CONTERRA JOINT VENTURE DEVELOPMENT AGREEMENT (A Tax Partnership)

Selection of Venture Wells. Each Venture Well will be evaluated individually on its own geologic merits and will be drilled at mutually agreeable locations. Prior to making any capital contributions for the purpose of drilling a Venture Well and depositing funds into the Banking Account of the Venture, the Parties shall have received, reviewed and approved the following materials:

Drilling Prognosis for the specific Venture Well;

AFE for the specific Venture Well;

Assignment of leasehold interest;

Such evidence of drillsite title as any Party may request;

Evidence that all mortgage encumbrances have been removed.

Approval to Drill a Venture Well. Pursuant to Section 2.02 (a), upon acceptance and approval to commence operations of any Venture Well, Venture Manager shall send to Conterra a cash call for the approved amounts set forth for in the Venture Well AFE and the prospect fee of $100,000.00 as set forth in Section 5.02. Conterra shall remit fifty (50%) percent of the amount of the cash call within five (5) days after receipt, and, the remaining fifty (50%) percent within five (5) days from the receipt of a second cash call. At the option of Operator, no drilling operations shall be required until and upon receipt of the cash call funds into the Venture capital account. All capital contributions will be deposited in a segregated account in the name of the Venture.

Exclusion of Existing Producing Unit/ Lease Wells. As described in Section 2.01 above, the existing producing unit wells (“Excluded Wells”) are not intended to be a part of this Agreement, and the related spacing acreage attributed thereto and production therefrom are specifically excluded from this Agreement and shall remain the exclusive property and under the exclusive control of Patara.

Existing Facilities: In respect of the Excluded Wells, Patara is currently operating the Fairplay Field infrastructure of gathering lines, central facilities, central compression and related equipment in order to deliver gas to a receipt sales point to third parties. Patara does hereby dedicate to the Venture the concurrent right to use such existing facilities to handle, move and process the full gas well stream from any of the Venture Wells, subject to all allocable costs associated with the incremental volume of gas well stream from the Venture Well(s) handled and flowing through such existing facilities.

Refund of Cash Call: Upon receipt of the first cash call funds, Operator shall commence the drilling operations of the selected Venture Well within ten (10) days. If drilling operations have not been commenced within this time period, then Operator will return 100% of such cash funds to Conterra until a new cash call is made.

The actual Net Proceeds shall be based upon the actual net revenue interest, on a unitized basis, for each of the production units and Venture Wells drilled thereon as set forth in Exhibit “A-3” in the Venture Operating Agreement.

Conterra shall make 100% of all of the contributions of capital towards the drilling, completion and equipping for all of the Venture Wells. Such contributions will be made pursuant to cash calls under the approved AFE for each Venture well as set forth in Section 2.02(a) and will be made into the separate and segregated Venture Banking Account.

No interest shall accrue on any contribution to the capital of the Venture, and other than as described in Section 2.02(e), no Party shall have the right to withdraw or be repaid any capital contribution unless Venture Manager fails to drill, complete or equip a Venture Well, in which case such contribution of capital by Conterra shall be promptly returned to Conterra.

The Venture Manager shall use the contribution of capital pursuant to Section 5.01(a) solely for the drilling, completion and equipping of Venture Wells and for no other purpose.

Each Party shall contribute so much of time as may be reasonably required to conduct the operations of the Venture for the purposes set out in the Agreement.

It is contemplated that each Party shall, in connection with time contributed to the Venture, make use of personally owned equipment, vehicles, and other materials (“equipment”) for Venture purposes. This equipment shall not be deemed a contribution by the Party to the Venture of the equipment, and shall remain the property of the Party utilizing the equipment. In the event it is necessary, in connection with the use of equipment, to conduct maintenance resulting from the equipment being utilized by the Venture, those costs shall be costs of the Venture, but shall not give the Venture rights of ownership in the equipment.

After Payout Reversion. Upon the occurrence of Payout, the expense interest and the net proceeds interest shall, ipso facto, revert to the after Payout (“APO”) division of interest as set forth in Section 3.01.

Relinquishment of Leasehold Ownership in Venture Leases. Upon the occurrence of Payout, the leasehold interest previously assigned pursuant to Section 4.01 in the Venture leases shall be automatically converted to the after Payout interest of One Hundred (100%) percent working interest to Patara and Five (5%) Percent of 8/8ths Overriding Royalty Interest to Conterra.

Reassignment of Leasehold/Retained Five (5) Percent Overriding Royalty Interest. Upon the occurrence of Payout, Conterra shall execute and deliver to Patara a reassignment of One Hundred (100%) percent of the leasehold title and retaining a Five (5%) Percent of 8/8ths Overriding Royalty Interest in production from the Venture Leases. Such reassignment will substantially be in the form of Exhibit “C-2”.

The Venture Manager shall have the right, in good faith, except as otherwise specified in this Agreement, to take and do any and all reasonable action required with regard to the affairs of the Venture, in connection with its day to day operations, management, and control of Venture Property, which is routine and normal.

The Venture Manager shall have the duty, power, and authority to take such action, from time to time, as may be deemed necessary, appropriate and prudent in connection with the management and conduct of the business and affairs of the Venture, including, but not limited to, the following:

protect and preserve the title and interest of the Venture in Venture Property and other assets which may be owned by the Venture.

Render for taxation and pay all ad valorem taxes and assessments, if any and other charges imposed against the property owned by the Venture.

Negotiate and supervise the performance of contracts covering the Venture Property, and otherwise enforce the obligations of parties with whom the Venture enters into contracts or other arrangements.

Keep all books of accounts and records of the Venture, including GAAP accounting, tax and Payout records.

pay or cause to be paid all debts or other obligations of the Venture.

maintain all funds of the Venture in a segregated Venture Banking Account in a depository approved by the Parties.

make monthly distributions, as provided for in this Agreement, to the Parties in accordance with the provisions of this Agreement.

perform all other normal business functions and otherwise operate and manage the business and affairs of the Venture in accordance with, and as limited by, this Agreement.

to employ agents, employees, managers, accountants, attorneys, consultants, or other persons, necessary or appropriate to carry out the business of the Venture, whether or not any person employed is affiliated or related to a Party, and to pay fees, expenses, salaries, wages, and other compensation to those persons as the Venture Manager shall determine.

pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend, or compromise, on the terms as may be determined and on the evidence as may be deemed sufficient, any obligation, suit, liability, cause of action or claim, including taxes, either in favor of or against the Venture of $25,000.00 or less, subject to the limitation of imposing joint and several liability on the Parties.

A balance sheet as of the end of the Venture’s June 30 fiscal year end, and statements of income;

A general description of the activity of the Venture during the period covered by the report;

A report of any material transaction between the Venture and any Party, including fees and compensation paid by the Venture and any materials or equipment supplied and services performed by a Party, or any affiliate or employee of a Party, for fees or compensation; and

A report and all other information indicating the running balance of Payout of the capital contributions Account compounded annually at an internal rate of return of fifteen percent (15%).

Except as provided herein, no Party may sell, transfer, assign, pledge, or otherwise dispose of all or any part of its interest in this Venture, the Venture leases or the Venture Wells (whether voluntary, involuntary, or by operation of law) without the prior written consent of the other Party, which consent shall not be unreasonably withheld.

No information concerning Venture Properties shall be disclosed to any proposed assignee of an interest in the Venture, unless the proposed assignor of the interest shall obtain, prior to any assignment or transfer, written acknowledgment by a prospective assignee in a form satisfactory to all Parties, that the assignee will be bound by the terms of this Agreement. In the case of any proposed assignment, the written acknowledgment from a proposed assignee shall contain provisions for nondisclosure, of information relating to the accounts, activities and properties of the Venture, in the event the prospective assignee shall elect not to purchase or acquire an interest.

The Venture shall be dissolved based upon the following:

on the sale of all Parties’ interest in the Venture;

on the occurrence of any event specified by the laws of the State of Texas;

on the withdrawal, death, or disability of the Venture Manager, with no successor appointed pursuant to paragraph 5.01, or on the filing by a Party of a voluntary petition in bankruptcy, upon an adjudication of a Party as bankrupt or insolvent, or on the filing by a Party of a petition under any chapter of the U.S. Bankruptcy Code, or any other present or future applicable federal, state, or other statute or law regarding bankruptcy, insolvency, or other relief for debtors, or a Party seeking, consenting to, or acquiescing in, the appointment of a trustee, receiver, conservator or liquidator of the Party, or of all, or any substantial portion of, the Party’s property or interest in the Venture; or,

on reaching Payout and the conversion of all of Conterra’s interest to an Overriding Royalty Interest pursuant to Section 7.02

on the unanimous consent of the Parties.

Dissolution of the Venture shall be effective on the date on which the event occurs giving rise to the dissolution, but the Venture shall not terminate until the assets of the Venture shall have been distributed as provided for in this Agreement. Notwithstanding the dissolution of the Venture, prior to the termination of the Venture, the business of the Venture and the affairs of the Parties, as a Venture, shall continue to be governed by this Agreement. Upon dissolution, the Venture Manager shall liquidate the assets of the Venture, and apply and distribute the proceeds as contemplated by this Agreement.

After payment of liabilities owing to creditors, the Venture Manager, or the liquidator, if any, shall set up such reserves as are deemed reasonably necessary for any contingent or unforeseen liabilities or obligations of the Venture. This reserve may be paid over by the Venture Manager or the liquidator to a bank, to be held in escrow for the purposes of paying any such contingent or unforeseen liability or obligation, and, at the expiration of the period the Venture Manager or liquidator may deem advisable, the reserves shall be distributed to the Parties or their assigns in the manner set forth in paragraph 17.02 (b) below.

After paying all liabilities and providing for reserves, as provided for above, Venture Manager or the liquidator shall cause the remaining net assets of the Venture to be distributed:

first, to any Party in respect of loans by them, to the Venture; and,

then, to the Parties in the order of priority provided by law.

elect to become a Party to this Agreement by delivery of a written notice of that election to the Venture Manager;

execute and acknowledge other instruments as the Venture Manager may deem necessary or advisable to effect the admission of the purchaser, transferee, or assignee as a Party, including, without limitation, the written acceptance and adoption by the Party of the provisions of this Agreement and the assumption by the Party of the obligations of the Party from whom the interest is acquired; and

pay, or cause to be paid, a transfer fee to the Venture which is sufficient to cover all reasonable expenses connected with the sale, transfer, or assignment for the admission of the Party as a Party to this Agreement.

The following events shall be deemed to be events of default of the terms of this Agreement by a Party:

failure of a Party to make, when due, any contribution or advance required to be made under the terms of this Agreement and the failure to cure or remedy the failure within three (3) days after receipt of written notice of such failure from the Venture Manager;

failure to carry out any duties, covenants, or conditions of this Agreement or the violation of any of the other provisions of this Agreement and failure to remedy or cure the violation within ten (10) days after receipt of written notice of the violation from another Party to the Venture;

making an assignment for the benefit of creditors or the filing of a petition under any section or chapter of the U.S. Bankruptcy Code as amended, or under any similar law or statute of the United States or any state;

adjudication of a Party as a bankrupt or insolvent in proceedings filed against the Party under any section or chapter or the U.S. Bankruptcy Code, as amended, or under similar law or statute of the United States or any state, without further possibility of appeal or review; and

the appointment of a receiver for all, or substantially all, of the assets of a Party, and the failure to have the receiver discharged within thirty (30) days after appointment.

Upon the occurrence of any event of default by a Party, the other Parties shall have the right, at their election, which election shall be made at any time within one (1) year from the date of the default, on giving the defaulting Party ten (10) days’ written notice of the election (and providing the default is continuing on the date the notice is given), to pay the defaulting Party the fair market value of that Party’s interest in the Venture, based on the capital contributions made by the Party, taking into consideration any outstanding indebtedness, liabilities, liens, and obligations relating to the Party, for the purchase and redemption of the Party’s interest in the Venture. Pursuit of a remedy provided above shall not preclude the pursuit of any other remedy provided for in this Agreement, or any other remedies provided in law, nor shall pursuit of any remedy provided for in this Agreement constitute a forfeiture or waiver of any amount due by a defaulting Party, or of any damages accruing by reason of the violation of any of the terms, provisions, or covenants contained in this Agreement. A defaulting Party shall be responsible for the payment of all attorneys’ fees reasonably incurred by the Venture in connection with a default, and interest on all amounts by which the defaulting Party is indebted to the Venture, at the highest rate allowed by law.

Each Party agrees that in the event a Party shall default, as provided for above, the defaulting Party shall execute and deliver conveyances, agreements, notes, instruments, or other documents which may be necessary to confirm and render fully effective the transfer of the defaulting Party’s interest. Any relinquishment and transfer shall not relieve the defaulting Party from any liability under this Agreement which may have accrued prior to the date of the relinquishment or transfer. In the event appropriate instruments, as reasonably required, are not delivered after fifteen (15) days written notice to the defaulting Party, the non-defaulting Party may, as the defaulting Party’s irrevocable agent and attorney-in-fact, execute the legal instruments as may be required, necessary, or advisable to convey, transfer, or assign the defaulting Party’s interest, and the Parties agree that the non-defaulting Party shall not have any individual liability for any action taken in connection with that action.