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) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2006

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  _______ TO ________

COMMISSION FILE NUMBER 000-51425

RANCHER ENERGY CORP.

(Exact name of registrant as specified in its charter)

NEVADA	98-0422451
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1050 17th Street, Suite 1700
Denver, Colorado	80265
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (303) 629-1122

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Common Stock, par value $0.00001

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

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

Check whether the registrant (1)  filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter periods 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 [ ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer  [ ]   Accelerated filer [ ]    Non-accelerated filer  [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the common stock held by non-affiliates of the registrant, as of June 15, 2006, was approximately $37,380,000 based on the closing bid of $1.335 for the registrant’s common stock as reported by the OTC Bulletin Board. Shares of common stock held by each director, each officer named in Item 11, and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates.

As of June 15, 2006 the registrant had 29,500,000 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE—NONE

Transitional Disclosure Format. Yes  [ ]   No   [X]

FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2006

INDEX

		Page
	PART I
Item 1	Business	1
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	13
Item 2	Properties	14
Item 3	Legal Proceedings	14
Item 4	Submission of Matters to a Vote of Security Holders	14
	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6	Selected Financial Data	17
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A	Quantitative and Qualitative Disclosure About Market Risk
Item 8	Financial Statements and Supplementary Data	26
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27
Item 9A	Controls and Procedures	27
Item 9B	Other Information	27
	PART III
Item 10	Directors and Executive Officers of the Registrant	28
Item 11	Executive Compensation	30
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13	Certain Relationships and Related Transactions	33
Item 14	Principal Accountant Fees and Services	34
Item 15	Exhibits and Financial Statement Schedules	35
	SIGNATURES

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Forward-Looking Statements

We have included in this report, statements which are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These include statements that are not simply a statement of historical fact but describe what we “believe”, “anticipate”, or “expect” will occur. We caution you not to place undue reliance on the forward-looking statements made in this report. Although we believe these statements are reasonable, there are many factors, which may affect our expectation of our operations. These factors include, among other things, the following:

· general economic conditions;

· the market price of, and demand for, oil and gas;

· our ability to service future indebtedness;

· our success in completing exploration and development activities;

· expansion and other development trends of the oil and gas industry;

· our accumulated deficit;

· acquisitions and other business opportunities that may be presented to and pursued by us;

· our ability to integrate our acquisitions into our company structure; and

· changes in laws, regulations and taxation.

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PART I

Item 1.BUSINESS.

Background.

Rancher Energy Corp. (the “Company”, “Rancher Energy”, “we” or “us”) was formed on February 4, 2004 and is incorporated in the State of Nevada. We are an independent energy company formed for the purpose of engaging in the development, production, and marketing of oil and gas in North America.

The Company’s current operations are focused in two basins in the Rocky Mountain Region of the United States--the Powder River Basin in central Wyoming and the Crazy Mountain Basin in central Montana. Led by an experienced management team, Rancher Energy is working to enhance shareholder value by identifying and developing diversified oil and gas assets across North America, particularly in the Rocky Mountains.

Rancher Energy's prospects in Wyoming and Montana are strategic acquisitions that will be developed through the application of scientific expertise, and the latest technology and drilling techniques, to enhance recovery and achieve the most effective results possible. Rancher Energy intends to specialize in using modern exploration and recovery techniques on older, historically productive fields with proven in-place oil and gas reserves. Higher oil and gas prices and advances in technology such as 3-D seismic data, directional drilling, and CO2 injection make these assets an attractive source of potentially recoverable oil and gas reserves.

From its inception until June 2006, the Company, then known as Metalex Resources, Inc. “(Metalex”), was primarily engaged in the exploration for gold mineral deposits and reserves in British Columbia, Canada. Metalex found no commercially exploitable deposits or reserves of gold. On April 19, 2006, Metalex announced that it had changed its name to Rancher Energy and its new business direction as an oil and gas exploration and production company focusing on geologic business in the Rocky Mountains.

Recent Events.

The Burke Ranch Field.

On June 21, 2006, the Company acquired the Burke Ranch Field, an oil prospect consisting of approximately 1,921 acres in the Powder River Basin in Natrona County, Wyoming. The prospect is located approximately 25 miles north of Casper, Wyoming, in the central region of the state. Rancher Energy holds a 89.80% working interest (73.68% net revenue interest) before payout, which reverts to a 49.90% working interest (36.94% net revenue interest) after payout. The prospect was acquired through an assignment of an agreement with Hot Springs Resources, Ltd. (“HSR”) from an unaffiliated party, for $250,000 cash payable within 90 days from June 21, 2006 and a 4% overriding royalty interest on production attributable to the Company’s interest to the unaffiliated third party.

In addition, within one calendar year at our sole cost, risk and expense we are obligated to conduct or cause to be conducted a 3-D seismic survey over the property and we must pay for all processing, analysis, and interpretation of the 3-D seismic data acquired as a result of the seismic survey. We expect the total cost of the seismic program to be approximately $320,000.

We must also select an engineering firm to perform certain engineering studies on the property and prepare a development plan. The scope and substance of the studies and plan shall be at our direction, provided that we must confer with HSR prior to providing or revising any instructions to the engineering firm. We are solely responsible for the costs incurred in the preparation of the studies and plan. See Other Recent Events for the selection of NITEC LLC (“NITEC”) to conduct this work.

HSR must cause to be conducted operations and purchases of equipment necessary to install a submersible pump, cable and if needed a motor in Well 9 on the property and, complete any tubing repairs that may be necessary in respect of Well 9-17. We are solely responsible for all costs and expenses relating to such operations, provided that if the costs and expenses respecting Well 9 or Well 9-17 exceed $50,000 then HSR is solely responsible for all costs

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and expenses exceeding $50,000, provided further however, that if, due to wellbore integrity problems, equipment failures or sticking of equipment or tools in the wellbore or other problems beyond the anticipation or control of the parties, the costs of operations respecting either or both Well 9 and Well 9-17 are anticipated to exceed $75,000 in the aggregate, then the parties shall determine whether they wish to proceed and if so they shall jointly (each as to a 50% share) pay for any costs in excess of $75,000. If HSR fails to complete the operations described above within one year, we shall have no further obligations with respect to these operations.

If, after the acquisition, processing, analysis and interpretation of the seismic data described above, we and HSR mutually agree, in good faith, based upon such seismic data and analysis thereof, that a well should be drilled to test the Tensleep Formation (the “Tensleep Well”) on the property, we must at our sole cost drill and log (or cause the drilling and logging of) such a well of such a depth to test the entire Tensleep Formation, and, if, after logging, a completion of such a well for production is justified, as determined mutually by the parties, then HSR must pay 50% of the costs of such completion and we pay the remaining 50%. If such well thereafter produces petroleum substances, we will share in the production from such well on the basis of the fractions described below, until the costs of such well and its completion have been recovered out of the production of petroleum substances from such well.

Prior to Cost Recoupment Fractions:

HSR:	Amount of completion costs paid by HSR divided by
	Total of all drilling, logging and competition costs paid by HSR and Rancher
Rancher:	Amount of drilling, logging and completion costs paid by Rancher divided by
	Total of all drilling, logging and completion costs paid by HSR and Rancher

Upon recoupment of such drilling, logging and completion costs, we will share in the production from such well on an equal, 50-50 basis.

Finally, if production of petroleum substances from the property exceeds 20 barrels of oil per day (6mcf of natural gas shall equal 1 barrel of oil) for a continuous period of no less than 30 days, then we must each month thereafter for a period of 12 months pay to HSR out of our net share of the proceeds from the sale of petroleum substances produced from the property a payment of $5,000 (for an aggregate payment obligation of $60,000).

The Burke Ranch Field was discovered in 1953 by the Houston Oil Company, and has continued to be developed since its discovery. According to the Wyoming Oil and Gas Conservation Commission, approximately 6.5 million barrels of oil have been produced from the Burke Ranch Field as of September 2005.

A third party geological assessment by Merschat Minerals LLC dated September 2005, (the “Merschat Assessment”) estimates that the Burke Ranch Field has approximately 13 million barrels of oil still in place. The Burke Ranch Field production and development history is similar to many other fields in Wyoming where primary and secondary (waterflood) production removes roughly one-half of the original oil in place.

The Merschat Assessment estimates that potential remaining oil reserves in the Dakota Formation at the Burke Ranch Field total 6.5 million barrels of oil. This prospect holds strong tertiary (third stage) potential for extracting potential in-place resources. Additional reserve recovery methods recommended by the Merschat Assessment include carbon dioxide flooding—a process estimated to recover up to 30% of remaining oil in place (approximately 2 million barrels of oil) in the Burke Ranch Field. Other more conventional recommended methods to recover the oil in place include infill drilling and horizontal drilling.

The location of the Burke Ranch Field has several built-in advantages, with basic infrastructure already in place—pipelines, power, roads, etc. Because the Burke Ranch Field is within an established producing unit, lease expirations are of little concern. Another benefit of this prospect is its moderate depth of approximately 6,500 feet to the Dakota pay zone. The Merschat Assessment also suggests that the Dakota Formation might hold potential reserves at deeper levels, and should be assessed further.

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The Company recently successfully bid for and has the right to acquire an additional 8,183 acres contiguous and/or adjacent to its Burke Ranch Field. These leases, together with the Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the Company’s Burke Ranch Field more than five times (5X) to 10,104 acres (see “Other Recent Events”, below). The Company also recently entered into an agreement with NITEC to perform a reservoir engineering study on the Company's Burke Ranch Field in order to ascertain the field’s remaining recoverable oil (see “Other Recent Events”, below).

The Broadview Dome Prospect.

On June 6, 2006, the Company acquired the Broadview Dome Prospect, located approximately 25 miles northwest of Billings, Montana. This natural gas prospect involves approximately 7,600 acres. Rancher Energy holds a 100% working interest (80.00% net revenue interest) until payout, and 55.00% working interest (40.00% net revenue interest) after payout. The prospect was acquired through an assignment from an unaffiliated party for $250,000 cash payable within 90 days from June 6, 2006 and a 4% overriding royalty interest attributable to the Company’s interest to the unaffiliated third party.

Under a subsequent Exploration and Development Agreement entered into on June 15, 2006  (the “Agreement”) with Big Snowy Resources, LP (“BSR”) the leaseholder of the property, we are obligated to arrange as soon as practicable and pay for a 3-D seismic program covering 4 square miles on the property. We estimate the total cost of the seismic program to be approximately $200,000.

Within 30 days from the 3-D seismic program completion date, we must give written notice to BSR of our intention to drill based on the 3-D and propose a drilling location (the “Test Well”). Our failure to provide a notice prior to expiration of the 30 day period shall be deemed an election by us to terminate the Agreement with no further obligations or liabilities. If we elect not to terminate the Agreement, we have 120 days to spud the Test Well. The Test Well will be drilled at our sole cost. The well must be drilled to the deepest horizon indicated as hydrocarbon bearing by the 3-D seismic.

Upon receipt by BSR of the final seismic interpretation and notice of drilling location, BSR will assign to us a 55.00% working interest in the spacing unit of the Test Well. Upon drilling and completion of the test well, BSR will assign us a 55.00% working interest (40.00% net revenue interest) in all lands owned by BSR in the area covered by the Agreement.

If the Test Well is commercial, we are entitled to 100% of the net revenue from the Test Well until payout of our costs. After payout, the revenue from the Test Well will be distributed in proportion to the working interest shares of BSR and us.

We also must use our commercially reasonable efforts to obtain required government and administrative regulatory approvals and other necessary consents for the construction and operation of a pipeline of approximately 12 miles in length, in Stillwater County, Montana (the “Pipeline”), to transport gas from the Test Well, and other wells producing in commercial quantities on the property in which we and BSR have a joint working interest (the “Joint Wells”) to a gas transmission line.

If we are able to secure all such required approvals and consents we are obligated within 18 months thereafter to finance, construct, operate, and maintain the Pipeline, or instead of constructing the Pipeline, make mutually acceptable arrangements to transport all produced gas from the Joint Wells to market.

Upon payout of our costs in the Pipeline, we must assign 20% of our right, title and interest in the Pipeline to BSR. We have granted BSR an option to purchase an additional 25% of our Pipeline (the “Pipeline Option”). The Pipeline Option may be exercised incrementally by BSR where the minimum percentage of such increments is 1%.  If BSR exercises the Pipeline Option, it must do so within 18 months of the completion of construction of the Pipeline (after which the Pipeline Option automatically terminates).

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The Broadview Dome Prospect is close to existing regional pipelines, and is in an area of the state actively experiencing commercial gas production activity. The Yellowstone-Stillwater county line splits the prospect from north to south. The topography reflects the structure on the surface, with dipping strata in all directions from the top of the dome. South Comanche Creek runs from west to east separating two distinct structures, one on the north and one on the south.

The Broadview Dome Prospect is an up dip test of the Frontier Sand located on a small anticlinal feature, which is on the southeastern edge of the larger Hailstone Dome. The sharp flextures created by this structure have resulted in the formation of many northeast southwest trending normal faults. These faults have truncated the structure, creating the potential for Amsden, Swift, and Madison formation fault bounded reservoirs.

Other Recent Events.

On June 9, 2006, the Company entered into a loan agreement (the “$500K Loan Agreement”) with Venture Capital First LLC (“Venture Capital”) to borrow from Venture Capital the principal amount of $500,000 (the “$500K Loan”) for the Company’s working capital purposes to be repaid in full plus six percent (6%) interest on the principal amount on or before December 9, 2006. The $500K Loan Agreement provides that Venture Capital has the option to convert all or a portion of the $500K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the OTC Bulletin Board on the day preceding notice from Venture Capital of its intent to convert all or a portion of the Loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

On June 8, 2006, the Company entered into an agreement with NITEC to perform a reservoir engineering study (the “NITEC Study”) on the Company's Burke Ranch Field in order to ascertain the field’s remaining recoverable oil. NITEC estimates that it will take it three to four months to complete the NITEC Study at a cost of approximately $95,000.

On June 6, 2006, at the Wyoming BLM auction, the Company successfully bid for and has the right to acquire an additional 8,183 acres contiguous and/or adjacent to its Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a total cost of $143,237 or an average cost of approximately $16.00 an acre, excluding first annual rental payments of $12,275 and administration fees of $910, and the closing is expected to occur in approximately 90 days. The BLM Leases, together with the Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the Company’s Burke Ranch Field more than five times (5X) to 10,104 acres.

On June 6, 2006, the Company entered into a loan agreement (the “$150K Loan Agreement”) with Enerex Capital Corp. (“Enerex”) to borrow from Enerex Capital the principal amount of $150,000 (the “$150K Loan”) for the Company’s working capital purposes to be repaid in full plus 2% interest on the principal amount on or before June 30, 2006. The $150K Loan Agreement provides that Enerex has the option to convert all or a portion of the $150K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the OTC Bulletin Board on the day preceding notice from Enerex of its intent to convert all or a portion of the $150K Loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

On May 15, 2006, the Company entered into an employment agreement with John Works (the “Works Employment Agreement”) wherein we engaged Mr. Works as our president, chief executive officer, and a director. The term of the Works Employment Agreement is two years beginning May 15, 2006. We will pay Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses incurred by him up to $10,000 per month, an automobile allowance of $400 per month, and a parking allowance of $150 per month. Further, we will pay Mr. Works a minimum of $950 per month to maintain an office in Denver, Colorado. In addition to the foregoing, we have granted Mr. Works an option to acquire restricted shares of the Company’s common stock at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the execution of the employment agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter of service. In the

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event the agreement is terminated, Mr. Works will be entitled to purchase all shares that have vested, and all unvested shares will be forfeited.

On May 15, 2006, Andrei Stytsenko resigned as the Company’s principal executive officer but would remain with the Company both as a director and as Vice President--Production. Mr. Stytsenko’s resignation was not as a result of any disagreement with the Company but rather as the result of the change of direction and focus of the Company from the exploration and development of gold mineral deposits and reserves in British Columbia, Canada to an oil and gas exploration and production company with its primary operations in the Rocky Mountain Region of the United States.

On April 11, 2006, the Company amended its Articles of Incorporation and changed its name from Metalex to Rancher Energy. On April 18, 2006 the Company’s common stock began trading on the OTC Bulletin Board under our new symbol “RNCH”.

Business Strategy.

The Company’s objective is to develop natural oil and gas reserves, production, and revenues through a strategy that includes the following key elements:

Pursue Attractive Reserve and Leasehold Acquisitions. To date, acquisitions have been critical in establishing our asset base. We believe that we are well positioned, given our initial success in identifying and quickly closing on attractive opportunities in the Powder River and the Crazy Mountain Basins, to effect opportunistic acquisitions that can provide upside potential, including long-term drilling inventories and undeveloped leasehold positions with attractive return characteristics. Our focus is to acquire assets that provide the opportunity for developmental drilling, the drilling of extensional step out wells, and use of state-of-the art enhanced oil recovery techniques, which we believe provide us with significant upside potential while not exposing us to the risks associated with drilling new field wildcat wells in frontier basins.

Pursuit of Selective Complementary Acquisitions. We will seek to acquire long-lived producing properties with a high degree of operating control, or oil and gas entities that are known to be competent in the area,  that offer opportunities profitably to develop oil and gas reserves.

Drive Growth Through Technology and Drilling. We plan to supplement our long-term reserve and production growth through the use of 3-D seismic and reservoir geology experts, coupled with strategically-focused drilling operations.

Maximize Operational Control. To date, we do not own any assets where we are not the operator. It is strategically important to our future growth and maturation as an independent exploration and production company to be able to continue to serve as operator of our properties when possible, as that will enable us to exert greater control over costs and timing in and manner of our exploration, development, and production activities.

Operate Efficiently, Effectively, and Maximize Economies of Scale Where Practical. Our objective is to generate profitable growth and high returns for our stockholders, and we expect that our cost structure will benefit from economies of scale and our continuing cost management initiatives as we grow. As we manage our growth, we will actively focus on reducing lease operating expenses, general and administrative costs, and finding and development costs. In addition, our acquisition efforts will be geared toward pursuing opportunities that fit well within our existing operations, or in areas where the Company is establishing new operations, or where we believe that a base of existing production will produce an adequate foundation for economies of scale necessary to grow a business within a geography or business segment.

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Governmental Regulation.

The Company’s business and the oil and gas industry in general are heavily regulated. The availability of a ready market for oil and gas production depends on several factors beyond the Company’s control. These factors include regulation of oil and gas production, federal and state regulations governing environmental quality and pollution control, the amount of oil and gas available for sale, the availability of adequate pipeline and other transportation and processing facilities, and the marketing of competitive fuels. State and federal regulations generally are intended to prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir, and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state, and local agencies.

The Company believes that it is in substantial compliance with such statutes, rules, regulations, and governmental orders, although there can be no assurance that this is or will remain the case. Failure to comply with such laws and regulations can result in substantial penalties. The regulatory burden on the oil and gas industry increases our cost of doing business and affects our profitability. Although we believe we are in substantial compliance with all applicable laws and regulations, such laws and regulations are frequently amended or reinterpreted so we are unable to predict the future cost or impact of complying with such laws and regulations.

The following discussion of the regulation of the oil and gas industry in the United States and is not intended to constitute a complete discussion of the various statutes, rules, regulations, and environmental orders to which the Company’s operations may be subject.

Regulation of Oil and Gas Exploration and Production.

The Company’s oil and gas operations will be subject to various types of regulation at the federal, state, and local levels. Prior to commencing drilling activities for a well, the Company (or its operating subsidiaries, operating entities, or operating partners) must procure permits and/or approvals for the various stages of the drilling process from the applicable federal, state, and local agencies in the state in which the area to be drilled is located. Such permits and approvals include those for the drilling of wells, maintaining bonding requirements in order to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties on which wells are drilled, the plugging and abandoning of wells, and the disposal of fluids used in connection with oil and gas operations. The Company’s operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, and the density of wells which may be drilled, and the unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely primarily or exclusively on voluntary pooling of lands and leases. In areas where pooling is voluntary, it may be more difficult to form units, and therefore, more difficult to develop a project if the operator owns less than 100% of the leasehold. In addition, state conservation laws may establish maximum rates of production from oil and gas wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability of production.

The effect of these regulations may limit the amount of oil and gas the Company can produce from its wells and may limit the number of wells or the locations at which the Company can drill. The regulatory burden on the oil and gas industry increases the Company’s costs of doing business and, consequently, affects its profitability.  Inasmuch as such laws and regulations are frequently expanded, amended, and reinterpreted, the Company is unable to predict the future cost or impact of complying with such regulations.

Oil and Gas Marketing and Transportation.

Federal legislation and regulatory controls have historically affected the price of oil and gas and the manner in which production is transported and marketed. Under the Natural Gas Act of 1938, the Federal Energy Regulatory Commission (“FERC”) regulates the interstate sale for resale of natural gas and the transportation of natural gas in interstate commerce, although facilities used in the production or gathering of natural gas in interstate commerce are generally exempted from FERC jurisdiction. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all “first sales” of natural gas, which definition will cover all sales of our own production. In addition, as part of the broad industry restructuring initiatives described below, FERC has granted to all producers such as us a “blanket certificate of public convenience and necessity” authorizing the sale of gas for

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resale without further FERC approvals. As a result, all natural gas that we produce in the future may now be sold at market prices, subject to the terms of any private contracts that may be in effect.

Natural gas sales prices nevertheless continue to be affected by intrastate and interstate gas transportation regulation, because the prices that companies such as ours receive for our production are affected by the cost of transporting the gas to the consuming market. Through a series of comprehensive rulemakings, beginning with Order No. 436 in 1985 and continuing through Order No. 636 in 1992 and Order No. 637 in 2000, FERC has adopted regulatory changes that have significantly altered the transportation and marketing of natural gas. These changes were intended by FERC to foster competition by, among other things, transforming the role of interstate pipeline companies from wholesale marketers of gas to the primary role of gas transporters, and by increasing the transparency of pricing for pipeline services. FERC has also developed rules governing the relationship of the pipelines with their marketing affiliates, and implemented standards relating to the use of electronic data exchange by the pipelines to make transportation information available on a timely basis and to enable transactions to occur on a purely electronic basis.

In light of these statutory and regulatory changes, most pipelines have divested their gas sales functions to marketing affiliates, which operate separately from the transporter and in direct competition with all other merchants, and most pipelines have also implemented the large-scale divestiture of their gas gathering facilities to affiliated or non-affiliated companies. Interstate pipelines thus now generally provide unbundled, open and nondiscriminatory transportation and transportation-related services to producers, gas marketing companies, local distribution companies, industrial end users, and other customers seeking such services. Sellers and buyers of gas have gained direct access to the particular pipeline services they need, and are better able to conduct business with a larger number of counterparties.

Environmental Regulations.

The Company’s operations are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stricter environmental legislation and regulations could continue. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes environmental protection requirements that result in increased costs to the oil and gas industry in general, the business and prospects of the Company could be adversely affected.

The nature of the Company’s business operations results in the generation of wastes that may be subject to the Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes. The U.S. Environmental Protection Agency (“EPA”) and various state agencies have limited the approved methods of disposal for certain hazardous and non-hazardous wastes. Furthermore, certain wastes that may be generated by the Company’s operations that are currently exempt from treatment as “hazardous wastes” may in the future be designated as “hazardous wastes”, and therefore be subject to more rigorous and costly operating and disposal requirements.

Stricter standards in environmental legislation may be imposed on the industry in the future. For instance, legislation has been proposed in Congress from time to time that would reclassify certain exploration and production wastes as “hazardous wastes” and make the reclassified wastes subject to more stringent handling, disposal, and clean-up restrictions. If such legislation were to be enacted, it could have a significant impact on our operating costs, as well as on the oil and gas industry in general. Compliance with environmental requirements generally could have a materially adverse effect upon our capital expenditures, earnings, or competitive position.

The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), also known as the “Superfund” law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment.  These persons include the present or past owners or operators of the disposal site or sites where the release occurred and the companies that transported or arranged for the disposal of the hazardous substances at the site where the release occurred. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. It is not uncommon for neighboring landowners and other third parties to

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file claims for personal injury and property damages allegedly caused by the release of hazardous substances or other pollutants into the environment. Furthermore, although petroleum, including natural gas and crude oil, is exempt from CERCLA, at least two courts have ruled that certain wastes associated with the production of crude oil may be classified as “hazardous substances” under CERCLA and thus such wastes may become subject to liability and regulation under CERCLA. State initiatives further to regulate the disposal of crude oil and gas wastes are also pending in certain states, and these various initiatives could have adverse impacts on our business.

In August 2005, the Energy Policy Act of 2005 was enacted (the “Energy Act”). The Energy Act contains certain provisions that facilitate oil and gas leasing and permitting on federal lands. The Energy Act also provides for certain incentives for oil and gas production.

The Company’s operations may be subject to the Clean Air Act (the “CAA”) and comparable state and local requirements. Amendments to the CAA were adopted in 1990 and contain provisions that may result in the gradual imposition of certain pollution control requirements with respect to air emissions from the operations of the Company. The EPA and states have been developing regulations to implement these requirements. The Company may be required to incur certain capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining operating permits and approvals addressing other air emission-related issues.

The Federal Water Pollution Control Act (the “FWPCA” or the “Clean Water Act”) and resulting regulations, which are implemented through a system of permits, also govern the discharge of certain contaminants into waters of the United States. Sanctions for failure to comply strictly with the Clean Water Act are generally resolved by payment of fines and correction of any identified deficiencies. However, regulatory agencies could require the Company to cease construction or operation of certain facilities that are the source of water discharges and compliance could have a materially adverse effect on our capital expenditures, earnings, or competitive position.

Our operations will be subject to local, state, and federal laws and regulations to control emissions from sources of air pollution. Payment of fines and correction of any identified deficiencies generally resolve penalties for failure to comply strictly with air regulations or permits. Regulatory agencies could also require us to cease construction or operation of certain facilities that are air emission sources.

Operating Hazards and Insurance.

The Company’s exploration and production operations include a variety of operating risks, including the risk of fire, explosions, above-ground and underground blowouts, craterings, pipe failure, casing collapse, abnormally pressured formations, and environmental hazards such as oil and gas leaks, ruptures, and discharges of toxic gas, the occurrence of any of which could result in substantial losses to the Company due to injury and loss of life, severe damage to and destruction of property, natural resources and equipment, pollution and other environmental damage, clean-up responsibilities, regulatory investigation, penalties, and suspension of operations.

Any significant problems related to its facilities could adversely affect the Company’s ability to conduct its operations. In accordance with customary industry practice, the Company maintains or will attempt to obtain insurance against some, but not all, potential risks; however, there can be no assurance that such insurance will be adequate to cover any losses or exposure for liability. The occurrence of a significant event not fully insured against could materially adversely affect the Company’s operations and financial condition. The Company cannot predict whether insurance will be available at premium levels that justify its purchase or whether insurance will be available at all.

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Employees.

At present, the Company has two full time employees. One employee is Mr. John Works, our President, Chief Executive Officer and Chief Financial Officer, and the other is Mr. Andrew Casazza, our manager of finance and operations.

We presently do not have pension, health, annuity, insurance, profit sharing, or similar benefit plans; however, we may adopt such plans in the future. We have a stock option plan under which options have been granted to Mr. Works. See Item 11 “Executive Compensation” below.

The Company’s employees are not covered by a collective bargaining agreement. The Company considers relations with its employees to be excellent.

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Item 1A.RISK FACTORS.

To inform readers of our future plans and business strategies, this report contains statements concerning our future performance, intentions, objectives, plans and expectations that are or may be deemed to be “forward-looking statements”. Our ability to do this has been fostered by the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. Such factors affecting us include, but are not limited to, the following:

We have incurred losses to date, we expect future losses, and we may never become profitable.

The Company has incurred losses in the past. We incurred net losses from continuing operations for the years ended March 31, 2006, 2005, and 2004 of $124,453, $27,154, and $375,000, respectively. In addition, we had an accumulated deficit of $526,607 at March 31, 2006. We may fail to achieve significant revenues or profitability. There can be no assurance of when, if ever, we will be profitable or whether we will be able to maintain profitability.

Our auditors have issued a going concern opinion, hence there is substantial uncertainty that we will continue operations.

Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business for the next twelve months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business. As such we may have to cease operations and our shares could become worthless. See Item 8 “Financial Statements and Supplementary Data”.

We lack an operating history, have never had any revenues, have no immediate prospects for revenues, and have losses which we expect to continue.

We were incorporated in February 2004 and we have not realized any revenues to date. We have no operating history upon which an evaluation of our future success or failure can be made. Based upon our current plans, we expect to incur operating losses in future periods. This will occur because there are expenses associated with the start-up nature of our oil and gas acquisition and development business. As a result, continuing to incur expenses while failing to generate revenue would have a material adverse effect on our financial condition and results of operations.

If we are unable to obtain additional funding our business operations will be harmed.

We believe that our current cash position and estimated 2007 cash from our operations will not be sufficient to meet our current estimated general and administrative, operating, and capital expenditures through the end of fiscal year 2007. As a result, the Company will require additional funding. We do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms. Insufficient funds may prevent us from implementing our business strategy.

Our business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile energy prices.

Our business depends on the level of activity in oil and gas exploration, development, and production in markets worldwide. Oil and gas prices, market expectations of potential changes in these prices, and a variety of political and economic and weather-related factors significantly affect this level of activity. Oil and gas prices are extremely volatile and are affected by numerous factors, including:

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• worldwide demand for oil and gas;

• the ability of OPEC to set and maintain production levels and pricing;

• the level of production in non-OPEC countries;

• the policies of the various governments regarding exploration and development of their oil and gas reserves;

• local weather;

• fluctuating pipeline takeaway capacity;

• advances in exploration and development technology;

• the political environment surrounding the production of oil and gas;

• level of consumer product demand; and

• the price and availability of alternative fuels.

Our business involves numerous operating hazards.

Our proposed operations are subject to certain hazards inherent in drilling for oil or gas, such as blowouts, reservoir damage, loss of production, loss of well control, punchthroughs, craterings, or fires. The occurrence of these events could result in the suspension of drilling operations, weather, equipment shortages, damage to or destruction of the equipment involved, and injury or death to rig personnel. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services, or personnel shortages. Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to damage claims by other oil and gas companies.

Although we intend to maintain insurance in the areas in which we operate, pollution and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses, and we do not have insurance coverage or rights to indemnity for all risks. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our financial position and results of operations.

Our current properties are located in the Rocky Mountains, making us vulnerable to risks associated with operating in one major geographic area.

Our current activities are focused on the Rocky Mountain region of the United States, which means our properties are geographically concentrated in that area. As a result, we may in the future be disproportionately exposed to the impact of delays or interruptions of production from these wells caused by significant governmental regulation, transportation capacity constraints, curtailment of production, or interruption of transportation of oil and gas produced from the wells in these basins.

Competition in the oil and gas industry is intense, which may adversely affect our ability to succeed.

The oil and gas industry is intensely competitive, and we compete with other companies that are significantly larger and have greater resources.  Many of these companies not only explore for and produce oil and gas, but also carry on refining operations and market petroleum and other products on a regional, national, or worldwide basis.  These companies may be able to pay more for productive oil and gas properties and exploratory prospects or define, evaluate, bid for, and purchase a greater number of properties and prospects than our financial or human resources permit.  Our larger competitors may be able to absorb the burden of present and future federal, state, local, and other laws and regulations more easily than we can, which would adversely affect our competitive position.  Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.

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If oil and gas prices decrease, we may be required to take write-downs of the carrying values of our oil and gas properties.

Generally accepted accounting principles require that we periodically review the carrying value of our oil and gas properties for possible impairment. Based on specific market factors and circumstances at the time of the prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our oil and gas properties. A write-down constitutes a non-cash charge to earnings. We may incur impairment charges in the future, which could have material adverse effect on our results of operations in the periods taken.

Governmental laws and regulations may add to our costs or limit our drilling activity.

Our operations are affected from time to time in varying degrees by governmental laws and regulations. We may be required to make significant capital expenditures to comply with governmental laws and regulations. It is also possible that these laws and regulations may in the future add significantly to our operating costs or may significantly limit drilling activity.  Failure to comply with these laws and regulations may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties, including assessment of natural resource damage.

There are risks associated with forward-looking statements made by us and actual results may differ.

Some of the information in this 10-K contains forward-looking statements that involve substantial risks and uncertainties. These statements can be identified by the use of forward-looking words such as “may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, and “continue”, or similar words. Statements that contain these words should be read carefully because they:

• discuss our future expectations,

• contain projections of our future results of operations or of our financial condition, and

• state other “forward-looking” information.

The Company believes it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict and/or over which we have no control. The risk factors listed in this section, other risk factors about which we may not be aware, as well as any cautionary language in this 10-K, provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors could have an adverse effect on our business, results of operations, and financial condition.

Our stock price and trading volume may be volatile, which could result in losses for our stockholders.

The equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities.  The market price of our common stock could change in ways that may or may not be related to our business, our industry, or our operating performance and financial condition.  In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur.  Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

· actual or anticipated quarterly variations in our operating results;

· changes in expectations as to our future financial performance or changes in financial estimates, if any, of public market analysts;

· announcements relating to our business or the business of our competitors;

· conditions generally affecting the oil and gas industry;

· the success of our business strategy; and

· the operating and stock price performance of other comparable companies.

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Many of these factors are beyond our control, and we cannot predict their potential effects on the price of our common stock.  We cannot assure that the market price of our common stock will not fluctuate or decline significantly in the future.  In addition, the stock markets in general can experience considerable price and volume fluctuations.

NASD sales practice requirements limit a stockholders' ability to buy and sell our stock.

The National Association of Securities Dealers, Inc. (“NASD”) 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, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which has the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker-dealers are willing to market in our common stock, reducing a stockholders' ability to resell shares of our common stock.

We do not expect to pay dividends in the foreseeable future. As a result, holders of our common stock must rely on stock appreciation for any return on their investment.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements, and other factors and will be at the discretion of our board of directors. Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends, by our finance providers or otherwise.

Item 1B.UNRESOLVED STAFF COMMENTS.

None.

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Item 2.PROPERTIES.

During the fiscal year ending March 31, 2006, the Company did not own or operate any oil or gas properties. As a result, we had no production data nor net wells drilled, and no developed or undeveloped acreage, to report in this Form 10-K. As described in “Part 1--Recent Events”, the Company has acquired the rights to one property in each of two basins in the Rocky Mountain Region of the United States--the Burke Ranch Field in the Powder River Basin located in central Wyoming, and the Broadview Dome Prospect in the Crazy Mountain Basin located in central Montana.

Our executive office is located in Denver, Colorado where we lease our offices from an unaffiliated third party for $950 per month. The term of such lease is on a month to month basis with no minimum term nor expiration date.

Item 3.LEGAL PROCEEDINGS.

We are not a party to any legal proceedings.

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

No matters were submitted to a vote of our security holders during the fourth quarter of fiscal year 2006.

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PART II

Item 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.

Rancher Energy’s common stock is quoted on the OTC Bulletin Board under the symbol “RNCH”.

The following table sets forth, on a per share basis, the high and low closing prices for the periods indicated:

Calendar quarter ended:	High		Low
June 30, 2006 (through June 15)	$	1.50	$	.52
March 31, 2006	$	3.00	$	.30
December 31, 2005	$	none	$	none
September 30, 2005	$	none	$	none
June 30, 2005	$	none	$	none

On April 22, 2005 the SEC declared effective our Form SB-2 Registration Statement, file number 333-116307, permitting us to offer up to 28,000,000 shares of common stock at $0.007 per share. There was no underwriter involved in this public offering.

Of the 29,500,000 shares of the Company’s common stock outstanding as of June 15, 2006, a total of 1,500,000 shares were owned by Mr. Works and Mr. Stytsenko and may only be resold in compliance with Rule 144 of the Securities Act of 1933.

As of June 15, 2006, there were 20 holders of record of the Company’s common stock and an undetermined number of beneficial owners whose shares are held by CEDE & Co.

The Company has not paid any dividends on its common stock since inception, and the Company does not anticipate declaration or payment of any dividends at any time in the foreseeable future.

Repurchases of Equity Securities.

During the quarter ended March 31, 2006 the registrant did not repurchase any of its equity securities; however, on March 8, 2006, Andrei Stytsenko, our former President and a current director, donated 69,500,000 shares of our common stock to our treasury for no consideration.

Recent Issuances of Unregistered Securities.

During the fourth quarter of fiscal year 2006, there were no issuances of unregistered securities by the Company.

Equity Compensation Plan Information.

The Company does not have an equity compensation plan, however see “Executive Compensation” under Item 11 below for information concerning a stock option plan we have adopted for our Chief Executive Officer.

Use of Proceeds.

On April 22, 2005, we completed our public offering and sold 28,000,000 shares of common stock and raised $200,000. There was no underwriter involved in our public offering. The proceeds from the offering were partially used during this year ended March 31, 2006 for general operating expenses, accounting, and consulting fees. The balance is available for use as set forth in the Use of Proceeds section of our Form SB-2 registration statement.

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The following amounts were paid from the proceeds of the offering through March 31, 2006:

Accounting and legal fees	$	66,604
Accounts payable		51,904
Operating expenses		44,589
Total	$	163,097

Item 6.SELECTED FINANCIAL DATA.

Subsequent to March 31, 2006, we changed the direction and focus of our business from an exploratory stage mining business to the oil and gas business. We had no revenues from our exploratory stage mining activities and we relinquished our mining claims. The financial results of these activities are reflected below in Item 8 “Financial Statements and Supplementary Data” and are incorporated by reference in response to this Item 6.

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

The following discussion and analysis should be read in conjunction with the Company’s financial statements and the related notes. This discussion is intended to provide investors with an understanding of the Company’s past performance, financial condition, and prospects. The following topics will be discussed and analyzed:

· overview of our business;

· results of operations and comparison of results between years;

· outlook for fiscal 2007;

· liquidity and capital resources;

· subsequent events;

· critical accounting policies and estimates; and

· recent accounting pronouncements.

Overview

Rancher is an independent energy company which intends to engage in the development, production, and marketing of oil and gas in North America. Prior to April 18, 2006 the Company, then known as Metalex Resources, Inc. (“Metalex”) was primarily engaged in the exploration and development of a gold prospect in British Columbia, Canada. Metalex found no commercially exploitable deposits or reserves of gold. During April 2006 the shareholders voted to change the name of the Company to Rancher Energy Corp. Since April, 2006 the Company has named a new president and is actively pursuing oil and gas prospects in the Rocky Mountain region. We plan to generate revenues by the production of oil and gas from properties which we have under contract, independently, or with other parties. During June, 2006 we entered into agreements to acquire interests in two different prospects—1) up to a 89.82% working interest in the Burke Ranch Field in the Powder River Basin in central Wyoming on 1,921 gross acres (1,713 net to the Company) and 2) a separate acreage prospect of over 7,600 gross acres (4,180 net to the Company’s 55.00% working interest) in the Broadview Dome Prospect in the Crazy Mountain Basin in central Montana.

At March 31, 2006, the Company did not own or operate any oil or gas properties. As a result, we had no production data, net wells drilled and no developed or undeveloped acreage to report in this 10-K.

Results of Operations During Fiscal Year 2006 Compared to Fiscal Year 2005

The Company’s net loss increased from $27,154 for the year ended March 31, 2005 to $124,453 for the year ended March 31, 2006. Legal and accounting fees increased to $47,809 from $8,795 in 2006 due to increased activity for the Company, including $20,000 paid to the Company’s previous securities attorney in conjunction with registration of the Company’s securities. In addition, the increase in activity resulted in increased auditing and review fees.

Mining exploration expenses of $50,000 were recognized in the year ended March 31, 2006 which related to expenditures on a mining project that the Company abandoned subsequent to year end.

Outlook for Fiscal 2007

The following summarizes the goals and objectives for the Company for the year ending March 31, 2007:

· Begin its exploration and development program on Burke Ranch as required by the Participation Agreement, which includes completing a 3-D seismic survey on approximately 4,480 acres, selecting an engineering firm to perform engineering studies on the property and prepare a development plan, and performing remedial work on two wells currently in production.

· Begin its exploration and development plan on the Broadview Dome as required by its exploration and development agreement, which includes, at a minimum, completing a 3-D seismic survey on the 2,560 acres.

· Finalize the additional agreements with third parties to provide the financing for the exploration and development programs.

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· Prepare and finalize a registration statement to register securities that may be issued.

· Build up the operating capabilities of the Company.

· Pursue additional asset and project opportunities that are accretive to shareholder value.

Liquidity and Capital Resources.

At March 31, 2006 the Company had a working capital surplus of $44,011. Subsequent to year end, through two separate transactions, the Company borrowed $650,000. The first amount advanced to the Company ($150,000) will be repaid out of the proceeds of the second amount advanced ($500,000). Accordingly, at June 26, 2006 the Company has approximately $300,000 cash in the bank after $143,000 paid for leases acquired adjacent to Burke Ranch, repayment of the $150,000 note and overhead through June 26, 2006. Pursuant to the Burke Ranch Unit Purchase and Participation Agreement (Exhibit 10.3), the Company may receive up to a $71,500 payment within 30 days if the seller of the Burke Ranch property elects to purchase up to 50% of the $143,000 leases purchased.

Currently the Company is spending approximately $50,000 per month on consultants, salaries, and other general and administrative expenses. In addition, the Company has agreed to pay $500,000 in cash within the next ninety days for the initial payments required under the two acquisition agreements and it estimates the initial exploration phase costs to be $750,000. The Company is currently negotiating with Enerex, and others, for the sale of Company Common stock units. The Company expects that its current cash balances, combined with the sale of Company common stock units, if completed, will meet its capital needs for fiscal year 2007.

The Company will require additional financing during fiscal year 2007 if the Company identifies other acquisitions that meet its investment and operational strategy or if the Company’s exploration program is successful, resulting in a development program. Such additional financing may be in the form of debt or equity or a combination of both (see “Sources and Uses of Funds”, below).

Sources and Uses of Funds.

Historically, the Company’s primary source of liquidity has been cash provided by equity offerings, and or debt convertible into equity from its existing capital providers. As discussed above, the Company plans to issue common share units during fiscal 2007. If its exploration program and/or acquisition programs are successful the Company will be required to obtain additional financing which may be debt or equity or a combination of both.

Cash Flows and Capital Expenditures.

During the year ended March 31, 2006 the Company expended $124,000 in its operating activities, primarily to finance its unsuccessful efforts to explore for hard minerals and overhead costs. This amount compares to $25,000 used in operating activities in fiscal year 2005.

Commitments.

Pursuant to the terms of the purchase of the Burke Ranch and Broadview Dome agreements, the Company will be required to pay, by September 20, 2006, $250,000 for each property for a total consideration of $500,000.

In addition, the Company estimates that it will cost an additional $750,000 to meet its minimum 3-D seismic and rework obligations under such agreements.

Income Taxes, Net Operating Losses, and Tax Credits.

At March 31, 2006 the Company has a net operating loss carry forward for U.S. income tax purposes of $163,500.  The Company has established a valuation allowance for deferred taxes that reduces its net deferred tax assets, as management currently believes that these losses will not be utilized in the near term. The allowance recorded was $55,500 and $13,500 for fiscal years 2006 and 2005, respectively.

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Subsequent Events.

The Burke Ranch Field.

Subsequent to March 31, 2006, on June 21, 2006, the Company acquired the Burke Ranch Field, an oil prospect consisting of approximately 1,921 acres in the Powder River Basin in Natrona County, Wyoming. The prospect is located approximately twenty-five (25) miles north of Casper, Wyoming, in the central region of the state. Rancher will acquire up to a 89.82% working interest before payout, which reverts to a 49.90% working interest after payout.

The terms of the agreement include the Company paying $250,000 within ninety days of the agreement date, completing a 3-D seismic survey on the acreage within one year of signing, selecting an engineering firm to perform engineering studies and to prepare a development plan for Burke Ranch and the purchase of certain equipment and completion of repairs on wells currently existing on the property within 30 days of closing.

The Company recently successfully bid for and has the right to acquire an additional 8,183 acres contiguous and/or adjacent to its Burke Ranch Field. These leases, together with the Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the Company’s Burke Ranch Field more than five times (5X) to 10,104 acres (see “Other Recent Events”, below).

The Company also recently entered into an agreement with NITEC to perform reservoir engineering studies on the Company's Burke Ranch Field, as required by the agreement, in order to ascertain the field’s remaining recoverable oil (see “Other Subsequent Events”, below).

The Broadview Dome Prospect.

On June 21, 2006, the Company acquired the Broadview Dome Prospect, located approximately 25 miles northwest of Billings, Montana, in the Crazy Mountain Basin. This natural gas prospect involves approximately 7,600 acres. Rancher Energy holds a 100.00% working interest until payout, and 55.00% working interest after payout.

The terms of the agreement to acquire Broadview Dome include the completion of a 3-D seismic survey on the acreage as soon as possible.

Other Subsequent Events.

On May 15, 2006, the Company entered into an employment contract with John Works wherein we engaged Mr. Works as our president, chief executive officer, and a director. The term of the agreement is two (2) years beginning May 15, 2006. We will pay Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses incurred by him up to $10,000 per month, an automobile allowance of $400 per month, and a parking allowance of $150 per month. Further, we will pay Mr. Works a minimum of $950 per month to maintain an office in Denver, Colorado. In addition to the foregoing, we have granted Mr. Works an option to acquire restricted shares of our common stock at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the execution of the employment agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter of service. In the event the agreement is terminated, Mr. Works will be entitled to purchase all shares that have vested, and all unvested shares will be forfeited.

On May 15, 2006, the Company announced that Andrei Stytsenko resigned as the Company’s principal executive officer but would remain with the Company both as a board member and as Vice President--Production. Mr. Stytsenko’s resignation was not as a result of any disagreement with the Company but rather as the result of the change of direction and focus of the Company from the exploration and development of gold mineral deposits and reserves in British Columbia, Canada to its new business direction as an oil and gas exploration and production company focusing primarily on the Rocky Mountain Region of the United States.

On June 6, 2006, the Company entered into a loan agreement (the “$150K Loan Agreement”) with Enerex Capital Corp. (“Enerex”) to borrow from Enerex Capital the principal amount of $150,000 (the “$150K Loan”) for the

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Company’s working capital purposes to be repaid in full plus two percent (2%) interest on the principal amount on or before June 30, 2006. The $150K Loan Agreement provides that Enerex has the option to convert all or a portion of the $150K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the OTC Bulletin Board on the day preceding notice from Enerex of its intent to convert all or a portion of the Loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

On June 6, 2006, at the Wyoming BLM auction, the Company successfully bid for and has the right to acquire an additional 8,183 acres contiguous and/or adjacent to its Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a total cost of $143,237 or an average cost of approximately $16.00 an acre, excluding first annual rental payments of $12,275 and administration fees of $910, and the closing is expected to occur in approximately 90 days. The BLM Leases, together with the Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the Company’s Burke Ranch Field more than five times (5X) to 10,104 acres.

On June 9, 2006, the Company entered into a loan agreement (the “$500K Loan Agreement”) with Venture Capital First LLC (“Venture Capital”) to borrow from Venture Capital the principal amount of $500,000 (the “$500K Loan”) for the Company’s working capital purposes to be repaid in full plus six percent (6%) interest on the principal amount on or before December 9, 2006. The $500K Loan Agreement provides that Venture Capital has the option to convert all or a portion of the $500K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the OTC Bulletin Board on the day preceding notice from Venture Capital of its intent to convert all or a portion of the Loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

Critical Accounting Policies and Estimates. 

The discussion and analysis of the Company’s financial condition and results of operations were based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Significant accounting policies are described in Note 2 to the financial statements. In response to SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, the Company has identified certain of these policies as being of particular importance to the portrayal of the financial position and results of operations and which require the application of significant judgment by management. The Company analyzes our estimates, including those related to oil and gas reserves, bad debts, oil and gas properties, marketable securities, income taxes, derivatives, and contingencies, and bases those estimates on historical experience and various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the financial statements.

Full Cost Method of Accounting.

For its oil and gas exploration and producing activities, the Company will use the full cost method of accounting for its oil and gas properties. Accordingly, all costs related to the acquisition, exploration and development of both proved and unproved properties will be capitalized. The Company's properties are expected to be located within the continental United States, which will constitute one cost center. The amortization of proved oil and gas properties will be calculated using the units-of-production method, based on proved reserves of oil and gas. The costs of unproved properties will be excluded from amortization pending a determination of the existence of proved reserves. Such unproved properties will be assessed periodically for impairment. The amount of impairment, if any, will be added to the costs being amortized.

Capitalized costs, less related accumulated amortization, may not exceed the sum of: (1) the present value of future net revenues from estimated production of proved oil and gas reserves; (2) the cost of properties not being amortized; and (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized.

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Reserve Estimates. 

Estimates of oil and gas reserves, by necessity, are projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. Estimates of economically recoverable oil and gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies, and assumptions governing future oil and gas prices, future operating costs, severance taxes, development costs, and workover gas costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to an extent that these reserves may be later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of oil and gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of oil and gas properties and/or the rate of depletion of the oil and gas properties.

Stock Based Compensation.

Other than the stock option plan described above under “Other Subsequent Events”, the Company has not yet adopted a Long-Term Incentive plan under which the Company would issue performance share units convertible into common shares of the Company subject to vesting on the basis of the achievement of specified performance targets.

Recently Issued Accounting Standards and Pronouncements

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No.140”. This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special - purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with the FASB statement No. 115; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations.

In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments, and an Amendment of FASB Standards No. 133 and 140”, (Hereinafter SFAS No. 155”). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133, as well as eliminating a restriction on the passive derivative instruments that a qualify special purpose entity (“SPE”) may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would require to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year.

21

Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“Statement 154”). SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The implementation of SFAS 154 is not expected to have a material impact on our condensed consolidated results of operations, financial position or cash flows.

In December 2004, the FASB issued SFAS No. 153 “Exchanges of Non-monetary Assets—an amendment of APB Opinion No. 29”. This Statement amended APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company believes the impact of this new standard will not have a material impact upon the Company’s financial position, results of operations or cash flows. SFAS 153 is effective for all reporting periods beginning after June 15, 2005.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment”. SFAS No. 123R replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R will require compensation cost related to share-based payment transactions to be recognized in financial statements. As permitted by SFAS No. 123, the Company elected to follow the guidance of APB 25, which allowed companies to use the intrinsic value method of accounting to value their share-based payment transactions with employees. Based on this method, the Company did not recognize compensation expense in its financial statements as the stock options granted had an exercise price equal to the fair market value of the underlying Common Stock on the date of the grant. SFAS No. 123R requires measurement of the cost of share-based payment transactions to employees at the fair value of the award on the grant date and recognition of expense over the requisite service or vesting period. SFAS No. 123R requires implementation using a modified version of prospective application, under which compensation expense for the unvested portion of previously granted awards and all new awards will be recognized on or after the date of adoption. SFAS No. 123R also allows companies to adopt SFAS No. 123R by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in their pro forma footnote disclosures required under SFAS No. 123. The provisions of SFAS No. 123R will be adopted by the Company effective January 1, 2006, using the modified prospective application method. The effect of the adoption of SFAS No. 123R is expected to be significant to future financial statements as a result of applying the current fair value recognition provisions of SFAS No. 123. The amount of unvested stock compensation as of March 31, 2006 is $00,000, which will be recorded in future periods as earned.

In February 2005, the staff of the SEC sent a letter to oil and gas registrants regarding situations that require additional financial statement disclosures, pending final resolution of accounting treatment. The following are items related to registrants using the successful efforts method of accounting:

• Companies may enter concurrent commodity buy/sale arrangements, or transactions in contemplation of other transactions, often to assure that the commodity is available at a specific location. Pending resolution of accounting questions with the Emerging Issues Task Force, the staff of the SEC has requested additional disclosures for any such material arrangements, including separate disclosure on the face of the income statement of any related proceeds and costs reported on a gross basis. These disclosures are not applicable, since the Company has not entered any transactions of this nature.  

• Statement of Financial Accounting Standards No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies, specifies that drilling costs for completed exploratory wells should be expensed if the related reserves cannot be classified as proved within one (1) year unless certain criteria are met. In April 2005, the FASB issued FASB Staff Position 19-1, Accounting for Suspended Well Costs. FSP 19-1 provides guidance for evaluating whether sufficient progress is being made to determine whether reserves can be classified as proved. FSP 19-1 is effective for all reporting periods beginning after April 4, 2005,

22

however, early application is permitted. Pending adoption of FSP 19-1, the staff of the SEC has requested additional disclosures be included in registrants’ financial statements regarding their accounting policy for capitalization of exploratory drilling costs, as well as disclosure of capitalized exploratory drilling cost amounts included in the financial statements.

 

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We currently do not invest in derivative financial instruments, interest rate swaps or other similar investments to alter interest rate exposure or for any other purpose.

23

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial Statements

and

Report of Independent Registered Public Accounting Firm

March 31, 2006, 2005, and 2004

RANCHER ENERGY CORP.

Table of Contents

	See pages attached to this report
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Financial Statements		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations and Comprehensive Loss		F-4
Consolidated Statements of Changes in Stockholders' (Deficit) Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

24

To the Board of Directors

Rancher Energy Corp.

(fka Metalex Resources, Inc.)

Spokane, Washington

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Rancher Energy Corp. (fka Metalex Resources, Inc. and a Nevada corporation and an exploration stage company) as of March 31, 2006 and 2005, and the related statements of operations, stockholder’s deficit and cash flows for the periods then ended and for the period from February 4, 2004 (inception) through March 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rancher Energy Corp. as of March 31, 2006 and 2005, and the results of its operations, stockholder’s deficit and cash flows for the periods then ended and for the period from February 4, 2004 (inception) through March 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s operating losses raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Williams & Webster, P.S.

Williams & Webster, P.S.

Certified Public Accountants

Spokane, Washington

June 19, 2006

RANCHER ENERGY CORP. (FKA METALEX RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
	March 31,
	2006			2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	46,081		$	4,060
Total Current Assets		46,081			4,060
EQUIPMENT, net		384			511
OTHER ASSETS
Software, net		261			178
TOTAL ASSETS	$	46,557		$	4,749
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	477		$	795
Payroll taxes payable		1,593			108
Advances from officers		-			30,000
Total Current Liabilities		2,070			31,903
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized, $0.00001
par value, 28,500,0000 and 70,000,000 shares issued and outstanding		285			700
Additional paid-in capital		570,809			374,300
Accumulated deficit during exploration stage		(526,607	)		(402,154	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		44,487			(27,154	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	46,557		$	4,749

The accompanying notes are an integral part of these financial statements.

F- 2

RANCHER ENERGY CORP. (FKA METALEX RESOURCES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
							From
							February 4, 2004
	Years Ended						(Inception) to
	March 31,						March 31,
	2006			2005			2006
REVENUE	$	-		$	-		$	-
OPERATING EXPENSES
Legal and accounting fees		47,809			8,795			66,604
Mining exploration expense		50,000			-			51,904
Consulting fees		-			-			363,096
Depreciation		213			201			414
Other general and administrative expenses		26,431			18,158			44,589
TOTAL EXPENSES		124,453			27,154			526,607
LOSS FROM OPERATIONS		(124,453	)		(27,154	)		(526,607	)
INCOME TAXES		-			-			-
NET LOSS	$	(124,453	)	$	(27,154	)	$	(526,607	)
BASIC AND DILUTED
NET LOSS PER SHARE	$	nil		$	nil
WEIGHTED AVERAGE SHARES
OUTSTANDING USED IN BASIC AND
DILUTED PER SHARE CALCULATION		32,819,623			70,000,000

The accompanying notes are an integral part of these financial statements.

F- 3

RANCHER ENERGY CORP. (FKA METALEX RESOURCES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
	Common Stock
	Shares			Amount			Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Equity (Deficit)
Stock issued for repayment of expenses and consulting services		70,000,000		$	700		$	374,300	$	-		$	375,000
Net loss for the year ended, March 31, 2004		-			-			-		(375,000	)		(375,000	)
Balance, March 31, 2004		70,000,000			700			374,300		(375,000	)		-
Net loss for the year ended March 31, 2005		-			-			-		(27,154	)		(27,154	)
Balance, March 31, 2005		70,000,000			700			374,300		(402,154	)		(27,154	)
Common stock issued for cash at $0.07 per  share net of offering costs of $3,906		28,000,000			280			195,814		-			196,094
Shares returned from founding stockholder in reorganization		(69,500,000	)		(695	)		695		-			-
Net loss for the year ended, March 31, 2006		-			-					(124,453	)		(124,453	)
Balance, March 31, 2006		28,500,000		$	285		$	570,809	$	(526,607	)	$	44,487

The accompanying notes are an integral part of these financial statements.

F- 4

RANCHER ENERGY CORP. (FKA METALEX RESOURCES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
							From
							February 4,
							2004
	Years Ended						(Inception) to
	March 31,						March 31,
	2006			2005			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(124,453	)	$	(27,154	)	$	(526,607	)
Adjustments to reconcile net loss to net cash used by
operating activities:
Expenses paid by shareholder		-			-			11,904
Common stock issued for services		-			-			363,096
Depreciation		213			201			414
Increase (decrease) in accounts payable		(318	)		795			477
Increase in payroll taxes payable		465			1,108			1,593
Net cash used by operating activities		(124,073	)		(25,050	)		(149,123	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		-			(890	)		(890	)
Net cash used by investing activities		-			(890	)		(890	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock		196,094			-			196,094
Proceeds from shareholder loan		-			30,000			30,000
Payment of shareholder loan		(30,000	)		-			(30,000	)
Net cash used by financing activities		166,094			30,000			196,094
INCREASE IN CASH AND CASH EQUIVALENTS:
Change in cash		42,021			4,060			46,081
Beginning of period		4,060			-			-
End of period	$	46,081		$	4,060		$	46,081
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid	$	-		$	-		$	-
Income taxes paid	$	-		$	-		$	-
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued for services	$	-		$	-		$	363,096
Common stock issued for expenses paid by shareholder	$	-		$	-		$	11,904

The accompanying notes are an integral part of these financial statements.

F- 5

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Metalex Resources, Inc. (“Metalex”) was incorporated on February 4, 2004 under the laws of the State of Nevada for the purpose of acquiring, exploring and developing mining properties. On April 18, 2006 Metalex changed its name to Rancher Energy Corp. (hereinafter the “Company”) and announced that the Company changed its business plan and focus from mining to becoming an independent oil and gas exploration and production company that concentrates on applying secondary and tertiary recovery technology to older, historically productive fields primarily in North America. See Note 7 regarding additional events that occurred subsequent to year end.

The Company's fiscal year end is March 31.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company's management which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

Accounting Method

The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Basic and Diluted Loss Per Share

Loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Basic and diluted loss per share were the same, as there were no common stock equivalents outstanding.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.

Compensated Absences

Currently, the Company has two employees, but presently does not offer compensated absences. The Company may change its policy to recognize the costs of compensated absences in the future.

Derivative Instruments

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, “Amendment of Statement 133 on Derivative and Hedging Activities”, which is effective for the Company at inception. These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value.

F- 6

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

At March 31, 2006 and 2005, the Company had not engaged in any transactions that would be considered derivative instruments or hedging activities.

Exploration Stage Activities and Costs

The Company was in the exploration stage at March 31, 2006 and had not yet realized any revenues from its planned operations. In accordance with accounting principles generally accepted in the United States of America, the Company expensed mining exploration costs as incurred. Exploration costs expensed during the years ended March 31, 2006 was $50,000. The Company had no exploration stage expenses for the year ended March 31, 2005.

Subsequent to the date of financials, the Company changed its business plan and focus from mineral exploration to oil and gas exploration and ceased the above exploration activities.

Fair Value of Financial Instruments

The carrying amounts for cash and payables approximate their fair value.

Foreign Currency Valuation

Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at year-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. The net effect of exchange differences arising from currency translation will be disclosed as a separate component of stockholders' equity. Realized gains and losses from foreign currency transactions are reflected in the results of operations.

Going Concern

As shown in the accompanying financial statements, the Company has no revenues, has incurred a net loss of $526,607 for the period from February 4, 2004 (inception) through March 31, 2006 and has an accumulated deficit. These factors indicate that the Company may be unable to continue in existence. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. The Company’s management believes that its receipt of funds subsequent to March 31, 2006 from a private financing agreement will generate sufficient cash for the Company to continue to operate based on current expense projections. The Company anticipates it will require over $1,500,000 to close on the acquisition of oil and gas properties, conduct exploration activities and continue operations in the fiscal year 2007.

Impaired Asset Policy

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (hereinafter “SFAS No. 144"). SFAS No. 144 replaced SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001, with earlier application encouraged. The Company has adopted this statement and it has had no immediate impact on the financial statements at March 31, 2006 and 2005.

F- 7

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards, FAS No. 109, "Accounting for Income Taxes" (hereafter “SFAS No. 109”). Under this approach, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset.

The significant components of the deferred tax assets at March 31, 2006 and 2005 were as follows:

	2006			2005
Net operating loss carryforward:	$	163,500		$	39,700
Deferred tax asset		55,500			13,500
Deferred tax asset valuation allowance	$	(55,500	)	$	(13,500	)
Net deferred tax asset	$	--		$	--

At March 31, 2006, the Company has net operating loss carryforwards of approximately $163,500, which expire in the years 2024 and 2025. The Company recognized $363,096 of losses from the issuance of common stock for services in 2004, which were not deductible for tax purposes and are not included in the calculation of the deferred tax assets.

At March 31, 2006, the Company had net deferred tax assets of approximately $55,500 principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at March 31, 2006. The change in valuation allowance from March 31, 2005 to March 31, 2006 was $42,000.

Oil and Gas Properties

For its oil and gas exploration and producing activities, the Company will use the full cost method of accounting. Accordingly, all costs related to the acquisition, exploration and development of both proved and unproved properties will be capitalized. The Company's properties are expected to be located within the continental United States, which will constitute one cost center. The amortization of proved oil and gas properties will be calculated using the units-of-production method, based on proved reserves of oil and gas. The costs of unproved properties will be excluded from amortization pending a determination of the existence of proved reserves. Such unproved properties will be assessed periodically for impairment. The amount of impairment, if any, will be added to the costs being amortized.

F- 8

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

Capitalized costs, less related accumulated amortization, may not exceed the sum of: (1) the present value of future net revenues from estimated production of proved oil and gas reserves; (2) the cost of properties not being amortized; and (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized.

Normal dispositions of oil and gas properties will be accounted for as adjustments to capitalized costs, with no gain or loss recognized until all costs are recovered. A gain or loss is recognized on the sale of oil and gas properties only when significant reserves are involved, or when the proceeds from unproved property sales exceed the capitalized costs not subject to amortization at the date of sale.

Recently Issued Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No.140”. This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special - purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with the FASB statement No. 115; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations.

In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments, and an Amendment of FASB Standards No. 133 and 140”, (Hereinafter SFAS No. 155”). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133, as well as eliminating a restriction on the passive derivative instruments that a qualify special purpose entity (“SPE”) may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would require to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations.

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements— An Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. Management does not expect SFAS No. 154 to have a material impact on the company’s financial position, results of operations, or cash flows.

F- 9

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

NOTE 3 - MINING CLAIMS

In February 2004, the Company, through its former president, acquired for $1,904 ($2,500 CDN), 100% of the rights, title and interest in four mining claims in the Yalakom River Valley in British Columbia, Canada. The claims were recorded in Mr. Stytsenko’s name. Title to the claims was expected to be conveyed to a wholly owned subsidiary corporation of the Company if mineralized material was discovered. The wholly owned subsidiary corporation would not be incorporated unless mineralized material was discovered.

With the subsequent change in its business plan and focus (see Notes 1 and 7), the Company will not continue with any exploration of this property and has chosen to abandon it entirely.

NOTE 4 - COMMON STOCK

The Company is authorized to issue 100,000,000 shares of $0.00001 par value common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

On February 5, 2004, a total of 70,000,000 shares of restricted common stock were issued to the Company’s president. There was no public offering of any securities. The aforementioned shares were issued in payment of legal fees of $10,000, consulting fees of $363,096, and $1,904 for purchase of mining claims. These shares were issued pursuant to exemption from registration contained in Section 4 (2) of the Securities Act of 1933.

During the three months ended June 30, 2005 the Company issued 28,000,000 shares of common stock for cash in the amount of approximately $0.007 per share, or $200,000 before offering costs of $3,906.

During the year ended March 31, 2006, the Company approved a 13-for-1 stock dividend which is being treated as a 14-for-1 forward stock split for accounting purposes. All share amounts in the financial statements have been restated to reflect this split.

In March 2006, in anticipation of certain management changes and reorganization of the Company’s activities, the Company’s president and majority shareholder returned 69,500,000 shares of his common stock and retained 500,000 shares of common stock. The restructuring of the capital structure of the Company was in anticipation of a change to the Company’s direction and business focus. There was no established secondary market for the Company’s common stock and the cancellation only had the effect of reducing the shares issued for the president’s initial investment of $375,000 in 2004.

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company occupied office space provided by its executive administrator at no charge through the end of March 2006. The value of this space is not considered materially significant for financial reporting purposes. Additionally, the Company’s former president has advanced funds to the Company to pay $11,904 of initial legal fees and mining claims. The funds advanced were repaid as part of the original stock issuance transaction. See Note 4.

F- 10

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

During the year ended March 31, 2005, an officer advanced money to the Company in the amount of $30,208 to pay accounting fees and to provide operating capital. During the year ended March 31, 2006, the Company repaid to the officer $32,112, which included an overpayment of $1,904 for the costs of the initial staking fees at the mining site that had already been repaid to the officer. (See Note 4.) The Company discovered this oversight and the Company officer repaid the overpayment during the year ended March 31, 2006.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Mining and Oil and Gas Industries

Through the end of fiscal 2006, the Company was engaged in the exploration and development of mineral properties. At present, there are no feasibility studies establishing proven and probable reserves.

Although the minerals exploration and mining industries are inherently speculative and subject to complex environmental regulations, the Company was unaware of any pending litigation or of any specific past or prospective matters which could impact its mining claims at March 31, 2006 or 2005.

Subsequent to the date of the financials, the Company changed its focus from mineral exploration to oil and gas exploration and production. At this time the Company is unaware of any pending litigation or of any specific past or prospective matters which could impair the value of its oil and gas properties acquired subsequent to March 31, 2006.

NOTE 7.  SUBSEQUENT EVENTS

Change of Direction and Focus

On May 15, 2006, the Company announced that Andrei Stytsenko resigned as the Company’s principal executive officer but would remain with the Company both as a board member and as vice president of production. Mr. Stytsenko’s resignation was not as a result of any disagreement with the Company but rather as the result of the change of direction and focus of the Company from the exploration and development of gold mineral deposits and reserves in British Columbia, Canada to its new business direction as an oil and gas exploration and production company focusing primarily on the Rocky Mountain Region of the United States.

On May 15, 2006, the Company entered into an employment contract with its new president and chief executive officer. and agreed to pay the executive a minimum of $950 per month to maintain an office in Denver, Colorado. In addition, the Company granted the executive an option to acquire restricted shares of its common stock at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the execution of the employment agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter of service. In the event the agreement is terminated, the executive will be entitled to purchase all shares that have vested, and all unvested shares will be forfeited.

Property Acquisitions

The Burke Ranch Field

Subsequent to March 31, 2006, on June 21, 2006, the Company acquired the Burke Ranch Field, an oil prospect consisting of approximately 1,921 acres in the Powder River Basin in Natrona County, Wyoming. The prospect is located approximately twenty-five (25) miles north of Casper, Wyoming, in the central region of the state. The Company will acquire up to an 89.82% interest before payout, which reverts to a 49.90% interest after payout.

F- 11

RANCHER ENERGY CORP.

(FKA METALEX RESOURCES, INC.)

(AN EXPLORATION STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

The terms of the agreement include the Company paying $250,000 within ninety days of the agreement date, completing a 3-D seismic survey on the acreage within one year of signing, selecting an engineering firm to perform engineering studies and to prepare a development plan for the Burke Ranch Field, and the purchase of certain equipment and completion of repairs on wells currently existing on the property within 30 days of closing.

The Company also recently entered into an agreement with NITEC LLC to perform reservoir engineering studies on the Company's Burke Ranch Field, as required by the agreement, in order to ascertain the field’s remaining recoverable oil.

The Broadview Dome Prospect

On June 21, 2006, the Company acquired the Broadview Dome Prospect, located approximately 25 miles northwest of Billings, Montana, in the Crazy Mountain Basin. This natural gas prospect involves approximately 7,600 acres. Rancher Energy holds a 100.00% working interest until payout, and 55.00% working interest after payout.

Other Subsequent Events

On June 6, 2006, the Company entered into a loan agreement (with Enerex Capital Corp. (“Enerex”) to borrow from Enerex Capital the principal amount of $150,000 (the “$150K Loan”) for the Company’s working capital purposes to be repaid in full plus two percent (2%) interest on the principal amount on or before June 30, 2006. The $150K loan agreement provides that Enerex has the option to convert all or a portion of the $150K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the NASDAQ on the day preceding notice from Enerex of its intent to convert all or a portion of the loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

On June 6, 2006, at the Wyoming BLM auction, the Company successfully bid for and has the right to acquire an additional 8,183 acres contiguous and/or adjacent to its Burke Ranch Field (the “BLM Leases”). The BLM Leases will be acquired for a total cost of $143,237 or an average cost of approximately $16.00 an acre, excluding first annual rental payments of $12,275 and administration fees of $910, and the closing is expected to occur in approximately 90 days. The BLM Leases, together with the Burke Ranch Field’s original 1,921 acres, will increase the total acreage of the Company’s Burke Ranch Field more than five times (5X) to 10,104 acres.

On June 9, 2006, the Company entered into a loan agreement with Venture Capital First LLC (“Venture Capital”) to borrow from Venture Capital the principal amount of U.S. $500,000 (the “$500K Loan”) for the Company’s working capital purposes to be repaid in full plus six percent (6%) interest on the principal amount on or before December 9, 2006. The $500K loan agreement provides that Venture Capital has the option to convert all or a portion of the $500K Loan into shares of common stock of the Company, either (i) at a price per share equal to the closing price of the Company’s shares on the NASDAQ on the day preceding notice from Venture Capital of its intent to convert all or a portion of the loan into shares of the Company, or (ii) in the event the Company is offering shares or units to the general public, at the price such shares or units are being offered to the general public.

F- 12

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

None.

Item 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures.

Our management, as required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of March 31, 2006, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the year ending March 31, 2006. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act as of March 31, 2006 were effective in ensuring information required to be disclosed in this Annual Report on Form 10-K was recorded, processed, summarized, and reported on a timely basis., and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Item 9B.  OTHER INFORMATION.

None.

25

PART III

Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors and Executive Officers.

Directors, executive officers, and significant employees of the Company, and their respective ages and positions with the Company, are as follows:

Name	Age	Position
John Works	51	President, Chief Executive Officer, Chief Financial Officer and a director
Andrei Stytsenko	40	Vice President—Production and a director

JOHN WORKS brings over 23 years of experience in the global oil and gas industry as a corporate executive, investment banker, and lawyer focusing on originating, structuring, financing, and implementing domestic and international oil and gas projects.

Before joining Rancher Energy, Mr. Works was the founder and Managing Director of Emerging Markets Finance International, LLC (EMFI) of Denver, Colorado where the firm is positioned as a leading emerging markets international financial advisor and arranger, with oil and gas projects as its core area of expertise. In 2005 Mr. Works served as President and Chief Operating Officer of American International Depository and Trust, a specialized financial institution providing foreign clients with traditional depository banking and trust services as well as privacy and protection features typically provided by offshore financial institutions and private banks. In 2001 Mr. Works served as Senior Vice President and Head of International Producer Finance at Shell Capital, The Shell Group’s venture capital affiliate, in Houston, Texas. Prior to Shell Capital, from 1999-2001 Mr. Works was President and CEO of The Rompetrol Group in Bucharest, Romania, Romania's largest privately-owned oil and gas company. From 1997-1999 Mr. Works was Senior Vice President and Deputy Head of Project Finance Advisory at the ABN Amro bank in Amsterdam, the Netherlands, where he originated and executed international oil and gas project advisory and finance transactions involving the bank and capital markets, multilateral and export credit agencies, and mergers and acquisitions. From 1996-1997 Mr. Works was Vice President, Emerging Markets, Former Soviet Union, at J.P. Morgan's investment banking unit in London, England where he was responsible for client relationships and transaction execution for oil and gas projects in Russia and Central Asia. From 1990-1996 Mr. Works was Vice President and Legal Relationship Manager in J.P. Morgan’s New York office for the bank’s business units involved in U.S. and global project advisory and mergers and acquisitions assignments where he assisted in analyzing, structuring, drafting, negotiating, and closing U.S. and international mergers and acquisitions, divestitures, restructurings, and recapitalizations.

Mr. Works began his career in 1982 as a corporate finance attorney with several Wall Street firms including Shearman and Sterling and Cahill Gordon and Reindel in New York. Mr. Works was educated at the University of Denver College Of Law (J.D. 1982), the Institut d'Etudes Politiques de Paris (Certificat d'Etudes Politiques 1978), the Université de Paris-IV (Sorbonne) (Certificat de Langue Française 1977), and the University of Kansas (B.A. 1977). Mr. Works is a U.S. national and is fluent in English and French. He currently resides in Denver, Colorado.

26

ANDREI STYTSENKO wasuntil recently the President and a Director of the mineral exploration company Metalex Resources, Mr. Stytsenko previously was secretary and member of the board of directors of Aberdene Mines Limited. From 1985 to 1996, Mr. Stytsenko was the managing supervisor for Ivano Frankovski Drilling Company, located in North Russia. Mr. Stytsenko’s responsibilities included exploratory oil and gas drilling at depths in excess of up to 10,000 feet. From 1997 until 1998, Mr. Stytsenko was field supervisor for Booker Gold Exploration where his responsibilities included core loding, assaying, and mapping. Mr. Stytsenko earned a certificate of Overhaul Well Drilling Operations from the Nadvirnyansk Industrial Training Center in April 1993. In addition, Mr. Stytsenko obtained a Certificate of Contemporary Training for Production and Exploration Drilling Operator. Further, Mr. Stytsenko completed a 5 year program, which by North American Standards, is the equivalent to a Masters degree, receiving a diploma in Mining/Drilling Engineering from the Ivano-Frankovski State Technical Oil and Gas University in Russia, specializing in Oil and Gas Well Drilling in June 1996.

All directors serve as directors for a term of one year or until his successor is elected and qualified. All officers hold office until the first meeting of the board of directors after the annual meeting of stockholders next following his election or until his successor is elected and qualified. A director or officer may also resign at any time.

Committees of the Board of Directors.

At present, the Company does not have an independent audit committee of its Board of Directors. It is anticipated that independent board members will be appointed and that an audit committee will be formed during the current fiscal year.

Code of Ethics.

The Company has adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) that applies to all of the officers, directors, and employees of the Company. The Code of Ethics will, in the near future, be posted on our website (www.rancherenergy.com). We will disclose on our website any future waivers of, or amendments to, our Code of Ethics.

Compliance with Section 16(a) of the Exchange Act.

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company’s directors and certain of its officers to file reports of ownership and changes of ownership of the Company’s common stock with the SEC and NASDAQ. Based solely on copies of such reports provided to the Company, the Company believes that all directors and officers filed on a timely basis all such reports required of them with respect to stock ownership and changes in ownership during fiscal year 2006.

27

Item 11. EXECUTIVE COMPENSATION.

The following table sets forth information concerning the compensation received by Mr. Works and Mr. Stytsenko:

Summary Compensation Table

		Annual Compensation			Long Term Compensation
					Awards		Payouts
Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Other Annual Compen- sation ($)	Restricted Stock awards	Securities Underlying Options SARs (#)	LTIP Payouts ($)	All Other Compensation
John Works, CEO	2006	0	0	0	0	0	0	0
Andrei Stytsenko, Vice President	2006 2005 2004	0 0 0	0 0 0	0 0 0	0 0 0	0 0 0	0 0 0	0 0 0

Options/SARs Grants During Last Fiscal Year.

There were no options granted to the Company’s named executive officers during the fiscal year ended March 31, 2006, however see “Employment Contract” below.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value.

					Number of
	Shares				Securities		Value of
	Acquired				Underlying		Unexercised
	On		Value		Unexercised		In-the-money
Name	Exercise		Realized		Options		Options
John Works		0		0		0(1)	$	0
Andrei Stytsenko		0		0		0	$	0

__________________

(1)See “Employment Contract” below

Employee Pension, Profit Sharing, or Other Retirement Plans.

None.

Compensation of Directors.

The Company does not yet pay its directors any compensation for serving on the Company’s board of directors.

28

Employment Contract.

Subsequent to March 31, 2006, on May 15, 2006, the Company entered into an employment agreement (the “Works Employment Agreement”) with John Works wherein we engaged Mr. Works as our president, chief executive officer, and a director. The term of the Works Employment Agreement is two years beginning May 15, 2006. We will pay Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses incurred by him up to $10,000 per month, an automobile allowance of $400 per month, and a parking allowance of $150 per month. Further, we will pay Mr. Works a minimum of $950 to maintain an office in Denver, Colorado. In addition to the foregoing, we have granted Mr. Works an option to acquire restricted shares of our common stock at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the execution of the Works Employment Agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter of service. In the event the Works Employment Agreement is terminated, Mr. Works will be entitled to purchase all shares that have vested, and all unvested shares will be forfeited.

29

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

The following table sets forth, as of June 20, 2006, the number of and percent of the Company’s common stock beneficially owned by persons or groups known by us to own beneficially five percent or more of the Company’s common stock:

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class
John Works, President and Chief Executive Officer	1,000,000 (direct)	3.4%
3445 South Columbine Circle
Englewood, Colorado 80113
Andrei Stytsenko	500,000 (direct)	1.7%
203-17711 64th Avenue
Edmonton, Alberta
Canada T5T 2J9
Horatio Valdes	1,750,000 (1)	5.9%
Calle 1RA Edificio Villa Gabriella Apt. 6-B
Panama City, Republic of Panama

___________________

(1)The Company has not received copies of Schedules 13-D or 13G filed by any person indicating ownership of more than 5% of the Company’s securities. Based solely on a June 20, 2006 stockholders' list, no holder other than Mr. Valdes is shown as owning of record more than 5% of the Company’s securities, other than the nominee CEDE & Co.

The following table sets forth, as of June 20, 2006, the number of and percent of the Company’s common stock beneficially owned by (a) all directors and nominees, naming them, (b) the named executive officers, and (c) the Company’s directors and executive officers as a group, without naming them:

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class
John Works	1,000,000 (direct)	3.4%
3445 South Columbine Circle
Englewood, Colorado 80113
Andrei Stytsenko	500,000 (direct)	1.7%
203-17711 64th Avenue
Edmonton, Alberta
Canada T5T 2J9
All executive officers and
directors as a group (2 persons)	1,500,000	5.1%

30

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions Involving Mr. Works.

Subsequent to March 31, 2006, on May 15, 2006, the Company entered into an employment agreement with John Works (the “Works Employment Agreement”) wherein we engaged Mr. Works as our president, chief executive officer, and a director. The term of the Works Employment Agreement is two years beginning May 15, 2006. We will pay Mr. Works $12,500 per month, reimburse Mr. Works for out-of-pocket expenses incurred by him up to $10,000 per month, an automobile allowance of $400 per month, and a parking allowance of $150 per month. Further, we will pay Mr. Works a minimum of $950 per month to maintain an office in Denver, Colorado. In addition to the foregoing, we have granted Mr. Works an option to acquire restricted shares of our common stock at a price of $0.00001 per share as follows: (i) 1,000,000 shares on the execution of the Works Employment Agreement, (ii) 1,000,000 shares from June 1, 2006 to May 31, 2007 at the rate of 250,000 shares per completed quarter of service, (iii) 1,000,000 shares from June 1, 2007 to May 31, 2008 at the rate of 250,000 shares per completed quarter of service, and (iv) 1,000,000 shares from June 1, 2008 to May 31, 2009 at the rate of 250,000 shares per completed quarter of service. In the event the Works Employment Agreement is terminated, Mr. Works will be entitled to purchase all shares that have vested, and all unvested shares will be forfeited.

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit and Non-Audit Fees.

Aggregate fees for professional services rendered for the Company by Williams and Webster, P.S. as of or for the two fiscal years ended March 31, 2006 and 2005, respectively, are set forth below:

	Fiscal Year 2006		Fiscal Year 2005
Audit Fees	$	12,205	$	5,295
Audit-Related Fees	-		-
Tax Fees	-		-
T	$	12,205	$	5,295

Audit Fees--Aggregate fees for professional services rendered by Williams and Webster, P.S. in connection with its audit of the Company’s consolidated financial statements for the fiscal years 2006 and 2005 and the quarterly reviews of the Company’s financial statements included in Forms 10-Q.

Audit-Related Fees--These were primarily related to SEC filings.

Tax Fees--These were related to tax compliance and related tax services.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.

At present the Company has no audit committee and the fees and nature of the services of its registered independent public accountant are approved by the Company’s board of directors. 

31

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Financial Statements and Financial Statement Schedules.

(1)Financial Statements are set forth in Item 8 of this report.

(2)No Financial Statement Schedules are included herein because such schedules are not applicable, are not required, or because the required financial information is included in the Financial Statements or notes thereon.

(b)Exhibits.

Exhibit No.	Description
3.1	Articles of Incorporation of Rancher Energy Corp.(1)
3.2	Bylaws of Rancher Energy.(1)
4.1	Specimen Stock Certificate.(1)
10.1	Employment Agreement dated June 1, 2006 between Rancher Energy Corp. and John Works.(2)
10.2	Broadview Dome Prospect Exploration and Development Agreement dated June 15, 2006 between Big Snowy Resources and Rancher Energy Corp. (2)
10.3	Burke Ranch Unit Purchase and Participation Agreement dated February 6, 2006 between Hot Springs Resources LTD. and PIN Petroleum Partners LTD.(2)

10.4a	$500K Loan Agreement dated June 9, 2006 between Rancher Energy and Venture Capital(3)
10.4b	$150K Loan Agreement dated June 6, 2006 between Rancher Energy Corp. and Enerex Capital.(2)
10.5	Work Study Contract with NITEC LLC dated June 7, 2006 between Rancher Energy Corp. and NITEC LLC.(2)
10.6	PIN Resources Assignment dated June 21, 2006 of an agreement between PIN Resources and Hot Springs Resources, Ltd. dated February 6, 2006.(2)
10.8	PIN Resources Assignment dated June 6, 2006 of rights under an Exploration and Development Agreement dated June 15, 2006 with Big Snowy Resources, Inc.(2)
14.1	Code of Ethics and Business Conduct.(4)
31	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Section 302.(2)
32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S. C. Section 1350.(2)

__________________

(1)Included as an exhibit to Registration Statement No. 333-116307 on Form SB-2 filed by the registrant on June 7, 2005 and incorporated herein by reference.

(2)Filed herewith.

32

(3)Included as Exhibit 10.7 to Form 8-K filed by the registrant on June 9, 2006 and incorporated herein by reference.

(4)Included as Exhibit 14.1 to Form 10-KSB filed by the registrant on July 8, 2005.

(c)No financial statements have been excluded pursuant to Rule 14a-3(b).

33

RANCHER ENERGY CORP.

SIGNATURES

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

	RANCHER ENERGY CORP.
Date: June 28, 2006	By:	/s/  John Works
		John Works, President, Principal Executive Officer, Secretary, Treasurer, Principal Financial Officer, and Principal Accounting Officer

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

Date: June 28, 2006	By:	/s/  John Works
		John Works, President, Principal Executive Officer, Secretary, Treasurer, Principal Financial Officer, and Principal Accounting Officer

Date: June 28, 2006	By:	/s/  Andrei Stytsenko
		Andrei Stytsenko, a director

34

EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Incorporation of Rancher Energy Corp.(1)
3.2	Bylaws of Rancher Energy.(1)
4.1	Specimen Stock Certificate.(1)
10.1	Employment Agreement dated June 1, 2006 between Rancher Energy Corp. and John Works.(2)
10.2	Broadview Dome Prospect Exploration and Development Agreement dated June 15, 2006 between Big Snowy Resources and Rancher Energy Corp. (2)
10.3	Burke Ranch Unit Purchase and Participation Agreement dated February 6, 2006 between Hot Springs Resources LTD. and PIN Petroleum Partners LTD.(2)

10.4a	$500K Loan Agreement dated June 9, 2006 between Rancher Energy and Venture Capital(3)
10.4b	$150K Loan Agreement dated June 6, 2006 between Rancher Energy Corp. and Enerex Capital.(2)
10.5	Work Study Contract with NITEC LLC dated June 7, 2006 between Rancher Energy Corp. and NITEC LLC.(2)
10.6	PIN Resources Assignment dated June 21, 2006 of an agreement between PIN Resources and Hot Springs Resources, Ltd. dated February 6, 2006.(2)
10.8	PIN Resources Assignment dated June 6, 2006 of rights under an Exploration and Development Agreement dated June 15, 2006 with Big Snowy Resources, Inc.(2)
14.1	Code of Ethics and Business Conduct.(4)
31	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Section 302.(2)
32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S. C. Section 1350.(2)

__________________

(1)Included as an exhibit to Registration Statement No. 333-116307 on Form SB-2 filed by the registrant on June 7, 2005 and incorporated herein by reference.

(2)Filed herewith.

(3)Included as Exhibit 10.7 to Form 8-K filed by the registrant on June 9, 2006 and incorporated herein by reference.

(4)Included as Exhibit 14.1 to Form 10-K filed by the registrant on July 8, 2005.

E- 1

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT dated the 1st day of June, 2006

BETWEEN:

RANCHER ENERGY CORP., a company incorporated under the laws of the State of Nevada, having an office address of 1811 East 17^th Avenue, Spokane, Washington, USA, 99203

(hereinafter referred to as the “Company”)

OF THE FIRST PART

AND:

JOHN WORKS, Businessman, having an address of 3445 South Columbine Circle, Englewood, Colorado, USA, 80113

(hereinafter referred to as the “Employee”)

OF THE SECOND PART

WHEREAS:

A. The Employee has expertise in the area of developing, arranging financing and managing energy projects and companies and the Company desires to employ the Employee as its President, Chief Executive Officer and an Executive Director to attend to such business and to perform duties as more particularly described herein;

B. The Company and the Employee are of the view that it is in the best interest of each of the parties to have the Employee enter into this Agreement and to have the Employee devote his full time and attention to the business of the Company;

C. The parties desire to set out in writing the terms on which the Employee will perform services for the Company.

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and the mutual promises, conditions, representations, warranties and agreements herein contained, the parties hereto agree as follows:

1. Duties and Responsibilities

1.01The Company hereby engages and retains the Employee as its President, Chief Executive Officer and an Executive Director to perform duties and assignments relating to the business of the Company or its affiliates as may be assigned to him by the Board of Directors of the Company (the

"Board") from time to time, or by the Chairman or other designee, if so empowered by the Board. The Employee shall have the authority and responsibility over the day-to-day operations of the Company and such other rights and responsibilities as shall be consistent with his position (collectively referred to as the “Services”). The Employee agrees that he will devote his full employment energies, interest, abilities and time to the performance of his employment obligations with the Company and that he will not, without the written consent of the Company, render to other any service of any kind for compensation, and will not engage in any activity that conflicts or interferes with the performance of any employment duties with the Company.

1.02The Employee shall be authorized to incur corporate expenditures in connection with his duties under this Agreement in the ordinary course of business provided that such expenditures do not exceed Thirty Thousand $30,000) per month and, in the event funds over Thirty Thousand ($30,000) require to be expended, the Employee will consult the Company’s Board of Directors for approval prior to any disbursement of monies.

1.03The Consultant will perform the Services in accordance with this Agreement at Suite 1050, 17^th Street, Denver, Colorado, USA, 80265 or such other address that is acceptable to both parties. In addition, the Consultant will perform the Services on the telephone, via e-mail or other communication device, and at such other places as designated by the Company in accordance with this Agreement.

2. Term

Subject to the terms of this Agreement, the Employee shall perform the Services for a period of Two (2) years (the “Term”) commencing on the date of execution of this Agreement (the “Effective Date”) provided however, that this Agreement shall be renewed automatically for additional Two (2) year periods on the anniversary date of the Second (2nd) year (the “Additional Term”) unless:

(a) prior to the commencement of the Additional Terms, one of the parties gives the other party Thirty (30) days written notice that such party desires to terminate this Agreement; or

(b) the parties have been unable to agree upon a mutually-acceptable Fee for such Additional Terms.

3. Remuneration

3.01For providing the Services to the Company during the Term, the Employee shall receive a fee of Twelve Thousand, Five Hundred Dollars ($12,500) per month (the “Fee”) commencing on the Effective Date. The Fee will be issued to the Employee on the first day of each month the Agreement is in effect. The Employee will be responsible for remitting all withholding tax from his compensation as may be required by United States and Canadian (as applicable) federal, provincial, state, and local tax laws.

3.02 In addition to the Fee, the Company shall pay the Employee, from time to time, such bonus payments as may be determined by the Board of Directors of the Company. The bonus will be based upon the Company’s revenue.

3.03The Company shall pay or reimburse the Employee for all out-of-pocket expenses, including without limitation, all reasonable communications, travel and promotional expenses payable or incurred by the Employee in connection with his duties under this Agreement provided such expenses are, in aggregate, not exceeding Ten Thousand ($10,000) per month. In the event of expenses over Ten Thousand ($10,000) per month, the Employee will consult the Company’s Board of Directors for approval prior to the disbursement of any monies.

3.04During the Term of this Agreement, the Employee shall be eligible to participate in the standard fringe benefits package and incentive compensation plans generally made available to the executive management employees of the Company, as such benefits may be determined or changed from time to time by the Board of Directors of the Company. The fringe benefit programs will include at a minimum reasonable dental, hospital and major medical insurance coverage for the Employee and the family of the Employee. Without limiting the generality of the foregoing, the Company shall at a minimum reimburse the Employee for the amount of monthly Blue Cross, or equivalent, insurance coverage at the time this Agreement is entered into and shall increase such reimbursement as the cost of such coverage is increased by the provider thereof from time to time.

3.05During the term of this Agreement, the Company shall pay to the Employee an automobile allowance of Four Hundred Dollars ($400) per month together with a parking allowance of One Hundred Fifty ($150) per month.

3.06The Company will maintain the offices located in Denver, Colorado as set out in item 1.03 herein or such other office in a location selected by the Employee at his discretion from time to time, with a computer and such additional equipment and office furnishings as are necessary to carry out the responsibilities of the office of the President, CEO and Director. At a minimum, the Company agrees to pay a monthly rent of Nine Hundred Fifty Dollars ($950), or such other amount as may be approved by the Board of Directors of the Company.

4. Share Compensation

The Company shall grant to the Employee the option to purchase up to Four Million (4,000,000) common shares in the capital stock of the Company at a price of $0.00001 per share as follows:

(a)One Million (1,000,000) shares upon the execution of this Agreement;

(b)One Million (1,000,000) shares for the period June 1, 2006 to May 31, 2007 at a rate of Two Hundred Fifty Thousand (250,000) shares per completed quarter;

(c)One Million (1,000,000) shares for the period June 1, 2007 to May 31, 2008 at a rate of Two Hundred Fifty Thousand (250,000) shares per completed quarter; and

(d)One Million (1,000,000) shares for the period June 1, 2008 to May 31, 2009 at a rate of Two Hundred Fifty Thousand (250,000) shares per completed quarter.

All shares purchased by the Employee will be fully paid and non-assessable.

In the event this Agreement is terminated pursuant to section 5 hereof, the Employee will be entitled to purchase any shares that have vested as per the above schedule but will forfeit any right or interest to any shares not yet vested.

5. Termination

5.01The parties hereto may terminate this Agreement at any time by giving the other party Thirty (30) days written notice. In the event the Company terminates the Agreement for Cause at any time during the Term, the Term shall end and the Company will set forth in reasonable detail the specific conditions that it considers to constitute Cause, and termination shall be effective thirty (30) days after the delivery of such notice.

For purposes of this Agreement, the term “Cause” shall mean, when used with respect to the termination of this Agreement by the Company: (i)the Employee's failure or refusal to adequately perform employment duties and obligations or to comply with the policies, rules, and regulations of the Company; (ii)any breach by Employee of this Agreement's provisions; (iii) any illness or disability resulting in the Employee being unable to perform his duties hereunder for a period of 30 days or for a cumulative period during any 12 month period of more than three months; (iv) any alcohol, drug or other substance abuse by the Employee; (v) the conviction or commission of any felony or any other criminal offense involving dishonesty or moral turpitude by Employee; or (vi) death.

If, during the Term, the Company terminates this Agreement for Cause, then the Company shall pay to the Employee (or in the event of termination of employment by reason of the Employee’s death, his legal representative or his estate if no representative has been appointed) in a lump sum in cash, within 30 days after the date of Termination, an amount equal to the accrued but unpaid salary pursuant to Section 3 plus any unpaid approved expenses and deliver to him, or his representative, the shares which have vested and that have been paid for under Section 4 but not yet delivered.

In the event the Company terminates this Agreement other than for Cause, then the Company shall pay to the Employee, in a lump sum in cash within 30 days after the date of Termination, an amount equal to Three (3) months salary, or Thirty-Seven Thousand, Five Hundred Dollars ($37,500), that the Company would have been obligated to pay the Employee pursuant to Section 3.01 plus the amount of any unpaid approved expenses and any shares which have vested and that have been paid for under Section 4 but not yet delivered.

5.02        This Agreement shall terminate immediately upon the death of the Employee and in the event of such death:

(a) The Company shall pay to the estate of the Employee the Fee otherwise payable to the Employee pursuant to Section 3.01 hereof through the last day of the calendar month in which the death of the Employee occurred;

(b) as expeditiously as possible after the death, the Company shall pay or reimburse the estate of the Employee for all reasonable expenses incurred prior to the death of the Employee pursuant to Section 3.2 hereof; and

(b) with respect to the share option described in Section 4, the legal representative of the Employee shall have the right, at any time up to and including (but not after) one year following the date of death of the Employee, to purchase any shares which have not been purchased and which had vested prior to the Employee’s death.

6. Restrictive Covenants

6.01Non-Competition

The Employee agrees that he shall not, without the prior written consent of the Company, for a period of two (2) years from the termination of the Employee's employment with the Company for any reason solicit or attempt to solicit business that is competitive with the Company, directly or indirectly, from any then current customer, client, partner, or investor of the Company. The Employee acknowledges that this non-competition covenant is ancillary to or part of this enforceable Agreement, and that any limitations as to time, geographic scope and scope of activity to be restrained as set forth herein are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the Company.

6.02Non-Solicitation

The Employee agrees that during his employment with the Company and for a period of two (2) years after termination of such employment, he shall not, on his own behalf or on behalf of any other person or business entity, hire, solicit, seek to hire, or offer employment to any person who now or later works for the Company, or who is a current or prospective employee of the Company. The Employee further agrees that he will not in any other manner attempt, directly or indirectly, to influence, induce, or encourage any person who now or later works for the Company, or who is a current or prospective employee of the Company to leave the employment of the Company.

The Employee acknowledges that the provisions of covenants 6.01 and 6.02 (the “Covenants”) have been considered by him and are, with respect to the interests of the Employee and the interests of the Company, reasonable as to time, territory and extent.

6.03The Employee and the Company agree and recognize that a breach by the Employee of any part of the Covenant would result in damages to the Company which could not be adequately compensated for by a monetary award. Accordingly, the Employee agrees that in the event of any such breach, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled as a matter or right to apply to a court of competent equitable jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Covenant.

The Employee and the Company agree and recognize that all restrictions in the Covenants are necessary and fundamental to the protection of the business carried on by the Company and are reasonable and valid, and all defense to the strict enforcement thereof by the Company is hereby waived by the Employee.

6.04The Company agrees that in the event that any Section herein is determined to be void or unenforceable in whole or in part, such determination shall be deemed not to affect or impair the validity of enforceability or the remainder of such section or any other provisions of this Agreement, and with respect to Section 6 hereof, the parties agree that, in the event that a court of competent jurisdiction determines that the period of two (2) years specified in such Section is unreasonable and that such provision would for that reason be void or unenforceable, the parties hereby request the court to substitute such shorter period therefore would provide the maximum protection to the Company with the enforceability of that provision.

7. Confidentiality

7.01During the Employee's employment under this Agreement, the Company will give the Employee access to, and the Employee will become familiar with, Confidential Information. The Employee agrees that all such Confidential Information, and all files, records, documents, information, data and similar items relating to the Company's business, including all originals and all copies, whether prepared by the Employee or otherwise coming into his possession, shall remain the exclusive property of the Company during the Employee's employment with the Company and following the termination of the Employee's employment with the Company. The Employee further agrees that he shall not, without the prior written consent of the Company, use or disclose to any third party any of the Confidential Information described herein, directly or indirectly, either during the Employee's employment with the Company or at any time following the termination of the Employee's employment with the Company. The Employee acknowledges that the Confidential Information and other consideration to be provided to Employee pursuant to this Agreement give rise to the Company's interest in restraining the Employee from disclosing the Company's Confidential Information.

7.02The Employee will return to the Company upon the termination of this Agreement all plans, drawings, property reports, models, samples, papers, notes, books, computer disks and files or other documentation belonging to the Company.

8. Notices

8.01Any notice, direction, or other instrument required or permitted to be given under this Agreement shall be in writing and shall be given by the delivery of the same or by the mailing of same by prepaid registered or certified mail or by sending the same by telegram, telex, telecommunication or other similar for of communication, in each case addressed to the intended recipient at the address of the respective party as follows:

(a)to the Company:

RANCHER ENERGY CORP.

1811 East 17^th Avenue

Spokane, Washington

USA, 99203

Phone: 509-535-4662

Fax: 509-535-8350

(b)to the Employee:

JOHN WORKS

3445 South Columbine Circle

Englewood, Colorado

USA, 80113

Phone: 720-932-8866

Fax: 720-904-5698

8.02Any notice, direction or other instrument aforesaid will, if delivered, be deemed to have been given and received on the day it was delivered and, if mailed, be deemed to have been given and received on the fifth business day following the day of mailing, except in the event of disruption of the postal service in which event notice will be deemed to be received only when actually received and, if sent by telegram, telecommunication or other similar form of communication, be deemed to have been given and received on the day it was actually received.

8.03Any party may at any time give notice in writing to the other of any change of address, and from and after the giving of such notice, the address therein specified will be deemed to be the address of such party for the purpose of giving notice hereunder.

9. Assignment

This Agreement is a personal consulting agreement and may not be assigned by either party without the prior written consent of the other party.

10. General

10.01This Agreement may not be amended or otherwise modified except by an instrument in writing signed by both parties.

10.02This Agreement shall be governed by and interpreted in accordance with the laws of the State of Washington and the parties irrevocably attorn to the jurisdiction of the courts of such State.

Notwithstanding Section 10.2 hereof, all disputes which may arise under, out of, in connection with or in relation to this Agreement shall be submitted to and finally settled by arbitration, which shall be subject to the provisions of the Commercial Arbitration Act (Washington or United States of America, whichever is applicable) in effect from time to time and be conducted in the English language.

10.03If any one or more of the provisions contained herein should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provisions shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

10.04This Agreement constitutes and contains the entire agreement and understanding between the parties and supersedes all prior agreements, memoranda, correspondence, communications, negotiations and representations, whether oral or written, express or implied, statutory or otherwise, between the parties or any of them with respect to the subject matter hereof.

10.05The parties hereto covenant and agree to execute and deliver such further and other documents as may be required to carry out the intent of this Agreement.

10.06Time shall be of the essence in the performance of this Agreement.

10.07Any and all previous agreement, written or oral, between the parties hereto or on their behalf relating to the retention of the Employee by the Company are hereby terminated and cancelled and each of the parties hereto hereby releases and forever discharges the other of and from all manner of actions, causes of action, claims and demands whatsoever under or in respect of any such agreement.

10.08This Agreement may be executed in counterpart, each of which such counterpart, whether in original or facsimile form, notwithstanding the date or dates upon which this Agreement is executed and delivered by any of the parties, shall be deemed to be an original and all of which will constitute one and the same agreement, effective as of the reference date given above.

IN WITNESS WHEREOF the parties hereto are deemed to have executed this Agreement as of the day and year first above written.

RANCHER ENERGY CORP.

/s/ Andrei Stytsenko

Per: Andrei Stytsenko, President

SIGNED, SEALED and DELIVERED by	)
JOHN WORKS in the presence of:	)
	)
	)
Name	)	JOHN WORKS
	)
	)
Address	)
	)
	)
	)
Occupation	)

EX-10.2

Exhibit 10.2

EXPLORATION AND DEVELOPMENT AGREEMENT

THIS EXPLORATION AND DEVELOPMENT AGREEMENT dated June 15th, 2006 (the “Effective Date”).

BETWEEN:

BIG SNOWY RESOURCES, LP, whose address is Suite 2100, 27 North 27th Street, Billings, Montana 59101, U.S.A.

(“BSR”)

AND:

Rancher Energy Corp. whose address is 1050-17^th Street, Suite 1700, Denver, Colorado 80265 USA

(“Rancher Energy”)

WHEREAS:

A.BSR holds an 80% net revenue interest in certain oil and gas leases totalling approximately 7,600 acres in Montana and certain wells located on such leases;

B.BSR desires Rancher Energy to shoot 3D seismic on the leases;

C.BSR desires Rancher Energy to drill a test well on the leases;

D.BSR desires Rancher Energy to construct a pipeline to transport oil and gas produced from the wells subject to this Agreement to an oil and gas transmission line;

E..

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, conditions, and obligations in this Agreement, BSR and Rancher Energy (collectively referred to as the “Parties”) agree as follows:

1. DEFINITIONS

In this Agreement:

“AFE” means authority or authorization for expenditure regarding drilling costs as set out in this Agreement;

“Agreement” means this Agreement, including the attached Schedules;

“Lands” means the lands described in Schedule “A” of this Agreement;

THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO THE

MONTANA ARBITRATION ACT, TITLE 27, CHAPTER 5, MONTANA CODE ANNOTATED

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“Leases” mean collectively, or individually, as the context may require, those leases, reservations, permits, licences or other documents of title described in Schedule “A” of this Agreement, by which the holder of such leases is entitled to enter, access, drill for, win, take, own or remove the leased substances within, on or under the Lands;

“log” means any record obtained by Rancher Energy of all formations penetrated by the Test Well, or other wells drilled by Rancher Energy on the Leases, their depth, thickness and sonic, electrical, radiological and other physical properties of the formation and water, oil and gas, including, but not limited to mud logs;

“oil and gas” includes all minerals and petroleum, natural gas and other hydrocarbon substances regardless of gravity or phase (including coal and coalbed gas) including, but not limited to condensate and helium, hydrogen, nitrogen and other gases; and

“Payout” means the occurrence of when Rancher Energy recoups the costs and expenses of the:

(a) Construction of the Pipeline;

(b) wells drilled pursuant to this Agreement;

(c) equipping, completion and other costs of or in relation to all wells drilled pursuant to this Agreement, including tie-in and compression.

(d) ½ of the cost of the 3D seismic program which seismic is owned 50/50 by the parties.

“Schedules” means Schedule “A”, Schedule “B” and Schedule “C” of this Agreement, as the context so requires.

2. SHOOTING OF THE 3D SEISMIC AND TEST WELL

(a) Rancher Energy shall shoot a minimum of 4 square miles of 3D seismic (the “3D”) on the leases. Rancher Energy shall conduct the Operations as a reasonable and prudent operator and shall commence setting the parameters and retaining a seismic contractor as soon as practical once this agreement is executed. Rancher Energy will shoot the 3D ASAP. Further, Rancher Energy will be responsible for identifying and hiring the 3D. BSR agrees to assist when requested in the process.

(b) All expenditures relating to the 3D, whether direct or indirect but excluding supervision and management costs, shall be to the account of Rancher Energy and paid entirely by Rancher Energy.

(c) A copy of all data contained and derived from the 3D, including all interpretations shall be forwarded by Rancher Energy to BSR. BSR shall also be provided with the final interpretation within 10 working days of receipt of the final interpretation by Rancher Energy. (the “3D Completion Date").

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(d) Rancher Energy shall have 30 days from the 3D Completion Date to give written notice to BSR of an intention to drill based on the 3D and propose a drilling location (the “Test Well”). Failure by Rancher Energy to provide a notice prior to expiry of the thirty (30) day period shall be deemed an election by Rancher Energy to terminate this Agreement. If this Agreement is terminated by Rancher Energy, it shall have no further obligations or liabilities hereunder.

(e) If Rancher Energy elects not to terminate this Agreement pursuant to paragraph 2(d) above Rancher Energy shall have 120 days to spud the Test Well. The Test Well shall be at the sole cost of Rancher Energy. The well will be drilled to the deepest horizon indicated as hydrocarbon bearing by the 3D seismic.

(f) Upon receipt by BSR of the Final Seismic Interpretation and Notice of Drilling Location, BSR shall assign to Rancher Energy a 55% working interest in the spacing unit of the Test Well, Upon drilling and completion of the test well, BSR will assign Rancher Energy a 55% WI in all lands owned by BSR within the AMI.

(g) If the Test Well is commercial then Rancher Energy shall be entitled to 100% of net revenue from the Test Well Interest until Payout. After Payout, the revenue from the Test Well Interest shall be distributed in proportion to the working interest share of each Party.

3. PIPELINE AND TRANSPORTATION

(a) Unless this Agreement has been earlier terminated or has expired Rancher Energy shall:

(i) use commercially reasonable efforts to obtain required government and administrative regulatory approvals and other necessary consents for the construction and operation of a pipeline of approximately twelve (12) miles in length, with a tie-in at Sec.14 1N 21E in the NENW4, Stillwater County, Montana (the “Pipeline”), to transport gas from the Test Well, and other wells producing in commercial quantities on the Leases in which Rancher Energy and BSR have joint working interest (the "Joint Wells") to a gas transmission line; and

(ii) if Rancher Energy is able to secure all required approvals and consents noted in paragraph 3(a)(i), Rancher Energy shall thereafter finance, construct, operate and maintain (the “Construction”) the Pipeline, provided that Rancher Energy shall be entitled to, instead of constructing the Pipeline, make mutually acceptable arrangements to transport all produced gas from the Joint Wells to market.

(b) If the Pipeline is to be constructed pursuant to paragraph 3(a) (including sufficient compression to produce gas from the Test Well), such construction shall occur within eighteen (18) months of the Effective Date.

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(c) Upon Payout, Rancher Energy shall assign 20% of its right, title and interest in the Pipeline to BSR. Rancher Energy grants BSR an option to purchase an additional 25% of Rancher Energy’s right, title and interest in the Pipeline (the “Pipeline Option”). The Pipeline Option may be exercised incrementally by BSR where the minimum percentage of such increments is 1%. If BSR exercises the Pipeline Option, it shall do so within eighteen (18) months of the Completion of Construction of the Pipeline (after which the Pipeline Option automatically terminates). BSR shall notify Rancher Energy of its exercise of the Pipeline Option and within thirty (30) days of such exercise it shall pay to Rancher Energy the equivalent of 25%, or the corresponding lesser incremental percentage, of the independently verifiable costs and expenses (the “Costs”) of the Construction, and thereupon Rancher Energy shall assign a further 25%, or applicable lesser incremental percentage, of Rancher Energy’s right, title and interest in the Pipeline to BSR on a proportionate incremental basis. If BSR fails to make the required payment before the expiry of the thirty (30) day period noted above, the exercise of the Pipeline Option shall be void for all purposes.

(d) If BSR's interest in the Pipeline is at any time insufficient to transport its joint share of production from any of the Lands or any other lands within the AMI, Rancher Energy shall be entitled to charge BSR those tariffs and fees respecting any required compression and transportation in connection with the Pipeline that it would have be entitled to charge a third party.

(e) Construction Costs are deemed not to include supervision or management costs and expenses incurred by Rancher Energy.

(f) Subject to section 7 of this Agreement, once the terms of (a) and (b) above are satisfied then BSR shall transfer to Rancher Energy a 55% working interest in all of the Leases and the Lands, all wells thereon, and in all other lands and wells that BSR owns an interest in within the AMI, other than the Test Well, which shall be governed by the terms of this Agreement. BSR shall not encumber or assign any interest in any of the aforementioned Leases, Lands, wells and other lands whatsoever to any person or entity during the period from the date of this Agreement until BSR transfers the 55% working interest to Rancher Energy as noted above.

(g) The rights, title and interests in the Leases to be conveyed by one Party to the other Party are without warranty, either express or implied.

4. OPERATIONS AND DRILLING

(a) In the drilling of the Test Well Rancher Energy shall conduct its operations as a reasonable and prudent operator and shall test all zones or formations penetrated in the wells which Rancher Energy believes to have a reasonable possibility of producing in paying quantities. Rancher Energy shall restore the surface of the land of the Test Well to the condition required by law, and in absence of law, then as nearly as possible to its original condition.

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(b) All well operations on the Leases will be governed by the terms and provisions of an operating agreement (the “Operating Agreement”) which will be circulated by Rancher Energy for signature by the Parties at least 30 days prior to the commencement of the Test Well. The Operating Agreement will be on a A.A.P.L. Form 610 - 1982 Model Form Operating Agreement which shall be modified to delete portions of the printed language and to add certain provisions as are usual and customary among independent oil and gas exploration operators. Rancher Energy shall be designated the Operator in the Operating Agreement.

(c) Except for those costs and expenses which are expressly identified in this Agreement as being the sole responsibility of Rancher Energy, all costs and expenses relating to all lands governed by this Agreement, including all operations thereon, shall be borne and paid for by the Parties in accordance with their respective interests in such lands. BSR’s share of estimated drilling costs shall be proportionate to BSR’s working interest and will be billed (based on the estimate in the associated AFE) by Rancher Energy to BSR and will be due and payable to Rancher Energy thirty (30) days after notice of the invoice has been delivered to BSR. If such drilling costs are more or less than the AFE, BSR shall bear its pro-rata share of any actual excess invoiced costs paid by Rancher Energy; in the event the AFE is greater than actual costs, BSR will be entitled to and will receive from Rancher Energy its pro-rata refunded share of any excess monies.

(d) All rights, titles and interest in the Leases are subject to the royalties provided for in the Leases and additional royalties, the aggregate of which shall not exceed 20%.

5. TAKEOVER OPTION

If after drilling the Test Well to the Contract Depth Interval (the deepest horizon indicated by the 3D) Rancher Energy is not able to complete the Test Well as a well capable of producing in paying quantities, Rancher Energy shall not plug and abandon the Test Well without first notifying BSR under Section 9 below of Rancher Energy’s intention to do so, in which event BSR shall have the right to take over said Test Well as provided in Section 9. In the event BSR elects to take over said Test Well and completes same as a well capable of producing in paying quantities, all rights of Rancher Energy to earn an interest in the spacing unit for the Test Well shall thereupon cease and terminate. Rancher Energy shall not be relieved of any obligation under this Agreement previously accrued or which thereafter accrues with respect to Rancher Energy’s operations upon the Leases previously conducted excepting the plugging and abandoning of the Test Well taken over by BSR.

6. AREA OF MUTUAL INTEREST

There shall be deemed to be an area of mutual interest (the “AMI”) surrounding the Leases. The AMI shall cover and include all Lands, and all lands located within five (5) miles of the boundaries of all Leases and be effective for the primary term of the Lease(s) or the duration of any oil and gas production therefore, whichever is the greater. In the event a Party (or any affiliate thereof) acquires or proposes to acquire any interest in the lands within the AMI, the acquiring Party shall be required promptly to notify the other Party of the acquisition or proposed acquisition and the actual costs and expenses related thereto. The Party receiving the notice shall have forty-five (45) business days within which to pay a 50% share of the actual cost of the entire interest acquired or to be acquired. Upon the acquiring Party’s receipt of such payment and closing of the acquisition, it shall execute and deliver (or cause to be executed and delivered in the event of an acquisition by an affiliate) to the joining party a recordable assignment of 50% of the entire interest acquired, determined in accordance with this Section. Unless the Party receiving the notice of an AMI acquisition shall have made a timely response in accordance with this Section and has paid in a timely manner its share of the acquisition costs, it shall be deemed to have elected not to acquire the interest so offered by the acquiring Party.

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7. COST INFORMATION

If the Test Well is productive in paying quantities, Rancher Energy shall, as soon as possible after completion, furnish to BSR reasonably detailed information showing the cost of drilling, completing, and equipping the same. Further, Rancher Energy shall during the Payout period furnish to BSR a monthly statement showing gross production from such well and showing Rancher Energy’s progress towards Payout. BSR shall have access at all times at the Notice address stated in this Agreement during reasonable business hours to Rancher Energy’s cost, production and other records relating to such well.

8. WELL DATA

With respect to the Test Well Rancher Energy shall comply with the well information requirements by BSR set out on Exhibit “C” attached hereto, by furnishing the reports, documents, samples, data and other information and by giving the notices indicated thereon. Further, with respect to drilling and completion operations, Rancher Energy shall (i) furnish BSR daily drilling reports and make available portions of all samples, cores and fluids collected; (ii) at Rancher Energy’s sole discretion conduct such tests, run such logs, make such surveys and take such cores as would be made by a prudent operator; and (iii) furnish BSR copies of all logs, surveys and tests. BSR and its representatives and employees shall at all times have access, at their sole cost, risk and expense, to the well(s) and well site(s) located on the Lease.

9. ABANDONMENT

No well drilled by Rancher Energy pursuant to this Agreement shall be plugged or abandoned until Rancher Energy shall have given BSR notice of its intention to do so. BSR shall have forty-eight (48) hours from the receipt of said abandonment notice and a copy of all logs, drillstem and other tests and all other material information obtained in connection with such well in the case of a well on which a drilling rig is located, and thirty (30) days from receipt of said abandonment notice in all other cases, to notify Rancher Energy whether or not BSR consents to such plugging or abandonment or whether BSR elects to take over the well. If BSR elects to take over the well, Rancher Energy shall immediately deliver to BSR the well and all material and physical equipment therein in the same condition as when drilling operations were terminated. Further, Rancher Energy shall forthwith execute and deliver all necessary instruments to convey to BSR, Rancher Energy’s entire interest in and to the well, all such physical equipment therein and, the Lands comprising the spacing unit in which said well is located. BSR will pay for all expenses and discharge all obligations and assume all liabilities incurred after it takes possession of the well and will assume any and all obligations under any farmout agreements Rancher Energy may have with other persons owning an interest in the spacing unit for such well. BSR shall pay Rancher Energy the reasonable salvage value of all recoverable in-the-well and surface equipment owned by Rancher Energy which is taken over by BSR less than the estimated cost of salvage and less Rancher Energy’s estimated cost of plugging and abandoning said well.

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10. MINIMUM ROYALTIES/SHUT-IN GAS WELL PAYMENTS

Rancher Energy agrees to pay any minimum royalties or shut-in gas well payments necessary to maintain the Leases in full force and effect on which the Test Well is located. Each Party shall bear its working interest share of all such royalties and payments. Rancher Energy further agrees to give BSR immediate notice when any well is shut-in and the date thereof and furnish proof of proper payment of minimum or shut-in gas royalties at least one month in advance of the payment date.

11. COMPLIANCE WITH LAW

During the course of all operations conducted pursuant to this Agreement, the Parties shall abide in all material respects by all applicable laws and all lawful orders, rules and regulations of governmental authorities having jurisdiction. Rancher Energy shall notify BSR of any application to any governmental body for the establishment of units for the spacing of wells with respect to a Lease. Rancher Energy and BSR shall attempt to agree upon the size and location of units; however, in the event they are unable to agree, Rancher Energy may proceed before the proper governmental authority for the establishment of such units, but BSR shall have the right to participate in any proceedings to protect its interest.

12. RELATIONSHIP OF PARTIES

It is not the intent or purpose of the parties to this Agreement to create hereunder any partnership, joint venture, or association or the relationship of agency or employer-employee, and neither this Agreement nor any of the operations hereunder shall be construed or considered as creating any such relationship.

13. INDEMNITY AND INSURANCE

(a) The Parties agree to indemnify, defend and hold each other harmless from any and all liens, encumbrances, suits, claims, judgements, obligations and liabilities of any kind caused or created by or arising out of the other Party’s ownership or operations pursuant to this Agreement.

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(b) In connection with all operations conducted hereunder, Rancher Energy shall carry, and whenever practicable, include covenants in its agreements with subcontractors requiring those subcontractors to carry the insurance in amounts and with a scope of coverage that a prudent operator in the same or similar circumstance as Rancher Energy under this Agreement would, all as more particularly specified on Exhibit “B”. Further Rancher Energy agrees to carry all necessary governmental bonds required for operations on the Leases.

14. DEFAULT AND REMEDY

(a) If either Party is determined to be in default under this Agreement (the “Defaulting Party”), the Defaulting Party must remedy such default within thirty (30) days notice (“notice period”) from the other Party.

(b) The Defaulting Party shall take all commercially reasonable actions to cure default within notice period.

(c) Where Rancher Energy is the Defaulting Party and the default relates to a material breach of its obligations in paragraphs 3(a) or (b) or paragraph 4(a), then if such default is not remedied within the notice period, Rancher Energy shall re-assign any and all right, title and interest in the Lands initially acquired from BSR under this Agreement.

15. NOTICES

All notices, statements and communications (the “Notices”) required or permitted to be given or made in this Agreement shall be deemed to be so given or made when deposited in the United States Mail, postage prepaid directed to the Parties at the following addresses or such other addressees as they may from time to time designate in writing:

BSR:                            Big Snowy Resources, LP
Suite 2100, 27 North 27th Street
Billings, Montana  59101, U.S.A.
Fax:      416-259-7915
Attn:     John Campbell

Rancher Energy:           Rancher Energy Corp.

1050-17^th Street, Suite 1700

Denver, Colorado 80265 USA

Fax:      720-904-5698

Attn:     John Works

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16. FURTHER ASSURANCE

Each of the Parties shall, from time to time and at all times, do without further consideration all such other and further acts and deliver and execute such other and further instruments and documents (for example, the assignment and the conditions of working interests transferred in this Agreement) as may be reasonably required in order to fully perform and carry out the terms and provisions of this Agreement.

17. TIME

Time is of the essence with respect to all matters contained in this Agreement.

18. FORCE MAJEURE

All of Rancher Energy’s obligations and covenants hereunder, whether express or implied, shall be suspended at the time or from time to time as compliance with any thereof is prevented or hindered by or is in conflict with: Federal, State, County, or municipal laws, rules, regulations or Executive Orders asserted as official by or under public authority claiming jurisdiction; Act of God; adverse field, weather, or market conditions; inability to obtain materials in the open market or transportation thereof; war; strikes or lockouts; riots; or other conditions or circumstances not wholly controlled by Rancher Energy, and this Agreement shall not be terminated in whole or in part, nor shall Rancher Energy be in default under this Agreement or held liable in damages for failure to comply with any such obligations or covenants if compliance therewith is prevented or hindered by or is in conflict with any of the foregoing eventualities.

The time during which Rancher Energy shall be hindered in or prevented from conducting drilling or reworking operations, under the contingencies above stated, shall be added to any applicable deadlines under this Agreement or the Leases (including the primary term thereof); provided, however, that delay rentals shall not be suspended by reason of the suspension of operations and if the Leases are extended beyond the primary term above stated by reason of such suspension, Rancher Energy shall pay an annual delay rental on the anniversary dates hereof in the manner and in the amount above provided.

19. SCHEDULES

Schedules “A”, “B” and “C” referred to and attached to this Agreement are hereby incorporated by reference and made a part of this Agreement. In the event any of the provisions of any exhibit conflict with this Agreement, then the provisions of the Agreement itself shall prevail.

The inclusion herein of provisions relating to any particular subject matter shall not be deemed an attempt to deal with such subject matter to the exclusion of provisions in the Operating Agreement or any Schedules relating to such matter unless the context clearly otherwise requires.

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20. MISCELLANEOUS

(a) Whenever the plural, masculine or neuter is used in this Agreement, the same shall include the singular or feminine or body politic or corporate and vice-versa as the context so requires.

(b) The Parties agree that with respect to the subject matter of this Agreement together with all Schedules shall constitute the full and complete understanding and agreement of the Parties, and there are no other understandings, obligations, relationships or agreements, written or oral.

(c) The terms and definitions used herein shall have the same meaning in the Schedules unless the context otherwise requires.

(d) No Party shall assign an interest in this Agreement without first obtaining the written consent of the other Party, which consent shall not be unreasonably withheld.

21. ENUREMENT

The terms, covenants, conditions and provisions of this Agreement shall be binding upon and enure to the benefit of the respective successors and assigns of the Parties, and said terms, covenants, conditions and provisions shall be deemed to be real covenants burdening and running with the Leases and Lands.

22. LAW AND JURISDICTION

The law governing this Agreement shall be the law of the State of Montana. The Parties exclusively and irrevocably attorn to the jurisdiction of the applicable court of the State of Montana regarding any matter or dispute arising from this Agreement.

23. CONFIDENTIALITY

All information obtained or received by either Party relating to any well drilled pursuant to this Agreement shall be maintained in confidence, shall not be disclosed to any other person, and shall not be used for any purpose other than in connection with this Agreement.

24. ARBITRATION

Should there be a disagreement or a dispute between the Parties with respect to this Agreement, the same will be referred to a single arbitrator for decision pursuant to the laws of Montana, and the decision of such arbitrator will be final and binding upon the Parties. This Section 24 will be deemed to be a submission to arbitration in accordance with the laws of Montana.

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25. COUNTERPARTS

This Agreement may be executed in counterpart and will have the same effect as if all signatories to the Agreement had signed the same document. All counterparts together will constitute the same instrument. Signed counterparts may be transmitted by facsimile.

IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective for all purposes as of the day and year first above written.

 

BIG SNOWY RESOURCES, LP
By:	/s/ John WG Campbell
	Name:  John WG Campbell
	Title:   Director

RANCHER ENERGY CORP.
By:	/s/ John Works
	Name:  John Works
	Title:   President & CEO

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EX-10.3

Exhibit 10.3

 

Burke Ranch Unit Purchase and

Participation Agreement

Between:

HOT SPRINGS RESOURCES LTD.

(”Seller” or “HSR")

and

PIN PARTNERS PETROLEUM LTD.

(”Buyer" or "PIN")

Made as of the 6th day of February, 2006

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BURKE RANCH UNIT PURCHASE AND PARTICIPATION AGREEMENT

THIS AGREEMENT made as of the6th day of February 2006 between HOT SPRINGS RESOURCES LTD. ("Seller” or HSR") and PIN PARTNERS PETROLEUM LTD. ("Buyer” or “PIN").

RECITALS:

A.Whereas HSR owns the interests in lands and oil and gas leasehold interests comprising the Burke Ranch Unit, a Federal Unit, that is subject to the terms of the Burke Ranch Unit Agreement and Unit Operating Agreements, and to the supervision of such unit and the activities and operations thereon by the Bureau of Land Management (BLM) of the United States Department of the Interior; such lands and leasehold interests are hereinafter included in the definition of Subject Property in Section 1.1, and are subject only to those encumbrances, if any, set forth in in Schedule "A";

B.Whereas PIN is interested in acquiring an interest in the Subject Property and otherwise participating in development of the Subject Property on the terms and conditions set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the receipt and sufficiency of which are acknowledged by the Parties, the Parties agree as follows:

ARTICLE 1

INTERPRETATION

1.1 DEFINITIONS

In this Agreement, unless the context otherwise requires:

(a) "Affiliate" means, with respect to a Party to this Agreement, a company or other entity which controls that Party, is controlled by that Party or is under common control with that Party. "Control" means (i) the direct or indirect ownership of sufficient shares or other interests having the right to vote to elect the senior management or a majority of the board of directors or other governing board or committee, or otherwise control, the company or entity, or (ii) actual control of the company or entity by any means.

(b) "Area of Mutual Interest" or "AMI" means the area of mutual interest established in respect of the AMI Lands;

(c) "AMI Lands" means the lands within the area described in Schedule "B";

(d) "AMI Term" means the period following the Effective Date and continuing for a period of three (3) years thereafter;  

(e) "Business Day" means a day other than a Saturday, a Sunday or a statutory holiday in Wyoming;

(e) "Engineering Report" has the meaning ascribed to that term in Clause 3.2(a).

(f) "Effective Date" means February 6, 2006.

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(g) "Engineering Report" has the meaning ascribed to that term in Clause 3.2(a).

(h) "Subject Assets" means the Subject Property, the Tangibles, and the Miscellaneous Interests;

(i) "Subject Property" means the lands and leasehold interests set out in Schedule "A", and any lands pooled, unitized or otherwise combined therewith under the terms of and pursuant to the Unit Agreement and Unit Operating Agreements or otherwise, together with the Petroleum Substances within, upon or under those lands;

(j) "Miscellaneous Interests" means, subject to any and all limitations and exclusions provided for in this definition, all property, assets, interests and rights pertaining to the Subject Property and the Tangibles, or either of them, but only to the extent that such property, assets, interests and rights pertain to the Subject Property and the Tangibles, or either of them, including without limitation any and all of the following:

(i) contracts and agreements relating to the Subject Property and the Tangibles, or either of them, including without limitation the Unit Agreement and Unit Operating Agreements, any communitization agreements still in effect and having application to the Subject Property, the Title Documents, processing agreements, transportation agreements and agreements for the construction, ownership and operation of facilities;

(ii) rights to enter upon, use or occupy, the surface of any lands which are or may be used to gain access to or otherwise use the Subject Property and the Tangibles, or either of them;

(iii) all records, books, documents, licences, reports and data which relate to the Subject Property and the Tangibles, or either of them, including any of the foregoing that pertain to seismic, geological or geophysical matters not required to be held confidential and which HSR has the legal right to disclose to PIN; and

(iv) the Wells (and no other wells), including the wellbores and any and all casing;  

(k) "Operating Procedure" means the 1982 AAPL Model Form Joint Operating Agreement attached hereto as Schedule "C  

(l) "Party" means a party to this Agreement;

(m)(i) "Payout" means that date when PIN recovers out of the gross proceeds of sale from it's share of production of Petroleum Substances from the Subject Property an amount equal to the aggregate costs incurred by or paid by PIN pursuant to Sections 4.1, 4.2, 4.3 and 5.1.

(m)(ii) "Payout Accounting”" shall mean monthly statements furnished by Buyer to Seller before the fifth day of each and every calendar month prior to the time. Payout occurs setting forth the amounts of all expenditures made by Buyer and claimed by Buyer as costs incurred under Sections 4.1, 4.2, 4.3 and 5.1, together with supporting invoices together with copies of reports made by or on behalf of Buyer to the Wyoming Oil and Gas Conservation Commission and/or the Minerals Management Service, statements from Third Party purchasers, processors and transporters of production and all other documents evidencing the volumes and values of Buyer’s share of production, if any, of Petroleum Substances from the Subject Property for the month prior to the immediately preceding calendar month. Such monthly statements shall further include the current accumulative balance of the recoupment of the costs incurred by Buyer under Sections 4.1, 4.2, 4.2,,4.3 and 5.1.

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(n) "Petroleum Substances" means any of crude oil, crude bitumen and products derived therefrom, synthetic crude oil, petroleum, natural gas, natural gas liquids, and any and all other substances related to any of the foregoing, whether liquid, solid or gaseous, and whether hydrocarbons or not, including without limitation sulphur;

(p) "Studies and Report" has the meaning ascribed to that term in Clause 3.2(a).

(q) "Tangibles" means, any and all tangible depreciable property and assets which are located within, upon or in the vicinity of the Subject Property and which are used or are intended to be used to produce, process, gather, treat, measure, make marketable or inject Petroleum Substances or any of them or in connection with water injection or removal operations that pertain to the Subject Property, including without limitation any and all gas plants, oil batteries, buildings, production equipment, pipelines, pipeline connections, meters, generators, motors, compressors, treaters, dehydrators, scrubbers, separators, pumps, tanks, boilers and communication equipment;

(r) "Third Party" means any individual or entity other than Parties hereto, including without limitation any partnership, corporation, trust, unincorporated organization, union, government and any department and agency thereof and any heir, executor, administrator or other legal representative of an individual;

(s) "this Agreement", "herein", "hereto", "hereof" and similar expressions mean and refer to this Agreement;

(t) "Title Defect" means a material defect or significant deficiency in the title of Seller to any portion or part of the Subject Property, which on its own deprives the Seller of the substantial use, benefit or financial revenue from the Subject Property, having regard to laws respecting limitations of actions, and is sufficiently adverse such that it would, on a commercially reasonable assessment thereof, cause a party experienced in acquisitions of producing oil and gas properties located in the Rocky Mountain region of the United States to not purchase the entirety of the Subject Property, having regard to the loss of value in and thereto;

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(u) “Term Assignment” shall mean a current assignment of 50% of Seller’s interest in the Subject Assets, substantially in the form set forth in Schedule "F" hereto  

(v)

(uv) "Final Assignment”" shall mean an assignment of 50% of Seller's interest in the Subject Assets, substantially in the form set forth in Schedule "G

(vw) "Title Documents" means, collectively, any and all certificates of title, leases, reservations, permits, licences, assignments, trust declarations, operating agreements, royalty agreements, gross overriding royalty agreements, participation agreements, farm-in agreements, sale and purchase agreements, pooling agreements and any other documents and agreements granting, reserving or otherwise conferring rights to (i) explore for, drill for, produce, take, use or market Petroleum Substances, (ii) share in the production of Petroleum Substances, (iii) share in the proceeds from, or measured or calculated by reference to the value or quantity of, Petroleum Substances which are produced, and (iv) rights to acquire any of the rights described in items (i) to (iii) of this definition; but only if the foregoing pertain in whole or in part to Petroleum Substances within, upon or under the Subject Property;

(wx) "Trust Agreement" means an agreement substantially in the form set forth in Schedule "H";

(xy) "Trustee" means the party acting as trustee under the Trust Agreement;

(yz) "Unit Agreement" means the unit agreement attached hereto as Schedule "E", as amended and supplemented;

(zaa) "Unit Operating Agreements" means the unit operating agreements attached hereto as Schedule "D", as amended and supplemented;

(aabb) "Wells" means all wells which are or may be used in connection with the Subject Property, including without limitation Well 9 and Well 9-17 and all other producing, shut-in, abandoned, water source, water disposal and water injection wells.

(bbcc) "Well 9" means the Well located atNW, NW 17, 37 N, 78 W, (API Well No. 49 025 06180)

(ccdd) "Well 9-17" means the Well located at ]NE, SE 17, 37N, 78W (API Well No. 49 025 22264); 

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1.2 Headings

The expressions "Article", "section", "subsection", "clause", "subclause", "paragraph" and "Schedule" followed by a number or letter or combination thereof mean and refer to the specified article, section, subsection, clause, subclause, paragraph and schedule of or to this Agreement.

1.3 Interpretation Not Affected by Headings

The division of this Agreement into Articles, sections, subsections, clauses, subclauses and paragraphs and the provision of headings for all or any thereof are for convenience and reference only and shall not affect the construction or interpretation of this Agreement.

1.4 Interpretation Not Affected by Headings

When the context reasonably permits, words suggesting the singular shall be construed as suggesting the plural and vice versa, and words suggesting gender or gender neutrality shall be construed as suggesting the masculine, feminine and neutral genders.

1.5 Interpretation Not Affected by Headings

There are appended to this Agreement the following schedules pertaining to the following matters:

Schedule "A"	Subject Property
Schedule "B"	Area of Mutual Interest
Schedule "C"	Operating Procedure
Schedule “D”	Burke Ranch Unit Operating Agreements
Schedule “E”	Burke Ranch Unit Agreement
Schedule "F"	Term Assignment
Schedule "G”	Final Assignment
Schedule "H"	Trust Agreement

Such schedules are incorporated in this Agreement and form a part hereof. Excepting the agreement described above and appended as Schedule E, and subject to Article 3.2(d), wherever any term or condition of such schedules conflicts or is at variance with any term or condition in the body of this Agreement, such term or condition in the body of this Agreement shall prevail.

1.6 Damages

All losses, costs, claims, damages, expenses and liabilities in respect of which a Party has a claim pursuant to this Agreement include without limitation reasonable legal fees and disbursements on a attorney and client basis.

ARTICLE 2

TITLE TO SUBJECT PROPERTY

2.1 Title

Seller does not represent or warrant title to the Subject Property, but Seller does represent that:

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(a) except for the royalties payable to the lessors under the oil and gas leases set forth in Schedule "A" and overriding royalty interests burdening Seller’s interest in such oil and gas leases that were created by third parties prior to the acquisition by Seller of its interest in the Subject Property and of which Seller has no knowledge, it has not granted or otherwise aware of any interest (or the right to acquire any interest) in the Subject Property whereby a Third Party may owns or has the right to acquire any royalty interest in the Subject Property or any portion of Seller’s interest in the Subject Property;

(b) it is not aware of any Title Defects pertaining to the Subject Property, nor is it aware of any act or omission whereby Seller is or would be in default under applicable law or the Title Documents and it has not received any notice of default or otherwise become aware of any notice of default respecting the Subject Property that has not been remedied; and

(c) Seller is not aware of any environmental defects or deficiencies or environmental damage affecting or caused by the Subject Assets, nor is Seller aware of any proceedings which have been commenced or threatened, or which could reasonably be expected to be commenced, in connection with any such defects, deficiencies or damages, or any operations relating thereto.

2.2 Maintaining Title

While the Term Assignment is effective and provided Seller has not terminated this Agreement by virtue of a material default by Buyer under this Agreement, Seller will not grant, assign or convey any interest in the Subject Property which may be acquired by the Buyer hereunder, nor shall Seller do or cause to be done any act or omission whereby any interest in the Subject Property becomes encumbered, terminated or forefeited.

ARTICLE 3

BUYER PAYMENT AND RIGHTS/INTERESTS EARNED

3.1 Buyer Payment

Buyer shall upon payment of $150,000 (the "Buyer Payment") to Seller earn the rights and interests set forth in Section 3.2. Seller acknowledges prior receipt of $35,000 from Buyer, such that the balance remaining of the Buyer Payment is $115,000 (the "Payment Balance"). Buyer shall pay this balance, by wire transfer or other means satisfactory to Seller in immediately available funds, to Seller or, if Section 3.3 is applicable, to the Trustee on or before the third calendar day following the date of this Agreement, failing which this Agreement and all rights of Buyer hereunder shall terminate.

3.2 Rights Earned  

(a) Upon making the Buyer Payment set forth in Section 3.1, the interests in the Subject Assets shall, subject to the terms of the Term Assignment be:

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HSR	49.9%
PIN	49.9%
Others	0.2%

In addition, Buyer upon making such payment to Seller or the Trustee shall earn the right to participate in and pay the costs of the activities described in Article 4 below. Forthwith after receiving the balance of the Buyer Payment, Seller shall duly execute and deliver to Buyer the Term Assignment, or if Section 3.3 is applicable shall cause the Trustee to release the Term Assignment to Buyer.

(b) All of the several obligations set forth in Sections 4.1, 4.2 and 4.3 below and the time limit prescribed for the performance of each and all such obligations are and shall be deemed material and shall consititute a single condition precedent to Seller’s obligation to make the Final Assignment. If the Buyer Payment described in Section 3.1 above is timely made to Seller or, if Section 3.3 is applicable, to the Trustee and if, thereafter, Buyer thereafter timely performs in all material respects each and all of its obligations described in Sections 4.1, 4.2 and 4.3 below, then, prior to Payout, Buyer shall thereupon have:  

(i) earned an additional 39.92% beneficial interest in the Subject Assets, such that the beneficial interests shall be:  

 

HSR	49.9%
PIN	49.9%
Others	0.2%

provided however that HSR shall retain a 49.9% registered legal interest, and shall hold the additional 39.92% beneficial interest in trust for PIN; and

(ii) Buyer shall have the right to receive the Final Assignment and Seller shall forthwith thereafter duly execute and deliver to Buyer the Final Assignment.

(c) In the event the Final Assignment is earned by Buyer and made by Seller and thereafter Payout occurs, Buyer shall be deemed to have thereupon relinquished to Seller the additional 39.92% beneficial interest in the Subject Assets referred to in Section 3.2(b)(i) above, such that the legal and beneficial interests in the Subject Assets shall thereupon be:

HSR	49.9%
PIN	49.9%
Others	0.2%

(d) Upon Buyer timely making the Buyer Payment described in Section 3.1 above, thereby earning the rights described therein, the Operating Procedure shall govern the Subject  Assets and all operations on or in respect of the Subject Assets, such that, as between Buyer and Seller, the Operating Procedure shall supercede the Unit Operating Agreements. Thereafter, each party shall use commercially reasonable efforts to enter into agreements with, and obtain approvals from, all relevant third parties (including those "others" owning working interests in the Subject Property and all applicable governmental and regulatory authorities) such that the Operating Procedure supercedes the Unit Operating Agreements for all purposes.

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Subject always to Article 4, all rights and obligations in respect of the Subject Assets shall be borne by the Parties in accordance with their interests set forth in Sections 3.2(a), (b) and (c) which are prevailing at the applicable time.

Seller shall be the initial operator under the Operating Procedure, provided that upon the parties agreeing to drill a well pursuant to Section 4.5, or if Seller does not agree to drill such well and Buyer elects to drill the well by itself pursuant to the Operating Procedure, Buyer shall in either event thereupon replace Seller as the operator under the Operating Procedure and the Unit Operating Agreements, and Seller shall do all things reasonably necessary to effect such replacement.

(e) Provided that Buyer timely makes the Buyer Payment described in Section 3.1 to Seller or the Trustee, within fifteen (15) days thereafter, Seller shall deliver copies of the Title Documents and any other agreements and documents to which the Subject Assets are subject, and copies of contracts, agreements, records, books, documents, licences, reports and data comprising Miscellaneous Interests.  

(f) In addition to the Term Assignment and Final Assignment provided for above, Seller agrees to deliver to Buyer any other conveyances, assignments, transfers, novations and other instruments reasonably required to to assign to Buyer the corresponding interest it acquires in the Subject Assets.

3.3 Trust Arrangements  

(a) If Seller does not deliver to Buyer on the date hereof a title opinion prepared by Seller's oil and gas legal counsel respecting the Subject Property which opinion is in form and substance satisfactory to Buyer, acting reasonably, (the "Title Opinion"), then:  

(i) Buyer shall be entitled to deliver to the Trustee the Payment Balance, to be held by the Trustee in accordance with the Trust Agreement. Such payment shall be deemed to satisfy all of Seller's obligations under this Agreement to make such payment; and  

(ii) Concurrently with Buyer making the payment pursuant to Section 3.3(a)(i), Seller shall deliver a duly executed copy of the Term Assignment to the Trustee, to be held by the Trustee in accordance with the Trust Agreement.

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If Buyer elects to pay the Payment Balance to the Trustee pursuant to Section 3.3(a)(i) and Seller does not deliver the Title Opinion to Buyer within ninety (90) days from the date of this Agreement, then Buyer shall be entitled to, within ten (10) days after the expiry of such period, request a return of the entire Buyer Payment and all monies expended by Buyer pursuant to Sections 4.1, 4.2 and 4.3. In that event:

(iii) the Trustee shall forthwith return the Payment Balance to Buyer and, provided that Seller has paid all amounts to Buyer as required pursuant to Section 3.3(b)(iv), destroy all copies of the Term Assignment in its possession, with the result that thereupon Buyer shall have no interest in the Subject Assets; and  

(iv) the Seller shall pay to Buyer $35,000, being the prior payment of a portion of the Buyer Payment, and reimburse Buyer for all amounts expended by Buyer pursuant to Sections 4.1, 4.2 and 4.3; such payment and reimbursement shall, during the period of 1 year from the date hereof, be made as soon as reasonably possible out of the gross proceeds of the sale of production from the Subject Property. If such amounts are not paid to Buyer within such 1 year period, Seller shall immediately thereafter pay all such amounts to Buyer.  

(b) As security for the payment obligations in Section 3.3(b)(iv), Buyer shall have, and Seller hereby grants, a lien, charge and security interest in the Subject Assets.  

In addition, if Seller fails to make the payments to Buyer as required pursuant to Section 3.3(b)(iv), then notwithstanding any other provision herein, and without limiting any other rights Buyer may have at aw or otherwise, Buyer shall:

(i) be entitled to request the Trustee to deliver the Term Assignment to Buyer, in which event Buyer shall be entitled to retain the 49.9% interest governed thereby for its own account; and  

(iii) be entitled to the additional 39.92% beneficial interest provided for in Section 3.2(b).  

(c) If there is any title defect, deficiency or other failure in title which was in existence at or prior to the date of this Agreement that adversely affects the Subject Property at any time hereafter, such defects, deficiencies and title problems shall be deemed to first affect the interests of Seller, such that Seller's interests shall be reduced first before there is any effect on Buyer's interests. Conversely, if Seller owned more than a 99.8% working interest in the Subject Property immediately prior to the date of this Agreement, Seller shall be entitled to the benefit of any such incremental increased interest.

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ARTICLE 4

RIGHTS EARNED BY BUYER PAYMENT AND BUYER OPERATIONS

4.1 Seismic

Buyer shall, within one calendar year from the Effective Date, at its sole cost, risk and expense conduct or cause to be conducted a 3D seismic survey over:

(a) the Subject Property ; and  

(b) any other lands within the AMI which the Parties jointly agree upon, and shall further conduct (or cause to be conducted) and pay for all processing, analysis, and interpretation of the 3D seismic data acquired as a result of such seismic survey which is reasonably necessary to render such data capable of being used by and useful to the Parties to determine the viability of future drilling operations on the Subject Property or AMI lands. Buyer shall provide Seller with access to the results of the seismic program, including all analysis and interpretation thereof, provided that Seller shall maintain in confidence the seismic information in accordance with the Operating Procedure, and provide proof of the same to Seller and share the information as set forth above.  

4.2 Engineering Study and Development Plans

(a) Buyer shall, after consultation with Seller, select an engineering firm (the "Engineering Firm") to perform certain engineering studies on the Subject Property and to prepare a development plan (collectively, the "Studies and Plan") in respect of the Subject Property. The scope and substance of the Studies and Plan shall be at the direction of Buyer, provided that Buyer will confer with Seller prior to providing or revising any instructions to the Engineering Firm.Buyer shall be solely responsible for the costs incurred in the preparation of the Studies and Plan. Upon mutual agreement, the Parties may agree to an alternate engineering firm.  

(b) The Parties shall co-own the Studies and Plan and all related data and information, and shall share access to all data and information. Each Party shall maintain in confidence the Studies and Plan and all related data and information in accordance with the Operating Procedure.  

(c) Each Party shall appoint a contact person who shall assist in providing documentation and information to the Engineering Firm.  

4.3 Field Operations

Seller shall, within sixty (60) days from the Effective Date (but subject always to Article 8), cause to be conducted by or under the supervision of Seller (or its agents, employees or contractors) in accordance with and if required pursuant to generally accepted industry practices, operations and purchases of equipment necessary to install a submersible

11

pump, cable and if needed a motor in Well 9 and, shall within thirty (30) days from the Effective Date (but subject always to Article 8), complete any tubing repairs that may be necessary in respect of Well 9-17. Buyer shall be solely responsible for all costs and expenses relating to such operations, provided that if the costs and expenses respecting Well 9 or Well 9-17 exceed $50,000, then Seller shall be solely responsible for all costs and expenses exceeding $50,000, provided further however, that if, due to wellbore integrity problems, equipment failures or sticking of equipment or tools in the wellbore or other problems beyond the anticipation or control of the Parties, the costs of operations respecting either or both Well 9 and Well 9-17 are anticipated to exceed $75,000 in the aggregate, then the Parties shall determine whether they wish to proceed and if so they shall jointly (each as to a 50% share) pay for any costs in excess of $75,000. If a party determines not to conduct the operations yielding such costs in excess of $75,000, then the other party shall be entitled to conduct the operations by itself in accordance with the Operating Procedure. Seller shall provide Buyer with information on a daily basis in respect of the foregoing operations and the status thereof, and shall provide evidence to Buyer of its timely compliance with the obligations set forth in this Section 4.3 by providing Buyer with invoices from any Third Party performing such work and/or providing equipment and materials evidencing the time and dates of the provision of such services and materials/equipment.

Subject to the foregoing, Buyer shall pay any and all such invoices within 30 days of receipt of them, and upon such payment shall be deemed to have satisfied all of its obligations in this Section 4.3. Buyer shall deliver to Seller signed acknowledgments by all such Third Parties or other evidence that such invoices have been paid by Buyer.

If Seller fails to complete the operations provided for in this Section 4.3 within 1 year of the Effective Date, Buyer shall be deemed to have no further obligations under this Section 4.3.

4.4 Buyer as Operator

Buyer shall conduct the operations set forth in Sections 4.1 and 4.2 as if and as though it was the operator of the Subject Property, provided that Buyer will confer with Seller with regard to those operations described in Sections 4.1 and 4.2 in an effort to keep the associated operational costs as low as reasonably possible (having regard always to good industry practices and health, safety and environmental concerns) and make beneficial use of the Seller’s knowledge of the Subject Property.

4.5 Tensleep Test

If, after the acquisition,processing, analysis and interpretation of the seismic data described in Section 4.1 above, Buyer and Seller mutually agree, in good faith, based upon such seismic data and analysis thereof, that a well should be drilled to test the Tensleep Formation (the "Tensleep Well") on the Subject Property (or the AMI lands), the Buyer shall at its sole cost drill and log (or cause the drilling and logging of) such a well of such a depth to test the entire Tensleeep Formation, and, if, after logging, a completion of such a well for production is justified, as determined mutually by the Parties hereto, then Seller shall pay 50% of the costs of such

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completion. If such well thereafter produces Petroleum Substances, the Parties shall share in the production from such well on the basis of the fractions described below, until the costs of such well and its completion have been recovered out of the production of Petroleum Substances from such well.

Prior to Cost Recoupment Fractions:

HSR	Amount of completion costs paid by HSR Total of all drilling, logging and competion costs paid by HSR and PIN
PIN	Amount of drilling, logging and completion costs paid by PIN Total of all drilling, logging and completion costs paid by HSR and PIN.

Upon recoupment of such drilling, logging and completion costs, the Parties shall share in the production from such well on an equal, 50-50 basis.

If a party wishes to drill the Tensleep Well but the other party does not, then the foregoing provisions of this Article 4.5 shall be of no further effect. In such event, the party wishing to drill the well shall be entitled to drill such well by itself without any participation by the other party, all in accordance with the Operating Procedure. In such event, the penalty applicable to the non-participating party shall be as set forth in clause Article VI of the Operating Procedure.

Prior to the time the costs of the drilling, logging and completion from such well have been recovered out of the production of Petroleum Substances from such well, the Party serving as operator shall before the fifth day of each calendar month provide the non-operating Party with a monthly accounting of the aggregate of all costs of drilling, logging and completing of such well and copies of all reports filed with the Wyoming Oil and Gas Conservation Commission and/or the Minerals Management Service, statements from Third Party purchasers, processors and transporters of production and all other documents evidencing the volumes and values of all production of Petroleum Substances from such well, in each case as regards those costs and revenues relating to such well that arose in the month prior to the immediately preceding month, together with the current accumulative balance of the recoupment of drilling, logging and completion costs of such well out of the production of Petroleum Substances from such well.

ARTICLE 5

PRODUCTION PAYMENT

5.1 Production Payment

If Buyer timely makes the Buyer Payment described in Section 3.1 above and performs the obligations described in Sections 4.1, 4.2 and 4.3 above, and, thereafter, whether prior to or after Payout, production of Petroleum Substances from the Subject Property exceeds 20 barrels of oil per day (and for purposes of this clause 6mcf of natural gas shall equal 1 barrel of oil) for a continuous period of no less than 30 days, then provided that Buyer has received a Title Opinion or Buyer is otherwise satisfied with title to the Subject Property, Buyer shall each month thereafter for a period of 12 months pay to Seller out of its net share of the proceeds from the sale of Petroleum Substances produced from the Subject Property a payment of $5,000 (for an aggregate payment obligation of $60,000). Each such payment shall be made by no later than the 25th day of the following month. The Buyer’s obligation for this production payment, and

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Seller’s reservation thereof, shall be set forth in the Term Assignment and in the Final Assignment, if made. For greater certainty, if the net revenues from the Subject Property are not sufficient to permit the $5,000 payment in any one month, the payment obligation for that month shall be suspended until the next month in which net revenues are sufficient to permit such $5,000 payment.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties

Each Party makes the following representations and warranties to the other:

(a) It is a corporation, limited partnership, or limited liability company duly organized and validly existing under the laws of the jurisdiction of its incorporation or formation, is authorized to carry on business in the state in which the Subject Property are located, and now has good right, full power and absolute authority to perform the obligations provided for in the Agreement according to the true intent and meaning of this Agreement;  

(b) the execution, delivery and performance of this Agreement has been duly and validly authorized by any and all requisite company, member and directors' actions and will not result in any violation of, be in conflict with or constitute a default under any articles, charter, operating agreement or other governing document to which it is bound;  

(c) the execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with or constitute a default under any term or provision of any agreement or document to which it is party or by which it is bound, nor under any judgment, decree, order, statute, regulation, rule or license applicable to it;  

(d) this Agreement and any other agreements delivered in connection herewith constitute valid and binding obligations of it enforceable against it in accordance with their terms;  

(e) it has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of this Agreement or the transaction to be effected by it for which the other Party shall have any obligation or liability;

ARTICLE 7

AREA OF MUTUAL INTEREST

7.1 AMI Lands

If a Party or any of its Affiliates acquires an interest in any AMI Lands during the AMI Term, such acquisition shall be subject to the provisions of this Agreement.

7.2 AMI Procedure for Acquisition

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If AMI Lands are acquired at any time during the AMI Term by a Party or any of its Affiliates, that Party (the "Acquiring Party") shall forward a notice to the other Party (the "Receiving Party") within seven (7) days of the acquisition of such AMI Lands. The notice (the "Acquisition Notice") shall set forth the particulars of the acquisition, including but not limited to:

(a) the date that the interest was acquired,

(b) the interest which was acquired,

(c) from whom the interest was acquired,

(d) the amount of out of pocket costs incurred by the Acquiring Party and/or its Affiliates in acquiring the AMI Lands, and

(e) the amount of maintenance costs, if any, incurred by the Acquiring Party and/or its Affiliates with respect to the AMI Lands.

The Receiving Party shall have twenty (20) days from the date of receipt of an Acquisition Notice (the "Acceptance Period") to elect to acquire 50% of the interest acquired by the Acquiring Party and any of its Affiliates in the AMI Lands set out in such Acquisition Notice by paying 50% of the amounts set forth in the Acquisition Notice. If the Receiving Party fails to pay such amount within thirty (30) days of its election, it shall be deemed to have elected not to acquire such interest, and it shall have no further rights to such interest.

If the consideration paid by the Acquiring Party or any of its Affiliates to acquire the AMI Lands was other than cash or work commitment, the Acquisition Notice shall specify the cash equivalent of such consideration. The Receiving Party may, within five (5) days of its receipt of the Acquisition Notice, require the determination of the cash equivalent of the consideration to be submitted to arbitration, in which event the twenty (20) day period specified

in this section shall commence to run on the date the arbitrator's decision is communicated in writing to the Parties. The cash value so determined by the arbitrator and communicated in writing to the Parties shall be deemed to be the cash equivalent of the consideration.

ARTICLE 8

FORCE MAJEURE

8.1 Meaning of Force Majeure

For the purposes of this Article, "force majeure" means an occurrence beyond the reasonable control of the Party claiming suspension of an obligation hereunder, which has not been caused by such Party's negligence and which such Party was unable to prevent or provide against by the exercise of reasonable diligence at a reasonable cost and includes, without limiting the generality of the foregoing, an act of God, war, revolution, insurrection, blockage, riot, strike, a lockout or other industrial disturbance, fire, lightning, unusually severe weather, storms, floods, explosion, accident, shortage of labour or materials (including rig availability), or government restraint, action, delay or inaction.

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8.2 Suspension of Obligations Due to Force Majeure

If any Party is prevented by force majeure from fulfilling any obligation hereunder, the obligations of the Party, insofar only as its obligations are affected by the force majeure, shall be suspended while the force majeure continues to prevent the performance of such obligation and for that time thereafter as that Party may reasonably require to commence to fulfill such obligation, and during the entirety of such period shall not in any event be considered to be in default as regards the affected obligations. A Party prevented from fulfilling any obligation by force majeure shall promptly give each other Party notice of the force majeure and the affected obligations, including reasonably full particulars in respect thereof.

8.3 Obligation to Remedy

The Party claiming suspension of an obligation as aforesaid shall promptly use commercially reasonable efforts to remedy the cause and effect of the applicable force majeure, insofar as it is reasonably able so to do, and such Party shall promptly give each other Party notice when the force majeure ceases to prevent the performance of the applicable obligation. However, the terms of settlement of any strike, lockout or other industrial disturbance shall be wholly in the discretion of such Party, notwithstanding Section 8.1, and that Party shall not be required to accede to the demands of its opponents in any strike, lockout or industrial disturbance solely to remedy promptly the force majeure thereby constituted.

8.4 Exception for Lack of Finances

Notwithstanding anything contained in this Article, lack of finances shall not be considered a force majeure, nor shall any force majeure suspend any obligation for the payment of money due hereunder.

ARTICLE 9

GENERAL

9.1 Confidentiality

The Parties covenant that agree to continue to keep all information and documentation directly or indirectly related to the Subject Property confidential in accordance with Clause [·]Article XV of the Operating Procedure. Nothing contained herein or in the Operating Procedure or the Unit Operating Agreements shall prevent a Party at any time from furnishing information to any governmental agency or regulatory authority or to the public if required by applicable law, provided that the Parties shall advise each other in advance of any public statement which they are required to make.

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9.2 Further Assurances

Each Party will, from time to time and at all times, without further consideration, do such further acts and deliver all such further assurances, deeds and documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

9.3 Further Assurances

All payments to be made pursuant to Clauses 3.1 and 5.1 shall be made by certified cheque, bank draft or wire transfer.

9.4 Entire Agreement

The provisions contained in any and all documents and agreements collateral hereto shall at all times be read subject to the provisions of this Agreement and, in the event of conflict, the provisions of this Agreement shall prevail. No amendments shall be made to this Agreement unless in writing, executed by the Parties. This Agreement supersedes all other agreements, documents, writings and verbal understandings among the Parties relating to the subject matter hereof and expresses the entire agreement of the Parties with respect to the subject matter hereof.

9.5 Governing Law

This Agreement shall, in all respects, be subject to, interpreted, construed and enforced in accordance with and under the laws of the State of Wyoming. The Parties irrevocably submit to the exclusive jurisdiction of the courts of the State of Wyoming in respect of all matters arising out of or in connection with this Agreement.

9.6 Enurement

This Agreement may not be assigned by a Party without the prior written consent of the other Party, which consent may be unreasonably and arbitrarily withheld. This Agreement shall be binding upon and shall enure to the benefit of the Parties and their respective administrators, trustees, receivers, successors and permitted assigns.

9.7 Time of Essence

Time shall be of the essence in this Agreement.

9.8 Notices

The addresses for service and the fax numbers of the Parties shall be as follows:

HSR	With a copy to:
	Hot Springs Resources Ltd. 142 N. Lincoln Casper, WY 82601 Facsimile (307) 234-2245 Attention: President
PIN
	PIN Partners Petroleum Ltd. Suite 2410, P.O. Box 11524 650 West Georgia Street Vancouver, B.C. V6B 4N7 Facsimile (604)·682-5564 Attention: President

All notices, communications and statements required, permitted or contemplated hereunder shall be in writing, and shall be delivered as follows:

(a) by personal service on a Party at the address of such Party set out above, in which case the item so served shall be deemed to have been received by that Party when personally served;

(b) by facsimile transmission to a Party to the fax number of such Party set out above, in which case the item so transmitted shall be deemed to have been received by that Party when transmitted; or

(c) except in the event of an actual or threatened postal strike or other labour disruption that may affect mail service, by mailing first class registered post, postage prepaid, to a Party at the address of such Party set out above, in which case the item so mailed shall be deemed to have been received by that Party on the third Business Day following the date of mailing.

A Party may from time to time change its address for service or its fax number or both by giving written notice of such change to the other Party.

9.9 Invalidity of Provisions

In case any of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

9.10 Waiver

No failure on the part of any Party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any right or remedy in law or in equity or by statute or otherwise conferred. No waiver of any provision of this Agreement, including without limitation, this section, shall be effective otherwise than by an instrument in writing dated

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subsequent to the date hereof, executed by a duly authorized representative of the Party making such waiver.

9.11 Amendment

This Agreement shall not be varied in its terms or amended by oral agreement or by representations or otherwise other than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of each Party.

9.12 Counterpart Execution

This Agreement may be executed in counterpart, no one copy of which need be executed by Seller and Buyer. A valid and binding contract shall arise if and when counterpart execution pages are executed and delivered by Seller and Buyer.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above written.

    HOT SPRINGS RESOURCES LTD.     Per: _________________________________       PIN PARTNERS PETROLEUM LTD.     Per: _________________________________  

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EX-10.4

Exhibit 10.4

LOAN AGREEMENT

THIS AGREEMENT, dated for reference the 6^th day of June, 2006, is made

BETWEEN:

ENEREX CAPITAL, CORP., a company incorporated under the laws of the Province of British Columbia, having an office at Suite 2410, 650 West Georgia Street, Vancouver, British Columbia, V6B 4N7

(hereinafter referred to as the “Lender”)

AND:

RANCHER ENERGY CORP., a company incorporated under the laws of the State of Nevada, having an office at Suite 1700, 1050 17^th Street, Denver, Colorado, USA, 90265

(hereinafter referred to as the “Borrower”)

WHEREAS the Borrower wishes to borrow and the Lender is willing to lend to the Borrower the sum of One Hundred Fifty Thousand Dollars in US funds (US$150,000) on the terms hereinafter set out.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1.DEFINITIONS

Where used in this Agreement, the following words and phrases shall have the following meaning:

(a)   “Agreement” means this Agreement and the schedules hereto, as at any time amended or modified and in effect;

(b)   “Charter” means the Memorandum and Articles, the Articles and By-Laws or other constating documents of the Borrower, as at any time amended or modified and in effect;

(c)   “Event of Default” means any event specified in subsection 7.1;

(d)   “Lender’s Security” means the Note;

(e)   “Loan” means the loan by the Lender to the Borrower established pursuant to subsection 3.1; and

(f)   “Note” means the non-interest bearing promissory note to be made by the Borrower to the Lender as evidence of the Loan which shall substantially be in the form set out in Schedule “A”.

2.INTERPRETATION

2.1Governing Law

This Agreement is governed by the laws of the State of Nevada and the parties attorn to the non-exclusive jurisdiction of the courts of Province of British Columbia for the resolution of all disputes under this Agreement.

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2.2 Severability

If any one or more of the provisions contained in this Agreement is found to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby.

2.3Parties in Interest

This Agreement enures to the benefit of and is binding on the parties hereto and their respective successors and permitted assigns.

2.4 Headings and Marginal References

The division of this Agreement into sections, subsections, paragraphs and subparagraphs and the insertion of headings are for convenience of reference only and do not affect the construction or interpretation of this Agreement.

2.5 Currency

All statements of, or references to, dollar amounts in this Agreement means lawful currency of the United States of America.

3. THE LOAN

3.1 Establishment of the Loan

The Lender agrees, on the terms and conditions set forth in this Agreement, to lend to the Borrower the sum of One Hundred Fifty Thousand Dollars ($150,000).

3.2 Evidence of Indebtedness

Indebtedness of the Borrower to the Lender in respect of the Loan will be evidenced by the Note, which will be made by the Borrower to the Lender at the time funds are advanced, a copy of which form is attached hereto as Schedule “A”.

3.3 Repayment of the Loan

The Borrower will repay the Loan on or before June 30, 2006. The Loan will be subject to interest payable to a Two Percent (2%) lender’s fee payable to the Lender at maturity. The lender’s fee will be payable concurrently with repayment of the Loan.

3.4 Repayment of the Loan

The Borrower may repay the Loan at any time without penalty, bonus or charges.

3.5Conversion into Securities

During the term of the Agreement or upon maturity, the Lender will have the option to convert the Loan, or any portion thereof, into securities of the Company.

In the event the Lender wishes to convert the loan into shares, the shares will be offered at a price per share equal to the closing price of the Company’s shares on the OTC.BB market on the day preceding notice from the Lender of

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its intent to convert the Loan, or any portion thereof, into shares of the Company, subject only to the following:

In the event the Borrower is offering a financing opportunity to the general public, the Lender will be granted the opportunity to convert the Loan into shares or units of the Borrower, whichever is being offered, at such price as is being offered to the general investing public.

A Notice of Conversion is attached hereto as Schedule “B”.

4. SECURITY FOR THE LOAN

4.1 Costs, Charges and Expenses

The Borrower will assume and pay all costs, charges and expenses, including reasonable solicitors’ costs, charges and expenses on a special costs basis, which may be incurred by the Lender in respect of this Agreement or the Lender’s Security or which may be incurred by the Lender in respect of any proceedings taken or things done by the Lender in connection therewith to collect, protect, realize or enforce the Lender’s Security.

5.REPRESENTATIONS AND WARRANTIES

5.1Representations and Warranties

The Borrower represents and warrants to the Lender that:

(a) the Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada;

(b) the Borrower has all requisite corporate power and authority to enter into this Agreement and to grant the Lender’s Security and to carry out the obligations contemplated herein and therein;

(c) this Agreement and the Lender’s Security have been duly and validly authorized, executed and delivered by the Borrower and are valid obligations of it; and

(d) no Event of Default and no event which, with the giving of notice or lapse of time would become an Event of Default, has occurred or is continuing.

5.2 Survival of Representations and Warranties

All representations and warranties made herein will survive the delivery of this Agreement to the Lender and no investigation at any time made by or on behalf of the Lender shall diminish in any respect whatsoever its rights to rely on those representations and warranties. All statements contained in any certificate or other instrument delivered by or on behalf of the Borrower under or pursuant to this Agreement will constitute representations and warranties made by the Borrower thereunder.

6. COVENANTS OF THE BORROWER

The Borrower covenants and agrees with the Lender that, at all times during the currency of this Agreement, it will:

(a) pay the Loan and all other monies required to be paid to the Lender pursuant to this Agreement in the manner set forth herein;

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(b) duly observe and perform each and every of its covenants and agreements set forth in this Agreement and the Lender’s Security;

(c) provide the Lender with immediate notice of any Event of Default; and

(d) do all things necessary to obtain and maintain the Lender’s Security in good standing and make payment of all fees and charges in respect thereto.

7.EVENT OF DEFAULT

7.1Definition of Event of Default

The Loan, costs and any other money owing to the Lender under this Agreement will immediately become payable upon demand by the Lender or, unless otherwise waived in writing by the Lender, in any of the following events:

(a) if the Borrower defaults in any payment when due under this Agreement;

(b) if the Borrower commits any default under any of the Lender’s Security instruments;

(c) if the Borrower becomes insolvent or makes a general assignment for the benefit of its creditors, or if any order is made or an effective resolution is passed for the winding-up, merger or amalgamation of the Borrower or if the Borrower is declared bankrupt or if a custodian or receiver be appointed for the Borrower under the applicable bankruptcy or insolvency legislation, or if a compromise or arrangement is proposed by the Borrower to its creditors or any class of its creditors, or if a receiver or other officer with like powers is appointed for the Borrower;

(d) if the Borrower defaults in observing or performing any other covenant or agreement of this Agreement on its part to be observed or performed and such default has continued for a period of seven (7) days after notice in writing has been given by the Lender to the Borrower specifying the default.

8.GENERAL

8.1Waiver or Modification

No failure on the part of the Lender in exercising any power or right hereunder will operate as a waiver of power or right nor will any single or partial exercise of such right or power preclude any other right or power hereunder. No amendment, modification or waiver of any condition of this Agreement or consent to any departure by the Borrower therefrom will be effective unless it is in writing signed by the Lender. No notice to or demand on the Borrower will entitle the Borrower to any other further notice or demand in similar or other circumstances unless specifically provided for in this Agreement.

8.2Time

Time is of the essence of this Agreement.

8.3 Further Assurances

The parties to this Agreement will do, execute and deliver or will cause to be done, executed and delivered all such further acts, documents and things as may be reasonably required for the purpose of giving effect to this Agreement.

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8.4Assignment

The Borrower may not assign this Agreement or its interest herein or any part hereof except with the prior written consent of the Lender.

9.NOTICES

9.1Any notice under this Agreement will be given in writing and may be sent by fax, telex, telegram or may be delivered or mailed by prepaid post addressed to the party to which notice is to be given at the address indicated above, or at another address designated by that party in writing.

9.2If notice is sent by fax, telex, telegram or is delivered, it will be deemed to have been given at the time of transmission or delivery.

9.3If notice is mailed, it will be deemed to have been received 48 hours following the date of mailing of the notice.

9.4If there is an interruption in normal mail service due to strike, labour unrest or other cause at or before the time a notice is mailed the notice will be sent by fax, telex, telegram or will be delivered.

10.AMENDMENTS

This Agreement may be amended, waived, discharged, or terminated only by instrument in writing signed by the party against whom enforcement of the amendment, waiver, discharge or termination is sought.

11. EXECUTION IN COUNTERPART

This Agreement may be signed in counterpart and each such counterpart, whether in original or facsimile form, together shall constitute a true original and provide satisfactory evidence that this Agreement has been duly executed by the parties hereto.

IN WITNESS WHEREOF the Lender and the Borrower have executed and delivered this Agreement as of the day and year first written above.

ENEREX CAPITAL, CORP.

/s/ William Frieson

Per:William Frieson, President

RANCHER ENERGY CORP.

/s/ John Works

Per: John Works, President

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SCHEDULE “A”

to the Loan Agreement dated for reference the 6^th day of June, 2006

between Enerex Capital, Corp. and Rancher Energy Corp.

PROMISSORY NOTE

Principal Amount: US $150,000

For value received, Rancher Energy Corp. (the "Borrower") hereby promises to pay to Enerex Capital, Corp. (the "Lender") the principal sum of One Hundred Fifty Thousand Dollars in US funds (US$150,000) on the earlier of:

(i)June 30, 2006 :

(ii)any change of control of the Borrower ("control" being defined as ownership of or control of direction over, directly or indirectly, 20% or more of the outstanding voting securities of the Borrower); and

(iii)the occurrence of an Event of Default (as defined in the Loan Agreement between the Borrower and the Lender dated for reference June 6, 2006),

together with lender’s fee calculated at a rate of Two Percent (2%) payable upon repayment of the Loan. All payments under this promissory note will be made by cheque, bank draft or wire transfer (pursuant to wire transfer instructions provided by the Lender from time to time) and delivered to the Lender.

The undersigned is entitled to prepay this promissory note, in whole or in part, without notice or penalty. The undersigned waives demand and presentment for payment, notice of non-payment, protest, notice of protest and notice of dishonor. This promissory note will be governed by and construed in accordance with the laws of the State of Nevada.

Dated: June 6, 2006.

RANCHER ENERGY CORP.

/s/ John Works

Per:John Works, President

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SCHEDULE “B”

to the Loan Agreement dated for reference the 6^th day of June, 2006

between Enerex Capital, Corp. and Rancher Energy Corp.

CONVERSION FORM

TO:Rancher Energy Corp. (Company)

The undersigned Holder of a Loan in the amount of One Hundred Fifty Thousand Dollars in US funds (US$150,000) hereby irrevocably elects to convert the said Loan (or $ ______________ principal thereof) into securities in accordance with the Terms and Conditions of the Loan Agreement and directs that the securities issuable and deliverable upon the conversion be issued and delivered to the address indicated below.

Dated:

(Signature of Holder)

(Name of Holder)

(Address of Holder)

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EX-10.5

Exhibit 10.5

NITEC LLC

June 7, 2006

John Works

Rancher Energy Corporation

1050 17th Street, Suite 1700

Denver, CO 80202

RE: Burke Ranch - Recoverable Oil Project

Dear John,

Based upon meetings in NITEC’s offices with Walter Merschat on January 9 and in Casper on May 16 with Walter, Topr Bob and Mike Zwickl, we offer this proposal for your approval.

The scope of work for this study will address only the tertiary recovery (CO2 injection) potential (Recoverable Oil) for the Dakota formation in the Burke Ranch Unit.

We define the scope of work in this Study to be as follows:

• Review all relevant data you have provided

• Acquire additional data as required

• Estimate OOIP in the Dakota formation

• Estimate remaining oil in place in the Dakota formation

• Estimate Recoverable Oil in the Dakota formation under a CO2 recovery mechanism

• Prepare and present a project report

In this document and subsequent study reports, it is anticipated that the term Recoverable Oil will at a minimum be consistent with the term probable or possible reserves. This is certainly the case for the tertiary recovery from the Dakota formation at this time. Subsequent studies of the Dakota formation may “convert” reserves from lesser categories into the proven category based upon operational changes and new data.

Based on information found in the public domain on the Burke Ranch Field, it is clear that the Burke Ranch Unit and Burke Ranch East Unit are in direct communication. Burke Ranch East was discovered in 1973 and was at a pressure level significantly less than Burke Ranch’s initial pressure at similar depth. It is our understanding that water injection continues in the Burke Ranch East Unit today and increased fluid levels have been observed in numerous Burke Ranch wells.

475 Seventeenth Street, 14th Floor Denver, Colorado 80202

Tel: 303 292-9595 Fax: 303 292-9585 nitec@NITECLLC.com

Based on this information, it is highly recommended that the two units (the entire reservoir) are studied as a whole. This will necessitate that data be found for the Burke Ranch East Unit in addition to the Burke Ranch Unit.

The Burke Ranch Unit operator has acquired and prepared a large amount of historical data. We have been provided with a base map with well locations, well files, well log image files, Burke Ranch Unit production histories (1978 to date), and a structure map and a gross interval isopach map on the Dakota formation and other miscellaneous data. No data has been provided for the Burke Ranch East Unit.

There are some significant data items that have not been compile and provided to us. Production data needs to be assembled by well for each well in the field (both units). These data are available online from the Wyoming Oil and Gas Conservation commission from 1978 to date. Pre-1978 data are available at the Commission in paper form on a by well monthly basis. In addition, water injection data by well are required to properly assess current saturations levels in the field. (This is important for CO2 recovery performance.)

Digital well log data are not available. Typically, NITEC would recommend that petrophysical analysis be carried out on a few wells in the field for porosity and saturation determination. However, due to the apparent large amount of core data and reports that are available, we currently do not believe that petrophysical analysis of the well logs will be required. Hence, digital well log data will not be required.

NITEC understands that formal certification of the reserves in this project may be required. NITEC provides reserve evaluation and development services. NITEC will have completed all the work necessary for certification to be carried. We recommend that NITEC coordinate with your selected reserve certification company during the project to minimize any unnecessary duplication of work. No budget has been provided in the cost estimate for reserve certification work.

NITEC can provide the typical economic analysis of the Unit’s development under CO2 operations for use by the certifying organization. This is offered as an optional task.

TECHNICAL APPROACH

The project will be divided into 3 stages.

Stage Description

1 Geology

2 Basic Engineering

3 Dakota Recoverable Oil

Geology

The existing data will be organized for efficient use by the project team. The team geologist will

utilize the available well logs to validate and refine the existing structure and gross thickness

isopach maps of the Dakota formation. Significant use will be made of the geological work

Page 2 of 5

previously conducted and made available in the files. Full-field volumetric estimates of OOIP based on these maps, initial fluid saturations and porosities will be prepared for the Dakota formation. Initial saturation and porosity values and distributions will be developed from the core analysis reports and the various studies available in the project files. If adequate production data are available (pre and post 1978), material balance will be used to verify these volumetric OOIP estimates. This also assumes that adequate pressure data exist to conduct the material balance calculations. (It is not clear at this time how much pressure data is available over the life of the field.)

Basic Engineering

It appears that the production and injection records in the project files are incomplete. No production data for the Burke Ranch East Unit wells have bee provided. It is our understanding that only the Dakota formation has been produced in the field. Any missing data will either be copied from the Wyoming Conservation Commission archives or acquired from production data services. Production histories for the Dakota formation will be prepared for each well. These will be used to calculate total remaining oil in place for the Dakota formation and for the Burke Ranch Unit alone.

One oil PVT analysis was found during the initial review of the data files. Assuming that it is a valid, representative sample, it will be used in the characterization of the Dakota oil for all material balance and simulation work. This will eliminate the need to hypothesize the oil properties based on industry correlations.

We understand that two phases of water injection have been carried out in the Burke Ranch Unit, as well as a phase in the Burke Ranch East Unit. Water injection records will be used to develop and understand water flood performance and estimate remaining oil saturations. Water flood performance will be a strong guide to reservoir continuity. These data will significantly improve the reliability of the reservoir simulations to follow. This data will be acquired, as appropriate, through the services of a Casper group experienced in locating and copying Wyoming Conservation Commission records. Water injection data is not maintained in digital form by the  ommission.

Dakota Recoverable Oil

Reservoir simulation will be used to characterize existing saturation levels in the Dakota sand and forecast CO2 displacement efficiencies. Because the number of wells in the total field are relatively small, the data is of newer vintage and the east and west ends of the field are in communication, we believe that a full-field simulation model will be more accurate and efficient to work with than a sector model (as was used in the Big Muddy project). Production and pressure records will be used to calibrate the model and estimate saturation levels. “History matching” of historical data to calibrate the simulation model will be approximate, but should provide a reasonable estimation of fluid saturations and their areal distribution in the reservoir. Based on the possible vertical discontinuity of the Dakota sand in various areas of the field, at least 2-4 simulation model layers will likely be used. These layers may have uniform properties depending on our ability to characterize the formation from the available data. The full-field model will also provide an estimate of the remaining oil distribution in the field. This may

indicate areas of by-passed oil which can be accessed through water injection or CO2 operations.

Page 3 of 5

It is unlikely that additional primary oil potential will be found due to current reservoir pressure levels.

Minimum miscibility pressure is often critical in the design of a CO2 displacement process, as miscible displacement is a more efficient process than immiscible displacement. We believe that miscibility can likely be achievable in the Burke Ranch field due to the Dakota formation’s depth and temperature. Our experience with estimating the MMP in the Big Muddy Wall Creek project should allow us to make a better MMP estimate in this field. However, an oil sample, CO2-oil swelling tests and a rising bubble miscibility test would be more definitive. If possible, we recommend that an oil sample be taken as soon as possible and the noted tests carried out in a

reputable laboratory. Results should be made available to NITEC within 6 weeks if they are to be used in the simulation work.

Note that the simulation model will also be used to investigate process, well spacing and injection pattern sensitivities A WAG and a slug injection process will be evaluated. A few sensitivities to WAG ratios and slug sizes will also be investigated. This will be important data for future economic analyses. If time and budget permit the simulation model can be used to investigate new well locations and secondary recovery under closer well spacing.

The Dakota recovery potential (Recoverable Oil) under CO2 operations in the Burke Ranch Unit area will be forecast using the simulation model. This will require some assumptions about operations in the Burke Ranch East area. Reserve certification will likely classify this recoverable oil as probable or possible reserves.

A report will be prepared at the end of the study to document all data sources, assumptions made and simulation results. This report will be complete enough to provide a guide for reserve certification, and future detailed design studies for field implementation.

NITEC will provide a one day project presentation in its Denver office if required.

ESTIMATED TIME AND COST

NITEC will undertake this work on a time and materials basis. We believe that this study can be completed in 3-4 months at an estimated cost of $95,000. NITEC will charge for its services based on the attached standard price schedule. Invoices will be issued monthly based on work completed. Payment is due within 30 days of receipt. Should NITEC find that this cost estimate may be exceeded, we will advise you in advance and mutually agree upon a course of action. NITEC is available to perform economic analyses of the appropriate production development scenarios resulting from the simulations, if appropriate. We would rely on Wyoming Mineral

Exploration to provide cost information associated with well completions, pipelines, treating facilities, oil prices, etc. We believe that information gathered for the Big Muddy Wall Creek project will be useful in this regard. We estimate that only 1-2 weeks would be required to carry out this work once all the economic data have been provided. This work would be at an additional cost of approximately $8,000.

Page 4 of 5

We appreciate the opportunity to provide this proposal to you. Please feel free to contact us with any questions you may have. We are prepared to start work on the project immediately. If you are in agreement with this proposal and the estimated cost to complete the scope of work, please sign below and fax this document to us.

Sincerely,

/s/ Bill Savage

Bill Savage

Director

Agreed: ________________________

Name: __________________________

Title: ___________________________

Rancher Energy Corp.

Date: _____________, 2006

Page 5 of 5

EX-10.6

Exhibit 10.6

ASSIGNMENT AGREEMENT

This ASSIGNMENT AGREEMENT (the “Assignment Agreement”) is made and entered into on this 21st day of June, 2006, between PIN PETROLEUM PARTNERS LTD, a company organized and existing under the laws of British Columbia (the “Assignor”), and RANCHER ENERGY CORP., a company organized and existing under the laws of Nevada, USA.

WITNESSETH:

WHEREAS, the Assignor has certain rights and obligations under the Burke Ranch Unit Purchase & Participation Agreement dated June 20, 2006 (hereinafter referred to as the "Burke Ranch Agreement"), and

WHEREAS, the Assignor wishes to assign all of its rights and obligations in the Burke Ranch Agreement to the Assignee, and

WHEREAS, the Assignee accepts such assignment and has agreed to be bound by the Burke Ranch Agreement,

NOW, THEREFORE, in consideration of the mutual convenants and agreements contained herein, it is expressly agreed by the Assignor and the Assignee as follows:

1. The Assignor hereby assigns and transfers to the Assignee all of its rights and obligations in, to, and under the Burke Ranch Agreement, subject to all the terms and conditions thereof.

2. The Assignee hereby agrees to assume all of the Assignor's rights and obligations under the Burke Ranch Agreement.

3. The Assignor reaffirms and represents that the Burke Ranch Agreement is valid and in full force and effect, and that the representations and warranties contained in the Burke Ranch Agreement are true and correct on the date hereof.

4. As consideration for the assignment of the Burke Ranch Agreement, the Assignee agrees to (i) pay to the Assignor U.S.$ 250,000 within ninety (90) days from the date of this Assignment Agreement, and (ii) grant to the Assignor an overriding royalty interest in the sum of four percent (4%) from the Assignee’s portion of hydrocarbons to be exploited pursuant to the Burke Ranch Agreement.

5. By executing this Assignment Agreement, the Assignor and Assignee confirm (a) their intention to execute and deliver as promptly as practicable any other agreements with respect to this Assignment Agreement, and (b) to obtain the approval, agreement, and consent of their respective Boards of Directors or governing bodies with respect to this Assignment Agreement.

6. This Assignment Agreement shall be governed by the laws of the State of Wyoming, without giving effect to the principles of conflicts of law thereof.

- 2 -

IN WITNESS WHEREOF, the Assignor and the Assignee have executed this Assignment Agreement on the date first written above.

PIN PETROLEUM PARTNERS LTD

By:  /s/ William Friesen

Name: William Friesen

Title: Director

RANCHER ENERGY CORP.

By:  /s/ John Works

Name: John Works

Title: President & CEO

EX-10.8

Exhibit 10.8

ASSIGNMENT AGREEMENT

This ASSIGNMENT AGREEMENT (the “Assignment Agreement”) is made and entered into on this 6 day of June, 2006, between PIN PARTNERS PETROLEUM LTD, a company organized and existing under the laws of British Columbia (the “the Assignor”), and RANCHER ENERGY CORP., a company organized and existing under the laws of Nevada, USA.

WITNESSETH:

WHEREAS, the Assignor has certain rights and obligations under the Exploration & Development Agreement dated June 5th, 2006 (hereinafter referred to as the "Broadview Dome Agreement"), and

WHEREAS, the Assignor wishes to assign all of its rights and obligations in the Broadview Dome Agreement to the Assignee, and

WHEREAS, the Assignee accepts such assignment and has agreed to be bound by the Broadview Dome Agreement,

NOW, THEREFORE, in consideration of the mutual convenants and agreements contained herein, it is expressly agreed by the Assignor and the Assignee as follows:

1. The Assignor hereby assigns and transfers to the Assignee all of its rights and obligations in, to, and under the Broadview Dome Agreement, subject to all the terms and conditions thereof.

2. The Assignee hereby agrees to assume all of the Assignor's rights and obligations under the Broadview Dome Agreement.

3. The Assignor reaffirms and represents that the Broadview Dome Agreement is valid and in full force and effect, and that the representations and warranties contained in the Broadview Dome Agreement are true and correct on the date hereof.

4. As consideration for the assignment of the Broadview Dome Agreement, the Assignee agrees to (i) pay to the Assignor U.S.$ 250,000 within ninety (90) days from the date of this Assignment Agreement, and (ii) grant to the Assignor an overriding royalty interest in the sum of four percent (4%) from the Rancher share of hydrocarbons to be exploited pursuant to the Broadview Dome Agreement.

5. By executing this Assignment Agreement, the Assignor and Assignee confirm (a) their intention to execute and deliver as promptly as practicable any other agreements with respect to this Assignment Agreement, and (b) to obtain the approval, agreement, and consent of their respective Boards of Directors or governing bodies with respect to this Assignment Agreement. 

6. This Assignment Agreement shall be governed by the laws of the State of Montana, without giving effect to the principles of conflicts of law thereof.

- 2 -

IN WITNESS WHEREOF, the Assignor and the Assignee have executed this Assignment Agreement on the date first written above.

PIN PARTNERS PETROLEUM LTD

By: _________________________

Name:

Title:

RANCHER ENERGY CORP.

By:  /s/ John Works

Name: John Works

Title: President & CEO

EX-31

EXHIBIT 31

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted

Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

I, John Works, the Chief Executive Officer and Chief Financial Officer of Rancher Energy Corp. (the “Company”), certify that:

1. I have reviewed this annual report on Form 10-K of the Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state 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 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 registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and I have:

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

(b) (reserved);

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my 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

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter; and

(e) registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Dated: June 29, 2006	By:	/s/  John Works
		Name:John Works
		Title: Chief Executive Officer and Chief Financial Officer

EX-32

EXHIBIT 32

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted

Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

I, John Works, the Chief Executive Officer and Chief Financial Officer of Rancher Energy Corp., (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1) the Annual Report on Form 10-K of the Company for the fiscal year ended March 31, 2006 (the “Report”) fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

Dated: June 29, 2006	By:	/s/  John Works
		Name:John Works
		Title: Chief Executive Officer and Chief Financial Officer