FARMOUT AGREEMENT Rio Vista Gas Field Cache Slough Prospect Solano County, California
Rio
Vista Gas Field
Cache
Slough Prospect
Xxxxxx
County, California
THIS
AGREEMENT is made effective the 25th day of May, 2005 between Production
Specialties Company (hereinafter referred to as “PSC”) and Delta Oil and Gas,
Inc. (hereinafter referred to as “DOG”).
WHEREAS,
PSC represents and warrants that it has the right to earn an interest in oil and
gas leasehold interests in and to certain lands located in Sections 6, 7 &
18, Township 4 North, Range 3 East, M.D.B.M., Xxxxxx County, California. Said
lands being further described on the attached Exhibit “A” and Area of Mutual
Interest (AMI).
WHEREAS,
DOG desires the right to earn from PSC an assignment, pursuant to paragraph 3
below, of PSC’s interest in said leases, lands and Prospects. PSC is willing to
grant such right and/or option as provided herein.
NOW,
THEREFORE, for and in consideration of the mutual promises and covenants
contained herein, to be kept and performed by the parties hereto, and other
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
| 1. |
TEST
WELL |
On or
before July 1, 2005, on behalf of DOG and its partners, PSC shall participate in
drilling the initial test well (“C&C Minerals-NNG #1-7”) to a depth of
7,000’ TVD or deep enough to adequately test the Mokelumne, Bunker and Xxxxxxx
seismic anomalies. The Test Well shall be directionally drilled to intersect
potential productive sands.
| 2. |
COSTS |
DOG shall
pay 18.75% of 100% of all costs and expenses of drilling, testing completing and
equipping the C&C Minerals-NNG #1-7 which shall include the costs of the
wellhead and other required surface production equipment, and all pipelines and
meters required to produce and transport the gas production to a gas sales line
or other point where the production can be marketed and sold, or 18.75% of 100%
of all costs associated with the plugging and abandoning the C&C
Minerals-NNG #1-7, whichever is the case. An Authorization for Expenditure for
the C&C Minerals-NNG #1-7 shall be forwarded to DOG prior to commencement of
drilling operations. This Authorization of Expenditure shall represent the
estimated cost of the C&C Minerals-NNG #1-7 and PSC shall have the right to
demand and receive from DOG payment in advance of its respective share of the
Authorization of Expenditure. DOG shall pay the full amount of the payment so
invoiced prior to commencement of drilling operations. In the event
DOG fails
or refuses to make such advance payment, then DOG shall forfeit all of its
right, title and interest under this Agreement.
The
Authorization for Expenditure is merely PSC’s reasonable good faith estimate of
the costs and expenses of the #1-7 Well. Actual costs and expenses of the #1-7
Well may exceed the Authorization for Expenditure in which case DOG shall pay
its proportionate share of all such excess costs and expenses. PSC shall have
the right to demand and receive from DOG payment in advance of its respective
share of any estimate costs and expenses in excess of the Authorization for
Expenditure. If DOG fails or refuses to make any such advance payments, DOG
shall forfeit all right, title and interest under this Agreement.
| 3. |
EARNING |
If the
Test Well is completed as a well capable of producing oil and/or gas in paying
quantities, DOG shall own and be entitled to 12.50% of 8/8ths working interest
in and to the Oil and Gas Leases set out in Exhibit “A”. Said working interest
of leases shall be delivered to DOG at no less than 68% of 8/8ths net revenue
interest in the Test Well. PSC makes no representation or warranty of net
revenue interest except for the foregoing warranty of net revenue interest in
the Test Well.
| 4. |
FIRST
SALE |
First
sales shall occur when all drilling, completion, testing and installation of all
producing facilities are in place and the Test Well is ready for sales in to a
gas transmission line or in to any line deemed a “sales point”. PSC shall notify
DOG of first sales and shall prepare an assignment of said earned working
interest to DOG and recorded with the operator Xxxx Xxxxxx
Drilling.
| 5. |
WELL
GEOLOGIC AND GEOPHYSICAL DATA |
DOG will
be provided with all drilling reports, including logs pertaining to the Test
Well and will have full access, at its own risk and expense, during drilling
and/or completion.
OPERATING
AGREEMENT
All
operations on the “AREA OF MUTUAL INTEREST” (AMI) will be conducted in
accordance with the terms and provisions of the 1989 Form 610 AAPL Joint
Operating Agreement, including 1984 XXXXX Accounting Procedures, a copy of which
is attached hereto as Exhibit “C”. Said Operating Agreement designates Xxxx
Xxxxxx Drilling as Operator. In the event of a conflict, the terms and
provisions of this Agreement shall prevail over the Operating Agreement.
| 6. |
SHUT-IN
GAS PAYMENTS |
In the
event the Test Well is completed as a well capable of gas production in paying
quantities but is shut-in because of a lack of a pipeline connection or market
for such gas (hereinafter referred to as “shut-in gas well”), PSC shall
immediately notify DOG of such fact and PSC shall inform Xxxx Xxxxxx Drilling of
their responsibility and obligation to pay all shut-
in gas
payments that may be permitted to maintain the affected lease(s) and PSC shall
inform Xxxx Xxxxxx Drilling to provide DOG with copies of all receipts made and
given.
| 7. |
COMPLIANCE
WITH LAWS, RULES AND
REGULATIONS |
PSC shall
inform Xxxx Xxxxxx Drilling to comply with all rules and regulations required as
operator and shall also require that all of their operators, contractor and
subcontractors comply with any and all applicable laws and regulations, federal,
state and local, and with the requirements of each regulatory body or official
asserting jurisdiction over operations hereunder.
| 8. |
SUCCESSORS
IN INTEREST |
This
Agreement and its terms are personal in nature and the underlying leaseholds
shall not be assigned and/or sold without the prior written consent of the
parties hereto, such consent shall not be unreasonably withheld.
| 9. |
CONFLICT |
This
Agreement shall supersede any prior correspondence or oral communication between
the parties. This Agreement may only be amended in writing.
| 10. |
FORCE
MAJEURE |
If PSC is
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement, other than the obligation to make money
payments, it shall give DOG prompt written notice of the force majeure with
reasonably full particulars concerning it. Thereupon, so far as PSC is affected
by the force majeure, such obligations shall be suspended during the continuance
of the force majeure and for such time thereafter as is reasonably required to
resume performance of the obligation(s) following removal of the force majeure
situation. The term “force majeure”, as herein employed, shall mean an act of
god, strike, lockout or other industrial disturbance, act of public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment
or any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of PSC.
| 11. |
TAX
PARTNERSHIP |
It is not
intended by this Agreement to create, nor shall this Agreement be construed as
creating any relationship between the parties hereto of employer and employees,
or any partnership, or association or corporation between the parties hereto.
The liabilities of the parties hereto shall be as set forth in this Agreement
and PSC and DOG shall be responsible only for their share of the costs,
expenses, debts or obligations incurred hereunder as herein provided. The
parties hereto agree as between themselves to elect to be excluded from the
application of Subchapter K of Chapter I of Subtitle A of the United States
Internal Revenue Code of 1954, as amended, and similar provisions of the
statutes of any state.
| 12. |
NOTICE |
Except as
otherwise specifically provided herein, any notice or other communication
required hereunder shall be considered as having been given if delivered
personally, or if mailed postage prepaid or telephone addressed to the following
address respectively:
PRODUCTION
SPECIALTIES
CO.
DELTA OIL
AND GAS, INC.
X.X. Xxx
00000
#300-1055
West Hastings Street
Bakersfield,
CA.
93390
Xxxxxxxxx,
X.X. X0X 0X0
(000)
000-0000
phone
Canada
(000)
000-0000
fax
(000)
000-0000 phone
ATTN: Xxxx
Xxxxxx,
Xx. (000)
000-0000 fax
ATTEN:
Xxxx Xxxxx
13.
NON-DISLOSURE
All
information regarding the Test Well or any subsequent well(s) shall be held
confidential. DOG shall not disclose any such confidential information to third
parties without the prior consent of PSC. PSC is aware that DOG may request
certain public informational disclosures from time to time and PSC will allow
such releases provided that such disclosures will not detrimentally affect the
potential assets attributable to this Farmout Agreement.
IN
WITNESS WHEROF, the parties have executed or have caused this instrument to be
executed by their duly authorized officers and/or representatives.
PSC: DOG:
PRODUCTION
SPECIALTIES CO. DELTA OIL
AND GAS, INC.
By:/s/
Xxxx Xxxxxx,
Xx. By:/s/
Xxxx
Xxxxx
Xxxx
Xxxxxx,
Xx.
Xxxx
Xxxxx
President President
