EXHIBIT 10.3
XXXXXXX-PERU, INC
OIL PRODUCER
April 19, 2006
Radial Energy, Inc.
Mr. X. Xxxxx Xxxxx, President
Re: Huaya Anticline Project - Letter of Intent
Dear Xxxxx:
The Xxxxxxx-Peru, Inc. ("ZPI") proposes that Radial Energy, Inc. ("Investor")
participate in this Project as follows, and by agreement hereto Radial Energy,
Inc. intends to participate in this Project under the following terms:
1. The Concession Agreement holder, Compania Consultora De Petroleo, S.A.
("CCP") in Lima, Peru will be the Operator the Huaya Anticline Area of
Block 100 ("the Project"). A Joint Operating Agreement ("JOA") will be
signed which gives CCP, Investor, and XXX votes based on a yet to be
negotiated format similar to the ZPI Draft attached as Exhibit A for the
Voting Procedures section, which establishes an Operating Committee with
significant voting power in Investor and ZPI as minority owners. ZPI
provided a Draft AIPN 1995 Model Form International Operating Agreement to
Radial a few days ago. See Exhibit A, Section 5.9 for Voting Procedures
(draft).
2. Investor will acquire a 20% working interest and 18% revenue interest (base
royalty, depending on production rate) in the Project for a payment to CCP,
on behalf of ZPI, of US$ 600,000 on May 5, 2006 at Closing. This payment is
to acquire the interest in the Project, with this cash also covering
expenses of CCP other than items acquired for the project and expended by
ZPI for the drilling rig, drilling, casing, tubing, wellhead equipment and
similar items for the first well (Obligation Well One) or for the Project.
The expenses to be paid by CCP for the Project startup and for Obligation
Well One as part of the US$ 600,000 in this payment includes such items as
surface property settlements, roads, Obligation Well One location, drilling
April 19, 2006
Page 2 of 8
fluids, mud logging while drilling, open hole logging, cased hole
logging, cementing, running casing, and supervision, which total CCP AFE
totals over US$ 600,000 for these items for Obligation Well One (again,
does not include drilling rig cost and pipe/wellhead, etc., as set forth
above and the Equipment Acquisition Budget process set forth below).
3. Investor shall, with an Equipment Acquisition Budget form presented by ZPI,
fund monthly, beginning on May 5, 2006, the costs to acquire and transport
a drilling rig, bulldozer, casing, and related equipment, with the total
cost to Investor through the drilling, testing, and evaluation of
Obligation Well One being US$ 1,650,000 for the items in paragraph 2. above
and this paragraph 3. paid to CCP and ZPI, as indicated in this LOI, in
total. It is estimated that the first Equipment Acquisition Budget on May
5, 2006 will be US$ 300,000. Any amount not paid for a total of US$
1,650,000 by the day Obligation Well One is spudded will be paid by
Investor to ZPI on that day.
4. The interest of Investor will be reduced proportionately for any part of
the balance of the total of US$1,650,000 not paid on the date the well is
spudded as this payment and procedure is set forth in the paragraph above.
5. Investor will have the option to decide whether to continue or withdraw
from the Project after Obligation Well One is drilled, tested, and
evaluated. See the decision procedure set forth in attached at Exhibit A
Sections 6.1, 6.2, and/or 6.(draft) of the 1995 AIPN Joint International
Operating Agreement section.
6. If Investor decides to continue in the Project after Obligation Well One,
Investor will pay ZPI US$ 1,650,000 within ten (10) days of being given
information and a recommendation by the Operator to proceed as under
Section 6.1 of the Draft JOA. This payment will be for the drilling,
testing and evaluation of Obligation Well Two and Obligation Well Three,
and for production equipment, metering and measurement provisions for
production, production testing and evaluation, and a pipeline to and a
loading connection at the Ucayali River. It is planned that the production
equipment and pipeline will be started essentially when/while Obligation
Well Two and Obligation Well Three are being drilled so cash flow will be
generated from Obligation Well One during this period, and so the field can
also continue production from Obligation Well Two and Obligation Well Three
as soon as they are completed. See again Exhibit A, Sections 6.1, 6.2, and
6.3.
April 19, 2006
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7. After the work described above for Obligation Well Two and Obligation Well
Three, Investor will again decide whether it will go forward or not.
Investor will bear its 20% WI share of the development and operation of the
Project if it proceeds.
8. It is the goal of CCP to begin the drilling of Obligation Well One as soon
as possible with September 1, 2006 as a self-imposed latest planned date,
and CCP and ZPI will work diligently to achieve that goal.
9. The drilling rig and related equipment acquired will be owned by the Joint
Operation/Project after Obligation Well Three is drilled and the decision
is made for the Project to go forward to development. The drilling rig and
related equipment is part of Investor's payment for the interest in the
Project, but if all of the owners of the Project agree to withdraw before
proceeding to development of the Project after Obligation Well Three, the
rig and related equipment will be sold by CCP for a reasonable amount and
Investor will receive 67% of the proceeds and ZPI will receive 33% of the
proceeds.
10. Conditions Precedent to Investor's Obligations:
Each and every obligation of Investor to be performed on the closing date
shall be subject to the satisfaction prior thereto of the following
conditions:
10.1 Truth of Representations and Warranties. The representations and
warranties made by ZPI in this Agreement or given on its behalf hereunder
shall be substantially accurate in all material respects on and as of the
Closing date with the same effect as though such representations and
warranties had been made or given on and as of the Closing date.
10.2 Performance of Obligations and Covenants. ZPI and CCP shall have
performed and complied with all obligations and covenants required by this
Agreement to be performed or complied with by it prior to or at the
Closing.
10.3 Officer's Certificate. Investor shall have been furnished with a
certificate (dated as of the Closing date and in form and substance
reasonably satisfactory to Investor), executed by an executive officer of
ZPI and CCP, respectively, certifying to the fulfillment of the conditions
specified in subsections 10.1 and 10.2 hereof.
April 19, 2006
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10.4 No Material Adverse Change. As of the closing date there shall not
have occurred any material adverse change, financially or otherwise, which
materially impairs the ability of ZPI or CCP to conduct their respective
business or the earning power thereof, as contemplated herein.
10.5 Opinion of Counsel. ZPI and CCP shall provide an opinion of counsel
opining as to the usual and customary matters of law covered under similar
transactions and parties.
10.6 Investor shall have completed its due diligence regarding the Project
and matters related thereto, all in the discretion of Investor, and
provided written notice thereof to ZPI.
10.7 The parties shall have met, face to face, and negotiated to their
mutual satisfaction and agreement, a JOA.
10.8 In the event any of the representations made by ZPI or CCP are false
or misleading, ZPI and CCP shall reimburse Investor for any and all
reasonable costs, expenses and fees expended by Investor as of the date
such misrepresentation(s) is first determined by Investor.
Please consider this proposal and Letter of Intent, and we look forward to
making this project a success.
Regards,
Xxxxxx X. Xxxxxxx
President
Xxxxxxx-Peru, Inc.
Agreed to this 19th day of April, 2006.
/s/ X. XXXXX XXXXX
_______________________________________
Radial Energy, Inc.
/s/ XXXXXX X. XXXXXXX
_______________________________________
Xxxxxxx-Peru, Inc.
April 19, 2006
Page 5 of 8
EXHIBIT A
[Modified by Xxxxxxx-Peru, Inc. from AIPN 1995 Model Form International
Operating Agreement ]
ARTICLE V - OPERATING COMMITTEE
_______________________________
5.1 ESTABLISHMENT OF OPERATING COMMITTEE
To provide for the overall supervision and direction of Joint
Operations, there is established an Operating Committee composed of
representatives of each Party holding a Participating Interest. Each Party
shall appoint one (1) representative and one (1) alternate representative
to serve on the Operating Committee. Each Party shall as soon as possible
after the date of this Agreement give notice in writing to the other
Parties of the name and address of its representative and alternate
representative to serve on the Operating Committee. Each Party shall have
the right to change its representative and alternate at any time by giving
notice to such effect to the other Parties in writing.
5.2 POWERS AND DUTIES OF OPERATING COMMITTEE
The Operating Committee shall have power and duty to authorize and
supervise Joint Operations that are necessary or desirable to fulfill the
Concession Agreement and properly exploit the Project in accordance with
this Agreement and in a manner appropriate in the circumstances.
X X X X X (SECTIONS DELETED FROM THIS SUMMARY)
5.9 VOTING PROCEDURE
All votes, except as expressly provided for elsewhere in this
Agreement, will be decided by the majority of the number of Parties with
Participating Interests. At the time this agreement is signed, there are
three (3) Parties with Participating Interests. The number of voting
interests will not be increased by any sale or division of interests in the
Project, but will stay at three (3) total, with any interests created after
the effective date of this Agreement having a percentage share of the
original interest from which the new or acquired interest is derived, and
the total of those percentage interests so subdivided will count as one
total vote. All effective decisions and affirmative votes will be either
unanimous or by a two vote to one vote margin. However, CCP as the Operator
or a successor Operator with the same interest as CCP originally holds in
the Project, or the combined divided or successor interests to the original
April 19, 2006
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CCP interest, shall have a veto vote that may be exercised over any
affirmative vote that it does not agree to as one of the three (3) total
votes under this section. Once CCP or that successor interest votes in the
affirmative on any vote, the veto vote may not be later exercised to negate
that decision. Thus the Operator may veto a vote, but no work on the
Project, other than for Minimum Work Commitments under the Concession
Agreement, if any, can go forward without at least a 2/3 vote based on the
original Participating Interest formula set forth in this Section 5.9.
X X X X X (SECTIONS DELETED FROM THIS SUMMARY)
ARTICLE VI - WORK PROGRAMS AND BUDGETS
______________________________________
6.1 DRILLING OF OBLIGATION WELL ONE
(A) Within sixty (60) days after the date of execution of this
Agreement, Operator shall deliver to the Parties a proposed Work
Program and Budget detailing the Joint Operations to be performed for
the mobilization of a rig and equipment and for the drilling,
testing, and evaluation of Obligation Well One. It is the goal of the
Joint Operation to begin the drilling of Obligation Well One by
September 1, 2006.
(B) After obtaining the results of Obligation Well One, Operator
shall as soon as possible submit to the Operating Committee and to
the Parties a report containing available details concerning the
results of and data from Obligation Well One and Operator's
recommendation as to whether the result merits the drilling of
Obligation Xxxxx Two and Three.
(C) Parties agree that Obligation Well One includes approval for the
drilling, testing, logging, setting casing on, and a test or
completion attempt for the well, with no Casing Point Election as is
provided for other xxxxx under this Agreement.
(D) By unanimous agreement of the Parties, Obligation Well One may be
abandoned at any point without finishing the drilling of, testing,
evaluation, or completion of the well.
(E) If the attempt to drill and evaluate Obligation Well One is
abandoned for any reason, the Parties or remaining Party or Parties
(if any Party or Parties withdraw from the Project as provided in
this agreement), may propose a replacement or alternate Obligation
Well One and proceed then as set forth in this agreement during and
after that well as though it was the originally proposed Obligation
Well One.
April 19, 2006
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(F) Parties agreeing to do so within Five (5) Days of being presented
with the Operator's recommendation as in Section 6.1(B) above will
continue the Project and proceed to the drilling of Obligation Xxxxx
Two and Three.
6.2 DRILLING OF OBLIGATION XXXXX TWO AND THREE
(A) Once a vote is taken as set forth in Article V as to whether to
proceed with the drilling of Obligation Xxxxx Two and Three, and if
the result is positive, the drilling, testing, and evaluation of
those xxxxx shall proceed under the direction of the Operator, with
the Operator reporting on the operations and results of those xxxxx
as provided elsewhere in this Agreement.
(B) Parties agree that approval to drill Obligation Xxxxx Two and
Three includes approval for the drilling, testing, logging, setting
casing on, and a test or completion attempt for the well(s), with no
Casing Point Election as is provided for other xxxxx under this
Agreement.
(C) By unanimous vote of the Operating Committee as is set forth in
Article V, any operation on Obligation Well Two or Obligation Well
Three may be stopped, modified, or abandoned.
6.3 DEVELOPMENT PROGRAM AND DRILLING
(A) If after the drilling, testing, and evaluation of Obligation
Xxxxx Two and Three the Operating Committee determines that the
Project merits development, Operator within Ninety (90) Days, shall
deliver to the Parties a proposed Work Program and Budget for the
development of the Project. Within Ninety (90) Days of such delivery,
or earlier if necessary to meet any applicable deadline under the
Concession Agreement, the Operating Committee shall meet to consider,
modify and then either approve or reject the development Work Program
and Budget. If the development Work Program and Budget is approved by
the Operating Committee, Operator shall take such steps as may be
required under the Concession Agreement to secure approval of the
development Work Program and Budget by the Government, if required.
In the event the Government requires changes in the development Work
Program and Budget, the matter shall be resubmitted to the Operating
Committee for further consideration.
(B) The Work Program and Budget agreed pursuant to this Article 6.3
shall include the Minimum Work Obligations, or at least that part of
such Minimum Work Obligations required to be carried out during the
Calendar Year in question under the terms of the Concession
Agreement. If within the time periods prescribed in this Article 6.3
the Operating Committee is unable to agree on such a Work Program and
Budget, then the proposal capable of satisfying the Minimum Work
Obligations for the Calendar Year in question that receives the
largest Participating Interest vote (even if less than the applicable
percentage under Article 5.9) shall be deemed adopted as part of the
annual Work Program and Budget. If competing proposals receive equal
votes, then Operator shall choose between those competing proposals.
April 19, 2006
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Any portion of a Work Program and Budget adopted pursuant to this
Article 6.3(B) instead of Article 5.9 shall include only such
operations for the Joint Account as are necessary to maintain the
Concession Agreement in full force and effect, including such
operations as are necessary to fulfill the Minimum Work Obligations,
if any, required for the given Calendar Year.
(C) The Operator will submit to the Parties a proposed Work Program
and Budget by October 31 of each Calendar Year for the following
year, and the Parties will vote on and approve the presented Work
Program and Budget or an agreed or compromise program.
(D) Any approved Work Program and Budget may be revised by the
Operating Committee from time to time. To the extent such revisions
are approved by the Operating Committee, the Work Program and Budget
shall be amended accordingly. The Operator shall prepare and submit a
corresponding work program and budget amendment to the Government if
required by the terms of the Concession Agreement. (E) During the
development Work Program, any Party or Participating Interest may go
"non-consent" for an operation under the following terms:
X X X X X (SECTIONS DELETED FROM THIS SUMMARY)
[ End of Draft Text Example ]
