Exploration Participation Agreement

EXPLORATION PARTICIPATION
AGREEMENT


By and Between


El Paso Production Company


And


Ramshorn Investments, Inc.


CATAPULT PROSPECTS


Florence Canal
Blackfish Lake
Little Lake S.


EXPLORATION PARTICIPATION
AGREEMENT


This Exploration Participation Agreement is dated as of November 6, 2003, and is by and between El Paso Production Company ("EL PASO") and Ramshorn Investments, Inc. ("PARTICIPANT"), hereinafter referred to singularly as "Party" and jointly as "Parties."


RECITALS


WHEREAS, El Paso represents, but does not warrant, that it is the owner of a working interest in various oil and gas leases and lease options located within the Prospects as are more fully described in Exhibits A-1 through A-3; and


WHEREAS, Participant has expressed a desire to earn an interest in the Prospects and participate in the joint exploration and development of the Prospects as described in Exhibits A-1 through A-3 and establish areas of mutual interest.


NOW, THEREFORE, in consideration of the premises and of the mutual promises exchanged and contained within this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:


SECTION 1
EXHIBITS


All references in this Agreement to Exhibits without further qualification shall mean the Exhibits listed below and attached to this Agreement. Each of the Exhibits listed below are made part of this Agreement and shall be deemed incorporated into this Agreement by this reference as if the full text of each Exhibit were contained within the body of this Agreement. If any provision of any Exhibit is inconsistent with any provision contained in the body of this Agreement, then the provisions in the body of this Agreement shall prevail.


Exhibit A-1 - Florence Canal Plat and lease schedule
Exhibit A-2 - Blackfish Lake Plat and lease schedule
Exhibit A-3 - Little Lake S. Plat and lease schedule
Exhibit B - Commitment Well List
Exhibit C - Joint Operating Agreement
Exhibit D - Form of Assignment
Exhibit E - Overriding Royalty Interests and other Burdens


SECTION 2
DEFINITIONS


As used in this Agreement, the following terms have the meanings here ascribed to them.


2.1 "AFE" means the authority for expenditure which sets forth the estimated cost of drilling and completing an oil and gas well.


2.2 "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes of this definition, the term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any Person, whether through the ownership of voting securities or by contract or otherwise. "Person" means an individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, unincorporated association, nominee, joint venture or other entity.


2.3 "Agreement" means this Exploration Participation Agreement, together with its attached Exhibits.


2.4 "Area of mutual interest" or "AMI" means the land within the heavy blue line marked on the relevant plat, being one of the plats attached hereto as Exhibits A-1 through A-3. There are three (3) AMI's covered by this Agreement.


2.5 "Casing Point" means the point in time when a Commitment Well has reached its authorized depth, and all tests have been completed, and the results thereof furnished to Participant, and El Paso has given notice to Participant that El Paso desires attempt to set casing and complete such Commitment Well.


2.6 To "commence" a well means to have a drilling rig on location and to commence turning the drill bit to the right.


2.7 "Commitment Wells" means the wells described on Exhibit "B". Each of these wells will be considered an "Initial Well" as that term is described in article VI A of the Operating Agreement.


2.8 "Effective Date" means September 1, 2003.


2.9 "El Paso" is defined on page 1.


2.10 "El Paso's Original Share" means El Paso's cost bearing interest in a Commitment Well based upon El Paso's interest in the Leases covering such Commitment Well prior to the assignment to Participant described in subsection 3.3.


2.11 "Estimated Drilling Cost" means the good faith estimate of costs to drill and log a Commitment Well to the total objective depth, as set forth in the AFE for a Commitment Well.


2.12 "Estimated P&A Cost" means El Paso's good faith estimate of the plugging and abandonment costs for a Commitment Well.


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2.13 "Leases" means oil and gas leases, mineral interests, royalty interests, net profits interests, options or agreements to acquire or earn the foregoing such as farmins, farmouts, participation agreements and similar agreements.


2.14 "Oil and Gas" (whether capitalized or not) means the oil, gas, casinghead gas, gas condensate, and all other liquid or gaseous hydrocarbons and other marketable substances produced therewith and all other liquid or gaseous hydrocarbons.


2.15 "Operating Agreement" means the applicable operating agreements covering a Prospect, the form of which is attached hereto as Exhibit B.


2.16 "Participant" is defined on page 1.


2.17 "Party" and "Parties" are defined on page 1.


2.18 "Prospect" means the land within the heavy blue line marked on the relevant plat, being one of the plats attached hereto as Exhibits A-1 through A-3. There are three (3) Prospects covered by this Agreement.


SECTION 3
PARTICIPATION IN COMMITMENT WELLS


3.1 COMMITMENT WELLS: Participant agrees to participate in the Commitment Wells proposed by El Paso on or before September 1, 2004 and which are commenced on or before December 31, 2004. Participant shall not have the option to elect not to participate in the drilling of a Commitment Well even if the relevant Operating Agreement or the AFE has a provision that purports to allow Participant to elect not to participate. Participant shall not have the right to make any other elections set forth in the relevant Operating Agreement regarding such Commitment Well until such Commitment Well has been drilled to the Casing Point. At Casing Point, Participant may elect to participate in the completion of such Commitment Well as provided in the relevant Operating Agreement. These restrictions apply only to the Commitment Wells.


Participant assumes the liability for and shall pay El Paso for TWENTY-FIVE percent (25%) of El Paso's Original Share of the cost of drilling each Commitment Well to the Casing Point and plugging and abandoning any Commitment Well that is a dry hole, including but not limited to the cost of sidetracking, deepening, well control, environmental remediation and any unanticipated costs. If El Paso receives either a direct refund of any of these costs from a third party or insurance proceeds that includes Participants share of such costs, then Participant will benefit to the same percentage that they paid for such costs.


El Paso shall have the sole right to determine the final design, location, and depth of each Commitment Well. El Paso shall propose a Commitment Well by submitting an AFE for such well to Participant.


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3.2 PAYMENT. Within five (5) days of the receipt of the AFE for a Commitment Well, Participant will pay by wire transfer an amount equal to TWENTY-FIVE percent (25%) of El Paso's Original Share of the Estimated Drilling Cost. Within five (5) days of the receipt of a notice from El Paso that a Commitment Well will be plugged and abandoned as a dry hole, Participant will pay by wire transfer an amount equal to TWENTY-FIVE percent (25%) of the Estimated P&A Cost as set forth in such notice. If a Commitment Well is drilled to the Casing Point, then all subsequent costs to set casing and attempt to complete the well or to conduct other operations will be paid in accordance with the relevant Operating Agreement. If Participant elects not to participate in the completion attempt, then it will be subject to the non-consent provisions of the relevant Operating Agreement.


If the actual cost of drilling a Commitment Well to the Casing Point and plugging and abandoning the Commitment Well if it is a dry hole, is not equal to the sum of the Estimated Drilling Cost and Estimated P&A Cost paid by Participant with respect to that well, then El Paso will invoice Participant for TWENTY-FIVE percent (25%) of El Paso's Original Share of the amount by which actual costs exceed such Estimated Costs or refund to Participant TWENTY-FIVE percent (25%) of El Paso's Original Share of the amount by which such Estimated Costs exceed actual costs. Such invoice or refund shall occur within 15 days after the date on which the amount of such invoice or refund can be calculated.


3.3 INTERESTS EARNED AND ASSIGNMENT. By participating in a Commitment Well, timely paying Estimated Drilling Cost for such Commitment Well, and timely executing and delivering the Operating Agreement for the relevant Prospect to El Paso, Participant shall earn an undivided TWELVE-AND-ONE-HALF percent (12.5%) of El Paso's Original Share in the Leases in the Prospect in which such Commitment Well is located. Within 5 days after receipt of payment of the Estimated Drilling Cost for such Commitment Well, and the execution and delivery by Participant of the Operating Agreement for the Prospect in which such Commitment Well is located, El Paso will execute and record an assignment conveying an undivided TWELVE-AND-ONE-HALF percent (12.5%) of El Paso's Original Share in and to the Leases described on the relevant Prospect Exhibit attached hereto plus any additional Leases that may be acquired by El Paso within such Prospect prior to the date of such assignment. Any Leases that have expired before the date of such assignment shall be excluded from the assignment. The assignment will be on the form of the assignment attached hereto as Exhibit "D". El Paso shall assign its interest free of any retained override, production payment or net profits payable to or any burden created by El Paso or any Affiliate of El Paso. The Assignment will be made WITHOUT WARRANTY OF TITLE EITHER EXPRESS OR IMPLIED EXCEPT THAT EL PASO WILL WARRANT TITLE AGAINST ALL CLAIMS BY, THROUGH OR UNDER EL PASO subject to the overriding royalty interests and other burdens described on Exhibit "E" which El Paso has previously assigned or is obligated to assign.


3.4 OPERATING AGREEMENTS. Except as otherwise provided herein, operations on each Prospect will be conducted pursuant to, and the relationship of the Parties with respect to each Prospect shall be governed by, the terms and provisions of the Operating Agreement for each Prospect, a model of which is attached as Exhibit "C." Participant shall pay its proportionate share of the costs of operations on the Prospect, other than as provided in Sections 3.1 and 3.2 above, based upon Participant's ownership interest in the relevant Leases. Each Operating


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Agreement shall designate El Paso or an El Paso affiliate as operator. Should El Paso enter into an operating agreement with a third party on all or part of a Prospect prior to the execution of the Operating Agreement for such Prospect, then the Operating Agreement covering such Prospect shall be made subject to such prior operating agreement.


3.5 INFORMATION. In connection with the drilling of the Commitment Wells, Participant shall have free and unrestricted access, including the opportunity to occupy available space on transportation utilized by Participant for travel to and from the Commitment Wells, to the derrick floor, at Participant's sole cost, risk and expense, to observe drilling, logging, coring, testing, and other operations, to inspect core samples, to verify drilling depths and conditions, and to review results of all tests, electrical logging surveys and other downhole evaluation surveys.


SECTION 4
LEASE ACQUISITIONS


4.1 NO LEASE ACQUISITIONS BY PARTICIPANT. Participant will not acquire any interest in any Lease within a Prospect (except from El Paso pursuant to this Agreement) or contact any party owning rights within a Prospect for any reason prior to the date of the assignment from El Paso to Participant for the relevant Prospect and the execution of an Operating Agreement for such Prospect. If Participant obtains an interest in a Lease within a Prospect in violation of the preceding sentence, then Participant shall, within 30 days of securing such interest, disclose to El Paso the terms conditions and costs associated with such interest. El Paso shall then have 15 days to elect to acquire ONE HUNDRED percent (100%) of such interest at no cost. El Paso' ...