Fellows Energy Ltd. Broomfield, Colorado 80021

Exhibit No. 10.7

Fellows Energy Ltd.

000 Xxxxxxxxxxx Xxxx. Xxxxx 000

Xxxxxxxxxx, Xxxxxxxx 00000

(000) 000-0000

March 1, 2005

Xx. Xxxx Xxxxx

Quaneco, LLC

00000 Xxxxxxx Xxxx

Xxxxx 000

Xxxxxxxxxx Xxxxx, XX 00000

SENT BY FAX TO: (000) 000-0000

RE: Letter Agreement for Purchase of Interests in the Castle Rock and Xxxxx CBNG Projects

Castle Rock Project: *, * and * Powder River County, Montana

Xxxxx Project; * and * Big Horn and Xxxxxx Counties, Montana

Dear Xxxx,

Fellows Energy Ltd. (“Fellows”) hereby offers to purchase a 12.5% working interest in the Castle Rock and Xxxxx Coal Bed Natural Gas Projects, inclusive of said working interest in * xxxxx previously drilled in the Xxxxx Project (the “Properties”), on the terms and conditions listed in the attached Exhibit 1 and within this Letter Agreement.

This Letter Agreement and the offer made herein are based upon the terms and subject to the conditions set forth below. This offer has been made without the benefit of reviewing certain title and other information in your possession. We have prepared this offer using publicly available information and information provided by you. We hope to expeditiously review any additional information you may make available to us in order to remove certain of the conditions to which this Letter Agreement is subject. Other than such conditions, upon execution, this Letter Agreement is binding and sets forth the basic business terms and conditions under which the parties will proceed to formalize a definitive agreement for the purchase described above and close said purchase.

Upon the execution of this Letter Agreement and for a period of 30 days thereafter (or such longer period as may be provided for in a definitive agreement) Quaneco will not entertain, solicit or encourage any inquiry or proposal, from any third party concerning the acquisition of the Properties.

This offer shall expire at 5:00 p.m. Mountain Time on Friday, March 4, 2005. Once executed by all parties, this Letter Agreement shall expire on April 10, 2005 unless extended by the parties or superceded by a definitive agreement.

This Letter Agreement may be superseded and replaced by a definitive purchase agreement incorporating all of the material terms hereof and such other terms as are customary in transactions of the type contemplated herein.

* Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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PURCHASE PRICE:

Subject to the completion of due diligence and analyses of valuation, it is anticipated that the purchase price will be $4,850,000. The timing of, and form of, consideration paid will be in cash and stock of Fellows as described in Exhibit 1 and as set forth below:

1. Fellows shall pay $4,850,000 in cash and stock for 12.5% working interest in the 235,000 acres comprising the Properties, inclusive of a 12.5% working interest in 18 xxxxx already drilled and completed in the Xxxxx Project. This purchase price includes $4,406,250 in consideration for lease rights and $443,750 in consideration for the 18 xxxxx in the Xxxxx Project. It is agreed that Quaneco shall be responsible for paying all costs of drilling, completion and gathering infrastructure relating to the 12.5% working interest in the existing 18 xxxxx in the Xxxxx Project.

2. Of the total purchase price $3,850,000 shall be in the form of cash. Of this amount, $2,880,000 shall be due on April 10, 2005, and the balance of $970,000 shall be due on July 1, 2005.

3. The balance of consideration due on April 10, 2005 of $1,000,000 shall be in the form of Fellows stock valued at $1.00 per share, or 1,000,000 shares of Fellows stock.

4. If Fellows makes the payment of $2,880,000 in cash plus 1,000,000 shares of Fellows stock on April 10, but fails to make the payment of $1,000,000 on or before July 1, 2005, it shall be deemed to have earned a *% working interest in the Properties and the Xxxxx xxxxx.

5. Assignment of the 12.5% working interest in the properties from Quaneco to Fellows will be made within five business days of receipt of the final cash payment due July 1, 2005.

CONDITIONS TO THE PURCHASE:

The following are the conditions to which our offer is subject:

1. The transaction is subject to the completion of an offering in connection with the transaction of at least an amount sufficient to pay the cash portion of the purchase price prior to April 10, 2005.

2. Any purchase rights or rights of refusal to which the Properties are subject are waived; standard confidentiality and announcement procedures shall apply, as agreed by the parties and in accordance with normal industry practice.

3. Satisfactory legal due diligence verifying title interest in and to the Properties.

4. Satisfactory completion of an analysis of the value of the Properties by Fellows or an independent and qualified third party appointed by Fellows showing that the value thereof is substantially equivalent to the market value of Fellows.

5. Completion of the contemplated offering by Fellows in connection with the transaction in an amount at least enabling the payment of the cash portion oft. be purchase price,

6. Formal corporate and regulatory approvals as required by the parties.

7. Closing to occur within five business days of completion of Fellows’ offering, with the parties cooperating in good faith to engage investment bankers and brokers to complete the financing as soon as possible.

* Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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If the foregoing meets with your approval, and you desire to proceed with the sale of your interest as described above, and as provided herein, please so indicate and affirm by executing a copy of this Letter Agreement and returning a copy to Xxxxxx X Xxxxx at Fellows Energy.

Sincerely,

FELLOWS ENERGY LTD.

/s/ Xxxxxx X. Xxxxx

Xxxxxx X. Xxxxx

President & CEO

AGREED AND ACCEPTED THIS              DAY OF MARCH, 2005

BY:		/s/ Xxxx Xxxxx
		Xxxx Xxxxx
		Quaneco, LLC

* Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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Exhibit 1 to Letter Agreement Dated March 1, 2005

between

Fellows Energy Ltd. and Quaneco, LLC

Castle Rock
Counter Party:		Quaneco, L.L.C., an Oklahoma limited liability company
Acreage:		* acres, more or less (to be confirmed through due diligence)
Purchase Price:		$* per net mineral acre or a total of $2,625,000
Payment:
Stock Portion:		541,237 shares for $541,237 in consideration
Cash Portion:		$2,083,763
Location:		*, * and * Powder River County, Montana
Principal Coals:		Pawnee, Xxxxxx. and Xxxxxxx-Xxxxxxx coals
Other Coals:		Xxxx, Lower Xxxx, Xxxxxxxx-Xxxxxx, Knobloch, Terret, and Stag coals.
Planned Drilling:		Four or five pilot projects of 16 xxxxx each are planned for the Castle Rock block in 2005
Drilling Budget:		$562,000 for 12.5% working interest in 48 xxxxx
Xxxxx
Counter Party:		Quaneco, L.L.C., an Oklahoma limited liability company
Acreage:		95,000 acres, more or less (to be confirmed through due diligence)
Purchase Price:		$150 per net mineral acre (or a total of $1,781,250), plus $443,750 for 12.5% working interest in 18 existing xxxxx, or a total of $2,225,000
Payment:
Stock Portion:		458,763 shares for $458,763 in consideration
Cash Portion:		$1,766,237
Location:		* and * Big Horn and Xxxxxx Counties, Montana
Principal Coals:		Wall, Xxxxxxxx-Xxxxxx, Xxxxxx and Xxxxxxx-Xxxxxxx coals
Planned Drilling:		48 are planned for the Xxxxx block in 2005
Drilling Budget:		$562,000 for 12.5% working interest in 48 xxxxx

Total Cash Budget

*

$4,974,000 cash required for acquisition of 12.5 working interest in properties, inclusive of interest in * existing xxxxx, and development of 12.5% working interest in * xxxxx

Total Stock Portion of Transaction

1,000,000 shares issued as consideration for $1,000,000 of purchase price.

* Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.

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