PURCHASE, SALE AND JOINT EXPLORATION AGREEMENT

between

Rangeford Resources, Inc. (“Purchaser”)

and

Black Gold Kansas Production, LLC, ( “Seller”)

August 6, 2014

i

Exhibits

A

Schedule 1:

Leases

Schedule 1A:

Wells

Schedule 2:

Contracts – No contracts are associated with this Purchase and Sale Agreement; therefore, no Exhibit A, Schedule 2 is attached.

Schedule 3:

Allocated Value – No Exhibit A, Schedule 3 is attached to this Purchase and Sale Agreement

B

Form of Assignment, Bill of Sale and Conveyance

C

Escrow Agreement

D

Form 601

ii

PURCHASE, SALE AND JOINT EXPLORATION AGREEMENT

This Purchase, Sale and Joint Exploration Agreement (this “ Agreement ”) is made and entered into as of the day of August 6, 2014, by and between Rangeford Resources, Inc., a Nevada corporation and (“ Purchaser ”), and Black Gold Kansas Production, LLC , a Texas limited liability company (“ Seller ”).

Recitals

A.

Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the Assets (as defined below), all upon the terms and conditions hereinafter set forth.

B.

Purchaser and Seller (together, the “ Parties ” and each, a “ Party ”) desire to make certain representations, warranties, covenants and agreements in connection with such sale and purchase and also to prescribe various conditions thereto.

In consideration of the recitals and the mutual covenants and agreements set forth in this Agreement, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1

Defined Terms

.  As used in this Agreement, each of the following terms has the meaning given in this Section 1.1 or in the Section referred to below:

“ Affiliate ” means, with respect to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with such Person.

“ Agreement ” means this Purchase and Sale Agreement, as amended, supplemented or modified from time to time.

“ Allocated Values ” means the allocation of values for all of the Assets shown on Exhibit A, Schedule 3 . Exhibit A, Schedule 3 is sometimes referred to herein as the “ Allocated Value Schedule .”

“ Arbitrator ” has the meaning specified in Section 5.9.

“ Assets ” has the meaning specified in Section 2.2.

“ Assignment ” has the meaning specified in Section 8.7(a).

“ Assumed Obligations ” has the meaning specified in Section 10.1.

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“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in Tulsa, Oklahoma, are authorized or required by law to close.

“Casualty Loss” has the meaning specified in Section 11.3.

“ CERCLA ” has the meaning specified in this Section 1.1 in the definition of the term Environmental Law.

“ Claims ” has the meaning specified in Section 10.5.

“ Clean Air Act ” has the meaning specified in this Section 1.1 in the definition of the term Environmental Law.

“ Closing ” means the closing and consummation of the transactions contemplated by this Agreement.

“ Closing Date ” means _________________________, 2014, or such other date on which Purchaser and Seller may mutually agree, subject to delay as provided in Sections 5.4, 5.7 and 5.8.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Confidentiality Agreement ” means the Confidentiality Agreement dated _______________________________, between Seller and Purchaser relating to Seller’s furnishing of information to Purchaser in connection with Purchaser’s evaluation of the Assets.

“ Consent ” has the meaning specified in Section 5.10(a).

“ Contracts ” has the meaning specified in Section 2.2(d).

“ Cure Period ” has the meaning specified in Section 5.5(b).

“ Deductible ” has the meaning specified in Section 10.10.

“ Designated Accountant ” means Bobby J. Walker, CPA, or if such firm is unable or unwilling to serve, such other independent accounting firm not used by Seller or Purchaser as is mutually appointed by Purchaser and Seller.

“ Earnest Money ” has the meaning specified in Section 2.5.

“ Earnest Money Retention Event ” means either (a) Purchaser’s failure or refusal to close the transactions contemplated by this Agreement on the Closing Date at a time when (i) each of the conditions contained in Sections 7.1 and 7.2 (excluding Seller’s performance of its obligations at the Closing) has been either fulfilled in all material respects or waived and (ii) Seller is ready, willing and able to perform in all material respects its obligations at the Closing, or (b) Seller’s termination of this Agreement pursuant to Section 9.1(d).

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“ Effective Time ” means 7:00 a.m. local time at the location of the Assets on August 6, 2014.

“ Environmental Defect ” means a condition, occurrence, event or activity on or related to the Assets (i) any surface or mineral lease obligation, whether an express or implied obligation, relating to natural resources, conservation, the environment, or the emission, release, storage, treatment, disposal, transportation, handling, or management of industrial or solid waste, hazardous waste, hazardous or toxic substances, chemicals or pollutants, petroleum, including, without limitation, crude oil, natural gas, natural gas liquids, or liquefied natural gas, and any wastes associated with the exploration and production of oil and gas which violates Environmental Law.

“ Environmental Defect Notice ” has the meaning specified in Section 5.8(a).

“ Environmental Defect Value ” has the meaning specified in Section 5.8(b).

“ Environmental Disputes ” has the meaning specified in Section 5.8(d).

“ Environmental Law ” means any present and future law, common law, ordinance or regulation of any Governmental Authority, as well as any order, decree, permit, judgment or injunction issued, promulgated, approved or entered thereunder, relating to the environment, health and safety, Hazardous Material (including the use, handling, transportation, production, disposal, discharge, release or storage thereof), industrial hygiene, the environmental conditions on, under, or about any real property owned, leased or operated by Seller and included in the Assets, including soil, groundwater, and indoor and ambient air conditions or the reporting or remediation of environmental contamination. Environmental Laws include the Clean Air Act, as amended (the “ Clean Air Act ”), the Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“ CERCLA ”), the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act of 1976, as amended (“ RCRA ”), the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, and any other Law whose purpose is to conserve or protect human health, the environment, air quality, wildlife or natural resources.

“ Environmental Obligations ” has the meaning specified in Section 10.4.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time and the regulations promulgated thereunder.

“ Escrow Account ” means the account maintained by the Escrow Agent pursuant to the Escrow Agreement.

“ Escrow Agent ” means Bobby J. Walker, CPA.

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“ Escrow Agreement ” means an Escrow Agreement among Purchaser, Seller and the Escrow Agent substantially in the form of Exhibit C .

“ Excluded Assets ” has the meaning specified in Section 2.3.

“ Expiration Date ” has the meaning specified in Section 10.11.

“ Final Settlement Date ” has the meaning specified in Section 8.4(a).

“ Final Settlement Statement ” has the meaning specified in Section 8.4(a).

“ Governmental Authority ” means any national, state, county or municipal government, domestic or foreign, any agency, board, bureau, commission, court, department or other instrumentality of any such government, or any arbitrator in any case that has jurisdiction over any of the Parties or any of their respective properties or assets.

“ Hazardous Material ” means (a) any “hazardous substance,” as defined by CERCLA; (b) any “hazardous waste” or “solid waste,” in either case as defined by RCRA; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or substance, within the meaning of and regulated by any Environmental Law; (d) any asbestos-containing materials in any form or condition; (e) any polychlorinated biphenyls in any form or condition; (f) Hydrocarbons or any fractions or byproducts thereof; or (g) any air pollutant which is so designated by the U.S. Environmental Protection Agency as authorized by the Clean Air Act.

“ Hydrocarbons ” has the meaning specified in Section 2.2(a).

“ Interest Addition ” has the meaning specified in Section 5.6.

“ Interim Operating Expenses ” has the meaning specified in Section 8.2(a)(iv).

“ Inventory ” has the meaning specified in Section 8.2(a)(v).

“ Lands ” has the meaning specified in Section 2.2(a).

“ Laws ” has the meaning specified in Section 10.1(c).

“ Leases ” and “ Lease ” have the respective meanings specified in Section 2.2(a).

“ Lien ” means any lien, mortgage, security interest, pledge, deposit, restriction, burden, encumbrance, rights of a vendor under any title retention or conditional sale agreement, or lease or other arrangement substantially equivalent thereto, but does not include any production payment obligation.

Liens created by supplies , workmen and operators arising by operation of law in the ordinary course of business or by a written agreement existing as of the date hereof and necessary or incident to the exploration, development, operation and maintenance of Hydrocarbon properties and related facilities and assets for sums not yet due or being

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contested in good faith by appropriate proceedings; (c) Liens incurred in the ordinary course of business in connection with worker’s compensation, unemployment insurance and other social security legislation (other than ERISA) which would not, individually or in the aggregate, result in a Material Adverse Effect on Seller; (d) Liens incurred in the ordinary course of business to secure the performance of bids, tenders, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and repayment bonds and other obligations of a like nature; (e) Liens, easements, rights-of-way, restrictions, servitudes, permits, conditions, covenants, exceptions, reservations and other similar encumbrances incurred in the ordinary course of business or existing on property that do not impair the value of the Assets or interfere with Seller’s right to ownership, use or operation of the Assets; (f) Liens created or arising by operation of law to secure a Party’s obligations as a purchaser of oil and gas; (g) all rights to consent by, required notices to, filings with, or other actions by Governmental Authorities to the extent customarily obtained subsequent to closing; (h) farmout, carried working interest, joint operating, participation, unitization, geologist retainer, royalty, overriding royalty, sales and similar agreements relating to the exploration or development of, or production from, Hydrocarbon properties entered into in the ordinary course of business, provided the effect there “ Material Adverse Effect ” means (a) when used with respect to Seller, a result or consequence that would materially and adversely affect the value of the Assets, or would materially and adversely affect Seller’s ability to perform its obligations hereunder or consummate the transactions contemplated hereby or prevent or materially delay the performance of this Agreement; and (b) when used with respect to Purchaser, a result or consequence that would materially and adversely affect Purchaser’s ability to realize the value of the ownership, use and operation of the Assets or perform its obligations hereunder or consummate the transactions contemplated hereby or prevent or materially delay the performance of this Agreement; provided, however, the term Material Adverse Effect shall exclude any effect resulting from or related to changes or developments involving (i) general conditions applicable to the economy of the United States or the State of Kansas , (ii) conditions affecting the oil and gas industry generally or in the State of Kansas , (iii) capital market conditions in the United States, (iv) conditions or effects resulting from the announcement of the existence of this Agreement, (v) conditions relating to commodity prices, or (vi) changes in Laws or the interpretation thereof.

 “ Net Revenue Interest ” means a fractional or percentage interest in and to all Hydrocarbons produced from or allocated to an Asset (insofar as such Hydrocarbons are attributable to the Identified Zone for such Asset) after deduction of all third party royalties, overriding royalties, and other burdens and payments out of production that burden such fractional or percentage interest.

“ NORM ” has the meaning specified in Section 11.2.

“ Notice Date ” means August 6, 2014.

“ Notice of Disagreement ” has the meaning specified in Section 8.4(a).

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“ Parties ” and “ Party ” have the respective meanings specified in the Recitals to this Agreement.

“ Permits ” has the meaning specified in Section 2.2(e).

“ Permitted Encumbrances ” means: (a) Liens for taxes, assessments or other governmental charges or levies if the same shall not at the particular time in question be due and delinquent or are being contested in good faith by appropriate proceedings; (b) Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords, vendors of on the Working Interest and Net Revenue Interest has been properly reflected on Exhibit A, Schedule 3 (c ) Preferential Rights and Third-Party Consents subject to Article 5.10; ( d ) the terms and provisions of all Leases to the extent such terms and provisions have no effect on the Working Interest or Net Revenue Interests; ( e ) valid, subsisting and applicable laws, rules and orders of any Governmental Authorities; ( f ) Liens arising under the Seller Credit Agreement (it being understood that the release of such Liens is a condition to the Closing as provided in Section 7.2(c)); ( g ) claims at issue in any pending litigation disclosed on Schedule 3.5 and (p) any Liens, defects, irregularities or deficiencies arising on account of the acts or omissions of Purchaser or its Affiliates, or the representatives or agents of either.

“ Person ” (whether or not capitalized) means any natural person, corporation, company, limited or general partnership, joint stock company, joint venture, association, limited liability company, trust, bank, trust company, land trust, business trust or other entity or organization, whether or not a Governmental Authority.

“ Plugging and Abandonment Obligations ” has the meaning specified in Section 10.3.

“ Preferential Rights ” has the meaning specified in Section 3.4.

“ Production Imbalances ” means gas imbalances and make-up obligations related to the Assets regardless of whether such imbalances or make-up obligations arise before or after the Effective Time, at the wellhead, pipeline, gathering system or other location, and regardless of whether the same arise under contract or otherwise.

“ Purchase Price ” has the meaning specified in Section 2.4.

“ Purchase Price Allocations and Adjustments ” has the meaning specified in Section 8.2(c).

“ Purchaser ” has the meaning specified in the opening paragraph of this Agreement.

“ Purchaser Indemnified Parties ” has the meaning specified in Section 10.8.

“ Purchaser’s Knowledge ” has the meaning specified in Section 4.5.

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“ RCRA ” has the meaning specified in this Section 1.1 in the definition of the term Environmental Law.

“ Records ” has the meaning specified in Section 2.2(g).

“ Representatives ” means, with respect to any Person, the Affiliates of such Person and the officers, directors, managers, members, shareholders, agents, contractors and employees of such Person and of each Affiliate of such Person.

“ Responsible Officer ” means, with respect to any entity, the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer or any Vice President of such entity or, if such entity is a limited partnership, of the general partner of such entity.

“ Seller ” has the meaning specified in the opening paragraph of this Agreement.

  “ Seller’s Knowledge ” has the meaning specified in Section 3.4.

“ Statement ” has the meaning specified in Section 8.3.

“ Straddle Period ” has the meaning specified in Section 8.6.

“ Subject Defect ” has the meaning specified in Section 5.5.

“ Subject Interests ” and “ Subject Interest ” have the respective meanings specified in Section 2.2(a).

“ Suspended Proceeds ” means all proceeds of production from the Assets that Seller is holding as of the Closing Date owing to any Person having a royalty, overriding royalty, leasehold cost bearing or working interest, net profits interest, production payment, or other interest in respect of the production of Hydrocarbons attributable to the Assets before the Closing Date.

“ Third-Party Consent ” means the consent or approval of any Person, or Governmental Authority, other than Seller or Purchaser.

“ Title Defect ” means:  (a) Seller’s interest in an Asset is subject to a Lien other than a Permitted Encumbrance; (b) the Net Revenue Interest of Seller in the Identified Zone of an Asset is less than the Net Revenue Interest shown in Exhibit A, Schedule 3 in no event shall either a Permitted Encumbrance or  an individual Title Defect having a Title Defect Value of less than $10,000 constitute a Title Defect for purposes of this Agreement.  In evaluating whether an encumbrance, encroachment, irregularity, defect in or objection to title constitutes a Title Defect, due consideration shall be given to the length of time that the Assets affected thereby have been producing Hydrocarbons, whether such Assets are in “pay status” and whether such defect is of the type expected to be encountered in the area involved and is customarily acceptable to prudent operators and interest owners. (As used herein, “pay status” means payments being made by a third party for the production from the Assets without indemnity from the seller of production

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except such indemnities as are customarily included in division orders, transfer orders, product purchase agreements and similar instruments commonly used in connection with the payment of proceeds from production.) In no event shall any of the following constitute Title Defects: defects that have been cured by possession under applicable statutes of limitation; failure to recite marital status in documents; lack of heirship or succession proceedings; failure to subordinate mortgages granted by a mineral lessor; lack of survey; failure to record releases of lien, production payments or mortgages that have expired of their own terms; failure to obtain or record releases of prior oil and gas leases that have expired in accordance with their terms; defects arising out of lack of corporate or other entity authorization of any party other than Seller, unless Purchaser provides evidence that the action was not authorized and provides affirmative evidence that such failure results in another person’s superior claim of title; any delay in delivering an assignment earned under a farmout, participation or similar agreement unless there is evidence that the farmor or other third party record title holder has refused to deliver such assignment; defects arising from any change in Laws after the execution date of this Agreement; Leases that are subject to termination upon expiration of their primary term at any time after the Effective Date; and pooling orders included in the Leases that are subject to termination upon their expiration.  

“ Title Defect Notice ” has the meaning specified in Section 5.3.

“ Title Defect Value ” means, with respect to a Title Defect, the amount of the downward adjustment to the Purchase Price on account of such Title Defect, which amount shall in no event exceed the value allocated on the Allocated Value Schedule to  of the Asset affected by such Title Defect.  

“ Title Disputes ” has the meaning specified in Section 5.4.

“ Wells ” and “ Well ” have the respective meanings specified in Section 2.2(b).

“ Working Interest ” means a fraction or percentage of the costs and expenses associated with the maintenance, exploration, development, operation and abandonment of an Asset.

1.2

References and Titles

.  All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Exhibits and Schedules referred to herein are attached to and by this reference incorporated herein for all purposes. Titles appearing at the beginning of any Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “ this Agreement ,” “ herein ,” “ hereby ,” “ hereunder ” and “ hereof ,” and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words “ this Article ,” “ this Section ” and “ this subsection ,” and words of similar import, refer only to the Article, Section or subsection hereof in which such words occur. The word “ or ” is not exclusive, and the word “ including ” (in its

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various forms) means including without limitation. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. As used in the representations and warranties contained in this Agreement, the phrase “to the knowledge” of the representing Party refers to the actual knowledge, without a duty of further inquiry, of a Responsible Officer of such representing Party. Disclosure of a matter on a Schedule hereto shall not be deemed a determination by a Party that such matter is material for purposes of this Agreement. All references to dollar amounts herein refer to United States dollars.  If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date that is not a Business Day), then the date for giving such notice or taking such action (and the expiration of such period during which notice is required to be given or action taken) shall be the next day that is a Business Day.

ARTICLE II

PURCHASE AND SALE

2.1

Agreement to Purchase and Sell

.  Subject to and in accordance with the terms and conditions of this Agreement, Purchaser agrees to purchase the Assets from Seller, and Seller agrees to sell the Assets to Purchaser.

2.2

Assets

.  Subject to Section 2.3, the term “ Assets ” means that percentage working and net revenue interest in and to the West Mule Creek oilfield identified as follows: :

(a)

an undivided ninety percent (90%) working interest delivering a seventy-six and one half percent (76.50%) in and to the West Mule Creek lease, containing four hundred acres (400 acres) in Niobrara County, Wyoming, with thirteen (13) wells connected to tank batteries of 1,300 barrels storage capacity, gravel roads, electric meters, electric line and power poles, flow lines and pumping units, rods and down hole pumps on location on the West Mule Creek lease.

(b)

an undivided ninety percent (90%) working interest, delivering a seventy-six and one half percent (76.50%) net revenue interest in 240 acres in Niobrara County, Wyoming on Bureau of Land Management (BLM) acreage adjacent to the West Mule Creek oilfield.

(c)

a like undivided interest in and to all wells, whether producing, shut in or abandoned, and whether for production, injection or disposal, or otherwise associated with the Subject Interests, including those described in Exhibit A, Schedule, 2 (collectively, the “ Wells ” and each a “ Well ”); (collectively, the “ Leases ” and each a “ Lease ”) and any overriding royalty interests, royalty interests, non-working or carried interests, operating

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rights, mineral rights and other rights and interests described on Exhibit A, Schedule 1 together with the lands covered thereby or pooled or unitized therewith (the “ Lands ”), together with (i) all rights with respect to any pooled, communitized or unitized interest by virtue of any Leases and Lands and (ii) all production of oil, gas, associated liquids and other hydrocarbons (collectively “ Hydrocarbons ”) after the Effective Time from the Leases and the Lands, and from any such pool or unit and allocated to any such Leases and Lands (the Leases, the Lands, and the rights described in clause (i) above, and the Hydrocarbons described in clause (ii) above, being collectively referred to as the “ Subject Interests ” or, singularly, a “ Subject Interest ”);

(d)

a like undivided interest in and to all equipment, machinery, fixtures, spare parts, inventory, communications equipment, telemetry and production measurement equipment, and other personal property (including Seller’s leasehold interests therein subject to any necessary consents to assignment) used in connection with the operation of the Subject Interests or the Wells or in connection with the production, storage, treatment, compression, gathering, transportation, sale, or disposal of Hydrocarbons produced from or attributable to the Subject Interests or the Wells, and any water, byproducts or waste produced therefrom or therewith or otherwise attributable thereto, and all wellhead equipment, pumps, pumping units, flowlines, gathering systems, pipe, tanks, treatment facilities, injection facilities, disposal facilities, compression facilities and other materials, supplies, buildings, trailers and offices used in connection with the Subject Interests, the Wells and the other matters described in this definition (collectively, “ Assets ”);

(e)

to the extent assignable or transferable, a like undivided interest in and to all (i) all easements, rights-of-way, servitudes, licenses, permits, surface leases, surface use agreements and other rights or agreements related to the use of the surface and subsurface, in each case to the extent used in connection with the operation of the Subject Interests or the Wells; (ii) all contracts, agreements, drilling contracts, equipment leases, production sales and marketing contracts, farmout and farmin agreements, operating agreements, service agreements, unit agreements, gas gathering and transportation agreements and other contracts, agreements and arrangements, relating to the Subject Interests, the Wells and the other matters described in this definition of Assets, (iii) equipment leases and rental contracts, service agreements, supply agreements and other contracts, agreements and arrangements relating to the Subject Interests, the Wells and the other matters described in this definition of Assets, (the agreements identified in clauses (i), (ii) and (iii) above being, collectively described in Exhibit A, Schedule 2, the “ Contracts ”);

(f)

to the extent assignable or transferable, all permits, licenses, franchises, consents, approvals and other similar rights and privileges, in each case to the extent used in connection with the operation of the Subject Interests or the Wells (the “ Permits ”);

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(g)

all Production Imbalances; and

(h)

a like undivided interest in and to all books, records, files and databases, (ii) to the extent assignable or transferable, copies of all maps and well logs and data, and (iii) muniments of title, reports and similar documents and materials, in each case to the extent directly relating to the foregoing interests and in the possession or control of Seller (the “ Records ”).

The total consideration for the purchase, sale and conveyance of the Assets to Purchaser and Purchaser’s assumption of the those Assets an undivided share of liabilities provided for in this Agreement, is Purchaser’s payment to Seller of the sum of two million three hundred fifty-two thousand dollars and No/100 Dollars ($2,352,000) (the “ Purchase Price ”), as adjusted in accordance with the provisions of this Agreement.  

2.4

Earnest Money

.  Contemporaneously with the execution of this Agreement, Purchaser shall pay to the Seller in escrow the sum of fifteen thousand dollars ( $ 15,000)  (together with the interest or other earnings thereon, the “ Earnest Money ”) pursuant to the Escrow Agreement. In the event the Closing occurs, the Earnest Money shall be credited against the Purchase Price as provided in Section 8.8(a).  If the Closing does not occur, the Parties shall  deal with the Earnest Money in accordance with this Section 2.5.  In the event an Earnest Money Retention Event occurs, Seller shall retain the Earnest Money which shall serve as liquidated damages in lieu of all other damages (and as Seller’s sole remedy in such event). The Parties hereby acknowledge that the extent of damages to Seller occasioned by such Earnest Money Retention Event would be impossible or extremely impractical to ascertain and that the amount of the Earnest Money is a fair and reasonable estimate of such damages under the circumstances. In the event the Closing does not occur because Seller cannot deliver good and defensible title to the Assets. The Earnest Money shall be refunded to Purchaser.

2.5

Ownership of Assets

.  If the transactions contemplated hereby are consummated in accordance with the terms and provisions hereof, the ownership of the Assets shall be transferred from Seller to Purchaser on the Closing Date, but effective for all purposes as of the Effective Time except as otherwise required by Law.

2.6

Purchase Price Allocation for Tax Purposes

.  For the purpose of making the requisite filings under Section 1060 of the Code and the regulations thereunder and for the calculation of any sales or other transfer taxes due in connection with the transactions contemplated hereby, Seller and Purchaser agree to allocate the Purchase Price (as adjusted pursuant to the provisions hereof) and any liabilities assumed by Purchaser under this Agreement entirely as provided in Exhibit A, Schedule 3.  

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser as follows:

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3.1

Organization

.  Seller and its affiliates (a) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas, (b) has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is presently being conducted, and (c) is duly qualified to do business as a foreign limited liability company and is in good standing in the State of Wyoming.

3.2

Authority and Enforceability

.  Seller has the requisite limited liability company power and authority to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary limited liability company action on the part of Seller, and no other limited liability company proceedings on the part of Seller are necessary to authorize the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and (assuming that this Agreement constitutes a valid and binding obligation of Purchaser) constitutes a valid and binding obligation of Seller enforceable against it in accordance with its terms.

3.3

No Violations

.  The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance by Seller with the provisions hereof will not, conflict with, result in any violation of or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien on any of the Assets under, any provision of: (a) its certificate of formation or limited liability company agreement; (b) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or other agreement or instrument applicable to Seller; or (c) assuming the consents, approvals, authorizations, permits, filings and notifications referred to in Section 3.4 are duly and timely obtained or made, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Seller or the Assets, other than, in the case of clause (b) or (c) above, any such conflict, violation, default, right, loss or Lien that: (x) would not have a Material Adverse Effect on Seller, individually or in the aggregate, or (y) is a Third-Party Consent but is not a Consent.

3.4

Consents, Approvals and Preferential Rights

.  Except as set forth in Schedule 3.4 : (a) no consent, approval, order or authorization of, registration, declaration or filing with, or permit from, any Governmental Authority is required by or with respect to Seller in connection with the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby, except for any such consent, approval, order, authorization, registration, declaration, filing or permit (i) which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on Seller or (ii) which is customarily obtained or made after the Closing, (b) to the actual knowledge (without further investigation) as of the date hereof of the

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personnel of Seller, no Consent is required by or with respect to Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, and (c) to Seller’s Knowledge, the Assets are not subject to any third party preferential purchase rights, rights of first refusal, or similar rights for which a waiver must be obtained in order for Seller to consummate the transactions contemplated by this Agreement without violating or breaching a duty or obligation of Seller (“ Preferential Rights ”).

3.5

Litigation

.  Except as set forth in Schedule 3.5 : (a) no litigation, arbitration, investigation or other proceeding is pending or, to Seller’s Knowledge, threatened against Seller relating to any of the Assets before any court, arbitrator or Governmental Authority; and (b) Seller is not subject to any outstanding injunction, judgment, order, decree or ruling relating to the Assets (other than routine oil and gas field regulatory orders). There is no litigation, proceeding or investigation pending or, to Seller’s Knowledge, threatened against or affecting Seller that questions the validity or enforceability of this Agreement or any other document, instrument or agreement to be executed and delivered by Seller in connection with the transactions contemplated hereby.

3.6

Taxes

.  During the period of Seller’s ownership of the Assets up to the Effective Time, to Seller’s Knowledge, all material ad valorem, property, severance, excise and similar taxes and assessments based on or measured by the value of the Assets or the production of Hydrocarbons or the receipt of proceeds with respect to such Assets that have become due and payable have been paid.  None of the Assets is subject to any tax partnership agreement or provisions requiring a partnership income tax return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code.

3.7

Compliance with Laws and Permits

.  To Seller’s Knowledge, Seller is not in violation of, or in default under, and no event has occurred that (with notice or the lapse of time or both) would constitute a violation of or default under any Law or judgment of any Governmental Authority applicable to the Assets except for any violation or default that would not, individually or in the aggregate, have a Material Adverse Effect on Seller. Seller has obtained and holds all permits, licenses, variances, exemptions, orders, franchises, approvals and authorizations of Governmental Authorities necessary for the lawful conduct of its business with respect to the Assets or the lawful ownership, use and operation of the Assets, except for any thereof which the failure to obtain or hold would not, individually or in the aggregate, have a Material Adverse Effect on Seller. Anything in this Section 3.7 to the contrary notwithstanding, Seller makes no representations or warranties with respect to its compliance with Environmental Laws, it being understood that Article V sets forth Purchaser’s sole remedies related thereto.

3.8

Brokers

.  No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Seller or any of its Affiliates for which Purchaser will have any obligation or liability.

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3.9

Bankruptcy

.  There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or, to Seller’s Knowledge, threatened against Seller.

3.10

Oil and Gas Operations

.  To Seller’s Knowledge, all Wells owned or operated by Seller have been drilled, completed, operated and (if produced) produced in accordance with generally accepted oil and gas field practices and in compliance in all material respects with applicable oil and gas leases and pooling and unit agreements .  To Seller’s Knowledge:

(a)

with respect to the Leases, unit agreements, pooling agreements, communitization agreements and other documents creating interests comprising the Assets: (i) Seller has fulfilled all requirements in all material respects for filings, certificates, disclosures of parties in interest, and other similar matters contained in such leases or other documents (or otherwise applicable thereto by law, rule or regulation) and is fully qualified to own and hold all such Leases and other interests; (ii) there are no provisions applicable to such Leases and other documents which increase the royalty share of the lessor or overriding royalties thereunder that are not reflected in the interests set forth in Exhibit A, Schedule 1 ; and (iii) upon the establishment and maintenance of production in commercial quantities, such leases and other interests shall be in full force and effect over the economic life of the property involved and do not have terms fixed by a certain number of years;

(b)

proceeds from the sale of Hydrocarbons produced from the Assets are being received by Seller in a timely manner in accordance with applicable Law and are not being held in suspense for any reason (except for amounts held in suspense in the ordinary course of business); and

(c)

Except as set forth on Schedule 3.4, no Person has any call upon, option to purchase, preferential right to purchase or similar rights with respect to the Assets or to the production therefrom.

3.11

Royalties

.  To Seller’s Knowledge, Seller has not been and is not in breach of any payment obligations under any of the Leases where such breach would result in automatic termination of any such Lease.

3.12

Capital Expenditures

.  Except as set forth in Schedule 3.10 , as of the date of this Agreement Seller has not committed to any new wells or workover operations with respect to the Assets.

3.13

Contracts

.  Except for the Contracts described in Exhibit A, Schedule 3 and except for the transactions contemplated by this Agreement, the Assets do not include, to Seller’s Knowledge: (a) any farmout or farmin agreement with remaining drilling or assignment obligations on the part of Seller, (b) any contract that would

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obligate Purchaser to drill additional wells or conduct other material development operations after the Closing, (c) any contract that provides for an area of mutual interest, (d) any contract that contains a non-compete agreement or otherwise purports to restrict, limit or prohibit the manner in which, or the locations in which, Seller may conduct its business, (e) any contract involving the transportation and/or processing of production that would not be cancelable by Seller or Purchaser after Closing upon notice of thirty (30) days or less without liability for further payment other than nominal penalty (including those providing for volumetric or monetary commitments or indemnification therefor or for dedication of future production), or (f) any contract providing for any call upon, option to purchase or similar rights with respect to the Assets or to the production therefrom or the processing thereof.  Neither Seller, nor to Seller’s Knowledge, any other Person is in default in any material respect under any of the Contracts.  To Seller’s Knowledge, all of the Contracts are in full force and effect in all material respects.  No written notice of default or breach has been received or delivered by Seller under any Contract, the resolution of which is outstanding as of the date hereof, and there are no current notices received by Seller of the exercise of any premature termination, price redetermination, market-out, or curtailment under any Contract.  

3.14

Affiliate Transactions

.  There are no transactions or Contracts affecting any of the Assets between Seller and any Affiliate of Seller that will continue beyond the Closing.  

3.15

Access

.  Seller has a legal right of access to all of the Leases and Wells, and following the Closing Purchaser will have a legal right of access to all of the Leases and Wells.

3.16

Payments for Production

.  Seller is not obligated by virtue of a take-or-pay payment, advance payment, or other similar payment to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to Seller’s interest in the Assets at some future time without receiving payment therefor at or after the time of delivery.  

3.17

Hedges

.  There are no futures, options, swaps or other derivatives with respect to the sale of Hydrocarbons from the Assets that are currently binding on the Assets or will be binding on the Assets after Closing.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

4.1

Organization

.  Purchaser (a) is a Nevada corporation, duly organized, validly existing and in good standing under the laws of the State of Nevada, (b) has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is presently being conducted, and (c) is duly qualified to do business as a foreign company, and is in good standing, in the State of Wyoming.

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4.2

Authority and Enforceability

.  Purchaser has the requisite corporate power and authority to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary entity action on the part of Purchaser, and no other entity proceedings on the part of Purchaser are necessary to authorize the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by Purchaser and (assuming that this Agreement constitutes a valid and binding obligation of Seller) constitutes a valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms.

4.3

No Violations

.   The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance by Purchaser with the provisions hereof will not, conflict with, result in any violation of or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or result in the creation of any Lien on any of the properties or assets of Purchaser under, any provision of: (a) the certificate of incorporation or certificate of formation or by-laws or other governing documents of Purchaser; (b) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or other agreement or instrument applicable to Purchaser; or (c) assuming the consents, approvals, authorizations or permits and filings or notifications referred to in Section 4.4 are duly and timely obtained or made, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Purchaser or any of its properties or assets, other than, in the case of clause (b) or (c) above, any such conflict, violation, default, right, loss or Lien that, individually or in the aggregate, would not have a Material Adverse Effect on Purchaser.

4.4

Consents and Approvals

.  No consent, approval, order or authorization of, registration, declaration or filing with, or permit from, any Governmental Authority is required by or with respect to Purchaser in connection with the execution and delivery of this Agreement by Purchaser or the consummation by Purchaser of the transactions contemplated hereby, except any such consent, approval, order, authorization, registration, declaration, filing or permit which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser. No Third-Party Consent is required by or with respect to Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for any Third-Party Consent which the failure to obtain would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser.

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4.5

Litigation

.  There is no litigation, proceeding or investigation pending or, to the actual knowledge (without further investigation) as of the date hereof of the personnel of Purchaser listed on Exhibit D-2 (“ Purchaser’s Knowledge ”), threatened against or affecting Purchaser that questions the validity or enforceability of this Agreement or any other document, instrument or agreement to be executed and delivered by Purchaser in connection with the transactions contemplated hereby.

4.6

Funding

.  Purchaser has available funds, or immediately available capacity under committed credit facilities, in an aggregate amount sufficient to pay (a) all amounts required to be paid by Purchaser under this Agreement, and (b) all expenses which have been or will be incurred by Purchaser in connection with this Agreement and the transactions contemplated hereby.

4.7

Investment Intent

.  Purchaser is acquiring the Assets by virtue of the transactions contemplated hereby for its own account for investment and not with an intent to sell or make a distribution thereof within the meaning of the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any other applicable securities laws.

4.8

Independent Evaluation

.  Purchaser is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties and related facilities.  In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby: (a) Purchaser has conducted or will have conducted, to its satisfaction, its own independent investigation of the condition and operation of the Assets; and (b) Purchaser has solely relied on and will solely rely on (i) its own independent due diligence investigation of the Assets, (ii) the provisions of this Agreement, and (iii) its own expertise and legal, land, tax, engineering, and other professional counsel concerning this transaction, the Assets, and the value thereof.

4.9

Brokers

.  No broker, finder, investment banker or other Person is or will be, in connection with the transactions contemplated by this Agreement, entitled to any brokerage, finder’s or other fee or compensation based on any arrangement or agreement made by or on behalf of Purchaser or any of its Affiliates for which Seller will have any obligation or liability.

4.10

Bankruptcy

. There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or, to Purchaser’s Knowledge, threatened against Purchaser.

4.11

Qualification

. Seller and its affiliates is and will continue to be qualified to serve as operator of oil and gas properties in the State of Kansas , including meeting all bonding requirements.

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ARTICLE V

PURCHASER’S DUE DILIGENCE

5.1

General

.  Prior to the Closing, Purchaser shall have the right to inspect at the offices of Seller in Southlake, Texas, during normal business hours and upon reasonable advance notice to Seller, copies or originals (as determined by Seller) of all files, records and data related to the Assets that are in the possession of Seller, provided, that access to certain of such files, records and data may be made available on a website created for such purpose. Notwithstanding the foregoing, Seller shall not be under any obligation to furnish Purchaser any data or information which is subject to third-party restrictions or attorney-client privilege, excluding title opinions.  Prior to the Closing, Purchaser shall also have the right to make or perform at any reasonable time(s), at its own risk, cost and expense, inspections of the Assets, including the well sites, equipment and facilities included therein; provided, however, that Purchaser must make previous arrangements with Seller for each such inspection; and provided, further, that each such inspection shall be limited to a visual inspection of the Assets, it being understood that no sampling or other invasive inspections thereof may be conducted without Seller’s prior written consent.  Purchaser acknowledges that the permission of the operator (if other than Seller) or another third party may be required before Purchaser will be able to inspect portions of the Assets and that such permission must be obtained prior to the inspection of such portions. PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER AND ITS REPRESENTATIVES, EMPLOYEES, CONTRACTORS AND AGENTS FROM ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF ACTION, INJURIES TO PURCHASER’S EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS OR INVITEES OR TO PURCHASER’S PROPERTY, AND/OR INJURY TO SELLER’S PROPERTY, REPRESENTATIVES, EMPLOYEES, AGENTS OR CONTRACTORS WHICH MAY ARISE OUT OF PURCHASER’S INSPECTIONS EXCEPT THOSE PROXIMATELY CAUSED BY SELLER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT).  The foregoing indemnity shall continue in full force and effect notwithstanding any termination of this Agreement.  Purchaser agrees to provide to Seller, upon request, a copy of any and all environmental assessments of the Assets conducted by or on behalf of Purchaser, including any reports, data, and conclusions, and to maintain the confidentiality of the information set forth therein until the Closing except to the extent disclosure is required under applicable law. In the event that this Agreement is terminated, Purchaser agrees to continue to maintain the confidentiality of such information (irrespective of the termination of the Confidentiality Agreement) except to the extent disclosure is required under applicable Law. Purchaser agrees to comply with the rules, regulations and instructions issued by Seller and other operators or third parties regarding the actions of Purchaser and its agents while upon, entering or leaving the Assets.

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5.2

Title Matters

.  Without limiting the generality of Section 5.1, Seller shall make available to Purchaser at the offices of Seller in Southlake, Texas, at all reasonable times prior to the Closing such title files, land files, title opinions and other title data as Seller has in its possession pertaining to the Assets.

5.3

Title Defects

.  In the event Purchaser discovers a Title Defect that it intends to assert hereunder, Purchaser shall notify Seller in good faith of such Title Defect as soon after such Title Defect is discovered as is reasonably practicable, and in any event, on or before the Notice Date.  To be effective, each such notice shall set forth Purchaser’s basis for the assertion of such Title Defect (including supporting documentation therefor), Purchaser’s requirement(s) to cure such Title Defect and Purchaser’s proposed Title Defect Value thereof (each notice satisfying the requirements of this sentence being referred to herein as a “ Title Defect Notice ”). Anything herein to the contrary notwithstanding:

(a)

Purchaser may not assert any Title Defect after the Notice Date,

(b)

this Article V sets forth Purchaser’s sole remedy for Title Defects

(c)

Purchaser may only assert a Title Defect pursuant to a valid Title Defect Notice, and

(d)

the Purchase Price will only be adjusted for one or more Title Defects

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5.4

Remedies for Title Defects

.  Upon timely delivery of a Title Defect Notice, Purchaser and Seller shall meet and use commercially reasonable efforts to agree on the validity thereof and, if valid, the Title Defect Value thereof.  If, prior to Closing, Purchaser and Seller have not agreed on the validity of one or more Title Defects asserted in accordance with this Article V or on the Title Defect Value(s) thereof or, if applicable, Seller cannot cure such Title Defect(s) to the reasonable satisfaction of Purchaser prior to Closing, with respect to each such Title Defect, either (a) Seller may elect to exclude the Assets affected by one or more of such Title Defects from the transactions contemplated hereby, in which event the Purchase Price shall be reduced by the Allocated Values thereof, (b) Seller may elect to attempt to cure one or more of such Title Defect(s) in accordance with Section 5.5, or (c) the dispute(s) with respect to Title Defects affecting Assets that Seller does not so elect to exclude or attempt to cure (“ Title Disputes ”) shall be submitted to arbitration pursuant to the provisions of Section 5.9 and, at the election of Seller, the Closing may be delayed until such arbitration is concluded. Anything in this Agreement to the contrary notwithstanding, Seller may, upon notice to Purchaser, delay the Closing Date for a period of up to thirty (30) days in the event that Seller believes in good faith that it can cure any Title Defect asserted by Purchaser.   

5.5

Curative Provisions

.  The following shall apply with respect to each Title Defect that Seller elects to attempt to cure pursuant to Section 5.4(b) (each a “ Subject Defect ”):

(a)

The Assets affected by each Subject Defect shall be conveyed to Purchaser at the Closing; an amount equal to the Title Defect Value of each Subject Defect (as asserted in good faith by Purchaser, unless the Parties have otherwise agreed upon an amount) shall be deducted from amounts otherwise payable at the Closing under Section 8.2(b)(iii); and at the Closing, Purchaser shall deposit such amount into the Escrow Account pursuant to the Escrow Agreement pending the curing or resolution of the applicable Subject Defect.

(b)

Seller shall have a one hundred eighty (180) day period after the Closing within which to attempt to cure the Subject Defects; provided, that, if Seller’s curative efforts with respect to a Subject Defect require the initiation of proceedings before a Governmental Authority, such one hundred eighty (180) day period with respect thereto shall be extended for so long as such proceedings are diligently pursued in good faith by Seller until such proceedings are concluded pursuant to a final, non-appealable judgment or are otherwise finally resolved (the applicable cure period being hereinafter referred to as the “ Cure Period ”); provided, in no event, shall the Cure Period exceed three hundred sixty five (365) days. Purchaser agrees to cooperate at Seller’s cost and expense with Seller in connection with its curative efforts, including in connection with any proceedings before a Governmental Authority.

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(c)

In the event that Seller believes in good faith that it has cured a Subject Defect within the Cure Period, Seller shall submit such curative efforts to Purchaser for approval (which approval shall not be unreasonably withheld). Purchaser shall be deemed to have approved such curative efforts in the event Purchaser does not notify Seller of its objection to the same (and the reasons therefor) within ten (10) days after Purchaser’s receipt thereof.  In the event Purchaser so objects, Seller shall have an additional period of ten (10) days within which to perform additional curative efforts to satisfy Purchaser’s objections (and the Cure Period applicable thereto shall be extended accordingly).  In any event: (i) except with respect to curative efforts that Purchaser has been deemed to have approved, each Party retains the right to dispute whether or not a Subject Defect has been cured and whether or not a Subject Defect constitutes a Title Defect, and (ii) any such dispute shall be resolved in accordance with the dispute resolution procedures set forth in Section 5.9, which dispute resolution procedures must be initiated on or before ten (10) days after the end of the Cure Period.

(d)

Except for each Subject Defect that is submitted to arbitration pursuant to Section 5.5(c) (in which event the amount deposited in escrow with respect thereto, if any, shall remain in escrow pending resolution of the applicable Subject Defect), with respect to each Subject Defect that has neither been cured to Purchaser’s reasonable satisfaction prior to the expiration of the Cure Period or waived by Purchaser: (i) the Parties shall instruct the Escrow Agent to pay the amount deposited into escrow on account thereof to Purchaser, subject to the limitations set forth in Section 5.3; and (ii) Purchaser shall reconvey the portion of the Assets that are subject to such Subject Defect to Seller without warranty of title, except as to matters arising by, through or under Purchaser; provided, that, in the event Purchaser is not able to convey such portion to Seller without conveying additional portions of the Assets to Seller, Seller shall have the option to either (x) require Purchaser to reconvey all such required portions of the Assets to Seller, in which event Seller shall pay to Purchaser the Allocated Value of such portions (less the amount paid to Purchaser pursuant to clause (i)), or (y) waive any rights to any reconveyance with respect thereto.  In connection with any such reconveyance, the Parties shall account to one another to place each Party in the position it would have been if the original conveyance had not taken place.

(e)

With respect to each Subject Defect that has been cured and conveyed to Purchaser in accordance with the provisions hereof prior to the expiration of the Cure Period, the Parties shall instruct the Escrow Agent to pay the amount deposited into escrow on account thereof to Seller.

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5.6

Interest Additions

.  As soon as practicable after Purchaser has knowledge thereof, Purchaser shall notify Seller of any Net Revenue Interest in an Asset that is greater than that shown on Exhibit A, Schedule 1 for such Asset (each, an “ Interest Addition ”), it being understood that Interest Additions shall include the effect of forced pooling elections and non-consent elections.  Seller may request an upward adjustment in the Purchase Price by notifying Purchaser of an Interest Addition (which may be an Interest Addition revealed by Purchaser above) on or before the Notice Date. Any such notice shall set forth Seller’s basis for the assertion of such Interest Addition and Seller’s proposed upward adjustment to the Purchase Price on account thereof. Anything herein to the contrary notwithstanding: (a) Seller may not assert any Interest Addition after the Notice Date, (b) this Article V sets forth Seller’s sole remedy for Interest Additions; and (c) the Purchase Price may only be adjusted for one or more Interest Additions to the extent the cumulative amount of upward adjustments to the Purchase Price on account thereof is less than or equal to the cumulative amount of downward adjustments to the Purchase Price on account of Title Defects.

5.7

Remedies for Interest Additions

.  Upon timely delivery of a notice by Seller of an Interest Addition, Purchaser and Seller shall meet and use commercially reasonable efforts to agree on the validity thereof and the amount of any required adjustment to the Purchase Price.  If, prior to the Closing, Purchaser and Seller have not agreed on the validity of one or more Interest Additions asserted in accordance with this Article V or on the amount of an adjustment to the Purchase Price on account thereof, with respect to each such Interest Addition, either (a) Seller may elect to exclude the Assets affected by one or more of such Interest Additions from the transactions contemplated hereby, in which event the Purchase Price shall be reduced by the Allocated Values thereof, or (b) the dispute(s) with respect to Interest Additions shall be considered Title Disputes and shall be submitted to arbitration pursuant to the provisions of Section 5.9 and, at the election of Seller, the Closing may be delayed until such arbitration is concluded.  

5.8

Environmental Defects

.  

(a)

In the event Purchaser discovers an Environmental Defect, Purchaser shall in good faith give notice thereof to Seller as soon after such Environmental Defect is discovered as is reasonably practicable, and in any event, on or before the Notice Date.  To be effective, each notice of an Environmental Defect must set forth Purchaser’s reasonable good faith estimate of the Environmental Defect Value of such Environmental Defect (and the calculation thereof) and must describe such Environmental Defect in reasonably specific detail, including: the written, good faith conclusion of Purchaser (or its consultant) that shows that it is more likely than not that an Environmental Defect exists; a separate specific citation of the provisions of Environmental Laws alleged to be violated and the related facts that substantiate such violation; identification of the specific Assets affected by such Environmental Defect,

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including a site plan showing the location of all sampling events, boring logs and other field notes describing the sampling methods utilized and the field conditions observed, chain-of-custody documentation and laboratory reports; and identification of the procedures recommended to correct such Environmental Defect (each notice satisfying the requirements of this sentence being referred to herein as an “ Environmental Defect Notice ”).

(b)

Purchaser and Seller shall, after each Environmental Defect Notice is delivered, meet and use commercially reasonable efforts to agree on the validity thereof and the amount of any required adjustment to the Purchase Price, it being understood that the amount of any such adjustment with respect to an Environmental Defect (the “ Environmental Defect Value ”) will be the  cost of remediating the affected Asset to bring it into compliance with Environmental Laws in a commercially reasonable manner and assuming that the affected Asset will continue to be used as an oil and gas property. If the Environmental Defect Value asserted by Purchaser in an Environmental Defect Notice is greater than the Allocated Value of the Asset affected thereby, Seller may elect to remove such Asset from the transactions contemplated hereby, in which event the Purchase Price shall be reduced by the Allocated Value thereof.

(c)

Anything herein to the contrary notwithstanding:

(i)

Purchaser may not assert any Environmental Defect after the Notice Date,

(ii)

this Article V sets forth Purchaser’s sole remedy for Environmental Defects or any other environmental matter

(iii)

Purchaser may only assert an Environmental Defect pursuant to a valid Environmental Defect Notice,  

(iv)

the Purchase Price will be adjusted for one or more Environmental Defects, and.

(d)

If, prior to the Closing, Purchaser and Seller have not agreed on the validity of one or more Environmental Defects asserted in accordance with this Section 5.8 or on the amount of the Environmental Defect Values thereof, with respect to each such Environmental Defect, either (i) Seller may elect to exclude the Assets affected by one or more of such Environmental Defects from the transactions contemplated hereby, in which event the Purchase Price shall be reduced by the Allocated Values thereof, or (ii) the dispute(s) with respect to Environmental Defects affecting Assets that Seller does not so elect to exclude (“ Environmental Disputes ”) shall be submitted to arbitration pursuant to the provisions of Section 5.9 and, at the election of Seller, the Closing may be

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delayed until such arbitration is concluded; provided that it is understood that at any time Seller may elect to accept an Environmental Defect and the Environmental Defect Value asserted with respect thereto in full settlement for such Environmental Defect.  

5.9

Arbitration

.  Title Disputes shall be submitted for resolution in accordance with this Section 5.9 to an attorney with at least ten (10) years of experience in oil and gas title matters in the State of Kansas, and Environmental Disputes shall be submitted for resolution in accordance with this Section 5.9 to an attorney with at least ten (10) years of experience in oil and gas environmental matters in the State of Kansas (in each case, the “ Arbitrator ”). Seller and Purchaser shall attempt to agree upon an Arbitrator.  In the event that Seller and Purchaser are not able to agree on an Arbitrator within ten (10) days after the date on which either Party determines to submit a Title Dispute or Environmental Dispute to arbitration, either Seller or Purchaser may request that the American Arbitration Association appoint the Arbitrator.  The fees and expenses of any Arbitrator shall be paid by the losing party.  Each of Seller and Purchaser shall submit a written statement of its position to the Arbitrator with respect to the Title Dispute or Environmental Dispute (as applicable) not later than the tenth (10th) day after the Arbitrator is appointed.  The Arbitrator shall render his or her decision within fifteen (15) days after the Arbitrator is appointed.  The decision of the Arbitrator shall be conclusive and binding on Seller and Purchaser and shall be enforceable against any Party in a court of competent jurisdiction.  Anything in this Section 5.9 or the other provisions of this Agreement to the contrary notwithstanding, to the extent that all Title Disputes and Environmental Disputes have not been resolved prior to the Closing by arbitration or otherwise: (a) the Assets affected by such unresolved Title Defects and Environmental Defects shall be conveyed to Purchaser at the Closing; (b) an amount equal to (i) the aggregate Title Defect Values (as asserted in good faith by Purchaser, unless the Parties have otherwise agreed upon an amount) of the Assets (or portion thereof) affected by such unresolved Title Disputes and (ii) the aggregate Allocated Values of the Assets affected by such unresolved Environmental Disputes shall be deducted from amounts otherwise payable at the Closing under Section 8.2(b)(iii); (c) at the Closing, Purchaser shall deposit such amounts into the Escrow Account pursuant to the Escrow Agreement pending resolution of such Title Disputes and Environmental Disputes; and (d) as each such Title Dispute or Environmental Dispute is resolved by the Arbitrator or by agreement of Purchaser and Seller, Purchaser and Seller shall instruct the Escrow Agent to make payments from amounts deposited in the Escrow Account on account of such resolved Title Dispute or Environmental Dispute (and any interest or other earnings thereon): (i) to Purchaser if and to the extent resolved in favor of Purchaser, and (ii) otherwise, to Seller. In connection with any determination of an Environmental Dispute by an Arbitrator pursuant to this Section 5.9, it is understood that: (x) neither Party may  introduce or otherwise use information obtained by Purchaser after the date of the Environmental Defect Notice with respect to the Environmental Defect in dispute or its Environmental Defect Value, and in no event may the Arbitrator consider or give weight to any such information, (y) Neither Party may assert any violation of Environmental Law that is not specified in the Environmental Defect Notice with respect

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to the Environmental Defect in dispute, and (z) the Environmental Defect Value of an Environmental Defect may not exceed the amount thereof asserted in the Environmental Defect Notice with respect thereto.

5.10

Consents to Assignment and Preferential Rights

.

(a)

Seller shall exercise commercially reasonable efforts, but without any obligation to incur unreasonable costs and expenses in connection therewith, to obtain all Third-Party Consents applicable to the assignment or transfer of any of the Assets, which are required in connection with the assignment of any Assets to Purchaser (each a “ Consent ”) and waivers of all Preferential Rights.  IN NO EVENT shall there be included in the Assignment at Closing any Asset (or part thereof) that is subject to a Consent to Assign which provides that the transfer of the Asset without consent or waiver shall or may result in (i) a termination or  impairment of any rights in relation to the affected Asset or (ii) a termination impairment of the assignment thereof, as to the affected Asset or otherwise in the event that such Consent to Assign has not been satisfied (or otherwise rendered of no further force and effect) as of the Closing.

(b)

In the event that a Consent has not been satisfied (or otherwise rendered of no force or effect) prior to Closing, the Asset (or portion thereof) affected thereby shall be deemed to be subject to a Title Defect and excluded from the transactions contemplated hereby and the Purchase Price shall be adjusted downward by the Allocated Value of the excluded portion of the affected Asset; provided, however, Seller shall use commercially reasonable efforts to satisfy (or cause to be satisfied) such Consent within three (3) months of Closing.  If such Consent is so satisfied, Seller shall give notice to Purchaser as soon as possible after Seller learns that such Consent has been satisfied, but in no event later than three (3) months after the Closing Date, and Purchaser shall have the obligation to purchase the Asset (or portion thereof) affected by such Consent from Seller and Seller shall have the obligation to sell such Asset (or portion thereof) to Purchaser for the Allocated Value thereof, subject to the terms and conditions of this Agreement as if the transaction had occurred at Closing. In the event such Consent with respect to any Asset (or portion thereof) is not satisfied within three (3) months after the Closing Date, then Purchaser may, in its sole discretion, proceed with a closing on such affected Asset (or portion thereof) in which case Purchaser shall be deemed to have waived any objection (and shall be obligated to indemnify Seller for all Claims) with respect to non-compliance with such Consent with respect to such affected Asset (or portion thereof).

(c)

Seller shall promptly give notices to all third parties holding any Preferential Rights and shall respect to non-compliance with such Consent with respect to such affected Asset (or portion thereof).use commercially reasonable efforts, but without any obligation to incur unreasonable cost or expense, to obtain waivers of, or comply with, any such Preferential Rights. If any Preferential Rights are exercised prior to Closing, the portion of the Assets

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affected thereby shall be excluded from the transactions contemplated hereby, and the Purchase Price shall be adjusted downward by the Allocated Value of the excluded portion of the affected Assets. Seller will not be liable to Purchaser if any Preferential Rights are exercised, except for the Purchase Price adjustment herein provided.  If before Closing, any Preferential Right has not been waived or exercised in accordance with the terms, and the time period for such exercise has not expired, the Parties shall proceed to Closing as to the portion of the Assets affected thereby.  After Closing, if (i) any holder of Preferential Rights has alleged or alleges improper notice of sale, (ii) Seller or Purchaser discover, or any third party alleges, the existence of additional Preferential Rights, or (iii) the time period for exercise of any Preferential Right did not expire before Closing, Seller and Purchaser will attempt to obtain waivers of such Preferential Rights. Purchaser shall be entitled to receive (and Seller hereby assigns to Purchaser all of Seller’s rights to) all proceeds to be received by Seller from such third party, in connection with the sale, due to an exercise of Preferential Rights, of any portion of the Assets Purchaser was to receive under this Agreement. Purchaser’s receipt of proceeds from the sale of the affected Assets shall be Purchaser’s sole remedy if Preferential Rights are established and exercised after Closing.

ARTICLE VI

INTERIM MATTERS AND OPERATIONS

6.1

Operation of the Assets

.

(a)

From and after the date of execution of this Agreement, and subject to the provisions of applicable operating and other agreements, Seller shall (i) use commercially reasonable efforts during the period prior to the Closing, to operate and administer the Assets in a manner consistent with its past practices, (ii) make payment of all costs and expenses attributable to the ownership or operation of the Assets and relating to the period prior to the transfer of operations of the Assets, (iii) carry on its business with respect to the Assets in substantially the same manner as before execution of this Agreement, and (iv) use commercially reasonable efforts to preserve in full force and effect all Leases, Permits and Contracts that relate to the Assets in a manner consistent with its past practices.  From and after the date of execution of this Agreement, it is understood that Seller may take the actions set forth in Schedule 3.10 (if any).

(b)

Purchaser acknowledges that Seller owns undivided interests in some or all of the Assets, and Purchaser agrees that the acts or omissions of the other working interests owners shall not constitute a violation of the provisions of this Article VI, nor shall any action required by a vote of working interest owners constitute such a violation so long as Seller has voted its interest in a manner that complies with the provisions of this Article VI;

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(c)

Seller shall operate, or if Seller is not the operator, use commercially reasonable efforts to ensure that the operator operates the Assets and produces Hydrocarbons therefrom in its ordinary course of business and in accordance with applicable industry standards and the terms and conditions of all applicable Contracts and Laws

6.2

Purchaser’s Qualification

.  At Closing, Purchaser shall be qualified and shall meet all requirements, including bonding requirements, to be a non-operating owner of the Assets.

6.3

Additional Arrangements

.  Subject to the terms and conditions herein provided, each of the Parties shall take, or cause to be taken, all action and shall do, or cause to be done, all things necessary, appropriate or desirable under any applicable Laws or under applicable governing agreements to consummate and make effective the transactions contemplated by this Agreement, including using reasonable efforts to obtain all necessary waivers, consents and approvals and effecting all necessary registrations and filings. Each of the Parties shall take, or cause to be taken, all action or shall do, or cause to be done, all things necessary, appropriate or desirable to cause the covenants and conditions applicable to the transactions contemplated hereby to be performed or satisfied as soon as practicable.

6.4

Public Announcements

.  Seller and Purchaser shall consult with each other before either of them issues any press release or otherwise makes any public statement with respect to the transactions contemplated by this Agreement, and no Party shall issue any press release or make any such public statement prior to obtaining the approval of the other Party (not to be unreasonably withheld); provided, however, that such approval shall not be required where such release or announcement is required to be made by a Party under applicable law, so long as the other Party is provided the opportunity to review and comment on such release in advance.

6.5

Notification of Certain Matters

.   Seller shall give prompt notice to Purchaser of Seller’s Knowledge prior to the Closing of: (a) any representation or warranty contained in Article III being untrue or inaccurate in any material respect when made, (b) the occurrence of any event or development that would cause (or could reasonably be expected to cause) any representation or warranty contained in Article III to be untrue or inaccurate in any material respect on the Closing Date, (c) any failure of Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by Seller hereunder, and/or (d) any representation and warranty contained in Article IV being or becoming untrue or inaccurate in any material respect when made or as of a later date. Purchaser shall give prompt notice to Seller of Purchaser’s Knowledge prior to the Closing of: (w) any representation or warranty contained in Article IV being untrue or inaccurate in any material respect when made, (x) the occurrence of any event or development that would cause (or could reasonably be expected to cause) any representation or warranty contained in Article IV to be untrue or

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inaccurate in any material respect on the Closing Date, (y) any failure of Purchaser to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it hereunder, and/or (z) any representation and warranty contained in Article III being or becoming untrue or inaccurate in any material respect when made or as of a later date.  No disclosure by any Party pursuant to this Section 6.5, however, shall be deemed to amend or supplement the Schedules hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant.  Neither Party shall be entitled to make a claim under this Agreement (including pursuant to Article X) or otherwise with respect to any matter for which such Party fails to provide a notice in accordance with clause (d) or clause (z) of this Section 6.5 (as applicable).

6.6

Payment of Expenses

. Each Party shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby, whether or not Closing occurs.

ARTICLE VII

CONDITIONS

7.1

Conditions to Each Party’s Obligation to Proceed with Closing

.  The respective obligations of each Party to proceed with Closing shall be subject to the satisfaction, at or prior to the Closing, of the following conditions:

(a)

Approvals.  All filings required to be made prior to the Closing with, and all consents, approvals, permits and authorizations required to be obtained prior to the Closing from, any Governmental Authority in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Parties shall have been made or obtained (as the case may be), except where the failure to obtain such consents, approvals, permits and authorizations would not be reasonably likely to result in a Material Adverse Effect on Purchaser (assuming Closing has taken place) or to materially adversely affect the consummation of the transactions contemplated by this Agreement.

(b)

No Injunctions or Restraints.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect.

7.2

Conditions to Obligations of Purchaser

.   The obligations of Purchaser to proceed with Closing are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by Purchaser:

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(a)

Representations and Warranties.  The representations and warranties of Seller set forth in Article III shall be true and correct in all material respects as of the Closing Date as though made on and as of that time (except that any such representations and warranties which expressly relate only to an earlier date shall be true and correct on the Closing Date as of such earlier date), and Purchaser shall have received a certificate signed by a Responsible Officer of Seller to such effect.

(b)

Performance of Covenants and Agreements by Seller.  Seller shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Purchaser shall have received a certificate signed by a Responsible Officer of Seller to such effect.

(c)

Seller Credit Agreement . Seller shall have delivered to Purchaser recordable releases and terminations covering all Liens on the Assets arising under the Seller Credit Agreement.

7.3

Conditions to Obligations of Seller

.  The obligations of Seller to proceed with Closing are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by Seller:

(a)

Representations and Warranties.  The representations and warranties of Purchaser set forth in Article IV shall be true and correct in all material respects as of the Closing Date as though made on and as of that time (except that any such representations and warranties which expressly relate only to an earlier date shall be true and correct on the Closing Date as of such earlier date), and Seller shall have received a certificate signed by a Responsible Officer of Purchaser to such effect.

(b)

Performance of Covenants and Agreements by Purchaser.  Purchaser shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Seller shall have received a certificate signed by a Responsible Officer of Purchaser to such effect.  Purchaser shall agree in writing to participate, to the extent of the working interest acquired pursuant to the terms of this agreement in the development of the Assets subject to the terms of this Agreement.

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ARTICLE VIII

CLOSING

8.1

Time and Place of the Closing

.  If the conditions referred to in Article VII have been satisfied or waived in writing, the Closing shall take place at the offices of Rangeford Resources, Inc. at 9:00 a.m. (Prevailing Central Time) on the Closing Date.  Time is of the essence in the performance of this Agreement.  All events of Closing shall each be deemed to have occurred simultaneously with the other, regardless of when actually occurring, and each shall be a condition precedent to the other.  If the Closing occurs, all conditions of Closing shall be deemed to have been satisfied or waived (but Seller’s and Purchaser’s representations and warranties shall not be waived and shall survive the Closing subject to the limitations set forth in this Agreement). In no event shall Closing be deemed to have occurred prior to the time that Seller has confirmed receipt of the amounts contemplated by Sections 8.8(a) and 8.8(b).

8.2

Allocation of Costs and Expenses and Adjustments to Purchase Price at the Closing

.  

(a)

At the Closing, the Purchase Price shall be increased by the following amounts (without duplication):

(i)

the amount of all (A) paid ad valorem, property, production or similar taxes and assessments based upon or measured by the ownership of the Assets, insofar as such taxes relate to periods of time from and after the Effective Time, have been paid by Seller;

(ii)

the amount of all expenses, including operating and capital expenditures, incurred and paid by or on behalf of Seller in connection with ownership, operation and use of the Assets attributable to the period from and after the Effective Time (with the incurrence of expenditures for tangible property being determined based upon the time at which such property is placed in service);

(iii)

all royalties, rentals, insurance premiums (including property and business interruption coverage) and other charges attributable to the Assets for the period of from and after the Effective Time to the extent paid by or on behalf of Seller;

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(iv)

expenses incurred under applicable operating agreements including any overhead charges allowable under the applicable accounting procedure (COPAS) where Seller is non-operator attributable to the Assets for the period of from and after the Effective Time to the extent paid by or on behalf of Seller (the costs and expenses for which Seller shall receive an upward adjustment to the Purchase Price pursuant to clauses (i) through (iii) inclusive, shall be referred to as the “ Interim Operating Expenses ”);

(v)

the value of all merchantable oil, gas and natural gas liquids in storage or in the pipelines as of the Effective Time that is credited to the Assets (the “ Inventory ”), such value to be the actual price received for such oil, gas or natural gas liquids upon the first sale thereof, or absent a sale, then such value shall be based upon the average market price posted in the area for oil, gas or natural gas liquids of similar quality and grade in effect as of the Effective Time less all applicable royalties, production and ad valorem taxes, gravity adjustments and transportation expenses necessary to market such production, provided that Seller and Purchaser will accept Seller’s tank gauge readings, meter tickets or other inventory records of the Inventory as of the time of Seller’s measurement thereof on the date on which the Effective Time occurs, for the purposes of determining the volume of the Inventory as of the Effective Time under this Agreement;

(vi)

the amount of sales tax to be paid in connection with the sale of the Assets, which amount shall be remitted to the appropriate tax authorities by Seller;

(vii)

the amount of overhead charges allowable under the applicable accounting procedure (COPAS) where Seller is operator attributable to the Assets for the period of from and after the Effective Time; and

(viii)

any other amount provided for in this Agreement or agreed upon in writing by Purchaser and Seller.

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(b)

At the Closing, the Purchase Price shall be decreased by the following amounts (without duplication):

(i)

an amount equal to the sales proceeds (net of applicable severance and production taxes) paid by the first purchaser of the Hydrocarbons produced, saved and sold from the Subject Interests from the Effective Time to the Closing Date, which Purchase Price Allocations and Adjustments shall (A) for purposes of the pre-Closing Statement, be based upon actual amounts, if available, and upon such estimates as are reasonably agreed upon by the Parties, to the extent actual amounts are not known at Closing, and (B) for purposes of the Final Settlement Statement, be based upon actual amounts;

(ii)

the Allocated Value of any Asset excluded from the purchase and sale contemplated herein pursuant to the provisions of Article V;

(iii)

all downward Purchase Price adjustments in connection with Title Defects and Environmental Defects determined in accordance with Article V; and

(iv)

any other amount provided for in this Agreement or agreed upon in writing by Purchaser and Seller.

(c)

The allocations of costs and expenses and/or adjustments described in Sections 8.2(a) and (b) are referred to herein as the “ Purchase Price Allocations and Adjustments .”

8.3

Closing Adjustments and Allocations Statement

.  On or before the third (3rd) Business Day prior to the Closing Date, Seller shall prepare and deliver to Purchaser a statement of the estimated Purchase Price Allocations and Adjustments (the “ Statement ”), which Statement shall be based upon the then most currently available data and information in order to make the adjustments as provided in Section 8.2.

8.4

Post-Closing Allocations and Adjustments to Purchase Price

.

(a)

On or before ninety (90) days after the Closing Date, Seller shall prepare and deliver to Purchaser a revised Statement (“ Final Settlement Statement ”) setting forth the actual Purchase Price Allocations and Adjustments.  Each Party shall provide the other such data and information as may be reasonably requested to permit Seller to prepare the Final Settlement Statement or to permit Purchaser to perform or cause to be performed an audit of the Final Settlement Statement. The  Final Settlement Statement shall become final and binding upon the parties on the thirtieth (30th) day following receipt thereof by Purchaser (the “ Final Settlement Date ”) unless Purchaser gives written notice of

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its disagreement (a “ Notice of Disagreement ”) to Seller prior to such date. Any Notice of Disagreement shall specify in reasonable detail the dollar amount and the nature and basis of any disagreement so asserted.  If a Notice of Disagreement is received by Seller in a timely manner, then the Parties shall resolve the dispute evidenced by the Notice of Disagreement by mutual agreement, or otherwise in accordance with Section 8.4(b).

(b)

If Purchaser and Seller have not agreed on the Final Settlement Statement before the thirtieth (30th) day after Purchaser’s receipt thereof, the Final Settlement Statement shall be determined by the Designated Accountant.  The Designated Accountant’s determination of the Final Settlement Statement shall be conclusive. One-half (1/2) of the Designated Accountant’s fees associated with the determination of the Final Settlement Statement shall be paid by each Party.  Purchaser and Seller shall use reasonable efforts to cause the Designated Accountant to render a final determination within thirty (30) days of the receipt of such submission.

(c)

If the amount of the adjusted Purchase Price as set forth on the Final Settlement Statement exceeds the amount of the estimated Purchase Price paid at the Closing, then Purchaser shall pay in immediately available funds to Seller the amount by which the Purchase Price as set forth on the Final Settlement Statement exceeds the amount of the estimated Purchase Price paid at the Closing.  If the amount of the adjusted Purchase Price as set forth on the Final Settlement Statement is less than the amount of the estimated Purchase Price paid at the Closing, then Seller shall pay in immediately available funds to Purchaser the amount by which the Purchase Price as set forth on the Final Settlement Statement is less than the amount of the estimated Purchase Price paid at the Closing.  All such payments required to be made under this Section 8.4(c) shall be made within five (5) Business Days after the Final Settlement Date or, in the event a Notice of Disagreement is delivered to Seller, within five (5) Business Days after Seller and Purchaser mutually agree or the Designated Accountant renders a determination on the Final Settlement Statement.

(d)

Pursuant to Section 8.2(b), the Purchase Price is to be reduced by the value of Hydrocarbons produced during the period from the Effective Time to the Closing Date.  If Purchaser shall receive any revenues attributable to such Hydrocarbons for any reason, Purchaser shall promptly remit same in immediately available funds to Seller.  Likewise, if Seller shall for any reason receive any of the proceeds of sale of Hydrocarbons produced and saved from the Assets and attributable to the period from and after the Closing Date or any other revenues attributable to the ownership or operation of the Assets from and after the Effective Time, Seller shall promptly remit same in immediately available funds to Purchaser.

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(e)

Except as otherwise provided in this Agreement, any costs and expenses, including taxes (other than taxes on gross income, net income or gross receipts) relating to the Assets which are not reflected in the Final Settlement Statement shall be treated as follows:

(i)

All costs and expenses relating to the Assets for which Seller is responsible shall be the sole obligation of Seller and Seller shall promptly pay, or if paid by Purchaser, promptly reimburse Purchaser in immediately available funds for and indemnify, defend, and hold Purchaser harmless from and against the same; and

(ii)

All costs and expenses relating to the Assets for which Purchaser is responsible shall be the sole obligation of Purchaser and Purchaser shall promptly pay, or if paid by Seller, promptly reimburse Seller in immediately available funds for and indemnify, defend and hold Seller harmless from and against the same.

8.5

Transfer Taxes

.  All sales, use and other taxes (other than taxes on gross income, net income or gross receipts) and duties, levies or other governmental charges incurred by or imposed with respect to the property transfers undertaken pursuant to this Agreement (including any interest or penalties with respect thereto) shall be the responsibility of, and shall be paid by, Purchaser to the extent not remitted by Sellers pursuant to Section 8.2(a).  Seller and Purchaser agree to cooperate in establishing that the requirements of any applicable exemption from such taxes have been satisfied.

8.6

Ad Valorem and Similar Taxes

.  Ad valorem, personal property and similar taxes imposed with respect to a period which begins before and ends on or after the Effective Time (a “ Straddle Period ”) shall be prorated based on the number of days in such Straddle Period before and on or after the Effective Time. Seller’s share of such taxes shall be equal to the amount of such taxes for the Straddle Period multiplied by a fraction, the numerator of which is the number of days in such Straddle Period before the Effective Time, and the denominator of which is the total number of days in the Straddle Period. Purchaser’s share of such taxes shall be equal to the amount of such taxes for the Straddle Period multiplied by a fraction, the numerator of which is the number of days in such Straddle Period on or after the Effective Time (with the Effective Time being included in the number of days after the Effective Time), and the denominator of which is the total number of days in the Straddle Period. If either Party pays such taxes for which the other Party is responsible, and the amount of such payment is not taken into account as an adjustment to the Purchase Price under Section 8.2, then upon receipt of evidence of payment the nonpaying Party will reimburse the paying Party promptly for the nonpaying Party’s share of such taxes.

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8.7

Actions of Seller at the Closing and Post Closing

.  At the Closing, Seller shall:

(a)

execute the Statement evidencing the amounts to be wire transferred into the account of Seller at Closing;

(b)

execute and deliver to Purchaser letters in lieu of transfer or division orders as may be reasonably requested by Purchaser no less than five (5) Business Days prior to the Closing Date directing all purchasers of production from the Subject Interests to make payment of proceeds attributable to such production to Purchaser from and after the later of the Closing Date;

(c)

deliver to Purchaser possession of its proportionate share of the Assets;

(d)

execute and deliver to Purchaser an affidavit attesting to its non-foreign status and meeting the requirements of Section 1445(b)(2) of the Code and the regulations thereunder;

(e)

execute and deliver such documentation as may be required to be submitted in connection with the remittance of sales tax pursuant to Section 8.2(a)(vii); and

(f)

execute, acknowledge and deliver any other agreements provided for herein or necessary or desirable to effectuate the transactions contemplated hereby.

(g)

Within ten (10) business days of Closing, execute, acknowledge and deliver to Purchaser an Assignment, Bill of Sale and Conveyance in the form of Exhibit B (the “ Assignment ”), effective as of the Effective Time, and such other conveyances, assignments, transfers, bills of sale and other instruments (in form and substance mutually agreed upon by Purchaser and Seller) as may be necessary or desirable to convey the Assets to Purchaser;

8.8

Actions of Purchaser at the Closing

.  At the Closing, Purchaser shall:

(a)

pay the Purchase Price (as adjusted pursuant to the provisions hereof and net of (i) the Earnest Money and (ii) an amount equal to all Suspended Proceeds held by Seller relating to the Assets for which Purchaser has assumed responsibility under Section 10.1) in immediately available funds pursuant to wire transfer instructions to be provided by Seller to Purchaser;

(b)

execute the Statement evidencing the amounts to be wire transferred into the account of Seller at Closing;

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(c)

take possession its proportionate share of the Assets;

(d)

execute, acknowledge and deliver the Assignment and any other agreements provided for herein or necessary or desirable to effectuate the transactions contemplated hereby.

8.9

Assignment; Recordation; Further Assurances

.

(a)

The Assignment shall be without representation or warranty of title, express or implied, except that Seller shall specially warrant and agree to defend the title to the Assets against the lawful claims and demands of all persons claiming the same, or any part thereof, but limited to claims arising by, through, or under Seller but not otherwise, subject to and excepting all Permitted Encumbrances.  The damages recoverable for a breach of such limited warranty of title with respect to any Asset shall not exceed the Allocated Value of the relevant Asset.

(b)

Promptly following the Closing, Purchaser shall cause the documents identified in Section 7.2(c) and the Assignment to be recorded or filed in the appropriate real property or other applicable records, and Purchaser shall promptly provide Seller copies of all such recorded or filed instruments. Purchaser shall be responsible for all applicable recording fees.

(c)

Subject to such additional period of time as Seller reasonably requires to use the Records in the conduct of operations after Closing, Seller shall make the Records available to Purchaser to review and copy be during normal business hours within thirty (30) days after the Closing, to the extent the Records are in the possession of Seller and are not subject to contractual restrictions on transferability.

(d)

After the Closing Date, each Party, at the request of the other Party and without additional consideration, shall execute and deliver, or shall cause to be executed and delivered, from time to time such further instruments of conveyance and transfer and shall take such other action as the other Party may reasonably request to convey and deliver the Assets to Purchaser and to accomplish the orderly transfer of the Assets to Purchaser in the manner contemplated by this Agreement.  After the Closing, the Parties will cooperate to have all proceeds received attributable to the Assets to be paid to the proper Party hereunder and to have all expenditures to be made with respect to the Assets be made by the proper Party hereunder.

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ARTICLE IX

TERMINATION

9.1

Termination Rights

.  This Agreement may be terminated at any time prior to the Closing:

(a)

By mutual written consent of Purchaser and Seller;

(b)

By either Purchaser or Seller if (i) the Closing has not occurred by August 31, 2014 or such later date to which the Closing Date has been delayed pursuant to Section 5.4, 5.7 or 5.8 (provided, however, that the right to terminate this Agreement pursuant to this clause (i) shall not be available to any Party whose breach of any representation or warranty or failure to perform any covenant or agreement under this Agreement has been the cause of or resulted in the failure of Closing to occur on or before such date); or (ii) any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting Closing;

(c)

By Purchaser if (i) there has been a material breach of the representations and warranties made by Seller in Article III (provided, however, that Purchaser shall not be entitled to terminate this Agreement pursuant to this clause (i) unless Purchaser has given Seller at least fifteen (15) days prior notice of such breach, Seller has failed to cure such breach within the fifteen (15) day period following receipt of such  notice, and the condition described in Section 7.2(a), other than the provision thereof relating to the certificate signed by a Responsible Officer of Seller, would not be satisfied if the Closing were to occur on the day on which Purchaser gives Seller notice of such termination); or (ii) Seller has failed to comply in any material respect with any of its covenants or agreements contained in this Agreement and such failure has not been, or cannot be, cured within a reasonable time after notice and demand for cure thereof;

(d)

By Seller if (i) there has been a material breach of the representations and warranties made by Purchaser in Article IV (provided, however, that Seller shall not be entitled to terminate this Agreement pursuant to this clause (i) unless Seller has given Purchaser at least fifteen (15) days prior notice of such breach, Purchaser has failed to cure such breach within the fifteen (15) day period following receipt of such notice, and the condition described in Section 7.3(a), other than the provision thereof relating to the certificate signed by a Responsible Officer of Purchaser, would not be satisfied if the Closing were to occur on the day on which Seller gives Purchaser notice of such termination); or (ii) Purchaser has failed to comply in any material respect with any of its respective covenants or agreements contained in this Agreement, and such failure has not been, or cannot be, cured within a reasonable time after notice and a demand for cure thereof;

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9.2

Effect of Termination

.  If this Agreement is terminated by either Purchaser or Seller pursuant to the provisions of Section 9.1: (a) this Agreement shall forthwith become void except for, and there shall be no further obligation on the part of any Party or its respective Affiliates, directors, managers, officers, members or stockholders except pursuant to, the provisions of Sections 2.5, 3.8, 4.9, 5.1 (but with respect to Section 5.1, only to the extent of the confidentiality and indemnification provisions contained therein), 6.6 and 6.8 and the Confidentiality Agreement (which shall continue pursuant to their terms), and (b) Seller shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of all or any portion of the Assets to any party without any restriction under this Agreement; provided, however, that a termination of this Agreement shall not relieve any Party from any liability for damages incurred as a result of a breach by such Party of its covenants, agreements or other obligations hereunder occurring prior to such termination.

ARTICLE X

ASSUMPTION AND INDEMNIFICATION

10.1

Purchaser’s Obligations after Closing

.  Upon and after Closing, except to the extent reflected in one or more upward Purchase Price Allocations and Adjustments, Purchaser will assume and perform all the obligations, liabilities and duties relating or with respect to the ownership of the Assets that are attributable to periods after the Effective Time, together with the obligations assumed by Purchaser under this Agreement (collectively, the “ Assumed Obligations ”). Without limiting the generality of the foregoing, the Assumed Obligations shall also specifically include:

(a)

Responsibility for the performance of its proportionate share of all express and implied obligations under the instruments described in Exhibit A, Schedule 3 , together with all other instruments in the chain of title to the Assets, the Leases, the Contracts, the Permits and all other orders, contracts and agreements to which the Assets are subject, including the payment of royalties and overriding royalties, in each case to the extent attributable to the periods from or after the Effective Time, except to the extent reflected in one or more of the Purchase Price Allocations and Adjustments;

(b)

Responsibility for compliance with all federal, state and local laws, rules, regulations, guidances, ordinances, decrees and orders (“ Laws ”) now or hereafter in effect pertaining to the Assets, and the procurement and maintenance of all permits, consents and authorizations of or required by Governmental Authorities in connection with the Assets, attributable to periods before or after the Effective Time.

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10.2

Seller’s Obligations after Closing

.  After Closing and subject to Sections 10.10 and 10.11, Seller will retain responsibility for its proportionate share of (a) the payment of all operating expenses and capital expenditures related to the Assets and attributable to Seller’s ownership and operation of the Assets, (b) severance, ad valorem and similar taxes measured by the value of the Assets or measured by the production of Hydrocarbons applicable to the period prior to the Effective Time, and (c) third-party claims with respect to payments of lease royalties in respect of the Leases during Seller’s ownership of the Assets, except as related to Suspended Proceeds.

10.3

Plugging and Abandonment Obligations

.  Upon and after the Closing, Purchaser assumes full responsibility and liability for its proportionate share of the plugging and abandonment obligations related to the four (4) wells on the George Lease.   Environmental Obligations

.   Purchaser’s Indemnity

.  Purchaser shall release and indemnify, defend and hold Seller and its Representatives harmless from and against any and all Claims caused by, resulting from or incidental to the Assumed Obligations (including the Environmental Obligations and the Plugging and Abandonment Obligations), and any Claims caused by, resulting from or attributable to (a) any inaccuracy of any representation or warranty of Purchaser set forth in this Agreement, or (b) any breach of, or failure to perform or satisfy any of the covenants and obligations of Purchaser hereunder.

10.4

Seller’s Indemnity

.  Subject to Sections 10.10 and 10.11, Seller shall release and indemnify, defend and hold Purchaser and its Representatives (the “ Purchaser Indemnified Parties ”) harmless from and against any and all Claims caused by, resulting from or incidental to the Retained Obligations, and any Claims caused by or resulting from (a) any inaccuracy of any representation or warranty of Seller set forth in this Agreement, or (b) any breach of, or failure to perform or satisfy, any of the covenants and obligations of Seller hereunder.

10.5

Notices and Defense of Indemnified Claims

.  Each Party shall promptly notify the other Party of any Claim of which it becomes aware and for which it or any of its Representatives is entitled to indemnification from the other Party under this Agreement. The indemnifying Party shall be obligated to defend, at the indemnifying Party’s sole expense, any litigation or other administrative or adversarial proceeding against the indemnified Party relating to any Claim for which the indemnifying Party has agreed to release and indemnify and hold the indemnified Party harmless under this Agreement. However, the indemnified Party shall have the right to participate with the indemnifying Party in the defense of any such Claim at its own expense.

10.6

Survival

.  The representations, warranties, covenants, agreements and indemnities of the Parties set forth herein shall survive the Closing, and the consummation of the transactions contemplated hereby; provided, that the representations, warranties, covenants, and agreements.

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ARTICLE XI

DISCLAIMERS AND CASUALTY LOSS

.

11.1

Casualty Loss; Condemnation

.

(a)

Purchaser shall assume all risk of loss with respect to, and any change in the condition of, the Assets from and after the Closing Date.

(b)

If after the Effective Time and prior to the Closing any part of the Assets shall be damaged or destroyed by fire or other casualty or if any part of the Assets shall be taken in condemnation or under the right of eminent domain or if proceedings for such purposes shall be pending or threatened (“Casualty Loss”), this Agreement shall remain in full force and effect notwithstanding any such damage, destruction, taking or proceeding, or the threat thereof, and the Parties shall proceed with the transactions contemplated by this Agreement notwithstanding such damage, destruction, taking or proceeding

(c)

Notwithstanding Section 11.3(a), in the event of any loss described in Section 11.3(b), at the Closing, Seller shall pay to Purchaser all sums paid to Seller by third parties by reason of the damage, destruction or taking of such Assets (up to the Allocated Value thereof) and shall assign, transfer and set over unto Purchaser all of the rights, title and interest of Seller in and to any claims, causes of action, unpaid proceeds or other payments from third parties arising out of such damage, destruction or taking (up to the Allocated Value thereof). Notwithstanding anything to the contrary in this Section 11.3, Seller shall not be obligated to carry or maintain any insurance coverage with respect to any of the Assets other than as required under applicable operating agreements affecting such Assets.

ARTICLE XII

MISCELLANEOUS

12.1

Amendment

.  This Agreement may not be amended except by a written instrument signed on behalf of each of the Parties.

12.2

Notices

.  Any notice or other communication required or permitted hereunder shall be in writing and either delivered personally (effective on the date of transmission if transmitted before 5:00 p.m. at the location to which transmitted on a Business Day or upon delivery), by facsimile transmission (effective on the next Business Day after transmission), by recognized overnight delivery service (effective on the next Business Day after delivery to the service), or by registered or certified mail, postage

42

prepaid and return receipt requested (effective on the fifth Business Day after being so mailed), at the following addresses or facsimile transmission numbers (or at such other address or facsimile transmission number for a Party as shall be specified by like notice):

If to Purchaser:

Rangeford Resources, Inc.

556 Silicon Drive, Suite103

Southlake, TX 76092

Attention:   Colin Richardson

Facsimile:   817-491-4955

If to Seller:

Black Gold Kansas Production, LLC

900 Bristol Court

Southlake, Texas 76092

Attention: Stephen G. Nadeau

Facsimile: 817-329-3411

12.3

Counterparts

.  This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.

12.4

Entire Agreement; No Third Party Beneficiaries

.  This Agreement (together with the Confidentiality Agreement and the documents and instruments delivered by the Parties in connection with this Agreement): (a) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between or between the Parties with respect to the subject matter hereof; and (b) except as specifically provided in Article X, is solely for the benefit of the Parties and their respective successors, legal representatives and assigns and does not confer on any other Person any rights or remedies hereunder. The Parties agree that no Party has made or relied upon any express or implied agreements, representations or warranties to the other Party, in all cases relating to the transactions contemplated by this Agreement, which are not expressly set forth in this Agreement.

12.5

Applicable Law and Venue

.  This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Texas, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. The Parties irrevocably consent to the personal jurisdiction of the federal and/or the state courts located in Dallas County, Texas, and unconditionally agree that any and all claims, disputes and/or controversies arising out of or related to this Agreement shall be adjudicated in the federal and/or state courts located in Dallas County, Texas.

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12.6

Severability

.  Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

12.7

Assignment

.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (excluding assignments by operation of law) without the prior written consent of the other Party,  This Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.

IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their respective duly authorized representatives, as of the date first written above.

“ Purchaser ”

Rangeford Resources, Inc.

By:

      Name:

      Title:

“ Seller ”

Black Gold Kansas Productions, L.L.C.

By:

      Name:

      Title:

44

Exhibit A, Schedule 1

Bullseye # 1  API # 49-027-26582

Bullseye # 2 API# 49-027-26867

Bullseye # 4 API# 49-027-26897

Bullseye # 9 API# 49-027-26706

Bullseye #12 API# 49-027-26753

Bullseye #13 API# 49-027-26868

Bullseye #17 API# 49-027-26864

Bullseye #19 API# 49-027-26721

Bullseye #22 API# 49-027-26865

Bullseye #25 API# 49-027-26863

Bullseye #26 API# 49-027-26866

Bullseye #27 API# 49-027-26889

Bullseye #33 API# 49-027-26892

45

Exhibit A, Schedule 2

46

Exhibit A Schedule 3

47

Exhibit B

Joint Exploration Agreement

In conjunction with the Closing provided in the Agreement, the Parties shall enter into this JOINT EXPLORATION AGREEMENT

This Joint Exploration Agreement (this "Agreement") entered into as of the  day of August 6, 2014, is by and between Rangeford Resources, Inc.., a Nevada corporation ("Rangeford"), and Black Gold Kansas Production, LLC., a Texas limited liability corporation ("Black Gold "), sets forth the terms and conditions under which Rangeford and Black Gold, sometimes hereinafter collectively referred to as the "Parties", and individually each as the Parity will jointly acquire, explore, develop, and operate certain oil and gas and related mineral interests and properties from time to time in Niobrara County, Wyoming pursuant to the provisions of this Agreement.

In consideration of the mutual covenants herein contained, the Parties hereby agree as follows:

1.  PURPOSE AND TERM

1.1

Purpose.  The purpose of this Agreement is to set forth the understanding of the Parties and to establish the relationship pursuant to which they will jointly acquire, explore, develop and product (or plug if necessary) certain oil and gas leases, fee interests and other oil and gas and related mineral interests and properties (the "Mineral Interests") within the area depicted on Exhibit "A" attached hereto and made a part hereof for all purposes ("Agreement Area").  Any Mineral Interest jointly acquired, explored, developed and produced (or plugged if necessary) by the Parties to this Agreement during the term of this Agreement shall be governed by the provisions hereof.  

1.2

Term.  This Agreement shall be for an initial term of three (3) years, commending on the date hereof, and may be automatically extended for like one (1) year periods thereafter unless terminated by either of the Parties by the issuance of written notice to the other party on or before forty-five (45) days prior to the commencement of any additional one (1) year period or as otherwise mutually agreed to by the Parties hereto.  It is provided, however, that notwithstanding a termination under this Section 1.2, the provisions of this Agreement shall continue in full force as to any Prospect (as hereinafter defined) created pursuant to Section 3.3 hereof, unless excluded by the provisions of Sections 3.6 or 4.1 below, or as provided in the operating agreement attached as Exhibit “B” hereto and made a part hereof for all purposes (“Operating Agreement”).

1.3

Tax Matters.  For federal income tax purposes, this agreement and the operations hereunder are regarded as a tax partnership and agree to be bound by the provisions the tax partnership attached as Exhibit "C" hereto and made a part hereof for all purposes.  Further, each party hereby elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle "A", of the Internal Revenue

48

Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and the regulations promulgated thereunder.  Operator is authorized and directed to execute on behalf of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by Treasury Regulations §1.761.  Should there be any requirement that each party hereby affected give further evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal Revenue Service or as may be necessary to evidence this election.  No such party shall give any notices or take any other action inconsistent with the election made hereby.  If any present or future income tax laws of the state or states in which the Contract Area is located or any future income tax laws of the United State contain provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A", of the Code, under which any election similar to that provided by Section 761 of the Code is permitted, each party hereby affected shall make such election as may be permitted or required by such laws.  In making the foregoing election, each such party states that the income derived by such party from operations hereunder can be adequately determined without the computation of partnership taxable income.

2.  CONTRIBUTIONS AND COST SHARING

2.1

As part of the Purchase Price provided in the Agreement, Rangeford paid $0 to cover the remaining costs of the completion costs of the thirteen (13) wells on the West Mule Creek Lease as defined in the Agreement.  In addition, Rangeford agrees to participate in the development of the acreage within the “area of mutual interest” as described below for the West Mule Creek Lease, subject to the terms of the Agreement as provided herein and in the Operating Agreement, and pay all costs , expenses for the drilling and completing of said wells, with the income to be earned and paid in accordance with each Party’s working interest and net revenue interest share.

2.2

Other Costs and Expenses.  If either Party acquires acreage within the “area of mutual interest” as described below, for the West Mule Creek acreage, as defined in the Agreement, Rangeford shall have the right to participate in such acreage on the same basis as it acquired its interest in the West Mule Creek oilfield.   Rangeford shall pay all costs of acquiring additional acreage.  The cost of such acreage shall be included, on a location by location basis, in the AFE for each of the wells to be drilled on said acreage.  All wells will be drilled pursuant to the terms of this Agreement and the Operating Agreement, and all costs and expenses for the drilling, completing and equipping of the wells on said land to be borne by Rangeford.  Upon the completion and equipping of said wells, all costs and expenses thereafter shall be borne and all income shall be received and shared in proportion to each Party’s working interest and net revenue interest .

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2.3

Phase II development.  The Parties presently agree to a drilling, testing and completion program for twelve (12) wells with the authority for expenditure (“AFE”), attached as Exhibit “D” hereto and made a part hereof for all purposes in the amount of two million seven hundred seventy-five thousand dollars ($2,775,000).  It is anticipated that 10 wells will be drilled on the West Mule Creek oilfield lease as infield, development wells and 2 wells on the adjacent BLM acreage.  The 2 BLM wells will require the setting of separate electric lines and tank batteries (1 set of tank batteries will accommodate both wells), while the 10 infield, development wells can tie into the existing electric lines and tank batteries.  The AFE for the BLM wells reflects tank batteries with a capacity of 1,300 barrels of storage (water tank and gun barrel or heater treater) will cost seventy-five thousand dollars ($75,000).  The electric poles, electric meters and running of electric lines is estimated to cost fifty thousand dollars ($50,000).   Upon the completion and equipping of each said well, all costs and expenses thereafter shall be borne and all income shall be received and shared in proportion to each Party’s working interest and net revenue interest.  It is further provided, that the Parties shall meet, no later than thirty (30) days after the completion of each well to evaluate the economic merits of the program.  At that time, Rangeford shall have the right to elect to keep all interests which it has paid for and earned and discontinue further drilling.

2.4

Review Meetings.  The Parties will meet regularly, at the offices of either Party, which such meetings to be no less frequently than monthly, to determine whether the above program needs to be modified in any way.  At such meetings, there shall be a presentation of geological, geophysical, accounting and land data in sufficient detail to apprise Rangeford. of the opportunities and costs it can expect to encounter by continuing this Agreement during the coming month and year.

3.  EXPLORATION PROCEDURE

3.1

Technical Meetings.  In addition to the Review Meetings described in 2.4 above, the Parties shall regularly communicate and discuss by phone the geological, geophysical, accounting and land data to enable the Parties to evaluate and agree on the exploration activities to be conducted.

3.2

Budgets For Future Years.  To the extent possible, the Technical meetings will be used by the Parties to discuss geological and geophysical leads, define prospects, and outline buying areas.  The Parties shall determine the maximum bonus, delay rental, and minimum primary term pursuant to which leasehold interests can be acquired and an annual budget shall be agreed upon at least thirty (30) days prior to the beginning of each calendar year.  The Parties shall agree on the estimated costs for the coming year specifying, to the extent possible, the projected costs for the acquisition of seismic, geological and land data and information.  The Parties shall, to the extent possible, reach an agreement as to the acquisition, exploration, development and operation of mineral interests for the coming year.

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3.3

Designation of Prospects.  The Parties shall at the Annual or Periodic Meetings or at such other times as are appropriate and practicable designate "prospects".  The Parties shall mutually agree upon and designate on a map, based upon geophysics, geology and other relevant facts and information, the area deemed to comprise each said prospect (the "Prospect") with sufficient leeway in such designation to allow for the accuracy of the geophysical, gravity and geological data upon which the designation is predicated.  Each Prospect shall constitute an area of mutual interest ("Area of Mutual Interest") within which the Parties shall be entitled to share in the ownership and development of any Mineral Interest acquired by either Party in accordance with and pursuant to the terms of this Agreement.

3.4

Prospect Cost Estimates.  Upon the designation of a Prospect, Operator shall prepare and deliver to Rangeford a written estimate of the cost of acquiring such additional gravity, geophysical and geological data and information as Operator deems to be necessary, and an estimate of the cost of acquiring leases in the area comprising such Prospect.

3.5

Acquisition Determination.  Within fifteen (15) days after the designation of a Prospect, each Party shall make an election by written notice to the other, as to whether it wishes to participate in the acquisition of the Mineral Interests comprising said Prospect and additional geophysical, geological, or other data (collectively, the "Data") further delineating said Prospect.

3.6

Failure to Participate.  In the event one Party desires to participate in the acquisition of said Mineral Interests and Data, if any, and the other Party does not desire to participate, the Party desiring not to participate shall relinquish all rights in the Mineral Interests and Data acquired and such Mineral Interests and Data shall immediately be excluded from the provisions of this Agreement.

3.7

Operating Agreements.  If both Parties agree to participate in a Prospect, they shall, do so pursuant to the terms of the Operating Agreement.

 

3.8

Assignments.  When a Prospect has been designated and a lease acquisition program agreed upon, Operator shall acquire leasehold interests on behalf of the Parties and bill Rangeford for its proportionate share of such costs pursuant to the agreed upon plan of acquisition.  Operator shall assign Rangeford its undivided interest in the leases so acquired on a regular basis, as soon as is practicable, but in no event later than sixty (60) days from the date Operator acquires such leasehold interests. Rangeford shall pay its proportionate share of such costs within thirty (30) days of receiving an invoice therefor.  

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4.  PROSPECT SEISMIC DATA AND INITIAL WELL

4.1

Rights of Proposing Party.  With respect to any Prospect, when either Party proposes the acquisition of gravity, geophysical or geological data, or additional Mineral Interests, in addition to those authorized by Section 3. above ("Additional Data" and "Additional Interests", respectively) and the other Party fails to consent in writing to the payment of the reasonably necessary sums therefor within ten (10) days after that Party's receipt of written notice thereof (the "Consent Period"), the Party consenting to the payment of said sums shall have the option for the ten (10) days next following the end of the Consent Period to proceed and such Additional Data or Additional Interests shall thereafter be excluded from the provisions of this Agreement ("Exclusion Point").

4.2

Subsequent Rights of Non-Consenting Parties.  It is further agreed, however, that in the event the Additional Data or Additional Interests are not acquired or the actual drilling or an Initial Well is not commenced, as the case may be, within ninety (90) days from said Exclusion Point, the Non-Consenting party shall again have the option for thirty (30) days from the end of said ninety (90) day period of reacquiring its previous interest in said Prospect.  Said Non-Consenting Party may reacquire said interest by reimbursing the other Party for its proportionate share of all costs it paid to acquire said interests.

 

5.  OWNERSHIP

5.1

Initial Interest.  In the event both Parties participate in the acquisition of Mineral Interests and the drilling of an Initial Well on a Prospect, the ownership and costs shall be shared in the following proportions:   Rangeford 90 %, Black Gold 10%.

6.  THIRD PARTY SUBMITTALS

6.1

Offer to Other Party.  In the event either Party to this Agreement receives a prospect submittal from a third party not subject to the terms of this Agreement ("Third Party Submittal") and such Third Party Submittal contains Mineral Interests located within the Area of Mutual Interest, the Party to this Agreement receiving such Third Party Submittal shall offer to the other party to this Agreement the option of participating therein on terms no less favorable than are available to the party receiving such Third Party Submittal and for the percentage said party owns (after "payout") in the area of mutual interest within which it is located in exchange for paying or bearing a like percentage of all risk and expense of earning said interest.  Should both Parties mutually agree to share in the Submittal on other than an equal basis, such sharing of interest shall apply to that Third Party Submittal only.  It is further provided that in the case of Third Party Submittal which contains acreage which is crossed or contacted by Existing Data seismic lines, the participation and ownership therein shall be in the same proportions as provided in Section 5 above.

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6.2

Notice and Reply.  The Party receiving the Third Party Submittal shall, within fifteen (15) days of its receipt thereof, send written notice to the other Party.  Said notice shall contain reasonably full particulars of said Third Party Submittal to apprise the other Party of the costs, risk, and expense of the interest to be earned and geological basis upon which said Party can make an informed determination as to whether to participate in said acquisition.  The Party receiving said notice shall have ten (10) days from receipt of said written notice to notify in writing the Party issuing said notice of its election to participate therein, and specify the percentage of such Third Party Submittal it will participate with respect to.  Failure of such other party to notify the notifying party within said ten (10) days of its desire to participate in said acquisition shall constitute rejection and such other Party shall have no further rights with respect to such Third Party Submittal.

7.  TRANSFER OF INTERESTS AND RELATIONSHIP OF THE PARTIES

7.1

Assignability.  Either Party to this Agreement may, with the written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed, assign all or a portion of its interest hereunder to a third party.  All duties, rights, responsibilities and obligations of any such assignor shall be binding upon the assignee who shall take such assignment subject to the provisions of this Agreement.  Provided however, that any such assignor shall remain liable for the performance of all such duties, responsibilities and obligations notwithstanding any such assignment.

7.2

Relationship.  It is understood that as soon as Mineral Interests are acquired, the relationship of the Parties shall be that of Tenants in Common and that nothing herein shall be construed as creating a partnership, joint venture or any other relationship by which either Party hereto is liable for the obligations or acts, either of omission or commission, of the other Party hereto.

8.   MISCELLANEOUS

8.1

Data and Information.  Black Gold shall, at all reasonable times make available to Rangeford all data and information acquired and/or developed pursuant to the terms of this Agreement.  Copies of all such data shall be provided to Rangeford upon reasonable request.

8.2

Governing Law.  This Agreement and all rights and liabilities of the Parties hereto shall be subject to and governed by the laws of the State of Texas.

8.3

Notice.  Any notice which may be given by any party hereof, unless otherwise expressly provided herein, shall be deemed to have been properly given if sent in writing by U.S. certified mail, or the equivalent, return receipt requested, postage prepaid, by telegram, by telex, or by personal delivery, addressed as follows:

If to Black Gold:

                      Black Gold Kansas Production , LLC

                      900 Bristol Court

                      Southlake, Texas 76092

53

If to Rangeford:

                       Rangeford Resources, Inc.

                     556 Silicon Drive

                       Suite 103

          Southlake, Texas 76092

8.4

Saving.  Should any provision of this Agreement be held to be illegal, invalid or unenforceable by a jurisdictional court, the legality validity, and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and in lieu of each such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement, a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.

8.5

Counterparts.  This Agreement may be executed in one or more counterparts, or ratified by any of the Parties hereto, and the document so executed or ratified shall each be deemed to be an original copy and all of which together shall be deemed to be one instrument.

8.6

Headings.  The headings used in this Agreement are used for administrative purposes only and do not constitute substantive matters to be considered in construing the terms of this Agreement.

8.7

Binding Agreement.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns.

IN WITNESS WHEREOF, this Agreement is executed by the Parties hereto as of the day and year first above written.

ATTEST:

By_____________________

Its: _____________________

ATTEST:  

 

By_____________________

Its: _____________________

54

Exhibit “A”

55

Exhibit “B”

56

Exhibit “C”

57

Exhibit “D”

 

58

First Letter of Addendum and First Amendment to

August 6, 2014 Purchase, Sale and Joint Exploration Agreement

By and Between Rangeford Resources, Inc. and Black Gold Kansas Production, LLC

Dated:  August 6, 2014

Whereas, Rangeford Resources, Inc. (“RGFR”) and Black Gold Kansas Production, LLC (“BGKP”) are party to a Purchase, Sale and Joint Exploration Agreement, executed on August 6, 2014, (the “PSA”), to purchase certain BGKP assets in Wyoming for consideration of $2,352,000;

Whereas, RGFR is trying to raise the capital necessary to consummate the actions contemplated by the PSA; and

Whereas, during the time between the execution of the PSA and the time funding will occur, certain new invoices and liabilities have arisen that affect the total consideration;

Whereas, RGFR and BGKP wish to amend the provisions of the PSA’s to  clarify;

Now therefore, in consideration for the mutual consideration set forth herein, the parties do hereby agree to amend the PSA as follows:

I.

Amendment to Purchase and Sale

Section 12.8, of the PSA shall be added and incorporated in its entirety as follows:

This PSA shall not be interdependent with or upon the Joint Exploration Agreement referenced and included as an addendum to the PSA, and no default under the Joint Exploration Agreement shall in any way affect this Agreement or the validity of this purchase and sale.

II.

Additional Provisions

1.

Except as expressly set forth herein, no terms of the Purchase Sale and Exploration Agreement or any ancillary agreements have been changed, altered or amended and all such agreements shall remain in full force and effect in accordance with their respective terms.

2.

This document may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute one agreement.

Signature Page Follows

Accepted and Agreed to by:

1

Rangeford Resources, Inc.

By:   /s/ Colin C. Richardson

Colin C. Richardson

President

Date:  August 6, 2014

And,

Black Gold Kansas Production, LLC

By: _____________________________________________________

Stephen Nadeau

Managing Member

Date:  June ___, 2014

 

2

OPERATING AGREEMENT

A.A.P.L. FORM 610—1989

MODEL FORM OPERATING AGREEMENT

DATED: August 6, 2014

OPERATOR: BLACK GOLD KANSAS PRODUCTION, LLC

CONTRACT AREA: WEST MULE CREEK OILFIELD, See “Exhibit A”

COUNTY OR PARISH OF: NIOBRARA COUNTY

STATE OF: WYOMING

COPYRIGHT 1989—ALL RIGHTS RESERVED

AMERICAN ASSOCIATION OF PROFESSIONAL LANDMEN

4100 FOSSIL CREEK BLVD., FORT WORTH, TEXAS, 76137

APPROVED FORM

A.A.P.L. NO. 610—1989

1

TABLE OF CONTENTS

Article
I.	Definitions.
II.	Exhibits.
III.	Interests of Parties.
	A. Oil and Gas Interests.
	B. Interests of Parties in Costs and Production.
	C. Subsequently Created Interests.
IV.	Titles.
	A. Title Examination.
	B. Loss or Failure of Title.
		1. Failure of Title.
		2. Loss by Nonpayment or Erroneous Payment of Amount Due.
		3. Other Losses.
		4. Curing Title.
V.	Operator.
	A. Designation and Responsibilities of Operator.
	B. Resignation or Removal of Operator and Selection of Successor.
		1. Resignation or Removal of Operator.
		2. Selection of Successor Operator.
		3. Effect of Bankruptcy.
	C. Employees and Contractors.
	D. Rights and Duties of Operator.
		1. Competitive Rates and Use of Affiliates.
		2. Discharge of Joint Account Obligations.
		3. Protection from Liens.
		4. Custody of Funds.
		5. Access to Contract Area and Records.
		6. Filing and Furnishing Governmental Reports.
		7. Drilling and Testing Operations.
		8. Cost Estimates.
		9. Insurance.
VI.	Drilling and Development.
	A. Initial Well.

2

	B. Subsequent Operations.
		1. Proposed Operations.
		2. Operations by Less Than All Parties.
		3. Stand-By Time.
		4. Deepening.
		5. Sidetracking.
		6. Order of Preference of Operations.
		7. Conformity to Spacing Pattern.
		8. Paying Wells.
	C. Completing of Wells; Reworking and Plug Back.
		1. Completion.
		2. Rework, Recomplete or Plug Back.
	D. Access to Contract Area and Information.
	E. Other Operations.
		1. Abandonment of Dry Holes.
		2. Abandonment of Wells that have Produced.
		3. Abandonment of Nonconsent Operations.
	F. Termination of Operations.
	G. Taking Production in Kind.
		(Option 1) Gas Balancing Agreement.
		(Option 2) No Gas Balancing Agreement.
VII.	Expenditures and Liability of Parties.
	A. Liability of Parties.
	B. Liens and Security Interests.
	C. Advances.
	D. Defaults and Remedies.
		1. Suspension of Rights.
		2. Suit for Damages.
		3. Deemed Nonconsent.
		4. Advance Payment.
		5. Costs and Attorney's Fees.
	E. Rentals, Shut-in Well Payments and Minimum Royalties.
	F. Taxes.
VIII.	Acquisition, Maintenance, or Transfer of Interest.
	A. Surrender of Leases.
	B. Renewal or Extension of Leases.

3

	C. Acreage or Cash Contributions.
	D. Assignment; Maintenance of Uniform Interest.
	E. Waiver of Rights to Partition.
	F. Preferential Right to Purchase.
IX.	Internal Revenue Code Election.
X.	Claims and Lawsuits.
XI.	Force Majeure.
XII.	Notices.
XIII.	Term of Agreement.
XIV.	Compliance with Laws and Regulations.
	A. Laws, Regulations and Orders.
	B. Governing Law.
	C. Regulatory Agencies.
XV.	Miscellaneous.
	A. Execution.
	B. Successors and Assigns.
	C. Counterparts.
	D. Severability.
XVI.	Other Provisions.

4

OPERATING AGREEMENT

THIS AGREEMENT, entered into by and between Black Gold Kansas Production, LLC , designated and referred to as “Operator”, and the signatory party or parties to this Agreement, other than Operator, sometimes referred to individually as “Nonoperator,” and collectively as “Nonoperators.”

WITNESSETH:

WHEREAS, the parties to this agreement are owners of oil and gas leases and/or oil and gas interests in the land identified in Exhibit “A,” and the parties hereto have reached an agreement to explore and develop these leases and/or oil and gas interests for the production of oil and gas to the extent and as hereinafter provided,

NOW, THEREFORE, it is agreed as follows:

ARTICLE I. DEFINITIONS

As used in this agreement, the following words and terms shall have the meanings here ascribed to them:

A. The term “AFE” shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of estimating the costs to be incurred in conducting an operation hereunder.

B. The term “Completion” or “Complete” shall mean a single operation intended to complete a well as a producer of oil and gas in one or more zones, including, but not limited to, the setting of production casing, perforating, well stimulation and production testing conducted in such operation.

C. The term “Contract Area” shall mean all of the lands, oil and gas leases and/or oil and gas interests intended to be developed and operated for oil and gas purposes under this agreement. Such lands, oil and gas leases and oil and gas interests are described in Exhibit “A.”

D. The term “Deepen” shall mean a single operation whereby a well is drilled to an objective zone below the deepest zone in which the well was previously drilled, or below the deepest zone proposed in the associated AFE, whichever is the lesser.

E. The terms “Drilling Party” and “Consenting Party” shall mean a party who agrees to join in and pay its share of the cost of any operation conducted under the provisions of this agreement.

F. The term “Drilling Unit” shall mean the area fixed for the drilling of one well by order or rule of any state or federal body having authority. If a drilling unit is not fixed by any such rule or order, a drilling unit shall be the drilling unit as established by the pattern of drilling in the contract area unless fixed by express agreement of the drilling parties.

G. The term “Drill site” shall mean the oil and gas lease or oil and gas interest on which a proposed well is to be located.

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H. The term “Initial Well” shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

I. The term “Nonconsent Well” shall mean a well in which less than all parties have conducted an operation as provided in Article VI.B.2.

J. The terms “Nondrilling Party” and “Nonconsenting Party” shall mean a party who elects not to participate in a proposed operation.

K. The term “Oil and Gas” shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is specifically stated.

L. The term “Oil and Gas Interests” or “Interests” shall mean unleased fee and mineral interests in oil and gas in tracts of land lying within the contract area which are owned by parties to this agreement.

M. The terms “Oil and Gas Lease,” “Lease” and “Leasehold” shall mean the oil and gas leases or interests therein covering tracts of land lying within the contract area which are owned by the parties to this agreement.

N. The term “Plug Back” shall mean a single operation whereby a deeper zone is abandoned in order to attempt a completion in a shallower zone.

O. The term “Recompletion” or “Recomplete” shall mean an operation whereby a completion in one zone is abandoned in order to attempt a completion in a different zone within the existing wellbore.

P. The term “Rework” shall mean an operation conducted in the wellbore of a well after it is completed to secure, restore, or improve production in a zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, sidetracking, deepening, completing, recompleting, or plugging back of a well.

Q. The term “Sidetrack” shall mean the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or to drill around junk in the hole to overcome other mechanical difficulties.

R. The term “Zone” shall mean a stratum of earth containing or thought to contain a common accumulation of oil and gas separately producible from any other common accumulation of oil and gas.

Unless the context otherwise clearly indicates, words used in the singular include the plural, the word “person” includes natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

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ARTICLE II. EXHIBITS

The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

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A.

Exhibit “A,” shall include the following information:

(1)

Identification of lands subject to this Agreement;

(2)

Restrictions, if any, as to depths, formations, or substances;

(3)

Percentages or fractional interests of parties to this Agreement; and

(4)

Addresses of parties for notice purposes.

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B.

Exhibit “B,” Form of Lease.

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C.

Exhibit “C,” Accounting Procedure.

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D.

Exhibit “D,” Insurance.

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E.

Exhibit “E,” Gas Balancing Agreement.

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F.

Exhibit “F,” Non-Discrimination and Certification of Non-Segregated Facilities.

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G.

Exhibit “G,” Tax Partnership.

If any provision of any exhibit, except Exhibit “E,” is inconsistent with any provision contained in the body of this agreement, the provisions in the body of this agreement shall prevail.

ARTICLE III. INTERESTS OF PARTIES

A. Oil and Gas Interests:

If any party owns an oil and gas interest in the contract area, that interest shall be treated for all purposes of this agreement and during the term hereof as if it were covered by the form of oil and gas lease attached hereto as Exhibit “B,” and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

B. Interests of Parties in Costs and Production:

Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne and paid, and all equipment and materials acquired in operations on the contract area shall be owned, by the parties as their interests are set forth in Exhibit “A.” In the same manner, the parties shall also own all production of oil and gas from the contract area subject, however, to the payment of royalties and other burdens on production as described hereafter.

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Regardless of which party has contributed any oil and gas lease or oil and gas interest on which royalty or other burdens may be payable and except as otherwise expressly provided in this agreement, each party shall pay or deliver, or cause to be paid or delivered, all burdens on its share of the production from the contract area and shall indemnify, defend and hold the other parties free from any liability therefor. Except as otherwise expressly provided in this agreement, if any party has contributed hereto any lease or interest which is burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend and hold the other parties hereto harmless from any and all claims attributable to such excess burden. However, so long as the drilling unit for the productive zone(s) is identical with the contract area, each party shall pay or deliver, or cause to be paid or delivered, all burdens on production from the contract area due under the terms of the oil and gas lease(s) which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any liability therefor.

No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher price basis, the party contributing the affected lease shall bear the additional royalty burden attributable to such higher price.

Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby, and in the event two or more parties contribute to this agreement jointly owned leases, the parties' undivided interests in said leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

C. Subsequently Created Interests:

If any party has contributed hereto a lease or interest that is burdened with an assignment of production given as security for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production payment, net profits interest, assignment of production or other burden payable out of production attributable to its working interest hereunder, such burden shall be deemed a “Subsequently Created Interest.” Further, if any party has contributed hereto a lease or interest burdened with an overriding royalty, production payment, net profits interest, or other burden payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit “A,” such burden also shall be deemed a subsequently created interest to the extent such burden causes the burdens on such party's lease or interest to exceed the amount stipulated in Article III.B. above.

The party whose interest is burdened with the subsequently created interest (the “Burdened Party”) shall assume and alone bear, pay and discharge the subsequently created interest and shall indemnify, defend and hold harmless the other parties from and against any liability therefor. Further, if the burdened party fails to pay, when due, its share of expenses chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the subsequently created interest in the same manner as they are enforceable against the working interest of the burdened party. If the burdened party is required under this agreement to assign or relinquish to any other party, or parties, all or a portion of its working interest and/or the production attributable thereto, said other party, or parties,

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shall receive said assignment and/or production free and clear of said subsequently created interest, and the burdened party shall indemnify, defend and hold harmless said other party, or parties, from any and all claims and demands for payment asserted by owners of the subsequently created interest.

ARTICLE IV. TITLES

A. Title Examination:

Title examination shall be made on the drill site of any proposed well prior to commencement of drilling operations and, if a majority in interest of the drilling parties so request or operator so elects, title examination shall be made on the entire drilling unit, or maximum anticipated drilling unit, of the well. The opinion will include the ownership of the working interest, minerals, royalty, overriding royalty and production payments under the applicable leases. Each party contributing leases and/or oil and gas interests to be included in the drill site or drilling unit, if appropriate, shall furnish to operator all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of charge. All such information not in the possession of or made available to operator by the parties, but necessary for the examination of the title, shall be obtained by operator. Operator shall cause title to be examined by attorneys on its staff or by outside attorneys. Copies of all title opinions shall be furnished to each drilling party. Costs incurred by operator in procuring abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in royalty opinions and division order title opinions) and other direct charges as provided in Exhibit “C” shall be borne by the drilling parties in the proportion that the interest of each drilling party bears to the total interest of all drilling parties as such interests appear in Exhibit “A.”

Each party shall be responsible for securing curative matter and pooling amendments or agreements required in connection with leases or oil and gas interests contributed by such party. Operator shall be responsible for the preparation and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to the conduct of operations hereunder. This shall not prevent any party from appearing on its own behalf at such hearings. Costs incurred by operator, including fees paid to outside attorneys, which are associated with hearings before governmental agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit “C.” Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above functions.

No well shall be drilled on the contract area until after (1) the title to the drill site or drilling unit, if appropriate, has been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by all of the drilling parties in such well.

B. Loss or Failure of Title:

1. Failure of Title: Should any oil and gas interest or oil and gas lease be lost through failure of title, which results in a reduction of interest from that shown on Exhibit “A,” the party credited with contributing the affected lease or interest (including, if applicable, a successor in interest to such party)

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shall have ninety (90) days from final determination of title failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject to Article VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining oil and gas leases and interests; and,

(a) The party credited with contributing the oil and gas lease or interest affected by the title failure (including, if applicable, a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from operator or the other parties any development or operating costs which it may have previously paid or incurred, but there shall be no additional liability on its part to the other parties hereto by reason of such title failure;

(b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the lease or interest which has failed, but the interests of the parties contained on Exhibit “A” shall be revised on an acreage basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party whose lease or interest is affected by the title failure will thereafter be reduced in the contract area by the amount of the lease or interest failed;

(c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the contract area is increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable to the lease or interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well attributable to such failed lease or interest;

(d) Should any person not a party to this agreement, who is determined to be the owner of any lease or interest which has failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid to the party or parties who bore the costs which are so refunded;

(e) Any liability to account to a person not a party to this agreement for prior production of oil and gas which arises by reason of title failure shall be borne severally by each party (including a predecessor to a current party) who received production for which such accounting is required based on the amount of such production received, and each such party shall severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;

(f) No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of the lease or interest claimed to have failed, but if the party contributing such lease or interest hereto elects to defend its title it shall bear all expenses in connection therewith; and

(g) If any party is given credit on Exhibit “A” to a lease or interest which is limited solely to ownership of an interest in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder of the contract area shall be considered a failure of title as to such remaining contract area unless that absence of interest is reflected on Exhibit “A.”

2. Loss by Nonpayment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well payment, minimum royalty or royalty payment, or other payment necessary to

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maintain all or a portion of an oil and gas lease or interest is not paid or is erroneously paid, and as a result a lease or interest terminates, there shall be no monetary liability against the party who failed to make such payment. Unless the party who failed to make the required payment secures a new lease or interest covering the same interest within ninety (90) days from the discovery of the failure to make proper payment, which acquisition will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit “A” shall be revised on an acreage basis, effective as of the date of termination of the lease or interest involved, and the party who failed to make proper payment will no longer be credited with an interest in the contract area on account of ownership of the lease or interest which has terminated. If the party who failed to make the required payment shall not have been fully reimbursed, at the time of the loss, from the proceeds of the sale of oil and gas attributable to the lost lease or interest, calculated on an acreage basis, for the development and operating costs previously paid on account of such lease or interest, it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of any dry hole previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:

(a) Proceeds of oil and gas produced prior to termination of the lease or interest, less operating expenses and lease burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost lease or interest, on an acreage basis, up to the amount of unrecovered costs;

(b) Proceeds of oil and gas, less operating expenses and lease burdens chargeable hereunder to the person who failed to make payment, up to the amount of unrecovered costs attributable to that portion of oil and gas thereafter produced and marketed (excluding production from any wells thereafter drilled) which, in the absence of such lease or interest termination, would be attributable to the lost lease or interest on an acreage basis and which as a result of such lease or interest termination is credited to other parties, the proceeds of said portion of the oil and gas to be contributed by the other parties in proportion to their respective interests reflected on Exhibit “A”; and

(c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner of the lease or interest lost, for the privilege of participating in the contract area or becoming a party to this agreement.

3. Other Losses: All losses of leases or interests committed to this agreement, other than those set forth in Articles IV.B.1. and IV.B.2. above, shall be joint losses and shall be borne by all parties in proportion to their interests shown on Exhibit “A.” This shall include but not be limited to the loss of any lease or interest through failure to develop or because express or implied covenants have not been performed (other than performance which requires only the payment of money), and the loss of any lease by expiration at the end of its primary term if it is not renewed or extended. There shall be no readjustment of interests in the remaining portion of the contract area on account of any joint loss.

4. Curing Title: In the event of a failure of title under Article IV.B.1. or a loss of title under Article IV.B.2. above, any lease or interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety (90) day period provided by Article IV.B.1. and Article IV.B.2. above covering all or a portion of the interest that has failed or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B. shall not apply to such acquisition.

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ARTICLE V. OPERATOR

A. Designation and Responsibilities of Operator:

Black Gold Kansas Production, LLC shall be the operator of the contract area, and shall conduct and direct and have full control of all operations on the contract area as permitted and required by, and within the limits of this agreement. In its performance of services hereunder for the nonoperators, operator shall be an independent contractor not subject to the control or direction of the nonoperators except as to the type of operation to be undertaken in accordance with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the nonoperators with authority to bind them to any obligation or liability assumed or incurred by operator as to any third party. Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and regulation, but in no event shall it have any liability as operator to the other parties for losses sustained or liabilities incurred except such as may result from gross negligence or willful misconduct.

B. Resignation or Removal of Operator and Selection of Successor:

1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to nonoperators. If operator terminates its legal existence, no longer owns an interest hereunder in the contract area, or is no longer capable of serving as operator, operator shall be deemed to have resigned without any action by nonoperators, except the selection of a successor. Operator may be removed only for good cause by the affirmative vote of nonoperators owning a majority interest based on ownership as shown on Exhibit “A” remaining after excluding the voting interest of operator; such vote shall not be deemed effective until a written notice has been delivered to the operator by a nonoperator detailing the alleged default and operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice. For purposes hereof, “good cause” shall mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

Subject to Article VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by operator or action by the nonoperators to remove operator, unless a successor operator has been selected and assumes the duties of operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a nonoperator. A change of a corporate name or structure of operator or transfer of operator's interest to any single subsidiary, parent or successor corporation shall not be the basis for removal of operator.

2. Selection of Successor Operator: Upon the resignation or removal of operator under any provision of this agreement, a successor operator shall be selected by the parties. The successor operator shall be selected from the parties owning an interest in the contract area at the time such successor operator is selected. The successor operator shall be selected by the affirmative vote of two (2) or more

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parties owning a majority interest based on ownership as shown on Exhibit “A”; provided, however, if an operator which has been removed or is deemed to have resigned fails to vote or votes only to succeed itself, the successor operator shall be selected by the affirmative vote of the party or parties owning a majority interest based on ownership as shown on Exhibit “A” remaining after excluding the voting interest of the operator that was removed or resigned. The former operator shall promptly deliver to the successor operator all records and data relating to the operations conducted by the former operator to the extent such records and data are not already in the possession of the successor operator. Any cost of obtaining or copying the former operator's records and data shall be charged to the joint account.

3. Effect of Bankruptcy: If operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have resigned without any action by nonoperators, except the selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by or against operator, and the removal of operator is prevented by the federal bankruptcy court, all nonoperators and operator shall comprise an interim operating committee to serve until operator has elected to reject or assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation as operator without any action by nonoperators, except the selection of a successor. During the period of time the operating committee controls operations, all actions shall require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit “A.” In the event there are only two (2) parties to this agreement, during the period of time the operating committee controls operations, a third party acceptable to operator, nonoperator and the federal bankruptcy court shall be selected as a member of the operating committee, and all actions shall require the approval of two (2) members of the operating committee without regard for their interest in the contract area based on Exhibit “A.”

C. Employees and Contractors:

The number of employees or contractors used by operator in conducting operations hereunder, their selection, and the hours of labor and the compensation for services performed shall be determined by operator, and all such employees or contractors shall be the employees or contractors of operator.

D. Rights and Duties of Operator:

1. Competitive Rates and Use of Affiliates: All wells drilled on the contract area shall be drilled on a competitive contract basis at the usual rates prevailing in the area. If it so desires, operator may employ its own tools and equipment in the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors who are doing work of a similar nature. All work performed or materials supplied by affiliates or related parties of operator shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and standards prevailing in the industry.

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2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, operator shall promptly pay and discharge expenses incurred in the development and operation of the contract area pursuant to this agreement and shall charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit “C.” Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits made and received.

3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in respect of the contract area or any operations for the joint account thereof, and shall keep the contract area free from liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or materials supplied.

4. Custody of Funds: Operator shall hold for the account of the nonoperators any funds of the nonoperators advanced or paid to the operator, either for the conduct of operations hereunder or as a result of the sale of production from the contract area, and such funds shall remain the funds of the nonoperators on whose account they are advanced or paid until used for their intended purpose or otherwise delivered to the nonoperators or applied toward the payment of debts as provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between operator and nonoperators for any purpose other than to account for nonoperator funds as herein specifically provided. Nothing in this paragraph shall require the maintenance by operator of separate accounts for the funds of nonoperators unless the parties otherwise specifically agree.

5. Access to contract area and Records: Operator shall, except as otherwise provided herein, permit each nonoperator or its duly authorized representative, at the nonoperator's sole risk and cost, full and free access at all reasonable times to all operations of every kind and character being conducted for the joint account on the contract area and to the records of operations conducted thereon or production therefrom, including operator's books and records relating thereto. Such access rights shall not be exercised in a manner interfering with operator's conduct of an operation hereunder and shall not obligate operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such interpretive data was charged to the joint account. Operator will furnish to each nonoperator upon request copies of any and all reports and information obtained by operator in connection with production and related items, including, without limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding purchase contracts and pricing information to the extent not applicable to the production of the nonoperator seeking the information. Any audit of operator's records relating to amounts expended and the appropriateness of such expenditures shall be conducted in accordance with the audit protocol specified in Exhibit “C.”

6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to each requesting nonoperator not in default of its payment obligations, all operational notices, reports or applications required to be filed by local, state, federal or Indian agencies or authorities having jurisdiction over operations hereunder. Each nonoperator shall provide to operator on a timely basis all information necessary to operator to make such filings.

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7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not limited to the initial well:

(a) Operator will promptly advise nonoperators of the date on which the well is spudded, or the date on which drilling operations are commenced.

(b) Operator will send to nonoperators such reports, test results and notices regarding the progress of operations on the well as the nonoperators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

(c) Operator shall adequately test all zones encountered which may reasonably be expected to be capable of producing oil and gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted hereunder.

8. Cost Estimates. Upon request of any consenting party, operator shall furnish estimates of current and cumulative costs incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement. Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

9. Insurance: At all times while operations are conducted hereunder, operator shall comply with the workers compensation law of the state where the operations are being conducted; provided, however, that operator may be a self-insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall be as provided in Exhibit “C.” Operator shall also carry or provide insurance for the benefit of the joint account of the parties as outlined in Exhibit “D” attached hereto and made a part hereof. Operator shall require all contractors engaged in work on or for the contract area to comply with the workers compensation law of the state where the operations are being conducted and to maintain such other insurance as operator may require.

In the event automobile liability insurance is specified in said Exhibit “D,” or subsequently receives the approval of the parties, no direct charge shall be made by operator for premiums paid for such insurance for operator's automotive equipment.

ARTICLE VI. DRILLING AND DEVELOPMENT

A. Initial Well:

As soon as practical after a permit has been issued and any and all unitization or pooling issues have been resolved, operator shall commence the drilling of the initial well at the following location:

It is understood that thirteen (13) wells have been drilled on the West Mule Creek Lease.

The drilling of the initial well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation in completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.

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B. Subsequent Operations:

1. Proposed Operations: If any party hereto should desire to drill any well on the contract area other than the initial well, or if any party should desire to rework, sidetrack, deepen, recomplete or plug back a dry hole or a well no longer capable of producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective zone under this agreement, the party desiring to drill, rework, sidetrack, deepen, recomplete or plug back such a well shall give written notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective zone under this agreement and to all other parties in the case of a proposal for sidetracking or deepening, specifying the work to be performed, the location, proposed depth, objective zone and the estimated cost of the operation. The parties to whom such a notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work whether they elect to participate in the cost of the proposed operation. If a drilling rig is on location, notice of a proposal to rework, sidetrack, recomplete, plug back or deepen may be given by telephone and the response period shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays. Failure of a party to whom such notice is delivered to reply within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation. Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties within the time and in the manner provided in Article VI.B.6.

If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be contractually committed to participate therein provided such operations are commenced within the time period hereafter set forth, and operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of the parties participating therein; provided, however, said commencement date may be extended upon written notice of same by operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of operator, such additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or acceptance. If the actual operation has not been commenced within the time provided (including any extension thereof as specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to deepen or sidetrack is made hereunder shall, if such parties desire to participate in the proposed deepening or sidetracking operation, reimburse the drilling parties in accordance with Article VI.B.4. in the event of a deepening operation and in accordance with Article VI.B.5. in the event of a sidetracking operation.

2. Operations by Less Than All Parties:

(a) Determination of Participation. If any party to whom such notice is delivered as provided in Article VI.B.1. or VI.C.1. (Option No. 2) elects not to participate in the proposed operation, then, in or

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der to be entitled to the benefits of this article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the proposed operation and complete it with due diligence. Operator shall perform all work for the account of the consenting parties; provided, however, if no drilling rig or other equipment is on location, and if operator is a nonconsenting party, the consenting parties shall either: (i) request operator to perform the work required by such proposed operation for the account of the consenting parties, or (ii) designate one of the consenting parties as operator to perform such work. The rights and duties granted to and imposed upon the operator under this agreement are granted to and imposed upon the party designated as operator for an operation in which the original operator is a nonconsenting party. Consenting parties, when conducting operations on the contract area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this agreement.

If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the applicable notice period, shall advise all parties of the total interest of the parties approving such operation and its recommendation as to whether the consenting parties should proceed with the operation as proposed. Each consenting party, within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of such notice, shall advise the proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit “A” or (ii) carry only its proportionate part (determined by dividing such party's interest in the contract area by the interests of all consenting parties in the contract area) of nonconsenting parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of nonconsenting parties' interests together with all or a portion of its proportionate part of any nonconsenting parties' interests that any consenting party did not elect to take. Any interest of nonconsenting parties that is not carried by a consenting party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its proposal. Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). The proposing party, at its election, may withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10) days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period. If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the consenting parties of their proportionate interests in the operation and the party serving as operator shall commence such operation within the period provided in Article VI.B.1., subject to the same extension right as provided therein.

(b) Relinquishment of Interest for Nonparticipation. The entire cost and risk of conducting such operations shall be borne by the consenting parties in the proportions they have elected to bear same under the terms of the preceding paragraph. Consenting parties shall keep the leasehold estates involved in such operations free and clear of all liens and encumbrances of every kind created by or arising from the operations of the consenting parties. If such an operation results in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the consenting parties shall plug and abandon the well and restore the surface location at their sole cost, risk and expense; provided, however, that those nonconsenting parties that participated in the drilling, deepening or sidetracking of the well shall remain liable for, and shall pay, their proportionate shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not increased by the subsequent

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operations of the consenting parties. If any well drilled, reworked, sidetracked, deepened, recompleted or plugged back under the provisions of this article results in a well capable of producing oil and/or gas in paying quantities, the consenting parties shall complete and equip the well to produce at their sole cost and risk, and the well shall then be turned over to operator (if the operator did not conduct the operation) and shall be operated by it at the expense and for the account of the consenting parties. Upon commencement of operations for the drilling, reworking, sidetracking, recompleting, deepening or plugging back of any such well by consenting parties in accordance with the provisions of this article, each nonconsenting party shall be deemed to have relinquished to consenting parties, and the consenting parties shall own and be entitled to receive, in proportion to their respective interests, all of such nonconsenting party's interest in the well and share of production therefrom or, in the case of a reworking, sidetracking, deepening, recompleting or plugging back, or a completion pursuant to Article VI.C.1. Option No. 2, all of such nonconsenting party's interest in the production obtained from the operation in which the nonconsenting party did not elect to participate. Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production from such well accruing with respect to such interest until it reverts), shall equal the total of the following:

(i) 400% of each such nonconsenting party's share of the cost of any newly acquired surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and piping), plus 100% of each such nonconsenting party's share of the cost of operation of the well commencing with first production and continuing until each such nonconsenting party's relinquished interest shall revert to it under other provisions of this article, it being agreed that each nonconsenting party's share of such costs and equipment will be that interest which would have been chargeable to such nonconsenting party had it participated in the well from the beginning of the operations; and

(ii) 400% of (a) that portion of the costs and expenses of drilling, reworking, sidetracking, deepening, plugging back, testing, completing, and recompleting, after deducting any cash contributions received under Article VIII.C., and of 300% of that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections), which would have been chargeable to such nonconsenting party if it had participated therein.

Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective zone described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable substance or other condition in the hole rendering further operations impracticable, operator shall give notice thereof to each nonconsenting party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a shallower zone than the deepest objective zone proposed in the notice under which the well was drilled, and each such nonconsenting party shall have the option to participate in the initial proposed completion of the well by paying its share of the cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4.(a). If any such nonconsenting party does not elect to participate in the first completion proposed for such well, the relinquishment provisions of this Article VI.B.2.(b) shall apply to such party's interest.

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(c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, sidetracking or deepening of a well shall be deemed an election not to participate in any reworking or plugging back operation proposed in such a well, or portion thereof, to which the initial nonconsent election applied that is conducted at any time prior to full recovery by the consenting parties of the nonconsenting party's recoupment amount. Similarly, an election not to participate in the completing or recompleting of a well shall be deemed an election not to participate in any reworking operation proposed in such a well, or portion thereof, to which the initial nonconsent election applied that is conducted at any time prior to full recovery by the consenting parties of the nonconsenting party's recoupment amount. Any such reworking, recompleting or plugging back operation conducted during the recoupment period shall be deemed part of the cost of operation of said well and there shall be added to the sums to be recouped by the consenting parties 100% of that portion of the costs of the reworking, recompleting or plugging back operation which would have been chargeable to such nonconsenting party had it participated therein. If such a reworking, recompleting or plugging back operation is proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said consenting parties in said well.

(d) Recoupment Matters. During the period of time consenting parties are entitled to receive nonconsenting party's share of production, or the proceeds therefrom, consenting parties shall be responsible for the payment of all ad valorem, production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to nonconsenting party's share of production not excepted by Article III.C.

In the case of any reworking, sidetracking, plugging back, recompleting or deepening operation, the consenting parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon abandonment of a well after such reworking, sidetracking, plugging back, recompleting or deepening, the consenting parties shall account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value, less cost of salvage.

Within ninety (90) days after the completion of any operation under this article, the party conducting the operations for the consenting parties shall furnish each nonconsenting party with an inventory of the equipment in and connected to the well, and an itemized statement of the cost of drilling, sidetracking, deepening, plugging back, testing, completing, recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly billings. Each month thereafter, during the time the consenting parties are being reimbursed as provided above, the party conducting the operations for the consenting parties shall furnish the nonconsenting parties with an itemized statement of all costs and liabilities incurred in the operation of the well, together with a statement of the quantity of oil and gas produced from it and the amount of proceeds realized from the sale of the well's working interest production during the preceding month. In determining the quantity of oil and gas produced during any month, consenting parties shall use industry-accepted methods such as but not limited to metering or periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any such operation which would have been owned by a nonconsenting party had it participated therein shall be credited against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such nonconsenting party shall revert to it as above provided; and if there is a credit balance, it shall be

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paid to such nonconsenting party.

If and when the consenting parties recover from a nonconsenting party's relinquished interest the amounts provided for above, the relinquished interests of such nonconsenting party shall automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment occurs, and, from and after such reversion, such nonconsenting party shall own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as such nonconsenting party would have been entitled to had it participated in the drilling, sidetracking, reworking, deepening, recompleting or plugging back of said well. Thereafter, such nonconsenting party shall be charged with and shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this agreement and Exhibit “C” attached hereto.

Upon an election not to participate by a nonconsenting party on three or more wells under this agreement, the nonconsenting party shall forfeit all of its rights, title and interest in and to the Leasehold at the time of the nonconsent on the third well.  

3. Stand-By Costs: When a well which has been drilled or deepened has reached its authorized depth and all tests have been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a reworking, sidetracking, deepening, recompleting, plugging back or completing operation in such a well (including the period required under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or deepening operation just completed. Stand-by costs subsequent to all parties responding, or expiration of the response time permitted, whichever first occurs, and prior to agreement as to the participating interests of all consenting parties pursuant to the terms of the second grammatical paragraph of Article VI.B.2.(a), shall be charged to and borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated between the consenting parties in the proportion each consenting party's interest as shown on Exhibit “A” bears to the total interest as shown on Exhibit “A” of all consenting parties.

In the event that notice for a sidetracking operation is given while the drilling rig to be utilized is on location, any party may request and receive up to five (5) additional days after expiration of the 48 hour response period specified in Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended response period; operator may require such party to pay the estimated stand-by time in advance as a condition to extending the response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's interest as shown on Exhibit “A” bears to the total interest as shown on Exhibit “A” of all the electing parties.

4. Deepening: If less than all the parties elect to participate in a drilling, sidetracking, or deepening operation proposed pursuant to Article VI.B.1., the interest relinquished by the nonconsenting parties to the consenting parties under Article VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or zone of which the parties were given notice under Article VI.B.1. (“Initial Objective”). Such well shall not be deepened beyond the initial objective without first complying with this article to afford the nonconsenting parties the opportunity to participate in the deepening operation.

In the event any consenting party desires to drill or deepen a nonconsent well to a depth below the initial objective, such party shall give notice thereof, complying with the requirements of Article

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VI.B.1., to all parties (including nonconsenting parties). Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to participate or not participate in the deepening of such well pursuant to said Articles VI.B.1. and 2. If a deepening operation is approved pursuant to such provisions, and if any nonconsenting party elects to participate in the deepening operation, such nonconsenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses:

(a) If the proposal to deepen is made prior to the completion of such well as a well capable of producing in paying quantities, such nonconsenting party shall pay (or reimburse consenting parties for, as the case may be) that share of costs and expenses incurred in connection with the drilling of said well from the surface to the initial objective which nonconsenting party would have paid had such nonconsenting party agreed to participate therein, plus the nonconsenting party's share of the cost of deepening and of participating in any further operations on the well in accordance with the other provisions of this agreement; provided, however, all costs for testing and completion or attempted completion of the well incurred by consenting parties prior to the point of actual operations to deepen beyond the initial objective shall be for the sole account of consenting parties.

(b) If the proposal is made for a nonconsent well that has been previously completed as a well capable of producing in paying quantities, but is no longer capable of producing in paying quantities, such nonconsenting party shall pay (or reimburse consenting parties for, as the case may be) its proportionate share of all costs of drilling, completing, and equipping said well from the surface to the initial objective, calculated in the manner provided in paragraph (a) above, less those costs recouped by the consenting parties from the sale of production from the well. The nonconsenting party shall also pay its proportionate share of all costs of re-entering said well. The nonconsenting parties' proportionate part (based on the percentage of such well nonconsenting party would have owned had it previously participated in such nonconsent well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in connection with such well shall be determined in accordance with Exhibit “C.” If the consenting parties have recouped the cost of drilling, completing, and equipping the well at the time such deepening operation is conducted, then a nonconsenting party may participate in the deepening of the well with no payment for costs incurred prior to re-entering the well for deepening.

The foregoing shall not imply a right of any consenting party to propose any deepening for a nonconsent well prior to the drilling of such well to its initial objective without the consent of the other consenting parties as provided in Article VI.F.

5. Sidetracking: Any party having the right to participate in a proposed sidetracking operation that does not own an interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its proportionate share (equal to its interest in the sidetracking operation) of the value of that portion of the existing wellbore to be utilized as follows:

(a) If the proposal is for sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs incurred in the initial drilling of the well down to the depth at which the sidetracking operation is initiated.

(b) If the proposal is for sidetracking a well which has previously produced, reimbursement shall be

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on the basis of such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth at which the sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party's proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the sidetracking operation is initiated shall be determined in accordance with the provisions of Exhibit “C.”

6. Order of Preference of Operations: Except as otherwise specifically provided in this agreement, if any party desires to propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving such proposals shall elect by delivery of notice to operator within five (5) days after expiration of the proposal period, or within twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays, if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if a rig is on location) from receipt of such notice to elect by delivery of notice to operator to participate in such operation or to relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within such period shall be deemed an election not to participate in the prevailing proposal.

7. Conformity to Spacing Pattern: Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be proposed to be drilled to or completed in or produced from a zone from which a well located elsewhere on the contract area is producing, unless such well conforms to the then-existing well spacing pattern for such zone.

8. Paying Wells: No party shall conduct any reworking, deepening, plugging back, completion, recompletion, or sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except with the consent of all parties that have not relinquished interests in the well at the time of such operation.

C. Completion of Wells; Reworking and Plugging Back:

1. Completion: Without the consent of all parties, no well shall be drilled, deepened or sidetracked, except any well drilled, deepened or sidetracked pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling, deepening or sidetracking shall include: [EITHER:]

Option No. 1: All necessary expenditures for the drilling, deepening or sidetracking, testing, completing and equipping of the well, including necessary tankage and/or surface facilities. [OR:]

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Option No. 2: All necessary expenditures for the drilling, deepening or sidetracking and testing of the well. When such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results thereof furnished to the parties, operator shall give immediate notice to the nonoperators having the right to participate in a completion attempt whether or not operator recommends attempting to complete the well, together with operator's AFE for completion costs if not previously provided. The parties receiving such notice shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of notice to operator to participate in a recommended completion attempt or to make a completion proposal with an accompanying AFE. Operator shall deliver any such completion proposal, or any completion proposal conflicting with operator's proposal, to the other parties entitled to participate in such completion in accordance with the procedures specified in Article VI.B.6. Election to participate in a completion attempt shall include consent to all necessary expenditures for the completing and equipping of such well, including necessary tankage and/or surface facilities but excluding any stimulation operation not contained on the completion AFE. Failure of any party receiving such notice to reply within the period above fixed shall constitute an election by that party not to participate in the cost of the completion attempt; provided, that Article VI.B.6. shall control in the case of conflicting completion proposals. If one or more, but less than all of the parties, elect to attempt a completion, the provisions of Article VI.B.2. hereof (the phrase “Reworking, Sidetracking, Deepening, Recompleting or Plugging Back” as contained in Article VI.B.2. shall be deemed to include “Completing”) shall apply to the operations thereafter conducted by less than all parties; provided, however, that Article VI.B.2. shall apply separately to each separate completion or recompletion attempt undertaken hereunder, and an election to become a nonconsenting party as to one completion or recompletion attempt shall not prevent a party from becoming a consenting party in subsequent completion or recompletion attempts regardless whether the consenting parties as to earlier completions or recompletions have recouped their costs pursuant to Article VI.B.2.; provided further, that any recoupment of costs by a consenting party shall be made solely from the production attributable to the zone in which the completion attempt is made. Election by a previous nonconsenting party to participate in a subsequent completion or recompletion attempt shall require such party to pay its proportionate share of the cost of salvable materials and equipment installed in the well pursuant to the previous completion or recompletion attempt, insofar and only insofar as such materials and equipment benefit the zone in which such party participates in a completion attempt.

2. Rework, Recomplete or Plug Back: No well shall be reworked, recompleted or plugged back except a well reworked, recompleted, or plugged back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the reworking, recompleting or plugging back of a well shall include all necessary expenditures in conducting such operations and completing and equipping of said well, including necessary tankage and/or surface facilities.

D. Other Operations:

Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of $25,000 except in connection with the drilling, sidetracking, reworking, deepening, completing, recompleting or plugging back of a well that has been previously authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden emergency, whether of the same or different nature, operator may take such steps and incur such expenses as in its opinion are required to deal with the emergency to safeguard life and property but operator, as promptly as possible, shall report the emergency to the other parties. If operator prepares an AFE for

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its own use, operator shall furnish any nonoperator so requesting an information copy thereof for any single project costing in excess of $25,000. Any party who has not relinquished its interest in a well shall have the right to propose that operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively by those articles). Operator shall deliver such proposal to all parties entitled to participate therein. If within thirty (30) days thereof operator secures the written consent of any party or parties owning at least 25% of the interests of the parties entitled to participate in such operation, each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms of the proposal.

E. Abandonment of Wells:

1. Abandonment of Dry Holes: Except for any well drilled or deepened pursuant to Article VI.B.2., any well which has been drilled or deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be plugged and abandoned without the consent of all parties. Should operator, after diligent effort, be unable to contact any party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the proposed abandonment. All such wells shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of the parties who participated in the cost of drilling or deepening such well. Any party who objects to plugging and abandoning such well by notice delivered to operator within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such forty-eight (48) hour notice period and conduct further operations in search of oil and/or gas subject to the provisions of Article VI.B.; failure of such party to provide proof reasonably satisfactory to operator of its financial capability to conduct such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and abandon such well shall entitle operator to retain or take possession of the well and plug and abandon the well. The party taking over the well shall indemnify operator (if operator is an abandoning party) and the other abandoning parties against liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and restoring the surface, for which the abandoning parties shall remain proportionately liable.

2. Abandonment of Wells That Have Produced: Except for any well in which a nonconsent operation has been conducted hereunder for which the consenting parties have not been fully reimbursed as herein provided, any well which has been completed as a producer shall not be plugged and abandoned without the consent of all parties. If all parties consent to such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of all the parties hereto. Failure of a party to reply within sixty (60) days of delivery of notice of proposed abandonment shall be deemed an election to consent to the proposal. If, within sixty (60)

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days after delivery of notice of the proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its operation from the zone then open to production shall be obligated to take over the well as of the expiration of the applicable notice period and shall indemnify operator (if operator is an abandoning party) and the other abandoning parties against liability for any further operations on the well conducted by such parties. Failure of such party or parties to provide proof reasonably satisfactory to operator of their financial capability to conduct such operations or to take over the well within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession of such well and plug and abandon the well.

Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of the well's salvable material and equipment, determined in accordance with the provisions of Exhibit “C,” less the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing operations their proportionate shares of the estimated excess cost. Each abandoning party shall assign to the nonabandoning parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all of its interest in the wellbore of the well and related equipment, together with its interest in the leasehold insofar and only insofar as such leasehold covers the right to obtain production from that wellbore in the zone then open to production. If the interest of the abandoning party is or includes an oil and gas interest, such party shall execute and deliver to the nonabandoning party or parties an oil and gas lease, limited to the wellbore and the zone then open to production, for a term of one (1) year and so long thereafter as oil and/or gas is produced from the zone covered thereby, such lease to be on the form attached as Exhibit “B.” The assignments or leases so limited shall encompass the drilling unit upon which the well is located. The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their respective percentage of participation in the contract area to the aggregate of the percentages of participation in the contract area of all assignees. There shall be no readjustment of interests in the remaining portions of the contract area.

Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production from the well in the zone then open other than the royalties retained in any lease made under the terms of this article. Upon request, operator shall continue to operate the assigned well for the account of the nonabandoning parties at the rates and charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate ownership of the assigned well. Upon proposed abandonment of the producing zone assigned or leased, the assignor or lessor shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in further operations therein subject to the provisions hereof.

3. Abandonment of Nonconsent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as between consenting parties in the event of the proposed abandonment of any well excepted from said articles; provided, however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well in accordance with the provisions of this Article VI.E.; and provided further, that nonconsenting parties who own an interest in a portion of the well shall pay their proportionate shares of abandonment and

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surface restoration costs for such well as provided in Article VI.B.2.(b).

F. Termination of Operations:

Upon the commencement of an operation for the drilling, reworking, sidetracking, plugging back, deepening, testing, completion or plugging of a well, including but not limited to the initial well, such operation shall not be terminated without consent of parties bearing [percentage of costs] % of the costs of such operation; provided, however, that in the event granite or other practically impenetrable substance or condition in the hole is encountered which renders further operations impractical, operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1., and the provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.

ARTICLE VII. EXPENDITURES AND LIABILITY OF PARTIES

A. Liability of Parties:

The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations, and shall be liable only for its proportionate share of the costs of developing and operating the contract area. Accordingly, the liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or principals. In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other with respect to activities hereunder.

B. Liens and Security Interests:

Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in oil and gas leases and oil and gas interests in the contract area, and a security interest and/or purchase money security interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense, interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in oil and gas leases as required hereunder, and the proper performance of operations hereunder. Such lien and security interest granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and overriding royalty interests in the contract area now owned or hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this agreement, the oil and gas when extracted therefrom and equipment situated thereon or used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without limitation, accounts arising from gas imbalances or from the sale of oil and/or gas at the wellhead), contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.

To perfect the lien and security agreement provided herein, each party hereto shall execute and

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acknowledge the recording supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time following execution hereof, and operator is authorized to file this agreement or the recording supplement executed herewith as a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform Commercial Code in the state in which the contract area is situated and such other states as operator shall deem appropriate to perfect the security interest granted hereunder. Any party may file this agreement, the recording supplement executed herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a financing statement with the proper officer under the Uniform Commercial Code.

Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in oil and gas leases and interests covered by this agreement by, through or under such party. All parties acquiring an interest in oil and gas leases and oil and gas interests covered by this agreement, whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder whether or not such obligations arise before or after such interest is acquired.

To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the contract area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use of funds by the operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such defaulting party's share of oil and gas until the amount owed by such party, plus interest as provided in “Exhibit C,” has been received, and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party's share of oil and gas. All purchasers of production may rely on a notification of default from the nondefaulting party or parties stating the amount due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in this paragraph.

If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by operator, the nondefaulting parties, including operator, shall, upon request by operator, pay the unpaid amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each paying party may independently pursue any remedy available hereunder or otherwise.

If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted hereunder, such power to be exercised in the manner

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provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice.

Each party agrees that the other parties shall be entitled to utilize the provisions of oil and gas lien law or other lien law of any state in which the contract area is situated to enforce the obligations of each party hereunder. Without limiting the generality of the foregoing, to the extent permitted by applicable law, nonoperators agree that operator may invoke or utilize the mechanics' or materialmen's lien law of the state in which the contract area is situated in order to secure the payment to operator of any sum due hereunder for services performed or materials supplied by operator.

C. Advances:

Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month. Each party shall pay to operator its proportionate share of such estimate within fifteen (15) days after such estimate and invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as provided in Exhibit “C” until paid. Proper adjustment shall be made monthly between advances and actual expense to the end that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

D. Defaults and Remedies:

If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the remedies specified below shall be applicable. For purposes of this Article VII.D., all notices and elections shall be delivered only by operator, except that operator shall deliver any such notice and election requested by a nondefaulting nonoperator, and when operator is the party in default, the applicable notices and elections can be delivered by any nonoperator. Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified below or otherwise available to a nondefaulting party.

1. Suspension of Rights: Any party may deliver to the party in default a notice of default, which shall specify the default, specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one or more of the remedies provided in this article. If the default is not cured within thirty (30) days of the delivery of such notice of default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the default is cured, without prejudice to the right of the nondefaulting party or parties to continue to enforce the obligations of the defaulting party previously accrued or thereafter accruing under this agreement. If operator is the party in default, the nonoperators shall have in addition the right, by vote of nonoperators owning a majority in interest in the contract area after excluding the voting interest of operator, to appoint a new operator effective immediately. The rights of a defaulting party that may be suspended hereunder at the election of the nondefaulting parties shall include, without limitation, the right to receive information as to any operation conducted hereunder during the period of such de

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fault, the right to elect to participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being conducted under this agreement even if the party has previously elected to participate in such operation, and the right to receive proceeds of production from any well subject to this agreement.

2. Suit for Damages: Nondefaulting parties or operator for the benefit of nondefaulting parties may sue (at joint account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default until the date of collection at the rate specified in Exhibit “C” attached hereto. Nothing herein shall prevent any party from suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

3. Deemed Nonconsent: The nondefaulting party may deliver a written notice of nonconsent election to the defaulting party at any time after the expiration of the thirty (30)-day cure period following delivery of the notice of default, in which event if the billing is for the drilling of a new well or the plugging back, sidetracking, reworking or deepening of a well which is to be or has been plugged as a dry hole, or for the completion or recompletion of any well, the defaulting party will be conclusively deemed to have elected not to participate in the operation and to be a nonconsenting party with respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party, notwithstanding any election to participate theretofore made. If election is made to proceed under this provision, then the nondefaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

Until the delivery of such notice of nonconsent election to the defaulting party, such party shall have the right to cure its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit “C,” provided, however, such payment shall not prejudice the rights of the nondefaulting parties to pursue remedies for damages incurred by the nondefaulting parties as a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the nondefaulting parties in proportion to their interests, and the nondefaulting parties electing to participate in the ownership of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a notice of default, operator, or nonoperators if operator is the defaulting party, may thereafter require advance payment from the defaulting party of such defaulting party's anticipated share of any item of expense for which operator, or nonoperators, as the case may be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of the previous default. Such right includes, but is not limited to, the right to require advance payment for the estimated costs of drilling a well or completion of a well as to which an election to participate in drilling or completion has been made. If the defaulting party fails to pay the required advance payment, the nondefaulting parties may pursue any of the remedies provided in this Article VII.D. or any other default remedy provided elsewhere in this agreement. Any excess of funds advanced remaining when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

5. Costs and Attorney's Fees. In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.

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E. Rentals, Shut-in Well Payments and Minimum Royalties:

Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid by the party or parties who subjected such lease to this agreement at its or their expense. In the event two or more parties own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to make said payments for and on behalf of all such parties. Any party may request, and shall be entitled to receive, proper evidence of all such payments. In the event of failure to make proper payment of any rental, shut-in well payment or minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which results from such nonpayment shall be borne in accordance with the provisions of Article IV.B.2.

Operator shall notify nonoperators of the anticipated completion of a shut-in well, or the shutting in or return to production of a producing well, at least five (5) days (excluding Saturday, Sunday and legal holidays) prior to taking such action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so. In the event of failure by operator to so notify nonoperators, the loss of any lease contributed hereto by nonoperators for failure to make timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article IV.B.3.

F. Taxes:

Beginning with the first calendar year after the effective date hereof, operator shall render for ad valorem taxation all property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed thereon before they become delinquent. Prior to the rendition date, each nonoperator shall furnish operator information as to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on leases and oil and gas interests contributed by such nonoperator. If the assessed valuation of any lease is reduced by reason of its being subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes resulting therefrom shall inure to the benefit of the owner or owners of such lease, and operator shall adjust the charge to such owner or owners so as to reflect the benefit of such reduction. If the ad valorem taxes are based in whole or in part upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in the manner provided in Exhibit “C.”

If operator considers any tax assessment improper, operator may, at its discretion, protest within the time and manner prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final determination. During the pendency of administrative or judicial proceedings, operator may elect to pay, under protest, all such taxes and any interest and penalty. When any such protested assessment shall have been finally determined, operator shall pay the tax for the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be paid by them, as provided in Exhibit “C.”

Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect to the production or handling of such party's share of oil and gas produced under the terms of this agreement.

ARTICLE VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

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A. Surrender of Leases:

The leases covered by this agreement, insofar as they embrace acreage in the contract area, shall not be surrendered in whole or in part unless all parties consent thereto.

However, should any party desire to surrender its interest in any lease or in any portion thereof, such party shall give written notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto. Failure of a party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the leases described in the notice. If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or implied warranty of title, all of its interest in such lease, or portion thereof, and any well, material and equipment which may be located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender. If the interest of the assigning party is or includes an oil and gas interest, the assigning party shall execute and deliver to the party or parties not consenting to such surrender an oil and gas lease covering such oil and gas interest for a term of one (1) year and so long thereafter as oil and/or gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit “B.” Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained in any lease made under the terms of this article. The party assignee or lessee shall pay to the party assignor or lessor the reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased acreage. The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit “C,” less the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface. If such value is less than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit. If the assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the interest of each bears to the total interest of all such parties. If the interest of the parties to whom the assignment is to be made varies according to depth, then the interest assigned shall similarly reflect such variances.

Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering party's interest as it was immediately before the assignment, lease or surrender in the balance of the contract area; and the acreage assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this agreement but shall be deemed subject to an operating agreement in the form of this agreement.

B. Renewal or Extension of Leases:

If any party secures a renewal or replacement of an oil and gas lease or interest subject to this agreement, then all other parties shall be notified promptly upon such acquisition or, in the case of a replacement lease taken before expiration of an existing lease, promptly upon expiration of the existing lease. The parties notified shall have the right for a period of thirty (30) days following delivery of such notice in which to elect to participate in the ownership of the renewal or replacement lease, insofar as such lease affects lands within the contract area, by paying to the party who acquired it their proportionate shares of the acquisition cost allocated to that part of such lease within the contract area, which shall be in proportion to the interests held at that time by the parties in the contract

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area. Each party who participates in the purchase of a renewal or replacement lease shall be given an assignment of its proportionate interest therein by the acquiring party.

If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement lease, it shall be owned by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in the contract area to the aggregate of the percentages of participation in the contract area of all parties participating in the purchase of such renewal or replacement lease. The acquisition of a renewal or replacement lease by any or all of the parties hereto shall not cause a readjustment of the interests of the parties stated in Exhibit “A,” but any renewal or replacement lease in which less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate operating agreement in the form of this agreement.

If the interests of the parties in the contract area vary according to depth, then their right to participate proportionately in renewal or replacement leases and their right to receive an assignment of interest shall also reflect such depth variances.

The provisions of this article shall apply to renewal or replacement leases whether they are for the entire interest covered by the expiring lease or cover only a portion of its area or an interest therein.   Any renewal or replacement lease taken before the expiration of its predecessor lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the existing lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time the renewal or replacement lease becomes effective, but any lease taken or contracted for more than six (6) months after the expiration of an existing lease shall not be deemed a renewal or replacement lease and shall not be subject to the provisions of this agreement.

The provisions in this article shall also be applicable to extensions of oil and gas leases.

C. Acreage or Cash Contributions:

While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other operation on the contract area, such contribution shall be paid to the party who conducted the drilling or other operation and shall be applied by it against the cost of such drilling or other operation. If the contribution be in the form of acreage, the party to whom the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the drilling parties in the proportions said drilling parties shared the cost of drilling the well. Such acreage shall become a separate contract area and, to the extent possible, be governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any acreage or cash contributions it may obtain in support of any well or any other operation on the contract area. The above provisions shall also be applicable to optional rights to earn acreage outside the contract area which are in support of wells drilled inside the contract area.

If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder, such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.

D. Assignment; Maintenance of Uniform Interest:

For the purpose of maintaining uniformity of ownership in the contract area in the oil and gas leases, oil and gas interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other disposition of its interest in the oil and gas leases and oil and gas interests embraced within the contract area or in wells, equipment and production unless such disposition covers either:

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1. the entire interest of the party in all oil and gas leases, oil and gas interests, wells, equipment and production; or

2. an equal undivided percent of the party's present interest in all oil and gas leases, oil and gas interests, wells, equipment and production in the contract area.

Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any oil and gas lease or interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

If, at any time the interest of any party is divided among and owned by four or more co-owners, operator, at its discretion, may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures, receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of the oil and gas produced from the contract area and they shall have the right to receive, separately, payment of the sale proceeds thereof.

E. Waiver of Rights to Partition:

If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an undivided interest in the contract area waives any and all rights it may have to partition and have set aside to it in severalty its undivided interest therein.

F. Preferential Right to Purchase:

Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the contract area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase price, a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests, or to dispose of its interests by merger, reorganiza

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tion, consolidation, or by sale of all or substantially all of its oil and gas assets to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any company in which such party owns a majority of the stock.

ARTICLE IX. INTERNAL REVENUE CODE ELECTION

If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the parties have not otherwise agreed to form a tax partnership pursuant to Exhibit “G” or other agreement between them, each party thereby affected elects to be excluded from the application of all of the provisions of Subchapter “K,” Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended (“Code”), as permitted and authorized by 26 U.S.C.A. § 761 and the regulations promulgated thereunder. Operator is authorized and directed to execute on behalf of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by 26 C.F.R. § 1.761. Should there be any requirement that each party hereby affected give further evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other action inconsistent with the election made hereby. If any present or future income tax laws of the state or states in which the contract area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter “K,” Chapter 1, Subtitle “A,” of the Code, under which an election similar to that provided by 26 U.S.C.A. § 761 is permitted, each party hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing election, each such party states that the income derived by such party from operations hereunder can be adequately determined without the computation of partnership taxable income.

ARTICLE X. CLAIMS AND LAWSUITS

Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure does not exceed $25,000 and if the payment is in complete settlement of such claim or suit. If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is delegated to operator. All costs and expenses of handling, settling, or otherwise discharging such claim or suit shall be at the joint expense of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if any party is sued on account of any matter arising from operations hereunder over which such individual has no control because of the rights given operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder.

ARTICLE XI. FORCE MAJEURE

If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far

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as they are affected by the force majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The term “force majeure,” as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood or other act of nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension.

The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely within the discretion of the party concerned.

ARTICLE XII. NOTICES

All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex, telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on Exhibit “A.” All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written notice. The originating notice given under any provision hereof shall be deemed delivered only when received by the party to whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date the originating notice is received. “Receipt” for purposes of this agreement with respect to written notice delivered hereunder shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or to the telecopy, facsimile or telex machine of such party. The second or any responsive notice shall be deemed delivered when deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or 48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other parties. If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall be deemed delivered in the same manner provided above for any responsive notice.

ARTICLE XIII. TERM OF AGREEMENT

This agreement shall remain in full force and effect as to the oil and gas leases and/or oil and gas interests subject hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title or interest in or to any lease or oil and gas interest contributed by any other party beyond the term of this agreement

In the event the well described in Article VI.A., or any subsequent well drilled under any provision of this agreement, results in the completion of a well as a well capable of production of oil and/or gas in paying quantities, this agreement shall continue in force so long as any such well is capable of production, and for an additional period of 90 days thereafter; provided, however, if, prior

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to the expiration of such additional period, one or more of the parties hereto are engaged in drilling, reworking, deepening, sidetracking, plugging back, testing or attempting to complete or recomplete a well or wells hereunder, this agreement shall continue in force until such operations have been completed and if production results therefrom, this agreement shall continue in force as provided herein. In the event the well described in Article VI.A., or any subsequent well drilled hereunder, results in a dry hole, and no other well is capable of producing oil and/or gas from the contract area, this agreement shall terminate unless drilling, deepening, sidetracking, completing, recompleting, plugging back or reworking operations are commenced within 90 days from the date of abandonment of said well. “Abandonment” for such purposes shall mean either (i) a decision by all parties not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any operations on the well, whichever first occurs.

The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any remedy therefor which has accrued or attached prior to the date of such termination.

Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this operating agreement has been filed of record, operator is authorized to file of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute such a notice of termination as to operator's interest, upon request of operator, if operator has satisfied all its financial obligations.

ARTICLE XIV. COMPLIANCE WITH LAWS AND REGULATIONS

A. Laws, Regulations and Orders:

This agreement shall be subject to the applicable laws of the state in which the contract area is located, to the valid rules, regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state, and local laws, ordinances, rules, regulations and orders.

B. Governing Law:

This agreement and all matters pertaining hereto, including but not limited to matters of performance, nonperformance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and determined by the law of the state in which the contract area is located. If the contract area is in two or more states, the law of the state of Texas shall govern.

C. Regulatory Agencies:

Nothing herein contained shall grant, or be construed to grant, operator the right or authority to waive or release any rights, privileges, or obligations which nonoperators may have under federal or state laws or under rules, regulations or orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or production of wells, on tracts offsetting or adjacent to the contract area.

With respect to the operations hereunder, nonoperators agree to release operator from any and all losses, damages, injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from operator's interpretation or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not consti

36

tute gross negligence. Each nonoperator further agrees to reimburse operator for such nonoperator's share of production or any refund, fine, levy or other governmental sanction that operator may be required to pay as a result of such an incorrect interpretation or application, together with interest and penalties thereon owing by operator as a result of such incorrect interpretation or application.

ARTICLE XV. MISCELLANEOUS

A. Execution:

This agreement shall be binding upon each nonoperator when this agreement or a counterpart thereof has been executed by such nonoperator and operator notwithstanding that this agreement is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit “A” as owning an interest in the contract area or which own, in fact, an interest in the contract area. Operator may, however, by written notice to all nonoperators who have become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the initial well but in no event later than five days prior to the date specified in Article VI.A. for commencement of the initial well, terminate this agreement if operator in its sole discretion determines that there is insufficient participation to justify commencement of drilling operations. In the event of such a termination by operator, all further obligations of the parties hereunder shall cease as of such termination. In the event any nonoperator has advanced or prepaid any share of drilling or other costs hereunder, all sums so advanced shall be returned to such nonoperator without interest. In the event operator proceeds with drilling operations for the initial well without the execution hereof by all persons listed on Exhibit “A” as having a current working interest in such well, operator shall indemnify nonoperators with respect to all costs incurred for the initial well which would have been charged to such person under this agreement if such person had executed the same and operator shall receive all revenues which would have been received by such person under this agreement if such person had executed the same.

B. Successors and Assigns:

This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the leases or interests included within the contract area.

C. Counterparts:

This instrument may be executed in any number of counterparts, whether by e-mail, facsimile or electronic signature, each of which shall be considered an original for all purposes.

D. Severability:

For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws, this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to this agreement to comply with all of its financial obligations provided herein shall be a material default.

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Intentionally Blank; Signature Page to Follow

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IN WITNESS WHEREOF , this Agreement shall be effective as of the 6 ^th day of August 2014.

	OPERATOR:
	Black Gold Kansas Production, LLC
By:	____________________
	Stephen G. Nadeau
	Title: Manager-Member
	Date:
	NONOPERATORS:
	Rangeford Resources, Inc.
By:	____________________
	Colin Richardson
	Title: President
	Date:

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Exhibit A

Attached to and made a part of that certain Joint Operating Agreement

Dated  

1.

Lands Subject to this Agreement:

Exhibit “B.”

2.

Oil and Gas Leases:

The Oil and Gas Leases are listed on Exhibit “B”

3.

Summary of NRI and ORRI under this Agreement:

TRACT NO.	LEASE NRI DELIVERED
	To Rangeford Resources
1	Mary Louise Reutter, West Mule Creek Oilfield 76.50% NRI
2	West Mule Creek BLM Leases 76.50%

Addresses of the parties for Notice Purposes:

All information, notices, or other correspondence provided for in this Agreement shall be given as follows:

___________________________

________________________

___________________________

________________________

___________________________

________________________

Attention: __________________

Attention________________

Tel. No.: __________________

Tel. No.: ________________

Fax No.: __________________

Fax No.: ________________

Cell No.: __________________

Cell No.:_______________

E-mail: ___________________

            

E-mail: _________________

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Exhibit B

Attached to and made a part of that certain Joint Operating Agreement

Dated  

SCHEDULE OF LEASES

41

42

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Exhibit C

Attached to and made a part of that certain Joint Operating Agreement

Dated May ___, 2014

ACCOUNTING PROCEDURE

JOINT OPERATIONS

I.  GENERAL PROVISIONS

1.

Definitions .

“Joint Operating” shall mean the real and personal property subject to the Operating Agreement to which this Accounting Procedure is attached.

“Joint Operations” shall mean all operations necessary or proper for the development, operation, protection, and maintenance of the Joint Property.

“Joint Account” shall mean the account showing the charges paid and credits received in the conduct of the Joint Operations and which are to be shared by the Parties.

“Operator” shall mean the party designated in the Operating Agreement to conduct the Joint Operations.

“Non-Operators” shall mean the Parties to this Operating Agreement other than the Operator.

“Parties” shall mean the Operator and Non-Operators.

“First Level Supervisors” shall mean those employees whose primary function in Joint Operations is the direct supervision of other employees and/or contract labor directly employed on the Joint Property in a field operating capacity.

“Technical Employees” shall mean those employees having special and specific engineering, geological, or other professional skills, and whose primary function in Joint Operations is the handling of specific operation conditions and problems for the benefit of the Joint Property.

“Personal Expenses” shall mean travel and other reasonable reimbursable expenses of Operator’s employees.

“Material” shall mean personal property, equipment or supplies acquired or held for use on the Joint Property.

“Controllable Material” shall mean Material which at the time is so classified in the Material Classification Manual as most recently recommended by the Council of Petroleum Accountants Societies.

2.

Statement and Billings .

Operator shall bill Non-Operators on or before the last day of each month for their proportionate share of the Joint Account for the preceding month.  The bills will be accompanied by statements which identify the authority for expenditure, lease, or facility, and all charges and credits summarized by appropriate classifications of investment and expense, except that items of Controllable Material and unusual charges and credits shall be separately identified and fully described in detail.

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3.

Advances and Payments of Non-Operators .

A.

Unless otherwise provided for in the Operating Agreement, Operator may require Non-Operators to advance their share of estimated cash outlay for the succeeding month’s operation within fifteen (15) days after receipt of the billing or by the first day of the month for which the advance is required, whichever is later.  Operator shall adjust each monthly billing to reflect advances received from Non-Operators.

B.

Each Non-Operator shall pay its proportion of all bills within thirty (30) days after receipt.  If payment is not made within that time, the unpaid balance shall bear interest, monthly, at the prime rate in effect at   *  on the first day of the month in which the delinquency occurs, plus 1%, or the maximum contract rate permitted by the applicable usury laws in the state in which the Joint Property is located, whichever is the lesser, plus attorney’s fees, court costs, and other costs in connection with the collection of unpaid amounts.

*the end of the business day for Citibank, N.A. located in New York

4.

Adjustments .

Payment of any bills shall not prejudice the right of any Non-Operator to protest or question the correctness of the bill; provided, however, all bills and statements rendered to Non-Operators by the Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any calendar year, unless within the twenty-four (24) month period a Non-Operator takes written exception to the bill(s) and makes claim on the Operator for an adjustment.  No adjustment favorable to Operator shall be made unless it is made within the same prescribed time period.  The provisions of this paragraph shall not prevent adjustments resulting from a physical inventory of Controllable Material as provided for in Section V.

5.

Audits .

A.

A Non-Operator, on notice in writing to the Operator and all other Non-Operators, shall have the right to audit the Operator’s accounts and records relating to the Joint Account for any calendar year within the twenty-four (24) month period following the end of a calendar year; provided, however, the making of an audit shall not extend the time for the taking of written exception to and the adjustments of accounts as provided for in Paragraph 4 of this Section I.  Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a joint audit in a manner which will result in a minimum of inconvenience to the Operator.  Operator shall bear no portion of the Non-Operators’ audit cost incurred under this paragraph unless agreed to by the Operator.  The audits shall not be conducted more than once each year without prior approval of the Operator, except on the resignation or removal of the Operator, and shall be made at the expense of those Non-Operators approving the audit.

B.

The Operator shall reply in writing to an audit report within one hundred eighty (180) days after receipt of the audit.

6.

Approval By Non-Operators .

Where an approval or other agreement of the Parties or Non-Operators is expressly required under other sections of this Accounting Procedure, and if the Operating Agreement to which this Accounting Procedure is attached contains no contrary provisions, Operator shall notify all Non-Operators of the Operator’s proposal, and the agreement or approval of a majority in interest of the Non-Operators shall be controlling on all Non-Operators.

II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

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1.

Ecological and Environmental .

Costs incurred for the benefit of the Joint Property as a result of governmental or regulatory requirements to satisfy environmental considerations applicable to the Joint Operations.  These costs may include surveys of an ecological or archaeological nature and pollution control procedures as required by applicable laws and regulations.

2.

Rentals and Royalties .

Lease rentals and royalties paid by the Operator for the Joint Operations.

3.

Labor .

A.

(1)

Salaries and wages of Operator’s field employees directly employed on the Joint Property in the conduct of Joint Operations.

(2)

Salaries of First Level Supervisors in the field.

(3)

Salaries and wages of Technical Employees directly employed on the Joint Property if the charges are excluded from the overhead rates.

(4)

Salaries and wages of Technical Employees, either temporarily or permanently, assigned to and directly employed in the operation of the Joint Property if the charges are excluded from the overhead rates.

B.

Operator’s cost of holiday, vacation, sickness, and disability benefits and other customary allowances paid to employees whose salaries and wages are chargeable to a Joint Account under Paragraph 3.A. of this Section II.  The costs under this Paragraph 3.B. may be charged on a “when and as paid basis” or by “percentage assessment” on the amount of salaries and wages chargeable to the Joint Account under Paragraph 3.A. of this Section II.  If percentage assessment is used, the rate shall be based on the Operator’s cost experience.

C.

Expenditures or contributions made pursuant to assessments imposed by governmental authority which are applicable to Operator’s costs chargeable to the Joint Account under Paragraphs 3.A. and 3.B. of this Section II.

D.

Personal Expenses of those employees whose salaries and wages are chargeable to the Joint Account under Paragraph 3.A. of this Section II.

4.

Employee Benefits .

Operator’s current costs of established plans for employee’s group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus, and other benefit plans of a like nature, applicable to Operator’s labor cost chargeable to the Joint Account under Paragraphs 3.A. and 3.B. of this Section II. shall be Operator’s actual cost not to exceed the percent most recently recommended by the Council of Petroleum Accountants Societies.

5.

Material .

Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV.  Only those Materials shall be purchased for or transferred to the Joint Property as may be required for immediate use and is reasonably practical and consistent with efficient and economical operators.  The accumulation of surplus stocks shall be avoided.

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6.

Transportation .

Transportation of employees and Material necessary for the Joint Operations, but subject to the following limitations:

A.

If Material is moved to the Joint Property from the Operator’s warehouse or other properties, no charge shall be made to the Joint Account for a distance greater than the distance from the nearest reliable supply store where like material is normally available or railway receiving point nearest the Joint Property unless agreed to by the Parties.

B.

If surplus Material is moved to Operator’s warehouse or other storage point, no charge shall be made to the Joint Account for a distance greater than the distance to the nearest reliable supply store where the material is normally available, or railway receiving point nearest the Joint Property unless agreed to by the Parties.  No charge shall be made to the Joint Account for moving Material to other properties belonging to Operator, unless agreed to by the Parties.

C.

In the application of subparagraphs A. and B. above, the option to equalize or charge actual trucking cost is available when the actual charge is $ 400 or less, excluding accessorial charges.  The $ 400 will be adjusted to the amount most recently recommended by the Council of Petroleum Accountants Societies.

7.

Services .

The cost of contract services, equipment, and utilities provided by outside sources, except services excluded by Paragraph 10. of Section II. and Paragraphs i, ii, and iii, of Section III.  The cost of professional consultant services and contract services of technical personnel directly engaged on the Joint Property if those changes are excluded from the overhead rates.  The cost of professional consultant services or contract services of technical personnel not directly engaged on the Joint Property shall not be charged to the Joint Account unless previously agreed to by the Parties.

8.

Equipment and Facilities Furnished By Operator .

A.

Operator shall charge the Joint Account for use of Operator owned equipment and facilities at rates commensurate with costs of ownership and operation.  Those rates shall include costs of maintenance, repairs, other operating expense, insurance, taxes, depreciation, and interest on gross investment less accumulated depreciation not to exceed twelve percent ( 12 %) per annum.  The rates shall not exceed average commercial rates currently prevailing in the immediate area of the Joint Property.

B.

In lieu of charges in Paragraph 8.A. above, Operator may elect to use average commercial rates prevailing in the immediate area of the Joint Property less 20 %.  For automotive equipment, Operator may elect to use rates published by the Petroleum Motor Transport Association.

9.

Damages and Losses to Joint Property .

All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator’s gross negligence or willful misconduct.  Operator shall furnish Non-Operator written notice of damages or losses incurred as soon as practicable after a report of them has been received by Operator.

10.

Legal Expense .

Expense of handling, investigating, and settling litigation or claims, or Texas Corporation Commission proceeding discharging of liens, payment of judgments, and amounts paid for settlement of claims incurred in or resulting from opera

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tions under the Operating Agreement or necessary to protect or recover the Joint Property, except that no charge for services of Operator’s legal staff, or fees, or expense of outside attorneys shall be made unless previously agreed to by the Parties.  All other legal expense is considered to be covered by the overhead provisions of Section III. unless otherwise agreed to by the Parties, except as provided in Section I., Paragraph 3.

11.

Taxes .

All taxes of every kind and nature assessed or levied on or in connection with the Joint Property, the operation of it, or the production from it, and which taxes have been paid by the Operator for the benefit of the Parties.  If the ad valorem taxes are based in whole or in part on separate valuations of each party’s working interest, then notwithstanding anything to the contrary in these Accounting Procedures, charges to the Joint Account shall be made and paid by the Parties in accordance with the tax value generated by each Party’s working interest.

12.

Insurance .

Net premiums paid for insurance required to be carried for the Joint Operations for the protection of the Parties.  In the event Joint Operations are conducted in a state in which Operator may act as self-insurer for Worker’s Compensation and/or Employers Liability under the respective state’s laws, Operator may, at its election, include the risk under its self-insurance program and in that event, Operator shall include a charge at Operator’s cost not to exceed manual rates.

13.

Abandonment and Reclamation .

Costs incurred for abandonment of the Joint Property, including costs required by governmental or other regulatory authority.

14.

Communications .

Cost of acquiring, leasing, installing, operating, repairing, and maintaining communication systems, including radio and microwave facilities directly serving the Joint Property.  In the event communication facilities/systems serving the Joint Property are Operator owned, charges to the Joint Account shall be made as provided in Paragraph 8. of this Section II.

15.

Other Expenditures .

Any other expenditure not covered or dealt with in the foregoing provisions of this Section II., or in Section III., and which is of direct benefit to the Joint Property, and is incurred by the Operator in the necessary and proper conduct of the Joint Operations.

III. OVERHEAD

1.

Overhead – Drilling and Producing Operations .  

i.

As compensation for administrative, supervision, office services, and warehousing costs, Operator shall charge drilling and producing operations on either:

(X)

Fixed Rate Basis, Paragraph 1.A.; or,

(   )

Percentage Basis, Paragraph 1.B.

Unless otherwise agreed to by the Parties, this charge shall be in lieu of costs and expenses of all offices and salaries, or wages plus applicable burdens and expenses of all  personnel, except those directly chargeable under Paragraph 3.A., Section II.  The cost and expense of services from outside sources in connection with matters of taxation, traffic, accounting, or matters before or involving governmental agencies shall be

48

considered as included in the overhead rates provided for in the above selected Paragraph of this Section III., unless the cost and expense are agreed to be the Parties as a direct charge to the Joint Account.

ii.

The salaries, wages, and Personal Expenses of Technical Employees and/or the cost of professional consultant services and contract services of technical personnel directly employed on the Joint Property:

(   )

shall be covered by the overhead rates; or,

(X)

shall not be covered by the overhead rates.

iii.

The salaries, wages, and Personal Expenses of Technical Employees and/or costs of professional consultant services and contract services of technical personnel, either temporarily or permanently assigned to and directly employed in the operation of the Joint Property:

(   )

shall be covered by the overhead rates; or,

(X)

shall not be covered by the overhead rates.

A.

Overhead – Fixed Rate Basis.

(1)

Operator shall charge the Joint Account at the following rates per well, per month:

Drilling Well Rate $ 7,500.

(Prorated for less than a full month)

Producing Well Rate $100.

(2)

Application of Overhead – Fixed Rate Basis shall be as follows:

(a)

Drilling Well Rate.

(1)

Charges for drilling wells shall begin on the date the well is spudded and terminate on the date the drilling rig, completion rig, or other units used in completion of the well is released, whichever is later, except that no charge shall be made during suspension of drilling or completion operations for fifteen (15) or more consecutive calendar days.

(2)

Charges for wells undergoing any type of workover or recompletion for a period of five (5) consecutive work days or more shall be made at the drilling well rate.  These charges shall be applied for the period from date workover operations, with rig or other units used in workover, commence through date of rig or other unit release, except that no charge shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.

(b)

Producing Well Rates.

(1)

An active well either produced or injected into for any portion of the month shall be considered as a one-well charge for the entire month.

(2)

Each active completion in a multi-completed well in which production is not commingled down hole shall be considered as a one-well charge providing each completion is considered a separate well by the governing regulatory authority.

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(3)

An inactive gas well shut in because of overproduction or failure of purchaser to take the production shall be considered as a one-well charge providing the gas well is directly connected to a permanent sales outlet.

(4)

A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well.  This one-well charge shall be made whether or not the well has produced except when drilling well rate applies.

(5)

All other inactive wells (including but not limited to inactive wells covered by unit allowable, lease allowable, transferred allowable, etc.) shall not qualify for an overhead charge.

(3)

The well rates shall be adjusted as of the first day of April each year following the effective date of the Operating Agreement to which this Accounting Procedure is attached.  The adjustment shall be computed by multiplying the rate currently in use by the percentage increase or decrease in the average weekly earnings of Crude Petroleum and Gas Production Workers for the last calendar year compared to the calendar year preceding as shown by the index of average weekly earnings of Crude Petroleum and Gas Production Workers as published by the United States Department of Labor, Bureau of Labor Statistics, or the equivalent Canadian index as published by Statistics Canada, as applicable.  The adjusted rates shall be the rates currently in use, plus or minus the computed adjustment.

B.

Overhead – Percentage Basis.

(1)

Operator shall charge the Joint Account at the following rates:

(a)

Development.

 Percent (_____%) of the cost of development of the Joint Property exclusive of costs provided under Paragraph 10. of Section II. and all salvage credits.

(b)

Operating.

 Percent (_____%) of the cost of operating the Joint Property exclusive of costs provided under Paragraphs 2. and 10. of Section II., all salvage credits, the value of injected substances purchased for secondary recovery and all taxes and assessments which are levied, assessed, and paid on the mineral interest in and to the Joint Property.

(2)

Application of Overhead – Percentage Basis shall be as follows:

For the purpose of determining charges on a Percentage Basis under Paragraph 1.B. of this Section III., development shall include all costs in connection with drilling, redrilling, deepening, or any remedial operations on any or all wells involving the use of drilling rig and crew capable of drilling to the producing interval on the Joint Property; also, preliminary expenditures necessary in preparation for drilling and expenditures incurred in abandoning when the well is not completed as a producer, and original cost of construction or installation of fixed assets, the expansion of fixed assets and any other project clearly discernible as a fixed asset, except Major Construction as defined in Paragraph 2. of this Section III.  All other costs shall be considered as operating.

2.

Overhead – Major Construction .

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To compensate Operator for overhead costs incurred in the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly discernible as a fixed asset required for the development and operation of the Joint Property, Operator shall either negotiate a rate prior to the beginning of construction, or shall charge the Joint Account for overhead based on the following rates for any Major Construction project in excess of $100,000:

A. 4 % of first $100,000 or total cost if less, plus

B. 3 % of costs in excess of $100,000 but less than $1,000,000, plus

C. 2 % of costs in excess of $1,000,000.

Total cost shall mean the gross cost of any one project.  For the purpose of this paragraph, the component parts of a single project shall not be treated separately and the cost of drilling and workover wells and artificial lift equipment shall be excluded.

3.

Catastrophe Overhead .

To compensate Operator for overhead costs incurred in the event of expenditures resulting from a single occurrence due to oil spill, blowout, explosion, fire, storm, hurricane, or other catastrophes as agreed to by the Parties, which are necessary to restore the Joint Property to the equivalent condition that existed prior to the event causing the expenditures, Operator shall either negotiate a rate prior to charging the Joint Account or shall charge the Joint Account for overhead based on the following rates:

A. 4 % of total costs through $100,000; plus

B. 3 % of total costs in excess of $100,000 but less than $1,000,000; plus

C. 2 % of total costs in excess of $1,000,000.

Expenditures subject to the overheads above will not be reduced by insurance recoveries, and no other overhead provisions of this Section III. shall apply.

4.

Amendment of Rates .

The overhead rates provided for in this Section III. may be amended from time to time only by mutual agreement between the Parties if, in practice, the rates are found to be insufficient or excessive.

IV. PRICING OF JOINT ACCOUNT MATERIAL

PURCHASES, TRANSFERS, AND DISPOSITIONS

Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for all Material movements affecting the Joint Property.  Operator shall provide all Material for use on the Joint Property; however, at Operator’s option, the Material may be supplied by the Non-Operator.  Operator shall make timely disposition of idle and/or surplus Material, the disposal being made either through sale to Operator or Non-Operator, division in kind, or sale to outsiders.  Operator may purchase, but shall be under no obligation to purchase the interest of Non-Operators in surplus condition A. and B. Material.  The disposal of surplus Controllable Material not purchased by the Operator shall be agreed to by the Parties.

1.

Purchases .

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Material purchased shall be charged at the price paid by Operator after deduction of all discounts received.  In case of Material found to be defective or returned to vendor for any other reasons, credit shall be passed to the Joint Account when adjustment has been received by the Operator.

2.

Transfers and Dispositions .

Material furnished to the Joint Property and Material transferred from the Joint Property or disposed of by the Operator, unless otherwise agreed to by the Parties, shall be priced on the following basis exclusive of cash discounts.

A.

New Material (Condition A).

(1)

Tubular Goods Other than Line Pipe.

(a)

Tubular goods, sized 2-3/8 inches OD and larger, except line pipe, shall be priced at Eastern mill published carload base prices effective as of the date of movement plus transportation cost using the 80,000 pound carload weight basis to the railway receiving point nearest the Joint Property for which published rail rates for tubular goods exist.  If the 80,000 pound rail rate is not offered, the 70,000 pound or 90,000 pound rail rate may be used.  Freight charges for tubing will be calculated from Lorain, Ohio, and casing from Youngstown, Ohio.

(b)

For grades which are special to one mill only, prices shall be computed at the mill base of that mill plus transportation cost form that mill to the railway receiving point nearest the Joint Property as provided above in Paragraph 2.A.(1)(a).  For transportation cost from points other than Eastern mills, the 30,000 pound Oil Field Haulers Association interstate truck rate shall be used.

(c)

Macaroni tubing (size less than 2-3/8 inch OD) shall be priced at the lowest published out-of-stock prices f.o.b. the supplier plus transportation costs, using the Oil Field Haulers Association interstate truck rate per weight of tubing transferred, to the railway receiving point nearest the Joint Property.

(2)

Line Pipe.

(a)

Line pipe movements (except size 24 inch OD and larger will walls 3/4 inch and over) 30,000 pounds or more shall be priced under provisions of tubular goods pricing in Paragraph A.(1)(a) as provided above.  Freight charges shall be calculated from Lorain, Ohio.

(b)

Line pipe movements (except size 24 inch OD and larger with walls 3/4 inch and over) less than 30,000 pounds shall be priced at Eastern mill published carload base prices effective as of date of shipment, plus 20 percent, plus transportation costs based on freight rates as set forth under provisions of tubular goods pricing in Paragraph A.(1)(a) as provided above.  Freight charges shall be calculated from Lorain, Ohio.

(c)

Line pipe 24 inch OD and over, and 3/4 inch wall and larger shall be priced f.o.b. the point of manufacture at current new published prices plus transportation cost to the railway receiving point nearest the Joint Property.

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(d)

Line pipe, including fabricated line pipe, drive pipe, and conduit not listed on published price lists shall be priced at quoted prices plus freight to the railway receiving point nearest the Joint Property or at prices agreed to by the Parties.

(3)

Other Material shall be priced at the current new price, in effect at date of movement, as listed by a reliable supply store nearest the Joint Property, or point of manufacture, plus transportation costs, if applicable, to the railway receiving point nearest the Joint Property.

(4)

Unused new Material, except tubular goods, moved from the Joint Property shall be priced at the current new price, in effect on date of movement, as listed by a reliable supply store nearest the Joint Property, or point of manufacture, plus transportation costs, if applicable, to the railway receiving point nearest the Joint Property.  Unused new tubulars will be priced as provided above in Paragraph 2.A.(1) and (2).

B.

Good Used Material (Condition B).

Material in sound and serviceable condition and suitable for reuse without reconditioning:

(1)

Material moved to the Joint Property.

At seventy-five percent (75%) of current new price, as determined by Paragraph A.

(2)

Material used on and moved from the Joint Property.

(a)

At seventy-five percent (75%) of current new price, as determined by Paragraph A, if Material was originally charged to the Joint Account as new Material; or,

(b)

At sixty-five percent (65%) of current new price, as determined by Paragraph A, if Material was originally charged to the Joint Account as used Material.

(3)

Material not used on and moved from the Joint Property.

At seventy-five percent (75%) of current new price as determined by Paragraph A.

The cost of reconditioning, if any, shall be absorbed by the transferring property.

C.

Other Used Material.

(1)

Condition C.

Material which is not in sound and serviceable condition and not suitable for its original function until after reconditioning shall be priced at fifty percent (50%) of current new price as determined by Paragraph A.  The cost of reconditioning shall be charged to the receiving property, provided Condition C value plus cost of reconditioning does not exceed Condition B value.

(2)

Condition D.

Material, excluding junk, no longer suitable for its original purpose, but usable for some other purpose shall be priced on a basis commensurate with its use.  Operator may dispose of Condition D Material under procedures normally used by Operator without prior approval of Non-Operators.

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(a)

Casing, tubing, or drill pipe used as line pipe shall be priced as Grade A and B seamless line pipe of comparable size and weight.  Used casing, tubing or drill pipe utilized as line pipe shall be priced at used line pipe prices.

(b)

Casing, tubing or drill pipe used as higher pressure service lines than standard line pipe, e.g. power oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe.  Upset tubular goods shall be priced on a non upset basis.

(3)

Condition E.

Junk shall be priced at prevailing prices.  Operator may dispose of Condition E Material under procedures normally utilized by Operator without prior approval of Non-Operators.

D.

Obsolete Material.

Material which is serviceable and usable for its original function but condition and/or value of the Material is not equivalent to that which would justify a price as provided above may be specially priced as agreed to by the Parties.  The price should result in the Joint Account being charged with the value of the service rendered by the Material.

E.

Pricing Conditions.

(1)

Loading or unloading costs may be charged to the Joint Account at the rate of twenty-five cents (25¢) per hundred weight on all tubular goods movements, in lieu of actual loading or unloading costs sustained at the stocking point.  The above rate shall be adjusted as of the first day of April each year following January 1, 2012, by the same percentage increase or decrease used to adjust overhead rates in Section III., Paragraph 1.A.(3).  Each year, the rate calculated shall be rounded to the nearest cent and shall be the rate in effect until the first day of April next year.  The rate shall be published each year by the Council of Petroleum Accountants Societies.

(2)

Material involving erection costs shall be charged at applicable percentage of the current knocked-down price of new Material.

3.

Premium Prices .

Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes, or other unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the required Material at the Operator’s actual cost incurred in providing the Material, in making it suitable for use, and in moving it to the Joint Property; provided notice in writing is furnished to Non-Operators of the proposed charge prior to billing Non-Operators for the Material.  Each Non-Operator shall have the right, by so electing and notifying Operator within ten (10) days after receiving notice from Operator, to furnish in kind all or part of his share of the Material suitable for use and acceptable to Operator.

4.

Warranty of Material Furnished By Operator .

Operator does not warrant the Material furnished.  In case of defective Material, credit shall not be passed to the Joint Account until adjustment has been received by Operator from the manufacturers or their agents.

V.  INVENTORIES

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The Operator shall maintain detailed records of Controllable Material.

1.

Periodic Inventories, Notice, and Representation .

At reasonable intervals, inventories shall be taken by Operator of the Joint Account Controllable Material.  Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inventory is to begin so that Non-Operators may be represented when any inventory is taken.  Failure of Non-Operators to be represented at any inventory shall bind Non-Operators to accept the inventory taken by Operator.

2.

Reconciliation and Adjustment of Inventories .

Adjustments to the Joint Account resulting from the reconciliation of a physical inventory shall be made within six months following the taking of the inventory.  Inventory adjustments shall be made by Operator to the Joint Account for overages and shortages, but, Operator shall be held accountable only for shortages due to lack of reasonable diligence.

3.

Special Inventories .

Special inventories may be taken whenever there is any sale, change of interest, or change of Operator in the Joint Property.  It shall be the duty of the party selling to notify all other Parties as quickly as possible after the transfer of interest takes place.  In such cases, both the seller and the purchaser shall be governed by such inventory.  In cases involving a change of Operator, all Parties shall be governed by the inventory.

4.

Expense of Conducting Inventories .

A.

The expense of conducting periodic inventories shall not be charged to the Joint Account unless agreed to by the Parties.

B.

The expense of conducting special inventories shall be charged to the Parties requesting such inventories, except inventories required due to change of Operator shall be charged to the Joint Accounting.

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Exhibit D

Attached to and made a part of that certain Joint Operating Agreement

Dated May ___, 2014

INSURANCE

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Exhibit E

Attached to and made a part of that certain Joint Operating Agreement

Dated

GAS BALANCING AGREEMENT

By the terms of the Operating Agreement, to which this Gas Balancing Agreement is attached, each party has the right to take and market its share of gas produced from the Contract Area described in the Operating Agreement.  In the event any party is not able to take its share of gas, or has contracted to sell its share of gas produced from the Contract Area to a purchaser which is unable at any time while the Operating Agreement is in effect to take the share of gas attributable to the interest of the party, the terms of this Gas Balancing Agreement shall automatically become effective.

During the period or periods when any party has no market for, or its purchaser is unable to take its share of gas, the other parties shall be entitled to produce, each month, one hundred percent (100%) of the allowable gas production assigned to the Contract Area by the appropriate governmental entity having jurisdiction, and each party shall have the right to take or deliver its prorata share of all of the production.  All parties to the Operating Agreement shall share in and own the condensate recovered at the surface in accordance with their respective interests in the Contract Area, but each party taking gas shall own all the gas it takes or delivers to its purchaser.  Each party that is unable to market its share of the produced gas shall be credited with gas "in storage" equal to its share of the gas produced, less its share of gas used in lease operations, vented, or lost.  The Operator designated in the Operating Agreement, and its successor Operators shall maintain a current account of the gas balance between the parties and shall furnish all parties monthly statements showing the total quantity of gas produced, used in lease operations, vented or lost, and the total quantity of condensate recovered.  Each party taking gas shall furnish Operator a monthly statement of the amount of gas taken.

At all times while gas is produced from the Contract Area, each party, regardless of whether the party is taking gas or unable to take gas, will make settlement with the respective royalty owners to whom they are each accountable, just as if each party were taking or delivering to a purchaser its share, and its share only, of gas production.  Each party agrees to hold each other party harmless from any and all claims for royalty payments asserted by royalty owners to whom each party is accountable.  Each party producing and/or delivering gas to its purchaser shall pay any and all production taxes due on such gas.

After notice to Operator, any party who has been unable to take gas may begin taking or delivering its share of the produced gas to its purchaser.  In addition to its share, each party, until it has recovered its gas in storage and balanced its gas account, shall be entitled to take or deliver a volume of gas equal to Twenty Five percent  ( 25 %) of each overproduced party's share of produced gas (the "additional gas").  If more than one party is entitled to the additional produced gas.  It shall divide the additional gas between them.  The portion of the additional gas which each party shall be entitled to take shall be determined by dividing a party's interest in the Contract Area by the sum of the Contract Area interests of all parties taking the additional gas.

The Operator, at the request of any party, may produce the entire well stream, if necessary, for a deliverability test not to exceed seventy-two (72) hours duration, which may be required by the requesting party's Gas Sales Contract, and may overproduce in any other situation, provided such overproducing is consistent with prudent operations.

It is the intent of the parties to this Gas Balancing Agreement that during the productive life of each well on the Contract Area, each party shall have the opportunity to share in the actual cumulative production from each well, in proportion to its Contract Area interest in the gas produced.  Every reasonable effort shall be made to balance the parties’ over deliveries and underdeliveries of produced gas on a monthly basis, provided the pipeline handling each party's gas is able to take the share of production to which each party is entitled.

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In the event production of gas from a reservoir in a well permanently ceases prior to the time that the accounts of the parties have been balanced, a complete balancing shall be accomplished by a money settlement between the parties within 90 days of the date the reservoir in the well permanently ceases to produce.  The settlement shall be based on the price or prices actually received by each overproduced party for its share of the gas of an under produced party, without interest, less any applicable production taxes paid by the overproduced party on the gas.  The parties recognize there may be changes in the price per MCF of gas received by the parties receiving a share of the gas of an under produced party.  In view of this, the parties agree that for the purpose of determining the price, per MCF, of overproduction and underproduction of gas, (recognizing the price per MCF determines the money settlement to be made by the overproduced parties to the under produced parties) the overproduction and underproduction amounts of gas shall be offset in the order the overproduction and underproduction accrued.  

The provisions of this Gas Balancing Agreement shall be separately applicable to each well and each reservoir in the Contract Area and production from one reservoir in a gas well may not be utilized for the purpose of balancing underproduction and overproduction from other reservoirs in a gas well.

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Exhibit F

Attached to and made a part of that certain Joint Operating Agreement

Dated

NON-DISCRIMINATION AND CERTIFICATION OF

NON-SEGREGATED FACILITIES

1.

During the performance of this Contract, the Operator agrees as follows :

A.

The Operator will not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin.  The Operator will take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex or national origin.  Such action shall include, but not be limited to, the following: employment, upgrading, demotion or transfer, recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training including apprenticeship.  The Operator agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the contracting office setting forth the provisions of this non-discrimination clause.

B.

The Operator will, in all solicitations or advertisements for employees places by or on behalf of the Operator, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex or national origin.

C.

The Operator will send to each labor union or representative or workers with which he has a collective bargaining agreement or other contract or understanding, a notice to be provided by the agency contracting office, advising the labor union or worker’s representatives of the Operator's commitments under Section 202 of Executive Order No. 11246 of September 24, 1965, and shall post copies of the notice in conspicuous places available to employees and applicants for employment.

D.

The Operator will comply with all provisions of Executive Order No. 11246 of September 24, 1965, and by the rules, regulations and relevant orders of the Secretary of Labor.

E.

The Operator will furnish all information and reports required by Executive Order No. 11246 of September 24, 1965, and by the rules, regulations and orders of the Secretary of Labor, or pursuant thereto, and will permit access to his books, records and accounts by the contracting agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations and orders.

F.

In the event of Operator's non-compliance with the non-discrimination of this contract or with any of such rules, regulations or orders, this contract may be canceled, terminated or suspended, or in whole or in part, and the Operator may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in said Executive Order No. 11246 of September 24, 1965, or by rules, regulation or order of the Secretary of Labor, or as otherwise provided by law.

G.

The Operator will include the provisions of Paragraphs (1) through (7) in every subcontract or purchase order unless exempted by rules, regulations or orders of the Secretary of Labor issued pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965, so that such provisions will be binding upon each contractor or vendor.  The Operator will take such action with respect to any contract or purchase order as the contracting agency may direct as a means of enforcing such provisions, including sanctions for non-compliance; provided, however, that in the even the Operator becomes involved in or is threatened with litigation with a contractor or vendor as a result of such direction by the contracting agency, the Operator may request the United States to enter into such litigation to protect the interest of the United States.

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2.

Equal Employment Opportunity Reporting

The Operator, unless exempt, agrees to file with the appropriate federal agency a complete and accurate report on Standard Form 100 (EEO-1) within thirty (30) days after the signing of this Agreement or the award of any such purchase order, as the case may be, (unless such a report has been filed in the last 12 months), and agrees to continue to file such reports annual, on or before March 31st. (41 CFR 60-1.7(a)).

3.

Affirmative Action Compliance Program .

The Operator agrees to develop and maintain a current written affirmative action compliance program for each of its establishments in accordance with the regulations of the Secretary of Labor promulgated under Executive Order No. 11246, as amended (41 CFR 60-01.40).

4.

Veteran's Employment .

In the event the agreement to which this exhibit is attached is for the purpose of carrying with any department or agency of the United States for the procurement of personal property and non-personal services (including construction) for the United States as provided by Section 2012 of Title 38 USC, Operator agrees to give special emphasis to the employment of qualified disabled veterans and veterans of the Vietnam era and to list immediately with the appropriate local employment service office all of its suitable employment openings.

5.

Equal Opportunity in Employment Certification of Non-Segregated Facilities .  

Operator, by entering into the contract to which this Exhibit D is attached, certifies that he does not maintain or provide for his employees any segregated facilities at any of his establishments, and that he does not permit his employees to perform their services at any location, under his control, where segregated facilities are maintained.  Operator agrees that a breach of this certification is a violation of the Equal Opportunity clause in this contract.  As used in this certification, the term "segregated facilities" means, but is not limited to, any waiting rooms, work areas, restrooms and washrooms, restaurants, and other eating areas, time clocks, locker rooms, and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing facilities provided for employees which are segregated by explicit directive or are in fact segregated on the basis of race, creed, color or national origin, because of habit, local custom, or otherwise.  He further agrees that (except where he has obtained identical certifications from proposed contracts for specific time periods) he will obtain identical certifications from proposed contractors prior to the award of contracts exceeding $10,00.00 which are not exempt from the provisions of the Equal Opportunity clause, that he will retain such certifications in his files; and that he will forward the following notice to such proposed contractors (except where the proposed contractors have submitted identical certifications for specific time periods):

6.

Notice to Prospective Contractors of Requirement for Certifications of Facilities .

A Certification of Non-Segregated Facilities, as required by the May 9, 1967 Order (32 F.R. 7439, May 19, 1967) on Elimination of Segregated Facilities, by the Secretary of Labor, must be submitted prior to the award of a contract exceeding $10,000.00 which is not exempt from the provisions of the Equal Opportunity clause.  The certification may be submitted either for each contract or for all contracts during a period (i.e., quarterly, semi-annually, or annually).

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