Exploration And Development Agreement

Exhibit 10.23

EXPLORATION AND DEVELOPMENT AGREEMENT

THIS EXPLORATION AND DEVELOPMENT AGREEMENT (" Agreement" ) dated this 25th day of July, 2005, by and between THE OSAGE NATION, as represented by the Osage Tribal Council in accordance with the Act of June 28, 1906 (34 Stat. 539), as amended, (the " Osage" ), by Jim Roan Gray, Principal Chief, under authority of Resolution No. 31-1196 of the Osage Tribal Council (the " Council" ), dated July 25, 2005; and AMVEST OSAGE, INC., a Virginia corporation, (" AMVEST" ). the Osage and AMVEST are collectively referred to herein as the " Parties" and individually as a " Party."

Recitals WHEREAS, by Amended and Restated Exploration and Development Agreement dated October 29, 2001, between the Osage and AMVEST West, Inc., predecessor in interest to AMVEST, as amended from time to time, (the " AMVEST Agreement" ), the Osage granted AMVEST certain exclusive rights for the exploration, leasing and development of portions of the Osage Mineral Estate with the goal of increasing production from the Osage Mineral Estate; and

WHEREAS, the Parties acknowledge that considerable investment in gas gathering, transportation and handling infrastructure in southeast Osage County has been made by AMVEST and third parties, and must continue to be made to ensure effective development of coalbed methane and natural gas resources on the Osage Mineral Estate; and

WHEREAS, the Parties acknowledge the exploration and development efforts performed to date by AMVEST have identified various technical, operational and economic issues that will affect the future development of coalbed methane resources from the Osage Mineral Estate; and

WHEREAS, the term of the AMVEST Agreement is nearing completion and the Parties desire to formally terminate the AMVEST Agreement and execute a new, comprehensive agreement regarding the leasing, exploration and development of portions of the Osage Mineral Estate for the long-term, mutual benefit of the Parties.

Agreement NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Osage and AMVEST do hereby covenant and agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the meanings herein specified, unless the context otherwise requires: (a)" Advance Option Payment" shall mean the advance payments provided for in Section 5, below. (b)" Affiliate" or " Affiliates" shall mean, as to any company, any other company (or companies) or entity (or entities) which, directly or indirectly, is in control of, is controlled by, or is under direct or indirect common control with, such company.


1 (c)" AMVEST" shall mean AMVEST Osage, Inc.

(d)" Area of Interest" shall mean all of the property in Osage County, Oklahoma identified and depicted on the map marked Exhibit " A," within which the following are located: (i) the Existing Licensed Acreage comprised of 190,000 acres, (ii) the Available Acreage from which AMVEST may select the Phase I Acreage, the Phase II Acreage, the Phase III Acreage and the Phase IV Acreage; and (iii) the Excluded Acreage.

(e)" Available Acreage" shall mean the acreage within the Area of Interest depicted on Exhibit " A," and more precisely described on Exhibit " A-1," which is subject to this Agreement and from which AMVEST may select the Phase I Acreage, the Phase II Acreage, the Phase III Acreage and the Phase IV Acreage.

(f)" BIA" shall mean the Osage Agency, Bureau of Indian Affairs, United States Department of the Interior. (g)" Council" shall mean the Osage Tribal Council.

(h)" Effective Date" shall mean January 1, 2005.

(i)" Excluded Acreage" shall mean the acreage within the Area of Interest which is not currently available for leasing because such property is included in an existing lease, option, concession or development agreement between the Osage and third parties.

(j)" Exhibit " A" shall mean that map or plat attached hereto and made a part hereof which, as of the Effective Date, depicts: (i) the Area of Interest, (ii) the Existing Licensed Acreage, (iii) the Available Acreage, and (iv) the Excluded Acreage.

(k)" Exhibit " A-1" shall mean that schedule attached hereto and made a part hereof, consisting of 17 pages, which, as of the Effective Date, sets forth the acreage descriptions of the Existing Licensed Acreage and the Available Acreage.

(l)" Existing Licensed Acreage" shall mean the initial 190,000 acres of land depicted on Exhibit " A," and more precisely described on Exhibit " A-1," which have previously been identified and accepted by the Parties prior to the Effective Date.

(m)" Horizontal Well" shall mean any drilling or jetting of a horizontal or near- horizontal lateral into a potentially-productive interval (whether into a coal seam or non-coal formation) from a vertical or slant wellbore including, but not limited to, the drilling or jetting of a long-, medium- or short-radius lateral (as such terms are commonly used in the industry), the long axis of which lateral is oriented approximately parallel to the bedding plane of the formation being drilled into.

(n)" Leases" shall mean the Coalbed Methane leases or Coalbed Methane, oil and/or gas leases (as appropriate) selected by AMVEST on a quarter-section basis, more or less, from the " Licensed Acreage."


2 (o)" Licensed Acreage" shall mean the Existing Licensed Acreage, the Phase I Acreage (when and if added), the Phase II Acreage (when and if added), the Phase III Acreage (when and if added), the Phase IV Acreage (when and if added), the Excluded Acreage (when and if added), and the remaining Available Acreage (when and if added), for which AMVEST has the exclusive right to enter into the Leases.

(p)" Material Breach" shall mean a breach by one Party that substantially impairs the value or benefit of this Agreement to the other Party. (q)" Osage" shall mean the Osage Nation of Indians, or any other name by which it is denominated, as represented by the Osage Tribal Council in accordance with the Act of June 28, 1906 (34 Stat. 539), as amended.

(r)" Phase I," " Phase II," " Phase III" and " Phase IV" shall have the meanings set forth in Section 2 of this Agreement.

(s)" Phase I Acreage" shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase I from properties identified on Exhibit " A" and more precisely described on Exhibit " A-1."

(t)" Phase II Acreage" shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase II after completion of Phase I from properties identified on Exhibit " A" and more precisely described on Exhibit " A-1."

(u)" Phase III Acreage" shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase III after completion of Phase II from properties identified on Exhibit " A" and more precisely described on Exhibit " A-1."

(v)" Phase IV Acreage" shall mean the 12,480 acres of land that may be selected by AMVEST, in its sole discretion, during Phase IV after completion of Phase III from properties identified on Exhibit " A" and more precisely described on Exhibit " A-1."

2. Term . (a) The term of this Agreement shall be for sixteen (16) years from the Effective Date of this Agreement. The term shall consist of four (4) phases: (a) " Phase I" which is to extend for four (4) years following the Effective Date; (b) " Phase II" which is to extend for four (4) years following the termination of Phase I, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase II; (c) " Phase III" which is to extend for four (4) years following the termination of Phase II, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase III and (d) " Phase IV" which is to extend for four (4) years following the termination of Phase III, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase IV. Subsequent to the termination of this Agreement, during whatever phase the Agreement terminates, the activities of AMVEST shall be governed by the provisions of the Leases that AMVEST has entered into with the Osage.


3 (b) On or around January 31 of each calendar year during the term of this Agreement (commencing in 2006), at a time convenient for the Parties, AMVEST shall make a presentation to the Osage Tribal Council and BIA (as appropriate) to: (i) review the results of exploration, drilling, production and infrastructure development performed by AMVEST during the preceding calendar year, (ii) present AMVEST' s preliminary plans for exploration and development of Coalbed Methane on the Osage Mineral Estate during the current calendar year, and (iii) address any questions or concerns raised by the Osage Tribal Council and/or BIA concerning AMVEST' s prior or planned Coalbed Methane exploration and development activity. The Parties acknowledge, however, that ongoing exploration and development results, evolving gas transportation and market conditions, and other factors, may impact and alter AMVEST' s planned activity during any particular year, in which case AMVEST shall timely advise the Osage as to material changes in AMVEST' s planned exploration and development efforts. 3. Grant . During the term of this Agreement, the Osage grants to AMVEST the exclusive right to enter into the Leases within the Licensed Acreage on a quarter section (i.e., 160- acre, more or less) basis upon the terms that have been pre-negotiated between the Parties as stated herein.

4. Licensed Acreage . (a) The Licensed Acreage initially consists of the Existing Licensed Acreage. Effective January 1, 2005, Phase I shall commence and during Phase I, AMVEST may, at its election, elect to specify and include up to 15,040 acres of the Phase I Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase I, plus up to 14,880 acres during the fourth and final calendar year of Phase I (i.e., cumulative 60,000 acres of Phase I Acreage). AMVEST shall make its election with regard to including Phase I Acreage prior to the end of each calendar year. Any Phase I Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase I, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase I Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase I Acreage as set forth in Section 5 below, and such portions of the Phase I Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

(b)

Provided, however, if this Agreement extends to Phase II, or if AMVEST has drilled 420 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase II, or after AMVEST has drilled 420 production wells, elect to specify and include up to 15,040 acres of the Phase II Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase II, plus up to 14,880 acres during the fourth and final calendar year of Phase II (i.e., cumulative 60,000 acres of Phase II Acreage). AMVEST shall make its


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election with regard to including Phase II Acreage prior to the end of each calendar year. Any Phase II Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase II, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase II Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase II Acreage as set forth in Section 5 below, and such portions of the Phase II Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

(c) Provided, further, if this Agreement extends to Phase Ill, or if AMVEST has drilled 620 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase III, or after AMVEST has drilled 620 production wells, elect to specify and include up to 15,040 acres of the Phase III Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase III, plus up to 14,880 acres during the fourth and final calendar year of Phase III (i.e., cumulative 60,000 acres of Phase III Acreage). AMVEST shall make its election with regard to including Phase III Acreage prior to the end of each calendar year. Any Phase III Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase III, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase III Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase III Acreage as set forth in Section 5 below, and such portions of the Phase III Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

(d)

Provided, further, if this Agreement extends to Phase IV, or if AMVEST has drilled 820 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase IV, or after AMVEST has drilled 820 production wells, elect to specify and include all 12,480 acres (or a portion thereof) of the Phase IV Acreage within the Licensed Acreage during any calendar year of Phase IV. AMVEST shall make its election with regard to including Phase IV Acreage prior to the end of each calendar year. Any Phase IV Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase IV, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement, if applicable. If AMVEST elects to include the Phase IV Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase IV Acreage as set forth in Section 5 below, and such portions of the Phase IV Acreage shall automatically be included in the definition of the


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Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

(e) If this Agreement extends beyond Phase IV, or if AMVEST has drilled 1,020 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, if and when portions of the Excluded Acreage become available for leasing because of the expiration or termination of the applicable lease, option, concession or development agreement between the Osage and a third party, AMVEST may, at its election to be exercised in writing within 30 days of the BIA' s publication of such expiration or termination, elect to include all or portions of the Excluded Acreage within the Licensed Acreage. If AMVEST elects to include within the Licensed Acreage all or portions of the Excluded Acreage, AMVEST shall pay the Advance Option Payment for the Excluded Acreage, as set forth in Section 5 below, and the Excluded Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement. To the extent portions of the Excluded Acreage become available for leasing after the Effective Date, but prior to the expiration of Phase IV or before AMVEST has drilled 1,020 production wells, the Osage shall not enter into any lease, option, concession or development agreement with regard to such Excluded Acreage with any third party until it has first offered AMVEST the option, and AMVEST has elected not to include such Excluded Acreage within the Licensed Acreage pursuant to the terms set forth herein.

(f) Notwithstanding the terms of Section 4(e) above, the total Licensed Acreage shall not exceed 382,480 acres unless AMVEST has first drilled a minimum of one thousand twenty (1,020) production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date). In the event AMVEST has drilled one thousand twenty (1,020) production wells on the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage and Phase IV Acreage, and provided that AMVEST pays the Advance Option Payment of Four Dollars ($4.00) per net acre to be added to the Licensed Acreage pursuant to Section 5, AMVEST shall have the right to add and include the Excluded Acreage and/or any remaining Available Acreage in the Area of Interest that was not included in the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage or Phase IV Acreage, such that the total Licensed Acreage may exceed 382,480 acres. In the event the Licensed Acreage exceeds 382,480 acres, the Osage and AMVEST shall act in good faith to amend the term as set forth in Section 2 and to amend the drilling requirements of Section 11, by increasing both provisions to reflect the additional development.

(g)

During the term of this Agreement, AMVEST may, at its election from time to time, release or surrender to the Osage portions of the Licensed Acreage by providing written notice thereof and such acreage so released or surrendered shall


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be excluded from the Licensed Acreage (unless AMVEST subsequently elects to include it pursuant to the provisions set forth herein), but such acreage so released or surrendered shall remain and constitute part of the Available Acreage. If AMVEST so elects, it may, by providing written notice to the Osage, nominate a number of acres from the Available Acreage which is equal in number to the acreage so released or surrendered which nominated acreage shall, at no additional cost to AMVEST, become a part of the Licensed Acreage in lieu of the acreage so released or surrendered. 5. Advance Option Payments . As part of the consideration for the licenses, rights and privileges granted under this Agreement, the Osage acknowledges and agrees that, prior to the Effective Date, AMVEST paid the Osage as an Advance Option Payment, a total sum equal to Four Dollars ($4.00) per net acre for each acre of the Existing Licensed Acreage. No part of these Advance Option Payments is refundable or recoupable.

(a) During Phase I, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase I Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase I Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST' s election. No part of these Advance Option Payments is refundable or recoupable.

(b) If this Agreement extends to Phase II, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase II Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase II Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST' s election. No part of this Advance Option Payment is refundable or recoupable.

(c) If this Agreement extends to Phase III, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase III Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase III Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST' s election. No part of this Advance Option Payment is refundable or recoupable.

(d) If this Agreement extends to Phase IV, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase IV Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase IV Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST' s election. No part of this Advance Option Payment is refundable or recoupable.

(e)

If AMVEST elects from time to time to add to the Licensed Acreage all or part of the Excluded Acreage, or any remaining Available Acreage within the Area of Interest that was not included under the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage and Phase IV Acreage, pursuant to the terms and procedures set forth in Sections 4(f)


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and 4(g) above, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Excluded Acreage and remaining Available Acreage selected by AMVEST and added to the Licensed Acreage. The total amount of this Advance Option Payment shall be paid from time to time within 30 days of AMVEST' s election. No part of this Advance Option Payment is refundable or recoupable.

6. Reservations . Notwithstanding any provision to the contrary contained in this Agreement, all grants and rights contained herein shall be subject to the rights of third party oil and gas lessees of the Osage which are of record with the BIA prior to the Effective Date of this Agreement and are further subject to all rights of surface owners. 7. Reports . AMVEST shall make periodic verbal and/or written progress reports to the BIA and the Osage, summarizing the operations undertaken during the term of the Agreement. These reports shall be a summary of wells staked, when spudded, wells drilled and the status of each, location of each well, and in similar fashion for wells re-entered, plus Leases purchased and their location. The progress reports shall not replace any reports for Leases and wells required by the BIA, in accordance with applicable laws and regulations, or the Osage.

8. Coalbed Methane Acquisition and Development Program

(a) Coalbed Methane zones (sometimes called coal seam gas or carbonaceous shale zones) are zones which produce, or are capable of producing, Coalbed Methane, as defined below, and occur as scattered lithologies in the interval between the top of the Skiatook Group and the top of the Arbuckle formation which include, but are not limited to, the Woodford Shale, Krebs, Cabaniss, Marmaton and Skiatook Groups. The granting of lease rights on Coalbed Methane zones shall be restricted to the individual coalbeds, seams and carbonaceous shale zones. AMVEST shall provide stratigraphic information to the Osage and BIA such as electric logs that identify geological formation names in the area of their reentries and drilling. " Coalbed Methane" shall mean all gas and oil produced from within the stratigraphic interval described above from coalbeds, coal seams, coal zones, coal-bearing zones, mined-out areas and carbonaceous shale formations. The term " carbonaceous" is authoritatively defined as containing carbon, usually of organic origin, such as shale with plant or other organic remains. (b) AMVEST shall assume the burden of proof of defining Coalbed Methane zones as differing from the remaining penetrated zones in a wellbore such as by chemical analysis of the gas and/or oil and lithologic analysis of the footage penetrated, as determined from electric logs (e.g., density/neutron, gamma ray, resistivity, etc.).

(c) AMVEST shall provide the Osage and the BIA with drilling and logging information to enable evaluation of zones penetrated but not covered by a Coalbed Methane Lease nor covered by an oil or gas Lease.


8 9. Lease Terms . AMVEST shall have the exclusive right to enter into Leases with the Osage pursuant to which Coalbed Methane can be produced and marketed from the Licensed Acreage. If AMVEST elects to enter into a Coalbed Methane-only Lease with regard to any of the Licensed Acreage and if the oil and/or gas interest on the area included in said Lease is unleased at the time, AMVEST may subsequently exercise its right, pursuant to Section 14(b), to lease the oil and/or gas by providing written notice to the Osage and paying the incremental lease bonus as set forth below. In ...