10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  333-138806

MOGUL ENERGY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	98-0461623
State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
2500 Wilcrest Drive, Suite 405, Houston, Texas	77042
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:	(713) 784-2446

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x  No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§Sec.229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting Company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer o
Non-accelerated filer £	Smaller reporting company x
(Do not check if a smaller reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £   No S

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

The aggregate market value of the voting and non-voting common equity held by non-affiliates as at December 31, 2010, based on the average bid and asked price of such common equity as quoted on the Over-the-Counter Bulletin Board (OTCBB) on December 31, 2010 (average was $0.03), was $1,407,192.  For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.    As of March 24,2011, there were 57,445,987 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

None

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements relate to future events and/or our future financial performance.  Generally, you can identify forward-looking statements by terminology such as “intends,” "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", or "potential" or the negative of these terms or other comparable terminology.  To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties.  These statements reflect only our current expectations and involve known and unknown risks, uncertainties and other factors, many of which are unforeseen, including the risks in Item 1A entitled "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements.  These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby.  Except as required by applicable law, including, but not limited to, the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

In this Annual Report, unless otherwise specified, all references to "common shares" refer to common shares in the capital of Mogul Energy International, Inc., and the terms “Company,” Registrant,” "we" "us" and "our" mean Mogul Energy International, Inc.

ITEM 1. BUSINESS.

The Company

We are a Delaware corporation formed on July 25, 2005.  Our principal place of business is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas.  We also maintain offices in Vancouver, British Columbia and Toronto, Ontario, Canada.

We are an independent oil and gas exploration Company established to take advantage of low cost acquisition opportunities near other producing and proven oil fields. Since our formation, we have engaged in activities related to financing of our operations, the acquisition of our property rights and the drilling of both development and exploratory wells.  The address of our website is www.mogulenergy.com. Information on our website is not part of this report.

Description of Business

We are focused on the acquisition and operation of properties with potential for hydrocarbon (oil and gas) development.  Our business strategy is to conduct exploration on our current properties for hydrocarbons and expand our business through development of those properties and, if warranted, the acquisition and development of other properties that have:

§ Low entry cost as measured on a dollar per barrel for proven and potential reserves;

§ Ready access to infrastructure allowing for production within a short time period without significant capital commitments; and

We currently use third-party providers to engage in most if not all of any oil and gas producing activities in which we may engage if our properties reveal the potential for such activity in the future.

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Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect.  As operator, we  participate in the drilling of the initial well with an 8.89% working interest and will acquire a 6.11% promoted interest resulting in our having a 15.00% working  interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas.  The well was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.  Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place.  Mogul will evaluate the results of this well for potential offsetting location.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

To date we are still working to acquire oil and gas rights in the designated an Area of Mutual Interest covering a one mile distance from the North Pasture Contract Acreage Area of San Patricio County, Texas.

Saskatchewan Exploration Program

We do not plan on any further exploration in Saskatchewan due to the expiration of our mineral leases.  Our Ryerson 16-17-009-31W1M well, previously suspended after encountering a heavily oil stained, marginal reservoir within the Bakken interval, was determined by management to be uneconomical and it has been plugged and abandoned.  On December 31, 2010 an impairment charge $523,558 has been made against previously capitalized costs.

Material Asset Purchases and Sales

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution of $2,300,000 in installments over a specified period.  After making payments of $425,000 we engaged in assign our interest to other parties better positioned to capitalize on this asset in exchange for either shares or cash.

On March 26, 2010, a Qualifying Transaction Agreement was executed (the “Amended Qualifying Transaction Agreement”) pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.  The agreement was consummated on April 30 of 2010.

See also “ITEM 8B. OTHER INFORMATION” below.

We presently continue to seek out property acquisitions in the United States and to dispose of property interests in which we no longer have any exploratory or development interest.

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Employees

As of December 31, 2010, we had two full time employees.  We hire part-time employees and/or independent consultants as required.  We will continue to rely on independent contractors as needed.  If we are successful in any future drilling programs, we may retain additional employees or consultants or convert existing consultants into full time employees as may be required.

ITEM 1A. RISK FACTORS.

You should carefully consider the risks described below, and the other information contained in this Annual Report, before purchasing shares of our common stock. Some of the risks and uncertainties we face are described below; however, the risks and uncertainties described below are not the only risks and uncertainties we face, and risks and uncertainties not listed herein may materially adversely affect our business.  If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the price of our common stock could decline, and you may lose all or part of your investment therein.  You should acquire shares of our common stock only if you can afford to lose your entire investment.

Risks Associated With Our Business

We have incurred losses in recent periods for start-up efforts and may incur losses in the future.

We were organized on July 25, 2005; since inception we have a history of operating losses, and a $7,650,718 accumulated deficit through December 31, 2010.  We expect to incur substantial operating losses for the foreseeable future, as well.

We may not be able to continue without additional capital to fund our operations.

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of operating losses that are likely to continue in the future.

If we are unable to become profitable and cannot generate cash flow from our operating activities, we may be required to raise additional capital or debt to fund our operations. Such financing may be unavailable when needed or may not be available on acceptable terms. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our current stockholders will be reduced, and these securities may have rights superior to those of our common stock.

We have a limited operating history which makes your evaluation of our business difficult.

We are in the exploration and development stage of our business. We have engaged in preliminary, exploratory activities, review of data pertaining to our properties, the establishment of initial exploration plans, and the drilling of five (5) wells. Our preliminary exploratory activities have, to date, resulted in one “dry-hole” drilled on the Fairlight Prospect, and two dry holes in our Freehold properties and one non-commercial hole drilled on the EWA Concession, Egypt. We have discontinued our efforts in Saskatchewan, Canada and Egypt.  Our current focus has been on the Upper Gulf Coast of Texas and initial activities have met with the successful drilling and preliminary testing of our first well in the program that we anticipate will begin production in the second quarter of 2011.  We have a very limited operating history upon which you can evaluate our business and prospects.  Accordingly, you should consider and evaluate our business prospects by considering the risks associated with our early stage status and lack ofoperational experience.

We will require additional financing to sustain our operations and without it we will not be able to continue operations.  Our ability to obtain such additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our accumulated deficit, and lack of revenues.Our Company has a limited operating history and is considered in the development stage. The success of our company is significantly dependent on a successful drilling, completion and production program. Our Company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.

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There is no assurance that actual cash requirements will not exceed our estimates, in which case we will require additional financing to further explore and if warranted bring our properties into commercial operation, finance working capital, and pay for operating expenses and capital requirements until we achieve a positive cash flow.  There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. If we are unable to obtain additional financing in a sufficient amount when needed, and upon terms and conditions acceptable to us our operations and activities will be materially adversely affected. We will need funds sufficient to meet our immediate needs and will require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our Company.  All or a portion of our interest in our properties may be lost if we are unable to obtain significant additional financing, as we are required to make significant expenditures on the exploration and development of our properties.  Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.

The oil and gas exploration business involves many operating risks that can cause substantial losses.

Numerous risks affect our drilling activities, including the risk of drilling non-productive wells or dry holes. To date, we have completed drilling on five wells – three on the Fairlight Prospect and Freehold properties in Saskatchewan and one on the EWA Concession in Egypt – four wells were non-commercial “dry holes.”.  The fifth well on the Upper Gulf Coast in Texas was drilled subsequent to the year ended December 31, 2010 and initial logging indicates multiple productive zones with both oil and gas shows.  We anticipated production from this well to be initiated in the second quarter of 2011.  The cost of drilling, completing and operating wells, and of installing production facilities and pipelines is often uncertain.  Also, our drilling operations could diminish or cease due to a number of factors, including any of the following:

• title problems;

• weather conditions;

• fires;

• explosions;

• blow-outs and surface cratering;

• uncontrollable flows of underground natural gas, oil and formation water;

• natural disasters;

• pipe or cement failures;

• casing collapses;

• embedded oilfield drilling and service tools;

• abnormally pressured formations;

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• environmental hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases;

• noncompliance with governmental requirements; or

• shortages or delays in the delivery or availability of material, equipment or fabrication yards.

As a result, we could incur substantial liabilities that could reduce or eliminate the funds available for exploration, development or leasehold acquisitions, or result in loss of equipment and properties.  Given our limited financial resources, the occurrence of any one or more of the foregoing events would have a material adverse affect on our operations and the market price of our common stock.

We may not be able to obtain sufficient drilling equipment and experienced personnel to conduct our operations.

In periods of increased drilling activity resulting from high commodity prices, demand exceeds availability for drilling rigs, drilling vessels, supply boats and personnel experienced in the oil and gas industry in general, and the offshore oil and gas industry in particular. This may lead to difficulty and delays, especially in light of our limited resources and operations, in consistently obtaining services and equipment from vendors, obtaining drilling rigs and other equipment at favorable rates, and scheduling equipment fabrication at factories and fabrication yards. This, in turn, may lead to projects being delayed or experiencing increased costs.

Third party operators of the properties in which we have an interest may act in ways that are not in our best interests.

Other companies may operate all or a portion of the oil and natural gas properties in which we have an interest. As a result, we have limited influence over operations on some of those properties or their associated costs. Our limited influence on non-operated properties could result in the following:

• the operator may initiate exploration or development projects on a different schedule than we prefer;

• the operator may propose to drill more wells or build more facilities on a project than we have funds for, which may mean that we cannot participate in those projects or share in a substantial share of the revenues from those projects; and

• if the operator refuses to initiate an exploration or development project, we may not be able to pursue the project.

Any of these events could significantly affect our anticipated exploration and development activities and the economic value of those properties to us as well as the market price, if any, of our common stock.

The success of our business depends upon our ability to find, develop and acquire oil and gas reserves.

To date we have not established reserves on any of our properties; in fact, of the five wells on which we completed drilling, four were “dry holes,” and one is under evaluation.  We do not plan on implementing further exploratory activities on our Freehold Properties in the future. While our strategy has shifted to acquire interest and operate oil and gas properties that have existing reserves initially in the Upper Gulf coast region of Texas, there is no guarantee that such activities will lead to the identification of additional drill sites or, if identified and wells are drilled, that we will find reserves that we can economically produce. Future drilling activities will subject us to many risks, including the risk that we will not find commercially productive reservoirs. Drilling for oil and natural gas can be unprofitable, not only as a result of dry holes, which we have experienced, but also from productive wells that do not produce sufficient oil to return a profit. Also, title problems, weather conditions, governmental requirements and shortages or delays in the delivery of equipment and services can delay our drilling operations or result in their cancellation. The cost of drilling, completing and operating wells is often uncertain, and not all wells produce oil and gas. As a result, we may not recover all or any portion of our investment.

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If we do not establish reserves and or obtain additional financing, we may not be able to satisfy our substantial capital requirements and may be required to cease or curtail our operations.

If we identify additional drilling targets, we will require substantial capital to continue our exploration efforts and to acquire oil and gas interests; we currently need to fund our 2011 capital and exploration budget;

If we cannot generate sufficient cash flow from operations or raise funds externally in the amounts and at the times needed, we may not be able to discover reserves or meet our financial obligations.  If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations which could have a materially adverse impact on the market price of our stock.

The potential profitability of oil and gas ventures depends upon factors beyond the control of our Company.  A decline in oil and gas prices will adversely affect our ability to obtain additional financing we will require in order to undertake our future drilling activities.

To date we have funded our capital requirements primarily from the offer and sale of our equity securities through the offer and sale of our common stock.  We will need to raise additional capital to fund any future drilling activities.  Our ability to do so may be adversely affected by any decrease of prices of, and demand for, natural gas and oil. Historically, the markets for natural gas and oil have been volatile and this volatility is likely to continue in the future. The potential profitability of oil and gas properties is dependent upon many factors beyond our control.  Prices for natural gas and oil may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control, such as:

• the price of foreign imports;

• overall domestic and global economic conditions;

• political and economic conditions or hostilities in oil producing regions, including the Middle East;

• the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

• weather conditions;

• domestic and foreign governmental regulations;

• development of alternate technologies; and

• the price and availability of alternative fuels.

If we are unable to obtain such financing when needed, on commercially reasonable terms, we may be required to cease or curtail our operations which could have a materially adverse impact on the market price of our stock.   Additionally, due to world-wide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.  Moreover, the marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.

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We will continue to pursue acquisitions and dispositions which if consummated could adversely affect our cash flow and liquidity.

We will continue to seek opportunities to generate value through the purchase and sale of properties. We examine potential transactions on a regular basis, depending on market conditions, available opportunities and other factors. Dispositions of portions of our existing business or properties would be intended to result in the realization of immediate value but would consequently result in lower cash flows over the longer term unless the proceeds are reinvested in more productive assets.

We face competition from a large number of companies many of which have resources far in excess of ours.

The oil and gas industry is highly competitive. We compete with major and independent oil and natural gas companies as well as smaller companies who are better financed than we are, for property acquisitions. We also compete for equipment and labor required for us to develop and exploit our properties. Many of our competitors have substantially greater financial and other resources than we do. As a result, those competitors may be better able to withstand sustained periods of unsuccessful drilling. In addition, larger competitors may be able to absorb the burden of any changes in applicable laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for exploratory prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to explore for oil and natural gas prospects and to acquire additional properties in the future will depend on our ability to conduct operations and to evaluate and select suitable properties and transactions in this highly competitive environment. Moreover, the oil and natural gas industry itself competes with other industries in supplying the energy and fuel needs of industrial, commercial and other consumers. Increased competition causing oversupply or depressed prices could greatly affect our operational revenues.

Oil and gas operations, including our contemplated drilling activities, are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our Company.

Our oil and gas operations in United States, Canada (and previously Egypt) are subject to local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

If we do not adequately manage the risks associated with conducting business in foreign countries our business operations will suffer.

A smaller part of our business strategy is to seek to acquire and develop leases and operations in foreign countries if such opportunities provide a significant return on investment. If we are able to implement such strategy, we may experience difficulty in managing international operations as a result of technical problems, distance, language and cultural differences. There are significant risks inherent in doing business on an international level, such as, political and economic instability, civil unrest, crime, unexpected changes in regulatory requirements, trade barriers, difficulties in staffing and managing foreign operations, fluctuations in foreign currency exchange rates, longer payment cycles, problems in collecting amounts due, difficulty in enforcing contracts, seasonal fluctuation in business activity and potential adverse tax consequences. If any of such risks materialize we may have little or no ability to manage them or avert any consequences there from and our business may suffer as a result.

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We have not established any reserves on any of our properties.  As our properties are in the exploration stage there can be no assurance that we will establish commercial discoveries on our properties.

Although we have drilled exploratory wells on the EWA Concession (Egypt) and on the Fairlight Prospect and Freehold Properties in Saskatchewan (three of which were “dry holes,” and one of which is under evaluation), we have not established any reserves on any of these properties.  Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few of the properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration stage only and are without proven reserves of oil and gas. There can be no assurance that we will establish commercial discoveries on any of our properties.

Although we currently maintain insurance against potential losses and unexpected liabilities, the amount of such insurance coverage may not be sufficient to cover all such losses and liabilities.

Our operations are subject to inherent casualty risks such as blowouts, fires, explosions and marine hazards. If any such event occurred, we could be subject to substantial financial losses due to personal injury, property damage, environmental discharge, or suspension of operations. The impact on us of one of these events could be significant. Although we currently maintain insurance against potential losses and unexpected liabilities, there is no assurance that the amount of such coverage will be adequate to protect us against all operational risks.

For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations and financial condition.

We are dependent on retaining our senior management and key personnel and the loss of any of our key management personnel would have an adverse impact on future development and could impair our ability to succeed.

To a large extent, we depend on the services of the founders of the Company, and other senior management, advisors, joint partners and personnel. These individuals have critical and unique knowledge of our operations that facilitate the evaluation and acquisitions of existing and potential properties in Canada and the United States.  We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms.  We do not have key man insurance on any of our employees.  The loss of these experienced personnel could have a material adverse impact on our financial condition or operations, including our ability to compete in Canada.

We will be required to rely upon services provided to us by third parties.

We expect to be totally dependent upon third-party providers to enable us to engage in all of our business activities. Such parties may include, but may not be limited to, consultants engaged to provide reserve calculations, seismic interpretation and, to the extent required, third party drilling contractors. Accordingly, we will be required to establish and maintain strategic relationships with a wide array of third party providers in order to engage in any meaningful business activity. If we are unable to establish and maintain relationships with such third party providers our business prospects will be impaired.

Our write-downs of the carrying values of oil and natural gas properties may adversely affect our earnings.

We have adopted the “full cost method” of accounting for acquisition, exploration and assessment of exploration properties. Early exploration and the costs including rights to explore, geological and geophysical studies, exploratory drilling and activities in relation to evaluating the technical and feasibility and commercial viability of extracting the oil and gas from the target properties are reasonably viewed necessary to evaluate and determine probable and proven reserves on the properties.

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We currently have full-cost pools in Canada and the United States. Depletion and amortization of the full-cost pools will be computed using the units of production method based on proven reserves, if any, as determined by the aforementioned activities.

In accordance with the full cost method of accounting, all costs associated with oil and gas property development and investment are capitalized on a project-by-project basis pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general overheads. Investments in unproven properties and major development projects are not amortized until proven reserves associated with the projects can be determined. If an oil and gas property development project is successful, the related expenditures will be transferred to tangible assets and amortized over the estimated life of the reserves on a unit of production method. Where a project is abandoned or considered to be of no further commercial value to the Company, the related costs will be written off.

Unevaluated oil and gas costs are assessed at each period end and where there are indications of impairment the related costs will be written off. The recoverability of unevaluated oil and gas costs is dependent upon the discovery of economically recoverable reserves, our ability to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves.

Terrorist attacks and threats or actual war may negatively affect our business, financial condition and results of operations.

Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Recent terrorist attacks in the United States of America, as well as events occurring in response to or in connection with them, including future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States of America or its allies, or military or trade disruptions impacting our suppliers or our customers, may adversely impact our operations. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the United States of America. These occurrences could have an adverse impact on energy prices, including prices for our natural gas and crude oil production. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any or a combination of these occurrences could have a material adverse effect on our business, financial condition and results of operations.

Because of the early stage of development and the nature of our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas, and there can be no assurance that we will establish commercial discoveries on our properties.  We have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.

Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.

Our management team (consisting of our officers and directors) has had limited U.S. public Company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements, such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing on a timely basis required reports and other required information. Our management may not be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal or regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.

11

Our compliance with changing laws and rules regarding corporate governance and public disclosure may result in additional expenses to us which, in turn, may adversely affect our ability to continue our operations.

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on either NASDAQ or a registered exchange, NASDAQ and stock exchange rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. This could have an adverse impact on our ongoing operations.

Our proposed business raises potential conflicts of interests between certain of our officers and directors and us.

Certain of our directors are or may become directors of other oil and gas companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation by us and such other companies. In addition, directors may present potential prospects to such other companies rather than presenting the opportunities to us. We have not established any mechanisms regarding the resolution of any such conflict if it were to arise; accordingly, there is no assurance that any such conflict will be resolved in a manner that would not be adverse to our interest.

Moreover, since our inception, we have acquired our property interests from entities controlled by or in which certain of our shareholders and directors have or may have an interests. We did not seek to obtain an independent evaluation of the fairness of the terms and conditions related to our acquisition of these properties. Such terms and conditions may prove to be financially more onerous than if we had acquired such properties from unrelated third parties; and, ultimately may result in the loss of our interests in such properties.

We have agreements in respect of our properties, but our properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title searches, and are subject to a governmental right of participation, resulting in a possible claim against any future revenues generated by such properties.

We have agreements with respect to our oil and gas properties and we believe our interests are valid and enforceable, although we have not obtained an opinion of counsel or any similar form of title opinion to that effect.  These agreements do not guarantee title against all possible claims. The properties may be subject to prior unregistered agreements, or transfers which have not been recorded or detected through title research.  If the interests in our properties are challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.

A number of our directors and officers are located outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.

A majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under United States federal securities laws against our directors or officers.

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Risks Related to our Common Stock

Our stock price historically has been volatile and may continue to be volatile.

The market price of our common stock has been and is expected to continue to be highly volatile. Factors, many of which are beyond our control, include, in addition to other risk factors described in this section, the announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, and general economic, industry and market conditions may have a significant impact on the market price of our stock. In addition, the future sales of shares of our common stock by our shareholders, the holders of our outstanding warrants and options, and us could have an adverse dilutive effect on our outstanding shares and the market price of such shares.

The trading price of our common stock has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth herein, as well as our operating results, financial condition, general economic conditions, market demand for our common stock, and various other events or factors both in and out of our control. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock. These fluctuations may have a negative effect on the market price of our common stock. To the extent our stock price fluctuates and/or remains low, it could cause you to lose some or all of your investment and impair our ability to raise capital through the offering of additional equity securities.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain future earnings, if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase the shares offered by the Selling Shareholders pursuant to this prospectus.

We may conduct further offerings in the future in which case your shareholdings will be diluted.

Our certificate of incorporation authorizes the issuance of 100,000,000 shares of common stock, each with a par value of $0.001. Since our inception, we have relied on such equity sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, your percentage interest in us will be diluted. The result of this could reduce the value of your stock.

We may issue preferred stock which may have greater rights than our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock. Currently no preferred shares are issued and outstanding; however, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common shareholders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing them to be converted into shares of common stock, which could dilute the value of common stock to current shareholders and could adversely affect the market price, if any, of our common stock.

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Our common stock is a "penny stock," and because "penny stock” rules will apply, you may find it difficult to sell the shares of our common stock you acquired in this offering.

Our common stock is a “penny stock,” as that term is defined under Rule 3a51-1 of the Securities Exchange Act of 1934. Generally, a "penny stock" is a common stock that is not listed on a securities exchange and trades on the OTCBB for less than $5.00 a share. Prices in our stock often are not available to buyers and sellers and the market may be very limited. Penny stocks in start-up companies are among the riskiest equity investments. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the U.S. Securities & Exchange Commission. The document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser's written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. Because of the penny stock rules, there is less trading activity in penny stocks and you are likely to have difficulty selling your shares.

Our Common Stock is quoted on the Over-The-Counter Bulletin Board and, accordingly, it may be difficult for you to sell your shares or you may not be able to sell your shares for an optimum trading price.

Our common stock is quoted on the Financial Industry Regulatory Authority’s Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol “<>.” The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and trade volumes in over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at the optimum trading prices.

When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price quoted by the OTCBB at the time of the order entry.

Orders for OTCBB securities may not be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.

The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the common stock must be sold immediately. Further, purchasers of securities on the OTCBB may not have an ask price for securities sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.

Sales practice requirements of the Financial Industry Regulatory Authority (“FINRA”) may also limit a shareholder’s ability to buy and sell our stock.

In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our Offices

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042.  This is an 18 month sub lease agreement, at a cost of $1,193 per month, until June 30, 2012.

We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7.  We sublet office space from a related party for $1,313 per month, renewable annually.

Additionally, we have an office at Suite 201, 47 Colborne St., Toronto, Ontario, Canada M5E 1P8.  This is a five year lease at a monthly cost of $8,417.

Our premises are adequate for our current operations, and we do not anticipate that we will acquire or lease additional premises in the foreseeable future. See Note 7 to Financial Statements.

Our Oil and Gas Properties

Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect.  As operator, we  participate in the drilling of the initial well with an 8.89% working interest and will acquire a 6.11% promoted interest resulting in our having a 15.00% working  interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas.  The well was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.  Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place.  Mogul will evaluate the results of this well for potential offsetting locations.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

To date we are still working to acquire oil and gas rights in the designated an Area of Mutual Interest covering a one mile distance from the North Pasture Contract Acreage Area of San Patricio County, Texas.

Saskatchewan Exploration Program

We do not plan on any further exploration in Saskatchewan due to the expiration of our mineral leases.  Our Ryerson 16-17-009-31W1M well, previously suspended after encountering a heavily oil stained, marginal reservoir within the Bakken interval, was determined by management to be uneconomical and it has been plugged and abandoned.  On December 31, 2010 an impairment charge $523,558 has been made against previously capitalized costs.

15

Material Asset Purchases and Sales

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held Company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution of $2,300,000 in installments over a specified period.  After making payments of $425,000 we engaged in assigning our interest to other parties better positioned to capitalize on this asset in exchange for either shares or cash.

On March 26, 2010, an Amended Qualifying Transaction Agreement was executed  pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.  The agreement was consummated on April 30 of 2010.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None during the period of this report.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock currently trades on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MGUY,” and on the Frankfort Stock Exchange under the symbol BKX.  As of March 24, 2011, there were 57,445,987 common shares issued and outstanding.

Our stock began trading on the OTCBB on July 11, 2007.  The following table sets forth the range of high and low bid information for our Common Stock for the periods indicated below. The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions

OTC Bulletin Board Sales Prices for MGUY
Quarter Ended	High		Low
March 31, 2009		0.07		0.02
June 30, 2009		0.07		0.02
September 30, 2009		0.06		0.02
December 31, 2009		0.08		0.04
March 31, 2010		0.08		0.03
June 30, 2010		0.04		0.02
September 30, 2010		0.04		0.02
December 30, 2010		0.05		0.02

The closing price of our stock on March 31, 2011 was $0.05.

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Holders

As of December 31, 2010, there were at least 113 shareholders of record of the Company’s

December 31, 2010
	Options			Weighted Average Exercise Price		Weighted Average Remaining Life (years)
Options outstanding at beginning of period		2,250,000		$	0.30		2.67
Options issued during the period		2,850,000			0.05		4.81
Exercised		-			-		-
Forfeited		(2,250,000	)		0.30		-
Expired		-			-		-
Outstanding at the end of period		2,850,000		$	0.05		4.81

common stock.  The number of shareholders of record was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.  The transfer agent and registrar for our common stock is Holladay Stock Transfer, Inc., located at 2939 North 67th Place, Scottsdale, Arizona 85251 [Tel: (480) 481-3940, Fax: (480) 481-3941].

Dividends

To date the Company has not declared or paid cash dividends on our capital stock and does not anticipate paying any cash dividends in the foreseeable future, but intends to retain its capital resources for reinvestment in its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors as the Board of Directors deems relevant. Our Board of Directors has the right to authorize the issuance of preferred stock, without further stockholder approval, the holders of which may have preferences over the holders of the common stock as to payment of dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

The Company’s Board of Directors approved a 2007 Stock Incentive Plan on or about August 8, 2007, which authorized the issuance to management and employees of up to 4,000,000 shares of the Company’s common stock.  To date, the Board has approved the issuance of options to purchase 2,250,000 of the Company’s common stock at a price of $0.30 per share, expiring August 7, 2012.  The options vest sequentially over a one-year period that commenced on August 8, 2007.

 On October 22, 2010, the 2,250,000 previously granted options were cancelled, and 2,850,000 fully vested stock options were granted to directors, officers, employees and contractors of the Company.  These options will expire on October 22, 2015.  The fair value of the options is $0.04 calculated using the Black-Scholes method:  risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

Recent Sales of Unregistered Securities

There have been no recent sales of unregistered securities since the Company’s last report of such sales in the Current Report on Form 8-K filed on June 16, 2008.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our shares of common stock or other securities during our fiscal year ended December 31, 2010.

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ITEM 6. SELECTED FINANCIAL DATA.

The Company is a “smaller reporting Company,” as defined by Rule 229.10(f)(1) (Regulation S-K), and is not required to provide information under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Our strategy is to acquire interest in, and/or to operate oil and gas properties that have existing or the high potential of oil and or natural gas reserves.  Existing well bores with proven oil and gas reserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.

We have shifted our focus to acquiring leases and operating joint venture projects in the state of Texas, United States.  We do not plan on any further exploration in Saskatchewan, Canada other than to complete reclamation activities required in the abandonment and relinquishment of our leases in the Province.

Cash Requirements

On April 30, 2010 the Amended Qualifying Transaction Agreement was executed pursuant to which we agreed to accept, in lieu of the Vesta Shares, an aggregate of $1,000,000 Canadian Dollars less $150,000 in debt financing repaid and $87,900 in legal and consulting fees.  The Company also received the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.

Further cash requirements may be necessary should we wish to participate in further development of the Stafford prospect.  These funds may be raised through equity financing, debt financing, the sale of assets, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.

Selected Annual Financial Information

	2010			2009
Cash		65,085			7,481
Securities available for sale		102,052			625,961
Working capital		270,582			263,269
Total assets		376,567			1,622,400
Shareholders' equity		6,924			1,216,502
Share capital		7,643,985			7,218,747
Weighted average common shares outstanding		57,445,987			57,,445,987
Accumulated deficit		(7,650,718	)		(6,721,905	)
Cash flow from operations		(1,158,444	)		(1,102,986	)
Net loss		(928,812	)		(596,299	)
Loss per share		(0.02	)		(0.01	)

As at December 31, 2010 we had total assets of $376,567 as compared to $1,622,400 as at December 31, 2009.  Working capital at December 31, 2010 was $270,582 (working capital at December 31, 2009 ­ $262,269).  The decrease in assets is due to the sale and write-down for impaired capitalized assets capitalized assets in our 40% Saskatchewan respectively.

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As of year-end December 31, 2010, we had current liabilities of $69,643 relative to current liabilities of $405,898 at December 31, 2009.  Our total liabilities increased due to an accrued $300,000 for the potential claims, which may arise because of possible reassessments denying personal tax deductions to the investors in connection with funds raised in 2008 on a flow-though basis (see Financial Statements Note 6).

	Year ended December 31, 2010			Year ended December 31, 2009
Expenses
General & Administration:
Internet and telephone		14,067			12,315
Professional fees		111,460			216,434
Rent		59,590			48,998
Employee stock options		114,000			-
Flow-through financing tax		18,722			34,702
Travel & Promotion		127,856			119,289
Realized foreign exchange loss		23,419
Wages		345,920			215,820
Other		94,257			107,952
Total General and administration expenses		(909,291	)		(790,211	)
Impairment oil and gas properties		(523,558	)		-
Gain on disposition of exploration property		487,106			-
Gain on sale of securities available for sale		310,931			181,048
Deferred indemnity (contingency)		(300,000	)
Service revenue		-			12,866
Net loss		(934,812	)		(596,299	)

For the year-ended, 2010 total general and administrative costs were $909,291 compared to $790,211 in the prior year.

Internet and telephone charges increased 14% year over year.  Professional fees decrease from $216,434 in the prior year to $111,460 in 2010.

Professional fees decreased as the Company employed far fewer third party services than in 2009.

Rent expenses have increased by $10,592 due to rate increases at the Vancouver office.

During the period we issued 2,850,000 stock options with a fair value of $0.04 calculated by the Black Scholes method, this equated to an expense of $114,000, there was no similar expense in the prior period.

Travel and Promotions costs increased slightly to $12,785 for 2010 compared to $119,289 in the prior year.  Travel and promotions costs increased as business activity began to emerge from the global economic downturn.

Wages increased to $345,920 in 2010 compared to $215,820 in 2009 due to the use and hiring of individuals with expertise in oil and gas development in the State of Texas.

The Ryerson 16-17-009-31W1M in Saskatchewan had oil shows in a core sample taken in 2008.  This well was subsequently suspended pending further evaluation.  As of December 31, 2010 the Company determined the well uneconomical and it has been plugged and abandoned.  An impairment charge $523,558 has been made against previously capitalized costs.  There were no similar impairment costs in the prior comparable period.

In 2010 we had a net gain on the sale of our 40% interest in Excelaron of $487,106.  There were no similar gains on dispositions of exploration property in the comparable prior period.

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In 2010 we sold 916,000 shares of securities available for sale for a gain of 310,931 as compared to a gain of $181,048 on the sale of 2,784,000 common shares in 2009.  This was due to the increase in the price of the security held in 2010 and an improved economic outlook in the oil and gas industry as prices have continued to rise from levels in the prior year.

Cash from operations in 2010 was down slightly to $1,050,445 compared to $1,102,986 in the prior year.  Accounts payable and accrued expenses and other payables used up more of our cash than at the year ended December 31, 2009.  The use of cash for other receivables was higher due to receivables for past sub leases payments and an overpayment for a required deposit in the State of Texas compared to being a source of cash in 2009.  While the use of cash for prepaid expenses and deposits higher due to deposits required in the State of Texas as well and for increased prepaid insurance expenses.

Investing activities were a source of cash in 2010 due the disposition of exploration property.  Price increase on the sales of securities also yielded cash proceeds.  In 2010, cash from investing activities was $1,256,099 compared to $155,460 in the comparable period in 2009.

There was a cash outflow of $145,320 from financing activities, due to the repayment of loans from shareholders from 2009

Milestones

During the year ended December 31, 2010

Texas, United States

Stafford Prospect, Jackson County, Texas

On November 26, 2010, we entered into a Joint Operating Agreement and a Participation Agreement with C. H. Squyres Family, LLC, Fossil Oil Company LLC and certain other individuals who are signatories thereto to develop an extension to the La Ward NE Field in Jackson County (Stafford Prospect).  The agreement provided for the shared costs in the acquisition of oil and gas leases in the Stafford Prospect.  As operator, we  participate in the drilling of the initial well with an 8.89% working interest and will acquire a 6.11% promoted interest resulting in our having a 15.00% working  interest upon the successful completion of the initial well drilled on the property.  Each participant would also pay the same percentage costs for the next well as was paid on the first well.

On March 6th, 2011, we completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas.  The well was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.  Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place.  Mogul will evaluate the results of this well for potential offsetting locations.

North Pasture Prospect – San Patricio County, Texas

On December 8, 2010 we entered into a Joint Operating Agreement and a Participation Agreement with Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto for the first prospect known as the North Pasture Prospect in San Patricio County, Texas.  Subject to the continued acquisition of the mineral leases in the area, we, as operator, would pay no proportionate cost for the drilling of the well and would earn a 25% net working interest upon the successful completion of the initial well.

To date we are still working to acquire oil and gas rights in the designated an Area of Mutual Interest covering a one mile distance from the North Pasture Contract Acreage Area of San Patricio County, Texas.

20

Saskatchewan Exploration Program

We do not plan on any further exploration in Saskatchewan due to the expiration of our mineral leases.  Our Ryerson 16-17-009-31W1M well, previously suspended after encountering a heavily oil stained, marginal reservoir within the Bakken interval, was determined by management to be uneconomical and it has been plugged and abandoned.  On December 31, 2010 an impairment charge $523,558 has been made against previously capitalized costs.

Material Asset Purchases and Sales

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution of $2,300,000 in installments over a specified period.  After making payments of $425,000 we engaged in assigning our interest to other parties better positioned to capitalize on this asset in exchange for either shares or cash.

On March 26, 2010, an Amended Qualifying Transaction Agreement was executed  pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.  The agreement was consummated on April 30 of 2010.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment (excluding oil and gas activities) over the next twelve months ending December 31, 2011.

Liquidity and Capital Resources

We have no current arrangements with any party to supplement our operations or provide us with financing in the future.  In the future, we may be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.

Going Concern

We have suffered recurring losses from operations. The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the period ended December 31, 2010, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements for the period ended December 31, 2010, contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

21

Recently Issued Accounting Standards

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which is effective January 1, 2009.  SFAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows.  Among other things, SFAS 161 requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular format.

In May 8, 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, the Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities.  With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature.  In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162," and approved—the FASB Accounting Standards Codification (Codification) as the single source of authoritative nongovernmental US GAAP. The Codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place.

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, determining whether instruments granted in share-based payment transactions are participating securities (“FSP EITF No. 03-6-1”).  Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years.

We do not expect that any of these recently issued accounting standards have a material effect on our Company’s financial statements.

Application of Critical Accounting Policies

Our audited financial statements and accompanying notes are prepared in accordance with Generally Accepted Accounting Principles (GAAP) used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials. See Note 2 to the Financial Statements under ITEM 8.

Oil and Gas Properties

We follow the full cost method of accounting for our oil and gas operations. Under this method, all cost incurred in the acquisition, exploration and development of oil and gas properties are capitalized in one cost center, including certain internal costs directly associated with such activities. Proceeds from sales of oil and gas properties are credited to the cost center with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reverses.

If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling”, the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributable to proved reserves, using current product prices and operating costs at the balance sheet date plus the lower of cost and fair value of unproved properties within the cost center.

22

Costs of oil and gas properties are amortized using the unit-of-production method based upon estimated proven oil and gas reserves upon the commencement of production. The significant unproven properties are excluded from the costs subject to depletion.

As at December 31, 2010, we do not have any proved reserves.

Stock Based Compensation

We implemented the following new critical accounting policy related to our stock-based compensation.  Beginning August 8, 2007, we began accounting for Stock options under the provisions of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123(R)), which requires the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for FAS 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. We were already using the fair value method under SFAS 123 and the main difference is the estimation of forfeitures in order to estimate the awards not expected to vest. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards which requires various judgmental assumptions including estimating stock price volatility and expected life. Our computation of expected volatility is based upon historical volatility. In addition, we consider many factors when estimating expected life, including types of awards and historical experience.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is a “smaller reporting Company,” as defined by Rule 229.10(f)(1) (Regulation S-K), and is not required to provide information under this item.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Mogul Energy International, Inc.

Financial Statement Index

Index

Report of Independent Registered Public Accounting Firm	F-1
Balance Sheet	F-2
Statements of Operations	F-3
Statement of Shareholders’ Equity	F-4
Statements of Cash Flows	F-5
Notes to the Financial Statements	F-6 to F-18

F-1

Mogul Energy International, Inc.

Balance Sheets

(expressed in U.S. dollars)

Audited

	December 31, 2010			December 31, 2009
Assets:
Current
Cash	$	65,085		$	7,481
Other receivables		72,611			18,210
Prepaid and deposits		100,477			47,517
Securities available for sale		102,052			625,961
Total current assets		340,225			669,167
Non-current
Exploration and evaluation		36,342			923,232
Total Assets	$	376,567		$	1,622,400
Current Liabilities:
Accounts payable	$	31,537		$	217,435
Accrued expenses and other payables		38,106
Bank overdraftness					43,143
Loans from shareholders		-			145,320
Total current liabilities		69,643			405,898
Contingencies and commitments		300,000			-
Total Liabilities		369,643			405,898
Shareholders’ Equity:
Accumulated deficit	$	(7,656,718	)	$	(6,721,905	)
Common stock (Authorized: 100,000,000 shares, $0.0001 par value. Outstanding: 57,445,987 shares at 12/31/10 and 12/31/09)		5,744			5,744
Additional paid-in capital		7,638,241			7,213,003
Warrants & Options:		114,000			425,238
Preferred: 10,000,000 shares authorized, none issued		-			-
Foreign exchange adjustment		(151,187	)		(148,458	)
Other comprehensive income (loss)		56,844			442,880
Total Shareholders’ Equity		6,924			1,216,502
Total Shareholders’ Equity and Liabilities	$	376,567		$	1,622,400

The Notes are an integral part of the Financial Statements

F-2

Mogul Energy International, Inc.

Statements of Operations

For the Years Ended December 31, 2010 and 2009

 (expressed in U.S. dollars)

Audited

	Year Ended December 31, 2010			Year Ended December 31, 2009
Expenses:
General and administrative	$	(909,290	)	$	(790,211	)
Deferred indemnity (contingency)		(300,000	)		-
Impairment of oil and gas properties		(523,558	)		-
Other income and expenses
Revenue for services		-			12,866
Gain on disposition exploration property		487,106			-
Gain on sale of securities available for sale		310,931			181,048
Net income (loss) for the periods	$	(934,813	)	$	(596,299	)
Other comprehensive income:
Net unrealized gain (loss) on investments held for sale for periods	$	(386,035	)	$	488,506
Foreign exchange adjustment		(2,729	)		(35,564	)
Total other comprehensive gain (loss) for the periods	$	(388,764	)	$	452,942
Total comprehensive net gain (loss) for the periods	$	(1,323,577	)	$	(143,357	)
Basic earnings (loss) per share	$	(0.02	)	$	(0.01	)
Weighted average common shares outstanding		57,445,987			57,445,987

The Notes are an integral part of the Financial Statements

F-3

Mogul Energy International, Inc.

Statement of Shareholders’ Equity

(expressed in U.S. dollars)

Audited

	Number of Common shares		Par Value		Additional Paid in Capital		Warrants & Options			Other. Income			Accumulatd deficit			Totals
12/31/2008 Balances		57,445,987	$	5,744	$	7,066,537	$	571,704		$	(158,520	)	$	(6,125,607	)	$	1,359,858
Translation adjustment		-		-		-		-			(35,564	)		-			(35,564	)
Unrealized gain on securities available for sale		-		-		-		-			488,506			-			488,506
Warrants – expired		-		-		146,466		(146,466	)		-			-			-
Net (loss) for the period		-		-		-		-			-			(596,299	)		(596,299	)
12/31/2009 Balances		57,445,987		5744		7,213,003		425,238			294,422			(6,721,906	)		1,216,501
Translation adjustment		-		-		-		-			(2,729	)		-			(2,729	)
Unrealized gain on securities available for sale		-		-		-		-			(386,034	)		-			(386,034	)
Warrants  –  expired		-		-		425,238		(425,238	)		-			-			-
Stock Options – cancelled		-		-		-		-			-			-			-
Stock options – issued		-		-		-		114,000			-			-			114,000
Net (loss) for the period		-		-		-		-			-			(934,813	)		(934,813	)
12/31/2010 Balances		57,445,987		5,744		7,638,241		108,000			(94,342	)		(7,650,718	)		6,924

The Notes are an integral part of the Financial Statements

F-4

Mogul Energy International, Inc.

Statements of Cash Flows

For the Year Ended December 31, 2010 and 2009

(Expressed in U.S. dollars)

Audited

	Year Ended December 31, 2010			Year Ended December 31, 2009
Operating Activities
Net income (loss) for periods	$	(934,813	)	$	(596,299	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Options for services		114,000
Deferred indemnity (contingency)		300,000
Impairment for oil and gas properties		523,558			-
Gain on disposition of exploration Property		(487,104	)		-
Gain on securities available for sale		(310,931	)		(181,048	)
Changes in non-cash working capital
Accounts payable		(185,898	)		(341,827	)
Accrued expenses and other payables		38,106
Other receivables (decrease) increase		(54,402	)		33,959
Prepaid and deposits		(52,961	)		(17,773	)
Cash used in operating activities	$	(1,050,445	)	$	(1,102,986	)
Investing Activities
Bank overdraft		(43,143	)		43,143
Proceeds – disposition of exploration property		912,104			-
Proceeds from securities available for sale		448,804			600,037
Exploration and evaluation		-61,666			(487,720	)
Cash used for investing activities	$	1,256,099		$	155,460
Financing Activities
Loans from shareholders		(145,320	)		145,320
Cash from financing activities	$	(145,320	)	$	145,320
Foreign exchange adjustment		(2,729	)		(35,564	)
Increase (decrease) in cash during periods		57,605			(837,771	)
Cash beginning of periods		7,480			845,251
Cash at end of periods	$	65,085		$	7,480
Interest and taxes paid during period	None			None

Schedule of Non-cash Transactions	2010		2009
Expiration of shareholder warrants		132,738		146,446-
Forfeited/cancelled employee stock options		292,500		-
Issuance of employee stock options		114,000		-

The Notes are an integral part of the Financial Statements

F-5

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

NOTE 1 - Organization and Nature of Business

Mogul Energy International, Inc. (Company), formed on July 25, 2005 as a Delaware corporation is engage in the business of oil and gas exploration.  The Company’s business activities included financing to acquire drilling prospects and exploration for oil and gas.

The Company’s strategy is to acquire interest, and/or to operate oil and gas properties that have existing reserves.  Existing well bores with proven oil and gas reserves can usually be purchased for a fraction of the original cost to drill and complete a new well. Property purchased with proven reserves reduce the risk of not finding hydrocarbons and are economically viable to develop due to the elimination of the associated cost of finding the hydrocarbons. After the property has been purchased, the primary cost for establishing new production is the re-completion cost.

NOTE 2 - Accounting Policies

Financial Statement Presentation and Going Concern

Beginning in 2010, the Company is no longer considered an exploration stage company for financial reporting purposes because it has had significant revenues from its intended principal business.

However, the Company has a history of operating losses, and a $7,650,718 accumulated deficit through December 31, 2010.  This and other factors raise substantial doubt about the ability of the Company to continue as a going concern.  Management plans to address these matters through the sale of additional shares of its common stock and/or additional borrowings to finance the Company’s operations and to achieve profitable operations through successful exploration and development of oil and gas properties.

Although there is no assurance that the Company will be successful in these actions, management believes that it will be able to secure the necessary financing to continue operations for the foreseeable future.  Accordingly, these financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate.  Such adjustments would be material and would have an adverse effect on the ability of the Company to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires use of estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of various factors affecting future costs and operations, actual results could differ from estimates. Critical accounting policies and estimates used in the preparation of the financial statements relate to the accounting for impairments and carrying amounts of exploration properties including the realizable value of capitalized resource properties for exploration and evaluation costs. Future operations will be affected to the extent there are material differences between the estimated and actual amounts.

Oil and Gas Properties

The Company utilizes the full-cost method of accounting for the exploration of its oil and gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties, directly related overhead costs and related asset retirement costs and costs of drilling exploratory productive and non-productive wells into full cost pools on a country-by-country basis. At December 31, 2010 the Company currently has one full-cost pool located in the United States.

F-6

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

Once commercial production is achieved the Company will apply a ceiling test quarterly to the capitalized costs in its full cost pools. Amounts in excess of the ceiling test limits are charged to operations as impairment expense in the period of the test until proven reserves are available. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from any proved reserves, based on the existing economic and operating conditions. Specifically, the ceiling test is calculated so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value of estimated future net revenue computed by applying current prices of any oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of property not being amortized; plus (C) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (D) income tax effects related to differences between the book and tax basis of the property.

For unproven properties, the Company excludes from capitalized costs subject to depletion, all costs directly associated with the acquisition and evaluation of the unproved property until it is determined whether or not proved reserves can be assigned to the property. Until such a determination is made, the Company assesses the property at least annually to ascertain whether impairment has occurred. In assessing impairment the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. The Company adds the amount of impairment assessed to the cost to be amortized subject to the ceiling test

Oil and gas property costs are considered tangible assets consistent with the views set forth in Emerging Issues Task Force Issue 04-02.

The Company did not apply a ceiling test in 2009 or 2010 because it is in the exploration stage and no proven reserves have been established.

Cost centers in the exploration stage are assessed at each reporting date to determine whether it is likely that the net costs, in aggregate, may be recoverable in the future.  Costs considered unlikely to be recovered are charged to earnings during the period.  Impairment charges of $479,249 were recorded for the year ended December 31, 2010, the impairment expense for 2010 related to properties in Saskatchewan Canada.

Asset Retirement Obligations

The Company has adopted Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations”, which requires that asset retirement obligations (“ARO”) associated with the retirement of a tangible long-lived asset, including natural gas and oil properties, be recognized as liabilities in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated assets. The cost of tangible long-lived assets, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the assets. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted cash flows are accreted to the expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate.

Revenue Recognition

The Company will recognize petroleum and natural gas revenues from its interests in producing wells as petroleum and natural gas is produced and sold from these wells and ultimate collection is reasonably assured.

Cash

Cash consists of cash on deposit with high quality major financial institutions.  The carrying amounts approximate fair market value due to the liquidity of the deposits.  For the purposes of the balance sheet and statements of cash flows, the Company considers all highly liquid instruments with maturities of less than 60 days at the time of issuance to be cash equivalents.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable.  The Company maintains cash at two financial institutions.  The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions; The Company believes credit risk associated with cash and cash equivalents to be minimal.

F-7

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

Environmental Protection and Reclamation Costs

The operations of the Company have been, and may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restorations costs.  Both the likelihood of new regulations and their overall effect upon the Company may vary from region to region and are not predictable.

Environmental expenditures that relate to ongoing environmental and reclamation programs will be charged against statements of operations as incurred or capitalized and amortized depending upon their future economic benefits.

Securities available for sale

At December 31, 2010 the Company held 300,000 common shares of Sea Dragon Energy Inc., a Canadian company trading on the TSX Venture exchange under the symbol SDX. This investment is acco4unted for as held for sale. Any changes in the market value of these shares are reflected in other comprehensive income on the balance sheet, statement of operations and the Statement of Shareholders’ Equity.

Other Receivables

The Company’s Goods and Services Tax receivable was $18,210 at December 31, 2009 and $28,939 at December 31, 2010.  This receivable relates to the Goods and Services Tax (Canada). The Company anticipates the full amount to be refunded within 12 months of the balance sheet date. Due to the nature of this receivable management does not consider an allowance for doubtful accounts to be necessary.

Receivables also include $25,000 due to the Company for an overpayment of a required deposit with the state of Texas.

The Company also sub-leases office space in its Toronto office for which it expects to receive $18,372 in rent payments from these sub-leases.

Abandonment Costs

Liabilities for costs to abandon exploration properties are estimated and reflected in the financial statements in the period that exploratory drilling activities commence with a corresponding amount added to exploration costs. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. Change in the present value of the estimated expenditure is reflected as an adjustment to the provision and the capitalized exploration costs. A provision for abandonment costs is recognized at the commencement of production, or in the period the decision is made to abandon unsuccessful properties.

Foreign Exchange Rate

The Company’s functional and reporting currency is the United States Dollar.  Transactions denominated in foreign currencies are translated into US dollars at the rate of exchange in effect at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies have been translated into US dollars at the rate of exchange in effect at the balance sheet.  Non-monetary assets and liabilities are translated at the historical rate of exchange.

The impact of the cumulative effect of the unrealized monetary adjustment is accounted for in the equity section of the balance sheet. This adjustment was $151,187 loss, and $148,458 loss for December 31, 2010 and December 31, 2009, respectively.  A realized foreign exchange loss of $23,420 was recognized in 2010 and was accounted for as an increase of general and administrative expenses.

Flow-through shares

The Company financed a portion of its exploration and development activities through the issuance of its common shares subject to certain flow-through provisions under the Canadian Income Tax Act.  Under the terms of the flow-through share agreements, the resource expenditure deductions for income tax purposes were renounced to investors in accordance with the appropriate income tax legislation (Canadian Income Tax Act).

F-8

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

Stock-based Compensation

The Company follows the fair value method of valuing stock option grants and other stock based compensation.  Under this method, the compensation cost attributable to stock options and other stock-based compensation issued to employees, contractors, officers and directors of the Company is measured at fair value at the date of grant and expensed over the vesting period of the options or when the services are provided, with a corresponding increase to warrants and options.  The Company calculates the fair value of stock options using an option pricing model.  Upon the exercise of the stock options or other stock based compensation the consideration paid together with the amount previously recognized in warrants and options is recorded as an increase in share capital.

Income Taxes

The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards No. 109, which requires, among other things, that the Company can provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss carry-forward. Because of the uncertainties surrounding the realization of any economic benefit related to the deferred net loss carry-forward, no allowance account has been established so that no future benefit is reflected as an asset at December 31, 2010.

Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, prepaid and deposits, accounts payable and accrued liabilities

It is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.  The fair value of these financial instruments is approximated to their carrying values.

Comprehensive Loss

SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. The Company is disclosing this information on its Statements of Shareholders’ Equity and Statement of Operations

Share Issue Costs

Finder’s fees and commissions paid to agents and underwriters incurred on the issuance of shares are charged directly to additional paid-in capital.

In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, determining whether instruments granted in share-based payment transactions are participating securities (“FSP EITF No. 03-6-1”).  Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on our financial statements.

NOTE 3 - Capital Stock

Common Stock

During the quarter ended March 31, 2008 the Company issued 2,383,000 shares of its common stock at $0.15 per share, related costs totaled $16,795.  In connection with the offering 135,051 finders’ fee warrants were granted allowing the holder to purchase one common share of the company for one Class B warrant and $0.15.  The warrants had a fair market value of $12,212 calculated using the Black-Scholes model: risk free rate 3.05%, share price $0.18, strike price $0.15, volatility 83% and dividend yield 0.00.

On June 30, 2008 the Company closed a private placement equity financing for aggregate gross proceeds of $950,000 comprised of 3,800,000 common shares issued by the Company on a “flow-through” basis issued at $0.25 per share pursuant to the income tax laws of Canada (Income Tax Act, Canada).    Together, the company also closed a private placement equity financing for an additional 2,300,000 common shares for 6,300,000 shares of its common stock at $0.20 per share for proceeds of $1,260,000.  Share issuance costs associated with the two classes of financing that closed in June amounted to $102,444 in cash and finder’s fee warrants granted as follows:

F-9

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

The following are details related to warrants issued by the company as finders’ fees:

	December 31, 2010
	Shares			Weighted Average Exercise Price
Outstanding warrants at beginning of period		950,106		$	0.20
Warrants granted		-			-
Exercised		-			-
Forfeited		-			-
Expired		(950,106	)	$	0.20
Outstanding at the end of period	Nil				-

1. For the period ended June 30, 2008, risk free rate was 2.71%, expected dividend yield was zero, expected life ranged from 18 months to 2 years, and expected volatility of 520%.

2. For the period ended December 31, 2007, risk free rate was 3.05%, expected dividend yield of zero, expected life of 2 years, and expected volatility of 82%.

A summary of the status of the warrants under various agreements follows for the year ended December 31, 2010:

Warrants Outstanding			Warrants Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Remaining Contractual Life (years)
$0.15 to $0.25	Nil	-	$0.20	Nil	-

Employee Stock Option Plan

On August 7, 2007, the Company granted 2,250,000 options to Directors and employees of the Company.  These options vest at a rate of 20% per quarter.  These options were fully vested on August 7, 2008.

The following table summarizes the continuity of the Company’s stock options:

December 31, 2010
	Options			Weighted Average Exercise Price		Weighted Average Remaining Life (years)
Options outstanding at beginning of period		2,250,000		$	0.30		2.67
Options issued during the period		2,850,000			0.05		4.81
Exercised		-			-		-
Forfeited		(2,250,000	)		0.30		-
Expired		-			-		-
Outstanding at the end of period		2,850,000		$	0.05		4.81

Concurrently, on October 22, 2010 2,250,000 previously granted options were cancelled, and 2,850,000 fully vested stock options were granted to directors, officers, employees and contractors of the Company.  These options will expire on October 22, 2015.  The fair value of the options is $0.04 calculated using the Black-Scholes method:  risk free rate 1.1%, share price $0.04, strike price $0.05, volatility 215%, and dividend yield 0.00.

F-10

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

Preferred Stock

The Company’s Articles of Incorporation authorize its Board of Directors, without approval from the common shareholders, to issue 10,000,000 shares of preferred stock in any series, rights and preferences as determined by the Board. Preferred shares may be issued that: have greater voting rights than the common stock, diluting the value of any outstanding shares of common stock.

NOTE 4 – Related Party Transactions

On January the 19th, 2010 the company received $292,500 in the form of a promissory note payable without any notice, bonus or penalty from Mogul Energy Ltd., a company owned by the brother of the President of the Company.  Interest payments were CAD$10,000 per month for the period of time in which the loan was outstanding.  The promissory note was repaid on April 28, 2010 and interest paid was equivalent to US$32,972.

During the period the Company entered into a consulting contract with a related party to assist in the negotiations and related activities required to conclude the sale of the Excelaron asset (see Note 5) for CAD$4,000 per month for four months.  Total disbursements under this contract were equivalent to US$15,133.

The Company sub leases office space in its Toronto location to a related party with directors in common.

NOTE 5 - Oil and Gas Properties

Saskatchewan Exploration Program

Due to the expiration of the mineral leases, Management does not plan further exploration for its oil and gas interest in Saskatchewan.  Consistent with this plan, an impairment charge of $1,203,247 related to the expiration of substantially all leased property assets and their related acquisition costs previously capitalized on the balance sheet as Exploration and Evaluation.  An impairment charge of $412,134 was recognized for the dry hole and other related costs pertaining to the 2008 exploration program.

Ryerson 16-17-009-31W1M

This well had oil shows in a core sample taken in 2008.  The well was subsequently suspended pending further evaluation.  As of December 31, 2010 the Company determined the well uneconomical and it has been plugged and abandoned.  An impairment charge $523,558 has been made against previously capitalized costs.

United States (Excelaron)

On February 12, 2009 the Company entered into an agreement with Excelaron LLC (“Excelaron”), a California company, whereby Excelaron has agreed to permit the Company to subscribe for a 40% Members Percentage Interest in Excelaron.  In substance the subscription of this interest is contingent upon the Company making a $2,300,000 capital contribution to be used to acquire and develop oil and gas lease agreements that Excelaron has entered into.  These leases are located in California.  Should the Company not meet the contingent payment amounts its interest in Excelaron would be significantly reduced.  For every $250,000 invested below $1,000,000 the Company would receive a 2% interest in Excelaron and 5% for each $250,000 above the $1,000,000 threshold.  As of March 31, 2010 the Company’s investment in Excelaron totaled $425,000,

On October 5, 2009 the Company entered a binding letter of intent with Vesta Capital Corp (“Vesta”), Excelaron and other parties pursuant to which we agreed to sell and assign our 40% interest in Excelaron in exchange for 38,500,000 common shares of Vesta (the “Vesta Shares”), as part of a qualifying transaction (collectively, the “Excelaron Transaction”) in accordance with the policies of the TSX Venture Exchange pursuant to which Vesta would become a publicly traded company on the TSX-V.  While the original agreement was not executed the parties continued to negotiate in good faith.

On January 12, 2010 the Company was party to a Definitive Agreement, whereby the Company was to relinquish its interest in Excelaron to Vesta Capital Corporation, a Canadian pool company on the TSX Venture Exchange (“TSX-V”) and United Hydrocarbon Corporation (“UHC”), a related company incorporated in Ontario, Canada as part of a Qualifying Transaction on the TSX-V.

The Company made an advance to Excelaron in the form of a loan of $425,000 on January 14th, 2010.  The loan called for interest of $10,000 per month for the period in which the loan was outstanding.  This principle and interest were completely repaid on April 30, 2010.

F-11

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

On April 30, 2010 following several amendments to the Definitive Agreement, an Amended Qualifying Transaction Agreement was executed pursuant to which we agreed to accept, in lieu of the Vesta Shares, an aggregate of $1,000,000 Canadian Dollars less $150,000 in debt financing repaid and $87,900 in legal and consulting fees.  The Company also received the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.

Texas, United States

On June 29, 2010 the Company announced that it had signed a non binding Letter of Intent (“LOI”) with Powderhorn Energy, LLC and its financial partners (collectively “Powderhorn”).  Subject to additional agreements between both entities Powderhorn would have participated in the proposed drilling program offered by the Company along the Upper Gulf Coast.  .  The termination date of the LOI had been extended by mutual agreement beyond the original termination date of July 19, 2010.  Costs of $9,153 have been capitalized under the companies full cost policy for exploration and evaluation, the costs pertain to negotiations for mineral leases in the region.  On September 23, 2010 the Company announced it had cancelled the LOI with Powderhorn for lack of performance on the part of Powderhorn.

The Company also stated it had since acquired a commitment of funds from two additional sources to fund the drilling of the first three prospects in its current inventory of prospects. This funding would cover 100% of the costs for a 75% net working interest.  Thus covering all of Mogul’s drilling and completion costs and resulting in a net 25% working interest for The Company in the well.

Mogul is continuing with the acquisition of the necessary oil, gas and mineral leases on each of these initial prospects. The requisite state permits to drill will be secured from the Texas Railroad Commission upon completion of the leasing and title clearance.

On December 8 2010 The Company entered into a signed Joint Operating Agreement and Participation Agreement for the first prospect in which the Company, as operator, would acquire a 25% net revenue interest upon the successful completion of the initial well subject to the acquisition of leases for the North Pasture Contract Acreage Area of San Patricio County, Texas.

On November 26, 2010 the Company entered into signed Joint Operating Agreement and Participation Agreement, in which the Company acquired oil and gas leases in the Stafford Prospect in Jackson County, Texas.  As operator the Company will acquire a 15% net revenue interest on the successful completion of the initial well drilled on the property.

During 2010, the Company had advanced $33,613 towards drilling projects on behalf of the joint venture partners for drilling activities in 2011.  The Company also held $17,828 in escrow as a drilling advance for drilling activities to be performed in 2011.

NOTE 6 – Contingencies and Commitments

Office Leases

Our principal office is located at 2500 Wilcrest Drive, Suite 405, Houston, Texas, 77042, USA  This is month to month lease at a cost of 1,193 per month.

We also have administrative offices located at 207 West Hastings Street, Suite 1111, Vancouver, British Columbia, Canada V6B 1H7. The Company sublets office space from a related party for $1,313 per month, renewable annually.

Additionally, the Company has an office at Suite 201, 47 Colburne St., Toronto, Ontario, Canada M5E 1P8.  This is a five year lease at a monthly cost of $8,417.

Environmental Uncertainties

The Company may be exposed to financial risks in the oil and gas exploration business for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

F-12

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

Flow-through financing

The Company raised a total of CAD$950,000 2008 on a flow-though basis.  The gross proceeds of the financing were renounced to investors at December 31, 2008 and were to be used by the Company to incur qualified Canadian exploration expenses by June 30, 2010.  The company spent CAD$154,850 on qualified capital exploration expenditures leaving a commitment of approximately CAD$795,150 that was not spent on qualified capital exploration expenditures by July of 2010.  The Company has paid $55,000 in taxes and penalties assessed by the Canadian Customs and Revenue Agency.  The Company has accrued $300,000 for the year ended December 31, 2010 for the potential claims, which may arise because of possible reassessments denying personal tax deductions to the investors.

Governmental Regulations and Licensing

In order to drill for, recover, transport or sell any gas or oil from the properties subject to the Company’s drilling rights, the Company will generally be required to obtain additional licenses and permits and enter into agreements with various landowners and/or government authorities. The issuance of these permits and licenses generally will be contingent upon the consent of the governmental authority having jurisdiction over the property, which entities have broad discretion in determining whether or not to grant such authority. These licenses, permits, and agreements will generally contain numerous restrictions and require payment of development and exploration fees and royalties typically based on the recoverable reserves or expenditures. The amount of any such fee and royalties and other terms will determine in part, the commercial viability of any extraction prospect.

NOTE 7 - Loss Per Share

Loss per share is calculated using the weighted average number of shares issued during the relevant period. The weighted average number of common shares was 57,445,987 for the period ended December 31, 2010.

NOTE 8 - Net Operating Loss Carry-forward

At December 31, 2010, the Company had a net operating loss (NOL) carry-forward estimated at about $7,000,000 available to reduce any future taxable income (after adjusting for amounts related to Canadian investor flow-through capital and share based compensation).   The NOL carry-forward begins to expire in 2025 and will fully expire in 2030. Because management is unable to determine that it is more likely than not that the Company will realize the tax benefit related to the NOL carry-forward, by having taxable income, a valuation allowance has been established at the balance sheet date to reduce the tax benefit asset value to zero.

Deferred Tax Assets:	2010			2009
Adjusted loss before income taxes	$	(909,893	)	$	(596,299	)
Income tax rate		39	%		39	%
Net operating loss carry-forwards		(354,858	)		(224,656	)
Deferred tax assets (estimated)		(3,500,000	)		(3,000,000	)
Recovery of future taxes related to the flow through under spending		(310,050	)		-
Less: Part XII.6 taxes and penalties		18,920			36,406
Total deferred tax assets		(4,145,988	)		(3,188,250	)
Valuation allowance for deferred tax assets		4,145,988			3,188,250
	$	-		$	-

F-13

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

NOTE 9 - Capitalized costs relating to the oil and gas acquisitions and exploration activity

Schedule “A”Canada
Net book value December 31, 2008	$	435,512
Additions: during 2009		62,720
Net book value December 31, 2009		498,232
Reduced: during 2010		(18,983	)
Additions: Reclamations costs		44,309
Less accumulated depreciation, depletion, amortization and impairment		(523,558	))
Net book value December 31, 2010		-

The Ryerson 16-17-009-31W1M that was suspended pending further evaluation was determined that the vertical well was uneconomical due to the reduction in leased acreage surrounding the well bore and failure to engage joint partners to redrill and further test the oil stained zone, the well has been plugged and abandoned.  An impairment charge $523,558 has been made against previously capitalized costs.

Schedule “B”United States*
Net book value at December 31, 2008	$	-
Additions: payment for 40% of Excelaron (Contingent)		425,000
Net book value at December 31, 2009		425,000
Reduction: repayment by Vesta to acquire interest in Excelaron		(425,000	)
Additions: related to California leases		1,396
Additions: acquisition costs related to leases for oil and gas rights in Texas		33,613
Additions: Acquisition of  15% working interest for Stafford lease		1,333
Net book value of U.S. Assets at December, 2010		36,342

NOTE 10 – Subsequent Events – Unaudited

On March 6th, 2011 the Company completed the drilling of the Stafford Well #1 at the La Ward NE Field area in Jackson County, Texas The well, located approximately 10 miles south of Ganado, was drilled to a total depth of 7,400 feet.  Initial open-hole logging indicates multiple productive zones from the Frio formation with both oil and gas shows.  The deepest prospective oil zone shows a structural sand 10 feet higher to an offsetting productive well with a sand thickness of 5 ½ feet with a 33% porosity and 20% water saturation.  Additional tests and analysis of the several other productive zones will continue while the casing is installed, cemented and surface equipment are put into place.  Mogul will evaluate the results of this well for any potential offsetting locations in the near future.

F-14

Mogul Energy International, Inc.

Notes to December 31, 2010 and 2009 Financial Statements

F-15

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

ITEM 9A. CONTROLS AND PROCEDURES.

Management’s evaluation of disclosure controls and procedures

As required under the Exchange Act, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report, being December 31, 2008. We are responsible for establishing and maintaining adequate internal controls and procedures for the financial reporting of our Company. Disclosure control and procedures are the controls and other procedures that are designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC.  Our management has concluded, based on their evaluation, that as of December 31, 2010, as the result of the material weaknesses described below, our disclosure controls and procedures were ineffective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Management’s report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.  Management has concluded that there are material weaknesses in both the design and operation of the Company’s internal controls and procedures for financial reporting.  A material weakness, as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  The material weaknesses in internal control over financial reporting that were identified include:

i. there is a lack of adequate segregation of duties in our accounting and financial reporting functions;

ii. there is a lack of entity wide controls, including no audit committee, and a failure to maintain formalized accounting policies and procedures;

iii. senior management has not established and maintained a “proper tone” as to internal control over financial reporting;

iv. there may be a lack of sufficient controls relating to user access security levels in our accounting software to restrict access to certain financial applications only to employees requiring access to complete their job functions.

As a result of the existence of these material weaknesses as of December 31, 2010, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2010.

While we believe our financial statements included in this Annual Report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented, as a result of the material weaknesses in our internal control over financial reporting, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

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Remediation

We will engage an independent accounting firm to advise us in respect of our internal controls over financial reporting, and to provide accounting counsel on various matters relating thereto.  We will continue to implement further improvements to our internal controls as they are identified.  We will use the criteria and framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the publication Internal Control-Integrated Framework, an integrated framework for the evaluation of internal controls, for the evaluation of our internal controls in the future. Senior management will continue to consult with external experts to assist with the accounting for complex and non-routine accounting transactions.

Changes to Internal Controls and Procedures Over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as discussed herein.

ITEM 9B. OTHER INFORMATION.

On February 12, 2009, we had acquired a 40% interest (the “Excelaron Interest”) in Excelaron LLP, a privately held Company based in California (“Excelaron”). The acquisition was contingent upon our making a capital contribution of $2,300,000 in installments over a specified period.  After making payments of $425,000 we engaged in assigning our interest to other parties better positioned to capitalize on this asset in exchange for either shares or cash.

On March 26, 2010, an Amended Qualifying Transaction Agreement was executed  pursuant to which we agreed to accept, an aggregate of $1,000,000 Canadian Dollars (less $150,000 in debt financing repaid and $87,900 in legal and consulting fees) and the reimbursement of approximately, $425,000 of advances made by us to Excelaron, in exchange for the Excelaron Interest.  The agreement was consummated on April 30 of 2010.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors, Executive Officers, Promoters and Control Persons

The following table set forth the names and ages of all of our current Directors and Executive Officers.

Directors and Officers as at December 31, 2010:

Name		Age	Position	Held Position Since
Naeem Tyab	(1)	43	Chairman of the Board	September 29, 2005
Gary Countryman	(2)	72	Director	April 14, 2010
Henry Kloepper	(3)	60	Director	February 22, 2010
Timothy J. Turner	(4)	53	CEO and President	April 27, 2010

(1) Subsequent to the year end, on February 11, 2011, Mr. Tyab resigned as President and was appointed Chairman of the Board.

(2) Mr. Countryman was appointed as a director on April 14, 2010.

(3) Mr. Kloepper was appointed as a director on February 22, 2010

(4) Mr. Turner was appointed Executive vice President on April 14, 2010.  Subsequent to the year end, on February 11, 2011, Mr. Turner was appointed President and Chief Executive of Officer.

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Former Directors and Officers

Name		Age	Position	Date Assumed the Position to Date of Resignation
John Masters	(1)	83	Chairman of the Advisory Committee	October 18, 2010
Ernie Pratt	(2)	59	Director	October 2, 2006 – October 5, 2009
William Smith	(3)	61	Director and CFO	June 19, 2008 – March 10, 2009

(1) Mr. Masters was appointed Chairman of the Board on October 18, 2010.  Subsequent to the year end, on February 11, 2011, Mr. Masters resigned as Chairman of the Board and became Chairman of our advisory committee.

(2) Mr. Pratt resigned as a Director on October 5, 2009.

(3) Mr. Smith reigned as the Chief Financial Officer on March 10, 2009

Business Experience and Educational Background

The following represents a summary of the five year business history of each of the above-named individuals for the last five years:

Mr. Naeem Tyab – Chairman of the Board

Mr. Tyab has been the president and a director of the Company since September 29, 2005. Between April 2002 and prior to his appointment as president of our Company Mr. Tyab acted as an independent consultant to a number of public and private oil and gas companies in relation to their financing and acquisition activities. Prior thereto and from December 1997 to March 2002, Mr. Tyab was involved in the venture capital and investment banking industry in his capacity as a registered representative for a Canadian based securities dealer.

Mr. Tyab’s extensive experience financing companies coupled with his experience in the oil and gas industry uniquely qualifies him to be a member of our Board of Directors.

Mr. Gary Countryman – Director

Mr. Countryman was appointed to the Board as a director on April 14, 2010.  Mr. Countryman has thirty years of experience in the oil and gas industry including Vice President of Dubai Petroleum from 1977-79, Manager of Middle East Operations from 1980-84 for Conoco, Inc. and General Manager and Managing Director for Geisum Oil Company from 1984 -86.  He served as Vice President – Operations of Greenhill Petroleum from 1987-89.  From 1990 he has owned his own Company and been involved in oil and gas property acquisitions and the operation of oil and gas properties.

Mr. Countryman earned his B.S. and M.S. in Petroleum Engineering from the University of California and his M.S. in Management from the Massachusetts Institute of Technology.

Mr. Countryman’s operations and management experience in the oil and gas industry assists us as we move forward in our next phase as operator on our interests in Texas and qualifies him to be a member of our Board of Directors.

26

Mr. Henry Kloepper – Director

Mr. Kloepper was appointed to the Board of Directors on February 22, 2010.  Mr. Kloepper has been involved in investment banking and structured finance over a thirty year career. He brings a well-rounded knowledge of the financial markets in strategic growth and investments. In the past Mr. Kloepper has worked in senior executive positions with J.P Morgan, Citibank Canada, North American Trust (now Laurentian Bank) and Security Pacific Bank (now Bank of America) in Canada, the US and in Europe.

Mr. Kloepper’s experience and contacts within the investment industry uniquely qualify him to serve on Our Board of Directors.

Mr. Timothy J. Turner – CEO and President

Mr. Turner received his undergraduate degree in Petroleum Land Management from the University of Texas at Austin in 1980. Prior, to his appointment with Mogul Energy, Timothy J. Turner was Principal of Tim. Turner & Associates, LLC, an oil and gas exploration and production business development and land services company. Mr. Turner has more than thirty years of varied experience in the oil and gas industry establishing and maintaining productive business relationships with partners; negotiating complex joint venture agreements; overseeing all business partner operations, negotiating legal agreements (involving acquisitions, title conflicts, eminent domain issues and the disposition of assets, and preparing long-range and short-term business plans, revenue forecasts, cost projections. Mr. Turner began his career with Exxon Company.  Subsequently, Mr. Turner went to work for Phillips Petroleum Company, in Houston, where his responsibilities included various Texas gulf coast exploration and production land activities.

Mr. John Masters – Chairman of the Advisory Committee

On October 18, 2010, John Masters has joined the management team of Mogul as Chairman of the Board.

From 2004 to 2006 Mr. Masters was the Senior Geologist and Chairman of the Technical Advisory Board for Hunter Energy.   Over the last five years Mr. Masters has been the President of Masters Resources.

Mr. Masters was included in the 20th century AAPG Honorary Issue as one of the thirteen “most distinguished explorers” of the past 100 years.  Mr. Masters co-founded Canadian Hunter. Canadian Hunter grew from one of the smallest of the 712 registered energy companies in Calgary in 1972 to the 12th largest 20 years later.  During this period, Canadian Hunter discovered more than 16 significant gas fields including Canada’s largest, the Elmworth field, which is a 30TCF pool and ranks as the third largest producing field in North America.

Mr. Masters attained a B.A degree from Yale University on scholarship and a M.S. in Geology from Colorado University.

Length of Office

All directors hold office until the next annual meeting of stockholders and their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. As of the date hereof, no director has accrued any expenses or compensation. Officers are appointed annually by the Board of Directors and each executive officer serves at the discretion of the Board of Directors.

Family Relationships

There are no family relationships among any of our directors, executive officers and other key personnel other than Naeem Tyab and Mohammad Khan (former officer) who are cousins.  Mr. Parvez Tyab, who owns the largest number of our issued and outstanding shares, is Naeem Tyab’s brother and Mohammad Khan’s cousin.

Legal Proceedings

During the past ten years none of our directors, executive officers, promoters or control persons has been:

27

· the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

· convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

· subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

· found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law;

· the subject of any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i) Any Federal or State securities or commodities law or regulation; or

(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity;

· subject to any federal or state judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions (excluding settlements between private parties); or

· subject to any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.

Code of Ethics

hawse have adopted a Code of Ethics designed to deter wrongdoing and to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in its reports to the U.S. Securities and Exchange Commission, and other public communications.  The Code of Ethics promotes compliance with applicable governmental laws, rules and regulations.  The Code of Ethics applies to our officers, directors, persons performing similar functions, and employees.  Upon request, the Company will provide without charge any person with a copy of the Code of Ethics.  Requests may be made in writing to the Company by mail sent to any of its offices.  A copy of our Code of Ethics is attached hereto as Exhibit 14.1.

Directors

Currently, our Board of Directors consists of four members. Directors stand for election at our annual meeting of shareholders. Pursuant to our Bylaws, any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled by the shareholders or by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholders. If there are no remaining directors, the vacancy shall be filled by the shareholders.

At a meeting of shareholders, any director or the entire Board of Directors may be removed, with or without cause, provided the notice of the meeting states that one of the purposes of the meeting is the removal of the director. A director may be removed only if the number of votes cast to remove him exceeds the number of votes cast against removal.

We look to our directors to guide us through our next phase as a public company and continue and manage our growth. Our directors bring their leadership experience from a variety of pharmaceutical companies and professional backgrounds which we require to continue to grow and to add stockholder value. Our directors also have worked with start-up through public companies and bring depth of knowledge in building stockholder value, growing a company from inception, developing pharmaceutical products, and navigating mergers and acquisitions and the public company process.

28

Compensation of Directors

Compensation of Directors and Officers

We reimburse our directors for expenses incurred in connection with attending board meetings.

Except as set forth above, we have no formal or written plan for compensating our directors for their service in their capacity as directors.  Directors may receive stock options to purchase common shares from time-to-time as awarded by our Board of Directors based on proposals by the compensation committee. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. Our Board of Directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

In establishing director compensation, the Board is guided by the following goals:

● Compensation should consist of a combination of cash and equity awards that are designed to fairly pay the directors for work required for a company of our size and scope;

● Compensation should align the directors’ interests with the long-term interests of stockholders; and

● Compensation should assist with attracting and retaining qualified directors.

The following table provides information regarding all compensation paid to the Company’s non-employee directors during the fiscal year ended December 31, 2010.

	Director Compensation
Name	Fees Earned or Paid in Cash ($)		Stock awards ($)		Total ($)
Gary Countryman (1)	$	9,000	$	-	$	9,000
Henry Kloepper (2)		11,509		-		11,509
John Masters (3)	Nil			-	Nil
Total director compensation	$	20,509	$_		$	20,509

(1)  Compensation effective as of April 14, 2010.

(2)  Compensation effective as of February 22, 2010.

(3) Compensation effective as of October 18, Mr. Masters was receiving no director’s fees.

There have been no changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

29

Director Independence

We are not listed on a U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, at this time, after considering all of the relevant facts and circumstances, our Board of Directors has determined that each of Messrs. Mr. Henry Kloepper and Mr. John Masters are independent from our management and qualify as “independent directors” under the standards of independence of the FINRA listing standards.  We do not currently have a majority of independent directors as required by the FINRA listing standards. Upon our listing on any national securities exchange or any inter-dealer quotation system, we will elect such independent directors as is necessary under the rules of any such securities exchange

.

Board Leadership Structure

We currently have only one executive officer and three directors. Our Board of Directors has reviewed the Company’s current Board leadership structure — which consists of a Chief Executive Officer and a Chairman of the Board— in light of the composition of the Board, the Company’s size, the nature of the Company’s business, the regulatory framework under which the Company operates, the Company’s stockholder base, the Company’s peer group and other relevant factors, and has determined that this structure is currently the most appropriate Board leadership structure for our company. Nevertheless, the Board intends to carefully evaluate from time to time whether our Chief Executive Officer and Chairman positions should be combined based on what the Board believes is best for us and our stockholders.

Board Role in Risk Oversight

Risk is inherent in every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including strategic risks, enterprise risks, financial risks, and regulatory risks. While our management is responsible for day to day management of various risks we face, the Board of Directors, as a whole, is responsible for evaluating our exposure to risk and to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board reviews and discusses policies with respect to risk assessment and risk management. The Board also has oversight responsibility with respect to the integrity of the Company’s financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.

Board of Directors Meetings, Committees of the Board of Directors, and Annual Meeting Attendance

All proceedings of the Board of Directors for the year ended December 31, 10 were conducted by resolutions consented to in writing by the Board of Directors and filed with the minutes of the proceedings of the directors.  We do not maintain a policy regarding director attendance at annual meetings and we did not have an annual meeting during the fiscal year ended December 31, 2010.

Committees

Exception for a Compensation Committee, we do not currently have any standing committees of the Board of Directors.  The full Board is responsible for performing the functions of:  (i) the Audit Committee, and (ii) the Nominating Committee.

The Compensation Committee currently comprised of two persons, including Naeem Tyab and Timothy J. Turner.  The Compensation Committee does not currently have a charter.

Board Nominees

The Board does not currently have a standing Nominating Committee.  We do not maintain a policy for considering nominees.  Our Bylaws provides that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law.  The Board shall be large enough to maintain our required expertise but not too large to function efficiently.  Director nominees are recommended, reviewed and approved by the entire Board.  The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.

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While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by stockholders as it deems appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee’s recommendation.  Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to our Chief Executive Officer, <>, that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.

Audit Committee Financial Expert

Our Board of Directors has determined that we do not have a board member that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K, nor do we have a board member that qualifies as "independent" as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(14) of the NASD Rules.

We believe that our Board of Directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Board of Directors of our company does not believe that it is necessary to have an audit committee because management believes that the functions of an audit committee can be adequately performed by the Board of Directors. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted given the stage of our development and the fact that we have not generated any positive cash flows from operations to date.

Communications with the Board

We have no formal procedures to follow for shareholders to communicate with the Board. Should you wish to submit a written communication to the Board or an individual director, you may mail or deliver such communication to: Mogul Energy International, Inc, 2500 Wilcrest Drive, Suite 405, Houston, Texas,  Board of Directors, Attention: Naeem Tyab, Chairman. All appropriate communications received from shareholders will be forwarded to the Board or any committee thereof, if any, as appropriate.

ITEM 11. EXECUTIVE COMPENSATION.

The following table and descriptive materials set forth information concerning compensation earned for services rendered to us by: the Chief Executive Officer (the “CEO”); the Chief Financial Officer (the “CFO”); and the three other most highly-compensated executive officers other than the CEO and CFO who were serving as our executive officers at the end of the 2010 and 2009 fiscal years (the “Named Executive Officers”).

The responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our executive officers lies with our Board of Directors. In this connection the Board has not retained the services of any compensation consultants.

The goals of our executive compensation program are to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources. In 2009, we designed our executive compensation program to achieve the following objectives:

• attract and retain executives experienced in developing and delivering products such as our own;

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• motivate and reward executives whose experience and skills are critical to our success;

• reward performance; and

• align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value.

The following table summarizes the compensation earned by the Named Executive Officers during the fiscal years ended December 31, 2010 and 2009.

.

SUMMARY COMPENSATION TABLE
Name and	Year		Salary		Stock awards		Total
principal position		(12/31)	($)		($)		($)
Naeem Tyab, Chairman of  the Board		2009		131,195		-		131,195
		2010		124,216		-		134,216
Timothy J. Turner,  CEO and President		2010		52,500		-		52,500

OUTSTANDING EQUITY AWARDS AT FISCAL-YEAR END

The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executives and which remained outstanding as of December 31, 2010.

Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)		Option Expiration Date
Naeem Tyab		250,000			0.05	October 22, 2015
Timothy J.  Turner		500,000			0.05	October 22, 2015

Employment Agreements

We do not have any employment agreements with any of our officers.

Payments Upon Termination Or Change In Control

There are no understandings or agreements known by management at this time which would result in a change in control.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information as of March 24, 2011 by (i) all persons who are known by us to beneficially own more than 5% of our outstanding shares of common stock, and (ii) by each director, director nominee, and Named Executive Officer and (iii) by all executive officers and directors as a group:

32

Security Ownership of Certain Beneficial Owners

Name and Address of Beneficial Owner	Positions and Offices Held	Shares Beneficially Owned (1)		Percent of Class(1)
Naeem Tyab	Chairman of  the Board		1,638,889 (2)		2.6%
Gary Countryman	Director		0 (3)
Henry Kloepper	Director		0 (4)
Timothy J. Turner	CEO &  President		0 (5)
John Masters	Chairman of the Advisory Committee		0 (6)
Ernie Pratt	Former Director		80,000 (7)		0.1%
Parvez Tyab 1112 – 207 West Hasting Street Vancouver, B.C., Canada V6B 1H7	Shareholder		10,000,000 (8)		15.7%
All Officers and Directors as a group (6 persons)			1,718,889		3%

(1) Calculated pursuant to rule 13d-3(d) of the Exchange Act.  Beneficial ownership is calculated based on 57,445,987shares of Common Stock issued and outstanding on a fully diluted basis as of March 24, 2011.  Unless otherwise stated below, each such person has sole voting and investment power with respect to all such shares.  Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.

(2) Naeem Tyab has the right to acquire 250,000 shares pursuant to an option grant on October 22, 2010.  Prior rights to acquire 1,000,000 shares pursuant to an option grant on August 8, 2008 have been cancelled.  Subsequent to the year ended December 31, 2010 Mr. Tyab resigned as President and was appointed Chairman of the Board.

(3) Gary Countryman has the right to acquire 400,000 shares pursuant to an option grant on October 22, 2010.

(4) Henry Kloepper has the right to acquire 300,000 shares pursuant to an option grant on October 22, 2010.

(5) Timothy J. Turner has the right to acquire 500,000 shares pursuant to an option grant on October 22, 2010.  Subsequent to the year ended December 31, 2010 Mr. Turner was appointed President and Chief Executive Officer.

(6) John Masters has the right to acquire 500,000 shares pursuant to an option grant on October 22, 2010.  Subsequent to December 31, 2010 Mr. Masters resigned as Chairman of the Board and became Chairman of our advisory committee.

(7) Ernie Pratt rights to acquire 250,000 shares pursuant to an option grant on August 8, 2008 have been cancelled.

(8) Includes 9,000,000 shares held in the name of Parvez Tyab and 1,000,000 held by Mogul Energy Ltd., which shares Mr. P. Tyab is deemed to beneficially own.

33

Securities Authorized for Issuance Under Equity Compensation Plans

We adopted a 2007 Stock Incentive Plan (the “Plan”) which has not previously been approved by our shareholders.  The Plan provides for the issuance of options to purchase 4,000,000 shares of our common stock at an exercise price of $0.30.  As of December 31, 2008, we issued options to purchase 2,250,000 shares under the Plan, and options to purchase 1,750,000 shares of common stock remain available for future issuance under the Plan.  Options awarded under the Plan vest over one-year.  The options awarded by us to date were all made on August 8, 2007, and expire on August 7, 2012.

On October 22, 2010, 2,250,000 the previously granted options were cancelled, and 2,850,000 fully vested stock options were granted to directors, officers, employees and contractors of the Company.  These options will expire on October 22, 2015.  The exercise price of the options under the Plan have been revised to $0.05 and is subject to approval by our shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Transactions with Related Persons, Promoters, and Certain Control Persons

The following “Certain Relationships and Related Transactions” represent material transactions in which any related person had or will have a direct or indirect material interest, which are known to the our current management team.  There may however be various other material transactions regarding the Company which our current management is not aware of.  We have no policy regarding entering into transactions with affiliated parties, except as described in our Code of Ethics.

On January 26, 2011, we entered into a Stafford Area Participation Agreement (the “Agreement”) between the Company and Aura Oil Holdings Ltd. (“Aura”), a corporation organized under the laws of Bermuda. Pursuant to the terms of the Agreement, Aura purchased an 8.3333% interest in the Company’s oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances in certain of the lands leased by the Company in Jackson County, Texas for a sum of $75,521.  Mr. Naeem Tyab, the Company’s President as of the date of the Agreement, is the sole shareholder of Aura. The Company believes that the terms of the Agreement are comparable to the terms that have been agreed to in an arm’s length transaction.

On January the 19th, 2010 we received $292,500 in the form of a promissory note payable without any notice, bonus or penalty from Mogul Energy Ltd., a related company, owned by the brother of our President.  Interest payments were CAD$10,000 per month for the period of time in which the loan was outstanding.  The promissory note was repaid on April 28, 2010 and interest paid was equivalent to US$32,972.

During the period we entered into a consulting contract with a related party to assist in the negotiations and related activities required to conclude the sale of the Excelaron asset (see Note 5) for CAD$4,000 per month for four months.  Total disbursements under this contract were equivalent to US$15,133.

We sub leases office space in our Toronto location to a related party with directors in common.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Audit Fees

Our independent registered public accounting firm billed us $52,900 and $44,464 for the fiscal years ended December 31, 2010, and 2009, respectively, for audit related professional services.  These services included audit of our annual financial statements, review of our quarterly interim financial statements on Form 10-Q, and services in connection with statutory and regulatory filings.  This category also includes the review of interim financial statements and services in connection with registration statements and other filings with the Securities and Exchange Commission.

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Tax Fees

The aggregate fees billed by our independent registered public accounting firm for professional services rendered for tax compliance, tax advice, and tax planning services were $1,500 and $1,238 for the fiscal year ended December 31, 2010 and 2009, respectively.

All Other Fees

Our independent registered public accounting firm did not bill us for other services during fiscal years ended December 31, 2010 and 2009.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) Financial Statements and Schedules

The financial statements are set forth under Item 8 of this Annual Report on Form 10-K.  Financial statement schedules have been omitted because they are either not required, not applicable, or the information is otherwise included.

.

(b) Exhibits

Exhibit
Number	Description
(3)	(i) Articles of Incorporation; and (ii) Bylaws
3.1	Certificate of Incorporation (1)*
3.2	By-laws (1)*
3.3	Form of Subscription Agreement ($0.15) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*
3.4	Form of Flow Through Subscription Agreement ($0.18) dated for reference December 12, 2007 (incorporated by reference from our Form 8-K filed on February 15, 2008)*
(4)	Instruments Defining the Rights of Security Holders
4.1	2007 Stock Incentive Plan (incorporated by reference from our Form 8-K filed on August 10, 2007)*
(10)	Material Contracts
10.1	Letter of Intent dated July 30, 2007 (incorporated by reference from our Form 8-K filed on August 7, 2007)*
10.2	Form of Stock Option Agreement (incorporated by reference from our Form 8-K filed on August 10, 2007)*
10.3	Stafford Area Participation Agreement – Aura Oil Holdings Ltd. (incorporated by reference from our Current Report on Form 8-K filed on March 21, 2011)
10.4	North Pasture Joint Operating Agreement
10.5	Stafford Joint Operating Agreement
10.6	Form of the Stafford Participation Agreement between C.H. Squires Family, LLC, Fossil Oil Company LLC and certain individuals who are signatories thereto.

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10.7	Form of the North Pasture Participation Agreement between Global Oil and Gas Resources Inc., Dolimiti Partners LLC, Indian Lane Asso., LLC, Plastiform Packaging, Inc. and certain other individuals who are signatories thereto.
(14)	Code of Ethics
14.1	Code of Ethics
(23)	Consents of Experts and Counsel
23.1	Consent of Jorgensen & Co.
(31)	Certifications
31.1	Certification of Principal Executive Officer pursuant to Section 302
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302
32.1	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 1350

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MOGUL ENERGY INTERNATIONAL, INC.

/s/ Timothy J. Turner

By: Timothy J. Turner, President

(Chief Executive Officer)

Dated:  March 31, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Timothy J. Turner

By: Timothy J. Turner, Director and President

(Chief Executive Officer)

/s/ Naeem Tyab

By: Naeem Tyab, Chairman of the Board

/s/ Henry Kloepper

By: Henry Kloepper, Director

/s/ Gary Countryman

By: Gary Countryman, Director

Dated:  April 15, 2011

37

EX-10.4

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT

DATED

November 20, 2010

OPERATOR: Mogul Energy International, Inc.

2500 Wilcrest Dr., Ste. 405

Houston, TX 77042

CONTRACT AREA

Portions of the: Toyah C. IRR. Co. Survey, A-xx – Section xx of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: Toyah C. IRR. Co. Survey, A-xx – Section xx of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: John Pollan Survey, A-xx

All Located in San Patricio County, Texas as shown on the plat dated June 2, 2010 containing approximately 480 acres, more or less (the Contract Area).

COUNTY OF           San Patricio          STATE OF ___Texas

COPYRIGHT 1989

ALL RIGHTS RESERVED

AMERICAN ASSOCIATION OF PETROLEUM LANDMEN

4100 FOSSIL CREEK BLVD.

FORT WORTH, TEXAS, 76137

APPROVED FORM.

A.A.P.L. NO. 610 - 1989

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT – 1989

TABLE OF CONTENTS

Article	Title			Page
I.	DEFINITIONS			1
II.	EXHIBITS			1
III.	INTERESTS OF PARTIES			2
	A.	OIL AND GAS INTERESTS:		2
	B.	INTERESTS OF PARTIES IN COSTS AND PRODUCTION:		2
	C.	SUBSEQUENTLY CREATED INTERESTS:		2
IV.	TITLES			2
	A.	TITLE EXAMINATION:		2
	B.	LOSS OR FAILURE OF TITLE:		3
		1.	Failure of Title	3
		2.	Loss by Non-Payment or Erroneous Payment of Amount Due	3
3.			Other Losses	3
4.			Curing Title	3
V.	OPERATOR			4
	A.	DESIGNATION AND RESPONSIBILITIES OF OPERATOR:		4
	B.	RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:		4
		1.	Resignation or Removal of Operator	4
		2.	Selection of Successor Operator	4
		3.	Effect of Bankruptcy	4
	C.	EMPLOYEES AND CONTRACTORS:		4
	D.	RIGHTS AND DUTIES OF OPERATOR:		4
		1.	Competitive Rates and Use of Affiliates	4
		2.	Discharge of joint Account Obligations	4
		3.	Protection from Liens	4
		4.	Custody of Funds	5
		5.	Access to Contract Area and Records	5
		6.	Filing and Furnishing Governmental Reports	5
		7.	Drilling and Testing Operations	5
		8.	Cost Estimates	5
		9.	Insurance	5
VI.	DRILLING AND DEVELOPMENT			5
	A.	INITIAL WELL:		5
	B.	SUBSEQUENT OPERATIONS:		5
		1.	Proposed Operations	5
		2.	Operations by Less Than All Parties	6
		3.	Stand-By Costs	7
		4.	Deepening	8
		5.	Sidetracking	8
		6.	Order of Preference of Operations	8
		7.	Conformity to Spacing Pattern	9
		8.	Paying Wells	9
	C.	COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:		9
		1.	Completion	9
		2.	Rework, Recomplete or Plug Back	9
	D.	OTHER OPERATIONS:		9
	E.	ABANDONMENT OF WELLS:		9
		1.	Abandonment of Dry Holes	9
		2.	Abandonment of Wells That Have Produced	10
		3.	Abandonment of Non-Consent Operations	10
	F.	TERMINATION OF OPERATIONS:		10
	G.	TAKING PRODUCTION IN KIND		10
	(Option 1) Gas Balancing Agreement			10
	(Option 2) No Gas Balancing Agreement			11
VII.	EXPENDITURES AND LIABILITY OF PARTIES			11
	A.	LIABILITY OF PARTIES:		11
	B.	LIENS AND SECURITY INTERESTS:		12
	C.	ADVANCES:		12
	D.	DEFAULTS AND REMEDIES:		12
		1.	Suspension of Rights	13
		2.	Suit for Damages	13
		3.	Deemed Non-Consent	13
		4.	Advance Payment	13
		5.	Costs and Attorneys' Fees	13
	E.	RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:		13
	F.	TAXES:		13
VIII.	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST			14
	A.	SURRENDER OF LEASES:		14
	B.	RENEWAL OR EXTENSION OF LEASES:		14

		C.	ACREAGE OR CASH CONTRIBUTIONS:	14
		D.	ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:	15
		E.	WAIVER OF RIGHTS TO PARTITION:	15
		F.	PREFERENTIAL RIGHT TO PURCHASE:	15
IX.	INTERNAL REVENUE CODE ELECTION			15
X.	CLAIMS AND LAWSUITS			15
XI.	FORCE MAJEURE			16
XII.	NOTICES			16
XIII.	TERM OF AGREEMENT			16
XIV.	COMPLIANCE WITH LAWS AND REGULATIONS			16
		A.	LAWS, REGULATIONS AND ORDERS:	16
		B.	GOVERNING LAW:	16
		C.	REGULATORY AGENCIES:	16
XV.	MISCELLANEOUS			17
		A.	EXECUTION:	17
		B.	SUCCESSORS AND ASSIGNS:	17
		C.	COUNTERPARTS:	17
		D.	SEVERABILITY:	17
XVI.	OTHER PROVISIONS			17

1	OPERATING AGREEMENT
2	THIS AGREEMENT, entered into on this 8TH Day of December, 2010, by and between Mogul Energy International, Inc.,
3	hereinafter designated and referred to as "Operator," and the signatory party or parties other than Operator, sometimes
4	hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."
5	WITNESSETH:
6	WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land
7	identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Leases and/or Oil
8	and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,
9	NOW, THEREFORE, it is agreed as follows:
10	ARTICLE I.
11	DEFINITIONS
12	As used in this agreement, the following words and terms shall have the meanings here ascribed to them:
13	A. The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of
14	estimating the costs to be incurred in conducting an operation hereunder.
15	B. The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil
16	and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation
17	and production testing conducted in such operation.
18	C. The term "Contract Area" shall mean all of the lands; Oil and Gas Leases and/or Oil and Gas Interests intended to be
19	developed and operated for Oil and Gas purposes under this agreement.  Such lands, Oil and Gas Leases and Oil and Gas
20	Interests are described in Exhibit "A."
21	D. The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest
22	Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the
23	lesser.
24	E. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the
25	cost of any operation conducted under the provisions of this agreement.
26	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
27	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
28	established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.
29	G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be
30	located.
31	H. The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.
32	1. The term "Non-Consent Well" shall mean a well in which less than all parties have conducted an operation as
33	provided in Article VI.B.2.
34	J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a
35	proposed operation.
36	K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous
37	hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is
38	specifically stated.
39	L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts
40	of land lying within the Contract Area, which are owned by parties to this agreement.
41	M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein
42	covering tracts of land lying within the Contract Area, which are owned by the parties to this agreement.
43	N. The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a
44	Completion in a shallower Zone.
45	O. The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned
46	in order to attempt a Completion in a different Zone within the existing wellbore.
47	P.  The term "Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,
48	restore, or improve production in a Zone, which is currently open to production in the wellbore.  Such operations include, but
49	are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,
50	Deepening, Completing, Recompleting, or Plugging Back of a well.
51	Q.   The term "Sidetrack" shall mean the directional control and intentional deviation of a well from vertical so as to
52	change the bottom hole location unless done to straighten the hole or to drill around junk in the hole to overcome other
53	mechanical difficulties.
54	R. The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and
55	Gas separately producible from any other common accumulation of Oil and Gas.
56	Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes
57	natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.
58	ARTICLE II.
59	EXHIBITS
60	The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:
61	_____X___  A. Exhibit "A," shall include the following information:
62	(1) Description of lands subject to this agreement,
63	(2) Restrictions, if any, as to depths, formations, or substances,
64	(3) Parties to agreement with addresses and telephone numbers for notice purposes,
65	(4) Percentages or fractional interests of parties to this agreement,
66	(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,
67	(6) Burdens on production.
68	__________     B. Exhibit "B," Form of Lease.
69	____X_____    C. Exhibit "C," Accounting Procedure.
70	____X_____    D. Exhibit "D," Insurance.
71	___ X______   E. Exhibit "E," Gas Balancing Agreement.
72	____X______    F. Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.
73	____________    G. Exhibit "G," Tax Partnership.
74_	______ X___    H. Other: North Pasture Participation Agreement

1

1	If any provision of any exhibit, except Exhibits "E," and "F" is inconsistent with any provision contained in
2	the body of this agreement, the provisions in the body of this agreement shall prevail.
3	ARTICLE III.
4	INTERESTS OF PARTIES
5	A. Oil and Gas Interests:
6	If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this
7	agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B,"
8	and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.
9	B. Interests of Parties in Costs and Production:
10	Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne
11	and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their
12	interests are set forth in Exhibit "A." In the same manner, the parties shall also own all production of Oil and Gas from the
13	Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.
14	Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other
15	burdens may be payable and except as otherwise expressly provided in this agreement, each party shall pay or deliver, or
16	cause to be paid or delivered, all burdens on its share of the production from the Contract Area up to, but not in excess of,
17	and shall indemnify, defend and hold the other parties free from any liability therefor.
18	Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is
19	burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts
20	stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend
21	and hold the other parties hereto harmless from any and all claims attributable to such excess burden.  However, so long as
22	the Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to
23	be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s)
24	which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any
25	liability therefor.
26	No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's
27	lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher
28	price basis, the party contributing the affected Lease shall bear the additional royalty burden attributable to such higher price.
29	Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,
30	and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in
31	said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.
32	C. Subsequently Created Interests:
33	If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security
34	for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production
35	payment, net profits interest, assignment of production or other burden payable out of production attributable to its working
36	interest hereunder, such burden shall be deemed a "Subsequently Created Interest," Further, if any party has contributed
37	hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interest, or other burden
38	payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit "A," such
39	burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party's
40	Lease or Interest to exceed the amount stipulated in Article III.B. above.
41	The party whose interest is burdened with the Subsequently Created Interest (the "Burdened Party") shall assume and
42	alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other
43	parties from and against any liability therefor.  Further, if the Burdened Party fails to pay, when due, its share of expenses
44	chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the
45	same manner as they are enforceable against the working interest of the Burdened Party.  If the Burdened Party is required
46	under this agreement to assign or relinquish to any other party, or parties, 'all or a portion of its working interest and/or the
47	production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of
48	said Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless said other party, or
49	parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.
50	ARTICLE IV.
51	TITLES
52	A. Title Examination:
53	Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and,
54	if a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire
55	Drilling Unit, or maximum anticipated Drilling Unit, of the well.  The opinion will include the ownership of the working
56	interest, minerals, royalty, overriding royalty and production payments under the applicable Leases.  Each party contributing,
57	Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator
58	all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of
59	charge.  All such information not in the possession of or made available to Operator by the parties, but necessary for the
60	examination of the title, shall be obtained by Operator.  Operator shall cause title to be examined by attorneys on its staff or
61	by outside attorneys, Copies of all title opinions shall be furnished to each Drilling Party.  Costs incurred by Operator in
62	procuring abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in royalty
63	opinions and division order title opinions) and other direct charges as provided in Exhibit "C" shall be borne by the Drilling
64	Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties, as such
65	interests appear in Exhibit "A." Operator shall make no charge for services rendered by its staff attorneys or other personnel
66	in the performance of the above functions.
67	Each party shall be responsible for securing curative matter and pooling amendments or agreements required in
68	connection with Leases or Oil and Gas Interests contributed by such party.  Operator shall be responsible for the preparation
69	and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings
70	before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to
71	the conduct of operations hereunder.  This shall not prevent any party from appearing on its own behalf at such hearings.
72	Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental
73	agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct
74	charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit “C.”

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1.	Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above
2	functions.
3	No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has
4	been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by
5	all of the Drilling Parties in such well.
6	B. Loss or Failure of Title:
7	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
8	reduction of interest from that shown on Exhibit "A," the party credited with contributing the affected Lease or Interest
9	(including, if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title
10	failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject
11	to Article VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas
12	Leases and Interests; and,
13	(a) The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if
14	applicable, a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from
15	Operator or the other parties any development or operating costs which it may have previously paid or incurred, but there
16	shall be no additional liability on its part to the other parties hereto by reason of such title failure;
17	(b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the
18	Lease or Interest which has failed, but the interests of the parties contained on Exhibit "A" shall be revised on an acreage
19	basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or
20	Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;
21	(c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract
22	Area is increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable
23	to the Lease or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and
24	burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well
25	attributable to such failed Lease or Interest;
26	(d) Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest
27	which has failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid
28	to the party or parties who bore the costs which are so refunded;
29	(e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises
30	by reason of title failure shall be borne severally by each party (including a predecessor to a current party) who received
31	production for which such accounting is required based on the amount of such production received, and each such party shall
32	severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;
33	(f)  No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of
34	the Lease or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title
35	it shall bear all expenses in connection therewith; and
36	(g) If any party is given credit on Exhibit "A" to a Lease or Interest which is limited solely to ownership of an
37	interest in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder
38	of the Contract Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest
39	is reflected on Exhibit "A."
40	2. Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well
41	payment, minimum royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas
42	Lease or Interest is not paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary
43	liability against the party who failed to make such payment.  Unless the party who failed to make the required payment
44	secures a new Lease or Interest covering the same interest within ninety (90) days from the discovery of the failure to make
45	proper payment, which acquisition will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit "A"
46	shall be revised on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party
47	who failed to make proper payment will no longer be credited with an interest in the Contract Area on account of ownership
48	of the Lease or Interest which has terminated.  If the party who failed to make the required payment shall not have been fully
49	reimbursed, at the time of the loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest,
50	calculated on an acreage basis, for the development and operating costs previously paid on account of such Lease or Interest,
51	it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of any dry hole
52	previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:
53	(a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease
54	burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or
55	Interest, on an acreage basis, up to the amount of unrecovered costs;
56	(b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed
57	to make payment, up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and
58	marketed (excluding production from any wells thereafter drilled) which, in the absence of such Lease or Interest termination,
59	would be attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease or Interest
60	termination is credited to other parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties
61	in proportion to their respective interests reflected on Exhibit "A"; and,
62	(c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner
63	of the I-ease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.
64	3. Other Losses: All losses of Leases or Interests committed to this agreement, other than those set forth in Articles
65	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
66	Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because
67	express or implied covenants have not been performed (other than performance which requires only the payment of the money),
68	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
69	readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.
70	4. Curing Title: In the event of a Failure of Title under Article IV.B.I. or a loss of title under Article IV, B.2. above, any
71	Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety
72	(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
73	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.
74	shall not apply to such acquisition.

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1	ARTICLE V.
2	OPERATOR
3	A. Designation and Responsibilities of Operator:
4	MOGUL ENERGY INTERNATIONAL, INC. shall be the Operator of the Contract Area, and shall conduct
5	and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of
6	this agreement.  In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor
7	not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance
8	with the election procedures contained in this agreement.  Operator shall not be deemed, or hold itself out as, the agent of the
9	Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third
10	party.  Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike
11	manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and
12	regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred
13	except such as may result from gross negligence or willful misconduct.
14	B. Resignation or Removal of Operator and Selection of Successor:
15	1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.
16	If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of
17	serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a
18	successor.  Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest
19	based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be
20	deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and
21	Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an
22	operation then being conducted, within forty-eight (48) hours of its receipt of the notice.  For purposes hereof, "good cause" shall
23	mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of
24	operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.
25	Subject to Article VII. D.I., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first
26	day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator
27	or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of
28	Operator at an earlier date.  Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a
29	Non-Operator.  A change of a corporate name or structure of Operator or transfer of Operator's interest to any single
30	subsidiary, parent or successor corporation shall not be the basis for removal of Operator.
31	2. Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a
32	successor Operator shall be selected by the parties.  The successor Operator shall be selected from the parties owning an
33	interest in the Contract Area at the time such successor Operator is selected.  The successor Operator shall be selected by the
34	affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";
35	provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to
36	succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority
37	interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was
38	removed or resigned.  The former Operator shall promptly deliver to the successor Operator all records and data relating to
39	the operations conducted by the former Operator to the extent such records and data are not already in the possession of the
40	successor operator.  Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint
41	account.
42	3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have
43	resigned without any action by Non-Operators, except the selection of a successor.  If a petition for relief under the federal
44	bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all
45	Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or
46	assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in
47	possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,
48	except the selection of a successor.  During the period of time the operating committee controls operations, all actions shall
49	require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A." In
50	the event there are only two (2) parties to this agreement, during the period of time the operating committee controls
51	operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a
52	member of the operating committee, and all actions shall require the approval of two (2) members of the operating
53	committee without regard for their interest in the Contract Area based on Exhibit "A."
54	C. Employees and Contractors:
55	The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the
56	hours of labor and the compensation for services performed shall be determined by Operator, and all such employees or
57	contractors shall be the employees or contractors of Operator.
58	D. Rights and Duties of Operator:
59	1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive
60	contract basis at the usual rates prevailing in the area.  If it so desires, Operator may employ its own tools and equipment in
61	the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges
62	shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by
63	Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors
64	who are doing work of a similar nature.  All work performed or materials supplied by affiliates or related parties of Operator
65	shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and
66	standards prevailing in the industry.
67	2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay
68	and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall
69	charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in ' Exhibit "C."
70	Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits
71	made and received.
72	3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts
73	of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in
74	respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

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1	liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or
2	materials supplied.
3	4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced
4	or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the
5	Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until
6	used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as
7	provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator
8	and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided.  Nothing in
9	this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the
10	parties otherwise specifically agree.
11	5.  Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator
12	or its duly authorized representative, at the Non-Operator’s sole risk and cost, full and free access at all reasonable times to
13	all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of
14	operations conducted thereon or production therefrom, including Operator's books and records relating thereto. Such access
15	rights shall not be exercised in a manner interfering with Operator’s conduct of an operation hereunder and shall not obligate
16	Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such
17	interpretive data was charged to the joint account.  Operator will furnish to each Non-Operator upon request copies of any
18	and all reports and information obtained by Operator in connection with production and related items, including, without
19	limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding
20	purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the
21	information.  Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures
22	shall be conducted in accordance with the audit protocol specified in Exhibit "C."
23	6. Filing and Furnishing Governmental Reports:  Operator will file, and upon written request promptly furnish copies to
24	each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications
25	required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.
26	Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.
27	7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not
28	limited to the Initial Well:
29	(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which
30	drilling operations are commenced.
31	(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well
32	as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.
33	(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing
34	Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted
35	hereunder.
36	8. Cost Estimates.  Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs
37	incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.
38	Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.
39	9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers
40	compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-
41	insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall
42	be as provided in Exhibit "C." Operator shall also carry or provide insurance for the benefit of the joint account of the parties
43	as outlined in Exhibit "D" attached hereto and made a part hereof. Operator shall require all contractors engaged in work on
44	or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted
45	and to maintain such other insurance as Operator may require.
46	In the event automobile liability insurance is specified in said Exhibit “D,” or subsequently receives the approval of the
47	parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive
48	equipment.
49	ARTICLE VI.
50	DRILLING AND DEVELOPMENT
51	A. Initial Well:
52	On or before the _1ST day of February, 2011,   Operator shall commence the drilling of the Initial
53	Well at the following location: North Pasture Prospect, John Pollan Survey, A-23, San Patricio County, Texas
54	blank
55	blank
56	blank
57	blank
58	blank
59	blank
60	and shall thereafter continue the drilling of the well with due diligence to test the Frio Formation to a total depth of 7,850 feet.
61	blank
62	blank
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65	blank
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67	The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.I. as to participation
68	in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.
69	B. Subsequent Operations:
70	1. Proposed Operations:   If any party hereto should desire to drill any well on the Contract Area other than the initial Well, or
71	if any party should desire  to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of
72	producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under
73	this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written
74	notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone

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1	under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be
2	performed, the location, proposed depth, objective Zone and the estimated cost of the operation.  The parties to whom such a
3	notice is delivered shall have twenty (20) days after receipt of the notice within which to notify the party proposing to do the work
4	whether they elect to participate in the cost of the proposed operation.  If a drilling rig is on location, notice of a proposal to
5	Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-
6	eight (48) hours, exclusive of Saturday, Sunday and legal holidays.  Failure of a party to whom such notice is delivered to reply
7	within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.
8	Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties
9	within the time and in the manner provided in Article VI.B.6.
10	If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be
11	contractually committed to participate therein provided such operations are commenced within the time period hereafter set
12	forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of twenty (20) days (or as
13	promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case
14	may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of
15	the parties participating therein; provided, however, said commencement date may be extended upon written notice of same
16	by Operator to the other parties, for a period of up to twenty (20) additional days if, in the sole opinion of Operator, such
17	additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-
18	way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or
19	acceptance.  If the actual operation has not been commenced within the time provided (including any extension thereof as
20	specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct
21	said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior
22	proposal had been made.  Those parties that did not participate in the drilling of a well for which a proposal to Deepen or
23	Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,
24	reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance
25	with Article VI.B.5. in the event of a Sidetracking operation.
26	2. Operations by Less Than All Parties:
27	(a) Determination of Participation.  If any party to whom such notice is delivered as provided in Article VI.B.I. or
28	VI.C.l. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this
29	Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no
30	later than ninety (90) days after the expiration of the notice period of twenty (20) days (or as promptly as practicable after the
31	expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the
32	proposed operation and complete it with due diligence.  Operator shall perform all work for the account of the Consenting
33	Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,
34	the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the
35	account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work.  The
36	rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party
37	designated as Operator for an operation in which the original Operator is a Non-Consenting Party.  Consenting Parties, when
38	conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this
39	agreement.
40	If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the
41	applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its
42	recommendation as to whether the Consenting Parties should proceed with the operation as proposed.  Each Consenting Party,
43	within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of such notice, shall advise the
44	proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its
45	proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in
46	the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of
47	Non-Consenting Parties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'
48	interests that any Consenting Party did not elect to take.  Any interest of Non-Consenting Parties that is not carried by a
49	Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its
50	proposal.  Failure to advise the proposing party within the time required shall be deemed an election under (i).  In the event a
51	drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a
52	total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays).  The proposing party, at its election, may
53	withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)
54	days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.
55	If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties
56	of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the
57	period provided in Article VI.B.I., subject to the same extension right as provided therein.
58	(b) Relinquishment of Interest for Non-Participation.  The entire cost and risk of conducting such operations shall be
59	borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding
60	paragraph.  Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and
61	encumbrances of every kind created by or arising from the operations of the Consenting Parties.  If such an operation results
62	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
63	the surface location at their sole cost, risk and expense; provided, however, that those Non-Consenting Parties that
64	participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate
65	shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not
66	increased by the subsequent operations of the Consenting Parties.  If any well drilled, Reworked, Sidetracked, Deepened,
67	Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in
68	paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the
69	well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the
70	expense and for the account of the Consenting Parties.  Upon commencement of operations for the drilling, Reworking,
71	Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties, in accordance with the
72	provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the
73	Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-
74	Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,

6

1	Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.l. Option No. 2, all of such Non-
2	Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect
3	to participate.  Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or
4	market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,
5	royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production
6	from such well accruing with respect to such interest until it reverts), shall equal the total of the following:
7	(i) 300%of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment
8	beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and
9	piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first
10	production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other
11	provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that
12	interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning
13	of the operations; and
14	(ii)300%of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,
15	Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,
16	and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),
17	which would have been chargeable to such Non-Consenting Party if it had participated therein.
18	Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone
19	described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable
20	substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each
21	Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a
22	shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-
23	Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the
24	cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a).  If any such Non-
25	Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions
26	of this Article VI.B.2. (b) shall apply to such party's interest.
27	(c) Reworking, Recompleting or Plugging Back.  An election not to participate in the drilling, Sidetracking or
28	Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in
29	such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full
30	recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Similarly, an election not to
31	participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking
32	operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at
33	any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Any such
34	Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the
35	cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties 300%, of
36	that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to
37	such Non-Consenting Party had it participated therein.  If such a Reworking, Recompleting or Plugging Back operation is
38	proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting
39	Parties in said well.
40	(d) Recoupment Matters.  During the period of time Consenting Parties are entitled to receive Non-Consenting Party's
41	share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,
42	production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to
43	Non-Consenting Party's share of production not excepted by Article III.C.
44	In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting
45	Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all
46	such equipment shall remain unchanged; and upon abandonment of a well-after such Reworking, Sidetracking, Plugging Back,
47	Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each
48	party receiving its proportionate part in kind or in value, less cost of salvage.
49	Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations
50	for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to
51	the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,
52	Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement
53	of such costs of operation, may submit a detailed statement of monthly billings.  Each month thereafter, during the time the
54	Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties
55	shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of
56	the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from
57	the sale of the well's working interest production during the preceding month.  In determining the quantity of Oil and Gas
58	produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or
59	periodic well tests.  Any amount realized from the sale or other disposition of equipment newly acquired in connection with
60	any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited
61	against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such
62	Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-
63	Consenting Party.
64	If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided
65	for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day the day
66	following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall
67	own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as
68	such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking,
69	Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and
70	shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this
71	agreement and Exhibit "C" attached hereto.
72	3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have
73	been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise
74	terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party s notice proposing a Reworking,

7

1	Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required
2	under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening
3	operation just completed.  Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,
4	whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms
5	of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,
6	but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated
7	between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total
8	interest as shown on Exhibit "A" of all Consenting Parties.
9	In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party
10	may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in
11	Article VI.B.I. within which to respond by paying for all stand-by costs and other costs incurred during such extended
12	response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending
13	the response period.  If more than one party elects to take such additional time to respond to the notice, standby costs shall be
14	allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's
15	interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.
16	4. Deepening: - If less than all the parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed
17	pursuant to Article VI.B.I., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article
18	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
19	of which the parties were given notice under Article VI.B.1. ("Initial Objective").  Such well shall not be Deepened beyond the
20	Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate
21	in the Deepening operation.
22	In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,
23	such party shall give notice thereof, complying with the requirements of Article VI.B.l., to all parties (including Non-
24	Consenting Parties).  Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to
25	participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation
26	is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,
27	such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses:
28	(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying
29	quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs
30	and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-
31	Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting
32	Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other
33	provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well
34	incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the
35	sole account of Consenting Parties.
36	(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing
37	in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or
38	reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and
39	equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less
40	those costs recouped by the Consenting Parties from the sale of production from the well.  The Non-Consenting Party shall
41	also pay its proportionate share of all costs of re-entering said well.  The Non-Consenting Parties' proportionate part (based
42	on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent
43	Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in
44	connection with such well shall be determined in accordance with Exhibit "C." If the Consenting Parties have recouped the
45	cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-
46	Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the
47	well for Deepening.
48	The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior
49	to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article
50	VI.F.
51	5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an
52	interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its
53	proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore
54	to be utilized as follows:
55	(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs
56	incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.
57	(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of
58	such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth
59	at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above.  Such party's
60	proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking
61	operation is initiated shall be determined in accordance with the provisions of Exhibit "C."
62	6. Order of Preference of Operations.  Except as otherwise specifically provided in this agreement, if any party desires to
63	propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such
64	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
65	an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal
66	holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be
67	conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such
68	alternate proposal to contain the same information required to be included in the initial proposal.  Each party receiving such
69	proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal, period, or within
70	twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the
71	subject of the proposals, to participate in one of the competing proposals.  Any party not electing within the time require
72	shall be deemed not to have voted.  The proposal receiving the vote of parties owning the largest aggregate percentage
73	interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the

8

1	initial proposal shall prevail.  Operator shall deliver notice of such result to all parties entitled to participate in the operation
2	within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday
3	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
4	is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to
5	relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within
6	such period shall be deemed an election not to participate in the prevailing proposal.
7	7.  Conformity to Spacing Pattern.  Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be
8	proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract
9	Area is producing, unless such well conforms to the then-existing well spacing pattern for such Zone.
10	8. Paying Wells.  No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or
11	Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except
12	with the consent of all parties that have not relinquished interests in the well at the time of such operation.
13	C. Completion of Wells; Reworking and Plugging Back:
14	1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well
15	drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the drilling,
16	Deepening or Sidetracking shall include:
17	(X) Option No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and
18	equipping of the well, including necessary tankage and/or surface facilities.
19	( ) Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When
20	such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results
21	thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to
22	participate in a Completion attempt whether or not Operator recommends attempting to Complete the well,
23	together with Operator's AFE for Completion costs if not previously provided. The parties receiving such notice
24	shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of
25	notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an
26	accompanying AFE. Operator shall deliver any such Completion proposal, or any Completion proposal conflicting
27	with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the
28	procedures specified in Article VI.B.6. Election to participate in a Completion attempt shall include consent to all
29	necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface
30	facilities but excluding any stimulation operation not contained on the Completion AFE.  Failure of any party
31	receiving such notice to reply within the period above fixed shall constitute an election by that party not to
32	participate in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of
33	conflicting Completion proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the
34	provisions of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging
35	Back" as contained in Article VI.B.2. shall be deemed to include "Completing") shall apply to the operations
36	thereafter conducted by less than all parties; provided, however, that Article VI.B.2 shall apply separately to each
37	separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting
38	Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party
39	in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier
40	Completions or Recompletions have recouped their costs pursuant to Article VI.B.2.; provided further, that any
41	recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in
42	which the Completion attempt is made. Election by a previous Non-Consenting Party to participate in a subsequent
43	Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable
44	materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt,
45	insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a
46	Completion attempt.
47	2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,
48	Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the Reworking,
49	Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and
50	Completing and equipping of said well, including necessary tankage and/or surface facilities.
51	D. Other Operations:
52	Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Twenty Five
53	thousand Dollars ($25,000.00) except in connection with the
54	drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously
55	authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden
56	emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion
57	are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the
58	emergency to the other parties.  If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so
59	requesting an information copy thereof for any single project costing in excess of  ___________________________ Dollars
60	( $____________________).  Any party who has not relinquished its interest in a well shall have the right to propose that
61	Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as
62	salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but
63	not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall
64	be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the
65	amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under
66	Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively by those Articles).  Operator shall deliver such
67	proposal to all parties entitled to participate therein.  If within thirty (30) days thereof Operator secures the written consent
68	of any party or parties owning at least 51%of the interests of the parties entitled to participate in such operation,
69	each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated
70	to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms
71	of the proposal.
72	E. Abandonment of Wells:
73	1. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has
74	been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

9

1	plugged and abandoned without the consent of all parties.  Should Operator, after diligent effort, be unable to contact any
2	party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after
3	delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the
4	proposed abandonment.  All such wells shall be plugged and abandoned in accordance with applicable regulations and at the
5	cost, risk and expense of the parties who participated in the cost of drilling or Deepening such well.  Any party who objects to
6	plugging and abandoning such well by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday,
7	Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such
8	forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of
9	Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct
10	such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and
11	abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well.  The party
12	taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against
13	liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and
14	restoring the surface, for which the abandoning parties shall remain proportionately liable.
15	2. Abandonment of Wells That Have Produced:  Except for any well in which a Non-Consent operation has been
16	conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has
17	been completed as a producer shall not be plugged and abandoned without the consent of all parties.  If all parties consent to
18	such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk
19	and expense of all the parties hereto.  Failure of a party to reply within sixty (60) days of delivery of notice of proposed
20	abandonment shall be deemed an election to consent to the proposal.  If, within sixty (60) days after delivery of notice of the
21	proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its
22	operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the
23	applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties
24	against liability for any further operations on the well conducted by such parties.  Failure of such party or parties to provide
25	proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well
26	within the required period or thereafter to conduct operations on such well shall entitle Operator to retain or take possession
27	of such well and plug and abandon the well.
28	Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of
29	the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost
30	of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event
31	the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the
32	value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing
33	operations their proportionate shares of the estimated excess cost.  Each abandoning party shall assign to the non-abandoning
34	parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all
35	of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only
36	insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production.  If the
37	interest of the abandoning party is or includes an Oil and Gas Interest, such party shall execute and deliver to the non-
38	abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of
39	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
40	attached as Exhibit "B." The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.
41	The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their
42	respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract
43	Area of all assignees.  There shall be no readjustment of interests in the remaining portions of the Contract Area.
44	Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production
45	from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article.  Upon
46	request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and
47	charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate
48	ownership of the assigned well.  Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor
49	shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in
50	further operations therein subject to the provisions hereof.
51	3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.l. or VI.E.2. above shall be applicable as
52	between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,
5.3	however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further
54	operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well
55	in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest
56	in a portion of the well shall pay their proportionate shares of abandonment and surface restoration costs for such well as
57	provided in Article VI.B.2.(b).
58	F. Termination of Operations:
59	Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,
60	Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without
61	consent of parties bearing % of the costs of such operation; provided, however, that in the event granite or other
62	practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,
63	Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.I, and the
64	provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.
65	G. Taking Production in Kind:
66	( ) Option No. 1: Gas Balancing Agreement Attached:
67	Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the
68	Contract Area, exclusive of production which may be used in development and producing operations and in preparing and
69	treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking
70	in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party.  Any
71	party taking its share of production in kind shall be required to pay for only its proportionate share of such part of
72	Operator's surface facilities which it uses.
73	Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in
74	production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

10

1	directly from the purchaser thereof for its share of all production.
2	If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate
3	share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by
4	the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to
5	time, for the account of the non-taking party. Any such purchase or sale by Operator may be terminated by
6	Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to
7	the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any
8	time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.
9	Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time
10	as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a
11	period in excess of one (1) year.
12	Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator
13	shall have no duty to share any existing market or to obtain a price equal to that received under any existing
14	market. The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing
15	contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said
16	contract. No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days
17	written notice of such intended purchase and the price to be paid or the pricing basis to be used.
18	All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following
19	month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.
20	Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which
21	records shall be made available to Non-Operators upon reasonable request.
22	In the event one or more par-ties' separate disposition of its share of the Gas causes split-stream deliveries to separate
23	pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion-
24	ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with
25	any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a
26	separate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.
27	(X)  Option No. 2: No Gas Balancing Agreement:
28	Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from
29	the Contract Area, exclusive of production which may be used in development and producing operations and in
30	preparing and treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure
31	incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall
32	be borne by such party. Any party taking its share of production in kind shall be required to pay for only its
33	proportionate share of such part of Operator's surface facilities which it uses.
34	Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in
35	production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment
36	directly from the purchaser thereof for its share of all production.
37	If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate
38	share of the Oil and/or Gas produced from the Contract Area, Operator shall have the right, subject to the
39	revocation at will by the party owning it, but not the obligation, to purchase such Oil and/or Gas or sell it to others
40	at any time and from time to time, for the account of the non-taking party. Any such purchase or sale by Operator
41	may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall
42	be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator
43	to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered
44	to a purchaser; provided, however, that the effective date of any such revocation may be deferred at Operator's
45	election for a period not to exceed ninety (90) days if Operator has committed such production to a purchase
46	contract having a term extending beyond such ten (10) day period. Any purchase or sale by Operator of any other
47	party's share of Oil and/or Gas shall be only for such reasonable periods of time as are consistent with the
48	minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1)
49	year.
50	Any such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator
51	shall have no duty to share any existing market or transportation arrangement or to obtain a price or transportation
52	fee equal to that received under any existing market or transportation arrangement. The sale or delivery by
53	Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not
54	give the non-taking party any interest in or make the non-taking party a party to said contract. No purchase of Oil
55	and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written
56	notice of such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give
57	notice to all parties of the first sale of Gas from any well under this Agreement.
58	All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following
59	month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.
60	Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which
61	records shall be made available to Non-Operators upon reasonable request.
62	ARTICLE VII.
63	EXPENDITURES AND LIABILITY OF PARTIES
64	A. Liability of Parties:
65	The liability of the parties shall be several, not joint or collective.  Each party shall be responsible only for its obligations,
66	and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area.  Accordingly, the
67	liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have
68	any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation
69	hereunder.  It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other
70	partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or
71	principals.  In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have
72	established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own
73	respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other
74	with respect to activities hereunder.

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1	B. Liens and Security Interests:
2	Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas
3	Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any
4	interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection
5	therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,
6	interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil
7	and Gas Leases as required hereunder, and the proper performance of operations hereunder.  Such lien and security interest
8	granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and
9	overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or
10	otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or
11	used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts
12	(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),
13	contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the
14	foregoing.
15	To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording
16	supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time
17	following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as
18	a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform
19	Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate
20	to perfect the security interest granted hereunder.  Any party may file this agreement, the recording supplement executed
21	herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a
22	financing statement with the proper officer under the Uniform Commercial Code.
23	Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to
24	the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security
25	interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or
26	under such party.  All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,
27	whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject
28	to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder
29	whether or not such obligations arise before or after such interest is acquired.
30	To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the
31	Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.
32	The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an
33	election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof.  In
34	addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use
35	of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect
36	from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by
37	such party, plus interest as provided in "Exhibit C," has been received, and shall have the right to offset the amount
38	owed against the proceeds from the sale of such defaulting party's share of Oil and Gas.  All purchasers of production
39	may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the
40	default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in
41	this paragraph.
42	If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefore by
43	Operator, the non-defaulting parties, including Operator, shall, upon request by Operator, pay the unpaid amount in the
44	proportion that the interest of each such party bears to the interest of all such parties.  The amount paid by each party so
45	paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each
46	paying party may independently pursue any remedy available hereunder or otherwise.
47	If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure
48	or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting
49	party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement
50	of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets
51	and any required bond in the event a receiver is appointed.  In addition, to the extent permitted by applicable law, each party
52	hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted
53	hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable
54	manner and upon reasonable notice.
55	Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien
56	law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder.  Without limiting
57	the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or
58	utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the
59	payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.
60	C. Advances:
61	Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other
62	parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations
63	hereunder during the next succeeding month, which right may be exercised only by submission to each such Party of an
64	itemized statement of such estimated expense, together with an invoice for its share thereof.  Each such statement and invoice
65	for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.
66	Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and
67	invoice is received.  If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as
68	provided in Exhibit "C" until paid.  Proper adjustment shall be made monthly between advances and actual expenses to the end
69	that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.
70	D. Defaults and Remedies:
71	If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to
72	make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for
73	such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the
74	remedies specified below shall be applicable.  For purposes of this Article VII.D., all notices and elections shall be delivered

12

1	only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-operator,
2	and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.
3	Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified
4	below or otherwise available to a non-defaulting party.
5	1. Suspension of Rights:  Any party may deliver to the party in default a Notice of Default, which shall specify the default,
6	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
7	or more of the remedies provided in this Article.  If the default is not cured within thirty (30) days of the delivery of such
8	Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the
9	default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of
10	the defaulting party previously accrued or thereafter accruing under this agreement.  If Operator is the party in default, the
11	Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area
12	after excluding the voting interest of Operator, to appoint a new Operator effective immediately.  The rights of a defaulting
13	party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right
14	to receive information as to any operation conducted hereunder during the period of such default, the right to elect to
15	participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being
16	conducted under this agreement even if the party has previously elected to participate in such operation, and the right to
17	receive proceeds of production from any well subject to this agreement.
18	2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint
19	account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default
20	until the date of collection at the rate specified in Exhibit "C" attached hereto.  Nothing herein shall prevent any party from
21	suing any defaulting party to collect consequential damages accruing to such party as a result of the default.
22	3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the
23	defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in
24	which event if the billing is for the drilling of a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a
25	well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting
26	party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with
27	respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,
28	notwithstanding any election to participate theretofore made.  If election is made to proceed under this provision, then the
29	non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.
30	Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure
31	its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such
32	payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-
33	defaulting parties as a result of the default.  Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the
34	non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership
35	of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.
36	4. Advance Payment:  If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or
37	Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting
38	party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may
39	be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of
40	the previous default.  Such right includes, but is not limited to, the right to require advance payment for the estimated costs of
41	drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made.  If the
42	defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided
43	in this Article VII.D. or any other default remedy provided elsewhere in this agreement.  Any excess of funds advanced remaining
44	when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.
45	5. Costs and Attorneys' Fees:  In the event any party is required to bring legal proceedings to enforce any financial
46	obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of
47	collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.
48	E. Rentals, Shut-in Well Payments and Minimum Royalties:
49	Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid
50	by the party or parties who subjected such lease to this agreement at its or their expense.  In the event two or more parties
51	own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to
52	make said payments for and on behalf of all such parties.  Any party may request, and shall be entitled to receive, proper
53	evidence of all such payments.  In the event of failure to make proper payment of any rental, shut-in well payment or
54	minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which
55	results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.
56	Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the shutting in or return to
57	production of a producing well, at least five (5) days (excluding Saturday, Sunday and legal holidays) prior to taking such
58	action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so.  In the event of
59	failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make
60	timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article
61	IV.B.3.
62	F. Taxes:
63	Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all
64	property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed
65	thereon before they become delinquent.  Prior to the rendition date, each Non-Operator shall furnish Operator information as
66	to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and
67	Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being
68	subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes
69	resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to
70	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
71	upon separate valuations of each party’s working interest, then notwithstanding anything to the contrary herein, charges to
72	the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party’s
73	working interest.  Operator shall bill the other parties for their proportionate shares of all tax payments in the manner
74	provided in Exhibit "C."

13

1	If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner
2	prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final
3	determination.  During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes
4	and any interest and penalty.  When any such protested assessment shall have been finally determined, Operator shall pay the tax for
5	the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be
6	paid by them, as provided in Exhibit "C."
7	Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect
8	to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.
9	ARTICLE VIII.
10	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
11	A. Surrender of Leases:
12	The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole
13	or in part unless all parties consent thereto.
14	However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written
15	notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after
16	delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto.  Failure of a
17	party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases
18	described in the notice.  If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or
19	implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be
20	located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender.  If the interest of the
21	assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not
22	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
23	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."
24	Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore
25	accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party
26	shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained
27	in any lease made under the terms of this Article.  The party assignee or lessee shall pay to the party assignor or lessor the
28	reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased
29	acreage.  The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less
30	the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface.  If such value is less
31	than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit.  If the
32	assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the
33	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
34	varies according to depth, then the interest assigned shall similarly reflect such variances.
35	Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering
36	party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage
37	assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this
38	agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.
39	B. Renewal or Extension of Leases:
40	If any party secures a renewal or replacement of an Oil and Gas lease or Interest subject to this agreement, then all other parties
41	shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,
42	promptly upon expiration of the existing Lease.  The parties notified shall have the right for a period of thirty (30) days following
43	delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease
44	affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost
45	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
46	parties in the Contract Area.  Each party who participates in the purchase of a renewal or replacement Lease shall be given an
47	assignment of its proportionate interest therein by the acquiring party.
48	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
49	by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in
50	the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the
51	purchase of such renewal or replacement Lease.  The acquisition of a renewal or replacement Lease by any or all of the parties hereto
52	shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which
53	less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating
54	Agreement in the form of this agreement.
55	If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in
56	renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.
57	The provisions of this Article shall apply to renewal or replacement lines whether they are for the entire interest covered by
58	the expiring Lease or cover only a portion of its area or an interest therein.  Any renewal or replacement Lease taken before the
59	expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the
60	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
61	the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the
62	expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this
63	agreement.
64	The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.
65	C. Acreage or Cash Contributions:
66	While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other
67	operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall
68	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
69	the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the
70	proportions said Drilling Parties shared the cost of drilling the well.  Such acreage shall become a separate Contract Area and, to the
71	extent possible, be governed by provisions identical to this agreement.  Each party shall promptly notify all other parties of any
72	acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above
73	provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in t, support of well drilled
74	inside the Contract Area.

14

1	If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,
2	such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.
3	D. Assignment; Maintenance of Uniform Interest:
4	For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas
5	Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other
6	disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,
7	equipment and production unless such disposition covers either:
8	1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or
9	2. an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,
10	equipment and production in the Contract Area.
11	Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement
12	and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and
13	Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of
14	the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,
15	encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the
16	instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee.  No assignment or other
17	disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect
18	to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation
19	conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security
20	interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.
21	If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,
22	may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,
23	receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to
24	bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-
25	owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of
26	the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale
27	proceeds thereof.
28	E. Waiver of Rights to Partition:
29	If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an
30	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
31	undivided interest therein.
32	F. Preferential Right to Purchase:
33	(X) (Optional; Check if applicable.)
34	Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract
35	Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which
36	shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase
37	price, a legal description sufficient to identify the property, and all other terms of the offer.  The other parties shall then have an
38	optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the
39	same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the
40	purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all
41	purchasing parties.  However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage
42	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,
43	or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets
44	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
45	company in which such party owns a majority of the stock.
46	ARTICLE IX.
47	INTERNAL REVENUE CODE ELECTION
48	If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the
49	parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each
50	party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle
51	"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and
52	the regulations promulgated thereunder.  Operator is authorized and directed to execute on behalf of each party hereby affected
53	such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal
54	Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by
55	Treasury Regulations §1.761. Should there be any requirement that each party hereby affected give further evidence of this
56	election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal
57	Revenue Service or as may be necessary to evidence this election.  No such party shall give any notices or take any other action
58	inconsistent with the election made hereby.  If any present or future income tax laws of the state or states in which the Contract
59	Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter
60	1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party
61	thereby affected shall make such election as may be permitted or required by such laws.  In making the foregoing election, each
62	such party states that the income derived by such party from operations hereunder can be adequately determined without the
63	computation of partnership taxable income.
64	ARTICLE X.
65	CLAIMS AND LAWSUITS
66	Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure
67	does not exceed Fifteen Thousand Dollars ($15,000.00) and if the payment is in complete settlement
68	of such claim or suit.  If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over
69	the further handling of the claim or suit, unless such authority is delegated to Operator.  A costs and expenses of handling, settling,
70	or otherwise discharging such claim or suit shall be at the joint expense of the parties participating in the operation from which the
71	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
72	hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall
74	immediately notify all other parties, and the claim or suite shall be treated as any other claim or suit involving operations hereunder.

15

1	ARTICLE XI.
2	FORCE MAJEURE
3	If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other
4	than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties
5	prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the
6	party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the
7	continuance of the force majeure.  The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or
8	other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood or other act of
9	nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other
10	cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party
11	claiming suspension.
12	The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable.  The
13	requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,
14	lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall
15	be entirely within the discretion of the party concerned.
16	ARTICLE XII.
17	NOTICES
18	All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise
19	specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,
20	telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on
21	Exhibit "A." All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written
22	notice.  The originating notice given under any provision hereof shall be deemed delivered only when received by the party to
23	whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date
24	the originating notice is received.  "Receipt" for purposes of this agreement with respect to written notice delivered hereunder
25	shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or
26	to the telecopy, facsimile or telex machine of such party.  The second or any responsive notice shall be deemed delivered when
27	deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy
28	or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or
29	48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period.  Each party
30	shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other
31	parties.  If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required
32	to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall
33	be deemed delivered in the same manner provided above for any responsive notice.
34	ARTICLE XIII.
35	TERM OF AGREEMENT
36	This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject
37	hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title
38	or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.
39	(X) Option No. 1:  So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in
40	force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.
41	(  )Option No. 2:  In the event the well described in Article VI.A., or any subsequent well drilled under any provision
42	of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying
43	quantities, this agreement shall continue in force so long as any such well is capable of production, and for an
44	additional period of days thereafter; provided, however, if, prior to the expiration of such
45	additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,
46	Plugging Back, testing or attempting to Complete or Re-compi6te a well or wells hereunder, this agreement shall
47	continue in force until such operations have been completed and if production results therefrom, this agreement
48	shall continue in force as provided herein.  In the event the well described in Article VI.A., or any subsequent well
49	drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the
50	Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re-
51	completing, Plugging Back or Reworking operations are commenced within__________________days from the
52	date of abandonment of said well.  "Abandonment" for such purposes shall mean either (i) a decision by all parties
53	not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any
54	operations on the well, whichever first occurs.
55	The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any
56	remedy therefor which has accrued or attached prior to the date of such termination.
57	Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this
58	Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a
59	notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon
60	request of Operator, if Operator has satisfied all its financial obligations.
61	ARTICLE XIV.
62	COMPLIANCE WITH LAWS AND REGULATIONS
63	A. Laws, Regulations and Orders:
64	This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,
65	regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,
66	and local laws, ordinances, rules, regulations and orders.
67	B. Governing Law:
68	This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-
69	performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and
70	determined by the law of the state in which the Contract Area is located.  If the Contract Area is in two or more states,
71	the law of the state of Texas shall govern.
72	C. Regulatory Agencies:
73	Nothing herein contained shall grant, or be construed to grant, Operator the right or authority t: waive or release any
74	rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

16

1	orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or
2	production of wells, on tracts offsetting or adjacent to the Contract Area.
3	With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,
4	injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation
5	or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission
6	or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not
7	constitute gross negligence.  Each Non-Operator further agrees to reimburse Operator for such Non-Operator's share of
8	production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such
9	an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such
10	incorrect interpretation or application.
11	ARTICLE XV.
12	MISCELLANEOUS
13	A. Execution:
14	This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been
15	executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of
16	the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which
17	own, in fact, an interest in the Contract Area.  Operator may, however, by written notice to all Non-Operators who have
18	become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no
19	event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this
20	agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of
21	drilling operations.  In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease
22	as of such termination.  In the event any Non-Operator has advanced or prepaid any share of drilling or other costs
23	hereunder, all sums so advanced shall be returned to such Non-Operator without interest.  In the event Operator proceeds
24	with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a
25	current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the
26	Initial Well which would have been charged to such person under this agreement if such person had executed the same and
27	Operator shall receive all revenues which would have been received by such person under this agreement if such person had
28	executed the same.
29	B. Successors and Assigns:
30	This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,
31	devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or
32	Interests included within the Contract Area.
33	C. Counterparts:
34	This instrument may be executed in any number of counterparts, each of which shall be considered an original for all
35	purposes.
36	D. Severability:
37	For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,
38	this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to
39	this agreement to comply with all of its financial obligations provided herein shall be a material default.
40	ARTICLE XVI.
41	OTHER PROVISIONS
42	This JOA is subject to the terms and conditions in the North Pasture Area Participation Agreement, dated December 13,
43	2010.
44	Any non compliance of the terms and/or provisions herein by any party shall be provided notice, as defined in Section XII, by the
45	party recognizing such non compliance shall provide said non compliant party with notice to comply with the terms of this
46	agreement within twenty (20) days of receipt of such notice.
47
48
49	Notices (Article XII) shall include email, or other electronic message system as a form of notice, as provided for within this
50	Article.
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74

17

1	IN WITNESS WHEREOF, this agreement shall be effective as of the 13th day of December, 2010.
2
3	OPERATOR
4
5	By /s/ Timothy J. Turner
6	Tim Turner
7	Mogul Energy International, Inc.
8	Title: Executive Vice President
9	Date ______________________________________________
10	Tax ID or S.S. No. ___________________________________
11
12	NON-OPERATORS
13
14
15	By:  /s/ T. Guidish
16	Global Oil and Gas Resources, Inc.
17	Type or print name
18	Title_______________________________________________
19	Date_______________________________________________
20	Tax ID or S.S. No. ____________________________________
21
22
23	By:  /s/ D. George
24	Indian Lane Asso., LLC
25	Type or print name
26	Title ______________________________________________
27	Date ______________________________________________
28	Tax ID or S.S. No. ___________________________________
29
30	By:  /s/ J. Romano
31.	Dolimiti Partners, LLC
32	Type or print name
33	Title ______________________________________________
34	Date ______________________________________________
35	Tax ID or S.S. No. ___________________________________
36
37	By:  /s/ P.C. Jackson
38	______________________________________________________
39	Type or print name
40	Title ______________________________________________
41	Date ______________________________________________
42	Tax ID or S.S. No. ___________________________________
43
44	By:  /s/ G. Smith
45	Plastiform Plastics, Inc.
46	Type or print name
47	Title ______________________________________________
48	Date ______________________________________________
49	Tax ID or S.S. No. ___________________________________

18

1	ACKNOWLEDGMENTS
2	Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.  The
3	validity and effect of these forms in any state will depend upon the statutes of that state.
4
5	Individual acknowledgment:
6	State of _________________
7
8	County of _____________________
9	This instrument was acknowledged before me on
10	_________________________________________________ by ___________________________________________________
11
12	(Seal, if any)	___________________________________________________
13	Title (and Rank) ______________________________________
14	My commission expires: _______________________________
15
16	Acknowledgment in representative capacity:
17	State of ____________________________________)
18
19	County of __________________________________)
20	This instrument was acknowledged before me on
21	_________________________________________________ by ____________________________________________________
22	_____________________ of ________________________________________________________________________________
23	(Seal, if any)	___________________________________________________
24		Title (and Rank) ______________________________________
25		My commission expires: _________________________________
26
27
28
29
30
31
32
33
34
35
36
37

EXHIBIT “A”

Attached to and made part of that certain Joint Operation Agreement dated December 8, 2010 between Mogul Energy International, Inc., as Operator, and Global Oil & Gas Resources, Inc. as Non-Operator

CONTRACT AREA AND PARTIES

CONTRACT AREA

Portions of the: Toyah C. IRR. Co. Survey, A-xx – Section x of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: Toyah C. IRR. Co. Survey, A-xx – Section x of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: John Pollan Survey, A-x

All Located in San Patricio County, Texas as shown on the plat dated June 2, 2010 containing approximately 480 acres.

DEPTH LIMITATIONS

None

NET REVENUE INTEREST

X percent (X%)

PARTIES AND INTERESTS

Name and Address	Percentage Interest
Mogul Energy International, Inc.	16.00% Before Completion
2500 Wilcrest Dr., Ste. 405
Houston, TX. 77042	37.00% After Completion
Name and Address	Percentage Interest
PARTICIPANT
Global Oil & Gas Resources, Inc.	84.00% Before Completion
Spring, Texas 77379
	63.00% After Completion

EXHIBIT “C”

Attached to and made part of that certain Joint Operation Agreement dated December 08, 2010 between Mogul Energy International, Inc., as Operator, and Non-Operator(s), as identified on

Exhibit “A” attached hereto.

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.

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:

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.

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 Railroad Commission proceeding discharging of liens, payment of judgments, and amounts paid for settlement of claims incurred in or resulting from operations 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 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 $5,000.

(Prorated for less than a full month)

Producing Well Rate $850.

(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.

(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.

NA 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.

NA 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.

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 $50,000.00:

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.

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) New material shall be priced at the current market price, as quoted by the nearest reliable supply store.

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.

(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 actual third party cost incurred.

(2) Material involving erection costs shall be charged at actual third party costs incurred.  NOTWITHSTANDING ANYTHING CONTAINED HEREIN, THE PRICE ON USED MATERIALS SHALL NOT EXCEED CURRENT MARKET PRICE FOR COMPARABLE 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

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.

EXHIBIT “D”

Attached to and made part of that certain Joint Operation Agreement dated December 08, 2010 between Mogul Energy International, Inc., as Operator, and Non-Operator(s) as listed in Exhibit “A” attached.

INSURANCE

1. COVERAGE

1.1 Operator shall carry or provide for the benefit of the Joint Account of the Parties the types and amounts of Insurance shown below:

(a) Workmen’s Compensation Insurance to cover full liability under the Workmen’s Compensation Law of the State where the operations are being conducted.

(b) Employer’s Liability Insurance with a limit of not less than $1,000,000 for accidental injuries or deaths of one or more employees as a result of once accident.

(c) Comprehensive General Liability Insurance with limits of not less than $1,000,000 Combined Single Limit Per Occurrence for both Bodily Injury and Property Damage.

(d) Automobile Public Liability Insurance with limits of not less than $1,000,000 Combined Single Limit Per Occurrence for both Bodily Injury and Property Damage.

(e) Well Control Insurance with limits of not less than $2,000,000.00 ($1,000,000.00 Producing Well) having a deductible of not more than $100,000.00. If a Non-Operator provides Operator with written notice that it already carries Well Control Insurance of not less than the stated limits, Operator will only contract for such coverage for itself and those Non-Operators who do not have that coverage and the parties covered by the Operator obtained insurance will be responsible for their share of the cost of such insurance.

(1.2) Any party individually may, at its own expense, acquire such additional insurance as it desires; provided however, that such party shall make a good faith effort to obtain waivers by the insurer of all rights of subrogation in favor of the other parties to the Operating Agreement.

(1.3) Any and all losses not covered by insurance or which fall within the applicable policy deductible shall be borne by the parties hereto in the proportions of their respective interests in the project. Failure of any party to obtain insurance as required under Exhibit "D" shall not change that party's responsibility for their portion of the loss.

(1.4) Contractors: Operator shall use reasonable efforts to require all contractors working or performing services hereunder to comply with Worker's Compensation and Employer's Liability Laws, both state and federal, and said contractors or others performing services shall be required to procure and maintain Comprehensive General Liability insurance with policy limits of at least $1,000,000.00 per occurrence and said policy or policies shall include contractual liability assumed under any contract as between the contractor and the operator, and carry such other insurance as the operator deems necessary. All policies issued to provide coverage as provided for in this section shall be endorsed to name the operator and the parties as additional insureds. All such policies shall be endorsed with a Waiver of Subjugation against operator and the parties.

(1.5) If non-consent operations are conducted under the terms of this Agreement, the cost of insurance requirements hereunder in regard to such operations, as well as all losses, liabilities and expenses incurred as a result of such operation, shall be the burden of the parties participating therein.

2. PREMIUMS AND ADDITIONAL COVERAGE

2.1 The premiums paid for all Insurance except Automobile shall be charged as operation expense.  No Insurance, other than that shown above, shall be carried for the benefit of the Joint Account except by mutual consent of the Parties.

EXHIBIT “E”

Attached to and made part of that certain Joint Operation Agreement dated December 08, 2010 between Mogul Energy International, Inc., as Operator, and Non-Operator(s) as listed in Exhibit “A” attached hereto.

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 under deliveries 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.

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.

EXHIBIT "F"

Attached to and made part of that certain Joint Operation Agreement dated December 08, 2010 between Mogul Energy International, Inc., as Operator, and Non-Operator(s), as listed in Exhibit “A” attached hereto.

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 vendoras 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.

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).

EX-10.5

Exhibit 10.5

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT

DATED

December 08, 2010

OPERATOR: Mogul Energy International, Inc.

2500 Wilcrest Dr., Ste. 405

Houston, TX 77042

CONTRACT AREA

THE STAFFORD PROSPECT AREA, AS OUTLINED ON THE MOGUL ENERGY INTERNATIONAL, INC. PLAT, DATED DECEMBER 08, 2010 AND ATTACHED TO THIS AGREEMENT AS EXHIBIT “A-1”

All Located in Jackson County, Texas as shown on the plat dated December 07, 2010 containing approximately 2,000 acres, more or less (the Contract Area).

COUNTY OF           Jackson          STATE OF ___Texas

COPYRIGHT 1989

ALL RIGHTS RESERVED

AMERICAN ASSOCIATION OF PETROLEUM LANDMEN

4100 FOSSIL CREEK BLVD.

FORT WORTH, TEXAS, 76137

APPROVED FORM.

A.A.P.L. NO. 610 - 1989

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT – 1989

TABLE OF CONTENTS

Article	Title			Page
I.	DEFINITIONS			1
II.	EXHIBITS			1
III.	INTERESTS OF PARTIES			2
	A.	OIL AND GAS INTERESTS:		2
	B.	INTERESTS OF PARTIES IN COSTS AND PRODUCTION:		2
	C.	SUBSEQUENTLY CREATED INTERESTS:		2
IV.	TITLES			2
	A.	TITLE EXAMINATION:		2
	B.	LOSS OR FAILURE OF TITLE:		3
		1.	Failure of Title	3
		2.	Loss by Non-Payment or Erroneous Payment of Amount Due	3
		3.	Other Losses	3
		4.	Curing Title	3
V.	OPERATOR			4
	A.	DESIGNATION AND RESPONSIBILITIES OF OPERATOR:		4
	B.	RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:		4
		1.	Resignation or Removal of Operator	4
		2.	Selection of Successor Operator	4
		3.	Effect of Bankruptcy	4
	C.	EMPLOYEES AND CONTRACTORS:		4
	D.	RIGHTS AND DUTIES OF OPERATOR:		4
		1.	Competitive Rates and Use of Affiliates	4
		2.	Discharge of joint Account Obligations	4
		3.	Protection from Liens	4
		4.	Custody of Funds	5
		5.	Access to Contract Area and Records	5
		6.	Filing and Furnishing Governmental Reports	5
		7.	Drilling and Testing Operations	5
		8.	Cost Estimates	5
		9.	Insurance	5
VI.	DRILLING AND DEVELOPMENT			5
	A.	INITIAL WELL:		5
	B.	SUBSEQUENT OPERATIONS:		5
		1.	Proposed Operations	5
		2.	Operations by Less Than All Parties	6

		3.	Stand-By Costs	7
		4.	Deepening	8
		5.	Sidetracking	8
		6.	Order of Preference of Operations	8
		7.	Conformity to Spacing Pattern	9
		8.	Paying Wells	9
	C.	COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:		9
		1.	Completion	9
		2.	Rework, Recomplete or Plug Back	9
	D.	OTHER OPERATIONS:		9
	E.	ABANDONMENT OF WELLS:		9
		1.	Abandonment of Dry Holes	9
		2.	Abandonment of Wells That Have Produced	10
		3.	Abandonment of Non-Consent Operations	10
		F.	TERMINATION OF OPERATIONS:	10
		G.	TAKING PRODUCTION IN KIND	10
			(Option 1) Gas Balancing Agreement	10
			(Option 2) No Gas Balancing Agreement	11
VII.	EXPENDITURES AND LIABILITY OF PARTIES			11
	A.	LIABILITY OF PARTIES:		11
	B.	LIENS AND SECURITY INTERESTS:		12
	C.	ADVANCES:		12
	D.	DEFAULTS AND REMEDIES:		12
		1.	Suspension of Rights	13
		2.	Suit for Damages	13
		3.	Deemed Non-Consent	13
		4.	Advance Payment	13
		5.	Costs and Attorneys' Fees	13
	E.	RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:		13
	F.	TAXES:		13
VIII.	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST			14
	A.	SURRENDER OF LEASES:		14
	B.	RENEWAL OR EXTENSION OF LEASES:		14
	C.	ACREAGE OR CASH CONTRIBUTIONS:		14
	D.	ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:		15
	E.	WAIVER OF RIGHTS TO PARTITION:		15
	F.	PREFERENTIAL RIGHT TO PURCHASE:		15
IX.	INTERNAL REVENUE CODE ELECTION			15

X.	CLAIMS AND LAWSUITS		15
XI.	FORCE MAJEURE		16
XII.	NOTICES		16
XIII.	TERM OF AGREEMENT		16
XIV.	COMPLIANCE WITH LAWS AND REGULATIONS		16
	A.	LAWS, REGULATIONS AND ORDERS:	16
	B.	GOVERNING LAW:	16
	C.	REGULATORY AGENCIES:	16
XV.	MISCELLANEOUS		17
	A.	EXECUTION:	17
	B.	SUCCESSORS AND ASSIGNS:	17
	C.	COUNTERPARTS:	17
	D.	SEVERABILITY:	17
XVI.	OTHER PROVISIONS		17
	A.	STAFFORD PARTICIPATION AGREEMENT	17
	B.	ADDITIONAL NOTICE PROVISION	17
	C.	FAILURE TO PAY INVOICE	17
	D.	MULTIPLE DRILLING PROPOSALS	17
	E.	DISTRIBUTION OF REVENUES	17
	F.	PREPAYMENT	17
	G.	INFORMATION AND DATA	17
	H.	OPERATOR’S AUTHORITY TO SELL GAS PRODUCTION	18
	I.	SEISMIC OPERATIONS	18
	J.	CONTRACT OPERATIONS	18

1	OPERATING AGREEMENT
2	THIS AGREEMENT, entered into on this 8TH Day of December, 2010, by and between Mogul Energy International, Inc.,
3	hereinafter designated and referred to as "Operator," and the signatory party or parties other than Operator, sometimes
4	hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."
5	WITNESSETH:
6	WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land
7	identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Leases and/or Oil
8	and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,
9	NOW, THEREFORE, it is agreed as follows:
10	ARTICLE I.
11	DEFINITIONS
12	As used in this agreement, the following words and terms shall have the meanings here ascribed to them:
13	A. The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of
14	estimating the costs to be incurred in conducting an operation hereunder.
15	B. The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil
16	and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation
17	and production testing conducted in such operation.
18	C. The term "Contract Area" shall mean all of the lands; Oil and Gas Leases and/or Oil and Gas Interests intended to be
19	developed and operated for Oil and Gas purposes under this agreement.  Such lands, Oil and Gas Leases and Oil and Gas
20	Interests are described in Exhibit "A."
21	D. The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest
22	Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the
23	lesser.
24	E. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the
25	cost of any operation conducted under the provisions of this agreement.
26	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
27	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
28	established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.
29	G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be
30	located.
31	H. The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.
32	1. The term "Non-Consent Well" shall mean a well in which less than all parties have conducted an operation as
33	provided in Article VI.B.2.
34	J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a
35	proposed operation.
36	K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous
37	hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is
38	specifically stated.
39	L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts
40	of land lying within the Contract Area, which are owned by parties to this agreement.
41	M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein
42	covering tracts of land lying within the Contract Area, which are owned by the parties to this agreement.
43	N. The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a
44	Completion in a shallower Zone.
45	O. The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned
46	in order to attempt a Completion in a different Zone within the existing wellbore.
47	P.  The term "Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,
48	restore, or improve production in a Zone, which is currently open to production in the wellbore.  Such operations include, but
49	are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,
50	Deepening, Completing, Recompleting, or Plugging Back of a well.
51	Q.   The term "Sidetrack" shall mean the directional control and intentional deviation of a well from vertical so as to
52	change the bottom hole location unless done to straighten the hole or to drill around junk in the hole to overcome other
53	mechanical difficulties.
54	R. The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and
55	Gas separately producible from any other common accumulation of Oil and Gas.
56	Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes
57	natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.
58	ARTICLE II.
59	EXHIBITS
60	The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:
61	_____X___  A. Exhibit "A," shall include the following information:
62	(1) Description of lands subject to this agreement, and Land plat outlining the Stafford Prospect Contract Area
63	(2) Restrictions, if any, as to depths, formations, or substances,
64	(3) Parties to agreement with addresses and telephone numbers for notice purposes,
65	(4) Percentages or fractional interests of parties to this agreement,
66	(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,
67	(6) Burdens on production.
68	_________       B. Exhibit "B," Form of Lease.
69	____X_____ C. Exhibit "C," Accounting Procedure.
70	____X_____    D. Exhibit "D," Insurance.
71	___ X______   E. Exhibit "E," Gas Balancing Agreement.
72	____X______ F. Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.
73	____________ G. Exhibit "G," Tax Partnership.
74	____ X______ H. Other: Stafford Area Participation Agreement

1

1	If any provision of any exhibit, except Exhibits "E," and "F" is inconsistent with any provision contained in
2	the body of this agreement, the provisions in the body of this agreement shall prevail.
3	ARTICLE III.
4	INTERESTS OF PARTIES
5	A.  Oil and Gas Interests:
6	If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this
7	agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B,"
8	and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.
9	B.  Interests of Parties in Costs and Production:
10	Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne
11	and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their
12	interests are set forth in Exhibit "A." In the same manner, the parties shall also own all production of Oil and Gas from the
13	Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.
14	Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other
15	burdens may be payable and except as otherwise expressly provided in this agreement, each party shall pay or deliver, or
16	cause to be paid or delivered, all burdens on its share of the production from the Contract Area up to, but not in excess of,
17	and shall indemnify, defend and hold the other parties free from any liability therefor.
18	Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is
19	burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts
20	stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend
21	and hold the other parties hereto harmless from any and all claims attributable to such excess burden.  However, so long as
22	the Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to
23	be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s)
24	which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any
25	liability therefor.
26	No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's
27	lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher
28	price basis, the party contributing the affected Lease shall bear the additional royalty burden attributable to such higher price.
29	Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,
30	and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in
31	said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.
32	C. Subsequently Created Interests:
33	If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security
34	for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production
35	payment, net profits interest, assignment of production or other burden payable out of production attributable to its working
36	interest hereunder, such burden shall be deemed a "Subsequently Created Interest," Further, if any party has contributed
37	hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interest, or other burden
38	payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit "A," such
39	burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party's
40	Lease or Interest to exceed the amount stipulated in Article III.B. above.
41	The party whose interest is burdened with the Subsequently Created Interest (the "Burdened Party") shall assume and
42	alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other
43	parties from and against any liability therefor.  Further, if the Burdened Party fails to pay, when due, its share of expenses
44	chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the
45	same manner as they are enforceable against the working interest of the Burdened Party.  If the Burdened Party is required
46	under this agreement to assign or relinquish to any other party, or parties, 'all or a portion of its working interest and/or the
47	production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of
48	said Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless said other party, or
49	parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.
50	ARTICLE IV.
51	TITLES
52	A. Title Examination: or the Drilling Unit, or maximum anticipated Drilling Unit
53	Title examination shall may be made on the Drillsite / of any proposed well prior to commencement of drilling operations and,
54	if a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire
55	Drilling Unit, or maximum anticipated Drilling Unit, of the well.  The opinion will include the ownership of the working
56	interest, minerals, royalty, overriding royalty and production payments under the applicable Leases.  Each party contributing,
57	Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator
58	all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of
59	charge.  All such information not in the possession of or made available to Operator by the parties, but necessary for the
60	examination of the title, shall be obtained by Operator.  Operator shall cause title to be examined by attorneys on its staff or
61	by outside attorneys, Copies of all title opinions shall be furnished to each Drilling Party upon request.  Costs incurred by Operator in
62	procuring abstracts, curative matters, fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in royalty
63	opinions and division order title opinions) and other direct charges as provided in Exhibit "C" shall be borne by the Drilling
64	Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties, as such
65	interests appear in Exhibit "A." Operator shall make no charge for services rendered by its staff attorneys or other personnel
66	in the performance of the above functions.
67	Each party shall be responsible for securing curative matter and pooling amendments or agreements required in
68	connection with Leases or Oil and Gas Interests contributed by such party.  Operator shall be responsible for the preparation
69	and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings
70	before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to
71	the conduct of operations hereunder.  This shall not prevent any party from appearing on its own behalf at such hearings.
72	Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental
73	agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct
74	charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit “C.” 2

2

1.	Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above
2	functions.
3	No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has
4	been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by
5	all of the Drilling Parties in such well. Operator; provided, however, Operator shall not be liable to Non-Operators if no title opinion is obtained or, if obtained, title curative is not completed.
6	B. Loss or Failure of Title:
7	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
8	reduction of interest from that shown on Exhibit "A," the party credited with contributing the affected Lease or Interest
9	(including, if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title
10	failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject
11	to Article VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas
12	Leases and Interests; and,
13	(a) The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if
14	applicable, a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from
15	Operator or the other parties any development or operating costs which it may have previously paid or incurred, but there
16	shall be no additional liability on its part to the other parties hereto by reason of such title failure;
17	(b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the
18	Lease or Interest which has failed, but the interests of the parties contained on Exhibit "A" shall be revised on an acreage
19	basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or
20	Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;
21	(c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract
22	Area is increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable
23	to the Lease or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and
24	burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well
25	attributable to such failed Lease or Interest;
26	(d) Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest
27	which has failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid
28	to the party or parties who bore the costs which are so refunded;
29	(e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises
30	by reason of title failure shall be borne severally by each party (including a predecessor to a current party) who received
31	production for which such accounting is required based on the amount of such production received, and each such party shall
32	severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;
33	(f)  No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of
34	the Lease or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title
35	it shall bear all expenses in connection therewith; and
36	(g) If any party is given credit on Exhibit "A" to a Lease or Interest which is limited solely to ownership of an
37	interest in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder
38	of the Contract Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest
39	is reflected on Exhibit "A."
40	2. Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well
41	payment, minimum royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas
42	Lease or Interest is not paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary
43	liability against the party who failed to make such payment.  Unless the party who failed to make the required payment
44	secures a new Lease or Interest covering the same interest within ninety (90) days from the discovery of the failure to make
45	proper payment, which acquisition will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit "A"
46	shall be revised on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party
47	who failed to make proper payment will no longer be credited with an interest in the Contract Area on account of ownership
48	of the Lease or Interest which has terminated.  If the party who failed to make the required payment shall not have been fully
49	reimbursed, at the time of the loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest,
50	calculated on an acreage basis, for the development and operating costs previously paid on account of such Lease or Interest,
51	it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of any dry hole
52	previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:
53	(a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease
54	burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or
55	Interest, on an acreage basis, up to the amount of unrecovered costs;
56	(b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed
57	to make payment, up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and
58	marketed (excluding production from any wells thereafter drilled) which, in the absence of such Lease or Interest termination,
59	would be attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease or Interest
60	termination is credited to other parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties
61	in proportion to their respective interests reflected on Exhibit "A"; and,
62	(c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner
63	of the I-ease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.
64	3. Other Losses: All losses of Leases or Interests committed to this agreement, other than those set forth in Articles
65	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
66	Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because
67	express or implied covenants have not been performed (other than performance which requires only the payment of the money),
68	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
69	readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.
70	4. Curing Title: In the event of a Failure of Title under Article IV.B.I. or a loss of title under Article IV, B.2. above, any
71	Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety
72	(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
73	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.
74	shall not apply to such acquisition.

3

1	ARTICLE V.
2	OPERATOR
3	A. Designation and Responsibilities of Operator:
4	MOGUL ENERGY INTERNATIONAL, INC. shall be the Operator of the Contract Area, and shall conduct
5	and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of
6	this agreement.  In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor
7	not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance
8	with the election procedures contained in this agreement.  Operator shall not be deemed, or hold itself out as, the agent of the
9	Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third
10	party.  Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike
11	manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and
12	regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred
13	except such as may result from gross negligence or willful misconduct.
14	B. Resignation or Removal of Operator and Selection of Successor:
15	1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.
16	If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of
17	serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a
18	successor.  Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest
19	based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be
20	deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and
21	Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an
22	operation then being conducted, within twenty four (24) hours of its receipt of the notice.  For purposes hereof, "good cause" shall
23	mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of
24	operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.
25	Subject to Article VII. D.I., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first
26	day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator
27	or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of
28	Operator at an earlier date.  Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a
29	Non-Operator.  A change of a corporate name or structure of Operator or transfer of Operator's interest to any single
30	subsidiary, parent or successor corporation shall not be the basis for removal of Operator.
31	2. Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a
32	successor Operator shall be selected by the parties.  The successor Operator shall be selected from the parties owning an
33	interest in the Contract Area at the time such successor Operator is selected.  The successor Operator shall be selected by the
34	affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";
35	provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to
36	succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority
37	interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was
38	removed or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to
39	the operations conducted by the former Operator to the extent such records and data are not already in the possession of the
40	successor operator.  Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint
41	account.
42	3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have
43	resigned without any action by Non-Operators, except the selection of a successor.  If a petition for relief under the federal
44	bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all
45	Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or
46	assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in
47	possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,
48	except the selection of a successor.  During the period of time the operating committee controls operations, all actions shall
49	require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A." In
50	the event there are only two (2) parties to this agreement, during the period of time the operating committee controls
51	operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a
52	member of the operating committee, and all actions shall require the approval of two (2) members of the operating
53	committee without regard for their interest in the Contract Area based on Exhibit "A."
54	C. Employees and Contractors:
55	The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the
56	hours of labor and the compensation for services performed shall be determined by Operator, and all such employees or
57	contractors shall be the employees or contractors of Operator.
58	D. Rights and Duties of Operator:
59	1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive
60	contract basis at the usual rates prevailing in the area.  If it so desires, Operator may employ its own tools and equipment in
61	the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges
62	shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by
63	Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors
64	who are doing work of a similar nature.  All work performed or materials supplied by affiliates or related parties of Operator
65	shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and
66	standards prevailing in the industry.
67	2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay
68	and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall
69	charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in ' Exhibit "C."
70	Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits
71	made and received.
72	3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts
73	of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in
74	respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

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1	liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or
2	materials supplied.
3	4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced
4	or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the
5	Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until
6	used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as
7	provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator
8	and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided.  Nothing in
9	this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the
10	parties otherwise specifically agree.
11	5.  Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator
12	or its duly authorized representative, at the Non-Operator’s sole risk and cost, full and free access at all reasonable times to
13	all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of
14	operations conducted thereon or production therefrom, including Operator's books and records relating thereto. Such access
15	rights shall not be exercised in a manner interfering with Operator’s conduct of an operation hereunder and shall not obligate
16	Operator to furnish any geologic or geophysical data o an interpretive nature unless the cost of preparation of such
17	interpretive data was charged to the joint account.  Operator will furnish to each Non-Operator upon request copies of any
18	and all reports and information obtained by Operator in connection with production and related items, including, without
19	limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding
20	purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the
21	information.  Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures
22	shall be conducted in accordance with the audit protocol specified in Exhibit "C."
23	6. Filing and Furnishing Governmental Reports:  Operator will file, and upon written request promptly furnish copies to
24	each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications
25	required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.
26	Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.
27	7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not
28	limited to the Initial Well:
29	(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which
30	drilling operations are commenced.
31	(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well
32	as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.
33	(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing
34	Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted
35	hereunder.
36	8. Cost Estimates.  Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs
37	incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.
38	Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.
39	9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers
40	compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-
41	insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall
42	be as provided in Exhibit "C." Operator shall also carry or provide insurance for the benefit of the joint account of the parties
43	as outlined in Exhibit "D" attached hereto and made a part hereof.  Operator shall require all contractors engaged in work on
44	or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted
45	and to maintain such other insurance as Operator may require.
46	In the event automobile liability insurance is specified in said Exhibit “D,” or subsequently receives the approval of the
47	parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive
48	equipment.
49	ARTICLE VI.
50	DRILLING AND DEVELOPMENT
51	A. Initial Well:
52	On or before the _1ST day of February, 2011, Operator shall commence the drilling of the Initial
53	Well at the following location: Stafford Area Prospect, Jackson County, Texas.
54
55
56
57
58
59
60	and shall thereafter continue the drilling of the well with due diligence to test the Frio Formation to a total depth of 7,400 feet
61	and as stipulated in that certain Participation Agreement, between the parties hereto.
62
63
64
65
66	is subject to the terms of said Participation Agreement
67	The drilling of the Initial Well  and the participation therein by all parties is obligatory, subject to Article VI.C.I. as to participation
68	in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.
69	B. Subsequent Operations:
70	1. Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the initial Well, or
71	if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of
72	producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under
73	this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written
74	notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone

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1	under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be
2	performed, the location, proposed depth, objective Zone and the estimated cost of the operation.  The parties to whom such a
3	notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work
4	whether they elect to participate in the cost of the proposed operation.  If a drilling rig is on location, notice of a proposal to
5	Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to twenty-
6	four (24) hours, inclusive of Saturday, Sunday and legal holidays.  Failure of a party to whom such notice is delivered to reply
7	within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.
8	Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties
9	within the time and in the manner provided in Article VI.B.6.
10	If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be
11	contractually committed to participate therein provided such operations are commenced within the time period hereafter set
12	forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as
13	promptly as practicable after the expiration of the twenty-four (24) hour period when a drilling rig is on location, as the case
14	may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of
15	the parties participating therein; provided, however, said commencement date may be extended upon written notice of same
16	by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such
17	additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-
18	way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or
19	acceptance.  If the actual operation has not been commenced within the time provided (including any extension thereof as
20	specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct
21	said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior
22	proposal had been made.  Those parties that did not participate in the drilling of a well for which a proposal to Deepen or
23	Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,
24	reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance
25	with Article VI.B.5. in the event of a Sidetracking operation.
26	2. Operations by Less Than All Parties:
27	(a) Determination of Participation.  If any party to whom such notice is delivered as provided in Article VI.B.I. or
28	VI.C.l. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this
29	Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no
30	later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the
31	expiration of the twenty-four (24) hour period when a drilling rig is on location, as the case may be) actually commence the
32	proposed operation and complete it with due diligence.  Operator shall perform all work for the account of the Consenting
33	Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,
34	the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the
35	account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work.  The
36	rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party
37	designated as Operator for an operation in which the original Operator is a Non-Consenting Party.  Consenting Parties, when
38	conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this
39	agreement.
40	If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the
41	applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its
42	recommendation as to whether the Consenting Parties should proceed with the operation as proposed.  Each Consenting Party,
43	within twenty-four (24) hours (inclusive of Saturday, Sunday and legal holidays) after delivery of such notice, shall advise the
44	proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its
45	proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in
46	the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of
47	Non-Consenting Parties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'
48	interests that any Consenting Party did not elect to take.  Any interest of Non-Consenting Parties that is not carried by a
49	Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its
50	proposal.  Failure to advise the proposing party within the time required shall be deemed an election under (i).  In the event a
51	drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a
52	total of twenty-four (24) hours, inclusive of Saturday, Sunday and legal holidays).  The proposing party, at its election, may
53	withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)
54	days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.
55	If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties
56	of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the
57	period provided in Article VI.B.I., subject to the same extension right as provided therein.
58	(b) Relinquishment of Interest for Non-Participation.  The entire cost and risk of conducting such operations shall be
59	borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding
60	paragraph.  Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and
61	encumbrances of every kind created by or arising from the operations of the Consenting Parties.  If such an operation results
62	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
63	the surface location as near as reasonably possible to its original condition at their sole cost, risk and expense; provided, however, that
64	those Non-Consenting Parties that participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay,
65	their proportionate shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not
66	increased by the subsequent operations of the Consenting Parties.  If any well drilled, Reworked, Sidetracked, Deepened,
67	Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in
68	paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the
69	well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the
70	expense and for the account of the Consenting Parties.  Upon commencement of operations for the drilling, Reworking,
71	Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties, in accordance with the
72	provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the
73	Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-
74	Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,

6

1	Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.l. Option No. 2, all of such Non-
2	Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect
3	to participate.  Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or
4	market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,
5	royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production
6	from such well accruing with respect to such interest until it reverts), shall equal the total of the following:
7	(i)  300%of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment
8	beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and
9	piping), plus 300% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first
10	production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other
11	provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that
12	interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning
13	of the operations; and
14	(ii)  300%of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,
15	Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,
16	and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),
17	which would have been chargeable to such Non-Consenting Party if it had participated therein.
18	Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone
19	described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable
20	substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each
21	Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a
22	shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-
23	Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the
24	cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a).  If any such Non-
25	Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions
26	of this Article VI.B.2. (b) shall apply to such party's interest.
27	(c) Reworking, Recompleting or Plugging Back.  An election not to participate in the drilling, Sidetracking or
28	Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in
29	such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full
30	recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Similarly, an election not to
31	participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking
32	operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at
33	any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount.  Any such
34	Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the
35	cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties 300%, of
36	that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to
37	such Non-Consenting Party had it participated therein.  If such a Reworking, Recompleting or Plugging Back operation is
38	proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting
39	Parties in said well.
40	(d) Recoupment Matters.  During the period of time Consenting Parties are entitled to receive Non-Consenting Party's
41	share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,
42	production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to
43	Non-Consenting Party's share of production not excepted by Article III.C.
44	In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting
45	Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all
46	such equipment shall remain unchanged; and upon abandonment of a well-after such Reworking, Sidetracking, Plugging Back,
47	Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each
48	party receiving its proportionate part in kind or in value, less cost of salvage.
49	Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations
50	for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to
51	the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,
52	Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement
53	of such costs of operation, may submit a detailed statement of monthly billings.  Each month thereafter, during the time the
54	Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties
55	shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of
56	the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from
57	the sale of the well's working interest production during the preceding month.  In determining the quantity of Oil and Gas
58	produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or
59	periodic well tests.  Any amount realized from the sale or other disposition of equipment newly acquired in connection with
60	any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited
61	against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such
62	Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-
63	Consenting Party.
64	If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided
65	for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day
66	following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall
67	own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as
68	such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking,
69	Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and
70	shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this
71	agreement and Exhibit "C" attached hereto.
72	3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have
73	been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise
74	terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party s notice proposing a Reworking,

7

1	Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required
2	under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening
3	operation just completed.  Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,
4	whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms
5	of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,
6	but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated
7	between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total
8	interest as shown on Exhibit "A" of all Consenting Parties.
9	In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party
10	may request and receive up to five (5) additional days after expiration of the twenty-four (24) hour response period specified in
11	Article VI.B.I. within which to respond by paying for all stand-by costs and other costs incurred during such extended
12	response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending
13	the response period.  If more than one party elects to take such additional time to respond to the notice, standby costs shall be
14	allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's
15	interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.
16	4. Deepening: - If less than all the parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed
17	pursuant to Article VI.B.I., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article
18	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
19	of which the parties were given notice under Article VI.B.1. ("Initial Objective").  Such well shall not be Deepened beyond the
20	Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate
21	in the Deepening operation.
22	In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,
23	such party shall give notice thereof, complying with the requirements of Article VI.B.l., to all parties (including Non-
24	Consenting Parties).  Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to
25	participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation
26	is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,
27	such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses:
28	(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying
29	quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs
30	and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-
31	Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting
32	Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other
33	provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well
34	incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the
35	sole account of Consenting Parties.
36	(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing
37	in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or
38	reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and
39	equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less
40	those costs recouped by the Consenting Parties from the sale of production from the well.  The Non-Consenting Party shall
41	also pay its proportionate share of all costs of re-entering said well.  The Non-Consenting Parties' proportionate part (based
42	on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent
43	Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in
44	connection with such well shall be determined in accordance with Exhibit "C." If the Consenting Parties have recouped the
45	cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-
46	Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the
47	well for Deepening.
48	The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior
49	to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article
50	VI.F.
51	5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an
52	interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its
53	proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore
54	to be utilized as follows:
55	(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs
56	incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.
57	(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of
58	such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth
59	at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above.  Such party's
60	proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking
61	operation is initiated shall be determined in accordance with the provisions of Exhibit "C."
62	6. Order of Preference of Operations.  Except as otherwise specifically provided in this agreement, if any party desires to
63	propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such
64	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
65	an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal
66	holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be
67	conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such
68	alternate proposal to contain the same information required to be included in the initial proposal.  Each party receiving such
69	proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal, period, or within
70	twenty-four (24) hours (inclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the
71	subject of the proposals, to participate in one of the competing proposals.  Any party not electing within the time require
72	shall be deemed not to have voted.  The proposal receiving the vote of parties owning the largest aggregate percentage
73	interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the

8

1	initial proposal shall prevail.  Operator shall deliver notice of such result to all parties entitled to participate in the operation
2	within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday
3	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
4	is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to
5	relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within
6	such period shall be deemed an election not to participate in the prevailing proposal.
7	7.  Conformity to Spacing Pattern.  Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be
8	proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract
9	Area is producing, unless such well conforms to the then-existing well spacing pattern for such Zone.
10	8. Paying Wells.  No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or
11	Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except
12	with the consent of all parties that have not relinquished interests in the well at the time of such operation.
13	C. Completion of Wells; Reworking and Plugging Back:
14	1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well
15	drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the drilling,
16	Deepening or Sidetracking shall include:
17	()   Option No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and
18	equipping of the well, including necessary tankage and/or surface facilities.
19	(X)   Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When
20	such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results
21	thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to
22	participate in a Completion attempt whether or not Operator recommends attempting to Complete the well,
23	together with Operator's AFE for Completion costs if not previously provided. The parties receiving such notice
24	shall have twenty-four (24) hours (inclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of
25	notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an
26	accompanying AFE.  Operator shall deliver any such Completion proposal, or any Completion proposal conflicting
27	with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the
28	procedures specified in Article VI.B.6. Election to participate in a Completion attempt shall include consent to all
29	necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface
30	facilities but excluding any stimulation operation not contained on the Completion AFE.  Failure of any party
31	receiving such notice to reply within the period above fixed shall constitute an election by that party not to
32	participate in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of
33	conflicting Completion proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the
34	provisions of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging
35	Back" as contained in Article VI.B.2. shall be deemed to include "Completing") shall apply to the operations
36	thereafter conducted by less than all parties; provided, however, that Article VI.B.2 shall apply separately to each
37	separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting
38	Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party
39	in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier
40	Completions or Recompletions have recouped their costs pursuant to Article VI.B.2.; provided further, that any
41	recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in
42	which the Completion attempt is made. Election by a previous Non-Consenting Party to participate in a subsequent
43	Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable
44	materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt,
45	insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a
46	Completion attempt.
47	2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,
48	Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the Reworking,
49	Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and
50	Completing and equipping of said well, including necessary tankage and/or surface facilities.
51	D. Other Operations:
52	Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Fifty Thousand & no/100
53	Dollars ($50,000.00) except in connection with the
54	drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously
55	authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden
56	emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion
57	are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the
58	emergency to the other parties.  If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so
59	requesting an information copy thereof for any single project costing in excess of  Fifty Thousand & no/100 Dollars
60	( $50,000.00).  Any party who has not relinquished its interest in a well shall have the right to propose that
61	Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as
62	salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but
63	not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall
64	be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the
65	amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under
66	Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively by those Articles).  Operator shall deliver such
67	proposal to all parties entitled to participate therein.  If within thirty (30) days thereof Operator secures the written consent
68	of any party or parties owning at least 66%of the interests of the parties entitled to participate in such operation,
69	each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated
70	to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms
71	of the proposal.
72	E. Abandonment of Wells:
73	1. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has
74	been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

9

1	plugged and abandoned without the consent of all parties.  Should Operator, after diligent effort, be unable to contact any
2	party, or should any party fail to reply within twenty-four (24) hours (inclusive of Saturday, Sunday and legal holidays) after
3	delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the
4	proposed abandonment.  All such wells shall be plugged and abandoned in accordance with applicable regulations and at the
5	cost, risk and expense of the parties who participated in the cost of drilling or Deepening such well.  Any party who objects to
6	plugging and abandoning such well by notice delivered to Operator within twenty-four (24) hours (inclusive of Saturday,
7	Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such
8	twenty-four (24) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of
9	Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct
10	such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and
11	abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well.  The party
12	taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against
13	liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and
14	restoring the surface, for which the abandoning parties shall remain proportionately liable.
15	2. Abandonment of Wells That Have Produced:  Except for any well in which a Non-Consent operation has been
16	conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has
17	been completed as a producer shall not be plugged and abandoned without the consent of all parties.  If all parties consent to
18	such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk
19	and expense of all the parties hereto.  Failure of a party to reply within thirty (30) days of delivery of notice of proposed
20	abandonment shall be deemed an election to consent to the proposal.  If, within thirty (30) days after delivery of notice of the
21	proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its
22	operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the
23	applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties
24	against liability for any further operations on the well conducted by such parties.  Failure of such party or parties to provide
25	proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well
26	within the required period or thereafter to conduct operations on such well shall entitle Operator to retain or take possession
27	of such well and plug and abandon the well.
28	Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of
29	the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost
30	of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event
31	the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the
32	value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing
33	operations their proportionate shares of the estimated excess cost.  Each abandoning party shall assign to the non-abandoning
34	parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all
35	of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only
36	insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production.  If the
37	interest of the abandoning party is or includes an Oil and Gas Interest, such party shall execute and deliver to the non-
38	abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of
39	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
40	attached as Exhibit "B." The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.
41	The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their
42	respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract
43	Area of all assignees.  There shall be no readjustment of interests in the remaining portions of the Contract Area.
44	Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production
45	from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article.  Upon
46	request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and
47	charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate
48	ownership of the assigned well.  Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor
49	shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in
50	further operations therein subject to the provisions hereof.
51	3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.l. or VI.E.2. above shall be applicable as
52	between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,
5.3	however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further
54	operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well
55	in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest
56	in a portion of the well shall pay their proportionate shares of abandonment and surface restoration costs for such well as
57	provided in Article VI.B.2.(b).
58	F. Termination of Operations:
59	Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,
60	Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without
61	consent of parties bearing  66% of the costs of such operation; provided, however, that in the event granite or other
62	practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,
63	Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.I, and the
64	provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.
65	G. Taking Production in Kind:
66	(X )          Option No. 1: Gas Balancing Agreement Attached:
67	Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the
68	Contract Area, exclusive of production which may be used in development and producing operations and in preparing and
69	treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking
70	in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party.  Any
71	party taking its share of production in kind shall be required to pay for only its proportionate share of such part of
72	Operator's surface facilities which it uses.
73	Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in
74	production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

10

1	directly from the purchaser thereof for its share of all production.
2	If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate
3	share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by
4	the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to
5	time, for the account of the non-taking party. Any such purchase or sale by Operator may be terminated by
6	Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to
7	the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any
8	time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.
9	Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time
10	as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a
11	period in excess of one (1) year.
12	Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator
13	shall have no duty to share any existing market or to obtain a price equal to that received under any existing
14	market. The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing
15	contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said
16	contract. No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days
17	written notice of such intended purchase and the price to be paid or the pricing basis to be used.
18	All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following
19	month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.
20	Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which
21	records shall be made available to Non-Operators upon reasonable request.
22	In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate
23	pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion-
24	ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with
25	any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a
26	separate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.
27	()        Option No. 2:No Gas Balancing Agreement:
28	Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from
29	the Contract Area, exclusive of production which may be used in development and producing operations and in
30	preparing and treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure
31	incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall
32	be borne by such party. Any party taking its share of production in kind shall be required to pay for only its
33	proportionate share of such part of Operator's surface facilities which it uses.
34	Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in
35	production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment
36	directly from the purchaser thereof for its share of all production.
37	If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate
38	share of the Oil and/or Gas produced from the Contract Area, Operator shall have the right, subject to the
39	revocation at will by the party owning it, but not the obligation, to purchase such Oil and/or Gas or sell it to others
40	at any time and from time to time, for the account of the non-taking party. Any such purchase or sale by Operator
41	may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall
42	be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator
43	to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered
44	to a purchaser; provided, however, that the effective date of any such revocation may be deferred at Operator's
45	election for a period not to exceed ninety (90) days if Operator has committed such production to a purchase
46	contract having a term extending beyond such ten (10) day period. Any purchase or sale by Operator of any other
47	party's share of Oil and/or Gas shall be only for such reasonable periods of time as are consistent with the
48	minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1)
49	year.
50	Any such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator
51	shall have no duty to share any existing market or transportation arrangement or to obtain a price or transportation
52	fee equal to that received under any existing market or transportation arrangement. The sale or delivery by
53	Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not
54	give the non-taking party any interest in or make the non-taking party a party to said contract. No purchase of Oil
55	and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written
56	notice of such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give
57	notice to all parties of the first sale of Gas from any well under this Agreement.
58	All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following
59	month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.
60	Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which
61	records shall be made available to Non-Operators upon reasonable request.
62	ARTICLE VII.
63	EXPENDITURES AND LIABILITY OF PARTIES
64	A. Liability of Parties:
65	The liability of the parties shall be several, not joint or collective.  Each party shall be responsible only for its obligations,
66	and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area.  Accordingly, the
67	liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have
68	any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation
69	hereunder.  It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other
70	partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or
71	principals.  In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have
72	established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own
73	respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other
74	with respect to activities hereunder.

11

1	B. Liens and Security Interests:
2	Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas
3	Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any
4	interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection
5	therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,
6	interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil
7	and Gas Leases as required hereunder, and the proper performance of operations hereunder.  Such lien and security interest
8	granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and
9	overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or
10	otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or
11	used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts
12	(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),
13	contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the
14	foregoing.
15	To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording
16	supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time
17	following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as
18	a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform
19	Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate
20	to perfect the security interest granted hereunder.  Any party may file this agreement, the recording supplement executed
21	herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a
22	financing statement with the proper officer under the Uniform Commercial Code.
23	Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to
24	the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security
25	interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or
26	under such party.  All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,
27	whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject
28	to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder
29	whether or not such obligations arise before or after such interest is acquired.
30	To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the
31	Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.
32	The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an
33	election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof.  In
34	addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use
35	of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect
36	from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by
37	such party, plus interest as provided in "Exhibit C," has been received, and shall have the right to offset the amount
38	owed against the proceeds from the sale of such defaulting party's share of Oil and Gas.  All purchasers of production
39	may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the
40	default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in
41	this paragraph.
42	If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefore by
43	Operator, the non-defaulting parties, including Operator, shall, upon request by Operator, pay the unpaid amount in the
44	proportion that the interest of each such party bears to the interest of all such parties.  The amount paid by each party so
45	paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each
46	paying party may independently pursue any remedy available hereunder or otherwise.
47	If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure
48	or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting
49	party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement
50	of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets
51	and any required bond in the event a receiver is appointed.  In addition, to the extent permitted by applicable law, each party
52	hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted
53	hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable
54	manner and upon reasonable notice.
55	Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien
56	law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder.  Without limiting
57	the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or
58	utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the
59	payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.
60	C. Advances:
61	Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other
62	parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations
63	hereunder during the next succeeding month, which right may be exercised only by submission to each such Party of an
64	itemized statement of such estimated expense, together with an invoice for its share thereof.  Each such statement and invoice
65	for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.
66	Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and
67	invoice is received.  If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as
68	provided in Exhibit "C" until paid.  Proper adjustment shall be made monthly between advances and actual expenses to the end
69	that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.
70	D. Defaults and Remedies:
71	If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to
72	make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for
73	such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the
74	remedies specified below shall be applicable.  For purposes of this Article VII.D., all notices and elections shall be delivered

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1	only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-operator,
2	and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.
3	Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified
4	below or otherwise available to a non-defaulting party.
5	1. Suspension of Rights:  Any party may deliver to the party in default a Notice of Default, which shall specify the default,
6	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
7	or more of the remedies provided in this Article.  If the default is not cured within thirty (30) days of the delivery of such
8	Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the
9	default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of
10	the defaulting party previously accrued or thereafter accruing under this agreement.  If Operator is the party in default, the
11	Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area
12	after excluding the voting interest of Operator, to appoint a new Operator effective immediately.  The rights of a defaulting
13	party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right
14	to receive information as to any operation conducted hereunder during the period of such default, the right to elect to
15	participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being
16	conducted under this agreement even if the party has previously elected to participate in such operation, and the right to
17	receive proceeds of production from any well subject to this agreement.
18	2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint
19	account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default
20	until the date of collection at the rate specified in Exhibit "C" attached hereto.  Nothing herein shall prevent any party from
21	suing any defaulting party to collect consequential damages accruing to such party as a result of the default.
22	3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the
23	defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in
24	which event if the billing is for the drilling of a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a
25	well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting
26	party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with
27	respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,
28	notwithstanding any election to participate theretofore made.  If election is made to proceed under this provision, then the
29	non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.
30	Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure
31	its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such
32	payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-
33	defaulting parties as a result of the default.  Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the
34	non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership
35	of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.
36	4. Advance Payment:  If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or
37	Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting
38	party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may
39	be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of
40	the previous default.  Such right includes, but is not limited to, the right to require advance payment for the estimated costs of
41	drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made.  If the
42	defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided
43	in this Article VII.D. or any other default remedy provided elsewhere in this agreement.  Any excess of funds advanced remaining
44	when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.
45	5. Costs and Attorneys' Fees:  In the event any party is required to bring legal proceedings to enforce any financial
46	obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of
47	collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.
48	E. Rentals, Shut-in Well Payments and Minimum Royalties:
49	Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid
50	by the Operator and charged to the joint account.  In the event two or more parties
51	own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to
52	make said payments for and on behalf of all such parties.  Any party may request, and shall be entitled to receive, proper
53	evidence of all such payments.  In the event of failure to make proper payment of any rental, shut-in well payment or
54	minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which
55	results from such non-payment shall be borne in accordance with the provisions of Article IV.B.3.
56	Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the shutting in or return to
57	production of a producing well, at least five (5) days (excluding Saturday, Sunday and legal holidays) prior to taking such
58	action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so.  In the event of
59	failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make
60	timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article
61	IV.B.3.
62	F. Taxes:
63	Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all
64	property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed
65	thereon before they become delinquent.  Prior to the rendition date, each Non-Operator shall furnish Operator information as
66	to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and
67	Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being
68	subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes
69	resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to
70	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
71	upon separate valuations of each party’s working interest, then notwithstanding anything to the contrary herein, charges to
72	the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party’s
73	working interest.  Operator shall bill the other parties for their proportionate shares of all tax payments in the manner
74	provided in Exhibit "C."

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1	If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner
2	prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final
3	determination.  During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes
4	and any interest and penalty.  When any such protested assessment shall have been finally determined, Operator shall pay the tax for
5	the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be
6	paid by them, as provided in Exhibit "C."
7	Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect
8	to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.
9	ARTICLE VIII.
10	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
11	A. Surrender of Leases:
12	The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole
13	or in part unless all parties consent thereto.
14	However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written
15	notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after
16	delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto.  Failure of a
17	party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases
18	described in the notice.  If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or
19	implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be
20	located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender.  If the interest of the
21	assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not
22	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
23	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.".
24	Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore
25	accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party
26	shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained
27	in any lease made under the terms of this Article.  The party assignee or lessee shall pay to the party assignor or lessor the
28	reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased
29	acreage.  The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less
30	the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface.  If such value is less
31	than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit.  If the
32	assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the
33	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
34	varies according to depth, then the interest assigned shall similarly reflect such variances.
35	Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering
36	party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage
37	assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this
38	agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.
39	B. Renewal or Extension of Leases:
40	If any party secures a renewal or replacement of an Oil and Gas lease or Interest subject to this agreement, then all other parties
41	shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,
42	promptly upon expiration of the existing Lease.  The parties notified shall have the right for a period of thirty (30) days following
43	delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease
44	affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost
45	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
46	parties in the Contract Area.  Each party who participates in the purchase of a renewal or replacement Lease shall be given an
47	assignment of its proportionate interest therein by the acquiring party.
48	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
49	by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in
50	the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the
51	purchase of such renewal or replacement Lease.  The acquisition of a renewal or replacement Lease by any or all of the parties hereto
52	shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which
53	less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating
54	Agreement in the form of this agreement.
55	If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in
56	renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.
57	The provisions of this Article shall apply to renewal or replacement lines whether they are for the entire interest covered by
58	the expiring Lease or cover only a portion of its area or an interest therein.  Any renewal or replacement Lease taken before the
59	expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the
60	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
61	the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the
62	expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this
63	agreement.
64	The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.
65	C. Acreage or Cash Contributions:
66	While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other
67	operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall
68	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
69	the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the
70	proportions said Drilling Parties shared the cost of drilling the well.  Such acreage shall become a separate Contract Area and, to the
71	extent possible, be governed by provisions identical to this agreement.  Each party shall promptly notify all other parties of any
72	acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above
73	provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in t, support of well drilled
74	inside the Contract Area.

14

1	If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,
2	such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.
3	D. Assignment; Maintenance of Uniform Interest:
4	For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas
5	Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other
6	disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,
7	equipment and production unless such disposition covers either:
8	1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or
9	2. an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,
10	equipment and production in the Contract Area.
11	Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement
12	and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and
13	Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of
14	the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,
15	encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the
16	instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee.  No assignment or other
17	disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect
18	to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation
19	conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security
20	interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.
21	If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,
22	may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,
23	receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to
24	bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-
25	owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of
26	the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale
27	proceeds thereof.
28	E. Waiver of Rights to Partition:
29	If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an
30	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
31	undivided interest therein.
32	F. Preferential Right to Purchase:
33	(X) (Optional; Check if applicable.)
34	Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract
35	Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which
36	shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase
37	price, a legal description sufficient to identify the property, and all other terms of the offer.  The other parties shall then have an
38	optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the
39	same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the
40	purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all
41	purchasing parties.  However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage
42	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,
43	or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets
44	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
45	company in which such party owns a majority of the stock.
46	ARTICLE IX.
47	INTERNAL REVENUE CODE ELECTION
48	If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the
49	parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each
50	party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle
51	"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and
52	the regulations promulgated thereunder.  Operator is authorized and directed to execute on behalf of each party hereby affected
53	such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal
54	Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by
55	Treasury Regulations §1.761. Should there be any requirement that each party hereby affected give further evidence of this
56	election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal
57	Revenue Service or as may be necessary to evidence this election.  No such party shall give any notices or take any other action
58	inconsistent with the election made hereby.  If any present or future income tax laws of the state or states in which the Contract
59	Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter
60	1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party
61	thereby affected shall make such election as may be permitted or required by such laws.  In making the foregoing election, each
62	such party states that the income derived by such party from operations hereunder can be adequately determined without the
63	computation of partnership taxable income.
64	ARTICLE X.
65	CLAIMS AND LAWSUITS
66	Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure
67	does not exceed Fifty Thousand & no/100 Dollars ($50,000.00) and if the payment is in complete settlement
68	of such claim or suit.  If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over
69	the further handling of the claim or suit, unless such authority is delegated to Operator.  A costs and expenses of handling, settling,
70	or otherwise discharging such claim or suit shall be at the joint expense of the parties participating in the operation from which the
71	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
72	hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall
74	immediately notify all other parties, and the claim or suite shall be treated as any other claim or suit involving operations hereunder.

15

1	ARTICLE XI.
2	FORCE MAJEURE
3	If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other
4	than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties
5	prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the
6	party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the
7	continuance of the force majeure.  The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or
8	other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood or other act of
9	nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other
10	cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party
11	claiming suspension.
12	The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable.  The
13	requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,
14	lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall
15	be entirely within the discretion of the party concerned.
16	ARTICLE XII.
17	NOTICES
18	All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise
19	specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,
20	telecopier, email or other electronic system or any other form of facsimile, postage or charges prepaid, and addressed to such parties at
21	the addresses listed on Exhibit "A." All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by
22	written notice.  The originating notice given under any provision hereof shall be deemed delivered only when received by the party to
23	whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date
24	the originating notice is received.  "Receipt" for purposes of this agreement with respect to written notice delivered hereunder
25	shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or
26	to the telecopy, facsimile email, or other electronic message system or telex machine of such party.  The second or any responsive
27	notice shall be deemed delivered when deposited in the United States mail or at the office of the courier or telegraph service, or upon
28	transmittal by telex, telecopy or facsimile, or when personally delivered to the party to be notified, provided, that when response is
29	required within 24 or 48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile email, or other
30	electronic message system within such period.  Each party shall have the right to change its address at any time, and from time to time,
31	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
32	attempts to deliver a notice required to be delivered within 24 hours, the notice may be delivered in writing by any other method
33	specified herein and shall be deemed delivered in the same manner provided above for any responsive notice.
34	ARTICLE XIII.
35	TERM OF AGREEMENT
36	This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject
37	hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title
38	or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.
39	(X)    Option No. 1:  So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in
40	force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.
41	(  ) Option No. 2:  In the event the well described in Article VI.A., or any subsequent well drilled under any provision
42	of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying
43	quantities, this agreement shall continue in force so long as any such well is capable of production, and for an
44	additional period of days thereafter; provided, however, if, prior to the expiration of such
45	additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,
46	Plugging Back, testing or attempting to Complete or Re-compi6te a well or wells hereunder, this agreement shall
47	continue in force until such operations have been completed and if production results therefrom, this agreement
48	shall continue in force as provided herein.  In the event the well described in Article VI.A., or any subsequent well
49	drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the
50	Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re-
51	completing, Plugging Back or Reworking operations are commenced within__________________days from the
52	date of abandonment of said well.  "Abandonment" for such purposes shall mean either (i) a decision by all parties
53	not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any
54	operations on the well, whichever first occurs.
55	The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any
56	remedy therefor which has accrued or attached prior to the date of such termination.
57	Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this
58	Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a
59	notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon
60	request of Operator, if Operator has satisfied all its financial obligations.
61	ARTICLE XIV.
62	COMPLIANCE WITH LAWS AND REGULATIONS
63	A. Laws, Regulations and Orders:
64	This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,
65	regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,
66	and local laws, ordinances, rules, regulations and orders.
67	B. Governing Law:
68	This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-
69	performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and
70	determined by the law of the state in which the Contract Area is located.  If the Contract Area is in two or more states,
71	the law of the state of Texas shall govern.
72	C. Regulatory Agencies:
73	Nothing herein contained shall grant, or be construed to grant, Operator the right or authority t: waive or release any
74	rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

16

1	orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or
2	production of wells, on tracts offsetting or adjacent to the Contract Area.
3	With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,
4	injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation
5	or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission
6	or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not
7	constitute gross negligence.  Each Non-Operator further agrees to reimburse Operator for such Non-Operator's share of
8	production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such
9	an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such
10	incorrect interpretation or application.
11	ARTICLE XV.
12	MISCELLANEOUS
13	A. Execution:
14	This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been
15	executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of
16	the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which
17	own, in fact, an interest in the Contract Area.  Operator may, however, by written notice to all Non-Operators who have
18	become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no
19	event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this
20	agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of
21	drilling operations.  In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease
22	as of such termination.  In the event any Non-Operator has advanced or prepaid any share of drilling or other costs
23	hereunder, all sums so advanced shall be returned to such Non-Operator without interest.  In the event Operator proceeds
24	with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a
25	current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the
26	Initial Well which would have been charged to such person under this agreement if such person had executed the same and
27	Operator shall receive all revenues which would have been received by such person under this agreement if such person had
28	executed the same.
29	B. Successors and Assigns:
30	This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,
31	devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or
32	Interests included within the Contract Area.
33	C. Counterparts:
34	This instrument may be executed in any number of counterparts, each of which shall be considered an original for all
35	purposes.
36	D. Severability:
37	For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,
38	this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to
39	this agreement to comply with all of its financial obligations provided herein shall be a material default.
40	ARTICLE XVI.
41	OTHER PROVISIONS
42	A.	This JOA is subject to the terms and conditions in the Stafford Area Participation Agreement, dated December ____, 2010.
43
44	B.	Any non compliance of the terms and/or provisions herein by any party shall be provided notice, as defined in Section XII, by the
45		party recognizing such non compliance shall provide said non compliant party with notice to comply with the terms of this
46		agreement within twenty (20) days of receipt of such notice.
47
48	C.	Failure To Pay Invoices:
		If the lien or security interests conferred herein has been enforced, or if any party to this agreement shall fail to pay its share of costs and expenses incurred and/or fails to pay any advance invoice as provided for in Article VII.C herein for cost to be incurred in operations of the Contract Area for a period of fifteen (15) days from the date of Operator's invoice therefor, Operator may notify the affected party of its default by certified mail, return receipt requested, and if such party fails to cure the default within ten (10) days from the date of receipt of Operator's notice, by payment in full of the invoices for operating costs which have been due for more than fifteen (15) days, at Operator's election, the affected party shall be deemed in non-consent status and for so long as the affected party remains in default they shall have no further access to the Contract Area or information obtained in connection with operations hereunder and shall not be entitled to vote on any matter hereunder.  As to any proposed operation in which it otherwise would have the right to participate, such party shall have the right to be a Consenting Party therein only if it pays the amount it is in default before the operation is commenced; otherwise, at Operator's election, it automatically shall be deemed a Non-Consenting Party to that operation.
	D.	Multiple Drilling Proposals:
		No party to this agreement shall propose the drilling of more than one well at a time, nor shall any party to this agreement propose the drilling of a well during the time that another well is being drilled except: (1) by the mutual consent of all parties hereto; or (2) if one or more of said proposed wells are obligations necessary for the maintenance of any leasehold interest or farmout rights in the Contract Area which would otherwise expire within six (6) months from the date of such proposal.
	E.	Distribution of Revenues:
		Subject to the provisions of Article VII.B. of this agreement, if any purchaser of production from the Contract Area agrees to remit all of the proceeds therefrom to the Operator for distribution, all such proceeds shall be required to be paid to the Operator which in turn shall remit to each Non-Operator its proportionate share of said proceeds received by the Operator within thirty (30) days after the receipt by the Operator of such proceeds.  Operator will use its best efforts to make such disbursements correctly, but will be liable for incorrect disbursement only in event of gross negligence or willful negligence.  Operator shall be entitled to receive compensation for this service based upon its actual cost of performing such service.
	F.	Prepayment:
		Upon request by Operator, each Non-Operator shall prepay to Operator its proportionate share of the necessary costs to drill, test, complete, plug and abandon, recomplete and/or rework all wells covered by this agreement and Operator shall not be required to commence any operation hereunder until full prepayment for such operation has been received.
	G.	Information and Data:
		All consenting parties participating in any well or operation, and which are not otherwise in default to Operator under the terms of this agreement shall be entitled to all tests, information and data related to such well or operation.  However, it is agreed and understood that any Non-Consenting Party in well or operation shall not be entitled to any tests, information and data related to such well or operation if such party is a Non-Consenting Party in such well or operation.
	H.	Operator’s Authority To Sell Gas Production:
		Notwithstanding anything to the contrary contained in Article Vl.G of this Operating Agreement, Operator is hereby granted and Operator accepts the express right and authority to (1) sell gas and associated hydrocarbons produced from the Contract Area, which are attributable to Non-Operator’s interest in the Contract Area and (2) disburse all proceeds (less applicable taxes) received from the sale of such gas and associated hydrocarbons to Non-Operators and their respective royalty owners in proportion to their revenue interests in the Contract Area.  Such authority may be expressly revoked by written notice to Operator by the party desiring such revocation.  Operator is fully authorized to negotiate and enter into gas sales agreements on behalf of all Non-Operators hereto (who have not expressly revoked such authority) covering gas production from the Contract Area.  Any gas sales contracts entered into by Operator prior to receipt of notice of revocation of authority shall be binding upon party desiring such revocation until expiration of the term of the contract in question.  Operator, however, agrees not to enter into contracts covering Non-Operator’s portion of gas sales, which provide for an initial term exceeding ninety (90) days without Non-Operator’s prior written approval.  All gas sales arranged by Operator shall be made on behalf of all Non-Operators hereto in proportion to their interest in the Contract Area.  Operator shall seek to obtain the best price obtainable for such gas in the area at the time of the contract; however, Operator shall not be a guarantor of obtaining the best price obtainable and Non-Operators recognize that factors other than price are valid considerations in gas marketing.
	I.	Seismic Operations:
		If any party to this agreement proposes to shoot 3D seismic across any part of the Contract Area, such 3D seismic shoot shall not be conducted without the approval of at least 75% in interest of the parties entitled to participate in such operation, and upon such 75% approval, the non-consent provisions of this agreement shall not apply and participation in such 3D seismic operation shall be mandatory by all such parties.  If any party who did not voluntarily elect to participate in such 3D seismic operation but is required to participate in such operation under the terms of this provision fails to timely pay for its share of costs related to such operation, Operator may deem such party in default and such party shall forfeit to the participating parties all of such defaulting party’s interest in the Contract Area except for any existing production and the wellbores and equipment related thereto.
	J.	Contract Operations:
		Notwithstanding anything to the contrary elsewhere contained, it is understood and agreed that the Operator has contracted or will contract with Oblean Resources, LLC (“Oblean”), or any other suitable entity, to provide certain contract operating services and to designate itself with the Texas Railroad Commission as the regulatory “operator” of well(s) in the Contract Area, responsible to the Texas Railroad Commission for regulatory compliance; however, Mogul Energy International, Inc. is and shall be the Operator for all purposes under this Agreement.

17

1	IN WITNESS WHEREOF, this agreement shall be effective as of the _____26___ day of November
2	2010 _____.
3	ATTEST OR WITNESS:	MOGUL ENERGY INTERNATIONAL INC.
4		OPERATOR
5
6		By:  /s/ Timothy J. Turner
7		Tim Turner
8		Title: Executive Vice President
9		Date ______________________________________________
10		Tax ID or S.S. No. ___________________________________
11
12	NON-OPERATORS
13
14
15		By:  /s/ T. Guidish
16		Global Oil & Gas Resources, Inc
17		Type or print name
18		Title:_______________________________________________
19		Date:_______________________________________________
20		Tax ID or S.S. No.: ____________________________________
21
22
23		By:  /s/ D. George
24		Indian Lane Asso., LLC
25		Type or print name
26		Title: ______________________________________________
27		Date: ______________________________________________
28		Tax ID or S.S. No.: ___________________________________
29
30		By:  /s/ J. Romano
31		Dolimiti Partners, LLC
32		Type or print name
33		Title: ______________________________________________
34		Date: ______________________________________________
35		Tax ID or S.S. No.: ___________________________________
24
30		By:  /s/ D. Thompson
31		Aura Oil Holdings, LTD
32		Type or print name
33		Title: ______________________________________________
34		Date: ______________________________________________
35		Tax ID or S.S. No.: ___________________________________
25
30		By:  /s/ D. Kittler
31		Fossil Oil Company, LLC
32		Type or print name
33		Title: ______________________________________________
34		Date: ______________________________________________
35		Tax ID or S.S. No.: ___________________________________
26
30		By:  /s/ T. Jacky
31		C. H. Squyres Family, LLC
32		Type or print name
33		Title: ______________________________________________
34		Date: ______________________________________________
35		Tax ID or S.S. No.: ___________________________________
27

1	ACKNOWLEDGMENTS
2	Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.  The
3	validity and effect of these forms in any state will depend upon the statutes of that state.
4
5	Individual acknowledgment:
6	State of __________________________________  )
7		) ss.
8	County of _________________________________)
9	This instrument was acknowledged before me on
10	_________________________________________________ by ___________________________________________________
11
12	(Sea], if any)	___________________________________________________
13		Title (and Rank) ______________________________________
14		My commission expires: _______________________________
15
16	Acknowledgment in representative capacity:
17	State of ____________________________________)
18		) ss.
19	County of __________________________________)
20	This instrument was acknowledged before me on
21	_________________________________________________ by ____________________________________________________
22	_____________________ of ________________________________________________________________________________
23	(Sea], if any)	___________________________________________________
24	Title (and Rank) ______________________________________
25	My commission expires: _________________________________	My commission expires: _______________________________
26
27

EXHIBIT “A”

ATTACHED TO AND MADE PART OF THAT CERTAIN JOINT OPERATION AGREEMENT DATED JANUARY 17, 2011 BETWEEN

MOGUL ENERGY INTERNATIONAL, INC., AS OPERATOR, AND

NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

(1) Description of lands subject to this agreement, and Land plat outlining the Stafford Prospect Contract Area – See Exhibit “A-1”

(2)           Restrictions, if any, as to depths, formations, or substances – See Exhibit “A-1”

(3) Parties to agreement with addresses and telephone numbers for notice purposes – See Exhibit “A-2”

(4)           Percentages or fractional interests of parties to this agreement – See Exhibit “A-2”

(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement – See Exhibit “A-1”

(6)           Burdens on production – See Exhibit “A-1”

2

EXHIBIT “A-1”

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JANUARY 17, 2011 BY AND BETWEEN

MOGUL ENERGY INTERNATIONAL, INC., OPERATOR

AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

1.             Description of Lands Subject to This Agreement:

ANY AND ALL LANDS WITHIN THE STAFFORD PROSPECT AREA OUTLINE, AS PROVIDED FOR ON THE MOGUL ENERGY INTERNATIONAL, INC. PLAT DATED DECEMBER 07, 2010  AND ATTACHED TO   THIS EXHIBIT “A-1”

2.             Restrictions, if any, as to Depths, Formations, or Substances:

None.

3.             Burdens on Production:

ALL ROYALTIES BURDENING THE OIL AND GAS LEASES DESCRIBED IN THIS EXHIBIT “A-1”, ALL OVERRIDING ROYALTIES OF RECORD AS OF THE DATE OF THIS AGREEMENT BURDENING THE OIL AND GAS LEASES DESCRIBED IN THIS EXHIBIT “A-1”, AND THE FOLLOWING:

Donald Timko and James Sorrells – a proportionate total of four (4.00%) percent of 8/8 equally shared and burdened by all working interest owners in the proportions as set out herein.

4.             Partial Listing of Oil and Gas Leases Subject to This Agreement:

Name of Lessee	Instrument		Book	Page
Judge Harrison Stafford, II		69591	xx	xx

3

EXHIBIT “A-2”

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JANUARY 17, 2011 BY AND BETWEEN

MOGUL ENERGY INTERNATIONAL, INC., OPERATOR

AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

Before Casing Point Participant	After Casing Point Working Interest			Working Interest
MOGUL ENERGY INTERNATIONAL, INC.		10.5555555	%		15.00000000	%
SONORA ENERGY, L.L.C.		6.66666666	%		5.00000000	%
AURA OIL HOLDINGS, LTD.		11.11111111	%		8.33333333	%
GLOBAL OIL & GAS RESOURCES, INC.		6.66666666	%		5.00000000	%

4

EXHIBIT “B”

ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT DATED JANUARY 17, 2011 BY AND BETWEEN

MOGUL ENERGY INTERNATIONAL, INC., OPERATOR

AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

THERE IS NO EXHIBIT “B”.

5

EXHIBIT “C”

ATTACHED TO AND MADE PART OF THAT CERTAIN JOINT OPERATION AGREEMENT DATED JANUARY 17, 2011 BETWEEN

MOGUL ENERGY INTERNATIONAL, INC., AS OPERATOR, AND

NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

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.

6

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.

7

II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

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.

8

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.

9

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

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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 $5,000.

(Prorated for less than a full month)

Producing Well Rate $850.

(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.

(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.

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(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.

NA 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.

NA 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.

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 $50,000.00:

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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.

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.

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A. New Material (Condition A).

(1) New material shall be priced at the current market price, as quoted by the nearest reliable supply store.

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.

(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.

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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 actual third party cost incurred.

(2) Material involving erection costs shall be charged at actual third party costs incurred.  NOTWITHSTANDING ANYTHING CONTAINED HEREIN, THE PRICE ON USED MATERIALS SHALL NOT EXCEED CURRENT MARKET PRICE FOR COMPARABLE 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

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.

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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 PART OF THAT CERTAIN JOINT OPERATION AGREEMENT DATED JANUARY 17, 2011 BETWEEN MOGUL ENERGY INTERNATIONAL, INC., AS OPERATOR, AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

1. INSURANCE

A. Workmen’s Compensation Insurance to cover full liability under the Workmen’s Compensation laws of the state in which the Contract Area is located.

B. Employer’s Liability Insurance with limits of not less than $ 1,000,000.00 for the accidental injury or death of one or more employees.

C. Comprehensive General Public Liability Bodily Injury Insurance with limits of liability of not less than $1,000,000.00 for the accidental injury or death of one person, and $1,000,000.00 for the accidental injury or death of more than one person as the result of one accident.

D. Comprehensive General Public Liability Property Damage Insurance with limits of not less than $1,000,000.00 for damage to property as a result of one accident or one occurrence.

E. Automobile Public Liability and Property Damage Insurance combined with limits of not less than $1,000,000.00 for injuries to or death of one person or property damage, and $1,000,000.00 for injuries to or death of more than one person and property damage as the result of one accident.

F.  Umbrella Liability with limits of $5,000,000.00

G. Operator shall, at the joint expense of the parties hereto, at all times while operations are conducted hereunder, provide with responsible insurance companies the following insurance:

Control of Well Insurance, including expense for Clean-up, Containment, Seepage and Pollution with combined limits of not less than $5,000,000.00 per occurrence.

H. Each party shall have the right to be excluded from the above stated insurance coverage and therefore not be charged for its proportionate share thereof, by acquiring at its cost its own insurance meeting the requirements set forth above.  If such party acquires such insurance, it shall furnish a certificate or certificates executed by the company providing the insurance required hereunder certifying that all required coverages are in full force and effect, and will not be terminated, modified or canceled without at least thirty (30) days notice to the parties hereto.

I. Losses for which no insurance is required to be carried or in excess of the limits set forth above, shall be borne by the parties in proportion of their respective interests herein and shall be charged to the joint account.

2. PREMIUMS AND ADDITIONAL COVERAGE

A. The premiums paid for all Insurance shall be charged as operation expense.  No Insurance, other than that shown above, shall be carried for the benefit of the Joint Account except by mutual consent of the Parties.

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EXHIBIT “E”

ATTACHED TO AND MADE PART OF THAT CERTAIN JOINT OPERATION AGREEMENT DATED JANUARY 17, 2011

BETWEEN MOGUL ENERGY INTERNATIONAL, INC., AS OPERATOR,

AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

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 under deliveries 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 PART OF THAT CERTAIN JOINT OPERATION AGREEMENT DATED JANUARY 17, 2011

BETWEEN MOGUL ENERGY INTERNATIONAL, INC., AS OPERATOR,

AND NON-OPERATOR(S), AS IDENTIFIED ON

EXHIBIT “A-2” ATTACHED HERETO.

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 vendoras 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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EX-10.6

Exhibi 10.6

STAFFORD AREA PARTICIPATION AGREEMENT

This Stafford Area Participation Agreement (hereinafter “Agreement”) is entered into by and between C. H. Squyres Family, LLC, (hereafter “SQUYRES”), A Texas Limited Liability Company, whose address is Houston, TX 77005; Fossil Oil Company, LLC, (hereinafter “FOSSIL”), 2500 Wilcrest Drive Suite 410-415, Houston, TX 77042 and Mogul Energy International, Inc., (hereinafter “MOGUL”), whose address is 2500 Wilcrest Dr., Ste. 405, Houston, TX 77042, and shall be effective as of the 7th day of December, 2010 (hereinafter the “Effective Date”).

WITNESSETH:

WHEREAS, MOGUL, through its partnership with Mr. D. Timko and J. Sorrells, have acquired certain oil and gas leases (hereinafter “Leases”) on the subject prospect.  Both the subject Leases and the Prospect outline are further identified on Exhibit “A” attached hereto and made a part hereof;

WHEREAS, SQUYRES AND FOSSIL desire to acquire a working interest in these Leases, in the manner provided for in this Agreement, and desire to enter into this Agreement for the purposes of joining MOGUL in the development of this Prospect;

WHEREAS, MOGUL agrees to exchange with SQUYRES and FOSSIL an equal interest in the MOGUL Leases and SQUYRES agrees to exchange with MOGUL and FOSSIL an equal interest in the oil and gas leasehold interests that SQUYRES (formerly IMS Energy) currently maintains within the subject Prospect outline.

NOW, THEREFORE, in consideration of the mutual promises in this Agreement and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, SQUYRES, FOSSIL and MOGUL (collectively referred to hereinafter as “PARTIES”) agree as follows:

I.

ACQUISITION TRANSACTIONS

PARTIES shall purchase, up to $15,000 in acquisition costs, an assignment of all interests and acreage that David Montoya (Monoco Petroleum, Inc.) currently has under lease within the Prospect with no reservations or exceptions.  PARTIES agree that as additional compensation, Montoya/Monoco shall receive an overriding royalty interest of one and one-half percent (1½%) after payout on each of the wells drilled that are associated with the Montoya/Monoco’s leasehold acreage solely out of the SQUYRES net revenue interest.

PARTIES will each have a one third (1/3rd) interest in each and every lease within the Prospect outline.  The PARTIES shall share equally in the cost of any additional leases already acquired or to be acquired in the Prospect outline.  Cost is defined as the bonus payments made and the professional service fees associated with the acquisition of the additional leases within the Prospect outline.

PARTIES agree to compensate Don Timko and Jim Sorrells a sum equal to Sixteen Thousand Dollars ($16,000) upon the spudding of the initial well drilled on this prospect and further provide them with an overriding royalty interest equal to four (4.00%) percent of 8/8ths upon initial production of each well.

II.

DRILLING OPERATIONS ON PROSPECT WELLS

On or before February 1, 2011 or as soon as practical after a permit has been issued and any and all potential unit issues have been resolved, MOGUL agrees to drill the initial prospect well, which is contemplated to be a vertical well to test the Frio formation and will be referred to as the Stafford #1 well.  PARTIES agree to pay their one third of the cost to drill and complete each well (on a heads up basis, with no promote) to receive its equal thirty three and one third percent (33.333333%) working interest in each proposed prospect well.

-1-

Following the completion of drilling operations conducted on the initial prospect well, if it is determined by the PARTIES that subsequent wells are necessary, then each of the PARTIES have the right and option to participate in the drilling of  additional prospect wells.  PARTIES shall pay its similar heads up costs to drill and complete the additional prospect wells.

III.

NET REVENUE INTEREST

The net revenue interest in the Oil and Gas Rights in the Leases shall be x percent (x%) to FOSSIL and x percent (x%) to SQUYRES.  In addition to the subject Leases, any other leases acquired or to be acquired under the any of the lands in the Prospect area described on Exhibit “A”, the PARTIES share of such interest shall be delivered to PARTIES at the acquired Net Revenue Interest of that lease.  Other interests acquired outside the Prospect outline but under the AMI, as defined below, shall be offered to the PARTIES but the PARTIES may elect not to purchase an interest in the acreage and therefore have no participating interest in that acreage.

IV.

AREA OF MUTUAL INTEREST

PARTICIPANT and MOGUL hereby designate an AMI covering a one mile distance from the Stafford Prospect Contract Acreage Area of Jackson County, Texas (the “AMI Land”), as defined in Exhibit “A”.  The AMI shall exist for a term of two (2) years from the Effective Date of this Agreement. Nothing in this Agreement shall be deemed to create a partnership or a joint venture between PARTIES and MOGUL.

V.

AGREEMENTS

The Oil and Gas Rights in the Leases shall be subject to the terms and provisions of the following agreements:

(a) The JOA; and

(b) Instruments creating the Oil and Gas Rights in the Leases; and

(c) Agreements relating to sale of production from the Leases; and

(d) Agreements to which Oil and Gas Rights in the Leases are subject to when acquired.

The parties’ interests shall be subject to all of the agreements identified above as well as any other agreement(s) which affect Oil and Gas Rights in the Leases.  To the extent that the terms of any such agreements conflict with the terms of this Agreement, this Agreement shall control unless the terms of any such other agreement controls by operation of law or otherwise.

VI.

DEPTH LIMITATION

There are no depth limitations; provided, however, all PARTIES shall be subject to depth limitations imposed by instruments creating Oil and Gas Rights in the Leases.

VII.

ASSIGNMENT

Any assignment of the Leases shall be without warranty, and equipment and other personal property, if any, shall be assigned on an “AS IS, WHERE IS” basis negating any express or implied warranty of merchantability or fitness for a particular purpose.  The effective date of the assignment shall be the same as the effective date of the acquisition of Oil and Gas Rights in the Leases.  The form of assignment shall be the same form as is attached as Exhibit “C” and made a part of this Agreement.

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VIII.

OPERATIONS

Operations on the Leases shall be conducted in accordance with the terms of the JOA attached as Exhibit “B.”  MOGUL, or its designated operator, shall be named operator.  PARTIES shall be obligated to pay its share of operating expenses on all active wells in which PARTIES own a working interest as provided for in the JOA.

IX.

TERM

The term of this Agreement shall be concurrent with the term of the Oil and Gas Rights in the Leases; provided, however, if the rights expire prior to the AMI then the term of this agreement shall be concurrent with the term of the AMI as stated in section VI.

X.

NOTICES

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

SQUYRES	MOGUL
C. H. Squyres Family, LLC	Mogul Energy International, Inc.
	2500 Wilcrest Dr., Ste. 405
Houston, TX 77005	Houston, TX 77042
Attention: Mr. C. Squyres, Manager	Attention: Mr. Tim Turner
Tel. No.:	Tel. No.: 713-784-2446
Fax No.:	Fax No.:
Cell No.:	Cell No.:
E-mail:	-mail:

Tax ID:

FOSSIL

Fossil Oil Company, LLC

2500 Wilcrest Drive Suite 410-415

Houston, TX 77042

Attention: D. Kittler

E-mail:

Tel. No.:

Fax:

Tax ID:

XI.

MISCELLANEOUS

Waiver.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver or any other provision of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Headings.  The headings of articles and sections used in this Agreement are for convenience only and shall not be considered a part of nor affect the construction or interpretation of any provision of this Agreement.

Provisions Binding.  The provisions of this Agreement shall be binding upon and inure to the benefit of the PARTIES, and their respective successors, legal representatives and assigns.

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Governing Law.  This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflicts of law provisions.

Attorney’s Fees.  In the event any legal action, mediation, arbitration or any other proceeding is instituted in order to enforce or interpret the provisions of this Agreement, the prevailing party in such action shall be entitled to recover, as an item of its costs, its reasonable attorney’s fees and other expenses incurred in such action.

Severability.  If any term or other provision of this Agreement is determined to be invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.

References.  References made in this Agreement, including use of a pronoun, shall be deemed to include where applicable, masculine, feminine, singular or plural, individuals, partnerships or corporations.

Construction.  All PARTIES have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the PARTIES and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

Counterparts; Facsimile/Email Transmission.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.  Each party to this Agreement agrees that its own facsimile and/or emailed signature will bind it and that it accepts the facsimile and/or emailed signature of the other party to this Agreement.

No Partnership or Joint Venture.  Neither this Agreement nor the Joint Operating Agreement entered into by the PARTIES are intended to create, nor shall the same be construed as creating a mining partnership, commercial partnership, nor any other partnership or joint venture relationship or other association whereby the parties are jointly liable.  Rather, it is the intent and purpose of this Agreement to create a relationship which is limited to the exploration, development and extraction of oil and/or gas for sale.  The liability of the PARTIES shall be several and not joint or collective.

Cooperation.  The PARTIES will cooperate as necessary to complete any documents or agreements required to accomplish this Agreement.

Covenants Running with the Leases.  All covenants and agreements of the PARTIES set forth in this Agreement shall be deemed covenants running with the lands covered by the Subject Leases.

IN WITNESS WHEREOF, this Agreement has been executed as of the dates of acknowledgments of the parties but shall be effective as of the Effective Date first above written.

SIGNATURES

Mogul Energy International, Inc.		C. H. Squyres Family, LLC
By:	/s/ Timothy J. Turner	By:	/s/ C. Squyres
	Tim Turner		C. Squyres
Its:	Executive Vice President	Its:
		Fossil Oil Company, LLC
		By:	/s/ D. Kittler
			D. Kittler
		Its:	President

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ACKNOWLEDGMENTS

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by Tim Turner of Mogul Energy International, Inc.

My Commission Expires:
	Notary Public in and for the State of Texas

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by  ____________________ of C. H. Squyres Family, LLC.

My Commission Expires:
	Notary Public in and for the State of _______

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by  ____________________ of Fossil Oil Company, LLC.

My Commission Expires:
	Notary Public in and for the State of _______

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Exhibit “A”

Attached to and made part of that certain Stafford Area Participation Agreement dated December 7, 2010 by and between Mogul Energy International, Inc., Operator and C. H. Squyres Family, LLC and Fossil Oil Company, LLC.

CONTRACT ACREAGE AREA

Portions of the: Jessie White Survey, A-XX; I. & G. N. Survey, A-XX; I. & G. N. Survey, A-XX; Benjamin J. White Survey, A-XX and the Abarham M. Clare Survey, A-12 and any and all lands within the Stafford Prospect Area Outline, Jackson Co., Texas, as provided for on the Mogul Energy International, Inc. plat dated December 7, 2010 and containing approximately 4,800 acres.

-6-

Exhibit “B”

Joint Operating Agreement Attached to and made part of that certain Stafford Area Participation Agreement dated December 7, 2010 by and between Mogul Energy International, Inc., Operator and C. H. Squyres Family, LLC and Fossil Oil Company, LLC.

See Attached Electronic PDF File

-7-

Exhibit “C”

Attached to and made part of that certain Stafford Area Participation Agreement dated December 7, 2010 by and between Mogul Energy International, Inc., Operator and C. H. Squyres Family, LLC and Fossil Oil Company, LLC, Non-Operator.

FORM OF ASSIGNMENT

ASSIGNMENT OF OIL, GAS AND MINERAL INTERESTS

STATE OF TEXAS	§
	§
COUNTY OF JACKSON	§

This Assignment of Oil, Gas and Mineral Interests (this “Assignment”) dated ________ ____, 20__, is by and between ________________________________whose mailing address is __________________________ (“Assignor”), and___________________________, whose address is ________________________________________________ (“Assignee”). Assignor and Assignee are sometimes hereinafter referred to individually as a “Party” and collectively as the “Parties.”

FOR and in consideration of TEN and NO/100 DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and provisions hereinafter set forth, Assignor has GRANTED, BARGAINED, SOLD, ASSIGNED, TRANSFERRED, CONVEYED and DELIVERED and by these presents does hereby GRANT, BARGAIN, SELL, ASSIGN, TRANSFER, CONVEY and DELIVER unto Assignee, its successors and assigns, an undivided Thirty Three and 33/100ths percent (33.33%) of Assignor’s right, title and interest in and to the oil, gas and mineral leases and other interests described in Exhibit “A” attached hereto (the “Interests”).

TO HAVE AND TO HOLD the Interests, together with a like share of all other rights appurtenant thereto, unto Assignee, its successors and assigns forever, subject to the following:

1. This Assignment is subject to the terms and provisions of that certain Stafford Area Participation Agreement dated December 7, 2010, by and between Assignor and Assignee (the “Participation Agreement”), and nothing in this Assignment shall operate to limit, release, or impair any of Assignor's or Assignee's respective rights and obligations in the Participation Agreement.  To the extent the terms and provisions of this Assignment conflict with the terms and provisions of the Participation Agreement, the terms and provisions of the Participation Agreement shall control.

2. This Assignment is subject to the terms and provisions of that certain Joint Operating Agreement dated November ___, 2010, by and between Mogul Energy International, Inc, as Operator, and C. H. Squyres Family, LLC and Fossil Oil Company, LLC., as Non-Operators (the “Joint Operating Agreement”).  To the extent the terms and provisions of this Assignment conflict with the terms and provisions of the Joint Operating Agreement, the terms and provisions of the Joint Operating Agreement shall control.

3. This Assignment is subject to the terms and provisions of all applicable easements, rights of way, and pooling and unitization agreements of record.

4. This Assignment is made without warranty of title, express, implied, statutory or otherwise.

5. The Parties agree to execute, acknowledge and deliver such further agreements, instruments, notices, stipulations and/or conveyances as may be necessary to accomplish the intents and purposes of this Assignment

6. This Assignment binds and inures to the benefit of the Parties and their respective successors and assigns.

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7. This Assignment may be executed in counterparts, each of which shall be deemed to be an original for all purposes, and all of which, when taken together, shall constitute one and the same instrument.  Neither Party shall be bound by the terms hereof unless and until all Parties have executed a counterpart original.

IN WITNESS WHEREOF, this Assignment is executed on the dates set forth in the acknowledgments below, but shall be effective as to each of the Interests as of the effective date of acquisition of such Interests by Assignor.

ASSIGNOR:

By:

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by _______________of _________________________.

My Commission Expires:
	Notary Public in and for the State of Texas

Exhibit “A”, property description, attached by electronic file

-9-

EX-10.7

Exhibit 10.7

NORTH PASTURE AREA PARTICIPATION AGREEMENT

This North Pasture Area Participation Agreement (hereinafter “Agreement”) is entered into by and between Global Oil and Gas Resources, Inc., whose address is Spring, Texas 77379 (hereinafter “PARTICIPANT”) and Mogul Energy International, Inc. (hereinafter “Mogul”), whose address 2500 Wilcrest Dr., Ste. 405, Houston, TX 77042, and shall be effective as of the 8th day of December, 2010 (hereinafter the “Effective Date”).

WITNESSETH:

WHEREAS, MOGUL is in the process of acquiring certain leasehold interest in the oil and gas leases within the lands area described in Exhibit “A” attached hereto and made a part hereof (hereinafter the “Leases”);

WHEREAS, PARTICIPANT desires to acquire a working interest in a portion of the Leases, in the manner provided for in this Agreement, and desires to enter into this Agreement for the purposes of joining MOGUL in the exploration and development of the Leases;

WHEREAS, MOGUL agrees to sell to PARTICIPANT a certain interest the oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances (such oil and gas leases, leasehold rights, and rights to participate in the development of oil, gas and other related substances being hereinafter called “Oil and Gas Rights”) in the Leases.

NOW, THEREFORE, in consideration of the mutual promises in this Agreement and other good and valuable consideration, the sufficiency of which is acknowledged, PARTICIPANT and MOGUL agree as follows:

I.

ACQUISITION TRANSACTIONS

MOGUL shall purchase Oil and Gas Rights in the Contract Acreage Area identified in Exhibit “A” attached hereto and made a part hereof.  Simultaneously with the execution of this Agreement by both PARTICIPANT and MOGUL, PARTICIPANT agrees to pay to MOGUL the following: Eighty Four percent (84.00%) of the proposed Authorization for Expenditure (AFE) costs for its proportional interest in the Oil and Gas Rights in the Leases and its share in the Drilling and Completion costs of one (1) vertical well (the “Initial Prospect Well”) to a proposed depth of 7,850 feet so as to test the Frio Formation, for Six Hundred Twenty Two Thousand Six Hundred Thirty Three Dollars and 00/100 ($622,633.00).  PARTICIPANT agrees to make this payment in the following phases:

A.) Eighty Eight Thousand Two Hundred Dollars ($88,200) upon execution of the Definitive Agreement and Joint Operating agreement;

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B.) Three Hundred Eight Thousand Two Hundred Eighty Dollars ($308,280) or the equivalent percentage upon the final AFE amount for drilling costs thirty (30) days prior to spudding the well;

C.) Two Hundred Twenty Six Thousand One Hundred Fifty Three Dollars ($226,153) or the equivalent percentage upon the final AFE amount for the completion costs within three (3) days if and when the operator decides to complete the well.

PARTICIPANT shall earn sixty three percent (63.00%) of the rights, title, and interest in and to the Oil and Gas Rights in the Leases acquired within the unit area and shall be responsible for the same sixty three (63%) percent costs after completion.  PARTICIPANT and MOGUL agree to execute such assignments of the Oil and Gas Rights to vest PARTICIPANT with such sixty three percent (63.00%) working interest, upon receipt of the first two payments above and subject to Article IX below.

If MOGUL acquires only partial leases covering the Initial Prospect Well or none of the leases within the area described in Exhibit “A”, the following shall apply:

A.) Partial acquisition: (but still enough to drill the Initial Prospect Well) – if there are funds remaining after the acquisition of leases in the area, as defined in Exhibit “A”, PARTICPANT will be refunded any proportional funds not already spent, less any pending costs related to the lease acquisition efforts.

B.) Not able to secure any leases within the area described in Exhibit “A” – PARTICPANT will be proportionally refunded all remaining monies paid, less any pending costs related to the lease acquisition efforts within this area.  Alternatively, PARTICPANT, at their option, may apply those funds to another MOGUL project.  Additional payments for the Initial Prospect Well, as called for in this Agreement, are also voided.

II.

DRILLING OPERATIONS ON PROSPECT WELLS

On or before February 1, 2011 or as soon as practical after a permit has been issued and any and all potential unit issues have been resolved, MOGUL agrees to drill the Initial Prospect Well, which is contemplated to be a vertical well to test the Frio formation, which will be referred to as the North Pasture Well # 1.  PARTICIPANT shall pay Eighty Four percent (84.00%) of the costs through completion of the Initial Prospect Well to receive its sixty three percent (63.00%) working interest in the Initial Prospect Well.

Following the drilling and completion operations of the Initial Prospect Well, if it is determined by MOGUL that subsequent wells are necessary, then PARTICIPANT has the right and option to participate in the drilling of up to two (2) additional prospect wells (the “Additional Prospect Wells”).  PARTICIPANT shall pay Eighty Four percent (84.00%) of the costs, through completion, to drill and complete the Additional Prospect Wells to receive its sixty three percent (63.00%) working interest.  Thereafter each Subsequent Well (as defined in Article IV), PARTICIPANT shall pay sixty three percent (63.00%) for its sixty three percent (63.00%) working interest in each well.

- 2-

III.

CONSEQUENCES OF FAILURE TO CONDUCT

 DRILLING OPERATIONS ON ADDITIONAL PROSPECT WELLS

In the event PARTICIPANT fails to participate in and submit its payment when due on any Additional Prospect Well, PARTICIPANT shall forfeit its rights, title, and interest in the Oil and Gas Rights in the Leases that it may have and hold under any Leases outside the bounds of existing units previously drilled and completed within or partially within AMI Land area as defined herein.  At such time PARTICIPANT forfeits any rights, title, and interests in the Oil and Gas Rights in the Leases, PARTICIPANT shall immediately re-assign to MOGUL all rights, title and interests outside those existing units in which PARTICPANT participated.  Afterwards, PARTICIPANT shall have no further rights, title and interests in those Oil and Gas Rights in the Leases re-assigned to MOGUL by PARTICIPANT pursuant to this Article III.  Further, PARTICIPANT shall have no further rights to any future wells drilled in this area pursuant to this Agreement and the AMI (described below) shall automatically terminate.

IV.

DRILLING OPERATIONS ON SUBSEQUENT WELLS

Prior to proposing any Additional Prospect Wells or Subsequent Wells within the AMI Land area, as defined in Article VI below, MOGUL shall confer with PARTICIPANT and review all technical data currently available to best determine any future drilling opportunities.  Additional Prospect Wells or Subsequent Wells may then be proposed by MOGUL to PARTICIPANT to consider for participation.  MOGUL, upon securing a final AFE, shall submit to PARTICIPANT said AFE for approval, and PARTICIPANT shall have up to thirty (30) days to make its election to participate in such future well or wells. If approval is granted by PARTICIPANT, then PARTICIPANT’s share of all funds necessary to drill and complete the Subsequent Well shall be deposited by PARTICIPANT in the operating account of MOGUL simultaneously at such time approval is granted.  In the event PARTICIPANT does not approve the AFE for any Subsequent Well and/or does not make the required AFE payment within the allotted thirty (30) days, then PARTICIPANT shall forfeit all of its right, title and interests in any leases or tracts of land it would have earned under the Subsequent Well and MOGUL shall have the right to fund such well at its sole discretion.  At such time PARTICIPANT forfeits any rights, title, and interests in the Oil and Gas Rights in the Leases, PARTICIPANT shall immediately re-assign to MOGUL all rights, title and interests outside those existing units in which PARTICIPANT participated.  Afterwards, PARTICIPANT shall have no further rights, title and interests in those Oil and Gas Rights in the Leases re-assigned to MOGUL by PARTICIPANT pursuant to this Article IV.  Notwithstanding anything to the contrary, PARTICIPANT shall have no obligation to approve an AFE presented by MOGUL or fund its portion of a Subsequent Well, and PARTICIPANT will have no liability in the event it chooses not to approve an AFE or fund its portion a Subsequent Well thereafter.

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V.

NET REVENUE INTEREST

The net revenue interest in the Oil and Gas Rights in the Leases shall be x percent (x%).  In the event there is any outstanding interest acquired under the existing tracts of land in the Leases described on Exhibit “A”, PARTICIPANT’S share of such interest shall be delivered to PARTICIPANT at x percent (x%) Net Revenue Interest.  Other interests acquired shall be covered under the AMI described below.

VI.

AREA OF MUTUAL INTEREST

PARTICIPANT and MOGUL hereby designate an AMI covering a one mile distance from the North Pasture Contract Acreage Area of San Patricio County, Texas (the “AMI Land”), as defined in Exhibit “A”.  The AMI shall exist for a term of two (2) years from the Effective Date of this Agreement.  If PARTICIPANT (acquiring party) acquires any rights, title and interests in any leases or tracts of land within or partially within the AMI Land, subject to this Agreement or not, then the acquiring party shall give the non-acquiring party (whether one or more) notice by facsimile, e-mail, or other means of transmission through which a receipt showing that notice was given may be obtained stating the acquisition price, the number of acres acquired, and other relevant details about such acquisition, and providing a copy of the instrument(s) evidencing such acquisition.  The non-acquiring party shall have fifteen (15) days after receipt of such notice to elect to acquire its proportionate share of the rights, title and interests in such AMI Land by paying its proportionate share of the actual out of pocket acquisition cost, with no overhead or other similar charge to be made by the acquiring party.  If the non-acquiring party does not make payment within the fifteen (15) day period, then the non-acquiring party shall forfeit all of its right, title and interests in any leases or tracts of land it would have earned in the acquired AMI Land.  All actual out of pocket acquisition costs for any rights, title and interests acquired within the AMI by the acquiring party, including but not limited to bonuses and other payments for acquisition, recording fees, broker fees paid to unrelated parties, attorney fees for title opinions and other matters, and title curative, shall be borne by the parties herein according to each of their respective working interest shares, assuming each consents to acquire its proportionate share.  All acreage acquired by Mogul within the AMI Land shall be offered to PARTICIPANT on the same promotional basis as outlined in Paragraph II above.  Nothing in this Agreement shall be deemed to create a partnership or a joint venture between PARTICIPANT and MOGUL.

VII.

AGREEMENTS

The Oil and Gas Rights in the Leases shall be subject to the terms and provisions of the following agreements:

(a) The JOA; and

(b) Instruments creating the Oil and Gas Rights in the Leases; and

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(c) Agreements relating to sale of production from the Leases; and

(d) Agreements to which Oil and Gas Rights in the Leases are subject to when acquired.

The parties’ interests shall be subject to all of the agreements identified above as well as any other agreement(s) which affect Oil and Gas Rights in the Leases.  To the extent that the terms of any such agreements conflict with the terms of this Agreement, this Agreement shall control unless the terms of such other agreement control by operation of law or otherwise.

VIII.

DEPTH LIMITATION

There are no depth limitations; provided, however, PARTICIPANT and MOGUL shall be subject to depth limitations imposed by instruments creating Oil and Gas Rights in the Leases.

IX.

ASSIGNMENT

Any assignment of the Leases shall be without warranty, and equipment and other personal property, if any, shall be assigned on an “AS IS, WHERE IS” basis negating any express or implied warranty of merchantability or fitness for a particular purpose.  The effective date of the assignment shall be the same as the effective date of the acquisition of Oil and Gas Rights in the Leases.  The form of assignment shall be the same form as is attached as Exhibit “C” and made a part of this Agreement.

X.

OPERATIONS

Operations on the Leases shall be conducted in accordance with the terms of the JOA attached as Exhibit “B.”  MOGUL, or its designated operator, shall be named operator.  PARTICIPANT shall be obligated to pay its share of operating expenses on all active wells in which PARTICIPANT owns a working interest as provided for in the JOA.

MOGUL agrees to have a pre spud technical meeting to review the technical drill plans with PARTICPANT. MOGUL further agrees to share all technical data during and after drilling with PARTICPANT including logs, daily drilling reports and any test results.   PARTICPANT agrees to keep all data confidential until MOGUL agrees to its release.

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XI.

TERM

The term of this Agreement shall be concurrent with the term of the Oil and Gas Rights in the Leases; provided, however, if the rights expire prior to the AMI then the term of this agreement shall be concurrent with the term of the AMI as stated in section VI.

XII.

NOTICES

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

Global Oil and Gas Resources, Inc.		Mogul Energy International, Inc.
		2500 Wilcrest Dr., Ste. 405
Spring, Texas 77379		Houston, TX 77042
Attention: T. Guidish	Attention: Tim Turner
Tel. No.:		Tel. No.: 713-784-2446
Fax No.:		Fax No.:
Cell No.:		Cell No.:
E-mail:		E-mail:

XIII.

MISCELLANEOUS

Waiver.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver or any other provision of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Headings.  The headings of articles and sections used in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

Provisions Binding.  The provisions of this Agreement shall be binding upon and inure to the benefit of MOGUL and PARTICIPANT, and their respective successors, legal representatives and assigns.

Governing Law.  This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflicts of law provisions.

Attorney’s Fees.  In the event any legal action, mediation, arbitration or any other proceeding is instituted in order to enforce or interpret the provisions of this Agreement, the prevailing party in such action shall be entitled to recover, as an item of its costs, its reasonable attorney’s fees and other expenses incurred in such action.

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Severability.  If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect.

References.  References made in this Agreement, including use of a pronoun, shall be deemed to include where applicable, masculine, feminine, singular or plural, individuals, partnerships or corporations.

Construction.  MOGUL and PARTICIPANT have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Assignment shall be construed as if drafted jointly by MOGUL and PARTICIPANT and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

Counterparts; Facsimile/Email Transmission.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.  Each party to this Agreement agrees that its own facsimile and/or emailed signature will bind it and that it accepts the facsimile and/or emailed signature of the other party to this Agreement.

No Partnership or Joint Venture.  Neither this Agreement of the Operating Agreement entered into by MOGUL and PARTICIPANT is intended to create, nor shall the same be construed as creating a mining partnership, commercial partnership, or any other partnership or joint venture relationship or other association whereby the parties are jointly liable.  Rather, it is the intent and purpose of this Agreement to create a relationship which is limited to the exploration, development and extraction of oil and/or gas for sale.  The liability of the Parties shall be several and not joint or collective.

Cooperation.  The Parties will cooperate as necessary to complete any documents or agreements required to accomplish this Agreement.

Covenants Running with the Leases.  All covenants and agreements of the Parties set forth in this Agreement shall be deemed covenants running with the lands covered by the Subject Leases.

IN WITNESS WHEREOF, this Agreement has been executed as of the dates of acknowledgments of the parties but shall be effective as of the Effective Date first above written.

SIGNATURES

Mogul Energy International, Inc.	Global Oil and Gas Resources, Inc.
/s/ Timothy J. Turner	/s/ Tom Guidish
Tim Turner	Tom Guidish
Its: Executive Vice President	Its: Chief Executive Officer

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ACKNOWLEDGMENTS

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by Tim Turner of MOGUL Energy International, Inc.

My Commission Expires:
	Notary Public in and for the State of Texas

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by _____________________________ of PARTICIPANT.

My Commission Expires:
	Notary Public in and for the State of Texas

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Exhibit “A”

Attached to and made part of that certain North Pasture Area Participation Agreement dated December 08, 2010 by and between Mogul Energy International, Inc., Operator and PARTICIPANT.

CONTRACT ACREAGE AREA

Portions of the: Toyah C. IRR. Co. Survey, A-xx – Section x of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: Toyah C. IRR. Co. Survey, A-x – Section x of the George H. Paul Subdivision of the J. J. Welder Ranch

Portions of the: John Pollan Survey, A-xx

All Located in San Patricio County, Texas containing approximately 480 acres.

- 9-

Exhibit “B”

Joint Operating Agreement Attached to and made part of that certain North Pasture Area Participation Agreement dated December 08, 2010 by and between Mogul Energy International, Inc., Operator and PARTICIPANT.

See Attached Electronic PDF File

- 10-

Exhibit “C”

Attached to and made part of that certain North Pasture Area Participation Agreement dated December 08, 2010 by and between Mogul Energy International, Inc., Operator and PARTICIPANT, Non-Operator.

FORM OF ASSIGNMENT

ASSIGNMENT OF OIL, GAS AND MINERAL INTERESTS

STATE OF TEXAS	§
	§
COUNTY OF SAN PATRICIO	§

This Assignment of Oil, Gas and Mineral Interests (this “Assignment”) dated ________ ____, 20__, is by and between Mogul Energy International, Inc, a Corporation, whose corporate address is 2500 Wilcrest Dr., Ste. 410, Houston, TX 77042 (“Assignor”), and PARTICIPANT, whose address is 6106 Post Oak Court, Spring, TX 77379 (“Assignee”). Assignor and Assignee are sometimes hereinafter referred to individually as a “Party” and collectively as the “Parties.”

FOR and in consideration of TEN and NO/100 DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and provisions hereinafter set forth, Assignor has GRANTED, BARGAINED, SOLD, ASSIGNED, TRANSFERRED, CONVEYED and DELIVERED and by these presents does hereby GRANT, BARGAIN, SELL, ASSIGN, TRANSFER, CONVEY and DELIVER unto Assignee, its successors and assigns, an undivided Sixty Three percent (63.00%) of Assignor’s right, title and interest in and to the oil, gas and mineral leases and other interests described in Exhibit “A” attached hereto (the “Interests”).

TO HAVE AND TO HOLD the Interests, together with a like share of all other rights appurtenant thereto, unto Assignee, its successors and assigns forever, subject to the following:

1. This Assignment is subject to the terms and provisions of that certain North Pasture Area Participation Agreement dated _____________ ___, 2010, by and between Assignor and Assignee (the “Participation Agreement”), and nothing in this Assignment shall operate to limit, release, or impair any of Assignor's or Assignee's respective rights and obligations in the Participation Agreement.  To the extent the terms and provisions of this Assignment conflict with the terms and provisions of the Participation Agreement, the terms and provisions of the Participation Agreement shall control.

2. This Assignment is subject to the terms and provisions of that certain Operating Agreement dated __________________ ___, 2010, by and between Mogul Energy International, Inc, as Operator, and PARTICIPANT, as Non-Operator (the “Operating Agreement”).  To the extent the terms and provisions of this Assignment conflict with the terms and provisions of the Operating Agreement, the terms and provisions of the Operating Agreement shall control.

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3. This Assignment is subject to the terms and provisions of all applicable easements, rights of way, and pooling and unitization agreements of record.

4. This Assignment is made without warranty of title, express, implied, statutory or otherwise.

5. The Parties agree to execute, acknowledge and deliver such further agreements, instruments, notices, stipulations and/or conveyances as may be necessary to accomplish the intents and purposes of this Assignment

6. This Assignment binds and inures to the benefit of the Parties and their respective successors and assigns.

7. This Assignment may be executed in counterparts, each of which shall be deemed to be an original for all purposes, and all of which, when taken together, shall constitute one and the same instrument.  Neither Party shall be bound by the terms hereof unless and until all Parties have executed a counterpart original.

IN WITNESS WHEREOF, this Assignment is executed on the dates set forth in the acknowledgments below, but shall be effective as to each of the Interests as of the effective date of acquisition of such Interests by Assignor.

ASSIGNOR:
Mogul Energy International, Inc.
By:
	Tim Turner

STATE OF TEXAS

COUNTY OF HARRIS

This instrument was acknowledged before me this ______ day of ____________, 2010 by Tim Turner of Mogul Energy International, Inc.

My Commission Expires:
	Notary Public in and for the State of Texas

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Timothy J. Turner, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Mogul Energy International, Inc.;

2.           Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to date a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report;

4.           The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and 15(d)-15(f) for the small business issuer and have:

(a)          designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)          disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.           The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)          all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls and procedures for financial reporting.

Date: April 15, 2011

/s/ Timothy J. Turner

Timothy J. Turner

President

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Timothy J. Turner, certify that:

1.           I have reviewed this quarterly report on Form 10-K of Mogul Energy International, Inc.;

2.            Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to date a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report;

4.             The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and 15(d)-15(f) for the small business issuer and have:

(a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)           disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.             The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls and procedures for financial reporting.

Date: April 15, 2011

/s/ Tomothy J. Turner

Timothy J. Turner

President and Chief Executive Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Timothy J. Turner, President, of Mogul Energy International, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the quarterly report on Form 10-Q of Mogul Energy International, Inc. for the period ended March 31, 2010 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Mogul Energy International, Inc.

April 15, 2011

/s/ Timothy J. Turner

Timothy J. turner, President

(Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Mogul Energy International, Inc. and will be retained by Mogul Energy International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.