EXHIBIT 10.29
PARTICIPATION AGREEMENT
Pecan Station North Prospect
ESN Re-entry/Re-drill of the Xxxxxxxxxxx & Xxxxxxxxxxx # 1 WCSL Well
WHEREAS; Xxxxx X. Xxxxxxx Exploration, Inc., herein referred to as "ESN", is
currently the owner of or has negotiated for or is in the process of negotiating
for the rights to acquire all or a portion of certain oil and gas properties
herein after referred to as the Pecan Station North Prospect located in the
Washington County School Land Surveys 103 & 000, Xxx Xxxxx Xxxxxx, Xxxxx and
consisting of 475-acres, more or less, a description is attached hereto as
Exhibit "A".
AND WHEREAS; ESN now plans to develop potential oil & gas reserves on the said
Pecan Station North Prospect by initially re-entering and attempting to re-drill
and complete the Xxxxxxxxxxx & Xxxxxxxxxxx # 1 WCSL well located on a legal
drill site on the prospect acreage.
NOW WHEREAS; Falcon Natural Gas Corp., herein referred to as "Participant",
wishes to participate with ESN in the re-entry, and attempted re-drill and, if
prudent, completion of the said Xxxxxxxxxxx & Xxxxxxxxxxx WCSL # 1well for a 75%
(seventy-five per cent) working interest, being a 55.80% (fifty-five & 80/100
percent) net revenue interest (after taking into account the assignment by
Falcon of a 0.45% ORRI pursuant to a consulting agreement with Wood Xxxxxxx,
LLC.) on an AFE 1/3 for 1/4 basis under the following terms and considerations:
1. Upon the execution of this agreement the Participant shall pay to ESN the
amount of $100,406.25 (one hundred thousand, four hundred six thousand
dollars and twenty five cents) representing the Participant's initial fee
to participate with ESN in xxxxx drilled on the Pecan Station North
Prospect.
2. The first three xxxxx (the "Initial Xxxxx") drilled or re-entered on the
said Pecan Station North Prospect will be on an AFE 1/3 for 1/4 basis with
the Participant paying 100% of the cost of drilling and completing into
the tanks or pipeline and receiving by assignment from ESN a 75% working
interest, being a 55.80% net revenue interest, Wood Xxxxxxx receiving by
assignment a 0.45% ORRI, and ESN retaining a 25% working interest, being
an 18.75% net revenue interest carried through drilling and completion and
to the tanks or pipeline in the Initial Xxxxx drilled or re-entered under
the terms of this agreement. Each of the Initial Xxxxx drilled or
re-entered and completed will earn a 40-acre production unit unless the
minimum unit required for such well to produce 100% allowable is greater,
in which case the production unit will be increased to satisfy such
requirement.
3. The proposed venture will initially consist of the re-entry and attempted
re-drilling and completion of the Xxxxxxxxxxx & Xxxxxxxxxxx WCSL # 1well
to a depth of +/- 4,900' or deep enough to test the Palo Pinto Lime and
Xxxxxx Sand formations on a legal drill site unit as required by the Texas
Railroad Commission. Unless otherwise mutually agreed by the parties
hereto, on or before 180 days from the date hereof ESN will propose to the
Participant the re-entry of the said Xxxxxxxxxxx & Xxxxxxxxxxx XXXX # 0
well at which time the Participant shall have 15 days to submit its
proportionate share of the drilling funds as set out on the AFE attached
hereto as Exhibit "B". Failure of the participant to submit its share of
such drilling funds within the allotted time period when invoiced by ESN
shall represent the Participant's decision not to participate in the
re-entry of the said well and by so doing shall cause the immediate
automatic termination of the Participant's right title and interest, if
any, in and to the Pecan Station North Prospect and xxxxx drilled thereon,
and from that time forward neither party shall have any obligation to the
other and ESN shall retain all money previously paid by the Participant,
with regards to the Pecan Station North Prospect, as liquidated damages,
and not as a penalty, the parties agreeing that the damages to ESN would
be difficult to ascertain.
1
4. ESN will re-enter and attempt to re-drill, and if prudent, complete the
said re-entry well for the estimated cost as set out in the AFE attached
hereto as Exhibit "B" with $185,042.81 being allocated to re-entry and
re-drilling cost, herein referred to as Drilling Cost, and $337,780.73
being allocated to completion, herein referred to as Completion Cost, all
being on a 1/3 for 1/4 basis, meaning that the Participant will pay 100%
of the AFE'd cost and shall receive 75% of the working interest and ESN
shall receive a 25% carried working interest.
5. After re-entering and re-drilling the well, if a completion attempt is
deemed warranted by ESN, then ESN will notify the Participant of such
completion and ESN shall make available any information available to ESN
concerning the well and the Participant shall have 7 days from the date of
notice from ESN to pay to ESN at ESN's address, the Participant's
proportionate share of the AFE "Completion Cost" being $337,780.73 . -
Failure of the Participant to pay its share of the AFE Completion Cost
within the allotted time will result in immediate forfeiture of all right
title and interest by the Participant in and to the subject well and ESN
and the Participant shall have no further obligation to the other with
respect to the said well except that settlement of actual costs as set out
in # 9 below.
6. In the event that by a prudent operator decision of ESN, total depth could
not be reached or a completion attempt is considered not possible, not
prudent or not deemed warranted by ESN, then ESN will consult with the
Participant and upon mutual agreement the well will be plugged as per the
requirements of the Texas Railroad Commission unless otherwise agreed to
by the parties. If either party desires to plug the well and the other
party desires to continue operations thereon, the party desiring to
continue operations shall be assigned the leasehold rights in the
production unit for the well and the party desiring to discontinue
operations shall receive payment of its proportionate share of the net
salvage value of the salvageable equipment in the well, less estimated
plugging costs.
7. Actual Drilling Cost and Completion Cost shall be reconciled against AFE
(estimated) costs within forty-five (45) days after the plugging or
completion of the well (the "Completion date" herein being termed as the
date that the well is hooked up in to the tanks and/or pipeline). Once a
final accounting of the actual "Drilling Cost" and/or "Completion Cost" is
made by ESN and if the amount paid for the Drilling & Completion by the
Participant is more than the actual final cost then ESN will immediately
refund to the participant such overage. However, if said actual cost is
more than that previously paid by the participant then the Participant
hereby agrees to immediately pay to ESN such difference.
8. The AFE attached hereto as Exhibit "B" sets out an estimate for Drilling
and Completion Costs for the subject well and shall be approved by the
Participant upon the execution of this agreement. Those costs so
designated by an asterisk (*) shall be fixed costs and shall not be either
more or less than that amount as set out in the AFE and shall be
relatively the same for all xxxxx drilled on the Prospect Acreage. All
other costs not designated by an asterisk may be adjusted either up or
down depending on the actual cost when a final accounting is made.
9. ESN will make a prudent operator effort to re-enter, re-drill and complete
the subject well as economically as possible. In the event that any goods
and services are necessary other than those included in the "AFE", such
costs will be considered as "additional costs" and will be billed out as
per the terms of this agreement to the Participant. Participant agrees
hereby to pay such costs and will have 10 days from the receipt of such
notice to pay its proportionate share of "additional cost". Should the
Participant fail to pay the assessed amount of any "additional costs"
within the allotted 10 day period, therefore choosing to go as a
"non-consent party", then the cost may be paid by ESN and ESN will be
allowed to recover 400% of that cost paid for the "non-consenting party"
from its net production share before the "non-consenting party" will begin
receiving revenue from the property.
2
10. After the drilling and if prudent the completion of the first well of the
Initial Xxxxx, the Participant and ESN shall work together to schedule
subsequent Initial Xxxxx to be drilled on the prospect acreage, an AFE is
attached as exhibit "B-1". If, six calendar months prior to the expiration
of the oil and gas lease covering the prospect, there is any acreage not
held in a production unit or by continuous operations, as defined in the
oil and gas lease, with no cessation of more than 180 days between xxxxx,
the non-producing acreage shall immediately revert 100% back to ESN unless
a well is in the process of being drilled or the parties mutually agree to
renew the lease.
11. After the Initial Xxxxx have been drilled or re-entered and completed,
Participant shall have the right but not the obligation to participate in
all subsequent xxxxx drilled on the Pecan Station North Prospect on terms
mutually agreed between ESN and Participant. If Participant chooses not to
participate or the parties cannot agree on the terms, Participant shall
retain all Participant's earned right, title and interest, if any, in and
to the Pecan Station North Prospect and xxxxx drilled thereon, and from
that time forward Participant shall not have any obligation to participate
in the drilling of additional xxxxx thereon.
12. ESN shall be Operator of the Pecan Station North Prospect and xxxxx
drilled thereon, and the Joint Operating Agreement attached hereto shall
be executed by ESN and Participant as stated below.
13. ESN reserves the right to resign as Operator at any time and ESN and
Participant shall mutually agree on a new Operator in accordance with the
terms of the Joint Operating Agreement.
14. The Participant understands there will be monthly operation costs
associated with maintaining a producing property (ies) for which the
Participant is liable and expected to pay for its proportionate share.
When possible the Participant's share of the cost will be deducted
proportionately from production revenue prior to disbursement of revenue
checks on a monthly basis. In most cases the revenue should exceed
expenses, however there may be instances when the production income is
less than the revenue, in which case the Participant will receive a
billing statement detailing the overage, which the Participant agrees to
promptly pay.
15. Upon the completion of each successful well, the Parties shall execute the
Joint Operating Agreement (JOA) attached hereto as Exhibit "C", between
ESN and the Participant, which the Participant hereby agrees to promptly
execute and return to ESN. Such JOA will govern the operations of the well
and describe the interest owned by each Participant respectively for
revenue payments to the Participant. Any conflict between the provision of
this Participation Agreement and the Joint Operating Agreement shall be
governed by the provisions of this Participation Agreement.
16. Within thirty (30) days after completion of a well, ESN shall deliver or
cause to be delivered to the Participant a recordable Assignment of
Interest reflecting the Participant's proportionate share of interest in
and to each producing well and production unit in which the Participant
has participated.
17. The rights, duties, obligations, and liabilities of the parties hereunder
shall be several and not joint or collective. Each Party hereto shall be
responsible only for its obligations as herein set out and shall be liable
only for its share of the cost and expense as herein provided; it being
the express purpose and intention of the parties that their ownership of
the Lease and the rights and property acquired in connection therewith
shall be as tenants in common and not as partners. It is not the purpose
or intention of this Agreement to create any mining, commercial, general,
limited, nor any partnership of any kind. Purchasers are direct Working
Interest Owners. Each of the parties hereto elects, under the authority of
Section 761(a) of the IRS Code of 1954, to be excluded from the
application of all provisions of Subchapter K of Chapter 1 Subtitle A of
the IRS Code of 1954.
3
18. Any notice provided or permitted to be given under this agreement shall be
in writing, and shall be deemed to have been duly given and received if
delivered personally, or sent by overnight delivery service or facsimile
transmission or within five (5) calendar days of mailing by registered or
certified mail (return receipt requested) to the party to be notified at
the following addresses or at such other addresses as shall be specified
by the parties by like notice:
If to ESN: Xxxxx X. Xxxxxxx Exploration, Inc.
Attention: Xxxxx X. Xxxxxxx, President
X.X. Xxx 000 000 Xxxx Xxxxx Xxxxxxxx XX
00000 Facsimile: (000) 000-0000
If to Participant Falcon Natural Gas Corp.
Attention: Xxxx X. Xxxxxxx, President
0000 Xxxx Xxxx Xxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
19. If any term or other provision of this agreement is held invalid, illegal
or incapable of being enforced under any rule of law, all other conditions
and provisions of this agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with
respect to either party.
20. This agreement shall inure to the benefit of and be binding upon the
successors, heirs and assigns of the parties.
21. This agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and acknowledged this
agreement as of the 14th day of March 2006.
XXXXX X. XXXXXXX EXPLORATION, INC. PARTICIPANT
FALCON NATURAL GAS CORP.
/s/ Xxxxx X. Xxxxxxx /s/ Xxxx X. Xxxxxxx
---------------------------------- ---------------------------------
Xxxxx X. Xxxxxxx, President Xxxx X. Xxxxxxx, President
4
EXHIBIT "A"
Pecan Station North Prospect
Being 475 acres of land, more or less, out of the Washington County School Land
Surveys 103 and 000, Xxx Xxxxx Xxxxxx, Xxxxx. Beginning at a point in the
Washington County School Land League # 105 in Xxx Xxxxx County, Texas that is
800' FSL & 13,500' FEL (said point becomes the NW corner of this tract); thence
in a southerly direction in a straight line to a point in Washington County
School land League # 103 that is 4,300' FEL (said point becoming the SW corner
of this tract); thence in an easterly direction in a straight line to a point in
League # 103 that is 4,300' FSL & 7,000' FEL (said point becoming the SE corner
of this tract); thence in a northerly direction in a straight line to a point in
the League # 105 that is 800' FSL & 8,300' FEL (said point becoming the NE
corner of this tract); thence in a westerly direction in a straight line to the
point of beginning; Containing in all, 475 acres of land, more or less.
5
