EXPLORATION AGREEMENT
This Exploration Agreement (the “Agreement”) is entered into on May 30, 2011 (the “Effective Date”) between Longshot Oil, LLC, (“Longshot”) and Union Town Energy Inc. (“Uniontown”). Uniontown and Longshot may be referred to collectively as the “Parties” or either of them individually as the “Party”.
WHEREAS:
| A. |
Longshot owns certain leases as set out in the Exhibit “B” to the Schedule “A”. Longshot agrees to assign the Leases to Uniontown according to the terms and conditions as set out in this Agreement; and | |
| B. |
The Parties are interested in conducting joint exploration operations, including the drilling of exploratory or development xxxxx, for the discovery and for the production of oil and/or gas in an area in Chouteau County, Montana. |
NOW THEREFORE in consideration of the premises and the mutual covenants and agreements set out in this Agreement, the Parties agree as follows:
1.00 DEFINITIONS, SCHEDULES AND EXHIBITS
1.01 Definitions
“Area of Mutual Interest” or “AMI” means the area in Chouteau County, Montana, described as follows: Township 24 North, Range 7 East and 8 East all of Sections 1 through 30;
“Assignment Documents” mean documents for assignment of the Leases in the form as set out in the Schedule “A” to this Agreement attached hereto;
“Escrow Agent” means Xxxxxx & Company, a law firm with its offices at 1880 – 0000 Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxxx Xxxxxxx Xxxxxxxx, Xxxxxx;
“Escrow Agreement” means an agreement between Longshot, Union Town and the Escrow Agent dated May 30, 2011;
“Leases” mean the leases owned by Longshot within the AMI, which in more detail are set out in the Exhibit “B” to the Schedule “A” to this Agreement attached hereto;
“Payout” means the point in time when Uniontown has received, from the production of hydrocarbons from the Leases, revenues (less all royalties, production and severance taxes) equal to the costs incurred by Uniontown in regard to its interest in the Leases;
“Project Properties” means the property under the Leases owned by Longshot within the AMI, on which the Parties are planning to drill and assignment of which to Uniontown has been executed by Longshot and the Assignment Documents are being held by the Escrow Agent with the intention to be released to Uniontown once terms and conditions of this Agreement and the Escrow Agreement are satisfied;
1.02 Other Definitions
Any words or expressions define otherwise in this Agreement including the exhibits shall have the meanings respectively assigned to them notwithstanding that such definition does not appear in this section. When used in the Exhibits annexed hereto, terms defined in this Agreement shall have the same meaning unless the Exhibit expressly otherwise define such terms. In case of any other inconsistency between the terms of this Agreement and the Exhibits annexed hereto, the terms of this Agreement shall prevail.
1.03 Schedules and Exhibits
| Schedule “A”: | Assignment of the Leases together with: | |||
| Exhibit “A”: | Affidavit of Title Search | |||
| Exhibit “B”: | List of Leases | |||
| Schedule “B”: | Operating Agreement | |||
| Exhibit “A” | Lands Subject to Operating Agreement; | |||
| Exhibit “C” | Accounting Procedure | |||
| Exhibit “D” | Insurance | |||
| Exhibit “F” | Employment Matters | |||
| Schedule “C”: | Drilling title opinion (June 15, 2011) | |||
| Schedule “D”: | AFE, the first well of the Exploration Phase | |||
| Schedule “E”: | AFE, additional drilling of the Exploration Phase (June 15, 2011) | |||
| Schedule “F”: | Escrow Agreement | |||
2.00 LEASES
2.01 Longshot owns the Leases as set out in the Exhibit “B” to the Schedule “A”.
2.02 Longshot agrees to assign the Leases to Uniontown according to the terms and conditions as set out in this Agreement.
2.03 Uniontown agrees to acquire the assignments of the Leases according to the terms and conditions as set out in this Agreement.
3.00 COVENANTS, REPRESENTATIONS AND WARRANTIES
3.01 Uniontown represents and warrants that:
| a. |
It is a corporation duly incorporated and in good standing under the laws of its jurisdiction; | |
| b. |
It has the full right, power, capacity and authority to enter into, execute and deliver this Agreement and to be bound by its terms; | |
| c. |
All requisite corporate acts and proceedings as may be applicable have been done and taken by it with respect to entering into this Agreement; and |
| d. |
The execution and delivery of this Agreement and the performance of the rights and obligations arising hereunder do not and will not conflict with the terms of their constating instruments or with any agreement or other instrument or regulatory provision by which it is bound. |
3.02 Longshot represents and warrants that:
| e. |
It is a corporation duly incorporated and in good standing under the laws of its jurisdiction; | |
| f. |
It has the full right, power, capacity and authority to enter into, execute and deliver this Agreement and to be bound by its terms; | |
| g. |
All requisite corporate acts and proceedings as may be applicable have been done and taken by it with respect to entering into this Agreement; and | |
| h. |
Without warranty of title, that it owns the Leases as set out in Exhibit “B” to the Schedule “A” to the Agreement; |
3.03 Longshot covenants that it shall continue to carry on its business in the manner in which such business has been ordinarily carried on prior to the Effective Date and will maintain the protection of the Leases and any business relationships for the duration of the Agreement.
4.00 OPERATING AGREEMENT
4.01 The Parties shall enter into an operating agreement (the “Operating Agreement”), the form of which is set out in the Schedule "B" naming Longshot as an operator (the “Operator”).
4.02 This Operating Agreement shall apply to any well drilled under the terms of this Agreement on the Project Properties.
5.00 WELL EXPLORATION AND RESERVOIR ENGINEERING FUNDING
5.01 For the purposes of well exploration and reservoir engineering (the “Exploration Phase”) Uniontown shall provide the following funds (the “Exploration Funds”) to Longshot:
| (a) |
$200,000 on or before May 31 2011; | |
| (b) |
$150,000 on or before June 15, 2011; and | |
| (c) |
The balance on or before August 15, 2011 as per AFE as set out in section 5.02(b). |
5.02 Longshot shall deliver to Uniontown:
| (a) |
on or before May 31, 2011: | ||
| (i) AFE for the drilling of the first well (Schedule “D” to this Agreement); | |||
| (b) |
on or before June 15, 2011: | ||
| (i) the Drilling Title Opinion, Schedule “C” to this Agreement; and | |||
(ii) AFE for the additional drilling of 4 production xxxxx and 1 water source well on the Project Properties, Schedule “E” to this Agreement. The AFE is estimated not to exceed $1,000,000. The additional drilling is scheduled to start on August 15, 2011.
6.00 PILOT PROJECT FUNDING
6.01 On or before July 15, 2011 Longshot shall provide Uniontown with a budget for the funding for the steam operation pilot project (the “Pilot Project”). This budget is estimated not to exceed $1,500,000 (the “Pilot Project Funds”).
6.02 Union Town shall have up to 8 month starting the date of receipt of the budget to provide these Pilot Project Funds.
7.00 EXPENSES
7.01 Upon execution of the Letter of Intent Uniontown paid to Longshot the amount of $275,000.00 as expense reimbursement in regard to the acquisition and maintenance of the Leases.
7.02 Upon execution of the Agreement Uniontown shall provide to Longshot any and all amounts to cover any and all required bonds and insurance in regard to the Leases.
8.00 PAYMENTS
9.01 It is agreed by the Parties that any and all payments by Uniontown to Longshot provided for in this Agreement shall be paid by Uniontown into trust account of Xxxxxx & Company and it is agreed by the Parties that the funds shall be released by Xxxxxx & Company to Longshot upon provision by Uniontown to Xxxxxx & Company in the form acceptable to Xxxxxx & Company the instructions to release the funds to Longshot.
9.00 ACQUISITION OF INTEREST
9.01 If the Exploration Funds are not provided or the Expenses are not paid by Uniontown, the Agreement shall be at an end and Uniontown shall forfeit any and all funds paid by it under the Agreement to date and any and all right to any and all interest in the Leases.
9.02 If the Exploration Funds are provided and Expenses are paid by Uniontown and released by Xxxxxx & Company to Longshot under Article 8.00 Uniontown shall earn 25% of the interest in the Leases, which shall entitle Uniontown to 25% working interest subject to 75% net revenue interest earned on the Project Properties (the “25% Interest”).
9.03 Uniontown shall not encumber the 25% Interest in any way, including but not limited to by mortgage, lien or pledge as security.
9.04 Once Uniontown earns the 25% Interest and decides not to provide any further funds, Uniontown forfeits any control over the development of the Project Properties by Longshot.
9.05 If all the funds, the Expenses, the Exploration Funds and the Pilot Project Funds, are provided by Uniontown and released by Xxxxxx & Company to Longshot under Article 8.00, Uniontown shall earn 100% interest in the Leases, which shall entitle Uniontown to 85% working interest before the Payout and a 70% working interest after the Payout subject to 75% net revenue interest earned on the Project Properties.
9.06 Upon earning by Uniontown of 100% of the Leases the Assignment Documents shall be released by the Escrow Agent in accordance with the terms and conditions of this Agreement and the Escrow Agreement. Uniontown shall record assignments only after the Assignment Documents are released to Union Town by the Escrow Agent.
9.07 The assignment by Longshot of the Leases under this Agreement shall be free and clear of any title defects, encumbrances or burdens, including overriding royalty interests by, through or under the assignor that would reduce the net revenue interest in the Leases to less than 75%, in each case proportionately reduced to the Uniontown's working interest, but otherwise shall be made without warranty of title, either express or implied.
10.00 FUTUTRE EXPENSES
10.01 Upon final assignment to Uniontown of 25% or 100% of the interest in the Leases, as the case may be, Uniontown shall pay pro rata portion, 25% and 100% respectively, of all the costs and expenses associated with maintenance of the Leases and any projects carried out on the Project Properties.
10.02 If at any time Uniontown shall not pay its portion of the costs and expenses as set out in section 10.01 Agreement shall be at an end and Uniontown shall forfeits its earned interest in the Leases.
11.00 PROPERTIES AND INTEREST SUBJECT TO THIS AGREEMENT
11.01 Properties subject to this Agreement are any and all properties within the AMI that may be acquired by the Parties.
11.02 If during the term of this Agreement either Party purchases or in any other manner acquires oil, gas, and/or mineral lease or leases or mineral interests or any interest on, in, or covering or affecting any of the lands located within the AMI (the “Newly Acquired Property”), such property shall be subject to this Agreement.
11.03 The Party purchasing or otherwise acquiring the Newly Acquired Property (the “Acquiring Party”) shall, within thirty (30) days after the date of the purchase or acquisition, deliver to the other Party a written notice setting forth the details concerning the purchase or acquisition, including the amount of consideration paid or agreed to be paid for such Newly Acquired Property. This notice should include all available title information concerning the Newly Acquired Property. The Party notified shall have the option, which may be exercised only by written notice delivered to the Acquiring Party within twenty (20) days after receipt of the Acquiring Party notice, to acquire an interest in the Newly Acquired Property. On exercising the option, the notified Party shall, within thirty (30) days, pay to the Acquiring Party the proportionate share of the cost of the purchase or acquisition of the Newly Acquired Property, which property shall then become a part of the Contract Properties. The cost of Newly Acquired Property shall include all delay rentals, which may become due under the terms of any lease acquired.
If the option is not exercised within the time and in the manner provided for above, the notified Party shall have no interest in the Newly Acquired Property with respect to which the option was not exercised and that property shall no longer be subject to the terms of this Agreement.
11.04 For greater certainty:
| (a) |
If the Newly Acquired Property is acquired by Longshot, Uniontown in order to exercise the option and add that Newly Acquired Property to the Project Properties shall pay 100% of the cost of the acquisition of such Newly Acquired Property. If the Newly Acquired Property is acquired by Uniontown, it is automatically added to the Project Properties without any payment by Longshot; | |
| (b) |
If the Acquiring Party is Longshot, it shall execute an assignment of the interest in the Newly Acquired Property on which the option has been exercised to the Escrow Agent to be dealt with in the same manner as with Project Properties and as set out in Article 9. If the Newly Acquired Property is acquired by Uniontown, it is automatically added to the Project Properties without any assignment to Longshot. |
11.05 The Parties agree that all subsequent xxxxx drilled on the leases acquired within AMI shall be subject to the terms of this Agreement and the terms of the Operating Agreement attached hereto as Schedule “B”.
11.06 In the event either Party (the “Selling Party”) should decide to dispose of all or any part of its interests in the Project Properties or any renewals or extensions thereof (the “Transferable Interest”), the Selling Party shall first notify the other Party (the “Other Party”) and the Other Party shall have the right to acquire the Transferable Interest on the terms and conditions offered by the Selling Party (the “Offer”). The Other Party shall within 60 days notify the Selling Party whether it accepts or declines the Offer. In the event the Other Party declines the Offer or does not notify the Selling Party on its decision within 60 day period, the Selling Party shall be free to sell the Transferrable Interest to 3rd parties, provided the terms and conditions of the sale are the same as those of the Offer. If the terms and conditions differ from the ones of the Offer, this section applies again and the Selling Party shall make such new offer to the Other Party first. In the event the Other Party accepts the Offer, the closing of the purchase pursuant to the Offer shall be within 30 days of the acceptance of the Offer by the Other Party. This section 11.06 shall remain in force and effect for 2 years after the Term of this Agreement.
12.00 PRODUCTION IN KIND
12.01 Each Party shall have the right and option for taking any part of production “in kind” to separately market its share of production to which it may be entitled or may become entitled to take in kind or separately market under the terms of this Agreement. The right and option to taking in kind may be exercised at any time and from time to time so long as there is production from the Contract Area.
13.00 TERM
13.01 This Agreement shall be for a term (the “Term”) commencing on the Effective Date and shall continue in force, except as otherwise provided, for a period of the longer of:
| (a) |
2 years; or | |
| (b) |
The date, on which all operations then being conducted by the terms of this Agreement have been completed and all obligations of the Parties provided for in this Agreement have been fully discharged. |
13.02 The Term may be extended for one year periods by either Uniontown or Longshot proposing and drilling a minimum of one well per year.
14.00 NOTICES
14.01 Unless otherwise provided, all notices and communications to be given under the terms of this Agreement shall be delivered by U.S. Mail, or facsimile, addressed to the respective Parties as follows:
| To Longshot Oil, LLC |
| 0000 Xxxxx Xxxxxxxxx |
| Xxxxxxx, XX 00000, XXX |
| Attn: Xxxx Xxxxxx |
| xxxxxxxxxx000@xxx.xxx |
| To Union Town Energy Inc. |
| 0000 Xxxxxxx Xxxx Xx., |
| Xxxxxxxxx, XX 00000, XXX |
| Attn: Xxxxxx Xxxxxxxxx |
| Xxxxxxxxxxxxxxxx0000@xxxxx.xxx |
14.02 Unless otherwise specified in the notice, the date and time of a notice shall be the date and time at which the written E-mailed or faxed notice is delivered to the Party to whom it is addressed.
14.03 Each Party may change its address by notice to the other Party.
14.04 No transfer of any interest pursuant to the terms of this Agreement shall be effective until the transferor or transferee (after complying with all other requirements of this Agreement) notify all other Parties of the address and designated representative of the transferee.
15.00 FORCE MAJEURE
15.01 The obligations of each Party, except for the payment of money, shall be suspended while, but only for so long as, a Party is prevented from complying with an obligation in whole or in part, by strikes, lockouts, acts of God, unavoidable accidents, uncontrollable delays in transportation, inability to obtain necessary materials in open markets, inadequate facilities for the transportation of materials, or as a result of any order, requisition, or necessity of the government, or other matters beyond the reasonable control of a Party, whether similar to the matters specifically enumerated above or not; provided, however, that performance shall be resumed within a reasonable time after the cause of force majeure has been removed; and provided further that no Party shall be required, against its will, to settle any labor dispute.
16.00 MISCELLANEOUS
16.01 Laws and Regulations: The terms of this Agreement and all operations conducted under it shall be subject to all valid laws, rules, regulations, and orders of any regulatory body having jurisdiction, and be governed by the laws of the State of Montana.
16.02 Binding Agreement: This Agreement shall be binding on the Parties and their respective heirs, successors and assigns.
16.03 Assignment: This Agreement cannot be assigned without written consent by the non-assigning party.
16.04 Captions and Titles: The captions and titles used in this Agreement shall not be construed as adding meaning to the subject matter of this Agreement, but are used only for reference and convenience.
16.05 Enurement: This Agreement shall enure to the benefit of the Parties and their respective heirs, devisees, legal representatives, successors, and assigns.
16.06 Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be considered an original for all purposes, and all counterparts together shall be deemed one and the same Agreement.
16.07 Currency: All the monetary amounts shall be in the currency of the United States unless otherwise stated.
IN WITNESS WHEREOF this agreement has been executed as of the day and year first above written.
| THE CORPORATE SEAL OF | ) | |
| LONGSHOT OIL, LLC | ) | |
| was affixed hereto in the presence of: | ) | |
| ) | ||
| /s/ signed | ) | c/s |
| Authorized Signatory | ) | |
| ) | ||
| THE CORPORATE SEAL OF | ) | |
| UNION TOWN ENERGY INC. | ) | |
| was affixed hereto in the presence of: | ) | |
| ) | ||
| /s/ signed | ) | c/s |
| Authorized Signatory | ) |
EXHIBIT “A”
Attached to and made a part of that certain Joint Operating Agreement by and between Longshot Oil, LLC, as Operator and UnionTown Energy Inc., as Non-Operator dated May 30, 2011, covering the Teton Prospect, Chouteau County, Montana
| A. | LANDS SUBJECT TO THIS AGREEMENT: |
Township 24 North, Range 7 East and 8 East |
|
| B. | RESTRICTIONS AS TO DEPTHS AND FORMATIONS: |
There are no depth restrictions |
|
| C. | PARTIES TO THIS AGREEMENT: |
Longshot Oil, LLC |
|
UnionTown Energy Inc. |
