O & G ENERGY PARTNERS, LLC Austin, Texas 78746 Telephone: (512) 327-6122 Facsimile: (512) 327-9626 June 11, 2009
EXHIBIT
2.1
O
& G ENERGY PARTNERS, LLC
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▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇–▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
June 11,
2009
Daybreak
Oil and Gas, Inc.
▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, President
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Re:
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Exchange
Option Agreement, East Slopes Project, San ▇▇▇▇▇▇▇ Basin,
California
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Dear
▇▇▇:
When
executed by you on behalf of Daybreak Oil and Gas, Inc. (“Daybreak”), in the
space provided below, this letter shall constitute the agreement between
Daybreak, O & G Energy Partners, LLC (“O & G”) and San ▇▇▇▇▇▇▇
Investments, Inc. (“San ▇▇▇▇▇▇▇”), by which O & G and San ▇▇▇▇▇▇▇ may
acquire a 25% working interest in Daybreak’s leasehold position in the East
Slopes Project in exchange for certain cash payments, the delivery of a
production payment interest, and the assignment to Daybreak of a 25% interest in
certain oil and gas leases and option agreements held by O & G and San
▇▇▇▇▇▇▇ in the vicinity of the East Slopes Project. Daybreak, O &
G and San ▇▇▇▇▇▇▇ are sometimes collectively referred to herein as the
“Parties”, and individually as a “Party”.
1. Daybreak
Leases. Daybreak represents that it owns and/or has a
contractual right to acquire a fifty percent (50%) interest in oil and gas
leases and options to acquire oil and gas leases covering approximately 21,000
gross and net acres in the East Slopes area of ▇▇▇▇ County,
California. The remaining 50% interest in the Daybreak Leases is held
by Chevron U.S.A., Inc. (“Chevron”), and Daybreak’s interest is subject to an
agreement with Chevron wherein Daybreak earned the assignment of its interest in
certain oil and gas leases originally acquired by Chevron by completion of a
four well drilling program on the project (the “Chevron
Agreement”). Two of the four ▇▇▇▇▇, known as the Sunday #1 and the
Bear #1 have been completed or are in the process of being completed as
producers on the Daybreak Leases. Daybreak represents that the
Daybreak Leases are free and clear of liens, claims and burdens, with the
exception of the lessor’s royalty and overriding royalties aggregating 3% of
8/8, which are owned by, or which Daybreak has agreed to assign to ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ (“▇▇▇▇▇, et al.”). The Daybreak Leases
also include a 320-acre parcel identified as the “▇▇▇▇ Creek Prospect”, where
the working interest is owned in the proportions of 25% by Daybreak, 25% by
Consolidated Beacon, LLC (“Beacon”), and 50% by Chevron. Should
Beacon forfeit its interest in the ▇▇▇▇ Creek Prospect by non-consenting the
drilling of a well thereon, the Beacon 25% working interest will be included in
the interests which may be acquired by O & G and San ▇▇▇▇▇▇▇
hereunder. A schedule of the Daybreak Leases is attached hereto as
Exhibit
“A”.
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2. O & G/San ▇▇▇▇▇▇▇
Leases. O & G and San ▇▇▇▇▇▇▇ represent, severally but not
jointly, that each holds the contractual right to acquire a 50% interest in oil
and gas leases and options to acquire oil and gas leases presently titled in
Maverick Petroleum, Inc., covering approximately 14,100 gross and net acres in
▇▇▇▇ County, California (the “O & G/San ▇▇▇▇▇▇▇
Leases”). The O & G/San ▇▇▇▇▇▇▇ Leases are subject to
the terms of a Letter Agreement dated October 27, 2008, between ▇▇▇▇ ▇▇▇
and San ▇▇▇▇▇▇▇ ▇▇ (predecessors to O & G and San ▇▇▇▇▇▇▇), and, as provided
therein, are subject to royalties and overriding royalties aggregating 21% of
8/8, including an overriding royalty interest to be assigned to Keystone
Diversified Energy, Inc., pursuant to a Geological/Geophysical Consulting
Services Agreement with San ▇▇▇▇▇▇▇ ▇▇ dated October 8,
2008. Otherwise, the O & G/San ▇▇▇▇▇▇▇ Leases are free
and clear of liens, claims and burdens. A schedule of the
O & G/San ▇▇▇▇▇▇▇ Leases is attached hereto as Exhibit
“B”.
3. Option
Period. In consideration of the cash payment of $100.00 by O
& G and San ▇▇▇▇▇▇▇ to Daybreak, delivered contemporaneously with the
execution of this agreement, O & G and San ▇▇▇▇▇▇▇ are granted the exclusive
right and option, for a period of 30 days from the date of acceptance hereof by
Daybreak (the “Option Period”) in which to elect to acquire a 25% working
interest in the Daybreak Leases in exchange for the payment of the cash sums and
delivery of the assignments which are described below in Paragraph
4. During the Option Period, O & G and San ▇▇▇▇▇▇▇ shall have the
right to conduct such due diligence examination of the Daybreak Leases and the
interest of Daybreak therein as they shall elect, and in this connection,
Daybreak shall deliver to the office of O & G, within five business days
after the execution of this letter, copies of the due diligence items identified
in Part 1 of Exhibit “C”, attached hereto. During the Option Period,
Daybreak shall also have the right to conduct such due diligence as it may
desire with respect to the O & G/San ▇▇▇▇▇▇▇ Leases, and the interest of O
& G and San ▇▇▇▇▇▇▇ therein, and in that regard, O & G and San ▇▇▇▇▇▇▇
shall deliver to the office of Daybreak, within five business days from the
execution of this letter agreement, copies of the due diligence items shown in
Part 2 of Exhibit
“C”. The option afforded to O & G and San ▇▇▇▇▇▇▇ herein
may be exercised at any time during the Option Period by either O & G or San
▇▇▇▇▇▇▇ delivering written notice (the “Option Notice”) to Daybreak, which may
be delivered by mail, overnight courier, facsimile, email or hand delivery, on
or before 5:00 p.m. on the 30th day after the day of acceptance hereof by
Daybreak. The failure to deliver the Option Notice within the time
herein provided shall be deemed election by O & G and San ▇▇▇▇▇▇▇ not to
acquire an interest in the Daybreak Leases, and this agreement shall thereupon
terminate without further liability by any Party to the other.
4. Closing. Within
15 days after the delivery of the Option Notice, the Parties shall conduct a
closing at the offices of O & G, or such other location as may be mutually
agreed upon by the Parties, at which the following shall occur:
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a.
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O
& G and San ▇▇▇▇▇▇▇ shall deliver to Daybreak a cash payment, by check
or wire transfer in the amount of $512,500.00 (to be contributed equally
by O & G and San ▇▇▇▇▇▇▇), to be subject to normal and customary
adjustments for expenses incurred and revenues paid with respect to time
periods before and after the effective date of the assignment referenced
below in subpart (b), to be accomplished by a post-closing accounting
within sixty (60) days following the closing
date.
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2
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b.
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Daybreak
shall execute and deliver to O & G and San ▇▇▇▇▇▇▇ a good and
sufficient assignment transferring to O & G and San ▇▇▇▇▇▇▇ a 25%
working interest (12.5% to each assignee) in the Daybreak Leases,
including a like interest in the Sunday #1 and Bear #1 ▇▇▇▇▇, the
production therefrom and the equipment and personal property therein and
thereon, with warranty of title by, through and under Daybreak, subject
only to the Chevron Agreement, the overriding royalty agreement with
▇▇▇▇▇, et al., and the terms of the Daybreak Leases, with an effective
date of May 1, 2009.
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c.
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O
& G and San ▇▇▇▇▇▇▇ shall execute and deliver to Daybreak a good and
sufficient Assignment of Production Payment, transferring to Daybreak a
dollar denominated production payment interest in the amount equal to
$700,000.00, to be payable out of 25% of the net revenue (after production
and similar taxes, and after all operating costs and charges) attributable
to the respective working interests of O &G and San ▇▇▇▇▇▇▇ from the
Sunday #1 and Bear #1 ▇▇▇▇▇, effective with production beginning as of
May 1, 2009, and payable out of 50% of the net revenue (after
production and similar taxes, and after all operating costs and charges)
attributable to the respective working interests of O & G and San
▇▇▇▇▇▇▇ from other ▇▇▇▇▇ which may hereafter be drilled on the Daybreak
Leases up to a monthly total of $70,000, and 25% of the monthly
net revenue amounts above $70,000; until the total sum of $700,000 in the
aggregate has been paid, at which time the production payment interest
will terminate;
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d.
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O
& G and San ▇▇▇▇▇▇▇ shall execute and deliver to Daybreak a good and
sufficient assignment transferring to Daybreak a 25% working interest in
the O & G/San ▇▇▇▇▇▇▇ Leases, with warranty of title by,
through and under O & G and San ▇▇▇▇▇▇▇, severally and not
jointly, subject only to the Letter Agreement between ▇▇▇▇ ▇▇▇ and San
▇▇▇▇▇▇▇ ▇▇, the Geological/Geophysical Consulting Services Agreement with
Keystone Diversified Energy, Inc., and the terms of the
O & G/San ▇▇▇▇▇▇▇
Leases;
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e.
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Daybreak
shall also use its best efforts to deliver to O & G and San ▇▇▇▇▇▇▇ a
license to the current seismic survey covering the Daybreak Leases, but
shall not be required to expend more than $5,000.00 to do so;
and
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f.
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Each
of the Parties shall execute and deliver such division orders, transfer
orders and other and further documents which may be necessary to
accomplish the transactions contemplated in this letter
agreement.
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5. Post-Closing. From
and after the closing, O & G and San ▇▇▇▇▇▇▇ shall assume and perform their
proportionate shares of the obligations arising under the Daybreak Leases, the
Chevron Agreement and the overriding royalty agreement with ▇▇▇▇▇, et
al. Daybreak shall assume and perform its proportionate share of the
obligations arising under the O & G/San ▇▇▇▇▇▇▇ Leases, the Letter Agreement
between ▇▇▇▇ ▇▇▇ and San ▇▇▇▇▇▇▇ ▇▇ and the Geological/Geophysical Consulting
Services Agreement with Keystone Diversified Energy, Inc. As among
the Parties, operations shall be conducted by Daybreak under the existing
Operating Agreement governing the Daybreak Leases, and a mutually-acceptable
operating agreement covering the O & G/San ▇▇▇▇▇▇▇ Leases. Should
Chevron elect non-consent status to the drilling of a well, then Daybreak and O
& G/San ▇▇▇▇▇▇▇ shall develop a mutually-agreeable operating agreement for
all ▇▇▇▇▇ to be drilled without Chevron participation. The Operating
Agreement shall be of an AAPL 610 Model Form
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with “in
or out” drilling non-consent penalties, no fault removal of operator by a
majority in interest, fixed rate overhead election and deletion of the
preferential right to purchase. In the event Chevron shall elect
non-consent status to the drilling of a well on a prospect within the Daybreak
Leases, and thereby forfeit its interest in such prospect, O & G and San
▇▇▇▇▇▇▇ shall have the right to assume the Chevron interest as part of their
respective ownerships, subject to an option on behalf of Daybreak to assume 25%
of the Chevron interest. Further, should any Party within three (3)
years from the date of this Agreement, contract to acquire all or a portion of
Chevron's interest in the East Slopes Project, it shall promptly notify the
other Parties and offer them the option to participate for a share of the
acquisition, based upon ownership in the proportions of 25% by Daybreak, 37.5%
by O & G, and 37.5% by San ▇▇▇▇▇▇▇.
6. Indemnification. A
portion of the interest of Daybreak in the Daybreak Leases was formerly owned by
Calstar Oil & Gas, Ltd., Nomad Hydrocarbons, Ltd., Nomad Hydrocarbons, LLC,
California Oil & Gas Corporation and Consolidated Beacon Resources,
Ltd. Daybreak agrees to indemnify, defend and hold harmless O & G
and San ▇▇▇▇▇▇▇ from and against any and all claims, demands, suits, damages,
losses and causes of action which might arise directly, or indirectly, by virtue
of the prior ownership of these parties of an interest in the Daybreak
Leases.
7. Miscellaneous.
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a.
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Relationship of the
Parties. This Agreement is not intended to create, and
nothing contained herein shall be construed as creating a partnership,
joint venture, mining partnership or other association by which one Party
is liable for the acts or omissions of any other Party
hereto. All obligations of the Parties hereto shall be several
and not joint or collective. In the conduct of operations
hereunder, Daybreak is acting as an independent contractor, and not as the
agent or employee of the other
Parties.
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b.
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Entire Agreement;
Amendments. This Agreement, including attached Exhibits,
represents the entire understanding and agreement among the Parties
regarding the matters set forth herein and supersedes any and all prior
discussions, proposals, understandings, agreements, negotiations or
representations, if any, by any Party to the other. This
Agreement may be amended only by written instrument signed by each of the
Parties hereto.
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c.
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Assignments. This
Agreement shall be freely assignable by any Party, in whole or
part. The covenants and agreements herein contained shall be
covenants running with the land, and shall be binding upon and inure to
the benefit of the Parties, their successors and
assigns.
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d.
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Invalid
Provisions. Should any provision of this Agreement be
declared unenforceable by operation of law or by reason of ambiguity, the
remaining provisions of this Agreement shall nonetheless remain in full
force and effect and the unenforceable provision shall be modified so as
to conform to the intent of the Parties with respect to such
provision.
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e.
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Third Party
Beneficiaries. There are no third parties who are
intended to be beneficiaries of this
Agreement.
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f.
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Governing
Law. Except for matters of title, which shall be
governed by the laws of the State of California, this Agreement and the
transactions contemplated hereby shall be governed by the laws of the
State of Texas, without regard to its rules concerning conflicts of
laws.
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g.
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Counterparts. This
Agreement may be executed in any number of multiple
counterparts.
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h.
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Due
Authorization. Each Party represents to the others that
its entry into the terms of this agreement and the performance thereof has
been authorized by all necessary corporate and company action by the board
of directors or governing body of such
Party.
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8. Notices. The
addresses of the parties for notice purposes under this agreement are as
follows:
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If
to Daybreak:
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Daybreak
Oil and Gas, Inc.
▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, President
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
Email: ▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
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If
to O & G:
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O
& G Energy Partners, LLC
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇–101
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇.
▇▇▇▇ ▇. ▇▇▇, President
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
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If
to San ▇▇▇▇▇▇▇:
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San
▇▇▇▇▇▇▇ Investments, Inc.
▇.▇.
▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
Email:
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Notices
shall be deemed given when actually received by a Party hereto as reflected by
the postal return receipt, courier’s record, facsimile confirmation or email
acknowledgment. Any party may change its address for notice hereunder
by giving notice to the other Parties of such change.
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If this
letter accurately sets forth your understanding of our agreement concerning the
terms under which O & G and San ▇▇▇▇▇▇▇ may acquire an interest in the
Daybreak Leases, please evidence your acceptance by signing in the space
provided below, and returning one fully-executed counterpart of this agreement
to the undersigned.
| Yours very truly, | |||
| O & G ENERGY PARTNERS, LLC | |||
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By:
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/s/ ▇▇▇▇ ▇. ▇▇▇ | |
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▇▇▇▇
▇. ▇▇▇, President
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| SAN ▇▇▇▇▇▇▇ INVESTMENTS, INC. | |||
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By:
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/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇
▇. ▇▇▇▇▇, President
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AGREED and ACCEPTED this
11th
day of June, 2009.
DAYBREAK
OIL AND GAS, INC.
By: /s/▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, President
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