DUNE ENERGY, INC.
00 XXXXX XXXXXX XXXX XXXXXXX, XXXXX 00000
TEL. 000-000-0000 FAX 000-000-0000
October 30, 2003
Xx. Xxxxxxxx Xxxxx Merchant
President
Penroc Oil Corporation
P.O. Box 0000
0000 Xxxxx Xxx
Xxxxx, XX 00000
Dear Merch:
I would like to memorialize in this single correspondence, the agreement
between Penroc Oil Corporation ("Penroc") and Dune Energy, Inc. ("Dune"),
whereby Dune has agreed to purchase from Penroc and Penroc has agreed to sell to
Dune, 34.98% of Penroc's 2% working interest (the "Interest") in the Los Mogotes
field, located in Xxxxxx County, Texas, as more fully described on Exhibit A
hereto.
The total purchase price for the Interest is $874,500 plus interest at the
rate of 9% per annum on such purchase price accrued from April 1, 2003. On June
3, 2003, Xxxx delivered to Penroc and Penroc acknowledges receiving, a deposit
on the Interest in the amount of $174,800. The remaining balance of the purchase
price ($699,700) shall be delivered to Penroc no later than June 30, 2004, and
shall bear interest at the rate of 9% per annum from June 3, 2003 through the
date of the closing. As additional consideration for the Interest, Xxxx has
agreed to issue 50,000 shares of its common stock to M.Y. Merchant and to grant
M.Y. Merchant "piggy-back" registration rights with respect to such shares in
the event Dune shall file a registration statement with the Securities and
Exchange Commission.
The effective date is April 1, 2003 with respect to revenue and lease
operating expenses and February 1, 2003 with respect to capital expenditures.
Accordingly, Xxxx's proportionate share of revenues generated at Los Mogotes,
less its proportionate share of lease operating expenses and capital
expenditures will be allocated to Dune as of those dates and applied to adjust
the purchase price due at the closing. At the closing, Xxxx will assign to
Penroc a 1% gross overriding royalty interest reduced proportionately to Dune's
acquired working interest with an effective date of April 1, 2003, and Dune
shall pay 34.98% of Penroc's legal costs in acquiring its 2% interest.
Xxxx agrees to provide to Penroc at no cost, all of its independently
commissioned engineering reports with respect to Los Mogotes. Dune has also
authorized Penroc to sign all AFE's on Xxxx's behalf prior to closing. Xxxx
acknowledges that Xxxxxx is executing all AFE's at the request of Xxxx and Xxxx
agrees to in no way hold Penroc responsible for any welss drilled pursuant to
such authorization that may either be dry holes or xxxxx that subsequently
perform below expectations. Penroc shall not be held responsible for interest on
the down payment or revenues received from POGO, but rather an adjustment in the
net proceeds due Penroc shall be made at closing, based on accounting records
from POGO.
-2-
In the event that Xxxx has not delivered the full purchase price for the
Interest on or before June 30, 2004, then in such event (i) Dune shall
immediately forfeit all of its right, title and interest in and to the Interest
and (ii) Penroc shall immediately refund to Dune, the sum of $174,800, adjusted
for an accrued negative cash flow, if any, less 9% on the outstanding balance of
the purchase price accrued from April 1, 2003.
If you concur that this letter correctly sets forth all of our agreements
and understandings with respect to the transaction, please sign below and return
a copy to me at your earliest convenience.
Very truly yours,
DUNE ENERGY, INC.
By: /s/ Xxxx Xxxxxxxxxx
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Xxxx Xxxxxxxxxx, President
ACCEPTED AND AGREED:
PENROC OIL CORPORATION
By: /s/ Xxxxxxxx Xxxxx Xxxxxxxx
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Xxxxxxxx Xxxxx Xxxxxxxx, President
