EXPLORATION AGREEMENT
This Exploration Agreement ("Agreement") is entered into on this the
23rd day of March, 2002, by and between SK EXPLORATION, INC. (hereinafter
referred to as "SK"), with principal offices located at 0000 Xxx Xxxxxx, Xxxxx
000, Xxxxxxx, Xxxxx, 00000 and XXXX MISS. PARTNERS, L.P. (hereinafter referred
to as "Xxxx"), with principal offices located at Xxx Xxxxxxx Xxx., Xxxxx 000,
Xxxx Xxxxxx, XX 00000.
WHEREAS, SK is the owner of certain oil, gas and mineral leases and is
presently acquiring additional oil, gas and mineral leases located in Webster,
Clay, Chickasaw, Xxxxxxx, and Grenada Counties, Mississippi. This area has been
designated by SK as the Xxxxxxxxxx Transform Area ("Xxxxxxxxxx Area") and is
more particularly described on Exhibit "A" which is attached hereto and
incorporated herein for all purposes. Also identified on Exhibit "A" are three
exploratory prospects being the North Xxxxxxxx Prospect, Clarkston Prospect, and
Lewisville Prospect, which are sometimes collectively referred to herein as (the
"Prospects"); and
WHEREAS, Xxxx and SK desire to jointly cooperate and participate in the
exploration and development of the Xxxxxxxxxx Area.
NOW, THEREFORE, the parties hereto, with the intent to be legally
bound, in return for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, including the mutual exchange of
covenants and promises herein contained, agree as follows:
ARTICLE I
ACREAGE
A. Simultaneous with the execution of this Agreement SK shall assign,
transfer and convey to Xxxx an undivided fifty percent (50%) interest in and to
the existing Oil, Gas and Mineral Leases owned and held by SK in the Xxxxxxxxxx
Area. The Oil, Gas and Mineral Leases comprise approximately fourteen thousand
(14,000) within the Xxxxxxxxxx Transform Area. Excepting the warranties
specifically set forth in other provisions of this Agreement, the Acreage
acquired hereunder shall be conveyed to Xxxx by SK with the following
representations and warranties: (i) SK shall unconditionally warrant and defend
the title to the interest being herein assigned to Xxxx against any person or
entity claiming the same, by, through, or under SK, but not otherwise, (ii) that
any and all oil, gas and mineral leases covering the Acreage shall be in full
force and effect in accordance with the terms and conditions contained therein;
(iii) SK has full authority to execute and deliver the assignment provided for
herein in order to convey to Xxxx the full interest in the Acreage which Xxxx
contemplates hereunder; (iv) the net revenue interest assigned to Xxxx not be
less than Xxxx'x proportionate share of the actual net revenue interest which
was delivered to SK, except that SK may assign an overriding royalty interest of
no more than one percent (1.0%) in the oil, gas and mineral leases to brokers or
agents (said overriding royalty shall proportionately xxxxxx XX and Xxxx'x
interests); and (vi) the Acreage shall be assigned to Xxxx free and clear of any
mortgages, liens, burdens, or encumbrances, of any character or kind, except for
Xxxx'x proportionate share of the no more than a one percent (1%) overriding
royalty interests as identified herein. The assignment, conveyance and xxxx of
sale documents shall be in a form that is mutually agreeable to SK and Xxxx.
B. As part of the ongoing exploration and development of the Xxxxxxxxxx
Area, SK shall acquire additional Oil, Gas and Mineral Leases within the
Clarkston and Lewisville Prospects. SK has identified and anticipates the
additional acquisition of ten thousand (10,000) net mineral acres located within
the Clarkston and Lewisville Prospects("Additional Acreage"). SK will assign,
transfer and convey to Xxxx its proportionate undivided fifty percent (50%)
interest in the Additional Acreage promptly upon its acquisition by SK, and
shall in no event assign, transfer and convey the Additional Acreage within
thirty (30) days of its acquisition by SK. Xxxx agrees to pay all of the
projected actual lease acquisition and brokerage costs as set forth on the Cost
Allocation schedule which is attached hereto and incorporated herein as Exhibit
"C." The projected lease acquisition and brokerage costs associated with the
acquisition of the Additional Acreage is included within the amounts to be paid
by Xxxx pursuant to the terms of Article III hereof. It is understood and agreed
between the parties that the amounts set forth on the Cost Allocation are an
estimate of the costs associated with the acquisition of the Additional Acreage
and Xxxx agrees to pay all of the actual costs incurred to acquire the
Additional Acreage in excess of the sums set forth on the Cost Allocation. In
the event the actual costs to acquire the Additional Acreage are less than the
costs set forth on the Cost Allocation, or SK fails to acquire ten thousand
(10,000) net mineral acres, SK shall refund to Xxxx all excess funds. All
Additional Acreage acquired hereunder shall be conveyed to Xxxx by SK with the
following representations and warranties: (i) SK shall unconditionally warrant
and defend the title to the interest being herein assigned to Xxxx against any
person or entity claiming the same, by, through, or under SK, but not otherwise,
(ii) that any and all oil, gas and mineral leases covering the Additional
Acreage shall be in full force and effect in accordance with the terms and
conditions contained therein; (iii) SK has full authority to execute and deliver
the assignment provided for herein in order to convey to Xxxx the full interest
in the Additional Acreage which Xxxx contemplates hereunder; (iv) the net
revenue interest assigned to Xxxx not be less than Xxxx'x proportionate share of
the actual net revenue interest which was delivered to SK, except that SK may
assign an overriding royalty interest of no more than one percent (1.0%) in the
oil, gas and mineral leases to brokers or agents (said overriding royalty shall
proportionately xxxxxx XX and Xxxx'x interests); and (vi) the Additional Acreage
shall be assigned to Xxxx free and clear of any mortgages, liens, burdens, or
encumbrances, of any character or kind, except for Xxxx'x proportionate share of
the no more than a one percent (1%) overriding royalty interests as identified
herein. The assignment, conveyance and xxxx of sale documents shall be in a form
that is agreeable to SK and Xxxx.
C. SK and Xxxx hereby establish an Area of Mutual Interest which shall
encompass all the lands identified on Exhibit "D". The term "Area of Mutual
Interest" ("AMI") shall include all of the lands, oil, gas and mineral leasehold
interests, royalty interests, mineral interests, farm-ins, farmouts, contracts,
agreements, and personal property used or obtained in connection therewith and
all oil, gas and mineral interests, leasehold interests, mineral interests,
and/or royalty interests of every kind and nature within the lands described on
Exhibit "D". The term AMI shall also include the oil, gas and mineral interests,
leasehold interests, royalty interests, contractual interests attributable to
the lands outside such area which are required to be taken by lease, farmout or
otherwise in order to get coverage on the oil, gas and mineral interests
attributable to land described on Exhibit "A". The parties shall share the
interests acquired within the AMI as follows:
SK - 50%
Xxxx - 50%
Either party making an acquisition ("Acquiring Party") shall give the
other party written notice within ten (10) days of consummating such transaction
of the terms of the transaction, including but not limited to, the type of
interest acquired, contract or lease terms, and the costs of acquisition. The
party receiving such notice ("Reimbursing Party") shall have ten (10) days from
the date of receipt to elect to acquire its proportionate share of such acquired
interest. Failure to timely make an election to participate shall be deemed as
an affirmative election not to participate in the acquisition. In order to
exercise such election, the Reimbursing Party receiving notice shall tender to
the Acquiring Party its proportionate share of the costs of such acquisition
together with its written election to participate. Upon tendering such
reimbursement, the Reimbursing Party shall be considered a proportionate owner
of the interest so acquired and the Acquiring Party shall immediately execute,
acknowledge and tender to the Reimbursing Party an assignment and/or conveyance
of its proportionate interest. Each of the parties hereto agrees to assist the
other in obtaining abstracts of title, title opinions, and other title data
including title curative data. Each of the parties agrees to reimburse the other
for its proportionate share of the costs of obtaining such data, curing title
and brokerage fees as to any interests shared pursuant to the AMI. None of the
other parties hereto shall be liable to the other in damages or otherwise for
failure to perform under the terms hereof. The only consequence of such
non-performance shall be the loss of all rights of the non-performing party
hereunder except as to all interests within the AMI as to which such party has
performed. The term of this AMI shall be for a period of ten (10) years and for
as long thereafter as any oil, gas and mineral lease subject to this Agreement
remain or are continued in force and effect as to any part of the AMI, whether
by production, extension, renewal, or otherwise.
D. In the event that any of the oil, gas and mineral leases covering
the Acreage, the Additional Acreage, or is acquired under the AMI, covers less
than the full undivided mineral interest in the lands covered thereby, then the
interest to be conveyed herein, shall be proportionately reduced in direct
proportion to that which the mineral interests actually covered under said oil,
gas and mineral leases. Such interest shall also be proportionately reduced in
the event the oil, gas and mineral leases cover less than the full leasehold or
mineral title, or in the event the acquiring party did not acquire a full
interest in the oil, gas and mineral leases.
E. SK shall provide to Xxxx, at SK's sole cost and expense, copies of
the oil, gas and mineral leases, title run sheets, title reports, title
opinions, division orders, and any other documentation relating to the Acreage,
the Additional Acreage, and any acreage acquired pursuant to the terms of the
AMI.
ARTICLE II
GEOPHYSICAL DATA
A. SK shall acquire and provide to Xxxx seismic data covering and
including the Xxxxxxxxxx Area at the cost as set forth on the Cost Allocation
Schedule (hereinafter the "Xxxxxxxxxx Data"). The license for the Xxxxxxxxxx
Data shall name both SK and Xxxx as licensees with equal right to the use of the
Xxxxxxxxxx Data. SK shall, at their sole cost and expense, provide to Xxxx,
reasonable access to the geophysical workstation located at SK's offices in
order to properly, timely, and independently evaluate the geologic and/or
geophysical merit of the Xxxxxxxxxx Area. Additionally, SK shall provide to Xxxx
access to all associated well data, engineering data, geological data, and any
and all other geophysical data or information which SK possesses within the
Xxxxxxxxxx Area, including but not limited to interpretations of existing
seismic logs, cores, and production history.
B. SK shall obtain reprocessing of the Xxxxxxxxxx Data covering and
including the Xxxxxxxxxx Area at a cost as set forth on the attached Cost
Allocation Schedule. The reprocessed seismic data shall be owned in equal shares
by SK and Xxxx.
C. SK shall engage the services of a geophysicist to interpret the
acquired and reprocessed seismic data covering the Xxxxxxxxxx Area and the AMI
at a cost as set forth on the attached Cost Allocation Schedule.
D. SK shall at its sole cost and expense provide the initial
interpretation of the seismic data for exploration and development of the
Xxxxxxxxxx Area.
ARTICLE III
FUNDING
Upon the execution of this Agreement, Xxxx shall pay to SK the sum of
One Million Eight Hundred Five Thousand Dollars ($1,805,000.00) which represents
the amount equal to the actual costs for the Acreage the proposed Additional
Acreage costs and Geophysical costs set forth on the Cost Allocation Schedule,
and one half of SK's promoted costs. Additionally, Xxxx agrees to pay to SK on
or before January 1, 2003 the additional sum of Four Hundred Twenty Five
Thousand Dollars ($425,000.00), which represents a total purchase price of Two
Million Two Hundred Thirty Thousand Dollars ($2,230,000.00). The purchase price
will be allocated in substantially the fashion described on the Cost Allocation
schedule attached hereto. If Xxxx fails to pay the sum due by January 1, 2003 to
SK, Xxxx must reassign the Acreage and Additional Acreage to SK, free and clear
of all liens and encumbrances.
ARTICLE IV
SALE OF INTEREST
A. For a period of one (1) year from the date of this Agreement, SK and
Xxxx mutually agree to cooperate in effecting the sale of the entirety of the
oil, gas and mineral leasehold acreage jointly owned within the Xxxxxxxxxx Area,
including the Longview Prospect and Xxxxxx Prospect which are located in
Oktibbeha County, Mississippi and which are the subject matter of a certain
Exploration Agreement dated March 23, 2002, by and between SKH Energy Partners
II, L.P. and Xxxx Miss. Partners, L.P.
B. In the event of a joint sale by Xxxx and SK of some or all of the
lands within the Xxxxxxxxxx Area, Xxxx will be entitled to receive all of
proceeds derived from such sale or sales until such time as Xxxx receives Eight
Hundred Fifty Thousand Dollars ($850,000.00). After Xxxx has recovered the first
Eight Hundred Fifty Thousand Dollars ($850,000.00) all proceeds derived from
such sale or sales shall be allocated to SK and Xxxx according to their
respective interests. If such sale or sales occur prior to January 1, 2003, Xxxx
will be limited to the receipt of the first Four Hundred Twenty Five Thousand
Dollars ($425,000.00) derived from the proceeds of such sale or sales and the
payment due to SK from Xxxx in the amount of Four Hundred Twenty Five Thousand
Dollars ($425,000.00) identified hereinabove in Article III will be waived by SK
and will not due and owing by Xxxx.
C. In the event that there are sales of the acreage within the
Xxxxxxxxxx Area and the parties drill and complete an Initial Prospect
Exploratory Well(as defined herein) as a well capable of commercial production,
SK agrees to executed and deliver a conveyance (in a mutually acceptable form)
to Xxxx of a production payment equivalent to ten percent of eight eighths (10%
of 8/8ths) of SK's portion of the revenue from the Initial Prospect Exploratory
Well until Xxxx has recovered and received the total sum of eight hundred fifty
thousand dollars ($850,000.00).
ARTICLE V
JOINT OPERATIONS
All operations conducted in the Xxxxxxxxxx Area shall be subjected to
the provisions of a Joint Operating Agreement. All operations conducted on the
Xxxxxxxxxx Area shall be subject to the provisions of a Joint Operating
Agreement. The Joint Operating Agreement shall be in the form and language of
AAPL Form 610-1989, with the modifications and additions as set forth on Exhibit
"E", attached hereto, including any further or additional modifications or
amendments as may be mutually agreed by the parties ("JOA"). Xxxx shall be named
as the Operator under the JOA. SK agrees to execute and deliver to Xxxx the JOA
contemplated in this paragraph at Closing. In the event of a conflict between
this Agreement and the terms of the JOA, this Agreement shall prevail.
ARTICLE VI
EXPLORATORY WELL
A. SK and Xxxx agree that for a period of one (1) year from the date of
execution of this Agreement neither party will propose the drilling of a well
within the Xxxxxxxxxx Area.
B. After one (1) year from the date of the execution of this Agreement,
either party may propose the drilling of an initial prospect exploratory well
("Initial Prospect Exploratory Well") within the Xxxxxxxxxx Area for any
Prospect Area (as hereinafter defined). Should any party desire to propose such
Initial Prospect Exploratory Well ("Proposing Party"), said Proposing Party
shall make the proposal in writing and provide the other party the following:
(i) a structure map of the prospect to be tested at objective
depths;
(ii) an outline defining the Prospect Area. As a general rule, it is
the intent of the parties that the Prospect Area outline shall
be drawn on the nearest quarter section line outside the lowest
closing contour of the structure rot be tested, or in the case
of a stratigraphic trap or fault trap, the outline shall be
drawn to the nearest quarter section lines outside the
stratigraphic trapping boundary or the trapping fault plane.
(iii) an Authorization For Expenditure ("AFE") depicting both the cost
for a dry hole and for a completed producing well.
(v) a leasehold and ownership map covering the Prospect Area.
The party receiving such notice ("Electing Party") shall have thirty (30) days
following the receipt of all items set forth above in which to make its election
to participate in the Initial Prospect Exploratory Well pursuant to the terms
hereof. The JOA will govern the operations of the Initial Prospect Exploratory
Well proposed for the Prospect Area, except to the extent it does not conflict
wit the provisions of this Agreement, including, but not limited to the
relinquishment provision set forth herein.
Failure to timely make an election to participate shall be deemed as an
affirmative election not to participate in the Initial Prospect Exploratory Well
for a Prospect Area. A non-participating Party in the Initial Prospect
Exploratory Well for any Prospect Area will relinquish its interest to the
participating party as follows:
(i) In the event the Initial Prospect Exploratory Well l is drilled
to the objective formation and is capable of production in
paying quantities, relinquish one hundred percent (100%) of its
interest or right to earn or acquire an interest in the
producing unit established for the Initial Prospect Exploratory
Well, and relinquish fifty percent (50%) of its interest or
right to earn or acquire a interest in the remainder of the
Prospect Area to the participating Party.
(i) In the event the Initial Prospect Exploratory Well is drilled to
the objective formation and drilled as a dry hole, the amount of
acreage relinquished to the participating Party as to the
aforementioned one hundred percent (100%) interest will be
limited to the applicable statewide or field spacing rules (for
the field
where the well is located) established by the Mississippi Oil &
Gas Commission for the producing units for the objective
formation as if the well had been completed as a producer. In
the event the well is drilled to the objective formation and
drilled as a dry hole then the relinquishment of the
aforementioned fifty percent (50%) interest will still apply as
to the balance of the Prospect Area.
(i) In the event the participating Party while drilling in good
faith, fails to reach the objective formation due to
impenetrable substances or conditions in the hole which in a
prudent operator's opinion would render further drilling
impracticable but encounters producible hydrocarbons in a
shallower formation, and should such Party desire to complete
the well at such shallower formation it may elect to do so. In
this case, should the completion attempt result in a productive
well or a well capable of production in paying quantities, the
non-participating Party will relinquish to the participating
Party one hundred percent (100%) of its interest in the
producing unit established for the well and relinquish fifty
percent (50%) of its interest or right to earn or acquire a
interest in the remainder of the Prospect Area to the
participating Party.
C. All subsequent xxxxx drilled in a Prospect Area shall be proposed by
the parties in accordance with the JOA. All subsequent operations conducted on
an Initial Prospect Exploratory Well and all subsequent xxxxx shall be in
accordance with the JOA.
ARTICLE VII
RELATIONSHIP OF PARTIES
A. The parties hereto expressly do not intend to create, and no
provision hereof shall be construed as creating a partnership, joint venture,
mining partnership, corporation, association or other relationship whereby any
party hereto shall ever be held liable for the acts either by omission or
commission, of the other, the liability of all the respective parties hereto
being several and not joint or collective. Each party shall be individually
responsible for its own obligations as set out in this Agreement and in the JOA.
B. Each party hereto agrees to defend, indemnify, save, and hold
harmless the other party from and against any and all claims, demands, causes of
action, and damages to third parties claiming under a party hereto for
brokerage, commission, finders, or other fees relative to this Agreement, or the
transactions contemplated hereby, together with any court costs, attorney's fees
or other costs or expenses arising therefrom.
C. Nothing in this Agreement (express or implied) is intended or shall
be construed to confer upon any person or entity not a party hereto any right,
remedy or claim under, or by reason of, this Agreement.
ARTICLE VIII
NOTICES
A. Except as otherwise expressly provided herein, all notices or
information required pursuant to this Agreement shall be in writing, and shall
be given or served by facsimile and by delivering the same in person to such
party. Notice in the manner herein described shall be effective, from and after
receipt of such notice by the addressee. Notice given in any other manner
(including, but not limited to, notice by courier, delivery, FedEx, or other
delivery service) shall be effective only if and when received by the party to
be notified. In the event the addressee refuses delivery of any such notice,
then such notice shall be deemed as received on the postal date of such refusal.
The addresses for the parties shall be as follows:
If to Xxxx:
Xxxx Miss. Limited Partners, L.P.
Xxx Xxxxxxx Xxx, Xxxxx 000000
Xxxx Xxxxxx, XX 00000
Office: (000) 000-0000
Fax: (000) 000-0000
Attn: Mr. Xxxxxxx Xxxxxxxxxx
With copy to:
Klehr, Harrison, Xxxxxx, Branzburg and Xxxxxx
Attn: Xxxxx Xxxxxxxx, Esq.
000 X. Xxxxx Xxxxxx Xxx. 000
Xxxxxxxxxxxx, XX 00000
If to SK:
SK Exploration, Inc.
0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Office: (713) 782-1075
Fax: (000) 000-0000
Attn: Xx. Xxxxxx X. Xxxx, Xx.
Any party may, by written notice so delivered to the other as set forth
above, change the address to which the deliver shall thereafter be made.
ARTICLE IX
MISCELLANEOUS MATTERS
A. TIME IS OF THE ESSENCE IN THIS AGREEMENT. This Agreement and all
operations hereunder shall be subject to all valid and applicable laws, orders,
rules and regulations of any governmental body having jurisdiction over such
operations. This Agreement and the legal relations amount the parties hereto
shall be governed by and construed in accordance with the substantive laws of
the State of Texas.
B. Any of the terms, provisions, covenants, representations, warranties
or conditions hereof may be waived only by a written instrument executed by the
party waiving compliance. Except as otherwise expressly provided in this
Agreement, the failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect such party's right to enforce
the same.
C. All the terms, provisions, covenants, obligations, indemnities,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns. Any assignment of the parties rights
hereunder to any third party shall be made expressly subject to all of the
terms, provisions, covenants, obligations, indemnities, representations,
warranties and conditions of this Agreement and the JOA.
D. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
E. The parties acknowledge that they have had an adequate opportunity
to review each and every provision contained in this Agreement, including the
opportunity to submit the same to legal counsel for review and comment. Based on
said review and consultation, the parties agree with each and every term
contained in the Agreement. Based on the foregoing, the parties agree that the
rule of construction that a contract be construed against the drafter, if any,
shall not be applied in the interpretation and construction of this Agreement.
F. This Agreement may be executed in a number of counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same Agreement. It shall not be necessary that the Parties hereto execute a
single counterpart hereof, and this Agreement shall be effective when each party
hereto has executed a counterpart hereof (whether or not any other party has
executed the same counterpart).
G. The subject headings of the articles, sections and subsections of
this Agreement are included solely for purposes of convenience and reference
only, and shall not be deemed to explain, modify, limit, amplify or aid in the
meaning, construction or interpretation of any of the provisions of this
Agreement.
H. The Parties have entered into this Agreement for their own accounts
and shall acquire any Leases hereunder for their own accounts and not with the
intent to make a distribution hereof within the meaning of Securities Act of
1933 and the rules and regulations pertaining to it or distribution thereof in
violation of any applicable securities laws.
I. Each Party hereto shall from time to time do and perform such
further acts and execute and deliver such further instruments, assignments and
documents as may be required or reasonably requested by the parties hereto to
carry out and effect the intentions and purposes of this Agreement.
IN WITNESS HEREOF, the undersigned parties have executed this Agreement
on the day set forth hereinabove but such Agreement is effective March 20, 2002.
XXXX MISS. PARTNERS, L.P. SK EXPLORATION, INC.
By: XXXX MISS., LLC
By: /s/ Xxxx X. Xxxx By: /s/ Xxxxx Xxxxx
----------------------------- --------------------------------
Xxxx X. Xxxx, Managing Member Xxxxx Xxxxx, Vice-President
