against whom violation is alleged shall defend, indemnify and hold
harmless the other Party from and against

 

6

 

any and all claims, causes of action and
judgments arising therefrom, including legal fees and court costs.

 

B.                                     Reef and its
affiliates may, from time to time, provide CMI with certain confidential
information regarding among other things, trade secrets, customer lists, client
information, including names, addresses and financial information, securities
brokerage firms and other financial institutions with which Reef and its
affiliates transact business and certain other information regarding operations
and business conducted by Reef (collectively, the “Reef Confidential
Information”). CMI agrees that any confidential information provided to it by
Reef and designated as “Reef Confidential Information” shall be held strictly
confidential by CMI. CMI further agrees that, except for the benefit of Reef,
it will not use the Reef Confidential Information or, for the term of this
agreement and for a period of two (2) years thereafter, contact any persons,
firms or entities designated in the Reef Confidential information; provided,
that this provision shall not relate to data and information that is
already in CMI’s possession at the time of disclosure, disclosed to CMI by a
third party who has a lawful right to make such disclosure, or required to be
disclosed in response to a judicial or administrative process from a court or
governmental body with lawful authority to demand production of same; and
provided further, that nothing herein shall restrict in any way CMI’s right to
continue or to initiate a business relationship of any nature with any third
party doing business with Reef, where such third party is already in a past or
present business relationship with CMI or where CMI obtains Reef’s written
permission, which permission shall not be unreasonably withheld, to discuss a
business relationship with such third party.

 

11.                                 Disclaimer of Joint Liability:  References herein to “partners” or to any
“partnership”, or references herein to any “joint venture”, are solely for the
convenience of the parties.  It is not
the purpose or intention of this Agreement to create, and this Agreement shall
never be construed as creating, a joint venture, a partnership, a mining
partnership or any other legal relationship whereby CMI or Reef shall be held
liable for the acts, either by commission or omission, of the other.  The liabilities and obligations of CMI and
Reef arising hereunder shall be several, and not joint or collective.

 

12.                                 Notices:  All notices required herein to be given by one Party to the other
shall be given to the other Party in writing by personal delivery, by U.S.
Postal Service mail or by fax, or by telephone if written confirmation is sent
in a manner provided above within twenty-four (24) hours.  Notice shall be deemed to be effective upon
actual receipt by the Party to whom notice is directed; however, any fax
received after 5:00 PM CST shall be deemed to be received on the following
business day, excluding legal holidays. 
Each Party’s address, telephone and fax number shall remain as stated
below (or as subsequently changed under the procedure set out in this
paragraph) until such Party shall  give
proper written notice to the other Party of different contact information to be
used for the purposes of this Agreement.

 

7

 

Reef Partners LLC

1901 N. Central Expressway, Suite 300

Richardson, TX 75080

Attn:                    Mr. H. Walt Dunagin

Vice President - Land

Phone:           (972) 437-6792

Fax:                           (972) 994-0369

 

Challenger Minerals Inc.

15375 Memorial Dr., Suite G200

Houston, TX 77079-4101

Attn:                    Mr. Paul F. Nielsen

Sr. International Negotiator

Phone:           (281) 925-7200

Fax:                           (281) 925-7280

 

and
copy to

 

Challenger Minerals Inc.

Langlands House

Huntly Street

Aberdeen, AB10 1SH

Scotland, UK

Attn:                    Mr. Jonathan L. Goodale

North Sea Manager

Phone:           +44 (0) 1224 654 400

Fax:                           +44 (0) 1224 654 478

 

13.                                 Turnkey Bids:  Reef shall encourage drilling and completion turnkey bids in its
dealings with Selling Parties, but it will not be obligated or penalized for
any failure to do so.  Although Reef is
free to pursue participation in any Prospect hereunder on any basis of
participation other than under a turnkey contract with ADTI (or other turnkey
affiliate of CMI), the parties acknowledge that the mutual commitments herein
contemplate ADTI ‘s (or other CMI affiliate’s) continuation in the business of
providing turnkey drilling services in the North Sea Region.  However, nothing herein shall imply that
ADTI (or other CMI affiliate) must make a turnkey drilling bid for any
particular well relating to any Prospect, or a bid therefor containing any
particular terms or conditions.

 

14.                                 Confidentiality:

 

A.                                   This Agreement is
strictly confidential and shall not be shared with nor copies made available to
any third party, other than professional consultants retained by CMI or Reef in
connection with the evaluation of the Prospect, or any investor or

 

8

 

potential investor(s) of Reef which may fund all or part of Reef’s
participation herein (the responsibility for compliance by each such consultant
or investor or potential investor(s) with the confidentiality and other
provisions hereof being assumed by Reef), in whole or part, without the prior
written consent of the other Party.

 

B.                                     Neither Party
shall release or distribute any information, data or photographs regarding this
Agreement or any Prospect to the press, media or third parties without prior
written approval of the other Party. 
When both parties have reviewed and approved release or distribution of
the material under review, the Party requesting release or distribution shall
have the principal responsibility for issuance, but each Party may thereafter
release or distribute such approved material without restriction.

 

C.                                     Nothing in this
Agreement shall preclude either Party from making such disclosures as may be required
by any applicable law or governmental order, rule, regulation or ordinance.

 

D.                                    The exceptions to
the confidentiality obligations contained in subparts (a) through (e) of
Paragraph 10 above shall also apply to the obligations in this Paragraph 14.

 

15.                                 Transfer of Interest:

 

A.                                   This Agreement shall
extend to and be binding upon and inure to the benefit of CMI and Reef and
their respective successors, assigns and legal representatives. However, it is
understood by the parties hereto that this Agreement represents a “personal”
covenant between them, and consequently that Reef may not assign in whole or
part its interest in this Agreement itself, or in its right hereunder to
acquire any interest in any Prospect, without the advance written consent of CMI
provided, that such consent by CMI shall not be unreasonably withheld; and
provided further, that nothing herein shall preclude Reef from assigning any
such interest hereunder if such transfer of interest is to any joint venture of
which Reef or an affiliate is managing venturer, any partnership of which Reef
or an affiliate is the managing partner, including but not limited to any
partnership formed as the result of, or contemplated by, the Reef Global Energy
Ventures Partnerships Registration Statement filed with the United States
Securities and Exchange Commission, or to any Reef affiliate due to corporate
merger, reorganization or consolidation (collectively, “Reef’s
Affiliates”)..  Notwithstanding the
foregoing, Reef shall have the right to assign all or part of its interest in
any Prospect acquired hereunder after Reef shall have earned assignment of its
interest in the Prospect from the Selling Party, subject to applicable
restrictions in any agreements binding the participants in such Prospect.  In the event of an assignment of any
interest earned in a Prospect by Reef, other than as more fully set forth above
regarding assignment to Reef’s Affiliates, Reef shall preserve the

 

9

 

confidentiality of this Agreement by not disclosing to assignee the
contents hereof in any form.  If such
assignment should be to Reef’s Affiliates, Reef may disclose to assignee the
contents hereof, but shall condition such assignment upon (a) provision that
assignee accepts all obligations of this Agreement, including but not limited
to the confidentiality provisions hereof, and (b) provision that any further
assignments shall be subject to the same restrictions hereunder originally
applicable to an assignment by Reef, if such further assignment is made to
assignor’s affiliate due to corporate merger, reorganization or consolidation;
provided, however, that such confidentiality provision shall not apply to
disclosure by Reef if Reef believes it is legally obligated to make such
disclosure, based upon written legal advice of its attorney.

 

B.                                     In the event that
CMI should be sold by its parent company, GlobalSantaFe Corporation (“GSF”), or
GSF should undergo any type of corporate merger, reorganization or
consolidation resulting in GSF owning less than majority interest in CMI, then
CMI and Reef shall each have the option to terminate this Agreement, effective
not less than thirty (30) days after its written notice of same to the other
Party, in which event CMI shall refund to Reef a portion of Reef’s
Participation Fee representing the remaining portion (if any) of the current
Participation Year as to which Reef shall have already paid such fee to CMI
under Paragraph 3 above, i.e., a refund amount representing the annual
Participation Fee amount times the remaining days of such Participation Year
after the effective termination date under this provision divided by the total
number of days in such Participation Year.

 

C.                                     The parties hereto
acknowledge that a Joint Venture of the nature described herein contemplates
that CMI and each other Joint Venture participant maintain personal and
professional relationships with Selling Parties and other industry (including
governmental) entities and personnel that are required in order for CMI effectively
to access Prospects on an ongoing basis for the benefit of the applicable Joint
Venture. In the event that CMI should determine to its satisfaction that Reef
(including its officers, employees, consultants, legal counsel or other
representatives or affiliates) is intentionally or unintentionally subverting
the objectives of this Agreement by its conduct, then CMI shall have the
unqualified right to so advise Reef of such decision. In that event, unless CMI
shall receive assurances satisfactory to CMI, in its sole discretion, CMI shall
have the right to give written notice to Reef of termination of this Agreement,
effective no sooner than thirty (30) days after the date of Reef’s receipt of
such notice, in which event the provisions of Paragraph 15.B. above for partial
reimbursement of Reef’s Participation Fee for the current Participation Year
shall apply.

 

D.                                    Reef shall be
responsible, at its expense, for establishing and maintaining a duly organized
corporate entity properly qualified to conduct business in any applicable
jurisdiction.  Reef shall also be
responsible, at its expense, for timely

 

10

 

qualifying to own and receive assignment of an interest in any Prospect
as to which it has committed hereunder to acquire such interest, under all
applicable governmental laws, rules or regulations within the applicable
jurisdiction.  CMI shall assist Reef in
such efforts and refer Reef to appropriate legal counsel or other consultants
to assist Reef in such efforts.

 

E.                                      Nothing in this
Agreement shall be construed to create in either Party a preferential right to
purchase the interest of the other Party, in whole or part, in any Prospect,
after a Party has acquired such interest in the Prospect under the provisions
of this Agreement.

 

16.                                 Prospect Lapse:  Reef’s right to acquire an interest in a
Prospect shall expire upon the Termination Date or earlier expiration date for
this Agreement as provided for herein; provided, that in the event that Reef
should for any reason fail to acquire an interest in a Prospect despite its
timely participation commitment hereunder prior to such expiration date, this
Agreement shall continue to remain effective as to such Prospect so as to allow
Reef to close on such participation commitment if Reef shall enter into a
written agreement with the Selling Party to acquire an interest therein within
ninety (90) days after the expiration date otherwise provided for herein.

 

17.                                 Default:  In the event of default by Reef as to any of its obligations
under this Agreement, including but not limited to its obligation timely to pay
in full its annual Participation Fee provided for in Paragraph 3 above, or
default by Reef as to any of its obligations as to its interest in any
Prospect, CMI may give written notice to Reef of such default and require
compliance with the provisions of this Agreement within a period of ten (10)
days after Reef’s receipt of such notice. 
In the event that such default is not capable of being cured by or is
not in fact cured by Reef within such 10-day period, CMI shall have the
election, but not the obligation, to (a) terminate this Agreement,
retroactively effective as of the date of Reef’s receipt of CMI’s notice of
default, or (b) suspend Reef’s right to receive Prospect information of any
nature hereunder and Reef’s right to consider participation in Prospects during
the period while Reef remains in default. 
In the event that CMI should elect to terminate this Agreement and Reef
shall have paid its Participation Fee under the provisions of paragraph 3 above
for a period extending past such termination date, the provisions of Paragraph
15.B. above for partial reimbursement of Reef’s Participation Fee for the
balance of the current Participation Year shall apply. CMI may at any time
investigate Reef’s financial and other qualifications for doing business
hereunder, regardless as to whether Reef at such time may be in default.  If Reef’s default is due to its failure to
satisfy payment obligations of this Agreement or any agreement relating to its
interest in a Prospect, CMI may demand financial information sufficient to
assure performance of Reef’s payment obligations hereunder or relating to its
interest in such Prospect; failure so to provide such information to CMI within
ten (10) days of written demand by CMI shall in itself constitute a default
hereunder.

 

11

 

18.                                 Producing Property Acquisitions:  The Parties acknowledge that CMI is
considering the creation of a program or programs to identify and purchase
producing properties in the North Sea Region and/or elsewhere, under a similar
joint venture structure or otherwise, and that this Agreement confers to Reef
no right to participate in any such proposed producing property acquisitions or
acquisitions program(s), if implemented by CMI.

 

19.                                 Miscellaneous:

 

A.                                   In the event of any
dispute between the parties as to the parties as to the provisions of this
Agreement, the matter shall be submitted to arbitration or other form of
alternative dispute resolution method in Houston, Harris County, Texas, at the
instance of either Party, under such procedures as the parties may agree upon,
or, if they cannot agree, then under the applicable rules of the American
Arbitration Association.

 

B.                                     Failure of a Party
to enforce any or all of the provisions of this Agreement shall not constitute
a waiver of such provision(s) or preclude subsequent enforcement thereof.

 

C.                                     No provision of
this Agreement shall be altered or deleted except by written agreement duly
executed by both parties.

 

D.                                    Any provision of
this Agreement found to be illegal or unenforceable shall be deemed stricken so
as not to affect the legality or enforceability of the remaining provisions.

 

20.                                 Due Diligence:  As sophisticated participants in the oil and
gas business, Reef and CMI agree that each Party is responsible for the scope
and evaluation of its own independent “due diligence” efforts as to whether the
business relationship and transactions contemplated hereunder are appropriate
and suitable to their respective business plans.  Reef acknowledges that, in entering into this Agreement, it is
not relying upon any representations by CMI other than those expressly set out
herein, and that the results of Reef’s participation in the Joint Venture may
vary significantly from past results for CMI and/or its Joint Venture
participants, for numerous reasons, including but not limited to general
industry conditions such as oil and gas production pricing, drilling rig availability
and the availability of quality Prospects for CMI to consider hereunder, and
Reef’s right hereunder to select specific Prospects for participation, and the
percentage interest of its participation, based on its independent judgment,
with no obligation hereunder to participate in any particular Prospect or any
minimum number of Prospects.

 

21.                                 Reef’s Option to Acquire 5% Additional Interest:  Reef shall have a firm option for a period
of six months front the Effective Date, expiring 31 May 2004, to elect to
participate for an additional five percent (5%) participation interest in the
CMI North Sea

 

12

 

Joint Venture program at an annual Participation Fee rate of $15,000.00
per percentage point of Joint Venture participation, for a Participation Fee
total of $150,000.00 annually for 10% interest, or total of $450,000.00 for the
three-year term.   In the event that
Reef should timely exercise such option to participate for an additional 5%,
for a total participation interest of 10% in the CMI North Sea Joint Venture
program, Reef shall be granted a new three year term hereunder for its entire
10% interest, effective 1 June 2004 (but also covering the interim period,
if any, between the date of Reef’s election to acquire such additional 5%
interest and 1 June 2004), crediting against the initial Participation Fee
payment for 10% interest, under the new three-year term, the Participation Fee
amount that Reef shall have paid for 5% interest during the option period.

 

If the terms of this Agreement are acceptable to Reef, please confirm
our agreement by having your duly authorized representative execute in the
space provided below and returning to CMI’s Land Manager, Paul Nielsen, an
executed duplicate original no later than 12
December 2003, otherwise this proposal shall terminate and be
null and void.  You may timely respond
by faxing the executed agreement to CMI at fax number (281) 925-7280, then
mailing CMI’s duplicate original.

 

Very truly yours,

Challenger Minerals Inc.

 

	
   

  	
  /s/ Tom Morrow

  	
   

  
	
   

  	
  T. J. Morrow

  
	
   

  	
  President

  

 

AGREED TO AND ACCEPTED this 11 day of December, 2003:

 

Reef Partners LLC

 

	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  
	
  Its:

  	
  President

  	
   

  

 

13

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