PURCHASE AND SALE AGREEMENT

Properties . All of the following shall be referred to as the “Properties” (use of the term “Property” is intended to refer to one or more of the Properties, depending upon the context within which such term is used);

An undivided fifty percent (50%) of Seller’s right, title and interest in the oil and gas wells, saltwater disposal and water wells and injection wells (whether or not currently producing) (the “Wells”) and the lands upon which the Wells are located as described in Exhibit “A” hereto (“Lands”, together with a like share of Seller’s interest in and to (i) all leases, mineral interests, and other oil and gas properties (“Leases”) and all rights, privileges, benefits and powers conferred upon the holder of the Leases with respect to the use and occupation of the surface of the Lands that may be necessary, convenient or incidental to the possession and enjoyment of the Leases, (ii) all rights in respect of any pooled or unitized acreage located in whole or in part within the Lands by virtue of the Leases, including rights to production from the pool or unit allocated to any Leases being a part thereof, regardless of whether such production is from the Lands covered by the Lease(s), (iii) all rights, options, titles and interests within the Lands subject to the Leases irrespective of how earned, and (iv) all tenements, hereditaments and appurtenances belonging to any of the foregoing;

     (c)         

A like interest in and to all contracts and contractual rights, obligations and Properties, including all farmout agreements, farmin agreements, drilling contracts, operating agreements, unit agreements, sales contracts, saltwater disposal agreements, division orders and transfer orders and other contracts or agreements covering or affecting any or all of the Leases and/or Lands;

     (e)         

A like interest in and to all oil, condensate, natural gas, natural gas liquids and all other minerals, whether similar or dissimilar in nature, produced on or after the Effective Time, together with all inventories, oil, gas and production in tanks, in storage below the pipeline connection in tanks or upstream of the sales meter (“line fill”) and inventory attributable to the Leases; and

A like interest in and to all files (originals or copies), records, documentation and data of Seller relating to (or evidencing) Seller’s ownership or rights in the Leases, Lands, production, rights-of-way or other rights and Properties described herein, including but not limited to lease files, land files, well files, accounting files, production sales agreements files, division order files, title opinions and abstracts, legal records, governmental filings, geological data, proprietary seismic data, non-proprietary seismic data where dissemination of such data does not violate the terms of any contracts, information and analysis, production reports, production logs, cores sample reports and maps as such data is assembled in the normal course of business.

Notwithstanding anything to the contrary contained herein, it is understood that Seller, its shareholders and/or affiliates may own fee surface in North Dakota and such fee surface ownership is excluded from the definition of “Lands” and not intended to be conveyed to Buyer.

Purchase Price . The consideration paid by seller for the Properties shall consist of (i) Ten Million Dollars ($10,000,000.00) in U.S. funds to be paid at closing, (ii) Ten Million Dollars ($10,000,000.00) worth of Buyer’s common stock (said stock will be subject to restrictions set forth pursuant to the Securities and Exchange Commission Rule 144); the number of shares to be issued shall be determined by dividing $10,000,000 by the average closing price of said stock for the five trading days immediately prior to closing, and (iii) Forty Five Million Dollars ($45,000,000.00) in project funding described in Article III below (the “Purchase Price”), which shall be adjusted as set forth in Section 2.02 below.

As additional consideration, for a period not to exceed five (5) years from the Effective Time, Buyer agrees to provide $45,000,000 in total funding to cover 100% (proportionately reduced to the interest of Buyer and Seller in any given project) of the mutually agreed upon capital costs associated with creating secondary recovery units, drilling/converting wells to enhance secondary recovery operations encompassing the Properties; and in acquiring additional producing properties in North Dakota, acquiring undeveloped oil and gas leasehold and/or contractual rights to oil and gas leasehold, shooting/acquiring seismic data and drilling test wells, (“Other Projects”), collectively, (the “Development Program”).

It is the expressed intent of both Buyer and Seller to use the Development Program funding to create maximum value. The parties agree to initially allocate $30,000,000 to developing the Properties and $15,000,000 to Other Projects. These allocations may be changed from time to time by mutual agreement as results and opportunities may dictate.

All Properties included in the Development Program shall be owned 50% by Seller and 50% by Buyer. Any capital spent in excess of the amounts allocated for developing the Properties or in excess of the amounts allocated for Other Projects, as such allocations may exist from time to time, shall be borne 50% by Seller and 50% by Buyer.

Exhibit “C” hereto is a “Business Plan” which shall include a general description of projects to be undertaken, a timeline estimating when each project will be commenced, and a budget estimating the anticipated costs of each project. Regular meetings (at least quarterly) shall be held to create and approve the current Business Plan for each quarter and to adjust the allocation of Development Program capital as needed. Such meetings shall be held in the offices of Seller located in Kenmare, North Dakota, or at any other mutually acceptable location. The current Business Plan, in place at any given time, shall serve as authorization for Seller to perform the projects identified prior to the next regular meeting. It is not the intent of this agreement to require Seller to obtain expenditure approval for individual projects that are previously agreed to and included in the current Business Plan.

If Buyer elects not to fund any project which involves the Properties and which is set forth in the Business Plan as attached hereto or included in the current Business Plan as amended at a later date, then the Buyer shall reassign all of its right, title and interest in the applicable Properties to Seller unencumbered by any mortgages, liens or lease burdens in excess of those in place at Closing, and Seller shall refund the allocated purchase price associated with the applicable Properties, plus 50% of any capital expended, and allocate the future Development Program capital obligation for these Properties to the Other Projects account. In the event Buyer elects not to fund any project which involves the Properties, Seller shall have the option to rescind the associated proposed project and in such case(s) Seller shall have no obligation to purchase the interest of Buyer and the Parties will continue to own and operate the properties as they have in the past. All revenue less operating expenses received by Buyer on the applicable Properties prior to the relinquishment of interest shall be subtracted from the refund amount. Valuation of the stock consideration attributable to the relinquished property shall be calculated in a manner identical to that set forth in Article 8.05(f).

As it relates to capital expenditures on Other Projects, the parties agree that (i) if Buyer has participated in every project proposed by Seller during the aforementioned five (5) year term then all unspent funds shall be the sole property of Buyer; (ii) if Buyer has not participated in every project proposed by Seller, and there are funds allocated to Other Projects, this provision shall be extended by two years and Seller shall be obligated during that two year term to present a sufficient number of projects to spend at least three times the amount of the unspent funds. If at the end of the extended term there remain unspent funds, said funds shall be owned 50% by Seller and 50% by Buyer.

     3.07       

Either Buyer or Seller may request that the ongoing Development Program be halted to evaluate performance. The ongoing Development Program will be halted pending the necessary evaluation by the parties and third party experts (to the extent necessary) to determine its viability and possible remediation thereof. The parties will mutually agree on a course of action which may include, but is not limited to, remediation efforts, alternative water flood designs, additional drilling, deferral of capital spending, or redirection of capital into other projects.

Nothing herein shall limit either Buyer or Seller from conveying portions of their interests in any or all of the Properties to third parties or from encumbering any of the Properties with mortgages or liens. In the event Buyer encumbers any of the Properties with mortgages or liens, Buyer shall have the holder of said mortgage execute a ratification of this Agreement which includes language which provides for the holder of said mortgages or liens to release said mortgages or liens as to any Properties reassigned pursuant to Article 3.05.

It is agreed and understood that the $45,000,000 shall not be used to pay routine operating, repair, maintenance and overhead costs associated with the Properties. By way of example “routine operating, repair, maintenance and overhead costs” shall include, but not be limited to, pumper’s expense, overhead and administrative costs, utilities, road and site maintenance, and chemicals. Capital costs to be funded by the aforementioned $45,000,000 shall include, but not be limited to, non-routine repairs to wells and changes in equipment in excess of $10,000 that are required to advance the enhancement of oil recovery (i.e. replacing cavity pumps in source water wells, changing out pumping units to maximize efficiency, etc.).

During the period between the execution of that certain “Binding Letter of Intent” dated October 11, 2006 and the Closing date, all capital costs associated with creating secondary recovery units encompassing the Properties, including, but not limited to the costs associated with drilling and/or converting wells to enhance secondary recovery operations relating to the Properties, shall be reimbursed to Seller from the $45,000,000 in funding provided by Buyer pursuant to this Article III. Seller shall not undertake any acts or incur any expenses which it would not otherwise take to develop the Properties in the absence of this agreement. Reimbursement shall be due Seller only if the transaction contemplated herein closes, and shall be payable within 30 days of submission by Seller to Buyer of documentation sufficient to identify and justify such costs as related to the development of the Properties. In the event that the transaction does not close due to failure of any of the conditions in Article 9.03 of this Agreement, Buyer shall have no obligation to reimburse Seller for any costs incurred by Seller in developing the Properties. During the period between the execution of this Agreement and the Closing date, Seller shall consult with Buyer on any expenditure in excess of $100,000.

Seller is currently involved in exploration and development activities on properties which are identified on Exhibit “D” hereto. Seller and Buyer agree to establish an Area of Mutual Interest (“AMI”) consisting of the State of North Dakota less and except the properties identified on Exhibit “D”. For a period of three years from the Effective Time hereof, Seller will offer Buyer the opportunity to include any Prospects identified by Seller within the AMI in the Development Program. Buyer shall have no obligation to include any given Prospect in the Development Program. Prospect shall be defined as any project involving the acquisition of seismic data, leasehold, farmins, mineral interests, producing properties, third party generated deals; and/or drilling of wells.

All operations on Properties which have not been unitized as of the Effective Time shall be governed by a joint operating agreement identical in form to that attached hereto as Exhibit “E”.

All operations on Properties which have been unitized as of the Effective Time shall be governed by their respective applicable unit operating agreement(s) as set forth in Exhibit “F” attached hereto.

Seller represents that, for the twelve months prior to the execution of this Agreement, routine operating costs for the Properties have averaged $1,800/well/month. It is reasonable, going forward, for Buyer to experience operating costs at this level with increases consistent with standard industry inflation. For the purpose of this Agreement, routine operating costs shall be defined to mean producing well overhead, insurance, pumper costs, utilities and chemicals.