FARMOUT AGREEMENT King City Oil Field King City Prospect Monterey County, California
King
City Oil Field
King
City Prospect
Monterey
County, California
THIS FARMOUT AGREEMENT (“Agreement”) is
made effective the 25th day of May, 2009 between Sunset Exploration,
Inc. (hereinafter referred to as “Sunset”) and Delta Oil & Gas,
Inc. (hereinafter referred to as “Delta”).
WHEREAS, Sunset represents, but does
not warrant that it owns oil and gas leasehold interests (“AMI Leases”) in and
to certain lands located in Monterey County, California, which leases and lands
are more particularly described on the attached Exhibit “A” which is
incorporated herein by this reference and which lands shall constitute an Area
of Mutual Interest (“AMI”).
WHEREAS, Delta desires the right to
earn from Sunset an assignment of Sunset’s interest in the AMI, and Sunset is
willing to grant such right as provided herein.
NOW, THEREFORE, for and in
consideration of the mutual promises and covenants contained herein, to be kept
and performed by the parties hereto, and other valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto do
hereby agree as follows:
1.
TEST
WELL
On or before March 31, 2010, Sunset
shall commence the drilling of the initial test well at a location to be chosen
by Sunset within the AMI (“King City #1” or “Test Well”) to a depth of 3,500’
TVD or deep enough to adequately test all Monterey seismic anomalies. The “Test
Well” shall be drilled to effectively intersect all potential productive
sands. Failure to commence drilling of the Test Well prior to March
31, 2010 shall terminate this Agreement and all payments made to Sunset for
drilling shall be returned to Delta. The payment under paragraph 2.a.
shall be non-refundable.
2.
COSTS
a. Delta
shall pay its 50% pro rata share of TWO HUNDRED THOUSAND DOLLARS ($200,000.00
US) simultaneous with the execution of this Agreement which shall represent
costs associated with all costs and expenses required to prepare, permit and
process lands for running a gravity survey and for running a two dimensional
seismic program for evaluation of lands within this Agreement.
b. Delta
shall pay its 66.67% pro rata share of 100% of all costs associated with
permitting, drilling, logging and if necessary, plugging the Test Well. If the
Test Well is deemed by the parties hereto to be commercial and capable of
producing hydrocarbons in paying quantities, thereafter, if Delta elects to
participate in a completion attempt Delta shall pay its working interest pro
rata share (as hereinafter defined) of all costs associated with completion of
the Test Well including, without limitation, running casing, testing and
installation of production facilities.
c. An
Authorization for Expenditure (“AFE”) for the Test Well shall be forwarded to
Delta prior to commencement of drilling operations. This AFE shall represent the
estimated cost of drilling and completing the Test Well and Sunset shall have
the right from time to time to demand and receive from Delta payment in advance
of its respective share of the AFE. Delta shall pay the full amount of the
payment so invoiced prior to commencement of drilling operations and within 15
working days of receipt of the AFE for completion, testing and installation of
all equipment necessary for commencement of sales for the Test Well. In the
event Delta fails or refuses to make any such advance payments then Delta shall
forfeit all of its right, title and interest to earn an interest in the AMI as
well as any advanced monies under this Agreement, and this Agreement shall be
deemed terminated.
3.
EARNING
Once the Test Well is drilled to total
depth, logged, and deemed by Sunset to be capable of producing hydrocarbons in
paying quantities, Delta shall own and be entitled to its pro rata share of 40%
of 8/8ths working interest in and to the AMI Leases (“pro rata share”). Said
working interest of leases shall be delivered to Delta at no less than 80% of
8/8ths net revenue interest in the Test Well. If the Test Well is a dry hole,
Delta shall retain the right to its interest hereunder and said well shall be
plugged and abandoned and the site returned to its native condition, or as near
as is reasonably possible. Delta’s 40% working interest shall be
applicable in all subsequent operations within the AMI.
4.
CASING
POINT
Casing point shall occur when the Test
Well has reached total depth, logged and deemed by Sunset to be a well capable
of producing oil, and or gas in commercial quantities. In the event the Test
Well is not capable of producing oil and or gas then Delta shall pay its 66.67%
pro rata share of 100% of all costs associated with proper abandonment of the
Test Well and restoration of any disturbed area or areas.
5.
WELL GEOLOGIC AND
GEOPHYSICAL DATA
Delta will be provided with all seismic
and exploration data, drilling reports, including logs pertaining to the Test
Well and will have full access during drilling and/or completion, provided it is
not then in default of any of the terms or provisions of this
Agreement.
6.
OPERATING
AGREEMENT
All operations within the AMI will be
conducted in accordance with the terms and provisions of the 1989 Form 610 AAPL
Joint Operating Agreement, including 1984 XXXXX Accounting Procedures, a copy of
which is attached hereto as Exhibit “B”. Said Operating Agreement designates
Sunset Exploration, Inc. as “Operator”.
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Any leases acquired by any party within
the AMI within three (3) years of the date of this Agreement shall be subject to
the Operating Agreement and shall be owned by the parties in accordance with
their working interest pro rata shares regardless of record ownership of such
leases.
7.
SHUT-IN
GAS PAYMENTS
In the event the Test Well is completed
as a well capable of gas production in paying quantities but is shut-in because
of a lack of a pipeline connection or market for such gas or oil (hereinafter
referred to as “shut-in gas/oil well”), Sunset shall immediately notify Delta of
such fact and Sunset shall, as Operator, pay all shut-in gas payments
necessary to maintain the affected lease(s) in full force and effect subject to
reimbursement by Delta of its working interest pro rata share of such
payments.
8.
COMPLIANCE
WITH LAWS, RULES AND REGULATIONS
Sunset shall comply with all rules and
regulations required as operator and shall also require that all of their
operators, contractor and subcontractors comply with any and all applicable laws
and regulations, federal, state and local, and with the requirements of each
regulatory body or official asserting jurisdiction over operations
hereunder.
9.
SUCCESSORS IN
INTEREST
This Agreement and its terms are
personal in nature and the underlying leaseholds shall not be assigned and/or
sold without the prior written consent of the parties hereto, such consent shall
not be unreasonably withheld.
10.
CONFLICT
In the event of a conflict between the
terms of the Operating Agreement provided for above and this Agreement, this
Agreement shall control. This Agreement shall supersede any prior correspondence
or oral communication between the parties regarding terms of this Agreement.
This Agreement may only be amended in writing.
11.
FORCE
MAJEURE
If Sunset is rendered unable, wholly or
in part, by force majeure to carry out its obligations under this Agreement,
other than the obligation to make money payments, it shall give Delta prompt
written notice of the force majeure with reasonably full particulars concerning
it. Thereupon, so far as Sunset is affected by the force majeure, such
obligations shall be suspended during the continuance of the force majeure and
for such time thereafter as is reasonably required to resume performance of the
obligation following removal of the force majeure situation. The term “force
majeure”, as herein employed, shall mean an act of god, strike, lockout or other
industrial disturbance, act of public enemy, war, blockade, public riot,
lightning, fire, storm, flood, explosion, governmental action, governmental
delay, restraint or inaction, unavailability of equipment or any other cause,
whether of the kind specifically enumerated above or otherwise, which is not
reasonably within the control of Sunset.
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12. TAX
PARTNERSHIP
It is not intended by this Agreement to
create, nor shall this Agreement be construed as creating any relationship
between the parties hereto of employer and employees, or any partnership, or
association or corporation between the parties hereto. The liabilities of the
parties hereto shall be as set forth in this Agreement and Sunset and Delta
shall be responsible only for their share of the costs, expenses, debts or
obligations incurred hereunder as herein provided. The parties hereto agree as
between themselves to elect to be excluded from the application of Subchapter K
of Chapter I of Subtitle A of the United States Internal Revenue Code of 1954,
as amended, and similar provisions of the statutes of any state.
13.
NOTICE
Except as otherwise specifically
provided herein, any notice or other communication required hereunder shall be
considered as having been given if delivered personally, or if mailed postage
prepaid or telephone addressed to the following address
respectively:
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SUNSET
EXPLORATION, INC.
00000
Xxxxxxxxx Xxxx.
Xxxxxxxxx,
XX 00000
(000)
000-0000 phone
(000)
000-0000 fax
ATTN: Xxxxxx
X. Xxxx
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DELTA
OIL & GAS, INC.
Xxxxx
000
000
Xxxx Xxxxxx Xxxxxx
Xxxxxxxxx,
Xxxxxxx Xxxxxxxx
XXXXXX
X0X
0X0
(000)
000-0000 phone
(000)
000-0000 fax
ATTN: Xxxxxxxxxxx
Xxxxxx Gay
|
14.
OTHER
PROVISIONS
Unless otherwise directed Sunset shall
distribute all revenue generated from production within the AMI to Delta and
shall have the right to deduct prior to disbursement of said revenue all costs
associated with lease operating and maintenance, ad valorum taxes, royalties,
expenses or any monies due and outstanding by Delta.
It is understood that from time to time
additional exploration may be necessary to further develop the geologic concept
and additional lands and seismic operations may be required. Sunset shall
provide an Authority for Expenditure to Delta for any such operation 30 days
prior to commencement of said exploration, Delta shall be entitled to its
working interest pro rata share of 8/8ths and
pay its proportionate shall of those exploration costs.
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15. NON-DISLOSURE
All information regarding the Test Well
or any subsequent well(s) shall be held confidential. Delta shall not disclose
any such confidential information to third parties without the prior consent of
Sunset. Sunset is aware that Delta may request certain public informational
disclosures from time to time and Sunset will allow such releases provided that
such disclosures will not detrimentally affect the potential assets attributable
to this Agreement. This provision shall survive termination of this
Agreement for a period of two (2) years after such termination.
IN WITNESS WHEROF, the parties have
executed or have caused this instrument to be executed by their duly authorized
officers and/or representatives.
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Sunset:
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Delta:
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SUNSET
EXPLORATION, INC.
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DELTA
OIL AND GAS, INC.
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By:
/s/ Xxxxxx X.
Xxxx
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By:
/s/ Xxxxxxxxxxx Xxxxxx
Gay
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Xxxxxx X. Xxxx
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Xxxxxxxxxxx Xxxxxx Gay
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President
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CEO
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