Exhibit 10.4
DRILLING AND SEISMIC OPTION AGREEMENT
NUCLA PROSPECT,
MONTROSE COUNTY, COLORADO
This Drilling and Seismic Option Agreement ("Option" or "Agreement"), dated
February 24, 2003, is by and between the Nucla Prospect Group whose address for
the purposes of this Agreement is c/o Plateau Exploration, Inc., 0000 Xxxxx
Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx, 00000 ("NPG") and Solaris Exploration, Inc.,
00000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 ("Solaris"). The
members of the Nucla Prospect Group are listed on Exhibit "A". NPG and Solaris
may be referred to individually as a "Party" or collectively as the "Parties".
RECITALS:
---------
A. NPG is the owner of certain oil and gas leases comprising approximately
40,547 net acres of approximately 43,007 gross acres located in Montrose County,
Colorado, described on Exhibit "B" (the "Leases"). The Leases lie within an
"Area of Mutual Interest," as defined below, which is described on Exhibits "C"
and "D".
B. NPG has agreed to grant to Solaris an exclusive and irrevocable option
to acquire 100% of NPG's leasehold interest in and to the Leases and/or drill
test xxxxx on a Drilling Block (as defined below) by Drilling Block basis,
subject to a reserved overriding royalty interest in favor of NPG as defined in
Article 12 below ("NPG's ORI"), it being the intent of NPG to deliver Solaris an
80% net revenue interest in the Leases.
C. To evaluate whether to exercise the Option on a Drilling Block by
Drilling Block basis, or otherwise, during the Option Periods (as defined
below), Solaris has agreed to drill test well or xxxxx at Solaris's sole cost,
risk and expense, on one or more of the Drilling Blocks, such xxxxx to include
without limitation, the Initial Test Well, the Option Test Xxxxx, and any other
oil and gas well or other well drilled on the Leases (collectively the "Xxxxx").
D. During the Option Periods, Solaris has agreed to conduct certain
operations on the Leases to further evaluate whether to exercise the Option.
E. The designated contact person and representative spokesperson for NPG
shall be Xx. Xxxxxx X. Xxxxxxxxx, President of Plateau Exploration, Inc. Xx.
Xxxxxxxxx is not the agent or attorney in fact for the NPG and owes no fiduciary
or other duty to the other members of the NPG.
F. To accomplish the foregoing, NPG and Solaris wish to enter into this
Agreement.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the premises, $100.00 and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Parties, NPG and Solaris agree as follows:
1
1. Leases.
----------
The Leases are defined as all of NPG's right, title and interest in and to
the following:
a. All of NPG's right, title and interest in and to the Leases, as
more specifically described on Exhibit "B", and the lands covered thereby
(the "Lands") subject to NPG's ORI and any restrictions, exceptions,
reservations, conditions, limitations, burdens, contracts, agreements and
other matters applicable to the Leases that are of record in the county
and/or in the appropriate governmental agency where the Leases are located.
b. The right, title and interest of NPG in and to, or derived from,
all valid oil, gas and mineral unitization, pooling, operating and
communization agreements, declarations and orders affecting the Leases, and
in and to the properties covered and the units created thereby, as more
specifically described on Exhibit "B".
c. The right, title and interest of NPG in and to the personal
property and fixtures that are appurtenant to the Leases, if any, or the
units referred to in subsection 1.b. above, including all personal property
and oil field equipment on such Leases.
d. The right, title and interest of NPG in and to and under, or
derived from, all valid contracts and agreements and instruments, only to
the extent and insofar as the same are appurtenant to the Leases and the
units referred to in subsection 1.b. above.
2. Drilling Blocks.
-------------------
The Leases are subdivided into the following three Drilling Blocks:
Xxxxxxxx Xxxxx #0, Xxxxxxxx Xxxxx #0, and Drilling Block #3, as more
specifically defined on Exhibit "E" and on the map in Exhibit "F". The Parties
may mutually agree on other nine-section Drilling Blocks to be used as
substitutes for Drilling Blocks #2 and/or #3 (with such Drilling Blocks being
the "Substitute Drilling Blocks").
3. Grant of the Option.
-----------------------
NPG grants and conveys to Solaris the exclusive and irrevocable option to
purchase 100% of NPG's right, title and interest in the Leases upon the terms
and conditions set forth herein (the "Option").
4. Drilling Block #1/First Option Period.
-----------------------------------------
Solaris agrees to pay NPG a non-refundable $150,000.00 (hereafter the
"First Option Exercise Price", which is approximately $25.00 per gross mineral
acre for 5,760 gross mineral acres in Drilling Block #1) for the right to access
the Leases, including Drilling Block # 1 and to conduct certain operations
thereon during the First Option Period.
a. Payment of the First Option Exercise Price.
----------------------------------------------
The First Option Exercise Price shall be $150,000.00, such amount to
be paid as follows: (i) Upon execution of the Agreement, Solaris agrees to
pay NPG the sum of $50,000.00; (ii) on or before April 30, 2003, Solaris
agrees to pay NPG the sum of $50,000.00 and (iii) on or before July 31,
2003, Solaris agrees to pay NPG the sum of $50,000.00. The First Option
Exercise Price, including any partial payments thereof, is non-refundable.
If any of the three installments of the First Option Exercise Price is not
timely paid, this Agreement shall terminate and be of no force and effect
and NPG shall retain all monies paid to date. Solaris's timely payment of
2
the three installments of the First Option Exercise Price shall be a
condition precedent to the effectiveness of this Agreement. Notwithstanding
the foregoing, if Solaris elects to drill the Initial Test Well prior to
the due date of the third installment of the First Option Exercise Price,
the entire outstanding balance of the First Option Exercise Price shall be
due and payable before Solaris may spud the Initial Test Well. First Option
Exercise Price shall be paid to NPG in cash or certified funds delivered or
wire transferred to NPG. NPG shall provide written wire transfer
instructions to Solaris.
b. First Option Period.
-----------------------
The "First Option Period" shall begin at the execution of this
Agreement and shall continue until Monday, December 1, 2003 or 12 months
from release of the drilling rig of the Initial Test Well, whichever is
later; provided however, that the First Option Period will end in no event
later than Wednesday December 1, 2004 (with that date being the "End of the
First Option Period").
c. Initial Test Well Assignment.
--------------------------------
Contemporaneously with payment of the First Option Exercise Price in
its entirety, the Parties agree to execute the "Initial Test Well
Assignment" and place it in escrow with the Escrow Agent. With respect to
the Initial Test Well Assignment, the Parties agree to instruct the Escrow
Agent as follows: (i) if actual drilling operations are not commenced as
provided for in Article 4 below, then the Parties hereby instruct the
Escrow Agent to return the Initial Test Well Assignment to NPG or (ii) if
the Initial Test Well is completed as a well capable of production in
paying quantities, then the Parties hereby instruct the Escrow Agent to
deliver the Initial Test Well Assignment to Solaris. For the purposes of
this Agreement, "Escrow Agent" shall mean the firm of Hale, Hackstaff,
Tymkovich LLP, 0000 Xxxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx, 00000 ("HHT" or
"Escrow Agent"), which agrees to hold the Initial Test Well Assignment
pursuant to the terms of a mutually acceptable Escrow Agreement.
d. The Initial Test Well.
-------------------------
During the First Option Period, but after full payment of the First
Option Exercise Price, Solaris (as contract operator for NPG) shall
commence to drill (with due diligence) an "Initial Test Well" at a location
in the SESW Section 16, Township 47 North, Range 14 West or as otherwise
approved by the Parties, to a depth of 6,400 feet or sufficient depth until
the upper 50 feet of the Precambrian Basement has been tested (penetrated),
whichever is the greater depth, or to another depth as agreed to by the
Parties (with such depth being the "Target Depth"). Failure of Solaris to
drill, or cause to drill, or at least to spud the Initial Test Well during
the First Option Period (after full payment of the First Option Exercise
Price), will have the following effect: (i) this Agreement will
automatically terminate, (ii) NPG will have no further obligations under
this Agreement and (iii) NPG and Solaris hereby instruct the Escrow Agent
to deliver the Initial Test Well Assignment to NPG.
(i) Drilling And Completion Of The Initial Test Well As A
-----------------------------------------------------------------
Successful Commercial Oil and/or Gas Well.
----------------------------------------------------------------------
By drilling the Initial Test Well to the Target Depth, and
successfully completing the Initial Test Well as a well capable of
production in paying quantities, Solaris will then earn the right to
receive an assignment from NPG of all formations and all depths in the
Leases comprising Drilling Block #1 (the "First Test Well
Assignment"), in which event NPG and Solaris hereby instruct the
Escrow Agent to deliver the Initial Test Well Assignment to Solaris.
After having drilled and successfully completed the Initial Test Well,
if Solaris elects not to drill the Second Option Test Well (as defined
below) and elects not to pay the Second Option Exercise Price and not
3
begin the Second Option Period, then (a) Solaris earns an assignment
of the Leases assigned in the Initial Test Well Assignment, (b) the
AMI is reduced to cover the lands within the exterior boundary of
Drilling Block #1, and (c) then Solaris agrees to assign to NPG any
interest Solaris may have acquired in Leases outside Drilling Block
#1. However, after having successfully drilled and completed the
Initial Test Well, Solaris may exercise its option to purchase all of
the "Remaining Leases" at one time, as set forth in Section 7 below.
(ii) Drilling And Completion Of The Initial Test Well As An
-----------------------------------------------------------------
Unsuccessful Commercial Oil and/or Gas Well.
--------------------------------------------
If the Initial Test Well is an unsuccessful commercial oil and/or
gas well, Solaris will not earn interest in acreage within Drilling
Block #1, and NPG shall have no obligation to assign Solaris any
interest in the Leases comprising Drilling Block #1. If Solaris elects
to quit the Nucla Prospect after the unsuccessful Initial Test Well
and not to drill an Second Option Test Well and elects not to pay the
Second Option Exercise Price and not begin the Second Option Period,
then (i) then Solaris agrees to assign to NPG any interest Solaris may
have acquired in Leases within the AMI and (ii) NPG and Solaris hereby
direct the Escrow Agent to deliver the Initial Test Well Assignment to
NPG.
e. Expiration of First Option Period.
-------------------------------------
After the End of the First Option Period, this Agreement shall then be
of no force and effect unless on or before the End of the First Option
Period, Solaris, at its sole discretion, exercises its option to begin the
Second Option Period by paying the Second Option Exercise Price.
5. Second Option Period/Drilling Blocks #2 or #3.
-------------------------------------------------
On or before the End of the First Option Period, Solaris, at its sole
discretion, may elect to pay NPG the "Second Option Exercise Price" for the
rights to (a) access either Drilling Block #2, or Drilling Block #3, or a
Substitute Drilling Block if Solaris agrees, and the Leases and (b) conduct
certain operations thereon during the Second Option Period. Second Option
Exercise Price shall be calculated by multiplying the gross acres contained in
the applicable Drilling Block times the cost per gross acre as set forth in
Article 8 below. The Second Option Exercise Price is non-refundable. If the
Second Option Exercise Price is not timely paid, this Agreement shall terminate
as of End of the First Option Period and be of no force and effect. Solaris's
payment of the Second Option Exercise Price shall be a condition precedent to
the effectiveness of this Agreement after the End of the First Option Period.
Second Option Exercise Price shall be paid in cash or certified funds delivered
or wire transferred to NPG. NPG shall provide wire transfer instructions to
Solaris. The Second Option Period shall begin at the End of the First Option
Period and terminate at the "End of the Second Option Period," as defined below.
a. Second Option Test Well Assignment.
--------------------------------------
Contemporaneously with the payment of the "Second Option Exercise
Price", the Parties agree to execute the "Second Option Test Well
Assignment" and place it in escrow with the Escrow Agent. With respect to
the Second Option Test Well Assignment, the Parties agree to instruct the
Escrow Agent as follows: (i) if actual drilling operations are not
commenced as provided for in Section 5.b. below, then the Parties hereby
instruct the Escrow Agent to return the Second Option Test Well Assignment
to NPG or (ii) if the Second Option Test Well is completed as a well
capable of production in paying quantities, then the Parties hereby
instruct the Escrow Agent to deliver the Second Option Test Well Assignment
to Solaris.
4
b. Second Option Test Well.
---------------------------
During the Second Option Period, Solaris (as contract operator for
NPG) shall commence to drill or cause to be drilled (with due diligence)
one Option Test Well on Drilling Block #2 to a depth of 10,000 feet, or one
Option Test Well on Block #3 to a depth of 11,000 feet, or one Option Test
Well on a Substitute Drilling Block to a depth agreed to by the Parties
("Second Option Test Well"). The depth of the Second Option Test Well shall
be to the specified depth or to a depth sufficient to test (penetrate) the
upper 50 feet of the Precambrian Basement whichever is the greater depth,
or to another depth as agreed to by the Parties (with such depth being the
"Target Depth").
(i). Drilling And Completion Of The Second Option Test Well As A
-----------------------------------------------------------------
Successful Commercial Oil and/or Gas Well.
------------------------------------------
By drilling the Second Option Test Well to the Target Depth, and
successfully completing the Second Option Test Well as a well capable
of production in paying quantities, Solaris will then earn the right
to receive an assignment from NPG of all formations and all depths in
the Leases comprising the Drilling Block in which the Second Option
Test Well was drilled, in which event NPG and Solaris hereby instruct
the Escrow Agent to deliver the Second Option Test Well Assignment to
Solaris. If Solaris, after having drilled and successfully completed
the Second Option Test Well, elects to not drill the Third Option Test
Well and elects not to pay the Third Option Exercise Price and not
begin the Third Option Period, then (a) Solaris earns an assignment of
the Leases within the Drilling Block in which the Second Option Test
Well is located, (b) the AMI is reduced to cover the lands assigned in
the Initial Test Well Assignment and the Second Option Test Well
Assignment and (c) then Solaris agrees to assign to NPG any interest
Solaris may have acquired in Leases within the AMI, except any acreage
acquired pursuant to the Initial Test Well Assignment and the Second
Option Test Well Assignment. . However, Solaris, after having
successfully drilled and completed the Second Option Test Well, may
exercise its option to purchase all of the "Remaining Leases" at one
time, as set forth in Section 7 below.
(ii) Drilling And Completion Of The Second Option Test Well As An
-----------------------------------------------------------------
Unsuccessful Commercial Oil and/or Gas Well.
--------------------------------------------
If the Second Option Test Well is an unsuccessful commercial oil
and/or gas well, Solaris will not earn interest in acreage within the
Drilling Block in which the Second Option Test Well is located, and
NPG shall have no obligation to assign Solaris any interest in the
Leases comprising the Drilling Block in which the Second Option Test
Well is located. If Solaris elects to quit the Nucla Prospect after
the unsuccessful Second Option Well and not to drill a Third Option
Test Well (as defined below) and elects not to pay the Third Option
Exercise Price and not begin the Third Option Period, then Solaris
agrees to assign to NPG any interest Solaris may have acquired in
Leases within the AMI, except any acreage acquired pursuant to the
Initial Test Well Assignment, and NPG and Solaris hereby direct the
Escrow Agent to deliver the Second Option Test Well Assignment to NPG.
5
c. Expiration of Second Option Period.
--------------------------------------
The Second Option Period shall expire on the earlier of 12 months from
release of the drilling rig of the Initial Test Well, but in no event later
than December 31, 2005 (with such date being the "End of the Second Option
Period"). After the End of the Second Option Period, this Agreement shall
then be of no force and effect unless on or before the End of the Second
Option Period, Solaris, at its sole discretion, exercises its option to
begin the Third Option Period.
6. Third Option Period/Remaining Drilling Block.
------------------------------------------------
On or before the End of the Second Option Period, Solaris, at its sole
discretion, may elect to pay unto NPG the "Third Option Exercise Price" for the
rights to access the Drilling Block that was not accessed in the Second Option
Period - either Xxxxxxxx Xxxxx #0, Xxxxxxxx Xxxxx #0, or a Substitute Drilling
Block and conduct certain operations thereon during the Third Option Period. The
Third Option Exercise Price shall be calculated in the same manner as the Second
Option Exercise Price. The Third Option Exercise Price is non-refundable. If the
Third Option Exercise Price is not timely paid, this Agreement shall terminate
as of End of the Second Option Period and be of no force and effect. Solaris's
payment of the Third Option Exercise Price shall be a condition precedent to the
effectiveness of this Agreement after the End of the Second Option Period. Third
Option Exercise Price shall be paid in cash or certified funds delivered or wire
transferred to NPG. NPG shall provide wire transfer instructions to Solaris. The
Third Option Period shall begin at the End of the Second Option Period and end
at the end of the "Third Option Period," as defined below.
a. Third Option Test Well Assignment.
-------------------------------------
Contemporaneously with the payment of the "Third Option Exercise
Price", the Parties agree to execute the "Third Option Test Well
Assignment" and place it in escrow with the Escrow Agent. With respect to
the Third Option Test Well Assignment, the Parties agree to instruct the
Escrow Agent as follows: (i) if actual drilling operations are not
commenced as provided for in Section 6.b. below, then the Parties hereby
instruct the Escrow Agent to return the Third Option Test Well Assignment
to NPG or (ii) if the Third Option Test Well is completed as a well capable
of production in paying quantities, then the Parties hereby instruct the
Escrow Agent to deliver the Third Option Test Well Assignment to Solaris.
b. Third Option Test Well.
--------------------------
During the Third Option Period, Solaris (as contract operator for NPG)
shall commence to drill or cause to be drilled (with due diligence) an
Option Test Well on Drilling Block #2 to a depth of 10,000 feet, on Block
#3 to a depth of 11,000 feet, or on a Substitute Drilling block to a depth
agreed to by the Parties ("Third Option Test Well"). The depth of the Third
Option Test Well shall be to the specified depth or to a depth sufficient
to test (penetrate) the upper 50 feet of the Precambrian Basement whichever
is the greater depth, or to another depth as agreed to by the Parties (with
such depth being the "Target Depth").
(i) Drilling And Completion Of The Third Option Test Well As A
-----------------------------------------------------------------
Successful Commercial Oil and/or Gas Well.
------------------------------------------
By drilling the Third Option Test Well to the Target Depth, and
successfully completing the Third Option Test Well as a well capable
of production in paying quantities, Solaris will then earn the right
to receive an assignment from NPG of all formations and all depths in
the Leases comprising the Drilling Block in which the Third Option
Test Well was drilled, in which event NPG and Solaris hereby instruct
the Escrow Agent to deliver the Third Option Test Well Assignment to
Solaris. If Solaris, after having drilled and successfully completed
the Third Option Test Well, elects to not to exercise the option to
purchase all of the Leases, as set forth below, then (a) Solaris earns
an assignment of the Leases within the Drilling Block in which the
Third Option Test Well is located (b) the AMI is reduced to cover the
lands assigned in the Initial Test Well Assignment, the Second Option
Test Well Assignment and the Third Option Test Well Assignment and (c)
6
Solaris agrees to assign to NPG any interest Solaris may have acquired
in Leases within the AMI, except any acreage acquired pursuant to the
Initial Test Well Assignment, the Second Option Test Well Assignment
and the Third Option Test Well Assignment. However, Solaris, after
having successfully drilled and completed the Third Option Test Well,
may exercise its option to purchase all of the "Remaining Leases" at
one time, as set forth in Section 7 below.
(ii) Drilling And Completion Of The Third Option Test Well As An
-----------------------------------------------------------------
Unsuccessful Commercial Oil and/or Gas Well.
--------------------------------------------
If the Third Option Test Well is an unsuccessful commercial oil
and/or gas well, Solaris will not earn interest in acreage within the
Drilling Block in which the Third Option Test Well is located, and NPG
shall have no obligation to assign Solaris any interest in the Leases
comprising the Drilling Block in which the Third Option Test Well is
located. If Solaris elects to quit the Nucla Prospect after the
unsuccessful Third Option Test Well, then Solaris agrees to assign to
NPG any interest Solaris may have acquired in Leases within the AMI,
except any acreage acquired pursuant to the Initial Test Well
Assignment and the Second Option Test Well Assignment.
c. Expiration of Third Option Period.
-------------------------------------
The Third Option Period shall expire on the earlier of 12 months from
release of the drilling rig of the Second Test Well, but in no event later
than December 1, 2006. After the End of the Third Option Period, this
Agreement shall then be of no force and effect unless on or before the End
of the Third Option Period, Solaris, at its sole discretion, exercises its
option to Purchase the Leases.
7. Exercise of the Option to Purchase the Leases.
-------------------------------------------------
Within six months after successful completion by Solaris of a Well as a
commercial producer but on or before expiration of the Third Option Period (with
that time being the "Option Period"), Solaris may exercise its option to
purchase all of the "Remaining Leases" at one time, as set forth below.
"Remaining Leases" are those leases held by the NPG in the AMI concurrently with
the successful completion by Solaris of a Well as a commercial producer. Solaris
may not exercise the Option for less than all of the Remaining Leases, provided,
however, that Solaris may have already earned an assignment of certain Leases
within a particular Drilling Block pursuant to the Initial Test Well Assignment,
the Second Option Test Well Assignment and/or the Third Option Test Well
Assignment, and the Leases so earned shall be excluded from the term "Remaining
Leases" for the purposes of this Article 7. If Solaris fails to exercise its
option to purchase all of the Remaining Leases, then (a) Solaris earns an
assignment of only those Leases pursuant to the Initial Test Well Assignment,
the Second Option Test Well Assignment and the Third Option Test Well Assignment
(if and to the extent those assignments have been made), and (b) the AMI is
reduced to cover the lands within the exterior boundary of the Drilling Blocks
assigned in Initial Test Well Assignment, the Second Option Test Well Assignment
and the Third Option Test Well Assignment and (c) then Solaris agrees to assign
to NPG any interest Solaris may have acquired in Leases within the AMI, except
any acreage acquired pursuant to the Initial Test Well Assignment, the Second
Option Test Well Assignment and the Third Option Test Well Assignment.
7
a. Option Period.
-----------------
If this Agreement is in force and effect and not terminated by the
failure to pay the Second Option Exercise Price or the Third Option
Exercise Price, as applicable, the Option to purchase all of the Leases at
one time shall be exercisable at any time after successful completion of
the applicable Test Well as a commercial producer, but in no event later
than the close of business on December 1, 2006 (the "Option Period").
b. Method of Exercise.
----------------------
To exercise the Option within the Option Period, Solaris must deliver
notice of such exercise using one of the following methods: (i) in writing,
delivered personally, (ii) by facsimile transmission or similar means (with
signed confirmed copy to follow by mail in the manner provided below),
(iii) by registered or certified mail, postage prepaid, or (iv) by delivery
service for which a receipt is obtained, at the address for NPG set forth
in the first paragraph of this Agreement. Such notice shall be deemed
delivered on the date of receipt. NPG may specify any other address by
giving written notice to Solaris of such change.
c. Option Effective Date.
-------------------------
The effective date of a purchase of the Leases pursuant to the Option
shall be the date NPG assigns the Leases to Solaris (the "Effective Date").
d. Lease Purchase Option Exercise Price.
----------------------------------------
The Lease Purchase Option Exercise Price shall be calculated by
multiplying the number of gross acres of the "Remaining Leases" (as set
forth above) as listed on Exhibit "B" (or otherwise if there are newly
acquired Leases) times the price per acre as set forth in Article 8
(relative to the Effective Date). "Gross acres" here refers to the total
net acres rounded up to the next full acre (without fraction thereof).
e. Final Closing and Assignment of Leases.
------------------------------------------
If Solaris exercises the Option to purchase the Leases, the
consummation of the transaction contemplated by this Agreement (the "Final
Closing") shall occur on or before 30 days after exercise of the Option. At
the Final Closing, (i) Solaris shall pay NPG the Lease Purchase Option
Exercise Price by wire transfer or by certified funds, (ii) NPG shall
transfer, assign and deliver unto Solaris an Assignment, Xxxx of Sale and
Conveyance of 100% of NPG's right, title and interest in the Leases, on a
form mutually acceptable to the Parties (the "Assignment"), (iii) Solaris
and NPG shall execute all documents necessary to transfer operation of the
Leases to Solaris, and (iv) NPG shall deliver all of the original records
relating to the Leases to Solaris. The Assignment shall assign to Solaris
100% of NPG's right, title and interest in and to the Leases, (i) free and
clear of all liens and encumbrances, (ii) with a special warranty of title
by, through and under NPG, but not otherwise, and (iii) reserving NPG's
ORI. In addition, NPG shall also prepare, execute and deliver assignment of
100% of NPG's right, title and interest in the Leases on approved
governmental forms conveying Record Title to Solaris. Solaris will pay all
costs for the transfer of titles to Solaris from NPG.
f. Development Program.
-----------------------
If Solaris elects to exercise its option to purchase the Leases,
Solaris shall diligently initiate a development program (drilling or
seismic and drilling) on the Leases and Lands within the AMI.
8
8. Acreage Price Schedule.
--------------------------
To determine the Second Option Exercise Price, the Third Option Exercise
Price and the Lease Purchase Option Exercise Price to acquire the Remaining
Leases pursuant to Article 7, the Parties agree to use the following Schedule to
determine the price per gross acre:
Dates Price Per Gross Acre
----- --------------------
Execution until June 30, 2003 $ 25.00
July 1, 2003 through Dec 31, 2003 $ 30.00
Jan 1, 2004 through June 30, 2004 $ 35.00
July 1, 2004 through Dec 31, 2004 $ 40.00
Jan 1, 2005 through June 30, 2005 $ 45.00
July 1, 2005 through Dec 31, 2005 $ 50.00
Jan 1, 2006 through Dec 31, 2006 $ 55.00
9. Solaris's Operations.
------------------------
a. Compliance With Laws.
------------------------
Solaris agrees to conduct all of its operations on the Leases and
within the AMI in accordance with (i) appropriate federal, state, county,
town, local and other regulations and laws (collectively, "Laws"), (ii) the
terms and conditions of the applicable Leases, and (iii) good oil field
practices. Solaris's operations may include, without limitation, operations
necessary to (a) site, drill, deepen, complete, recomplete, rework,
produce, maintain and plug and abandon any Well, test boreholes,
underground injection well, or gas storage well or other xxxxx drilled on
the Leases, (b) explore for oil and gas, (c) conduct seismic and other
surveys, (d) install flow lines, separators, treaters, compressors and
gathering systems; (e) transport, store, treat, or dispose of exploration
and production wastes; and (f) construct and/or prepare, or reclaim a well
site.
b. Costs and Expenses.
----------------------
Solaris and NPG agree that the entire cost, risk and expense of all of
Solaris's and NPG's operations on the Leases shall be borne by Solaris,
such costs to include, without limitation, any claim, demand, action, cause
of action, judgment, attorneys' fees or expense of investigation or
litigation for injury to or loss or destruction of property, or for injury
to or death of any person arising out of or in connection with Solaris's
operations.
c. Liens and Encumbrances.
--------------------------
When conducting operations on the Leases or pursuant to the terms of
this Agreement, Solaris agrees it will pay all bills no later than 60 days
after receipt (except where being contested in good faith) and will keep
the Leases and Lands free and clear of all liens and encumbrances of
whatsoever kind and character, including liens for labor performed and
materials furnished, except "Permitted Encumbrances." "Permitted
Encumbrances" shall mean (i) statutory liens such as liens for taxes not
due and other such liens and encumbrances that attach by operation of law,
(ii) liens and encumbrances on the Lands or the Leases that were in effect
at the time that the Leases were acquired by NPG, (iii) liens and other
encumbrances that attached to the Leases or the Lands by actions of NPG
prior to Solaris's assumption of operation of the Leases and (iv) liens,
encumbrances, and security interests arising from any operating agreement
executed by Solaris in connection under this Agreement. Solaris agrees to
indemnify, defend and hold harmless and Release NPG from any and all
claims, demands, losses, damages and liabilities arising out of or
resulting from any such liens and encumbrances, other than the Permitted
Encumbrances, and to furnish NPG, promptly upon NPG's request, with
reasonable evidence of the payment of all charges and obligations in
connection with Solaris's operations.
9
d. Rentals.
-----------
During the term of this Agreement, Solaris agrees to pay all delay
rentals due on all Leases within the AMI (including newly acquired Leases)
at least 30 days prior to the due date for each rental. To NPG's knowledge,
the rental due dates and amounts for each lease are set forth in Exhibits G
and H. If Solaris fails to pay such rentals, NPG may elect in its sole
discretion to pay such rentals. If NPG pays delay rentals due on any of the
Leases, then NPG shall invoice Solaris for the full amount of the rent and
Solaris agrees to pay such invoices within 30 business days. Failure of
Solaris to reimburse delayed rental paid by NPG for a specific lease within
30 days after the anniversary date of the lease will result in that lease
being excluded from the AMI and the Lease remaining the property of the
NPG. In addition, Solaris agrees to reimburse NPG for the 2002 rental
payments (totaling $14,978.00) on or before July 31, 2003; provided
however, that Solaris' failure to make such payment shall automatically
terminate this Agreement in which event, (i) Solaris agrees to assign to
NPG any interest Solaris may have acquired in Leases within the AMI and
(ii) NPG and Solaris hereby direct the Escrow Agent to deliver the Initial
Test Well Assignment to NPG.
e. Release/Surrender of Leases.
-------------------------------
After the assignment of Leases by NPG to Solaris, Solaris is expected
to maintain each lease through payment of rentals and renewal (where
applicable) during the term of this Agreement, the primary and renewal term
of each such lease, or the term of the AMI, whichever is the lesser.
However, if Solaris desires to surrender any lease or any part of the
acreage covered by any Lease through non-payment of rental, Solaris agrees
to notify NPG at least 45 days in advance of the anniversary date specified
in said Lease. NPG shall then have 15 days after receipt of such notice
within which to elect to take a reassignment of such Lease or any portion
thereof. If NPG elects to receive such a reassignment, Solaris agrees to
deliver an Assignment of the Lease to NPG within 10 days of NPG's election
to receive a reassignment of such Lease. In addition, Solaris agrees to
reassign to NPG any lease upon which a completed well has not been drilled,
on or before 6 months prior to the expiration of the primary term of such
Lease. All such reassignments shall be made free of any liens, encumbrances
or burdens and with a special warranty of title by through and under
Solaris, but not otherwise.
f. Drilling and Completion of Xxxxx.
------------------------------------
Solaris agrees to notify NPG immediately of all material events
occurring on the Leases, including, without limitation, when the location
for each Well is staked, when the material for the drilling thereof is
moved to the location and when actual drilling is commenced.
i. Drilling Reports.
--------------------
Solaris agrees to follow other notice requirements and provisions
set forth on Exhibit "I". Solaris agrees to furnish to NPG daily
drilling reports and other information as described in Exhibit "I".
The Parties agree that such daily reports are proprietary and
confidential to Solaris and NPG. During and immediately after the
drilling of a Well, NPG shall have the opportunity to examine Well
cuttings, test data, and electrical logs.
10
ii. Well Completion.
--------------------
If Solaris, in its sole discretion, determines that any Well is
capable of producing oil, gas and/or any other related product in
commercial quantities, Solaris agrees to run such production string as
Solaris deems as adequate, and attempt to complete each Well. If such
completion is successful, Solaris shall equip each Well for production
through and including such tanks, separator and other equipment
necessary to complete the Well. The Well Completion Date shall be the
date of completion of the Well as filed and recorded with the Colorado
Oil and Gas Conservation Commission.
iii. Plugging and Abandonment of a Well.
----------------------------------------
If Solaris determines that any Test Well is incapable of
producing oil, gas and/or any other related product in commercial
quantities and that such Well should be plugged and abandoned, Solaris
shall promptly notify NPG of such determination by telephone (with
written confirmation to follow) or by facsimile or E-mail (with such
notice being Solaris's "P&A Notice"). If NPG agrees with this
determination (and its failure to respond in the manner and within the
time indicated below shall constitute agreement), Solaris agrees, at
Solaris sole cost and expense, to plug and abandon each such Well and
reclaim the Well site all in accordance with applicable Laws,
applicable leases, easements and surface use agreements.
iv. Well Takeover by NPG.
-------------------------
After NPG's receipt of Solaris's P&A Notice, NPG shall have the
right to take over the Well by so notifying Solaris, within 24 hours
for a drilling Well or within 5 business days for a completed Well, of
NPG's receipt of the P&A Notice. During such 24 hours or 5 business
days, Solaris shall provide to NPG with copies of the test data,
electrical logs and other data and information not previously
provided, and if it has not already happened, give NPG the opportunity
to examine well cuttings and other physical aspects of the Well and
Well site. If NPG elects to take over such drilling or completed Well,
Solaris shall assign the Well and associated acreage covered by the
applicable Lease (the spacing unit attributable to Well) to NPG on an
Assignment, Xxxx of Sale and Conveyance ("Assignment") containing the
following provisions: (i) Solaris shall warrant title to the Well and
associated acreage from and against all persons claiming by, through
and under Solaris, but not otherwise, (ii) all personal property shall
be conveyed "as is where is," (iii) NPG agrees to be responsible for
all costs and expenses attributable to the period of time after the
assignment and Solaris agrees to be responsible for all costs and
expenses attributable to the period of time before the assignment ,
and (iv) Solaris agrees to transfer operations on the Well to NPG. If
NPG elects to takeover a Well, Solaris shall lose the right to receive
an assignment of the applicable spacing unit under the terms of this
Agreement. If NPG elects to take over the Well, consideration for the
Assignment shall be the fair market value of all equipment and
fixtures in the Well, less the estimated costs to plug and abandon the
Well and restore the Well Site in accordance with all applicable Laws
and the terms and condition of the applicable Leases. As
substantiation for the cost of the Well's equipment and fixtures,
Solaris agrees to furnish NPG with satisfactory proof of payment of
all costs and expenses of such Well up until the time the same is
taken over by NPG.
v. Substitute Well/Replacement Well.
------------------------------------
During the drilling of a Well, if Solaris encounters
"impenetrable substances" or other drilling conditions beyond its
control making the drilling of the Well impractical before reaching
the target depth, or if the Well is a dry hole or is a well that is
not capable of production in paying quantities, Solaris may, at its
11
option, commence the actual drilling of a "Substitute Well" of
"Replacement Well" within 90 days from the time the respective
original Well is abandoned because of such substance or condition that
is encountered, in which case the Substitute Well or Replacement Well
shall be considered the original Well for all purposes, provided
however, that Solaris and NPG agree that the End of the First Option
Period, End of the Second Option Period, End of the Third Option
Period, and the end of the Option Period may not be extended by the
provisions of this section.
10. Solaris's Access to NPG's Data.
-----------------------------------
During the term of this Agreement, NPG shall make available to Solaris
copies of all data, maps, and studies within the AMI (as defined below), to the
extent not prohibited by contractual restrictions.
11. Area of Mutual Interest.
----------------------------
To facilitate the development of the oil, gas, and other minerals
(including helium) under Leases and other lands identified by NPG, Solaris and
NPG hereby create an area of mutual interest (the "AMI") covering lands within
the outline set forth on Exhibits "C" and "D". The term of the AMI shall begin
on the date this Agreement is executed and shall expire at the earlier of 10
years from the date of this Agreement but in no event later than close of
business on December 31, 2013.
a. NPG's Acquisition.
---------------------
If NPG acquires an oil and gas interest during the term of the AMI,
said interest will be offered to Solaris at the actual acquisition costs
(which shall include all reasonable field costs and related expenses for
such acquisition), and such offer will be made within 20 working days of
acquisition of the interest. Solaris shall have 20 days after receipt of
written notice of the acquisition and the terms and provisions thereof in
which to elect to acquire a 100% interest in such acquisition. If Solaris
elects to acquire said interest, the lease so acquired shall be assigned to
Solaris, subject to NPG's ORI. All of NPG's acquisition costs and recording
fees will be promptly reimbursed/paid by Solaris. If Solaris elects not to
acquire the oil and gas interest, such interest shall be excluded from the
AMI and remain property of NPG.
b. Solaris's Acquisition.
-------------------------
If Solaris acquires oil and gas interests within the AMI, Solaris
agrees to assign NPG NPG's ORI within 30 business days after Solaris has
received title for each new assignment.
c. Notification.
----------------
If NPG or Solaris or any third party, agent, subsidiary, assignee or
successor to either Party (the "Acquiring Party") secures a new lease or a
top-lease, a lease renewal or extension thereof or secures a farmin or the
right to acquire any of the foregoing, which is within the AMI, then the
Acquiring Party shall promptly notify the other Party (the "Non-Acquiring
Party") of the acquisition. Such notice shall also include a copy of the
lease, title information, and any other relevant documents or information.
d. New Lease Forms.
-------------------
The Parties shall use their best efforts when obtaining new oil and
gas leases within the AMI to secure leases on substantially the same form
(type) of leases and on the same or better terms (e.g. Net Revenue
Interest, primary term, etc.) as obtained for NPG's leases in Exhibit "B".
12
e. AMI Boundary Modification.
-----------------------------
The AMI boundary can be expanded, contracted or otherwise modified at
any time with mutual written consent of the Parties.
f. Reduction of the AMI Boundary.
---------------------------------
If Solaris elects not to extend the Agreement to the Second Option
Period or Third Option Period or elects not to acquire the rest of the
Leases pursuant to its exercise of the Option pursuant to Section 7, the
Parties agree to reduce the AMI to the Drilling Block(s) which have already
been assigned to Solaris.
g. Leases Inside and Outside the AMI.
-------------------------------------
If any oil and gas interest acquired hereunder covers acreage both
within and outside the joint AMI, the Parties agree that all of such
interest shall be deemed to be within the AMI.
12. NPG's ORI.
--------------
All Leases to be assigned to Solaris pursuant to the terms of this
Agreement, or new leases acquired by Solaris under the terms of the AMI, shall
be subject to a reserved overriding royalty interest in favor of NPG equal to
the difference between existing leasehold burdens and 20% (with such overriding
royalty being "NPG's ORI"); provided that NPG's ORI shall be, at a minimum,
2.5%, which in the worst case would reduce Solaris's NRI to less than or equal
to 78.5%. Solaris agrees that NPG may apportion NPG's ORI among the members of
the NPG without Solaris's involvement.
a. Proportionate Reduction.
---------------------------
If (i) any of the new oil and gas interests so acquired by Solaris
cover less than the full "Working Interest" ("WI"), or (ii) if a Lease
covers less than 100% of the mineral estate in the land, or (iii) NPG's
owns less net mineral acres in the Leases than as set out on Exhibit "B",
the ORI assigned to NPG shall be reduced proportionately.
b. Burdens.
-----------
The NPG ORI shall (i) not bear any of the costs of producing, storing,
separating, treating, dehydrating, processing, gathering or transporting or
otherwise making the oil gas and leased substances produced from the leases
in question ready for sale, except taxes applicable to said interest and
the production attributable thereto, and (ii) remain effective as to all
extensions, replacements, new leases, and renewals of the Leases acquired
by Solaris and its successors, assigns, within 6 months of the expiration
of the existing lease.
13. Title Matters.
------------------
NPG owns approximately 40,547 net acres and approximately 43,007 gross
acres located in Montrose County, Colorado, as outlined on the plat in Exhibit
"C". NPG does not warrant title to the Leases. However, NPG does warrant that
the Leases are free of liens and encumbrances created by NPG, and to the best of
NPG's knowledge, the Leases are free and clear of other liens and encumbrances.
At Solaris's request, and at Solaris's expense, NPG will provide Solaris copies
of NPG's oil and gas leases and all associated documents, stipulations,
restrictions, abstracts of title, opinions on title, certificates of title,
related correspondence with the lessor, and evidence of delay rental payments.
Solaris shall bear the full cost of any title search as may be necessary to
satisfy itself as to NPG's interest in said Leases, and the failure of Solaris
to timely reject any of such titles shall be deemed an acceptance thereof by
Solaris. Prior to drilling a Well, Solaris shall cause a title examination to be
made by an attorney evidencing the title to the drill site lease to be free and
clear or any and all title defects which would preclude the drilling of the Well
by a reasonable prudent Operator. Solaris agrees to furnish a copy of all such
title opinions to NPG.
13
14. Development Program.
------------------------
If Solaris elects to exercise its option to purchase the Leases, Solaris
shall diligently initiate a development program (drilling or seismic and
drilling) on the Leases and Lands within the AMI.
15. Helium.
-----------
The Parties acknowledge that Helium may be present under the Leases and/or
within the AMI. The Leases obtained from the Bureau of Land Management grant the
lessee the exclusive right to drill for, mine, extract, remove and dispose of
all oil and gas (except helium) in the lands covered by the Leases. Based on
past practices of the Federal Government in not extracting helium from gas
production, the right to collect and sell helium from the Xxxxx will most likely
be given to the lessee of the Federal leases. If Helium is found in commercial
quantities, and if a cryogenic gas plant is necessary to recover helium from the
produced gas, Solaris agrees that if such a cryogenic gas plant is installed, to
compensate NPG for their respective share of the helium production based on
NPG's ORI. The same ORI would apply to any carbon dioxide production or the
recovery of any other commercial vaporous and/or liquid product from any Well.
If such a cryogenic gas plant is necessary, NPG's ORI shall bear its
proportionate share of the costs of such plant as a cost to be deducted when
calculating NPG's ORI. The total project costs and expenses (including interest)
to build such plant will be amortized over a 7-year period, or such other period
as agreed to by the Parties, and the costs to run the plant and separate the
helium shall be calculated accordingly.
16. Seismic Surveys.
--------------------
The Parties anticipate that Solaris will conduct 2D and/or 3D seismic
surveys of the Leases and Lands within the AMI ("Seismic Surveys"). The Parties
agree that the Parties shall jointly own the Seismic Surveys. After completion
of a Seismic Survey, and at no cost to NPG, Solaris shall provide NPG copies of
the Seismic Survey, including digital records and paper copies of the program
data, field recordings, velocity analyses, section displays, and any other data
related to the seismic program(s). Solaris shall also provide NPG (at no cost to
NPG) joint ownership of any other new or previous geophysical surveys (seismic
gravity, aeromagnetics, etc.) and copies of any other new surface studies (soil
gas, aerial photography, and so forth) by or for Solaris in the evaluation of
the lands within the Nucla Prospect, to the extent Solaris is legally allowed to
provide such data.
17. Insurance.
--------------
Solaris, whether acting as the Operator or not, shall require Operator and
contractors to carry appropriate insurance as required by the Colorado Oil and
Gas Conservation Commission and any other governing agency in the operation of
any oil and gas well within the AMI during the term of this Agreement, and
Solaris shall furnish NPG certificates or other sufficient documentation as to
such insurance coverage prior to the commencement of drilling operations, naming
NPG as an additional insured.
18. Apportionment of Liabilities and Obligations.
-------------------------------------------------
a. Solaris's Assumption of Liabilities and Obligations.
-------------------------------------------------------
After execution of this Agreement, Solaris agrees to assume and
pay, perform, fulfill and discharge of all claims, costs, expenses,
liabilities and obligations accruing or relating to all operations on
the Leases and within the AMI after execution of this Agreement,
including, without limitation, the payment of delay rentals, the
payment of taxes, royalties and overriding royalties on production
from the Leases, and the obligation to plug and abandon all Xxxxx
located on the Lands and reclaim all Well sites located on the Lands
(collectively, the "Assumed Liabilities").
14
b. NPG's Retention of Liabilities and Obligations.
--------------------------------------------------
After execution of this Agreement, NPG agrees to retain all claims,
costs, expenses, liabilities and obligations accruing or relating to its
operations on the Leases prior to the execution of this Agreement
(collectively, the "Retained Liabilities").
19. Indemnification.
--------------------
"Losses" shall mean any actual losses, costs, expenses (including court
costs, reasonable fees and expenses of attorneys, technical experts and expert
witnesses and the cost of investigation), liabilities, damages, demands, suits,
claims, and sanctions of every kind and character (including civil fines)
arising from, related directly or indirectly or reasonably incident to matters
indemnified against; excluding however any special, consequential, punitive or
exemplary damages, loss of profits incurred by a Party hereto or Loss incurred
as a result of the indemnified Party indemnifying a third party. After execution
of this Agreement, the Parties shall indemnify each other as follows:
a. Solaris's Indemnification of NPG.
------------------------------------
Solaris assumes all risk, liability, obligation and Losses in
connection with, and shall defend, indemnify, save and hold harmless NPG,
its members, partners, officers, directors, employees and agents, from and
against all Losses which arise from or in connection with (i) the Assumed
Liabilities (ii) any matter for which Solaris has agreed to indemnify NPG
under this Agreement, and (iii) any breach of this Agreement by Solaris.
b. NPG's Indemnification of Solaris.
------------------------------------
NPG assumes all risk, liability, obligation and Losses in connection
with, and shall defend, indemnify, save and hold harmless Solaris, its
officers, directors, employees and agents, from and against all Losses
which arise from or in connection with (i) the Retained Liabilities, (ii)
any matter for which NPG has agreed to indemnify Solaris under this
Agreement, and (iii) any breach of this Agreement by NPG.
c. Release.
-----------
Solaris shall be deemed to have released NPG at the Closing from any
Losses for which Solaris has agreed to indemnify NPG hereunder, and NPG
shall be deemed to have released Solaris at the Closing from any Losses for
which NPG has agreed to indemnify Solaris hereunder.
20. Relationship of the Parties.
--------------------------------
With respect to this Agreement and the AMI, each Party shall not be
considered the agent, partner, employee or fiduciary of any other Party, nor
shall this Agreement or the AMI be construed as creating a mining partnership or
other partnership or association. Accordingly, each Party to this Agreement
shall be responsible for its own obligations, expenses and costs. All of the
obligations and liabilities shall be several and not joint or collective. If for
Federal Tax purposes, this Agreement or the relationship established thereby
shall be regarded as a partnership, then the Parties elect not to be treated as
partners, and this Agreement and the relationship created thereby does not
constitute a partnership under the Internal Revenue Code, as amended.
15
21. Independent Investigation.
------------------------------
Solaris is experienced and knowledgeable in the oil and gas business and is
aware of its risks. Solaris acknowledges and agrees that NPG has not made any
representations or warranties, express or implied, written or oral, as to the
accuracy or completeness of the information relating to the Leases furnished or
to be furnished to Solaris or its representatives by or on behalf of NPG,
including without limitation any estimate of the value of the Leases or reserves
or any projections as to future events. In entering into this Agreement, Solaris
acknowledges and affirms that it has relied and will rely solely on the terms of
this Agreement and upon its independent analysis, evaluation and investigation
of, and judgment with respect to, the business, economic, legal, tax or other
consequences of this transaction, including without limitation, its own estimate
and appraisal of the extent and value of the Leases, and the petroleum, natural
gas and other reserves associated with the Leases. Solaris's representatives
have visited, or prior to Closing will visit the offices of NPG and have been
given opportunities to examine the materials related to the Leases. Except as
expressly provided in this Agreement, NPG shall not have any liability to
Solaris or its affiliates, agents, representatives or employees resulting from
any use, authorized or unauthorized, of the Background Materials or other
information relating to the Leases provided by or on behalf of NPG.
a. Solaris may disclose to its investors, potential investors,
financial advisors, bankers, and other third parties, NPG's illustrations,
interpretations and written technical opinions (NPG's product) together
with NPG's identity of authorship. However, Solaris agrees to provide NPG
with the final text of any documents that are to be distributed to third
parties in written or electronic format, that make reference to NPG or
NPG's product, or reproduce NPG's product in any form, prior to
distribution of the document for NPG's review and written approval, which
approval will not be withheld unreasonably. NPG will be furnished a copy of
the document in the form in which it is to be distributed.
b. Solaris agrees to indemnify, defend and hold harmless the NPG to
the extent permitted by law, from and against the entirety of all actions,
suits, proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs amounts paid in settlement, liabilities (of any
kind whatsoever, whether due or to become due, including liability for
taxes), obligations taxes (of whatsoever, including any interest, penalty
or addition thereof, whether disputed or not), liens, losses, expenses
damages and fees, including court costs and reasonable attorneys' fees and
expenses that the NPG may suffer resulting from, arising out of, relating
to, in the nature of or caused by the Solaris in conjunction with this
engagement, excluding from such, indemnity damages caused by the NPG's
fraud, gross negligence, misrepresentation, violation or alleged violation
of law, or willful misconduct. The termination of any action, suit or
proceeding by settlement shall not create a presumption that the NPG
committed gross negligence, fraud, willful misconduct or knowing violation
of law or regulation.
22. Miscellaneous.
------------------
a. Assignment.
--------------
(i) Prior to the first Well being drilled by NPG within the AMI,
Solaris may not transfer, assign or sell this Agreement (all or in
part) to a third party or another entity without prior written consent
of NPG, which consent shall not be unreasonably withheld. Any Assignee
of this Agreement shall be specifically bound by the terms of this
Agreement.
16
(ii) After the first Well is drilled by NPG within the AMI,
Solaris may transfer, assign or sell this Agreement (all or in part)
to a third party or another entity without prior written consent of
NPG. Any Assignee of this Agreement shall be specifically bound by the
terms of this Agreement.
b. Successors.
--------------
Subject to limitations set forth in this Agreement, this Agreement and
all provisions hereof shall inure to the benefit of and be binding upon the
Parties hereto, their heirs, personal representatives, legal
representatives, devisees, successors and assigns, and terms hereof shall
be deemed to run with the Leases, xxxxx, and other interests included
within the AMI.
c. Force Majeure.
-----------------
Solaris shall not be liable for failure to perform any of its
obligations hereunder during periods in which performance is prevented by
any cause reasonably beyond its control, which causes hereinafter are
called "Force Majeure". For the purpose of this Agreement, the term "Force
Majeure" shall include, but shall not be limited to, fires, floods,
windstorms, snowstorms, subfreezing temperatures that, under normal
oilfield practices in the area, render operations impractical and other
damage from the elements, strikes, riots, unavailability of transportation
or necessary equipment, action of governmental authority, litigation, acts
of God and acts of the public enemy. The term of this Agreement shall be
extended for a period equal to the period for which performance is
suspended by reason of Force Majeure when such period equals or exceeds 96
consecutive hours. All periods of Force Majeure shall be deemed to begin at
the time Solaris stops performance hereunder by reason of Force Majeure.
Solaris shall notify NPG of the beginning and ending date of each such
Force Majeure period. Notwithstanding the foregoing, Solaris and NPG agree
that the End of the First Option Period, End of the Second Option Period,
End of the Third Option Period, and the end of the Option Period may not be
extended by events of Force Majeure.
d. Notices.
-----------
All notices and communications required or permitted under this
Agreement shall be in writing and addressed as set forth on Exhibit "A".
Any communication or delivery hereunder shall be deemed to have been duly
made and the receiving Party charged with notice (i) if personally
delivered, when received, (ii) if sent by Email or facsimile transmission,
when received, (iii) if mailed by certified mail, return receipt requested,
5 business days after mailing, or (iv) if sent by overnight courier, one
day after sending. No change in any notice information contained in Exhibit
"A" shall be deemed effective until written notification of the change is
duly submitted to the other Parties.
e. Article Headings/Exhibits.
-----------------------------
The Article and Section headings contained in this Agreement are for
convenience of reference only and shall not restrict or otherwise modify
provisions and conditions or the interpretation of this Agreement. All
references to Exhibits refer to Exhibits that are attached to this
Agreement and thereby made a part of this Agreement.
f. Governing Law.
-----------------
This Agreement and any arbitration or dispute resolution conducted
pursuant hereto shall be construed in accordance with, and governed by, the
laws of the State of Colorado without reference to the conflict of laws
principles. Forum and venue shall be exclusively in Denver, Colorado.
17
g. Severability.
----------------
The provisions of this Agreement are intended to be severable. If any
term or provision hereof is illegal or invalid for any reason whatsoever,
such illegality or invalidity shall not affect the legality or validity of
the remainder of this Agreement.
h. Entire Agreement.
--------------------
This Agreement constitutes the entire understanding of the Parties
with respect to the subject matter hereof in lieu of any prior agreement,
whether written or oral. This Agreement may be amended or modified only by
a written agreement signed by the Parties.
i. Dispute Resolution.
----------------------
The Parties agree to negotiate in good faith in an effort to resolve
any dispute related to this Agreement. If a dispute cannot be resolved by
negotiation, the dispute shall be submitted to non-binding mediation and/or
arbitration before resorting to litigation. Results of the mediation must
be documented in writing and distributed between the Parties. If the need
for mediation arises, the Parties shall choose a mutually acceptable
mediator. The Parties to the dispute must agree before any settlement is
binding. The Parties (NPG 50% and Solaris 50%) shall equally share the
costs for the mediator and mediation services. If mediation is
unsuccessful, or if the Parties so elect, the Parties may submit all
differences and disputes related to this Agreement to arbitration before a
panel of three arbitrators in Denver County, Colorado, one of whom shall be
named by one Party, one of whom shall be named by the other Party, and with
the two selected arbitrators then selecting or appointing a third
arbitrator (the "Arbitrators"). The decision of the Arbitrators shall not
be binding on the Parties unless the Parties so agree prior to beginning
the arbitration process. The Parties agree to equally share all arbitration
costs and expenses (NPG 50% and Solaris 50%). Results of the arbitration
must be documented in writing and distributed to the Parties. The Parties
agree that the arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
j. Attorney's Fees.
-------------------
(i) If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing Party shall be
entitled to its reasonable attorneys' fees, costs, and necessary expenses,
in additional to any other relief to which that Party may be entitled. (ii)
On or before the earlier of drilling of the first well on the Leases, July
31, 2003 or closing of a transaction that either funds the drilling and
development as contemplated by this Agreement or that capitalizes Solaris,
Solaris agrees to pay all of NPG's attorney's fees incurred in connection
with the negotiation and execution of this Agreement, such fees not to
exceed $15,000.
k. Waiver.
----------
Failure of NPG or Solaris to enforce any article or provision of this
Agreement shall not constitute a waiver of such article or provision or any
other article or provision. Should any article or provision of the
Agreement be held void, invalid, unenforceable or illegal, the validity and
enforceability of the other articles or provisions shall not be affected
thereby.
18
l. Signatory Power.
-------------------
Solaris represents and warrants that Xxxx X. Xxxxx has full power and
authority to execute this Agreement on behalf of Solaris and that such
Agreement is binding on Solaris and enforceable in accordance with its
terms, free of any claim(s) with respect to the Leases and Lands (AMI), or
any part thereof, and Solaris agrees to indemnify and hold NPG free and
harmless from any such claims and obligations.
m. Counterpart Signatures/Fax Signatures.
-----------------------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to constitute one and the same instrument. This Agreement shall be
effective if each Party has executed and delivered at least one counterpart
hereof by facsimile, followed by an originally executed hard copy.
Facsimile signatures are considered binding.
n. Notice of Default.
---------------------
If either Party is in default under the terms of this Agreement, the
"Non-Defaulting Party" agrees to give the Defaulting Party notice of such
default and the opportunity to cure such default before exercising its
rights and remedies under the terms of this Agreement; provided however,
that Solaris and NPG agree that the End of the First Option Period, End of
the Second Option Period, End of the Third Option Period, and the end of
the Option Period may not be extended by the provisions of this section.
SIGNATURES:
-----------
The Parties hereto have executed this Agreement on the dates set forth in
the acknowledgments below.
SOLARIS:
SOLARIS EXPLORATION, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------------------------------------
Xxxx X. Xxxxx, Vice President
NPG:
NUCLA PROSPECT GROUP:
PLATEAU EXPLORATION, INC.,
By: /s/ Xxxxxx X. Xxxxxxxxx
--------------------------------------------------------------------
Xxxxxx X. Xxxxxxxxx, President,
19
THE ESTATE OF X.X. XXXXXX
By: /s/ Xx. Xxxxxx Xxxxxxxx
--------------------------------------------------------------------
Xx. Xxxxxx Xxxxxxxx, Personal Representative
WYOMING OIL & MINERALS, INC.,
By: /s/ Xx. Xxxx X. Xxxxxx
--------------------------------------------------------------------
Xx. Xxxx X. Xxxxxx, President
AMARADO OIL COMPANY, INC
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------------------------------
Xxxxx X. Xxxxxxx, President
KODIAK RESOURCES, INC.,
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------------------------------
Xxxxxxx X. Xxxxxx, President
20
ACKNOWLEDGMENTS:
----------------
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February, 2003 by Xxxx X. Xxxxx, as Vice President of Solaris Exploration, Inc.,
a Texas corporation, on behalf of said corporation.
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February, 2003 by Xxxxxx X. Xxxxxxxxx, as President of Plateau Exploration,
Inc., a Colorado corporation, on behalf of said corporation..
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February 2003 by Xx. Xxxxxx Xxxxxxxx, as Personal Representative of The Estate
Of X. X. Xxxxxx.
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
21
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February 2003 by Xx. Xxxx X. Xxxxxx, President of Wyoming Oil & Minerals, Inc.,
a Wyoming corporation, on behalf of said corporation..
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February 2003 by Xxxxx X. Xxxxxxx, as President of Amarado Oil Company, Inc., a
Texas corporation on behalf of said corporation. .
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
STATE OF ______________)
) ss.
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ____ day of
February 2003 by Xxxxxxx X. Xxxxxx, as President of Kodiak Resources, Inc., a
Texas corporation on behalf of said corporation.
Witness my hand and official seal.
My commission expires: __________
___________________________
Notary Public
22
List of Exhibits
Exhibit Description
------- -----------
A. Parties to this Agreement.
B. Lease Schedule and Offered Acreage.
C. Map of AMI boundary and Leasehold Acreage.
D. Area of Mutual Interest (AMI).
E. Initial and Option Drilling Blocks.
F. Map of Initial and Option Drilling Blocks.
G. Federal Lease Rental Schedule and Amounts Due through 2004.
H. Fee Lease Rental Schedule and Amounts Due through 2004.
I. Drilling and Geological Requirements.
23
Exhibit A - NUCLA PROSPECT
PARTIES OF THE AGREEMENT
1. SOLARIS EXPLORATION, INC.
-------------------------
Solaris Exploration, Inc.
Xx. Xxxx X. Xxxxx, Vice President
00000 Xxxxxxxx Xxxxxx Xxxxx, Xxx 000
Xxxxxxx, XX 00000
Daytime Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: xxxxxx@xxxxxxxxx.xxx
--------------------
2. NUCLA PROSPECT GROUP
Plateau Exploration, Inc.
Xx. Xxxxxx X. Xxxxxxxxx, President*
0000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000-0000
Daytime Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: xxxxxxxxxxx@xxxxxxxxx.xxx
-------------------------
The Estate of X.X. Xxxxxx
Xx. Xxxxxx Xxxxxxxx, Personal Representative
00000 Xxxxxxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000
Daytime Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: X0xxxxx@xxx.xxx
---------------
Wyoming Oil & Minerals, Inc.
Xx. Xxxxx X. Xxxxx, Director
0000 Xxxxxxxx Xx., Xxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Daytime Telephone: (303 238-8712)
Facsimile: (303 238-3190)
E-mail: xxxxxxxxxx@xxx.xxx
------------------
Amarado Oil Company, Inc.
Xx. Xxxxx X. Xxxxxxx, President
0000 Xxxxxxxxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Daytime Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxx.xxx
---------------------
Kodiak Resources, Inc.
Xx. Xxxxxxx X. Xxxxxx, President
0000 Xxxxx Xxxx 000, Xxxxx 000
Xxxxxx, XX 00000
Daytime Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: xxxxxxx@xxxxxx.xxx
------------------
-------------
* Designated contact person and representative spokesperson for the
Nucla Prospect Group shall be Xx. Xxxxxx X. Xxxxxxxxx, President
of Plateau Exploration, Inc., with address, phone, etc. as listed
above.
Exhibit B - NUCLA PROSPECT
LEASE SCHEDULE AND ACREAGE
Montrose County, Colorado
1. FEDERAL ACREAGE (Nucla Prospect Group - Offered Acreage):
--------------------------------------------------------------
COC- Legal Expire Net
Lease Description Date NRI Acres
----- ----------- ---------- ------ --------
61290 Township 47 North, Range 14 West 02/28/2008 87.5% 6403.56
--------------------------------
Section 4: Xxxx 0, 0, 0, 0, X0X0, X0
Section 5 Xxxx 0, 0, 0, 0, X0X0, X0
Xxxxxxx 0 Xxxx 0, 2, 3, 4, 5, 6, 7,
XXXX, X0XX, X0XX, SE
Section 7 Xxxx 0, 0, 0, 0, X0X0, X0
Section 8 All
Section 9 All
Section 10 All
Section 16 All
Section 17 All
Township 47 North, Range 15 West
--------------------------------
Section 1 Xxxx 0, 0, 0, 0, X0X0, X0
61301 Township 47 North, Range 13 West 02/28/2008 87.5% 6951.32
--------------------------------
Section 30 Xxxx 0, 0, 0, 0, X0, X0X0
Section 31 Xxxx 0, 0, 0, 0, 0,
XX, X0XX, XXXX, X0XX
Section 32 Xxxx 0, 0, 0, 0, X0, X0X0
Xxxxxxxx 47 North, Range 14 West
--------------------------------
Section 14 All
Section 15 All
Section 22 All
Section 23 All
Section 24 All
Section 25 All
Section 26 All
Section 27 All
62123 Township 46 North, Range 14 West 09/30/2008 87.5% 1803.27
--------------------------------
Section 1 Xxxx 0, 0, 0, 0,
X0XX, XX, X0XX, SESE
Section 2 Xxxx 0, 0, 0, 0, X0X0,
X0 Section 11 Xxx 0, X0, X0X0, X0XX, XXXX
62133 Township 47 North, Range 14 West 08/31/2008 87.5% 965.95
--------------------------------
Section 19 Xxxx 0, 0, XX, X0XX, X0XX
Section 30 Xxxx 0, 0, X0, X0X0
00000 Xxxxxxxx 47 North, Range 14 West 08/31/2008 87.5% 2560.00
--------------------------------
Section 20 All
Section 21 All
Section 28 All
Section 29 All
62135 Township 47 North, Range 14 West 08/31/2008 87.5% 1310.94
--------------------------------
Section 31 Xxxx 0, 0, 0, 0, X0X0,
X0 excl. MS2517
Section 32 All excl. MS2517, MS2518
62136 Township 47 North, Range 14 West 08/31/2008 87.5% 640.00
--------------------------------
Section 33 All
62760 Township 46 North, Range 13 West 05/31/2009 87.5% 2268.82
--------------------------------
Section 20 Xxxx 0, 0, 0, 0, 0, 0, X0XX, X0
Section 21 Xxxx 0, 0, 0, 0, 0,XXXX, X0XX, XX
Section 28 All
Section 29 Xxxx 0, 0, 0, 0, X0X0, X0X0, SESE
63121 Township 46 North, Range 13 West 12/31/2010 87.5% 990.88
--------------------------------
Section 19 Xxxx 0, 0, 0, X0, X0X0
Section 30 Xxxx 0, 0, 0,
XX, X0XX, XXXX
00000 Township 47 North, Range 15 West 04/30/2011 87.5% 1400.00
--------------------------------
Section 22 X0, X0X0, X0XX, SWSE
Section 00 X0XX, XXXX, XX, X0XX
Section 00 X0XX, XXXX, X0XX, XXXX, XX
Section 28 NENE
63123 Township 47 North, Range 15 West 04/30/2011 87.5% 320.00
--------------------------------
Section 00 X0XX, XXXX, X0XX, SESW
Section 25 S2SW
63232 Township 46 North, Range 13 West 10/31/2010 87.5% 640.00
--------------------------------
Section 33 All
63233 Township 46 North, Range 13 West 10/31/2010 87.5% 800.00
--------------------------------
Section 31 X0, X0XX
Xxxxxxx 00 X0, X0XX
64268 Township 46 North, Range 13 West 10/31/2010 87.5% 60.00
--------------------------------
Section 32 X0X0XX, X0X0X0XX
64482 Township 46 North, Range 13 West 03/31/2012 87.5% 2011.25
--------------------------------
Section 3 Xxxx 0, 0, 0,
X0X0, X0XX, X0X0XX
Xxxxxxx 0 Xxxx 0, 0, 0, 0, X0
Xxxxxxx 0 All
Section 00 X0XXXX, X0XXXX,
XXXX, X0X0, XX, X0XX
64487 Township 46 North, Range 13 West 03/31/2011 87.5% 1842.00
--------------------------------
Section 0 Xxx
Xxxxxxx 00 X0, XX, X0XX
Section 18 Lots 1,2,3,4, X0, X0X0
64488 Township 46 North, Range 13 West 03/31/2011 87.5% 1360.00
--------------------------------
Section 14 SWNW, NWSW, S2S2, NESE
Section 15 W2NE, SENE, W2, SE
Xxxxxxx 00 X0, XX
00000 Xxxxxxxx 47 North, Range 13 West 03/31/2011 87.5% 1267.88
--------------------------------
Section 19 Xxxx 0, 0, 0, 0, X0X0,X0
Section 29 All
64508 Township 47 North, Range 14 West 03/31/2011 87.5% 645.32
--------------------------------
Section 18 Lots 1,2,3,4, X0, X0X0
64509 Township 47 North, Range 14 West 03/31/2011 87.5% 1880.00
--------------------------------
Section 34 All
Section 35 All
Section 36 X0, X0X0, X0XX, SWSE
64518 Township 47 North, Range 15 West 03/31/2011 87.5% 80.00
--------------------------------
Section 13 E2SE
64519 Township 47 North, Range 15 West 03/31/2011 87.5% 2255.00
--------------------------------
Section 00 Xxx
Xxxxxxx 00 X0XX, X0XX, X0, X0XXXX
Section 00 XX, X0XX, X0XXXX,
X0XX, XXXX, X0XXXX,
X0X0XXXX, NENESE,
X0XXXXXX, XXXXXXXX,
X0XXXX, X0XXXXXX,
NENESESE, S2S2SESE
Section 15 All
64520 Township 47 North, Range 15 West 03/31/2011 87.5% 640.00
--------------------------------
Section 2 S2
Section 3 S2
64521 Township 47 North, Range 15 West 03/31/2011 87.5% 470.00
--------------------------------
Section 00 X0X0XXXX, X0XX, XXXX,
X0XXXX, XXXX, XXXX
Section 00 X0XX, XXXX, XXXX, X0XX
--------
TOTAL OFFERED FEDERAL ACREAGE: 39566.19
B-3
2. FEE ACREAGE (Nucla Prospect Group - Offered Acreage):
-----------------------------------------------------
COC- Legal Expire Net
Lease Description Date NRI Acres
----- ----------- ---------- ------ --------
XXXXXXX (2300.00 Gross Acres) 11/31/2009 87.5% 320.00
Township 47 North, Range 14 West
--------------------------------
Section 30 Xxxx 0, 0
Xxxxxxxx 00 Xxxxx, Xxxxx 15 West
--------------------------------
Section 00 X0XXXX, X0XXXX, XXXXXX,
XXXXXX, X0X0XXXX, X0X0XXXX,
SWSENESE, N2SESWSE, S2NESESE,
X0XXXX, XXXXXXXX, X0XXXX
Section 13 E2NENW, XXXXXX, X0X0XXXX,
X0XXXXXX, X0XX, X0XX, SESW,
SWNW
Section 14 SENE, NESE
Section 23 X0, XXXX
Xxxxxxx 00 X0, X0XX
Section 00 XX, XXXX, X0XX, X0XX, SE
Section 00 X0XX
Xxxxxxx 00 X0XX, XXXX, X0XX
XXXXXX (1283.20 Gross Acres) 03/16/2005 87.5% 481.20
Township 47 North, Range 14 West
--------------------------------
Section 30 Xxxx 0, 0
Xxxxxxxx 00 Xxxxx, Xxxxx 15 West
--------------------------------
Section 00 XXXX, XXXX, X0XX, X0XX
Section 14 SENE, NESE
Section 00 XXXX, XX
Xxxxxxx 00 XX, X0XX, X0XX
Section 00 X0XX, XXXX, X0XX, XX
XXXXXXX, ET AL. (160.00 Gross Acres) 03/16/2005 87.5% 160.00
Township 47 North, Range 15 West
--------------------------------
Section 26 E2NE, N2SE
XXXXXX/XXXXXX (160.00 Gross Acres) 04/15/2006 87.5% 20.00
Township 47 North, Range 15 West
--------------------------------
Section 13 E2SW, W2SE
--------
TOTAL OFFERED FEE ACREAGE: 981.20
--------
TOTAL OFFERED FEDERAL AND FEE ACREAGE 40547.39
B-4
Exhibit C - NUCLA PROSPECT
MAP OF AMI BOUNDARY
AND LEASEHOLD ACREAGE
MAP NOT SHOWN HERE
Exhibit D - NUCLA PROSPECT
AREA OF MUTUAL INTEREST (AMI)
Montrose County, Colorado
AREA OF MUTUAL INTEREST
-----------------------
Townships, Ranges Sections
----------------------------------- --------
Township 45 North, Range 00 Xxxx 0-0
Xxxxxxxx 00 0/0 Xxxxx, Xxxxx 13 West 31-36
Township 46 North, Range 13 West All
Township 46 North, Range 14 West 1-4, 10-13
Township 47 North, Range 13 West 3-36
Township 47 North, Range 14 West All
Township 47 North, Range 15 West 1-3, 10-15, 22-27, 34-36
Township 47 North, Range 00 Xxxx XXXX Xxxxxxx 00
Xxxxxxxx 00 Xxxxx, Xxxxx 00 Xxxx 00-00
Xxxxxxxx 00 Xxxxx, Xxxxx 00 Xxxx 00-00
Xxxxxxxx 00 Xxxxx, Xxxxx 15 West 13-16, 21-28, 33-36
Map of AMI boundary is shown in Exhibit C.
Exhibit E - NUCLA PROSPECT
INITIAL AND OPTION DRILLING BLOCKS
Montrose County, Colorado
1. INITIAL NINE-SECTION DRILLING BLOCK # 1 (initial drill site is in section
16).
---------------------------------------------------------------------------
COC- Legal Expire NPG
Lease Description Date Gross Acreage
----- -------------------------------- ---------- --------------
61290 Township 47 North, Range 14 West 02/28/2008 3,200 of 5,760
Sections 8, 9, 10, 16, 17
61301 Township 47 North, Range 14 West 02/28/2008 1,280 of 5,760
--------------------------------
Sections 15, 22
62134 Township 47 North, Range 14 West 08/31/2008 1,280 of 5,760
--------------------------------
Sections 20, 21
2. NINE-SECTION OPTION DRILLING BLOCK #2.
--------------------------------------
COC- Legal Expire NPG
Lease Description Date Gross Acreage
----- -------------------------------- ---------- --------------
64490 Township 47 North, Range 13 West 03/31/2011 640 of 5,760
--------------------------------
Section 19
61301 Township 47 North, Range 13 West 02/28/2008 1,280 of 5,760
--------------------------------
Sections 30, 31
61301 Township 47 North, Range 14 West 02/28/2008 2,560 of 5,760
--------------------------------
Sections 23, 24, 25, 26
64509 Township 47 North, Range 14 West 03/31/2011 1,280 of 5,760
--------------------------------
Sections 35, 36
3. NINE-SECTION OPTION DRILLING BLOCK #3.
COC- Legal Expire NPG
Lease Description Date Gross Acreage
----- -------------------------------- ---------- --------------
62760 Township 46 North, Range 13 West 05/31/2009 1,120 of 4,940
--------------------------------
Sections 20, 21
64487 Township 46 North, Range 13 West 03/31/2011 1,640 of 4,940
--------------------------------
Sections 8, 17, 18
64482 Township 46 North, Range 13 West 03/31/2012 1,100 of 4,940
--------------------------------
Sections 9, 10
64488 Township 46 North, Range 13 West 03/31/2011 1,080 of 4,940
--------------------------------
Sections 15, 16
Map of Drilling Blocks is shown in Exhibit F.
Exhibit F - NUCLA PROSPECT
MAP OF INITIAL AND
OPTION DRILLING BLOCKS
MAP NOT SHOWN HERE
Exhibit G - NUCLA PROSPECT
FEDERAL LEASE RENTAL SCHEDULE
Montrose County, Colorado
NUCLA PROSPECT GROUP - OFFERED FEDERAL ACREAGE:
Delayed Rentals Paid during latter half of 2002
-----------------------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2002
------- ---------- --------- ----- ---------- ------------
62133 08/31/2002 $1.50 966 $ 1,449.00 $ 1,449.00
62134 08/31/2002 $1.50 2560 $ 3,840.00 $ 5,289.00
62135 08/31/2002 $1.50 1311 $ 1,966.50 $ 7,255.50
62136 08/31/2002 $1.50 640 $ 960.00 $ 8,215.50
62123 09/30/2002 $1.50 1804 $ 2,706.00 $ 10,921.50
63232 10/31/2002 $1.50 640 $ 960.00 $ 11,881.50
63233 10/31/2002 $1.50 800 $ 1,200.00 $ 13,081.50
64268 10/31/2002 $1.50 60 $ 90.00 $ 13,171.50
63121 12/31/2002 $1.50 991 $ 1,486.50 $ 14,858.00
Total Rent Paid by NPG during latter half of 2002 $ 14,658.00
================================================================================
Delayed Rentals Due during 2003
-------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2003
------- ---------- --------- ----- ---------- ------------
61290 02/28/2003 $2.00 6404 $12,808.00 $ 12,808.00
61301 02/28/2003 $2.00 6952 $13,904.00 $ 26,712.00
64482 03/31/2003 $1.50 2012 $ 3,018.00 $ 29,730.00
64487 03/31/2003 $1.50 1842 $ 2,763.00 $ 32,493.00
64488 03/31/2003 $1.50 1360 $ 2,040.00 $ 34,533.00
64490 03/31/2003 $1.50 1268 $ 1,902.00 $ 36,435.00
64508 03/31/2003 $1.50 646 $ 969.00 $ 37,404.00
G-1
64509 03/31/2003 $1.50 1880 $ 2,820.00 $ 40,224.00
64518 03/31/2003 $1.50 80 $ 120.00 $ 40,344.00
64519 03/31/2003 $1.50 2255 $ 3,382.50 $ 43,726.50
64520 03/31/2003 $1.50 640 $ 960.00 $ 44,686.50
64521 03/31/2003 $1.50 470 $ 705.00 $ 45,391.50
63122 04/30/2003 $1.50 1400 $ 2,100.00 $ 47,491.50
63123 04/30/2003 $1.50 320 $ 480.00 $ 47,971.50
62760 05/31/2003 $1.50 2269 $ 3,403.50 $ 51,375.00
62133 08/31/2003 $2.00 966 $ 1,932.00 $ 53,307.00
62134 08/31/2003 $2.00 2560 $ 5,120.00 $ 58,427.00
62135 08/31/2003 $2.00 1311 $ 2,622.00 $ 61,049.00
62136 08/31/2003 $2.00 640 $ 1,280.00 $ 62,329.00
62123 09/30/2003 $2.00 1804 $ 3,608.00 $ 65,937.00
63232 10/31/2003 $1.50 640 $ 960.00 $ 66,897.00
63233 10/31/2003 $1.50 800 $ 1,200.00 $ 68,097.00
64268 10/31/2003 $1.50 60 $ 90.00 $ 68,187.00
63121 12/31/2003 $1.50 991 $ 1,486.50 $ 69,673.50
Total Rent Due during 2003 $ 69,673.50
================================================================================
Delayed Rentals Due during 2004
-------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2004
------- ---------- --------- ----- ---------- ------------
61290 02/28/2004 $2.00 6404 $12,808.00 $ 12,808.00
61301 02/28/2004 $2.00 6952 $13,904.00 $ 26,712.00
64482 03/31/2004 $1.50 2012 $ 3,018.00 $ 29,730.00
G-2
64487 03/31/2004 $1.50 1842 $ 2,763.00 $ 32,493.00
64488 03/31/2004 $1.50 1360 $ 2,040.00 $ 34,533.00
64490 03/31/2004 $1.50 1268 $ 1,902.00 $ 36,435.00
64508 03/31/2004 $1.50 646 $ 969.00 $ 37,404.00
64509 03/31/2004 $1.50 1880 $ 2,820.00 $ 40,224.00
64518 03/31/2004 $1.50 80 $ 120.00 $ 40,344.00
64519 03/31/2004 $1.50 2255 $ 3,382.50 $ 43,726.50
64520 03/31/2004 $1.50 640 $ 960.00 $ 44,686.50
64521 03/31/2004 $1.50 470 $ 705.00 $ 45,391.50
63122 04/30/2004 $1.50 1400 $ 2,100.00 $ 47,491.50
63123 04/30/2004 $1.50 320 $ 480.00 $ 47,971.50
62760 05/31/2004 $1.50 2269 $ 3,403.50 $ 51,375.00
62133 08/31/2004 $2.00 966 $ 1,932.00 $ 53,307.00
62134 08/31/2004 $2.00 2560 $ 5,120.00 $ 58,427.00
62135 08/31/2004 $2.00 1311 $ 2,622.00 $ 61,049.00
62136 08/31/2004 $2.00 640 $ 1,280.00 $ 62,329.00
62123 09/30/2004 $2.00 1804 $ 3,608.00 $ 65,937.00
63232 10/31/2004 $1.50 640 $ 960.00 $ 66,897.00
63233 10/31/2004 $1.50 800 $ 1,200.00 $ 68,097.00
64268 10/31/2004 $1.50 60 $ 90.00 $ 68,187.00
63121 12/31/2004 $1.50 991 $ 1,486.50 $ 69,673.50
Total Rent Due during 2004 $ 69,673.50
================================================================================
X-0
Xxxxxxx X - XXXXX XXXXXXXX
FEE LEASE RENTAL SCHEDULE
Montrose County, Colorado
NUCLA PROSPECT GROUP - OFFERED FEE ACREAGE:
Delayed Rentals Paid during latter half of 2002
-----------------------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2002
------- ---------- --------- ----- ---------- ------------
Xxxxxx 03/16/2002 $1.00 481.20 $481.20 Paid
Xxxxxxx, et al. 03/16/2002 $1.00 160.00 $160.00 Paid
Xxxxxx/Xxxxxx 04/15/2002 $0.00 020.00 $000.00 Paid-up lease
Xxxxxxx 11/31/2002 $1.00 320.00 $320.00 $320.00
Total Rent Paid by NPG during latter half of 2002 $320.00
================================================================================
Delayed Rentals Due during 2003
-------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2002
------- ---------- --------- ----- ---------- ------------
Xxxxxxx, et al. 03/16/2003 $1.00 160.00 $160.00 $160.00
Xxxxxx/Xxxxxx 04/15/2003 $0.00 020.00 $000.00 Paid-up lease
Xxxxxxx 11/31/2003 $1.00 320.00 $320.00 $320.00
Total Rent Due during 2003 $961.20
================================================================================
Delayed Rentals Due during 2004
-------------------------------
COC- Rental Gross Rental Cumulative
Lease Due Date Rent/Acre Acres Amount Total - 2002
------- ---------- --------- ----- ---------- ------------
Xxxxxx 03/16/2004 $1.00 481.20 $481.20 $481.20
Xxxxxxx, et al. 03/16/2004 $1.00 160.00 $160.00 $160.00
Xxxxxx/Xxxxxx 04/15/2004 $0.00 020.00 $000.00 Paid-up lease
Xxxxxxx 11/31/2004 $1.00 320.00 $320.00 $320.00
Total Rent Due during 2004 $961.20
================================================================================
Exhibit I - NUCLA PROSPECT
DRILLING AND GEOLOGICAL REQUIREMENTS
REQUIREMENTS.
-------------
1. In the conduct of its test well drilling, Solaris, whether acting as the
Operator or not, shall require Operator to give representatives of NPG free
access, at their sole risk, to the rig floor at all times as safety
permits, and to make available to such representatives all logs, records,
reports, samples, cuttings, cores, test results, and other information
obtained in the course of drilling the test well and/or any substitute test
well. Subject to the other provisions of the Agreement, all information and
data obtained by the NPG from Solaris under the provisions of this Exhibit
shall be held by NPG as proprietary and confidential information of Solaris
and the NPG shall not discuss or divulge the information to any person or
entity, other than Solaris or an individual authorized by Solaris, without
the express written consent of Solaris, for a period of one (1) year from
the date such information is provided, or until the information is made
public by regulatory authorities having jurisdiction, or in the event when
this Agreement has been prematurely terminated, whichever is sooner.
2. Solaris agrees to provide NPG, through the designated contact person
identified in Exhibit "A" of this Agreement, the following notices and
instruments:
a. Copies of each of the following instruments immediately after their
preparation and/or filing:
(i) Registration for oil and gas operations (Colorado Oil and Gas
Conservation Commission Form 1 - COGCC Form 1) where Solaris is
the Operator on xxxxx within the AMI.
(ii) Application for Permit-to-drill (COGCC Form 2) for test well.
(iii)Surveyor's location plat for the test well and/or any substitute
test well (s).
(iv) Sundry notices and reports (COGCC Form 4).
(v) Drilling Completion Report (COGCC Form 5).
(vi) Completed Interval Report (COGCC Form 5A).
(vii) Well Abandonment Report (COGCC Form 6).
(viii) Operator's Monthly Production Report (COGCC Form 7).
(ix) Any and all other forms and reports required to be filed by the
rules and regulations of the State of Colorado, Colorado Oil and
Gas Conservation Commission, Colorado Geological Survey, Bureau
of Land Management, U.S. Geological Survey, and/or U.S. Forest
Service on the lands within the AMI.
b. Drilling report, sent by facsimile or Email daily, showing progress
during the previous day, including commencement date, drilling depth,
deviation tests, character and name of formations encountered, shows
of oil, gas, and/or water, and data for all formation tests.
c. Notification by facsimile, Email or phone of a significant showing of
oil and/or gas while drilling or testing, and if show(s) will be
immediately tested.
I-1
d. Notification by facsimile, Email or phone prior to the running of any
electrical logs (surveys).
e. Notification by facsimile, Email or phone that the well has
reached total depth.
f. Two sets of all runs of "field-print" and "final" logs and one
complete digital copy of each of the following recommended logs:
(i) Dual Induction Laterolog (or equivalent log), with Gamma Ray, SP
and Caliper curves, from bottom of surface casing to total depth.
(ii) Compensated Neutron - Litho-Density log (or equivalent log), with
Gamma Ray, Caliper, and PEF curves, from bottom of surface casing
to total depth.
(iii)Sonic log, with Gamma Ray and caliper curves, from surface to
total depth. Delta-T Compressional and Delta-T Shear curves to be
included on sonic log.
(iv) Dipmeter log (Micro Imager), from bottom of surface casing to
total depth.
(v) Natural Gamma Ray Spectroscopy log, from bottom of surface casing
to total depth.
(vi) Mud Log, from surface casing to total depth.
(vii) Wellsite Geologist's log, from surface to total depth.
(viii) Any and all other borehole or downhole logs, directional
surveys, temperature surveys, velocity surveys, drilling time
logs, etc.
g. A geologic history of the test well, including all formation tops with
lithologic descriptions, deviation surveys, bit records, drilling
time, and chronological report.
h. Two copies of all core analyses including copies of special analyses,
core photos, reports, etc. as related to the core(s). NPG would have
full access to the core(s) taken in a test well and the right to
obtain a slabbed portion of the entire core(s) or to obtain
representative samples.
i. Two copies of all drill stem test charts and results, together with
representative samples of any fluid (liquid) recovered on any drill
stem test or wire line test. Operator will attempt to collect and have
analyzed any gaseous products recovered from each drill stem test or
wire line test and provide two copies of each such analysis to NPG.
j. Copies of any follow-up analyses or studies (e.g. core and sample
analyses, gas, oil, water and mud analyses, petrological,
petrophysical, paleontological and geochemical studies).
3. NPG shall have the opportunity to examine well cuttings, test data and
electrical logs before any test well or any substitute well is abandoned by
Solaris (Operator), and it shall further have the right, at its sole cost,
risk and expense, including full rig time, to conduct such additional
surveys as it may desire, provided timely notice is given to Solaris while
the rig is still over the borehole.
4. Solaris agrees to have a qualified Wellsite Geologist on the well at all
times while the well is drilling, coring, or testing, from surface to total
depth.
5. Solaris agrees to have a qualified Two-man Mud Logging team on the well at
all times while the well is drilling, from surface to total depth. The
contracted Mud Logging company must have equipment necessary to detect
gaseous hydrocarbons, carbon dioxide, and hydrogen sulfide.
I-2
6. Solaris agrees to follow federal BLM rules that require hydrogen sulfide
safety equipment and detectors to be used below surface casing. The BLM
will require that all personnel on the location have certified hydrogen
sulfide training.
7. Solaris agrees to make such tests during the course of the test well
drilling as would be made by a prudent operator under similar circumstances
to determine the productivity for oil and/or gas of the test well or any
substitute, including, without limitation, as to any well that encounters
the Paleozoic horizons in the Four Corners region.
8. If a completion attempt is made on the test well or any substitute test
well, NPG shall receive a daily report of completion data, including
perforation, treating, swabbing and other testing, with details on fluid
types and amounts, production gauges and pressures, etc.
I-3
