PRODUCT SALE & PURCHASE CONTRACT

THIS PRODUCT SALE & PURCHASE CONTRACT (the “Contract”) , is made and entered into as of December 15, 2006 by and between Anadarko Petroleum Corporation with a business address of 1201 Lake Robbins Drive, The Woodlands, Texas 77380 (“Seller”) and Rancher Energy Corp. with a business address of 1050-17 ^th Street, Suite 1700 Denver, Colorado 80202 (“Buyer”).

WITNESSETH:

WHEREAS , Seller owns certain rights to market carbon dioxide (“Product”) and Seller desires to sell and tender for delivery to Buyer, and Buyer desires to purchase and accept from Seller, certain quantities of Product under the terms and conditions of this Contract; and

WHEREAS, Seller has certain rights to transport Product on ExxonMobil’s 60-mile, 20-inch CO ₂ pipeline from La Barge to Bairoil, Wyoming (the “ExxonMobil Pipeline”). Seller also has certain rights to transport Product on Seller’s 125-mile, 16-inch CO ₂ pipeline from Bairoil to Seller’s Salt Creek oil field (the “Anadarko Pipeline”); and

WHEREAS, Buyer wishes to purchase and accept Product from Seller from the Anadarko Pipeline at the Delivery Point and Buyer will be responsible for the construction and operation of a CO ₂ pipeline from the Delivery Point to the southeastern portion of Buyer’s fields in the South Glenrock Area of Wyoming (“Buyer’s Pipeline”);

NOW, THEREFORE , for and in consideration of the premises and the mutual benefits and covenants herein contained, Seller and Buyer hereby agree as follows:

ARTICLE I - DEFINITIONS

1.1   Defined Words and Terms . Except where the context otherwise requires another or different meaning or intent, the following words and terms as used herein shall have the meanings indicated:

(a)     “Actual Monthly Amount” means an amount determined by multiplying the actual quantity of Product, in Mcf, delivered to Buyer at the Delivery Point during the Month, by the Unit Price for such Month; provided, however, that if Buyer fails to take 25MMcf on any Day during such Month, the Actual Monthly Amount shall be the sum of the Unit Price multiplied by (i) plus the Unit Price multiplied by (ii), where (i) is the actual quantity of Product delivered to Buyer for each Day during the Month on which Buyer was delivered 25 MMcf or more, and (ii) is 25 MMcf for each Day during the Month on which Buyer was delivered less than 25 MMcf.

(b)     “Annual Quantity” means for each Contract Year, the DCQ multiplied by the number of Days in that Contract Year.

(c)     “Bcf” means 1 Billion Cubic Feet.

(d)   “ Calendar Quarter ” means a three-month period beginning on January 1, April 1, July 1, or October 1 of any Contract Year.

(e)   “CO ₂ ” or “Carbon Dioxide” means a substance composed of molecules, each containing one atom of carbon and two atoms of oxygen.

(f)     “Contract Year” means a one-year period beginning on the first Day of the first Month following the date on which Product has first been delivered hereunder and on each subsequent anniversary of such first Day, provided that any period from the date of first deliveries to the first Day of the Month next following shall be deemed a part of the first Contract Year.

(g)   “Cubic Foot” means the amount of Product which would occupy one cubic foot of space at a base pressure of 14.65 Psia and at a base temperature of 60 ^o degrees Fahrenheit.

(h)   “DCQ” or “Daily Contract Quantity” for any period means the Daily quantity of Product set out in Exhibit “A” or as otherwise determined under this Contract for such period.

(i)   “Day” means a period beginning at 7:00 a.m. (Mountain Time) on a calendar day and ending at 7:00 a.m. (Mountain Time) on the next succeeding calendar day. The date of a Day shall be that of its beginning.

(j)   “Delivery Point” means the outlet flange of the meter station at the end of the Anadarko Pipeline in the Salt Creek oil field, as made available to Seller and as requested by Buyer.

(k)   “Mcf” means 1,000 Cubic Feet.

(l)   “MCQ” or “Minimum Contract Quantity” means the quantity of Product determined by multiplying 25 MMcf by the number of Days in the Primary Term.

(m)   “MMA” or “Minimum Monthly Amount” means the amount determined by multiplying the Minimum Monthly Quantity by the Unit Price.

(n)   “MMQ” or “Minimum Monthly Quantity” means the arithmetical sum for each Day during any given Month of the quantity of Product nominated for delivery hereunder by Buyer and confirmed by Seller.

Notwithstanding the foregoing, and except as excused by events of force majeure as defined in Article XIV or as provided in Paragraph 3.2, the Minimum Monthly Quantity shall not be less than 25 MMcf multiplied by the number of Days in the Month.

(o)   “MPR” or “Minimum Purchase Requirement” means the product of 25 MMcf multiplied by 365 multiplied by 10.

(p)     “MMcf” means 1,000,000 Cubic Feet.

(q)     “MMcf/d” means 1,000,000 Cubic Feet per Day.

(r)     “Month” means a period beginning at 7:00 a.m. (Mountain Time) on the first Day of a calendar month and ending at 7:00 a.m. (Mountain Time) on the first Day of the next succeeding calendar month.

(s)   “Psia” means pounds per square inch absolute.

(t)     “Psig” means pounds per square inch gauge.

(u)   "Product" means a substance composed primarily of Carbon Dioxide and meeting the specifications set forth in Article IX hereof.

(v)     “Tender for Delivery” means Seller making a certain quantity of Product available to Buyer at the Delivery Point(s) pursuant to the terms and conditions herein.

(w)   “Termination Payment” means an amount of money Buyer will pay Seller if Buyer elects to terminate this contract pursuant to Paragraph 5.6.

(x)     “Total Contract Quantity” means the sum of the Annual Quantity for each Contract Year during the Primary Term of the Contract, which shall be reduced at the end of each Contract Year in accordance with Paragraph 4.1 hereof.

(y)     “Unit Price” means, as to any period, the applicable Product price per Mcf determined pursuant to Article V.  

ARTICLE II - CONTRACT TERM

2.1   Primary Term . The Primary Term of this Contract will commence upon the later to occur of January 1, 2008, or the date of the first delivery of Product hereunder. The Primary Term of this Contract shall terminate on the earlier of (i) the Day that the Total Contract Quantity has been taken and paid for by Buyer, or (ii) ten (10) years from the commencement of the Primary Term.

ARTICLE III - SCOPE OF CONTRACT

3.1   Sale and Commitment of Product . Subject to the terms, conditions and limitations of this Contract, Seller shall sell and Tender for Delivery to Buyer, and Buyer shall purchase and receive from Seller, at the Delivery Point, the quantities of Product requested by Buyer up to the Daily Contract Quantity as specified in Exhibit “A,” and, if applicable, up to the amount of any Excess Deliveries, pursuant to the provisions of Section 4.4 hereof. It is intended that the Daily Contract Quantity will be 40 MMcf/d, but Seller will endeavor to Tender for Delivery quantities up to 120% of the DCQ and Buyer will nominate at least 25 MMcf/d.

3.2   Other Sales/Purchases . Seller reserves the right to utilize Product for its own needs and to sell or contract to deliver Product to parties other than Buyer. At all times, Seller shall be entitled to fully satisfy its own needs for Product before having any obligation to Buyer hereunder. If at any time, or from time to time after satisfying its own needs for Product, Seller is unable to deliver the entire amount of Buyer’s nominated Product requirements hereunder as well as the daily contract quantity of other parties, Buyer shall be entitled to receive its share of Seller’s available deliverability based on the ratio that Buyer’s Product requirements bear to the daily contract quantities of all parties other than Seller. Subsequent to the execution of this Contract, Seller shall make a good faith effort to anticipate Product availability to meet Buyer’s requirements, and shall not knowingly utilize, sell, or contract to deliver volumes of Product to third parties so as to cause Seller to be unable to deliver Buyer’s requirements. Buyer recognizes and agrees that Seller will use commercially reasonable efforts to deliver Buyer’s requirements but if Seller is unable to meet such requirements for any reason, including its own needs exclusive of third parties, there shall be no penalty to Seller and adjustments shall be made to Buyer’s minimum obligations hereunder.

3.3   Carbon Dioxide Reserves/Transportation . Seller and Buyer understand and agree that Seller makes no warranty, either expressed or implied, of carbon dioxide volumes or reserves at any source, carbon dioxide deliverability, or the transportation of carbon dioxide.

3.4   Operations . Seller reserves the sole and exclusive right to control, manage, and operate the sources of the Product as Seller in its sole discretion shall determine. Buyer agrees to take appropriate action to obtain and reserve the greenhouse gas reduction rights addressed in Paragraph 5.8, and otherwise Buyer reserves the sole and exclusive right to control, manage, and operate Buyer’s fields on which the Carbon Dioxide is used.  

3.5   Seller’s Processing Rights . Seller reserves the right, prior to delivery, to process and/or treat the Carbon Dioxide sold hereunder for any purpose, provided only that any Product delivered shall meet the quality specifications hereof unless waived by Buyer pursuant to Paragraph 9.3.

3.6.   Right of First Refusal . (a) If for any reason Buyer elects to sell Buyer’s Pipeline or any of its interests within the Area of Mutual Interest (“Interest”), Buyer shall not transfer or convey such Interest except in accordance with this Paragraph 3.6. Any proposed transfer or conveyance of any such Interest shall be made subject to Article XV and to the preferential right of Seller to purchase the Interest under the same terms and conditions as the proposed transferee. In such case, Buyer shall notify Seller in writing of the same and provide at least sixty (60) Days’ notice for Seller to determine if it desires to purchase the Interest. Such notice, to be effective, shall be accompanied by an agreement executed by Buyer and the proposed transferee (the "Purchase Agreement") containing all relevant information regarding the proposed sale, transfer, assignment or conveyance, including the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase price, a legal description sufficient to identify the property, and all other terms of the proposed transfer or sale. The Purchase Agreement shall demonstrate that completion of the sale is contingent only upon (i) the non-exercise of rights of first refusal under this Paragraph 3.6, (ii) obtaining any required governmental approvals and (iii) the satisfaction of a standard due diligence review, including such items as title, environmental, and certain other specifically itemized defects. Seller shall have the option to purchase such Interest on the same terms as set forth in the Purchase Agreement by giving written notice (the “Election Notice”) to Buyer prior to the expiration of the sixty (60) day period set forth above. If Seller has elected to purchase such Interest within the sixty (60) day period, Seller shall be irrevocably obligated to purchase such Interest. Such sale, transfer, assignment and/or conveyance to Seller shall occur as soon as reasonably possible following the receipt by Buyer of the Election Notice from Seller. Upon completion of the transaction, the Interest shall be 100% vested in Seller.

(b) If Seller does not exercise its preferential right to purchase by providing written notice within such sixty (60) day period, then Buyer may effect the transfer described in the notice at any time not later than ninety (90) days after the end of the sixty (60) day option period, at a price not less than and on terms no more favorable to the transferee than the price and term stated in the notice provided for hereinabove. If such a transfer is made, the preferential right to purchase shall continue as to the Interest acquired by said transferee. If the Interest is not transferred within such ninety (90) day period, then any subsequent proposal to transfer the same shall be subject to the provisions of this Paragraph 3.6 as though such Interest had never been offered for transfer. If the sale or transfer is not completed within the one hundred fifty (150) day period, all of the Interest originally offered shall again become subject to the provisions of this Paragraph 3.6.

(c) All such transfers or conveyances of any such Interest of Buyer shall be made expressly subject to this Contract, and shall not be binding on Seller until a certified or other verifiable copy of the instrument evidencing such transfer or conveyance has been delivered to Seller, together with an agreement in writing, satisfactory to all parties, whereby the transferee agrees to be bound by the terms and provisions of this Contract and expressly assumes all of the obligations of Buyer as set forth herein.

ARTICLE IV - QUANTITIES

4.1   Commencement of Deliveries and Daily Contract Quantity . Commencing with the first Day of the Primary Term, Seller shall Tender for Delivery and Buyer shall take at the Delivery Point, all quantities of Product requested by Buyer, up to Buyer’s then currently effective DCQ, as specified in Exhibit “A.” The Total Contract Quantity shall be reduced at the end of each Contract Year on a cumulative basis through the Primary Term of this Contract ("Contract Quantity Balance"), by the greater of: (i) the actual quantity of Product delivered to Buyer in that Contract Year, or (ii) by the Annual Quantity applicable for that Contract Year, until the Contract Quantity Balance equals zero (0).

4.2   Delivery Rates . Buyer and Seller recognize that due to actual operating conditions, the delivery or take of Product may not necessarily be of a constant rate. However, Buyer and Seller agree to cooperate fully with one another to maintain as constant a rate of take as is operationally possible and in adjusting Daily and Monthly deliveries hereunder.

4.3   Monthly Delivery Nominations . Buyer shall notify Seller Monthly by giving at least seven (7) Days’ advance written notice, of its daily Product volume requirements for the next succeeding Month. In the event Buyer fails to give to Seller the requisite seven (7) Days’ prior notice, then the daily Product volume requirements shall be the same as those for the then current Month. Upon agreement by Seller, Buyer may request a change in its daily requirements for any particular Month by giving Seller twenty-four (24) hours’ prior notice of such changes in its daily requirements from time to time. Upon receipt of such notice given to Seller at the location and number set out below, and subject to Seller’s agreement, Seller shall undertake to conform its deliveries to Buyer’s revised requirements and shall notify Buyer as soon as practical if it is unable to do so. Buyer shall utilize its commercially reasonable efforts to minimize the number of changes in the Monthly nominations. Each oral request for changes in Buyer’s requirements shall be confirmed by written notice by Buyer to Seller within seven (7) business Days after such request.

4.4   Excess Deliveries . On any given Day during the Primary Term of this Contract, Buyer may request and Seller may Tender for Delivery, a quantity of Product up to 120% of the Daily Contract Quantity, provided however, it is at Seller’s sole discretion to make available to Buyer deliveries in excess of 100 % of the Daily Contract Quantity, if any.

4.5   Reduced Deliveries Due to Common Carrier Obligations . If any of the ExxonMobil Pipeline, the Anadarko Pipeline or Buyer’s Pipeline is or becomes a common carrier facility by operation of law or otherwise, and if the capacity of said pipeline is insufficient to accommodate (1) the shipments tendered by Seller under all contracts (including this Contract) to which Seller is a party which require transportation by Buyer’s Pipeline, and (2) all shipments tendered by other shippers, then Seller shall be obligated to deliver to Buyer only that volume which may be transported under common carrier rules and regulations.

4.6   Emergency Shutdown . In the event of an emergency that poses danger to life or property, no prior notice shall be necessary before partial or total shutdown by either Seller or Buyer, but notice of such shutdown and the reason therefor shall be given as soon as practical thereafter, by telephone, facsimile, e-mail or other electronic means at the locations and numbers set out below. The party causing the shutdown shall immediately take all steps reasonable under the circumstances to end such shutdown. In the event any Government regulatory requirement mandates a shutdown by either Seller or Buyer, notice shall be given to the other party to this Contract as soon as practical after receipt of the governmental notice requiring such shutdown.

4.7   Planned Shutdown . In the event a planned shutdown becomes necessary for either Seller or Buyer on a non-emergency basis, such party shall provide thirty (30) Days’ notice to the other as provided in the Article XVI hereof.

ARTICLE V - PRODUCT PRICE

5.1   Unit Price .

(a)   Buyer shall pay to Seller a Unit Price for each Mcf of Product. The Unit Price for each Calendar Quarter shall be determined by indexing to the average price per barrel posted by Chevron Crude Oil Marketing and Tesoro Refining and Marketing Company (or their successors) for Southwestern Wyoming Sweet Crude Oil price as follows:

(i) the preceding Calendar Quarter's simple average of each Day's closing prices per barrel for Southwestern Wyoming Sweet Crude Oil shall be calculated (“Wyoming Sweet Average Price”)

(ii) the Wyoming Sweet Average Price shall be compared to an index price of $40.00 per barrel (“Index Price”)

(iii) if the Wyoming Sweet Average Price is greater than the Index Price, the Unit Price for such Calendar Quarter shall be increased by the arithmetic ratio of such difference.

(iv) if the Wyoming Sweet Average Price is equal to at least $30.01, but is less than $40.00, the Unit Price for such Calendar Quarter shall be $1.50

(v) if the Wyoming Sweet Average Price is $30.00 or less, the Unit Price for such Calendar Quarter shall be $1.35.

(b)   For the initial Calendar Quarter (or portion thereof) under the Contract, the Unit Price shall be $1.50 per Mcf. For all subsequent Calendar Quarters under the Contract, the Unit Price shall be calculated by as provided in this Article V.

(c)   Notwithstanding the provisions of Paragraph 5.1(b), the Unit Price shall never be less than $1.35 per Mcf. If Seller’s cost of Product to be delivered under this Contract ever exceeds the Unit Price, then at Seller’s option, Buyer will meet with Seller and attempt in good faith to negotiate a revised Unit Price affording Seller a reasonable return under this Contract. If Buyer and Seller are unable to agree upon a revised Unit Price, then Seller may terminate this Contract by giving written notice of termination to Buyer and Buyer shall pay Seller the Termination Payment due pursuant to Paragraph 5.6.

5.2   Take-or-Pay Obligation .

(a)   Each Month during the Primary Term of this Contract, Buyer shall pay Seller an amount equal to the greater of: (i) the Minimum Monthly Amount, or (ii) the Actual Monthly Amount.

(b)   The Minimum Monthly Amount shall be reduced each Month for any deficiencies in the amount of Product made available by Seller to Buyer due to (i) force majeure as defined in Article XIV, or (ii) failure by Seller to deliver quantities of Product up to Buyer’s take or pay obligation.

(c)   Buyer shall provide Seller with a surety bond to ensure Buyer’s payment of any take or pay obligation incurred pursuant to this Paragraph 5.2. Such bond shall name Seller as beneficiary, shall be approved by Seller as to form and issuer, shall be maintained for the life of the Contract and shall be of sufficient size to cover Buyer’s yearly take or pay requirements and the DCQ requirements.

5.3   Overriding Royalty . As further compensation hereunder Buyer shall convey to Seller an overriding royalty interest in any production from its fields within the Area of Mutual Interest described in Exhibit “B” attached hereto and incorporated herein by this reference. Such overriding royalty interest shall be of 8/8ths interest proportionally reduced to the working interest of Buyer and shall be equal to one percent (1%) in Contract Year Number One; two percent (2%) in Contract Year Number Two; three percent (3%) in Contract Year Number Three; four percent (4%) in Contract Year Number Four; and five percent (5%) in Contract Year Number Five and in all subsequent years. The Overriding Royalty shall be in the form of a recordable assignment acceptable to Seller and shall cover all depths in which Product is utilized, whether by direct injection, recycling, zone recharge or other utilization in the lands subject to the Area of Mutual Interest.

5.4   Deficiency Credit . If in any Month the MMQ is less than 25 MMcf multiplied by the number of Days in such Month and Buyer makes a payment to Seller under Paragraph 5.2 applicable to such Month, the amount of such Paragraph 5.2 payment will be credited to Buyer as a “Deficiency Credit.” If a Deficiency Credit balance has been established, the Deficiency Credit balance will be increased each Month by any amount that Buyer pays pursuant to Paragraph 5.2 or decreased each Month by the amount that Buyer’s payment for such Month exceeds the product of 40 MMcf per Day of such Month multiplied by the applicable Unit Price. Seller’s monthly invoice to Buyer will be adjusted to reflect any decreases in the Deficiency Credit by the lesser of the Deficiency Credit or the amount of the latest payment Buyer has made to Seller pursuant to Paragraph 5.2. In no event will the Deficiency Credit balance be increased or decreased until Buyer makes payment to Seller pursuant to Section 5.2, and in no event will the Deficiency Credit balance be less than zero.

5.5   Deficiency Credit Expiration . Buyer may carry forward Deficiency Credit balances for a period not to exceed 48 months after the Month that the Deficiency Credit is earned, and with a time limit of 24 months after the end of the Primary Term. Any Deficiency Credit not applied by the earlier of (a) within 48 months after it is earned or (b) within 24 months after the end of the Primary Term, shall automatically terminate without further action or obligation of Buyer or Seller.

5.6   Termination Payment . Buyer shall have the right to terminate this Contract at any time during the Primary Term by delivering a written notice to Seller and a payment in the amount of the Termination Payment. The Termination Payment shall equal an amount determined by multiplying the Unit Price for the Calendar Quarter immediately preceding Seller’s receipt of such termination notice by a volume of Product equal to one-fourth (1/4) of the arithmetical difference between the Total Contract Quantity and cumulative quantity of Product paid for by Buyer at the time of the notice.

For purposes of illustration only, the Termination Payment shall be calculated as follows:

P _Term = P _Unit x (146 BCF - V _cum )

4

P _Unit = Unit Price at time Termination Payment is determined

V _Cum = Cumulative quantity of Product paid for by the Buyer at the time of the notice

If this Contract is terminated due to Buyer's default, then Buyer shall on or before sixty (60) Days following the receipt of notice from Seller of such default, pay to Seller an amount equal to the Termination Payment. Without limiting either party’s rights to indemnification hereunder, Seller’s right to receive the Termination Payment shall be Seller’s sole remedy under this Contract for any such default by Buyer. If the Cont