EXHIBIT 10.15
LOAN AGREEMENT
THIS AGREEMENT is executed this 13th day of February, 1999 by ENERGAS
RESOURCES, INC. ("Energas"), a British Columbia, Canada, corporation and MANKTO
INVESTMENTS, L.L.C. ("Mankato"), an Oklahoma limited liability company.
Recitals
(a) Energas is engaged in the oil and gas exploration business and has
expertise in developing oil and gas drilling prospects.
(b) Mankato desires to advance funds to Energas so that Energas may
develop and acquire oil and gas drilling prospects, all as set forth in this
agreement.
Agreement
1. Advance of Funds.
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1.1 From time to time upon execution of this agreement,
Mankato shall advance to Energas sums of money for Energas to use as it sees fit
for geological, geophysical, land, legal, engineering and leasehold acquisition
costs ("Predrilling Costs") relating to oil and gas drilling prospects within
the continental United States. The total amount of the funds to be advanced to
Energas by Mankato shall be $500,000 ("the Initial Fund"). The Initial Fund
shall be paid over to Energas by Mankato no later than the 1st day of April,
1999 ("the Initial Fund Advance Date").
1.2 Energas unconditionally promises to repay the Initial Fund
to Mankato on or before the earlier of either (a) three years from the Initial
Fund Advance Date or (b) thirty days after the Initial Fund has been utilized
for Predrilling Costs on ten separate oil and gas drilling prospects and an
initial test well has been commenced on each of such ten prospects. Provided,
however, at Mankato's option, no less than six months prior to the expiration of
three years from the Initial Fund Advance Date (assuming the requirement for ten
prospects set forth in (b) has not occurred) Mankato may give Energas written
notice that it is extending the three year period an additional two years). In
the event the Initial Fund has not been advanced by Mankato to Energas on or
before the Initial Fund Advance Date, Mankato and Energas shall amend this
agreement, in writing, by either (a) canceling the agreement in which case
Energas, immediately, shall repay to Mankato the entire amount which had been
advanced by Mankato to Energas, or (b) extend the Initial Fund Advance Date, or
(c) reduce the amount of the Initial Fund to the lesser amount which had been
advanced by Mankato to Energas. If the parties cannot mutually agree, in
writing, between (a), (b) and (c) above, it shall be presumed that (a) controls
and that (a) then governs the rights and obligations of the parties. Provided,
however, if the amount of the Initial Fund is reduced, as provided in (c), such
reduction shall be in increments of $100,000 in which case the warrants for
75,000 shares of Energas common stock provided in paragraph 2.2 below shall be
reduced in the ratio that the amount of the reduced Initial Fund bears to
$500,000. (For example, if the reduced Initial Fund becomes $300,000, the 75,000
shares covered by the warrants shall be reduced to 45,000 shares.)
1.3 At such time as the Initial Fund has been expended or committed by Energas
for Predrilling Costs on a minimum of ten drilling prospects, the Predrilling
Cost: relating to other oil and gas drilling prospects selected by Energas may
also be funded by Mankato by similar loans in the following manner. If Energas
chooses to fund the Predrilling Costs for an additional prospect though Mankato,
Energas shall send to Mankato a written summary of any such new prospect,
including geological data and an estimate of the Predrilling Costs reasonably
expected to be incurred in the new prospect. Mankato may elect LOAN Energas the
amount of the estimated Predrilling Costs estimated for the new prospect
TRANSMITTING its check, payable to Energas, for the new amount. Energas
unconditionally promises to repay the amount of the Predrilling Costs advanced
by Mankato for the new prospect on or before two years from the date it is
received.
1.4 In connection with the Initial Fund and in connection with any new prospect,
the Predrilling Costs paid by Energas out of funds loaned by Mankato for any
single prospect shall not exceed $125,000 without Mankato's written consent.
1.5 Mankato's option to loan additional Predrilling Costs to Energas, as set
forth in Paragraph 1.3, shall terminate five years from the Initial Fund Advance
Date.
1.6 In the event Energas fails to repay any single loan on or before its due
date, the unpaid balance for each such separate loan shall bear interest, from
the due date, or 12% per annum and Energas shall pay to Mankato all costs
incurred by Mankato in collecting the unpaid balance, including reasonable
attorneys fees.
2. Consideration for Loans. Subject to Paragraph 1.6, the loan by Mankato
to Energas shall not bear interest, either express or implied. Rather, the
consideration to be paid by Energas to Mankato for Mankato's loans of
Predrilling Costs to Energas shall be as follows:
2.1 Carried Working Interest
2.1.1 After the Initial Fund has been advance by Mankato to Energas, Energas
shall commence to seek out and map oil and gas drilling prospects and to acquire
oil and gas leasehold working interests by way of direct lease acquisitions,
options and FAMOUNT agreements, assignments and regulatory agency compulsory
pooling orders within the lands covered by each prospect. Likewise, after any
additional Predrilling Costs are loaned by Mankato to Energas pursuant to
Paragraph 1.3 above, Energas shall commence to use the advance Predrilling Costs
for the particular prospect involved.
2.1.2 From time to time, as Energas determines that it has developed a
geological prospect to the point where said prospect is ready for the drilling
of an initial test well, Energas shall submit to Mankato a written predrilling
report summarizing the outline of the prospect area, with supporting geological
data, the extent of oil and gas leasehold rights which Energas has acquired, the
proposed location of the initial test well and its objective depth. From and
after the time when Mankato has received Energas' predrilling report, Mankato,
if the initial well on the prospect is plugged and abandoned without a
completion attempt or if Mankato elects to participate in a completion attempt,
all as set forth below , shall be deemed to own an undivided ten percent (10%)
of all of Energas' rights and interests in the prospect area.
2.1.3 Within 90 days following Mankato's receipt of the predrilling REPORT from
Energas, Energas shall commence, or cause to be commenced, the operations for
the drilling of the initial test well which was described in Energas'
predrilling report. The well shall be drilled to the recommended total depth set
forth in the predrilling report unless Energas concludes that it would be more
practical to cease drilling at a lesser depth. Energas shall bear and pay 100%
of the cost, risk and expense attributable to its interest in the well TO casing
point. "Casing Point", as used herein, shall mean the point of time when the
initial test well has been drilled to its total projected depth and after all
logs and tests which in the opinion of Energas, should be run and taken have
been so run and taken and after copies of said logs and the written results of
all tests have been furnished to Mankato.
2.1.4 At casing point, Energas shall advise Mankato, in writing, whether Energas
recommends that production casing be run in the well and an attempt be made to
complete the well as a producing well or whether the well should be plugged and
abandoned. If Energas has recommended that the well be plugged and abandoned, it
shall cause such plugging and abandoning to be accomplished, free of cost to
Mankato. It, however, Energas had recommended that a completion attempt be made,
Mankato shall have 4HOURS from receipt of Energas' written recommendation
(including Saturdays, Sundays and legal holidays) to elect, in writing, whether
it elects to participate, to the extent of its working interest in the well, in
the completion attempt. The failure by Mankato to timely elect shall be deemed
an election to participate, but without liability on Energas' part for making
such a recommendation. If Mankato timely elects not to participate in the
completion attempt, it shall have no further right, title or interest in the
prospect area upon which the test well was drilled. If Mankato elects either
expressly or by silence to participate in the completion attempt it shall be
obligated to bear and pay its proportionate share of all future cost, risk and
expense incurred in the completing, testing, producing an operating the well, as
well as the future plugging and abandoning of the well.
2.1.5 If, at casing point, Energas has recommended that the test well be plugged
and abandoned, if Mankato has participated in the completion attempt, Energas
shall execute and deliver, or cause to be executed and delivered, to Mankato
recordable assignments of an undivided 10% of all rights which Energas had
acquired or subsequently acquires in the prospect area.
2.1.6 As to each prospect area in which Mankato is entitled to receive an
assignment of its interest in the prospect area, all operations thereafter
conducted within the prospect area, including the initial test well if it is
completed as a producing well, shall be conducted pursuant to a mutually
satisfactory joint operating agreements in common AGE in the oil and gas
industry in the area where the prospect is located. (A.A.P.L. Form 6.0, WITH a
XXXXX form of accounting procedure attached.) Energas, or its designee, shall be
the operator. The operating agreement shall provide for compensation to the
operator for PERVISION and administration as provided for in standard operating
agreements and related a counting procedures commonly used for the drilling of
xxxxx to the depths contemplated and in the area where the prospect is located.
2.1.7 In the event Mankato, during the term of this agreement, independently of
Energas, acquires an oil and gas leasehold interest within any prospect area
which had been submitted by Energas to Mankato, such interest, at Energas'
option, shall be part of this agreement in which case Energas shall be entitled
to an undivided 90% of the interest and Energas must reimburse Mankato for all
of Mankato's acquisition costs.
2.1.8 Mankato, at all reasonable times, and after reasonable written notice,
until the Initial Fund has been repaid by Energas to Mankato, shall have a right
to AUDIT and inspect the files, books and records of Energas insofar as said
files, books and records relate to the expenditures by Energas of all
Predrilling Costs loaned by Mankato to Energas and to the oil and gas drilling
prospects developed and acquired with the loaned funds. Monthly, until all
loaned funds have been repaid, Energas shall furnish to Mankato a written
activity report setting forth the status of all prospects which Energas is
developing with Mankato advanced funds.
2.2 Energas Stock Warrants.
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2.2.1 As further consideration of the loan by Mankato to Energas immediately
following the Initial Fund Advance Date, Energas shall issue to Mankato warrants
of Energas which shall entitle Mankato to purchase from Energas 75,000 shares of
Energas' common stock.
2.2.2 If Mankato exercises the warrants within one year of the Initial Fund
Advance Date, the exercise price of the stock shall be the closing price of
Energas common stock on the day immediately preceding the announcement of the
consummation of this agreement ("the Announcement Date"). The Announcement Date
shall not occur until the Initial Fund has been received by Energas. In the
event the warrants are not exercised UNTIL after the expiration of one year from
the Initial Fund Advance Date, then the exercise price of the stock shall be
115% of the closing price of Energas common stock on the day immediately
preceding the Announcement Date. In every event, the warrants shall expire IS
not exercised within two years from the Announcement Date.
2.2.3 Option to Participate in Xxxxx. As further consideration for the
commitments made herein by Mankato to loan Predrilling Costs to Energas, Energas
agrees that prior to commencing the initial test well on any oil and gas
drilling prospect developed by Energas within the next five years, Mankato shall
have an option to participate, for up to an undivided 25% of Energas' working
interest in each prospect. Prior to commencement of any initial test well on an
Energas generated prospect, Energas shall submit to Mankato a written report
setting forth the geological basis for the prospect, the objective formations,
estimated costs for the initial test well and the leasehold working interests
owned or controlled by Energas. The written report shall also summarize the
terms under which Mankato may participate in the prospect, which terms shall be
the same as Energas IS offering participating interests to other outside
investors. Mankato, if it chooses to exercise its option, shall so notify
Energas, in writing, within 30 days from the date it receives Energas' written
proposal. In its written election it shall also indicate the extent of the
interest which it elects to receive, which interest is to be not less than 10%
of Energas' working interest and not more than 25% of Energas' working interest.
3. Conditions to Agreement. This agreement is subject to the approval by
the board of Directors of Energas. This agreement, insofar as it relates to the
issuance of the warrants in Paragraph 2.2 is subject to the approval by the
Vancouver, British Columbia Stock Exchange.
4. Notices. All notices require herein shall be deemed properly given if in
writing and mailed (postage prepaid), telecopied, or e-mailed to the parties as
follows:
To Energas: Energas Resources, Inc.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000-0000
Telecopy: (000) 000-0000
e-mail: xxx00@xxx.xxx
To Mankato: Mankato Investments, L.L.C.
c/o Xxxxx X. Xxxxxxxx, M.D.
Mankato Clinic
0000 X. Xxxx Xx.
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
5. Governing Law. This agreement shall be construed pursuant to the laws of
the State of Oklahoma. Provided, however, as to the issuance of the warrants,
the agreement shall be construed pursuant to the laws of the Province of British
Columbia, Canada and the RELEASE and regulations of the Vancouver Stock
Exchange.
6. Successors and Assigns. This agreement shall be binding upon and shall
INSURE that the benefit of the respective successors and assigns of Energas and
Mankato.
Dated and executed as of the day, month and year first shown above.
ENERGAS RESOURCES, INC.
By: /s/ Xxxxxx Xxxx
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Xxxxxx Xxxx, President
MANKATO INVESTMENTS, L.L.C.
By: /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx, Manager
