Exhibit 10.1
REGENCY ENERGY, INC.
0000 XX. XXX. #00
XXXXXXX XXXX, XXXXX 00000
830 - 374-9000 - OFF
830 - 000-0000 - FAX
PARTICIPATION AGREEMENT
July 8, 2006
Tidelands Exploration and Production, Inc.
0000 Xxxx Xxxxxxx - Xxxx. Xx. 0
Xxx Xxxxxxx, Xxxxx 00000
Xx. Xxxxxxx X. Xxxx
RE: SOMERSET-XXXXXX CITY FIELD
A & B PIPELINE COMPANY OF TEXAS, INC.
ATACOOSA, XXXXXX AND BEXAR COUNTY, TEXAS
Dear Xxxxxxx:
This letter agreement, when executed by you, shall evidence the entire agreement
between REGENCY ENERGY, INC. (hereinafter referred to as "REGENCY") and yourself
(hereinafter referred to as "PARTICIPANT") pertaining to the above referenced
xxxxx, producing and nonproducing, about to be acquired, oil and gas leases, now
owned or being acquired and the A&B Pipeline Company of Texas, Inc. (hereinafter
referred to as the "SUBJECT PROPERTIES").
(1)
REGENCY now owns all the rights title and interest in an to that certain
pipeline system known as the A&B Pipeline Company of Texas, Inc. and to certain
xxxxx, oil and gas leases, now producing or non-producing, described in Exhibit
"A" attached hereto and made a part hereof referred to as "Subject Properties".
Regency herein agrees to assign an undivided fifty (50) percent working interest
in and to the "SUBJECT PROPERTIES" to the Participant for the sum of $500,000.00
(Five Hundred Thousand Dollars and No/100. It is understood and agreed that the
final connection to the pipeline system has to be completed and at this time
that connection has not been completed. For the funds above set forth, it is
anticipated that said necessary connection shall be finalized within the next
two-three weeks and until then gas sales cannot be commenced and no revenues can
be generated. Is is agreed that a gas compressor of necessary size to handle the
volume of gas indicated to be sold will be installed. Also, an H2S analyzer and
removal system will be installed sufficient to meet the pipeline specifications
as to H2S removal before it goes to sales. It is further understood, that in
addition to the existing xxxxx that are to be connected to the sales pipeline,
REGENCY is continuing to acquire oil and gas leases and the funds furnished
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herein shall be used only to finalize this pipeline connection and install the
necessary surface equipment to deliver the gas from the existing xxxxx to the
sales point. Regency agrees to continue to develop these properties in a good
and workmanlike manner as any normal prudent operator would do and keep
PARTICIPANT notified as to the progress being made. All operations will be
conducted under the Rules and Regulations of Texas Railroad Commission in
compliance with all other State and Federal Rules and Regulations.
(11)
It is understood and agreed between Regency and the Participant, that the sole
purpose of this letter agreement is to ultimately fully develop an area
encompassing this entire area and field, to re-enter as many as practical
plugged and abandoned xxxxx in an attempt to recomplete as many as practical as
producers. Participant will have the continuing option to participate in oil and
gas lease to be acquired and each additional well to be recompleted or
re-entered on an actual cost basis and Participant for his undivided Fifty (50%)
working interest share. On all oil and gas leases acquired and future xxxxx to
be re-entered and recompleted the Participant, if they so desires Participant
will share in his undivided Fifty (50%) working interest share.
(111)
Simultaneously, with the execution of this Participation Agreement and the
payment of the funds outlined above, Participate will execute a Standard Form
Operating Agreement, attached hereto as Exhibit "B", wherein Regency shall be
designated as Operator or Record for the Subject Properties and wherein all
operations on the said leasehold estates shall be conducted pursuant to the
terms, conditions and provisions of said Operating Agreement with Accounting
Procedure attached thereto as Exhibit "C" and made a part thereof; provided
however, where the terms and provisions of said Operating Agreement conflict
with the terms of this Participation Agreement, the terms and provisions of this
Participation Agreement shall prevail.
(1V)
Regency will, after receipt of the above referenced funds and simultaneously,
continue to diligently pursue the acquisition of as many other oil and gas
leases as is possible and Regency agrees to pursue its overall efforts with due
diligence and in a good and workmanlike manner in accordance with the program as
set out. After successful completion of each well to be reentered, to promptly
connect said well to the sales lines and commence to sell gas. In addition,
Regency agrees to continue to promptly perform the necessary work to connect the
gathering lines from each well to the sales line so that gas sales can commence
as rapidly as possible.
(V)
During the course of the recompletion attempt and all subsequent operations
conducted on the subject lease and/or leases, well and/or xxxxx, and pipeline,
Participant and or his authorized representative, shall have access at all
reasonable times to said lease, leases, xxxxx and pipeline and to all
information pertaining thereto.
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(VI)
The parties hereto, "REGENCY" and "PARTICIPANT", expressly do not hereby intend
to create a joint venture or partnership association, and this agreement shall
not be construed as creating any such legal relationship. The liability of the
parties hereto shall be several and not joint or collective.
Each party agrees to elect to be excluded from the application of Subchapter K
of Charter I of Subtitle A of the US Internal Revenue Code. Each party also
agrees to elect to be excluded form the application of any present or future
income tax laws of the State, which there are not any, in the which the
properties covered hereby are located under which an election similar to that
provided by Section 761 of the US Internal Revenue Code can be made.
The parties agrees that for the United States Income and any applicable State
Income Tax purposes the gains and losses from sales, abandonments, and other
Disposition of the property and all classes of costs, expenses and credits,
including depreciation and depletion, shall be shares and accounted for by each
party in the following manner.
(a) The production costs shall be allocated as deductions to the parties
in accordance with their respective contributions to such costs.
(b) The exploration costs, intangible drilling costs, if any, and
development costs shall be allocated as deductions to the parties in
accordance with their respective contributions of such costs.
(c) The depreciation on tangible equipment shall be allocated to the
parties in accordance with their respective contributions to the
adjusted basis of such equipment.
(d) The deduction for depletion for each taxable year with respect to each
separate property shall be determined by each party individually based
on the income from oil and/or gas production allocated to each party
hereunder, except that cost depletion shall be based on the respective
costs of the leasehold interest attributable to the leases contributed
by each such party.
(e) Gain and losses form such sale, abandonment, or other disposition of
the property (other than oil, gas, or other hydrocarbon substances)
shall be allocated to the parties in such manner as will reflect the
gains and losses that would have been includable in their respective
income tax returns if such property were held by the parties outside
of this agreement. The computations shall take into account each
party's share of the proceeds derived from each sale or other
disposition of such property during the year, selling expenses, and
the parties respective contributions to the unadjusted costs basis of
such property, less any allowed or allowable depreciation, depletions,
amortization, credits or other deductions which have been allocated to
each party with respect to such property as provided herein.
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(f) The investment credit, if any, allowed by the US Internal Revenue Code
shall be allocated to the parties in accordance with their respective
contributions to qualified investment as defined in the US Internal
Revenue Code.
(g) All other classes of costs, expenses, and credits not falling within
Subsection (a), (b), (c), (d), (e) and (f) above shall be allocated to
and accounted for by the parties in accordance with their respective
contributions to such costs, expenses and credits.
(h) Income from the sale of oil, gas and other minerals produced, saved
and marketed from the subject properties covered hereby shall be
allocated between the parties hereto pursuant to their respective
rights and interest under this Participation Agreement.
(V11)
Until such time as this overall program is completed, REGENCY is acting as an
independent contractor, and a: such REGENCY shall indemnify "PARTICIPANT" and
hold them harmless against any claims for injuries to person or property
sustained by reason of the manner of conducting operations on the "Subject
Properties" by REGENCY and its employees and subcontractors until said overall
properties are finalized. REGENCY, as independent contractor, agrees to comply
with all rules and regulations of the laws, federal, state and local, applicable
to REGENCY and REGENCY'S business, equipment and personnel engaged in the
operations covered by this Participation Agreement.
(V111)
All notices hereunder shall be given by United States mail or Western Union
Telegraph, postage or charges prepaid, and addressed to the party to whom the
notice is given at the address set forth hereinbelow. Any notice hereunder shall
be deemed given when delivered to said address, or to such other address to
which either party shall designate in writing to the party hereto.
(1X)
The mutual covenants, agreements, obligations and duties of the respective
parties hereto, together with the attendant rights, privileges, and benefits
contemplated to be derived form this Letter Agreement shall be and becoming
binding upon and shall inure to the respective successors, assigns, heirs and
legal representatives of the parties hereto, and the agreement shall be
construed under the laws of the State Of Texas and as a covenant running with
the subject the subject leasehold lands covered hereby>
(X)
If the foregoing is acceptable and outlines your full understanding of our
agreement, then please so Indicate by duly executing duplicate originals of this
Letter Agreement, retaining one duplicate original for your files and returning
the other duplicate original thereof with the funds specified in Paragraph 1 and
1X above.
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Yours very truly,
REGENCY ENERGY, INC.
0000 Xx Xxx #00
Xxxxxxx Xxxx, Xxxxx 00000
By: /S/ Xxxxx Xxxx
Xxxxx Xxxx - President
AGREED AND ACCEPTED TO THIS THE 9TH DAY OF JULY 2006
TIDELANDS EXPLORATION AND PRODUCTION, INC.
0000 X. Xxxxxxx, Xxxx. 0
Xxx Xxxxxxx, Xxxxx 00000
By: /S/ Xxxxxxx Xxxx
Xxxxxxx Xxxx - President
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