EXPLORATION SERVICES FUNDING AGREEMENT
Exhibit
10.3
THIS
AGREEMENT is
made
and
entered into this
26th
day of
January 2004, by and between Xxxxxxxxx
Partner Associates, Inc., whose
mailing address is 0000
Xxxx Xxxxxx, Xxxxxx, XX 00000
(hereinafter referred to as “Xxxxxxxxx”),
and
Fellows
Energy Ltd, a Nevada Corporation, whose
mailing address is 0000
Xxxxxxxx Xxxx, Xxxxxxx, XX 00000, (hereinafter
referred to as “Fellows”).
Xxxxxxxxx
and Fellows shall herein be collectively referred to as the
“Parties.”
WHEREAS,
Xxxxxxxxx is a oil and gas exploration company engaged, among other activities,
in the business of developing oil and natural gas, projects and selling such,
projects to other oil and gas exploration companies; and
WHEREAS,
Fellows is an exploration company which desires to gain additional exposure
to
oil and gas exploration and development, projects; and
WHEREAS,
the Parties hereto desire to enter into this Exploration Services Funding
Agreement (hereinafter referred to as “Agreement”), whereby Fellows shall pay
Xxxxxxxxx an annual overhead fee in exchange for Xxxxxxxxx providing Fellows
with a preferential right to purchase and participate in, during the term of
this Agreement, all
oil and
natural gas,
projects
developed
by Xxxxxxxxx.
NOW,
THEREFORE, for and in consideration of the mutual covenants herein contained,
and other good and valuable considerations, the receipt and sufficiency of
which
are hereby acknowledged, the Parties agree as follows:
I. EXHIBITS
TO THIS AGREEMENT. The
Exhibits attached to this Agreement and by this reference incorporated herein
are as follows:
Exhibit
“A”
-
Definition of Terms.
Exhibit “B”
-Letter
Agreement dated January 1, 2004 by and between Xxxxxxxxx, Fellows and
Houston.
Exhibit “C”
- Data
and Notification Requirements
II. EFFECTIVE
DATE. The
effective date for this Agreement shall be January 1, 2004 (hereinafter referred
to as “Effective Date”).
III. INTENT
OF THE PARTIES.
A. Oil
and Natural Gas Opportunities.
The
Parties acknowledge that Fellows’ primary objective under this Agreement is to
be exposed to and have opportunities to acquire significant oil and natural
gas
exploration projects (hereinafter collectively referred to as “Project” or
“Projects”). The Parties acknowledge that the term “natural gas” includes all
gaseous hydrocarbon substances including coalbed methane and shale gas. For
purposes of this Agreement,
the separate use of the words “Play” and “Project” shall carry their respective
definitions described in Exhibit “A”.
1
B.
Projects
Rejected by Fellows.
In the
event Fellows rejects a Project (hereinafter referred to as “Rejected Project”)
hereunder at any time prior to such Project
becoming an Acquired Project (as hereinafter defined), then the Parties shall
be
under no further obligation or liability to each other with respect to such
Rejected Project, and Xxxxxxxxx shall immediately be free to market such Project
to a third party. Fellows agrees not to reject a Project presented by Xxxxxxxxx
and subsequently acquire an interest in the same geographic area of a Rejected
Project, either directly or through a third party, for
a
period of three (3) years from the date Fellows rejects such Project. Xxxxxxxxx
shall define said geographic area at such time as a Project is presented to
Fellows under Article VI.A.
C.
Good
Faith, Timeliness and Communication.
It is
the clear and overriding intent of the Parties that the processes of
presentation and evaluation described herein be flexible, fair and conducted
in
good faith. Toward that end, the Parties agree that each shall proceed in a
timely and diligent manner to respond to the other within the most commercially
expedient and commercially reasonable amount of time, having regard to all
of
the circumstances, and shall place a priority on ongoing communication
throughout.
IV. TERM
OF THIS AGREEMENT. The
initial term of this Agreement shall be from January 1, 2004 to December 31,
2004
and
shall continue year to year thereafter until either Party gives
written
notice at
least
ninety (90) days prior to the
end
of the then current calendar year to
the
other Party
of its
intent to terminate the Agreement at the
end
of such year.
Such
termination will be effective as of midnight (CST) on December 31
of the
year of such
notice,
and will not extinguish any existing obligations made by either Party
while
this Agreement is in effect, inclusive of Fellows’ right to view certain
Projects which have been developed by Xxxxxxxxx prior to the effective
termination date and Xxxxxxxxx’x right to receive any fees and other
consideration earned prior to the effective termination date.
2
X. XXXXXXXXX’X
OVERHEAD FEE. In
exchange for Xxxxxxxxx providing Fellows with the right to review and purchase
up to a fifty percent (50%) interest in all
Projects
as contemplated by this Agreement,
Fellows
agrees to pay Xxxxxxxxx an overhead fee in the amount of Four Hundred Thousand
and
no/100 Dollars ($400,000.00)
per
year (hereinafter referred to as an “Overhead Fee”). An amount equal to one-half
(1/2) of the Overhead Fee for the period from January 1, 2004 to December 31,
2004, or Two hundred thousand and no/100 Dollars ($200,000.00), shall be paid
to
Xxxxxxxxx by Fellows within ten (10) days following the execution of this
Agreement by both Parties. The balance of the Overhead Fee for the period from
January 1, 2004 to December 31, 2004, or Two hundred thousand and no/100 Dollars
($200,000.00), shall be paid to Xxxxxxxxx by Fellows no later than May 1, 2004.
Fellows’ failure to pay Xxxxxxxxx said balance of the Overhead Fee by May 1,
2004 shall result in the termination of this Agreement effective as of January
1, 2004; provided, however, that Xxxxxxxxx shall retain the Two hundred thousand
and no/100 Dollars ($200,000.00) paid by Fellows to Xxxxxxxxx upon the execution
of this Agreement. Together, the two (2) payments of Two hundred thousand and
no/100 Dollars ($200,000.00), which total Four Hundred Thousand and no/100
Dollars ($400,000.00),
shall
constitute the Overhead Fee for the period of January 1, 2004 through December
31, 2004. In the event this Agreement is extended beyond December 31, 2004,
Fellows shall pay Xxxxxxxxx the entire Overhead Fee of Four Hundred Thousand
and
no/100 Dollars ($400,000.00)
for
each subsequent year no later than January 5th
of each
such year.
VI.
FELLOWS’ RIGHT TO REVIEW AND PURCHASE. In
return
for paying the Overhead Fee described above, Xxxxxxxxx shall provide Fellows
the
first right to review and purchase up to a fifty percent (50%) interest
in
all
Projects
developed by Xxxxxxxxx during the term of this Agreement. Xxxxxxxxx acknowledges
that Fellows’ right to review and purchase an interest in a Project shall not
obligate Fellows to act upon, purchase or otherwise acquire an interest in
any
Project presented hereunder. Fellows’ right to review and purchase an interest
in any such Project shall be exercised according to the following
provisions:
A. Development
of a Project for Formal Presentation.
Upon
completion of Xxxxxxxxx’x preliminary compilation of information concerning any
Project during the term of this Agreement, Xxxxxxxxx shall notify Fellows in
writing of the Project and provide the following information and data relative
to such Project: (1) geographical location, (2) estimated reserve potential
and
average Estimated Ultimate Recovery (EUR) per well, (3) basic geological theory,
(4) basic maps, (5) analogues, if any, (6) anticipated drilling costs, (7)
any
leasehold availability information that Xxxxxxxxx may have at the time of such
notice and (8) significant regulatory or permitting issues of which Xxxxxxxxx
may be aware. As soon as is practicable, but not later than fourteen (14) days
after Xxxxxxxxx has provided Fellows with the information and data described
above, Fellows shall notify Xxxxxxxxx in writing if such Project is one that
Fellows will consider for Formal Presentation (as hereinafter defined). If
Fellows elects to consider a Project for Formal Presentation, then Xxxxxxxxx
will continue to evaluate such Project in order to present it at a Formal
Presentation with as complete a depiction of the geologic and/or geophysical
concepts as is reasonably possible. If Fellows does not consider a Project
for
Formal Presentation, it shall be deemed a Rejected Project for
purpose of
Article
III B. However, Fellows agrees to select a minimum of eight (8) Projects to
be
viewed as Formal Presentations, as described hereinafter.
3
B. Formal
Presentation of a Project.
At such
time as Xxxxxxxxx has sufficiently evaluated such a Project, a Formal
Presentation of said Project shall be made to Fellows (hereinafter referred
to
as a “Formal Presentation”) at Xxxxxxxxx’x offices located at 0000 Xxxx Xxxxxx,
Xxxxxx, XX 00000, and at a time to be agreed upon by the Parties. Any Formal
Presentation to Fellows of a Project developed hereunder shall contain
a
Project
plan
developed by Xxxxxxxxx that will demonstrate how the Project can be best brought
to the point of drilling an initial test well thereon in the most expeditious
and efficient manner. Such Project plan
may
include the following:
(i) a
write up of the geological idea, geological maps, cross sections and
interpretations thereof; (ii)
a
reservoir analysis;
(iii)
an economic analysis for the Project;
(iv)
any proposed geological and/or geophysical data acquisitions;
(v) a
proposed lease acquisition and lease availability plan;
(vi) a
proposed acquisitions of producing properties, if any;
(vii) a
budget of the estimated costs necessary to bring the Project to the drilling
of
the initial test well thereon;
(viii) a
proposed
definition of the type and amount of specific activity or event, as appropriate,
within that Project that both Parties
will
consider as significant (hereinafter referred to as “Significant Activity”).
This activity or event, as appropriate, is envisioned to be the initiation
of
leasehold and/or seismic acquisition, but is not intended to be additional
studies. The purpose of this definition shall be to determine the point at
which
Fellows shall pay Xxxxxxxxx additional fees as set forth in Article
VIII;
and
(ix) a proposed
Area of
Mutual Interest (hereinafter referred to as “AMI”) that sufficiently covers the
Project, and shall apply to the appropriate horizontal and vertical areas and
zones. The geographical area under a Project’s AMI shall include a minimum of
10,000 contiguous surface acres and shall not exceed a maximum of 80,000
contiguous surface acres. The definition of said AMI shall be subject to Article
VI.F.2. The Parties
may
mutually agree to increase or decrease the aforementioned surface acreage
amounts for the geographical area under a Project’s AMI. Unless
the Parties agree to the contrary, the AMI shall be for a period of five (5)
years beginning from the date of Fellows’ written notice to Xxxxxxxxx of its
election to acquire an interest in such Project; provided that, if no leases
covering land within such AMI are acquired by Fellows during the first year
of
such five (5) year period, such five (5) year period shall be extended for
one
(1) additional year to six (6) years. The
definition of any AMI shall include the terms and conditions under which Fellows
shall offer and be offered subsequently acquired interests
within
said AMI.
X.
Xxxxxxx’
Option to Acquire a Project.
Subject
to the terms and conditions of this Agreement, Fellows shall have the option,
but not the obligation, for a period of thirty (30) days from the date of
viewing the Formal Presentation of a Project made hereunder, to acquire
up
to
fifty
percent (50%) of such Project. Fellows shall notify Xxxxxxxxx in writing, within
the thirty (30) day period specified herein, as to whether Fellows elects to
acquire such
Project,
as well as the percentage of such Project that Fellows intends to
acquire
(“Fellows’ Percentage Interest”). Any such Project, or portion thereof, that
Fellows elects to acquire shall hereinafter be referred to as an “Acquired
Project”. If Fellows fails to provide Xxxxxxxxx with such written notice within
the thirty (30) day period, or if within such period Fellows informs Xxxxxxxxx
in writing that it elects not to acquire any portion of the Project, then such
Project shall be deemed a Rejected Project for purposes of Article
III.B.
4
D.
The
Houston Exploration Company’s Second Preferential Right to
Participate.
1. Fellows
hereby acknowledges that Xxxxxxxxx has entered into a similar Exploration
Services Funding Agreement dated January 17, 2003 with The
Houston Exploration Company, whose mailing address is 0000 Xxxxxxxxx, Xxxxx
0000, Xxxxxxx, XX 00000-0000 (hereinafter referred to as “Houston”).
Said
Exploration Services Funding Agreement between Houston and Xxxxxxxxx shall
hereinafter be referred to as the “Houston Agreement.” Said Houston Agreement
was
effective from January 1, 2003 through December 31, 2003. Houston and Xxxxxxxxx
have agreed to extend the Houston Agreement from January 1, 2004 through
December 31, 2004. In addition to certain rights and obligations, the Houston
Agreement provides Houston with a preferential right to participate in and
purchase up to fifty percent (50%) in all oil and natural gas projects developed
by Xxxxxxxxx within the Rocky Mountain Basins during the term of the Houston
Agreement, (hereinafter referred to as "Projects").
2. Fellows,
Xxxxxxxxx
and Houston have entered into that certain Letter Agreement dated January 23,
2004, a copy of which is attached hereto and made a part hereof as Exhibit
“B“
and is hereinafter referred to as the “Letter Agreement.” Said Letter Agreement
provides Houston with the second preferential right to participate
in and purchase any interest not acquired by Fellows in all Projects developed
by Xxxxxxxxx under this Agreement.
3. In
the
event
that Fellows and
Houston jointly acquire an Acquired Project, then the definitions of Significant
Activity and Area of Mutual Interest, as required under a Formal Presentation,
shall be mutually agreed to by Fellows, Houston and Xxxxxxxxx. Further, in
the
event Fellows and Houston jointly participate in an Acquired Project, Fellows
and Houston shall enter into a mutually acceptable AAPL 1989 Model Form 610
Operating Agreement, and shall proceed to develop the Acquired Project as
intended by the terms and conditions of this Agreement.
4. In
the
event Houston does not elect to participate in an Acquired Project or together
Fellows and Houston jointly acquire less than one hundred percent (100%) of
an
Acquired Project, then Xxxxxxxxx
shall sell the remaining interest that is either not acquired by Fellows or
that
is not together acquired by Fellows and Houston, in such Acquired Project
(hereinafter referred to as “Third
Party Interest”) to another party or parties (hereinafter
referred to as “Third
Party Purchaser or Purchasers”).
5. In
the
event
that the entire Third Party Interest
in an
Acquired Project
has not
been acquired by a Third Party Purchaser or Purchasers, Fellows may elect to
acquire up to the
remaining portion of the Third Party Interest in
such
Acquired
Project. Fellows’ election to acquire such an additional interest shall be made
within ten (10) days after
Xxxxxxxxx notifies
Fellows in writing that its election under this paragraph has accrued.
The
remaining available interest, depending on Fellows’ elections under this
paragraph,
shall
then be defined as the
Non-Fellows
Interest under Article X
and
marketed by Xxxxxxxxx subject to the provision of said Article. Further, if
the
Third
Party Interest
has not been entirely sold within the one hundred twenty (120) day period
provided above
and
Fellows elects to acquire at least a total of fifty percent (50%) interest
in
such
Acquired
Project, then Fellows shall be named as Operator under any Operating
Agreement applicable to such
Acquired
Project
5
|
E._
|
Fellows’
Participation in Projects Acquired by
Houston.
|
1. Houston
has previously elected to acquire and participate in certain Acquired Projects
presented to them under the Houston Agreement. Among such Acquired Projects,
Houston
has purchased from Xxxxxxxxx one hundred percent (100%) of the Xxxxxx Creek
Project located in Carbon County, Utah and one hundred percent (100%) of the
Deer Creek Project located in Sweet Grass County, Montana
2. As
provided in the Letter Agreement attached hereto as Exhibit “B,” Fellows has
been granted the right to participate in undivided
twenty-five (25%) of the Deer Creek Project
and the
right to acquire all of the Xxxxxx Creek Project.
3. Fellows
hereby agrees that its acquisition and participation of interest in said Deer
Creek and Xxxxxx Creek Projects is subject to all of the terms and provisions
of
this Agreement. However, it is hereby agreed by the Parties that the Deer Creek
and Xxxxxx Creek Projects shall not be included in the minimum number of Project
presented under Article VII.
|
F._
|
Acquisition
of Acquired Projects.
|
1. As
soon
as practicable after Fellows has elected to participate in an Acquired Project,
Fellows shall endeavor to acquire leases and, if necessary farmouts, covering
the land in the AMI for such Acquired Project. On a minimum of a quarterly
basis, the Parties and Houston, or a Third Party Purchaser(s),
as the
case may be, will meet to discuss the progress of such leasing activities.
If an
Acquired Project is jointly owned by Fellows and Houston or a Third Party
Purchaser(s),
as the
case may be,
then
Fellows and Houston or the Third Party Purchaser(s),
as the
case may be,
will
mutually agree on the leases to be acquired and the costs to be expended. If
Houston or a Third Party Purchaser is not participating in an Acquired Project
and Fellows elects to acquire a minimum of fifty percent (50%) interest in
an
Acquired Project, then Fellows shall solely determine what leases are to be
acquired within the AMI and the costs to be expended on said leases. If Houston
or a Third Party Purchaser(s),
as
the case may be,
is
participating in an Acquired Project, then Fellows and Houston, or such Third
Party Purchaser(s),
as
the case may be,
shall
jointly determine what leases are to be acquired within the AMI and the costs
to
be expended on said leases
2. If
Fellows has not expended its proportionate share of a minimum of $300,000.00
(“Minimum Expenditure”) within an Acquired Project’s AMI prior to the end of the
third (3rd)
year of
that AMI’s term, then the boundary of such AMI shall contract down to an area
consisting of one (1) mile around the then current leasehold that has been
acquired by Fellows inside such AMI. Such Minimum Expenditure shall include,
without limitation, drilling and operating costs, leasehold bonus, leasehold
acquisition costs, geological and/or geophysical data acquisition costs, plus
any other data and/or work costs Fellows deems necessary for the prudent
development of said Acquired Project
(collectively, “Leasehold Costs”).
Any
such Minimum Expenditure shall not include the applicable Project Fees paid
to
Xxxxxxxxx
or any
general overhead expenses Fellows might allocate to said Project. In the event
that Fellows has not acquired any leasehold within an Acquired Project’s AMI
during the first three (3) years of the AMI’s term and has not spent the Minimum
Expenditure, then the said AMI shall terminate.
3. Any
agreement between Xxxxxxxxx and a Third Party Purchaser for participation in
an
Acquired Project shall provide that the Third Party Purchaser will immediately
reimburse Fellows for such Third Party Purchaser’s proportionate share of the
leasehold costs relative to an Acquired Project that has been incurred by
Fellows through such time as said agreement has been made effective. On a
monthly basis, Fellows shall advise Xxxxxxxxx of the leasehold costs incurred
for the Acquired Project during the proceeding month. Upon a Third Party
Purchaser purchasing an interest in an Acquired Project, Fellows and said Third
Party Purchaser shall immediately thereafter enter into a mutually acceptable
Operating Agreement that shall provide for joint acquisition of future
leasehold.
G.
Drilling of Initial Test Well.
1. At
such
time as Fellows, after consultations with Xxxxxxxxx, is prepared to drill an
initial test well on an Acquired Project, Fellows shall propose such well (the
“Initial Test Well”).
2. The
Initial Test Well shall be drilled as presented in Fellows’ proposal and in
accordance with an Operating Agreement that is mutually acceptable to Fellows
and the
other
participants in such well.
All
subsequent operations on the Project shall be conducted in accordance with
said
Operating Agreement for such Project.
6
H.
Disposition
and Execution of Project Plan. The Parties acknowledge that in any Acquired
Project, Xxxxxxxxx shall
remain
available to assist Fellows through the Appraisal
of the Initial Test Well thereon.
VII. MINIMUM
PROJECTS PRESENTED TO FELLOWS. Xxxxxxxxx
shall provide Fellows with a minimum number of Formal Presentations of oil
and
natural gas exploration Projects available
for purchase based on the following:
A.
Formal
Presentations During the Initial Twelve (12) Months.
During
the initial twelve (12) months of this Agreement, that being from January 1,
2004 to December 31, 2004, Xxxxxxxxx shall provide Fellows with Formal
Presentations for a minimum of eight (8) Projects situated in at least four
(4)
different Plays.
B.
Subsequent
Annual Formal Presentations.
In the
event that this Agreement remains effective subsequent to December 31, 2004,
Xxxxxxxxx shall provide Fellows with Formal Presentations for a minimum of
six
(6) and a maximum of ten (10) Projects per year, situated in at least four
(4)
different Plays. Provided, however that Xxxxxxxxx shall provide Fellows with
Formal Presentations for an average minimum of eight (8) such Projects per
year
over a period of two (2) consecutive years.
C.
Minimum
Reserve Potential.
Each
individual Project presented to Fellows by Formal Presentation hereunder shall
represent the reasonable potential of at least two hundred (200) billion cubic
feet of natural gas reserves (200 BCF) or twenty (20) million barrels of oil
reserves (20 MMBO).
7
D.
Time
Distribution of Formal Presentations.
Fellows
and Xxxxxxxxx shall use all reasonable efforts to evenly distribute the minimum
number of Formal Presentations over the term of this Agreement. The intent
being
that Fellows shall have adequate time to evaluate each Project presented.
However, the Parties acknowledge that more than one (1) Formal Presentation
may
be
made at once and that the Parties
will act
in good faith to accommodate and abide by the deadlines contained
herein.
E.
Exclusive Showing.
During
the term of this Agreement, Xxxxxxxxx shall present to Fellows in accordance
with this Agreement, each and every Project it develops, as defined herein,
and
shall not show, reveal or otherwise communicate information or data relating
to
such Projects to other parties, except The Houston Exploration Company, without
the expressed written permission of Fellows.
Provided, however, that if Xxxxxxxxx is selling a Non-Fellows interest to a
Third Party then the party, or parties, may view any information or data
relating to such Project or Projects without Xxxxxxxxx violating this
paragraph.
F.
Failure to Present.
If
Xxxxxxxxx fails to meet the average minimum of eight (8) such Formal
Presentations per year, then it shall return to Fellows, an amount equal to
$50,000 times the difference between eight and the number of actual Formal
Presentations made during such period.
VIII. XXXXXXXXX’X
PROJECT FEES. In
addition to the Overhead Fees, for each Acquired Project,
Fellows
shall pay Xxxxxxxxx an amount equal to One Hundred Fifty Thousand Dollars
($150,000)
(hereinafter referred to as the “Project Fee”), proportionally reduced to
Fellows’ Percentage
Interest
in the
applicable Acquired Project.
Fellows
agrees to pay Xxxxxxxx one-half (1/2) of Fellows’ proportionate share of any
such Project Fee within ten (10) days after Fellows makes a written election
to
acquire an
Acquired
Project under Article VI.C.
The
balance of such Project Fee, or Fellows’ proportionate share of any such Project
Fee, shall be payable to Xxxxxxxxx within ten (10) days from the date that
the
Significant
Activity (as determined by the Parties
pursuant
to under Article VI.B.)
has
occurred for such Acquired Project or the date twelve (12) months after Fellows
has made its election to purchase such Acquired Project under Article
VI.C.,
whichever occurs earlier.
IX. XXXXXXXXX’X
OVERRIDING ROYALTY. In
addition to the Overhead Fees and any Project Fees paid by Fellows, Xxxxxxxxx
shall also receive from Fellows an assignment of an overriding royalty interest
(“Xxxxxxxxx’x XXXX”) on any oil and gas leasehold interest acquired, or caused
to be acquired, by Fellows within the relevant AMI, as a result of any Acquired
Project, based on the following sliding scale:
|
Fellows
Net Revenue Interest (NRI**)
|
Xxxxxxxxx’x
XXXX
|
|
|
|
|
NRI
85.0% to 87.5%
|
Xxxxxxxxx’x XXXX = 5% |
|
NRI
83.0% to 84.99%
|
Xxxxxxxxx’x XXXX = 4% |
|
NRI
82.0% to 82.99%
|
Xxxxxxxxx’x XXXX = 3% |
| NRI 81.0% to 81.99% | Xxxxxxxxx’x XXXX = 2% |
| NRI less than 81.0% | Xxxxxxxxx’x XXXX = 1% |
**
Fellow’s NRI shall be based on a Working Interest of 100%
8
The
Parties agree that Xxxxxxxxx’x overriding royalty under interests acquired by
Fellows within an AMI shall not apply to (a) interests in a particular AMI
which
are included in a larger package of oil and gas properties acquired by Fellows,
provided that such acquired interests located within such AMI do not comprise
more than 50% of the entire value of such acquisition; or (b) any lands in
which
Fellows already owns an interest or has existing contractual obligations to
acquire interests, in which event such lands shall be considered as excluded
from an AMI. Any
assignment of any overriding royalty interest to Xxxxxxxxx under this Agreement
shall (i) be reduced proportionately to the working interests acquired by
Fellows and the mineral estates leased thereby;
(ii) be
free of all drilling, development, production, operating and overhead costs
and
expenses; (iii) bear and pay its proportionate share of post-production costs
up
to the point of sale (including but not limited to transportation, dehydration
and processing costs), gross production taxes, pipeline taxes, ad valorem taxes
and other taxes assessed against the gross production attributable to said
overriding royalty interests; (iv) be assigned to Xxxxxxxxx within ninety (90)
days of Fellows acquiring said working interest and/or leasehold interests;
and
(v) apply to any and all renewals and/or extensions of the working interest
and/or leasehold interest in the relevant AMI which is subject to said
overriding royalty.
9
X. SUBSEQUENT
MARKETING OF A PROJECT. Prior
to
the drilling of an initial test well within the AMI of any Acquired Project,
Fellows may request that Xxxxxxxxx market a portion of Fellows’ interest
thereunder to a third party or parties. Upon successful sale to a third
Party,
any
such interest shall hereinafter be referred to as a “Non-Fellows Interest”. The
Parties agree that Fellows may make such a marketing request only after Fellows
has exercised its option to acquire an
interest in an
Acquired
Project
under Article VI.C.
and an
AMI has been established
as part
of the pertinent Project plan.
Fellows shall notify Xxxxxxxxx in writing at least ninety (90) days prior to
the
anticipated spud date of the initial test well for the relevant AMI and
stipulate the percentage amount of such Non-Fellows Interest, along with
Fellows’ preferred terms for such marketing effort. Xxxxxxxxx shall make it an
explicit condition of sale for Non-Fellows Interests that the purchaser will
acknowledge that the interest sold is subject to the relevant
Operating
Agreement
for the
AMI. Upon the successful sale of the Non-Fellows interest, Fellows and Xxxxxxxxx
shall share equally any promotion obtained in the form of (1) fees over and
above Fellows’ actual direct costs, (2) working interest, and (3) ORRI over and
above the ORRI due Xxxxxxxxx in this Agreement. In the event Fellows selects
Xxxxxxxxx to market a Non-Fellows Interest, Xxxxxxxxx shall use it best efforts
to market the Non-Fellows Interest to a third party or parties. The Parties
acknowledge that the results of any sale of any Non-Fellows Interest by
Xxxxxxxxx shall not reduce Fellows’ obligation to pay the Project Fee owed to
Xxxxxxxxx on any such Acquired Project, subject to the terms and conditions
of
Article IX
above.
Fellows shall have the exclusive right to approve the party or parties
purchasing any Non-Fellows Interest, as well as the terms and conditions of
any
such sale. Nothing contained in this Article X shall preclude Fellows from
directly marketing any interest it owns in an AMI for an Acquired Project at
any
time, to any party, on any terms;
provided
that,
the
results of any sale of
a
Non-Fellows Interest by Fellows shall not reduce Fellows’ obligation to pay the
Project Fee owed to Xxxxxxxxx on any such Acquired Project, subject to the
terms
and conditions of Articles VIII and IX above.
XI. XXXXXXXXX’X
OPTION TO PARTICIPATE IN DRILLING. Xxxxxxxxx
shall have a one-time option to participate for up to an undivided two and
one-half percent (2.5%) of 8/8ths working interest in the second and subsequent
xxxxx drilled, or caused to be drilled, by Fellows within an AMI of any Acquired
Project. Any such participation by Xxxxxxxxx in the second and subsequent xxxxx
of an Acquired Project shall be proportionately reduced to Fellows’ working
interest in such AMI. Fellows shall notify Xxxxxxxxx in writing at least sixty
(60) days (or as soon as is reasonably practicable) prior to the anticipated
spud date of the second well drilled, or caused to be drilled, by Fellows within
the relevant AMI. Xxxxxxxxx shall then have thirty (30) days, or forty-eight
(48) hours in the case where a rig is on location, from the receipt of such
written notice to respond in writing to Fellows of Xxxxxxxxx’x election to
participate in drilling said second well at the interest stipulated above.
Failure of Xxxxxxxxx to provide such a written election to Fellows shall be
deemed as an election not to participate in said well(s). If Xxxxxxxxx elects
not to participate in the drilling of the second and subsequent xxxxx, Xxxxxxxxx
shall forfeit any future rights to participate for a working interest in the
AMI
for such Acquired Project. If Xxxxxxxxx does elect to participate for such
an
interest in the second and subsequent xxxxx on any Acquired Project then
Xxxxxxxxx shall be responsible from that time forward for its proportionate
share of any and all working interest costs associated with AMI activities
in
accordance with the relevant Operating Agreement that has been mutually agreed
upon by the parties participating in the Acquired Project.
10
XII. NOTICES.
All
notices and other communications required or permitted by the terms of the
Agreement or any notices that one Party
may
desire to give to the other Party
shall be
in writing, unless otherwise specifically provided, and shall be deemed to
have
been properly delivered if personally handed to an authorized representative
of
the Party
for whom
intended, or sent by overnight delivery service, or facsimile (with written
confirmation of a successful transmission), and addressed to the Party
to whom
the notice is given at the address listed below or such other address
as
a Party
may from
time to time designate by notice in writing to the other Party.
The
originating notice to be given under any provision hereof shall be deemed to
be
given only when received by the Party
to whom
such notice is directed, and the time for such Party
to give
any notice in response thereto shall run from the date that said originating
notice is received. A response shall be deemed returned when deposited in the
mail or with overnight delivery service or facsimile (with written confirmation
of a successful transmission), with postage or charges prepaid. Each
Party
shall
have the right to change its address at any time or from time to time by giving
written notice thereof to the
other
Party.
Notices
by a
Party
hereto
shall be promptly given in writing and shall be delivered as
follows:
Attn:
Mr.
Xxxxxx
Xxxxx
0000
Xxxxxxxx Xxxx
Xxxxxxx,
XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
E-mail:
xxxxxxxxxxxx@xxx.xxx
Xxxxxxxxx
Partner Associates, Inc.
Attn:
Mr.
M. Xxx Xxxxxxxxx
0000
Xxxx
Xxxxxx
Xxxxxx,
XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
E-mail:
xxxxxxx@xxx.xxx
XIII. ACCESS
TO GEOLOGICAL AND SEISMIC INFORMATION. Xxxxxxxxx,
its agents, representatives and employees, at Xxxxxxxxx’x sole risk and expense,
shall have reasonable access at all times to the rig floor of any well drilled,
or caused to be drilled by Fellows or its designee, within the AMI of any
Acquired Project, and shall at all times be subject to the operator’s safety
requirements. Further, during the term of the AMI or according to the terms
of
any applicable operating agreement, Xxxxxxxxx shall be supplied, as soon as
is
practicable, with copies of all tests, logs and drilling reports that are taken
in any well drilled, or caused to be drilled, by Fellows within the AMI of
any
Acquired Project. Such information shall be provided to Xxxxxxxxx without regard
as to whether Xxxxxxxxx owns a working interest under such well or xxxxx and
shall be provided according to the data and notification requirements set out
in
Exhibit “C” attached hereto. Xxxxxxxxx shall be allowed to use any and all
seismic data, whether trade or proprietary, that Fellows may acquire within
the
AMI, subject to the terms of any agreements governing the use of such data.
Xxxxxxxxx agrees that it will hold any such well and seismic data in confidence,
and agrees to use such well and seismic data only for its own internal purposes
or for the benefit of assisting Fellows in the development of any Acquired
Project, subject to the period of confidentiality
described in Article XIX
hereof.
All seismic data, whether trade or proprietary, acquired by Fellows and
furnished to Xxxxxxxxx shall remain the property of Fellows and shall be
returned to Fellows upon the termination of this Agreement. Fellows, its agents,
representatives and employees, at Fellows’ sole risk and expense, shall have
reasonable access at all times to the rig floor of any well drilled, or caused
to be drilled, by Xxxxxxxxx, or its designee, within the AMI of any Acquired
Project, and shall at all times be subject to the operator’s safety
requirements. Further, during the term of the AMI or according to any applicable
operating agreement, Fellows shall be supplied, as soon as is practicable,
with
copies of all tests, logs and drilling reports that are taken in any well
drilled, or caused to be drilled, by Xxxxxxxxx within the AMI of any Acquired
Project. Such information shall be provided to Fellows if
Fellows owns any
interest
in
such
well or xxxxx and shall be provided according to the data and notification
requirements set out in Exhibit “C” attached hereto. Fellows shall be allowed to
inspect and review any and all seismic data, whether trade or proprietary,
that
Xxxxxxxxx has access to or may acquire within the AMI, subject to the terms
of
any agreements governing the use of such data. Further, Fellows will be allowed
to use any proprietary seismic data acquired by Xxxxxxxxx within the AMI.
Fellows agrees that it will hold any such well and seismic data in confidence
and agrees to use such well and seismic data only for its own internal purposes
or for the benefit of assisting Xxxxxxxxx in the development of any Acquired
Project subject to the period of confidentiality described in Article
XIX.
All
seismic data, whether trade or proprietary, acquired by Xxxxxxxxx and furnished
to Fellows shall remain the property of Xxxxxxxx and shall be returned to
Xxxxxxxxx upon the termination of this Agreement.
11
XIV. ASSIGNABILITY.
Fellows
may not assign the rights, obligations, terms and conditions of this Agreement
without the expressed written permission of Xxxxxxxxx.
XV. RELATIONSHIP
OF THE PARTIES. The
duties, obligations, and liabilities of the Parties hereto are intended to
be
several and not joint or collective. This Agreement is not intended to create,
and shall not be construed to create an association or trust, or to impose
a
partnership,
duty,
obligation, or liability with regard to any one or more of the Parties hereto.
Each Party
hereto
shall be individually responsible for its own obligations as herein
provided.
XVI. LAWS
AND REGULATIONS. The
Parties, in conducting all operations under this Agreement, shall comply with
all applicable state and federal laws, rules and regulations.
XVII. MODIFICATIONS.
No
change, modification or alteration of this Agreement shall be valid unless
the
same is made in writing, signed by the Parties,
and no
course of dealing between the Parties shall be construed to alter the terms
hereof.
XVIII. MEDIATION
AND ARBITRATION. Any
controversy or claim (“claim”), whether based on contract, tort, statute or
other legal or equitable theory (including but not limited to any claim of
fraud, misrepresentation or fraudulent inducement or any question of validity
or
effect of this Agreement, including this clause) arising out of or related
to
this Agreement (including amendments or extensions), or the breach or
termination thereof shall be first submitted to a mutually agreed neutral third
party for mediation. If mediation is not successful, then such controversy
or
claim shall be settled by arbitration in accordance with the then current CPR
Institute for Dispute Resolution Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be governed by
the
United States Arbitration Act, 9 U.S.C. Sections 1 through 16 to the exclusion
of any provision of state law inconsistent therewith or which would produce
a
different result, and the judgment upon the award rendered by the arbitrator
may
be entered by any court having jurisdiction.
The
arbitration shall be held in Denver,
Colorado, or such other location as agreed to by the Parties,
and
there shall be one arbitrator who must be knowledgeable in oil and gas
exploration matters. Such arbitrator shall be chosen subject to the rules and
procedures as provided by the CPR Institute for Dispute Resolution. The
arbitrator shall
determine the claims of the Parties
and
render a final award in accordance with the substantive law of the State of
Colorado,
excluding the conflicts provisions of such law. The arbitrator shall set forth
the reasons for the award in writing. Except as required by law (and then only
after
prior notice to the other Party),
no
Party
shall
disclose the facts of the underlying dispute or the contents or results of
the
arbitration without the prior consent of the
other
party.
Any
claim
by either Party
shall be
time-barred if the asserting Party
does not
give written notice to the other Party
or
commence arbitration with respect to such claim within two years after the
cause
of action accrues. All statutes of limitations and defenses based upon passage
of time applicable to any claim of a defending Party
(including any counterclaim or claim of setoff) shall be tolled while the
mediation and/or arbitration is pending. The
obligation to arbitrate any claim shall extend to the successors, assigns and
third party beneficiaries of the Parties.
The
terms hereof shall not limit any obligations of a Party
to
defend, indemnify or hold harmless the
other
Party
against
court proceedings or other claims, losses, damages or expenses. The
arbitrator shall order the Parties
to
promptly exchange copies of all exhibits and witness lists, and, if requested
by
a Party,
to
produce other relevant documents, to answer up to ten interrogatories (including
subparts), to respond to up to ten requests for admissions (which shall be
deemed admitted if not denied) and to produce for deposition and, if requested,
at the hearing, all witnesses that such Party
has
listed and up to four other persons within such Party’s
control. Any additional discovery shall only occur by agreement of the
Parties
or as
ordered by the arbitrator upon a finding of good cause. Each
Party
shall
bear its own costs, expenses and attorney’s fees; provided that if court
proceedings to stay litigation or compel
arbitration are necessary, the Party
who
unsuccessfully opposes such proceedings shall pay all reasonable associated
costs, expenses and attorney’s fees in connection with such court proceeding.
In
order
to prevent irreparable harm, the arbitrator shall have the power to grant
temporary or permanent injunctive or other equitable relief. Prior to the
appointment of an arbitrator a Party
may,
notwithstanding any other provision of this agreement, seek temporary injunctive
relief from any court of competent jurisdiction; provided that the Party
seeking
such relief shall (if arbitration has not already been commenced) simultaneously
commence arbitration. Such court ordered relief shall not continue more than
ten
(10) days after the appointment of the arbitrator (or in any event for longer
than sixty (60))
days.
If
any
part of this arbitration provision is held to be unenforceable, it shall be
severed and shall not affect either the duty to arbitrate or any other part
of
this provision.
12
XIX. CONFIDENTIALITY.
The
Parties agree that all data and information generated as a result of this
Agreement (hereinafter referred to as “Confidential Information”) will be
considered the Confidential Information of both Parties. Provided, however,
Confidential Information shall not include data or information that is generally
available to the public other than through acts by either Party in violation
of
this Agreement.
A. During
the term of this Agreement each Party may disclose Confidential Information
only
to its direct employees, and to its subsidiaries or affiliates, agents, advisors
or representatives who have agreed, prior to being given access to the
Confidential Information, to be bound by the terms herein. After a period of
either three (3) years
from the date of a Formal Presentation of a Project or upon the effective
termination date of this Agreement, whichever is the longer period, any
geological or geophysical data gathered by the Parties, which is relevant to
a
particular Project, may be used by either Party
and
divulged to third parties for the purpose of selling or promoting geological
or
geophysical ideas or concepts. Provided, however, the use of any licensed
geophysical data will be strictly limited to the terms of any agreements
governing the use of such data.
B. Neither
Party
shall
use said Confidential Information for any purpose other than the uses
contemplated by this Agreement.
C. The
Parties shall maintain the confidentiality of the Confidential Information
(including the terms and conditions of this Agreement) and shall not disclose
the Confidential Information to any person, firm, corporation or association,
except as mutually agreed, and specified in A.
above.
XX. JURISDICTION.
The
terms
and conditions of this Agreement shall be interpreted and construed in
accordance with the laws of the State of Colorado.
This Agreement shall, in every regard, be treated as a contract made in the
State of Colorado.
To the extent any such matters are not subject to arbitration under Article
XVIII,
the Parties irrevocably submit to the jurisdiction of the courts of the State
of
Colorado
and the courts of appeal therefrom in respect to the interpretation and
construction of the terms and conditions of this Agreement.
XXI. ENTIRE
AGREEMENT. No
amendments shall be made to this Agreement unless in writing and executed by
the
Parties.
This
Agreement supersedes all other prior 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.
13
XXII. MISCELLANEOUS.
This
Agreement may be executed
in
one document, signed by both
Parties,
or in a number of counterparts; and when executed in counterpart, all such
counterparts shall constitute one document. This Agreement and Exhibits,
attached hereto and made a part hereof, shall inure to the benefit of and be
binding upon the Parties, their successors and assigns.
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement the date and
year first above written, but effective as of January 1, 2004.
| XXXXXXXXX PARTNER ASSOCIATES, INC. | ||
| |
|
|
| By: | /s/ Xxxxx X. Xxxxxxxx | |
|
Xxxxx X. Xxxxxxxx, a duly authourized representative of Xxxxxxxxx Partner Associates, Inc. |
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxx | |
|
GeorgeYoung, President Acknowledgements |
||
14
| STATE OF COLORADO |
)
|
|
|
)
|
ss. | |
| COUNTY OF DENVER |
)
|
Before
me, the undersigned, a Notary Public in and for said County and State, on this
____ day of ____________, 2004,
personally appeared Xxxxx X. Xxxxxxxx, as a duly authorized representative
of
Xxxxxxxxx Partner Associates, Inc., to me known to be the identical person
who
subscribed the name thereof to the foregoing instrument and acknowledged to
me
that he executed the same as his free and voluntary act and deed and as the
free
and voluntary act and deed of such corporation, for the uses and purposes
therein set forth.
IN
WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the date above
written.
| My Commission Expires: |
Notary Public |
|
| Address: 0000 Xxxx Xxxxxx | ||
| Xxxxxx, XX 00000 | ||
| STATE OF COLORADO |
)
|
|
|
)
|
ss. | |
| COUNTY OF |
)
|
Before
me, the undersigned, a Notary Public in and for said County and State, on this
____ day of ____________, 2003,
personally appeared Xxxxxx Xxxxx, as President of Fellows Energy Ltd, to me
known to be the identical person who subscribed the name thereof to the
foregoing instrument and acknowledged to me that he executed the same as his
free and voluntary act and deed and as the free and voluntary act and deed
of
such corporation, for the uses and purposes therein set forth.
IN
WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the date above
written.
| My Commission Expires: |
Notary Public |
|
| Address: | ||
15
Exhibit
“A”
Attached
to that certain Exploration Services Funding Agreement dated effective January
1, 2004 between Xxxxxxxxx
Partner Associates, Inc.
and
Fellows
Energy Ltd.
Definitions
The
following definitions shall apply to these terms:
1. Play.
A Play
is an area that contains a broad geologically defined concept with one or more
geological horizons that are thought to be commercially productive of oil and/or
natural gas. A play consists of multiple Projects.
2. Project.
A
Project shall
be
a geographical
portion
of a geologically defined Play that represents
a geologically unique structural and/or stratigraphic concept, which is capable
of being drilled and/or developed for a potential EUR of at least 200 BCFE;
provided, however, that the geographical area under any one (1) Project shall
include a minimum of 10,000 contiguous surface acres and shall not exceed a
maximum of 80,000 contiguous surface acres. A
Project
may contain more than one Prospect and may be limited to one stratigraphic
zone.
3. Prospect.
A
Prospect is a well defined, singular anomaly that is thought to be commercially
productive of oil and/or natural gas and which is recommended as site to drill
a
test well.
16
Exhibit
“B”
Attached
to that certain Exploration Services Funding Agreement dated effective January
1, 2004 between Xxxxxxxxx
Partner Associates, Inc.
and
Fellows
Energy Ltd.
TO
BE INSERTED WHEN AVAILABLE
17
Exhibit
“C”
Attached
to that certain Exploration Services Funding Agreement dated effective January
1, 2004 between Xxxxxxxxx
Partner Associates, Inc.
and
Fellows
Energy Ltd.
1.
Well Data to be supplied by Operator during drilling.
During
the drilling of any Test Well drilled under the captioned Agreement, Operator
shall provide to Xxxxxxxxx, at no cost or expense to Xxxxxxxxx, copies of all
well data relating to said Test Well that would normally be supplied to a
working interest participant in such well. Such information shall include,
without limitation:
A. Daily
drilling reports including geological reports showing the nature of all work
done and depth and formations penetrated;
B. A
copy of
any mechanical or electrical survey that is run in the course of the
well;
C. One
copy
of the Lithologic log on a daily basis, if run;
D. One
set
of ditch samples, washed and dried, if taken;
E. A
digital
copy, if made, of all wireline surveys conducted;
F. The
results of any drill stem test carried out. .
2.
Well data to be supplied by Operator.
As
soon
as practicable after completion of the drilling of said Test Well, Operator
shall provide to Xxxxxxxxx listed below, at no cost or expense to Xxxxxxxxx,
a
copy of the final well completion report. Each copy of the well report shall
include the following:
| A. |
A
copy of all wireline surveys conducted;
|
| B. |
A
copy of the mud logging survey;
|
| C. |
A
copy of the velocity survey, if run;
|
| D. |
A
copy of the well site geologist's description of the ditch samples,
if
taken;
|
| E. |
A
copy of the well site geologist's description of the sidewall cores
or
conventional cores, if taken;
|
| E. |
A
copy of the well site geologist's description of the sidewall cores
or
conventional cores, if taken;
|
| F. |
A
copy of the commercial core analyses (sidewall or conventional) if
cores
are taken;
|
| G. |
A
copy of the commercial analyses of the water, gas or oil, if test
and
recovery that are made;
|
| H. |
A
copy of the analyses, if made, made in dating a sample radioactively
or
palaentologically, plus copy of core photographs, if
taken;
|
| I. |
A
copy of the geological reports;
|
| J. |
A
copy of the well location map;
|
| K. |
A
copy of the well history;
|
| L. |
A
copy of the well records;
|
| M. |
A
copy of the drilling report;
|
| N. |
A
copy of the mud record;
|
| O. |
A
copy of the bit record;
|
| P. |
A
copy of the formation test data, if a test is made;
|
| Q. |
A
copy of all other data relative to the
well.
|
3.
Parties to receive data.
Xxxxxxxxx
Partner Associates, Inc.
0000
Xxxx
Xxxxxx
Xxxxxx,
XX 00000
Phone
000-000-0000
Fax
000-000-0000
