10.3 Investment Agreement with Sigma Energy & Exploration
SIGMA ENERGY AND EXPLORATION CO.
Re-Work Xxxxxxx XX Lease Xxxxx 2 and 3
DESCRIPTIVE MEMORANDUM
This Descriptive Memorandum is only a brief summary of the conditions of an
investment in the prospects and no prospective participant should invest without
first making a careful study of the remainder of this Descriptive Memorandum and
all other exhibits hereto, In addition, each prospective participant should
satisfy himself as to the tax consequences of an investment in the program
interest, and is urged to consult his own tax advisor. SIGMA ENERGY AND
EXPLORATION CO., has not sought a ruling from the Internal Revenue Service or an
opinion of counsel with respect to tax aspects of the program.
This offer is subject to SIGMA ENERGY AND EXPLORATION CO., (upon advise of
counsel) being satisfied that all applicable securities laws have been complied
with.
General and Administrative Expenses. SIGMA ENERGY AND EXPLORATION CO. will
receive reimbursement for best effort costs and expenses incurred by it in
supervising and carrying out the re-work of the Xxxxxxx XX Lease Xxxxx 2 and 3
as well as certain general administration expenses allocable to the prospect and
the compensation provided in the Program Operating Agreement. All costs and
expenses are allowed for in the AFE. (See Exhibit A.) Left over funds, if any
will be applied to operations as Sigma Energy and Exploration Co. Sees Fit.
Transfer of Program Interests. The program interests are not registered under
the Securities Act 1933 and therefore must be held for an indefinite period of
time unless they are subsequently registered under the Act or unless an
exemption from registration is available. SIGMA ENERGY AND EXPLORATION CO is not
under any obligation to register the program interest or to cause an exemption
under the Act to be available.
Risk Factors. An investment in the program involves a high degree of financial
risk. Accordingly, a prospective investor should consider carefully the
following risk factors.
High Risk of Oil and Gas Exploration. The prospect consists of unproven acreage.
Therefore, the activities of the program will involve a high degree of risk and
result cannot be predicted. There is no assurance that any oil or gas production
will be obtained through the activities undertaken pursuant to the program or
that such production, if obtained, will enable an investor to make a profit on,
or even recoup, his investment. Furthermore, drilling may be curtailed or
delayed as a result of, among other things weather conditions, delivery delays,
shortages of pipe and equipment or the unavailability of drilling rigs.
Lack of Liquidity. The program interests are not registered under the Securities
Act of 1933 and therefore must be held for an indefinite period of time unless
they are subsequently registered under such act or unless an exception from the
registration is available. In addition, any transfer or an interest in leases
subject to the program is subject to the preferential right to purchase.
Conflicts of Interest. The Participant Agreement provides that SIGMA ENERGY AND
EXPLORATION CO. will not be liable to the other participants for errors in
judgment or other acts or omissions not amounting to bad faith or gross
negligence. Accordingly, participants may have a more limited right of action
than they might have had absent such a provision.
Markets and Regulations. The federal and state governments exercise extensive
regulations and control over the price, productions and environmental aspects of
oil and gas exploration, which could affect the profitability of the test xxxxx.
The availability of ready markets and the market price at any given time could
also have an effect on the profitability of the xxxxx.
All inquires or request for additional information should be submitted or
directed to Xxxxxx Xxxxxxxx, Diversified Financial Resources Corp. 000-000-0000
or 000-000-0000.
SIGMA ENERGY AND EXPLORATION CO.
Dear Xxxxxx,
When accepted by you in the manner hereinbelow provided, this letter evidences
an agreement by and between SIGMA ENERGY AND EXPLORATION CO., hereinafter
referred to as "Operator, and
Name: Diversified Financial Resource Corporation
Address: 0000 Xxxx Xx. xxxxx 000
Xxx Xxxxx, Xxxxx. 00000
e-mail xxxxxxxxxxxxxxxxxx.xxx Ph 000-000-0000
hereinafter referred to as "Participant", as follows;
I. INTEREST IN LEASES
- SEE EXIBIT "B" for Plat and attachment for Legal description
The acreage covered by the aforesaid leases is depicted on the plat labeled
exhibit "B", attached hereto and made a part hereof. For the consideration
hereinafter mentioned, and subject to the terms, provisions, and conditions
hereinafter SIGMA ENERGY AND EXPLORATION CO., agrees to assign to Participant an
undivided 5.3333/32nds (11.359% net) Interest and to the hereinabove described
property, hereinafter referred to as Xxxxxxx XX Lease Xxxxx 2 and 3
It is specifically understood that SIGMA ENERGY AND EXPLORATION CO., is
delivering a 68% net revenue interest in the above property.
The assignment to Participant shall be made without warranty of title, except as
to claims by, through, or under SIGMA ENERGY AND EXPLORATION CO.,.; however,
prior to RE-WORKING The Xxxxxxx XX Xxxxx Xxxxx 2 and 3
SIGMA ENERGY AND EXPLORATION CO., shall, upon request, furnish to Participant a
title opinion from a competent attorney showing title to the SIGMA ENERGY AND
EXPLORATION CO., leases, all of which shall bear their proportionate share of
all royalties, overriding royalties, interests, and similar encumbrances, but in
no case exceeding 25% on property.
II. Xxxxxxx XX Lease Xxxxx 2 and 3
SIGMA ENERGY AND EXPLORATION CO. shall make a good faith effort to
re-work, or cause to be rework, on or before -Dec. , 2005 to re-work the
Xxxxxxx XX Lease Xxxxx 2 and 3
on the property hereinabove described. (Depending on Rig Availability) The
selection of the initial property to be re-worked is at the sole discretion of
SIGMA ENERGY AND EXPLORATION CO.,. SIGMA ENERGY AND EXPLORATION CO. shall
prosecute the Re-Work of the Xxxxxxx XX Lease Xxxxx 2 and 3
in a good and workmanlike manner to: 2500' or depth sufficient to test the San
Xxxxxx Formation in one well.
If in re-working the Xxxxxxx XX Lease Xxxxx 2 and 3
if in a well any condition is encountered at less than contract depth which
would render further drilling impossible or impractical as determined by SIGMA
ENERGY AND EXPLORATION CO. SIGMA ENERGY AND EXPLORATION CO., shall have the
right to cease operations and plug the well(s) under such conditions.
Participant shall pay his/her pro rata share or portion of whatever costs is
incurred through the costs of plugging such well(s) and this agreement shall
terminate only as to that well(s) so affected without further liability on the
part of either party hereto and with each party being relieved of all other
obligations, as to the well(s) so affected. If the above conditions occur,
Participant shall have the option to participate in the drilling of replacement
well(s) with the payment for drilling such well(s) being the same as if the
above conditions had not occurred. In he event Participant elects not to
participate in the drilling of replacement well(s), Participant agrees to assign
on demand to SIGMA ENERGY AND EXPLORATION CO. all his/her right, title, and
interest in and to the drilling unit of the replacement well(s).
If the re-working of the Xxxxxxx XX Lease Xxxxx 2 and 3
is not commenced because of conditions beyond the control of SIGMA ENERGY AND
EXPLORATION CO., then SIGMA ENERGY AND EXPLORATION CO., shall be relieved of the
obligation to re-work
The Xxxxxxx XX Lease Xxxxx 2 and 3,
and to deliver to the Participant any assignment of the SIGMA ENERGY AND
EXPLORATION CO., Divide Assignment, and SIGMA ENERGY AND EXPLORATION CO., shall
refund any consideration Participant paid therefore as set out in Article III B.
of the Operating Agreement and Participant shall be relieved of the obligation
to pay SIGMA ENERGY AND EXPLORATION CO. any other sums of money as herein
specified.
D. SIGMA ENERGY AND EXPLORATION CO.,., as Controlling Operator, shall make all
decisions except those particularly set forth within this Participation
Agreement, which decision shall be binding upon Participant, SIGMA ENERGY AND
EXPLORATION CO., shall not be liable to Participant for any such decision,
except for gross negligence or willful misconduct.
III. COSTS
Attached to this Agreement is the Authority For Expenditure (AFE) relative to
the costs of the initial test well(s). The Initial re-work of the
Xxxxxxx XX Lease Xxxxx 2 and 3 includes the working interest
through the tanks are on a best efforts basis to the Participant. Operator will
charge Participant for re-working on the basis of one-third (1/3) of the cost
incurred (for drilling and completion) for one-quarter (1/4) of the working
interest.
As consideration for the assignment of the aforementioned interest in the SIGMA
ENERGY AND EXPLORATION CO., Leases, Participant shall pay, contemporaneously
with the execution of this Participation Agreement, the sum of $ 40,000.00
(Forty Thousand USD)
All monies received toward the AFE shall be used in the maintaining and
operations of the well, lease and road and equipment pertaining to the well.
IV. MANUAL OPERATIONS OR ABANDONMENT AFTER REACHING CONTRACT DEPTH
After the re-work of the Xxxxxxx XX Lease Xxxxx 2 and 3
, SIGMA ENERGY AND EXPLORATION CO., shall make a copy of all Data and made
available to Participant or his/her representative at the well site. Within
twelve (12) hours after the Data has been made available and SIGMA ENERGY AND
EXPLORATION CO., has completed such open hold evaluation procedures in the well
as SIGMA ENERGY AND EXPLORATION CO., deems to be warranted under prevailing
conditions, then SIGMA ENERGY AND EXPLORATION CO., recommends an attempt to
complete the well(s), conduct other tests, or to plug and abandon the well(s).
If none of the parties who are bearing the cost of the divide
Well desire to attempt completion of the well(s), then SIGMA ENERGY AND
EXPLORATION CO. at its option, will either plug and abandon the well(s) or
attempt completion on its own, in which case Participant agrees to assign all
the right, title, and interest in and to the affected well(s) to SIGMA ENERGY
AND EXPLORATION CO. If SIGMA ENERGY AND EXPLORATION CO. elects to abandon the
well(s), the costs of such abandonment shall be done in the same proportion as
the costs of completion would have been borne by SIGMA ENERGY AND EXPLORATION
CO. and Participant.
Should SIGMA ENERGY AND EXPLORATION CO., and Participant elect to attempt a
re-completion of the well(s) after concluding evaluation, then all costs, risks,
and expenses of whatever nature incurred in connection with the well(s) after
SIGMA ENERGY AND EXPLORATION CO., makes its recommendation shall be borne in
proportions of
5.333/24ths by Participant and the balance by SIGMA ENERGY AND EXPLORATION CO.,
and others who may be participating with SIGMA ENERGY AND EXPLORATION CO.
V. ADDITIONAL OPERATIONS BY LESS THAN ALL PARTIES AFTER REACHING CONTRACT DEPTH
After the re-work of the Xxxxxxx XX Lease Xxxxx 2 and 3 if fewer than all the
parties hereto elect to set production casing and attempt a completion well(s)
as an oil or gas producer (a completion proposal shall have priority over other
proposal(s), then those parties electing to set production casing for a
completion attempt on their test well(s) may do so, but only at their sole cost,
risk and expense in their increased proportionate interests.
Upon commencement of such further operation in there-work of the Divide Well in
which any party has elected not to participate ("non-participating party"), the
non-participating party shall, by virtue of refusal to participate, relinquish
to SIGMA ENERGY AND EXPLORATION CO. all of non-participating party's interest in
and to said test well(s).
Should any party propose the drilling of an additional or subsequent well(s)
upon the hereinafter-described acreage, after the re-work of xxxxx 2 and 3 of
this agreement and completed as a producer, or plugged and abandoned as a dry
hole, then SIGMA ENERGY AND EXPLORATION CO. shall furnish to all parties and AFE
reflecting the estimated cost of drilling and completing such thereto. Within
ten (10) days following the receipt of the AFE and accompanying data, each party
shall elect whether or not to participate in the drilling of such subsequent or
additional well by notifying SIGMA ENERGY AND EXPLORATION CO. in writing. Should
a party fail to furnish timely notice of his/her election that shall constitute
a conclusive presumption by the other parties that he/she has elected not to
participate in such well.
D. It is hereby agreed that any party who elects not to participate in such
subsequent or additional well shall assign by recordable instrument all of
his/her right, title and interest in and to the acreage ascribed to the drilling
unit established for the subsequent or additional well, according to the spacing
pattern required or permitted by the applicable regulatory authority having
jurisdiction.
The provisions of Paragraphs A and B of this Article V regarding an attempted
completion to any attempted completion of the initial test well(s) shall be
equally applicable to any attempted completion of any subsequent or additional
well(s) drilled hereunder. The provisions of Article V shall govern when in
conflicts with the Operating Agreement.
INFORMATION TO BE FURNISHED
SIGMA ENERGY AND EXPLORATION CO. shall notify Participant when actual drilling
of the re-work of the Xxxxxxx XX Lease Xxxxx 2 and 3 is commenced and shall
furnish Participant with a copy of the plat of location. During the drilling of
the well(s), Participant and Participant's duly authorized representatives shall
have access at their own risk at all times to the xxxxxxx floor and shall be
given any available information requested regarding the well(s), including
current daily drilling reports. Participant shall be given timely notice of all
tests to include running of logs in order for Participant to be present if
he/she so desires. Participant shall notify SIGMA ENERGY AND EXPLORATION CO., in
writing of the name and address of each of his/her authorized representatives if
such person or persons are to represent Participant on the drill site.
RECORDABLE ASSIGNMENT
Upon request by Participant after re-work of xxxxx 2 and 3, Xxxxxxx XX Estate,
Xxxxxxxx County, Texas and Participant has SIGMA ENERGY AND EXPLORATION CO. all
sums due, including completion monies, SIGMA ENERGY AND EXPLORATION CO., shall
deliver to Participant a recordable assignment of Participant's interest in the
SIGMA ENERGY AND EXPLORATION CO. leases. The recordable assignment will not be
sent to the Participant until SIGMA ENERGY AND EXPLORATION CO., has completed
the well(s) as a producer. No assignments will be given for dry holes.
OPERATING AGREEMENT
Simultaneously with the execution of this Participation Agreement, Participant
and SIGMA ENERGY AND EXPLORATION CO. as Operator, shall execute the attached
Operating Agreement, attached hereto as Exhibit "C," which shall be applicable
to all operations hereunder. The Operating Agreement shall cover all of the
SIGMA ENERGY AND EXPLORATION CO. leases referred to in Section 1 of this
Participation Agreement. Should there be any conflict of provisions between this
Participation Agreement and the Operating Agreement, this Participation
Agreement shall prevail.
INSURANCE
At all times while conducting under this agreement, SIGMA ENERGY AND EXPLORATION
CO., or the designated Operator for the account of Participant and SIGMA ENERGY
AND EXPLORATION CO., and others participating with SIGMA ENERGY AND EXPLORATION
CO.,. The Drilling Contactor shall maintain Comprehensive General Liability
Insurance with a combined single limit of $500,000.00 per occurrence and
aggregate for bodily injury and/or property damage.
OPERATIONS COSTS
SIGMA ENERGY AND EXPLORATION CO., and participant agrees that SIGMA ENERGY AND
EXPLORATION CO., will act as Operator to produce each well for the sum of __ not
more than $750.00 _____ ---------------------- per month for a period of twelve
(12) months from the first month after completion. Operations costs will be
negotiated after the initial twelve (12) month period. This fee includes only
routine administrative service and routine well maintenance. All third party
services, including pumper, well workovers, major replacement parts and/or well
service is not included, and will be billed to the Participant on a pro-rata
basis.
NOTICES
All notices and reports to be furnished or given hereunder shall be at the
following addresses:
SIGMA ENERGY AND EXPLORATION CO. 000 Xxxxx Xx.
San Antonio TX 78202 PARTICIPANT -
Diversified Financial Resources Corp
0000 Xxxx Xxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Provided, however, that if Participant has a representative at the well, any
notice or recommendation required to be given or made by SIGMA ENERGY AND
EXPLORATION CO., shall be made to Participant's representative at the well.
XII. ACCEPTANCE
This agreement shall not be binding upon SIGMA ENERGY AND EXPLORATION CO., until
Participant has indicated acceptance of the terms and provisions herein
contained by execution in the space provided below and returned a fully executed
Operating Agreement with this Participation Agreement to SIGMA ENERGY AND
EXPLORATION CO., within five (5) days from the date this Participation Agreement
is delivered to Participant, together with Participant's check for the payment
called for in Article III.B above.
Very truly yours,
/s/ Xxx Xxxxxxx
Operations and General Manager
SIGMA ENERGY AND EXPLORATION CO.
DELIVERED THIS DAY 30TH DAY OF Sept.,2005
APPROVED AND ACCEPTED THIS THE 30TH DAY OF Sept 2005
BY /s/ Xxx Xxxxxxx
Xxx Xxxxxxx
Manager
SSN or TAX ID Number 00-0000000
Agreed on:
/s/ Xxxxxx Xxxxxxxx
Xxxxxx Xxxxxxxx, President
Date: Sept 30, 2005 Xxxxxx Xxxxxxxx, President
Tax Id. Number 00-0000000
Legal Address and Name Assignment Will BE Made To
Name: Diversified Financial Resource Corporation Address: 0000 Xxxx Xx. Xxxxx
000
Xxx Xxxxx, Xxxxx. 00000
