Bayshore Exploration L.L.C. 00000 Xxx Xxxxxxx, Xxxxx 000
Xxxx, Xxxxx 00000
Phone (000) 000-0000
Fax (000) 000-0000
Xxxxxx Energy, Inc.
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx Xxxx, Xxxxxx 00000
EXPLORATION AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of March, 2006 by
and between BAYSHORE EXPLORATION LLC ("Bayshore"), a Texas limited liability
company and XXXXXX ENERGY, INC. ("Xxxxxx"), a Nevada corporation (collectively
referred to in this Agreement as the "Parties").
In consideration of the covenants contained in this Agreement, the
Parties agree as follows:
ARTICLE I
PURPOSE OF THE AGREEMENT
1.1 The Parties hereby join together for the purpose of developing the
existing Xxxxx Ranch Prospect acreage (8,840 acres, more or less) and acquiring
additional prospective oil and gas properties on which to explore for, develop
and produce oil and gas thereon in accordance with the terms and provisions of
this Agreement.
ARTICLE II
DEFINITIONS
2.1 "Area of Mutual Interest" ("AMI") is the area outlined with the
bold outline on Exhibit "A" and Exhibit "B" attached hereto and located in La
Salle County, Texas.
2.2 "Excluded Interest" shall have the same meaning as set forth in
Article 6.1.
2.3 "Oil and Gas Interest" shall refer to oil and gas leases, and
contractual rights thereto such as farm-out agreements, participation
agreements, assignments and back-in agreements covering and relating to oil and
gas, or either of them.
2.4 "Oil and Gas" shall include not only hydrocarbons, but also other
minerals to the extent the lease or other instrument affecting or relating to
oil and gas or either of them also affects or relates to other minerals.
2.5 "Operating Agreement" shall mean the Joint Operating Agreement
attached hereto as Exhibit "C."
Page 2 March 1, 2006
2.6 "Original Acquiring Party" is the party who is subject to this
agreement that first acquires an Oil and Gas Interest in the AMI.
ARTICLE III
EXHIBITS
The following exhibits are attached hereto and made a part hereof for
all purposes:
3.1 Exhibit "A" and Exhibit "B" describe and outline the Area of Mutual
Interest of the Parties.
3.2 Exhibit "C" is the form of Operating Agreement that the Parties are
executing contemporaneously with the execution of this Agreement to govern oil
and gas exploration, development and operations on the jointly acquired
properties.
3.3 Exhibit "D" is the certain Purchase Agreement dated December 30,
2005 between the parties for the purchase of additional working and leasehold
interest by Xxxxxx in the Xxxxx Ranch 8840 acre project.
ARTICLE IV
EXPANSION OF THE AREA OF MUTUAL INTEREST
4.1 The AMI shall automatically be expanded under the following terms
and conditions:
In the event a test well in search of hydrocarbons is drilled within 5,280 feet
of the boundary of the AMI and encounters formations which indicate hydrocarbons
the AMI shall automatically be expanded to include an area of 640 acres, as near
as reasonably possible in the shape of a square around such well with such well
to be located as near as reasonably possible in the center of such area. Only
the Parties participating in said test well mentioned above shall have the right
to participate in the expansion of the AMI.
In the event geophysical operations are conducted within the AMI or such data is
purchased, and a party elects not to participate in such expense, then that
party shall not be entitled to access or ownership of such data.
ARTICLE V
PRESENT STATUS OF OPERATIONS
WITHIN THE AMI
5.1 Within the AMI the Parties have drilled two xxxxx. The Xxxxx No. 3
Well has been completed in the Escondido Formation as an oil well. Bayshore, et
al, owns 91.5% working interest and Xxxxxx owns 8.5% working interest in the
well. The Xxxxxxxxxx No. 1 Well has been drilled and is in the process of being
completed in the Escondido formation. Bayshore, et al, owns 88.25% working
interest and Xxxxxx owns 11.75% working interest in the well with the right for
Xxxxxx to acquire an additional 20% working interest pursuant to an agreement
dated December 30, 2005 attached hereto as Exhibit "D." Under the terms of the
purchase agreement Xxxxxx will also own a 31.75% leasehold interest in the 8840
acre Xxxxx Ranch project. In addition, the Parties are evaluating the subject
acreage for additional drilling locations.
Page 3 March 1, 2006
ARTICLE VI
ACQUISITION OF OIL AND GAS INTEREST
WITHIN THE AMI
6.1 If any of the Parties acquire any Oil and Gas Interest within the
AMI during the term of this Agreement, the party acquiring such Oil and Gas
Interest (the "original acquiring party") shall give the other parties written
notice, with supporting documentation of the interest acquired and the actual
cost, terms and conditions of such acquisition within fifteen (15) days of the
actual date of acquisition. Each of the Parties receiving such written notice
shall have thirty (30) days (or forty-eight [48] hours if there is drilling rig
on the property covered by the Oil and Gas Interest) after receipt of written
notice of such acquisition, to acquire a share of the Oil and Gas Interest. Such
election shall be made by delivering by Express Mail to the original acquiring
party its share of the actual acquisition costs as determined by this Agreement
and agreeing to be bound by the terms and conditions of the acquisition. Failure
to respond within the specified period shall conclusively be deemed to be an
election not to acquire an interest in the Oil and Gas Interest so offered and
as to such party, the Oil and Gas Interest will be excluded from the AMI
(referred to hereafter as the "Excluded Interest"). Each party shall be entitled
to acquire in the acquisition, the proportion that such party's interest as set
forth in the Operating Agreement bears to the total interest of the parties
electing to participate in the acquisition and shall deliver to the original
acquiring party its proportionate share of the actual cost of the acquisition at
the time the election is made. Any acreage so acquired within the AMI that
Xxxxxx elects to participate in for its proportionate share shall be subject to
a 75% Net Revenue Interest (NRI). The terms of the Area of Mutual Interest shall
run concurrent with this Agreement.
6.2 In the event any party elects not to acquire its proportionate
share of any Oil and Gas Interest offered to it pursuant to paragraph 6.1 of
this Agreement, such party agrees that:
(i) It shall hereafter not be entitled to the benefits of Paragraph 6.1
of this Agreement as to any Oil and Gas Interest acquired by the participating
parties.
(ii) It will not acquire or attempt to acquire through itself or any of
its representatives, officers or directors, any Oil and Gas Interest within the
Excluded Interest for a period of three (3) calendar years after the date of its
election not to acquire the Oil and Gas Interest offered to it by the original
acquiring party.
ARTICLE VII
ASSIGNMENTS
7.1 Within forty-five (45) days after a party's election hereunder to
acquire a portion of an Oil and Gas Interest, the original acquiring party shall
assign to all parties who elect to acquire a portion of an Oil and Gas Interest
the interest so acquired.
ARTICLE VIII
OPERATIONS OF THE OIL AND GAS INTERESTS
ACQUIRED BY ALL OF THE PARTIES
8.1 The Oil and Gas Interests and the properties covered thereby shall
be operated by the parties in accordance with the terms and provisions of the
Operating Agreement attached hereto as Exhibit "C" when such Oil and Gas
Interest is owned by all of the parties in the proportion set forth in Exhibit
"A" to such Operating Agreement. The location and timing of the initial well to
be drilled under the terms of the Operating Agreement will be determined by the
Operator.
Page 4 March 1, 2006
ARTICLE IX
OPERATIONS OF THE OIL AND GAS INTERESTS
IN THE EVENT OF AN ELECTION BY LESS THAN
ALL PARTIES TO ACQUIRE OIL AND GAS INTEREST
9.1 In the event an Oil and Gas Interest becomes an Excluded Interest,
the property covered thereby shall be deleted from the Operating Agreement
attached hereto as Exhibit "C", and the parties acquiring such interest shall
enter into successor operating agreement on the same terms and conditions as the
Operating Agreement attached hereto as Exhibit "C," except the Operating
Agreement shall be limited to and cover only the Excluded Interest and the
ownership interest of the party shall be revised to reflect their ownership of
the Excluded Interest covered by the successor operating agreement.
ARTICLE X
TERM OF THIS AGREEMENT
10.1 This Agreement shall be effective as of March 1, 2006 and shall
continue for a period of three (3) years or a period of six (6) months after the
termination of the last expiring leasehold interest acquired pursuant to the
terms of this Agreement, whichever is the later date.
ARTICLE XI
GENERAL
11.1 The Parties agree to execute such additional agreements and
documents as may be necessary to effectuate the intentions of this Agreement.
11.2 Unless otherwise specified in this Agreement, notice of the
parties shall be deemed sufficiently given, if sent by first class mail or
facsimile document transfer addressed to the party to be notified, at the
address stated herein, and shall be deemed to have been received within
seventy-two (72) hours of posting or at the time set forth on the facsimile
document transfer transmission statement, as the case may be; provided that if
the time period for receipt expires on Saturday, Sunday, or a legal holiday, the
time for receipt shall be deemed to be the next ensuing business day.
11.3 This Agreement shall be construed in accordance with and governed
by the laws of the State of Texas, shall be binding upon and shall inure to the
benefit of the Parties and shall extend to and be binding upon their respective
successors and assigns.
11.4 This Agreement shall supersede all prior oral and written
agreements between the Parties in connection with the AMI matter hereof.
11.5 This Agreement may not be altered except in writing signed by all
Parties. In addition the Parties agree not to enter into any new agreement or
agreements concerning the matters set forth herein unless such agreement or
agreements are evidenced by a written document signed by all of the Parties.
11.6 The section headings are inserted for convenience only and shall
not control the meaning or construction of any provisions of this Agreement.
Page 5 March 1, 2006
11.7 In the event of a conflict between the terms of this Agreement and
any Exhibit attached hereto, this Agreement shall control.
EXECUTED THIS 17th day of April, 2006 but effective as of March 1,
2006.
BAYSHORE EXPLORATION L.L.C.
By: /s/ Xxxxx Xxxxxxxx
-------------------------
Xxxxx Xxxxxxxx, President
XXXXXX ENERGY, INC.
By: /s/ Xxxxxx Xxxxxxxx
-------------------------
Xxxxxx Xxxxxxxx, CEO
