PURCHASE AND SALE AGREEMENT
Exhibit
10.88
THIS
PURCHASE AND SALE AGREEMENT (“Agreement”) dated August 15,
2008, is made between Tetuan Resources Corporation, a Florida corporation
(“Tetuan”) whose mailing address is 0000 Xxxxxx Xxxx, Xxxxx 000, Xxxx Xxxxx, Xx.
00000, and Surge Global Energy Inc., a Delaware
Corporation (hereafter “Surge”), or any designee of Surge’s, whose
mailing address is 000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx Xxxxx, Xxxxxxxxxx
00000.
Recitals
WHEREAS, the Parties desire to
enter into this Agreement in connection with Tetuan’s sale and conveyance of
certain United States Bureau of Land Management leases (“Prospect Leases”) comprised of
2,556.68 net mineral acres, more or less (the “Prospect”), within the state
of Nevada, as more fully described in Exhibit
A, attached hereto and made a part hereof.
WHEREAS, the Parties desire to
express their rights, responsibilities and obligations in connection with the
Prospect and the Prospect Leases pursuant to this Agreement.
NOW THEREFORE, in
consideration of the premises and the mutual agreement set forth in this
Agreement, the Parties agree as follows:
1. Description of the
Prospect.
A. The
Prospect Leases are United States Bureau of Land Management leases and are
comprised of 2,556.68 mineral acres, more or less, within the state of Nevada,
which are more fully described on Exhibit A attached hereto. The
two Prospect Leases descriptions are as follows:
|
|
a.
N77687 - 998.32 Acres more or less Effective date
12/01/03
|
|
|
b.
NVN81154 - 1,558.36 Acres more or less Effective date
01/01/06
|
Prospect
Lease N77687 has six years remaining on its term from December 1, 2003 and
Prospect Lease NVN81154 has eight years remaining on its term from Dec. 1, 2006.
During this time exploration and production must be established thereon to keep
the leases in force beyond their primary terms.
B. Each
of the Prospect Leases will be assigned to Surge reserving onto the
persons/entities the lease royalty described herein
below:
-1-
Lease N77687 - 12.5%
Landowner Royalty to the U.S. Government; 6.5 % overriding royalty to Xxxx X.
Xxxxxxxxx et al, 2% overriding royalty to Will Xxxxxx et al, 1% overriding
royalty to Xx Xxxxxxx, 0.5% overriding royalty to Xxxx Xxxx and 2% overriding
royalty to Xxxxxxx and Xxxxxx Xxxx Laser Tenants by the Entireties, leaving a
75.5% Net Revenue interest equaling 100% Working Interest to
Surge.
Lease NVN81154 -
12.5% Landowner Royalty to the U.S. Government; 3.0 % overriding royalty to Xxxx
X. Xxxxxxxxx et al, 5% overriding royalty to Will Xxxxxx et al, 1% overriding
royalty to Xx Xxxxxxx, 0.5% overriding royalty to Xxxx Xxxx and 2% overriding
royalty to Xxxxxxx and Xxxxxx Xxxx Laser Tenants by the Entireties, leaving a
76% Net Revenue interest equaling 100% Working Interest to Surge. The
record title to Lease NVN81154 is held by Energy West Corporation, which is
acting as agent for Tetuan and is holding Lease NVN81154 in beneficial ownership
for Tetuan. The assignment and transfer of Lease NVN81154 to Surge,
as described herein, shall be made from Energy West Corporation to Surge,
subject to a reservation of an overriding royalty in the amount of 11.5%, and
shall fulfill Tetuan’s obligations hereunder to transfer all of its rights under
Lease NVN81154 to Surge.
Additionally,
on the Initial Test Well, Tetuan will back into and will be assigned a 15%
Carried Working Interest covering all drilling, testing and completion costs to
the tanks at no cost to Tetuan after Payout. After the Initial Test
Well has been drilled on the leasehold(s) Tetuan will have an option to
participate for a 15% Working Interest at cost on subsequent
xxxxx.
2. Performance
Conditions:
A. Surge
shall fund the cost of drilling and related other costs in connection with the
Initial Test Well, using as a guideline Tetuan’s estimated Authorization for
Expenditures. These costs are estimates only and are subject to review and
change pursuant to market conditions. Tetuan does not guarantee drilling,
testing or completion prices. Additionally, if the well runs into excessive loss
circulation or other types of drilling problems, additional funds will be needed
to continue drilling and any further expenditure will be at the sole discretion
of Surge.
B. Surge
agrees to drill an Initial Test Well on the Prospect prior to August 1, 2009 to
a maximum depth of approximately 4,500 feet unless potential oil and/or gas
shows are encountered prior to that depth, in which case Surge shall have the
right to cease drilling and commence completion. Surge shall not be
obligated to incur drilling expenses of more than $1,500,000 on any well. Surge
shall have the right to choose the location of the Initial Test Well. Upon
favorable review of electric logs, cores or drill stem tests, by Surge, Surge
agrees to immediately provide testing and completion funds to put the well on
production. Tetuan will be entitled to copies of any logs, rights to the well
site and copies of all reports, which information shall be kept strictly
confidential. There may be habitat or other restrictions where drilling
can take place at certain times of the year.
-2-
C. If
the Initial Test Well is drilled, completed and is productive for more than
thirty days, Surge agrees to drill at least one (1) additional development
well every six months thereafter, excepting for Acts of God, permitting problems
or weather issues.
D. In
the event commercial production, as defined in 2C, is not established on the
Initial Test Well on the Prospect, Surge will either drill a Second Test Well on
the lease not drilled previously, or if such a well is not drilled, assign the
leases back to Tetuan under the terms set forth below.
If Surge
elects not to drill any xxxxx after the Initial Test well is drilled, Surge
agrees to reassign the remaining leasehold to Tetuan, if Tetuan so requests in
writing. Providing that Surge has drilled one well on either of the two leases
(N77687 and NVN81154), Surge will have the right to recover its leasehold costs
paid herewith if the prospect is re-assigned to Tetuan and is resold or drilled
by another party to the extent these amounts are paid to
Tetuan.
E. The
drilling conditions described in this Section 2 are subject to acts of God,
permitting delays, rig availability and Bureau of Land Management prohibitions
or other government agency prohibitions, applicable spacing requirement
regulations, and Tetuan, to the extent of its xxxxxx, xxxx not hold Surge liable
for failure to meet its drilling commitments in the event required permits
cannot be timely obtained as a result of force majeure conditions such as
weather conditions, acts of God or rig availability which prohibit
drilling.
3. Lease Transfer. Upon
timely and full payment of the amounts described in paragraph 4.B below, Tetuan
shall assign to Surge a 100 % of the Working Interest and a Net Revenue Interest
of 75.5 % on Lease N77687 and a Net Revenue Interest of 76% on lease
NVN81154 in the Prospect Leases, subject to Bureau of Land Management habitat
and other restrictions and annual rentals. Additionally Tetuan will receive a
15% Carried Working Interest covering all drilling, testing and completion costs
to the tanks at no cost to Tetuan on the Initial Test Well, which carried
interest will be earned and assigned after Surge has recouped its drilling and
completion costs on the first well (“Payout”). After the Initial Test Well
has been drilled on the leasehold(s) Tetuan will have an option to participate
for a 15% Working Interest of the actual cost on subsequent xxxxx on a well by
well basis. Additionally, at the time of Lease Transfer, Tetuan shall deliver to
Surge all contour maps, geophysical data and reports not already delivered to
Surge. At all times subsequent to the lease transfer, Tetuan shall be provided
reasonable access to the rig, all logs, reports and materials relating to
drilling, testing and completion operations. Additionally, if Surge elects to
perform any additional geological or geophysical studies or other work on the
Prospect, Tetuan will be entitled to a copy of all resulting data or
reports. In the event Surge drills any xxxxx on the Prospect Leases
subsequent to the completion of the Initial Production Well, Surge shall notify
Tetuan by Certified Mail at least sixty (60) days prior to the commencement of
each such subsequent well. Surge’s written notice to Tetuan shall
include the location and an AFE for said well. If Tetuan elects to
participate in such well and become a working interest therein, then Tetuan
shall (i) notify Surge in writing within fifteen (15) days of its receipt of
Surge’s written notice; and (ii) pay its proportionate fifteen
percent (15%) share of all drilling, testing and completions costs of such well
subject to the terms and conditions of the AAPL 610-1989 Operating Agreement
described herein.. Failure by Tetuan to respond to Surge’s written notice within
the period specified herein shall be deemed as an election by Tetuan not to
participate in that well, which shall result in Tetuan’s fifteen percent
(15%) Working Interest in such well being automatically transferred
to Surge.
-3-
In the
event Tetuan becomes a working interest owner in any well drilled on the
Prospect Leases, then Surge and Tetuan shall promptly enter into a mutually
acceptable AAPL 610-1989 Operating Agreement, in the form attached hereto as
Exhibit B. Said Operating Agreement shall declare Surge as Operator
and shall include, without limitation, the following
provisions:
1. Non-consent
penalties will be 300% for intangibles and 300% for tangibles.
2. The
Preferential Right to Purchase provision will be deleted in its
entirety.
3. All
response periods by non-operators shall be within a period of time that includes
Saturdays, Sundays and Legal Holidays.
4. The XXXXX
attached to said Operating Agreement shall provide for drilling and producing
rates of $6,000.00 and $600.00 respectively unless a local operator
requires
additional
monthly operating fees.
5. Revenues
shall be actual net revenues received on each well after all marketing,
transportation, taxes, and related costs to produce oil or gas..
However,
in the event that Surge has entered into a Operating Agreement with a third
party, or parties, prior to the time that Tetuan becomes a working interest
owner in any well drilled on the Prospect Leases, then Tetuan shall become
subject to said Operating Agreement with Surge and such third party, or parties,
and the terms and conditions of that Operating Agreement shall prevail, provided
that said third party Operating Agreement contains the above-described
provisions.
4. Payment. Surge
is responsible for the following costs to fund the cost of drilling and other
costs related to the Prospect.
A. Drilling. Surge
shall pay all of the costs associated with the permitting and drilling, testing,
and completion of the Initial Test Well and for its Working Interest share of
Subsequent Xxxxx drilled on the Prospect. Surge shall abide by the
drilling commitment time frames described in this Agreement.
B. Leasehold Payment and
Transfer. Surge shall pay a total of $500,000.00 (“Sale Price”) to
Tetuan for the transfer of leasehold rights in the Prospect Leases to Surge, ,
for Prospect Leases, rentals and bonus payments previously paid by
Tetuan, project development costs, geology, engineering, consulting, and all
other information possessed by Tetuan in connection to the Prospect.
.. The closing of the transaction contemplated herein shall take place
on or before August 15, 2008 (“Closing Date”) in the offices of Surge, or other
such place as mutually agreed by Surge and Tetuan, and shall be subject to
Surge’s title examination provided for in paragraph 7. On the Closing
Date Surge shall deliver to Tetuan the Sale Price of $500,000.00 in certified
funds and Tetuan shall deliver to Surge original signed and executed Assignments
of Record Title to the Prospect Leases. Failure by the parties to close on
August 14, 2008 shall make this Purchase and Sale Agreement null and void. Tetuan shall furnish
Surge with photocopies or facsimiles of said Assignments of Record Title prior
to the Closing Date.. Surge will counter-sign the original Assignment of Record
Title and pay any such fees necessary to file said
Assignments with the United States Bureau of Land Management and the
White Pine County Clerk and Recorder. Surge will pay for any other assignments
and recording of assignments subsequent to closing. Tetuan further agrees to
provide Surge with any other documentation necessary to effectuate the transfer
of Tetuan’s right, title and interest in and to the Prospect
Leases.
-4-
C. Lease Rentals and
Taxes. Surge shall be responsible to timely pay all future rental
payments due after the closing date so long as this Agreement is in effect. The
Prospect Lease rentals have been paid through December 1, 2008 as pertains to
Lease NVN77687 and through January 1, 2009 as pertains to lease NVN 81154.
Annual lease rentals are approximately $3,837.00 (depending on rental notice
amount) annually until production is encountered on a particular lease, and then
rental payments are due on the non-producing lease. Surge agrees to pay
all applicable annual rentals due thirty days prior to their due date. Annual
taxes to the White Pine County Assessor are approximately $184.76. Surge
shall pay White Pine County Assessor taxes in the approximate amount of $184.76
due on January, 2009, and all taxes due thereafter. Tetuan will supply Surge
with all prior invoices and contact information so that these invoices can be
paid.
5.
Reversion of Rights
Granted For Failure to Perform. In the event that Tetuan deems
that Surge has failed to perform under any of paragraphs 2.A, 2.B,
2.C, 2.D, 2.E, 4.A, 4.B or 4.C, they shall advise Surge in writing by Certified
mail or Federal Express and/or email, and Surge shall have 45 days to cure any
claimed default. If after 45 days Surge has not cured the default by then, all
rights in the Prospect granted to by Tetuan pursuant to this Agreement shall
automatically revert back to Tetuan, except for any commercially producing
xxxxx, and Surge shall retain no interest in the leases therein except as
provided for in Paragraph 2C.. This remedy shall be the sole remedy available to
Tetuan for any default under this agreement by Surge.
6. Operator.
A. Surge
or its designee agrees to serve as the Operator for the Prospect, subject to a
Joint Operating Agreement “AAPL 610-1989” or as agreed upon before commencing
drilling on the initial Test well. Surge may, at its sole option, elect to use
Xxxxxx Oil and Gas Company (“Xxxxxx”) as an independent consultant to supervise
the drilling of any of the xxxxx contemplated hereunder If
Xxxxxx and Surge agree that Xxxxxx will serve as a independent consultant to
drill said xxxxx, then Xxxxxx and Surge will enter into a mutually acceptable
agreement covering the costs and conditions of these services.. Surge agrees to
abide by the above described AAPL 610-1989 Operating Agreement and agrees there
will be no dilution of the royalty percentage described in paragraph 1.B except
as may be set forth in the AAPL 610-1989 Operating Agreement described
herein.
B. If
Surge elects to employ Xxxxxx Oil and Gas Company to as an independent
consultant to supervise the drilling of any of the xxxxx contemplated hereunder,
then, Surge shall have the right to approve all expenditures.
Surge shall escrow all of the monies to be used for drilling and
testing prior to actual drilling, and will supply completion funds
immediately upon the decision to complete the well. Surge shall pay all invoices
within ten days of their submission in order to maintain good credit with
suppliers and service companies. Surge understands that in some cases, a
check for services is required at the end of services on
site.
-5-
If Xxxxxx
Oil and Gas Company is employed to as an independent consultant to supervise the
drilling of any of the xxxxx contemplated hereunder , Xxxxxx Oil and
Gas Company shall have the authority to hire on behalf of Surge engineering
firms and drilling contractors, subject to the prior written approval of Surge
and within the scope of the AFE. Xxxxxx Oil and Gas Company shall not be liable
for any misfeasance or malfeasance of subcontractors or employees but will
endeavor to drill the well in a timely and cost effective
manner.
X. Xxxxxx
does not foresee any unreasonable restrictions that would prohibit the drilling
of a test well on the Prospect; however, all Federal leases have habitat and
other restrictions meaning that drilling cannot take place during certain times
of the lease. The applicable restrictions are contained within each of the
Prospect Leases. Surge understands the effects the habitat and other
restrictions might have on the exploration of the Prospect. The Drilling
Restrictions on both leases are from March 15 through May 1.
X. Xxxxxx
considers the Prospect to have merit based upon the geological interpretations
made by seasoned and respected geologists; however, Tetuan does not guarantee
that commercial oil will be discovered on the Prospect.
7. Title
Examination and Validity of Leases;.
Tetuan considers the Prospect Leases to be valid U.S. Government leases in good
standing and that all rentals have been timely paid on the Prospect Leases as of
the date hereof. Further, Tetuan represents (i) all leases to be
valid at the time of assignment with rentals having been paid; (ii) that other
than the royalty interests described herein, there are no encumbrances or liens
against the leases; (iii) Tetuan will deliver to Surge clear title to
the Prospect and the Prospect Leases; and. the Prospect Leases assigned by
Tetuan to Surge hereunder have the same rights and obligations as the rights
granted to Tetuan and its assignors by the United States Government without
modification except as to overriding royalty
interest.
On or
before August 8, 2008, Surge shall notify Tetuan in writing of any title defects
on the Prospect Leases. Surge’s written notice shall identify the
nature of any defect and, which, if any, of the Prospect Leases are affected
thereby. Failure by Surge to provide Tetuan with such written notice
shall be deemed as Surge’s acceptance of title and agreement that the Prospect
Leases are valid and without liens and/or encumbrances. In the event
that Surge does not discover any title defects and does not deliver such written
notice to Tetuan, then it shall be deemed the Prospect Leases are free from
defects and Surge shall then pay Tetuan the Sale Price on the Closing Date, as
provided for herein. In the event Surge does discover a title defect
and delivers to Tetuan such written notice of said defect, or defects, then
Tetuan shall have fifteen (15) days from the date of receipt of such written
notice such to cure any such title defects. If Tetuan is unable to
cure any such title defects to Surge’s satisfaction within the time allowed,
Surge may elect to either waive such defects and pay Tetuan the Sale Price or
cancel this Agreement. If Tetuan is able to cure any such title
defects to Surge’s satisfaction within the time allowed, Surge shall pay Tetuan
the Sale Price within five (5) days after receipt of the proper title
curative. It is the intent of Tetuan to provide Surge with title to
the Prospect Leases that is free of title defects and of any and all burdens,
encumbrances, charges and liens, except as to the Tetuan’s reserved overriding
royalty set forth herein; provided, however, that no title defect may be
asserted by Surge in connection with matters that are not customarily acceptable
defects, such as, but not limited to, Federal and State Lease stipulations,
defects that have been cured by possession under applicable statutes of
limitation, defects in the early chain of title such as failure to recite
marital status in documents, omission of heirship or succession proceedings,
lack of survey, and failure to record releases of liens, production payments or
mortgages that have expired by their own terms or the enforcement of which are
barred by applicable statutes of limitation.
-6-
8. Economic Risk;
Sophistication. Each of Surge and Tetuan represent and warrant to
each other that they (i) fully understand the nature, scope and duration of
this Agreement & (ii) have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of entering into this Agreement, and therefore have the capacity to
protect their own interests in connection therewith. Additionally, each
of Surge and Tetuan acknowledges that they have had the benefit of
financial and legal advisors with respect to this Agreement and that they are
not relying upon each other or any person on behalf of or retained by such other
party for any disclosure of information with respect to this Agreement.
Notwithstanding the foregoing, nothing in this paragraph herein shall be a
defense to or mitigation of any fraud or breach of a party to any provision set
forth in this Agreement. Tetuan and Surge are engaged in the oil and gas
business and knowledgeable in such affairs.
9. Notices. All notices, requests,
demands, claims, and other communications hereunder shall be in writing. Any
notice, request, demand, claim, or other communication hereunder shall be deemed
duly given three business days after it is sent by Federal Express with
signature required, registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient. With respect to
Tetuan, at 0000 Xxxxxx Xxxx, Xxxxx 000, Xxxx Xxxxx, Xxxxxxx 00000. With respect
to Surge, to Surge Global Energy Inc., 000 Xxxxxxxx Xxxxx, Xxxxx 000 Xxxxxx
Xxxxx, Xxxxxxxxxx 00000. attn. E. Xxxxx Xxxxxxx Chief Executive Officer. Either
party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Either party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set
forth.
10. Cooperation. The parties hereto shall
(i) make such other agreements and execute such other documents as the parties
determine necessary to effectuate the transactions contemplated by this
Agreement.
11. Mutual Representation and
Warranty. Each of and Tetuan
represent and warrant to each other that this Agreement is the legal, valid and
binding obligation of each party hereto, enforceable against the other, as the
case may be, in accordance with the terms hereof.
12. Headings; Appendices.
The section headings herein are for convenience only and shall not affect the
construction hereof. All appendices attached to this Agreement are herein
incorporated by reference and made a part hereof.
13. No Third Party
Beneficiaries.
This Agreement shall not confer any rights or remedies upon any person or entity
other than the parties and their respective successors, assigns, heirs or legal
representatives, as the case may be and there are no commissions or any fees
owed to third parties which are not disclosed herein.
-7-
14. Entire
Agreement. This Agreement
(including the documents referred to herein and the Appendices hereto)
constitutes the entire agreement among the parties and supersedes any prior
understandings, agreements, or representations by or among the parties, written
or oral, to the extent they relate in any way to the subject matter
hereof.
15. Severability. Any term or provision of
this Agreement that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other
jurisdiction.
16. Amendments and
Waivers. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by each of the parties hereto. No waiver by any
party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
17.
Governing Law;
Arbitration. This Agreement shall be
governed by, and construed in accordance with, the laws of Nevada without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Nevada. The
sole and proper venue for any action brought pursuant to this Agreement shall be
in Las Vegas, Nevada. Any dispute or difference with respect to any matter
arising out of or in connection with this Agreement shall be submitted for
arbitration to the American Arbitration Association.
IN WITNESS WHEREOF, This
Agreement has been executed as of the date first above
written.
WITNESSES:
Tetuan Resources
Corp.
By:
/s/ Xxxxxxx X
Xxxxxx
Xxxxxxx X. Xxxxxx, CEO and President
By: /s/E. Xxxxx
Xxxxxxx
E. Xxxxx Xxxxxxx, Chief Executive Officer
-8-
Exhibit
“A”
Attached
to and made a part of that certain PURCHASE AND SALE AGREEMENT (“Agreement”)
dated August 15, 2008,
as made
between Tetuan Resources Corp., and Surge Global Energy,
Inc.
| LEASE DATE |
LESSOR
NAME
|
LESSEE
NAME
|
LEGAL
DESCRIPTION
|
GROSS
ACRES
|
COUNTY
|
STATE
|
LEASE
STIPULATIONS
|
||||||||
|
December
1, 2003
|
NVN77687
United States of America, , Nevada State BLM Office
|
Xxxx
X. Xxxxxxxxx
|
Township 15 North, Range 57 East, Mt. Diablo
Meridian
Section
19: Xxx 0, XXXX, X0XX
Section
20: SWSW
Section
29: W2W2
Section
30: Xxxx 0, 0, 0,0, X0, X0X0 (All)
|
998.32
|
White
Pine
|
1)
Drilling Restriction around Sage Grouse Nest from March 15 thru
May
|
|||||||||
|
January
1, 2006
|
NVN81154
United States of America, Nevada State BLM Office
|
Energy
West Corporation
|
Township 15 North, Range 57 East, Mt. Diablo
Meridian
Section
19: Xxxx 0, 0, 0, XX, X0XX, XXXX, X0XX
Section
20: X0, X0XX, XXXX, XX
Section
29: X0, X0X0
|
1,558.36
|
White
Pine
|
1)
Drilling Restriction around Sage Grouse Nest from March 15 thru
May
|
|||||||||
