MARMIK OIL COMPANY
EXHIBIT 10.7
XXXXXX OIL COMPANY
000 XXXXX XXXXXXXXX. sUITe 600
EL DORADO, ARKANSAS 71730 (670)
882~S46
FAX (870) SS2-9931
October 24, 2007
Penasco Petroleum, Inc.
0000 Xxxxxx Xxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attn: Xx. Xxxxx Xxxxxx
Re: Ratification Letter to the
Little Mule Creek Prospect Participation Agreement
Dated June 19, 2007
Alfalfa and Xxxxx Counties, Oklahoma
Gentlemen:
Xxxxxx Oil Company and Savoy Energy, L.P., as Operator, have entered into the Little Mule Creek Prospect Participation Agreement dated Junets, 2007, a copy of which is enclosed with this Ratification Letter.
Penasco Petroleum, Inc. (hereinafter referred to as "Penasco") desires to participate in the Little Mule Creek Prospect and agrees to the terms of the Participation Agreement with the following amendments:
I. DEFINITIONS
1.9 "Payout".
Where "Savoy" is shown, "Penasco" is replaced therein.
II. OPERATIONS
2.1 Costs.
(a) Land, Geological and Geophysical Fee: Upon execution of this Participation Agreement, Penasco agrees to pay Xxxxxx a land, geological and geophysical fee in the amount of $41,108.98 (U.S.) plus $1,976.80 for Penasco's proportionate 4.0% of the cost of exercising certain options for leases, aggregating to a total consideration of $43,085.78 for the acquisition of Penasco's 4.0% interest as further provided herein. The Parties agree that this fee includes a promote on the actual costs paid by Xxxxxx. The Parties however agree that Penasco will not be required to pay any promote on any existing Oil and Gas Leases within the AMI that are set to expire on or before December 31, 2008. Extension or renewals of these Oil and Gas Leases will be proportionately paid by Penasco and Xxxxxx.
(b) Closing and Assignment of Property and Property Interest:
Savoy Energy, L.P., as Operator, has up to thirty (30) days from June 19, 2007, to complete a full review of the Property and Property Interest to be conveyed pursuant to this Agreement. If Xxxxx and Xxxxxx agree on any adjustments to the land, geological and geophysical fee because of lack of good title, Penasco will receive its proportionate share of the benefit of such adjustments.
Upon payment by Penasco of the total consideration provided in Section 2.1 (a) above, Xxxxxx agrees to execute and deliver to Penasco, subject to II. 2.1 (c) Reservation of Overriding Royalty Interest, an unrestricted Assignment covering 4.0% of the Property and Property Interest owned by Xxxxxx within the AMI lands. The Assignment will be without warranty of title, either expressed or implied. The Assignment shall also be made subject to all the terms and conditions of the leasehold interest being assigned and also made subject to this Agreement. Such Assignment shall be in the form outlined on Exhibit "B" to the Agreement. On such Assignment wherever "Savoy Energy,L.P." is shown, "Penasco Petroleum, Inc." is replaced therein, and the "Fifty-Four percent (54%)" shown is replaced with "Four percent (4.0%)". It is understood by Xxxxxx and Penasco that Xxxxxx currently owns or controls approximately 10,000 leasehold acres.
(c) Reservation of Overriding Royalty Interest:
Where "Savoy" is shown, "Penasco" is replaced therein.
(d) After Acquired Property or Property Interest:
Wherever "Savoy" is shown, "Penasco" is replaced therein.
2.3 Drilling Cost for the Initial Test Well. In addition to the land, geological and geophysical fee above, Penasco agrees to pay four percent (4.0%) of 8/8ths of actual cost in the Initial Test Well from the date of this Agreement to Payout.
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2.4 Payout of the Initial Test Well. Once Payout on the Initial Test Well drilling and spacing unit has been reached, Penasco's proportionate share of the working interest and associated net revenue interest shall be reduced from 100% to 75% of the 4.0% of the Property and Property Interests acquired under the Agreement by Penasco and Xxxxxx's working interest shall increase from 0% to 25% of such 4.0% interest. Therefore, at Payout, Xxxxxxx's working interest in the Initial Test Well drilling and spacing unit will be reduced from 4.0% to 3.00% and Xxxxxx's working interest shall increase by 1.00%. At Payout, Xxxxxxx agrees to assign to Xxxxxx this additional working and associated net revenue interest in the Property and Property Interests comprising the drilling and spacing unit of the Initial Test Well and the balance of the Property and Property Interests within the AMI lands assigned to Penasco pursuant to 2.1 (b).
2.5 Subsequent Xxxxx. In the event Penasco and Xxxxxx elect to participate or consent to a drilling proposal for drilling a Subsequent Well, such Subsequent Well will be drilled on the ownership basis of 3.00% Penasco whether or not the Initial Test Well has reached Payout. In the event such Subsequent Well is to be located on lands covered by the initial Assignment of Oil and Gas leases described in 2.1 (b) and Payout of the Initial Test Well has not been reached with ensuing Assignment to Xxxxxx, Penasco shall promptly, after the election by Xxxxxx to participate in the drilling of such Subsequent Well, assign to Xxxxxx 1.00% working interest in the Property and Property Interests comprising the drilling and spacing unit for such Subsequent Well.
III. MISCELLANEOUS PROVISIONS
3.8 Notices. Penasco's address is added for notice purposes as follows:
|
If to Penasco: |
Penasco Petroleum, Inc. |
3.9 NO WARRANTY OF TITLE.
Where "SAVOY" is shown, "Penasco" is replaced therein.
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3.12 Subsequent Agreements.
Wherever "Savoy" is shown, "Penasco" is replaced therein.
If you are in agreement with the terms of the Little Mule Creek Prospect Participation Agreement dated June 19, 2007, between Xxxxxx Oil Company and Savoy Energy, L.P. and the above amendments to said Agreement, please sign in the space provided below, date your signature, and return one (1) copy of this Ratification Letter to Xxxxxx within five (5) days of receipt.
Yours very truly,
XXXXXX OIL COMPANY
/s/ Xxxxxxxx Xxxxxxx Xxxxxx
Xxxxxxxx Xxxxxxx Xxxxxx, CPL
Xxxxxxx
AGREED TO and ACCEPTED this 30 day of October, 2007.
PENASCO OIL COMPANY
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