Joint Development Participation Agreement
Exhibit
99.1
THIS
AGREEMENT made this 5th day of July, 2007, between
Daybreak
Oil and Gas, Inc.
Xxx
X. Xxxxxxxx 2006 Trust and
Chicago
Mill Joint Venture, hereinafter referred to collectively as “Daybreak
et al”, and
Xxxxxx
X. Xxxxxx, LLC
Arrowhead
Resources, Inc. and
Xxx
Exploration, Ltd., hereinafter referred to collectively as
“Purchaser”.
WHEREAS,
Daybreak et al and Purchaser hereinafter collectively known as "the Parties",
desire to jointly develop the Tensas River Farm Project in accordance with
the
terms and conditions outlined below:
Area
of Mutual Interest
The
area
covered by this Agreement shall be all the lands in Tensas and Franklin
Parishes, Louisiana within the 60-square miles Area of Mutual Interest ("AMI")
outlined in the Exhibit A-2 of the Operating Agreement attached hereto,
excluding the following three 320-acre drilling or producing units:
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1)
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Daybreak
Oil and Gas, Inc. ‘Tensas River Farm No F-1’ covering E/2 of E/2 Section
19
and W/2 of W/2 of Xxxxxxx 00-00X-00X Xxxxxx
Xxxxxx;
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2)
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Daybreak
Oil and Gas, Inc. ‘Xxxxxx Xxxxx Xxxx Xx. X-0’ covering S/2 of Section
00-00X-00X
Xxxxxx Xxxxxx; and
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3)
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Daybreak
Oil and Gas, Inc. ‘Xxxxxx Xxxxx Xxxx Xx. X-0’ covering the E/2 of
SE/4 Section
22 and SW/4 and W/2 of SE/4 of Section 00-00X-0X Xxxxxxxx
Xxxxxx
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All
lands
and leases, and all new equipment, saltwater disposal systems, pipelines,
and
gas gathering systems acquired by the Parties within the AMI after the execution
of this Agreement shall be subject to this Agreement. Notwithstanding this
provision, it is understood and agreed to by all of the Parties that Daybreak
et
al retains sole ownership of the existing natural gas flowline, installed
by
Daybreak et al prior to this Agreement, that connects the Tensas River Farm
No
F-1 surface facilities to the gas transportation pipeline currently owned
by and
known as the Locust Ridge Pipeline.
Commitment
Upon
the
execution of this Agreement, Purchaser commits to pay all of the costs
attributable to Purchaser's ownership of a sixty (60%) of 8/8ths working
interest in four new xxxxx (“New Xxxxx”) that will be drilled within the
AMI.
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•
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One
New Well will be the Lower Tuscaloosa well at the geographic surface
location
labeled “A-1” on the prospect maps and located in the SE/4 of Section
13-12N-10E
Tensas Parish and drilled to a depth of 8,400’ or to a depth sufficient
to
test the Basal Lower Tuscaloosa
Sand.
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•
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A
second New Well will be the Lower Tuscaloosa well at the geographic
surface location
labeled “F-2” on the prospect maps and located in the NE/4 of Section
30-12N-9E
Tensas Parish and drilled to a depth of 8400' or to a depth sufficient
to
test the Basal Lower Tuscaloosa
Sand.
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•
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A
third New Well will be a horizontal well at a location chosen
by a
majority of working interest participants and shall consist
of drilling a vertical wellbore to 6300'
or to a depth sufficient to test the top 400’ of the Upper Xxxxx Xxxxx. If
a majority
of working interest participants elects to do so, a subsequent
1,000-foot
or
longer horizontal lateral shall be drilled from the vertical
wellbore.
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•
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The
fourth New Well can be either a Lower Tuscaloosa Basal Sand well,
a Xxxxx
Xxxxx horizontal well, or a well to test the Paluxy formation
at an
approximate depth
of 8800’ or to a depth sufficient to test the Upper Paluxy formation and
will
be mutually decided by a majority of working interest participants
after
the Parties
drill the first three New
Xxxxx.
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Purchaser
acknowledges that its participation in all four New Xxxxx is a requirement
hereto. Purchaser's failure to participate in or payment for all of Purchaser's
costs in drilling any New Well shall result in Purchaser's immediate forfeiture
of all right, title and interest in any rights hereto in the entirety of
the
AMI. Following said forfeiture, Purchaser shall only own Purchaser's working
interest in the New Xxxxx which Purchaser participated in and paid its full
share of all drilling and completion costs, including surface facilities
and
pipelines. Purchaser further agrees that in the event of forfeiture, Purchaser
surrenders any right to acquire any leasehold, royalty or working interest
within the AMI as long as the AMI exists. New xxxxx will be drilled on 320-acre
spacing.
Joint
Operating Agreement
Operations
to drill complete and produce the xxxxx will be subject to a Model Form Joint
Operating Agreement (“JOA”) AAPL Form 610-1982 CHICAGO MILL PROJECT dated
September 1, 2006 attached hereto and made a part hereof, subject to the
following amendments:
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Article
XV pg 14-a (A)Conflict Between Exploration Agreement and Joint
Operating Agreement: shall hereby be changed to read “...and the
terms and provisions of that certain unrecorded Joint Development
Participation Agreement dated July 5, 2007 between Daybreak
Oil and Gas,
Inc. et al and Purchaser”.
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•
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Exhibit
A-l shall be changed as attached hereto to include all
oil and
gas leases purchased by Daybreak et al within the AMI as of
July 5, 2007.
Purchaser will pay its proportionate share of delay rentals
on the subject
leases. Failure to pay delay rentals will forfeit Purchaser's
interest in
the lease.
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•
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Exhibit
“A” shall be replaced with the attached Exhibit
“A” as
amended on July 5, 2007 and subject to the following
provisions:
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1)
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The
primary reservoir(s) to be developed in the Tensas River Farm
Project,
Franklin and Tensas Parishes, is sands productive of gas (or
oil) in the
Lower Tuscaloosa Formation at approximately 8400 feet. The
Area of
Interest is set out in Exhibit A-2 of that certain CHICAGO
MILL PROJECT
Operating Agreement dated September 1,
2006.
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2)
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It
is agreed that each initial “earning” well (Exhibit “A”) will be permitted
on 320 acre drilling units. The first well to be drilled on
each 320 acre
tract shall be as a “Before Payout” (i.e. Purchaser will
pay 60% of working interest drilling cost and 60% of the completion
cost,
if a completion attempt is warranted). The tract for each earning
well
will encompass 320 acres whether or not the acreage is all
within the
permitted drilling unit.
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3)
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On
reaching total depth, regardless of completion or plugging
of the well,
Purchaser will earn “After Payout” interest in the 320
acre tract (i.e. 30% in the Lower Tuscaloosa Formation; 40%
in Xxxxx Xxxxx
Formation; 45% of the Paluxy Formation; and 45% of all other
Formations
which may be productive). On the initial well, if productive,
Purchaser
will retain the 60% “Before Payout” interest until payout
occurs.
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4)
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After
the initial earning well is drilled on each 320 acre tract,
future
drilling within that 320 acres will be on “After Payout”
interest bases as set out in “3” above, regardless of spacing set
by regulatory agencies.
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Overriding
Royalty Interest
Within
the AMI, as to all lands and oil and gas leases acquired by the Parties,
Chicago
Mill Joint Venture shall be entitled to the reservation of an overriding
royalty
interest, proportionately reduced, equal to the difference (if any) between
the
leasehold burdens and 25% in all oil, gas, or other liquid or gaseous
hydrocarbons produced, saved and sold from the assigned
leases.
Miscellaneous
Provisions
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1)
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This
Agreement shall be binding upon the parties hereto, their heirs,
executors, successors
and assigns. Any transfer of interest by any Party shall be expressly
subject
to the JOA and to this
Agreement.
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2)
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If
any provision in the Agreement is inconsistent with the JOA, then
this
Agreement
shall prevail.
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3)
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This
action shall be interpreted and governed by Louisiana law, regardless
of
any
conflicts of laws analysis.
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4)
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Any
provision of this Agreement, including particularly but not limited
to the
provisions
concerning the AMI, may be specifically enforced by any Party,
in
addition
to seeking damages for the breach of this Agreement. If any Party
is
found
to be in breach of this Agreement, the breaching Party shall be
liable to
the
non-breaching Parties for all cost and expenses incurred by the
non-breaching
Parties in enforcing the terms of this Agreement, including an
award
of
reasonable attorney's fees and all expert fees and other costs
and
expenses of discovery,
regardless whether such costs would or would not be taxed as costs
of
court.
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5)
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This
Agreement may be executed in multiple counterparts, each of which
so
executed
shall be given the effect of execution of the original agreement.
The
failure
of any Party to execute this Agreement shall not render it ineffective
as
to
any Party hereto who does execute
same.
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6)
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Nothing
in this Agreement shall be construed to create a
partnership.
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7)
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The
captions and headings herein are solely for convenience and reference
only.
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8)
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In
case any one or more of the covenants, agreements or provisions
hereof be
determined
to be invalid, illegal or unenforceable in any respects, the validity
of
the remaining covenants, agreements, or provisions hereof shall
in no way
be affected
or prejudiced thereby.
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9)
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This
Agreement represents the entire agreement between Daybreak et al
and
Purchaser
and supersedes any and all prior discussions or
writings.
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Representations
of Purchaser
Purchaser
represents and warrants to Daybreak et al
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(i)
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that
Purchaser, either alone or together with Purchaser' advisors, has
sufficient knowledge and experience in business and financial matters
to
evaluate the merits and other risks of an investment in oil & gas
exploration and all other rights and interests in the Tensas River
Farm
Project acquired pursuant to this
Agreement,
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(ii)
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that
in making its decision to enter into the Agreement, Purchaser has
relied
on independent investigations made by Purchaser and its representatives,
including Purchaser's own professional geological, tax, and business
advisors,
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(iii)
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and
that Purchaser and its representatives have been given the opportunity
to
examine all relevant documents and to ask questions of, and to
receive
answers from, Tensas River Farm Project, or any person(s) acting
on their
behalf concerning the terms and conditions of the Agreement, and
to obtain
any additional information necessary to verify the accuracy of
the
information provided. Purchaser acknowledges and agrees that the
oil and
gas business is highly speculative and that Tensas River Farm Project
has
made no representations to Purchaser that production will be obtained
from
any Prospect, or as to the possibility of gain or the avoidance
of loss
with respect to any Prospect. Purchaser acknowledges and agrees
that any
subsequent sale, assignment, or transfer of any interest in the
Tensas
River Farms Project owned by Purchaser, either directly or indirectly,
shall be made pursuant to an in accordance with the Securities
Act and all
applicable state securities laws, if and where applicable. Any
such sale,
assignment or transfer by Purchaser shall be made in compliance
with and
subject to all of the terms of this Agreement and the Joint Operating
Agreement.
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(THE
BALANCE OF THIS PAGE HAS INTENTIONALLY BEEN LEFT
BLANK)
XXXXXX XXXXX
XXXX (XXXXXXX MILL) PROJECT
Tensas
and Franklin Parishes, Louisiana
Agreed
to and Accepted this _____ day
of ____________ 2007 by
OPERATOR
Daybreak
Oil and Gas, Inc.
/s/
Xxxxxx X. Xxxxxxxxx
Xxxxxx
X.
Xxxxxxxxx, Treasurer
NON-OPERATORS
| Chicago Mill Joint Venture | Xxx X. Xxxxxxxx 2006 Trust |
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/s/ Xxx
X. Xxxxxxxx
Xxx
X. Xxxxxxxx, JV Manager
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/s/ Xxx
X. Xxxxxxxx
Xxx
X. Xxxxxxxx, Trustee
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| Arrowhead Resources, Inc. | Xxxxxx X. Xxxxxx, LLC |
| /s/ Xxxxx Xxxxxxx | /s/ Xxxxxx X. Xxxxxx |
| Xxxxx Xxxxxxx | Xxxxxx X. Xxxxxx, Manager |
| Xxx Exploration, Ltd. | |
| /s/ Xxxx X. Xxx | |
| Xxxx X. Xxx, Managing Partner |
EXHIBIT
"A"
Attached
to and made a part of that certain Joint Operating Agreement dated
September
1, 2006 as amended on July 5, 2007 between Daybreak Oil and Gas, Inc.,
as
Operator and Chicago Mill Joint Venture et al as Non-Operators, covering
the
Tensas
River Farm (Chicago Mill) Prospect, Franklin and Tensas Parishes,
Louisiana.
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1.
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Lands
Subject to this
Agreement:
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All
of the lands in Franklin and Tensas Parishes, Louisiana within the 60-square
mile 3-D Survey as set out in the Area of Interest in Exhibit A-2 of that
certain Chicago Mill Project Operating Agreement dated September 1,
2006.
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2.
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Restrictions
as to Depth. Formation, or
Substance:
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None,
except as may be provided in any of the oil, gas, and mineral leases described
hereinafter in Exhibit “A-1”.
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3.
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Names,
Addresses, and Interests of the Parties to this
Agreement
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Before
Payout (BPO) - After Payout (APO) Basis for each well productive from the
specified formations:
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Before
Payout
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After
Pavout
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Lower
Tusc
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Xxxxx
Xxxxx
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Paluxy
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Other
Formations
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Daybreak
Oil and Gas, Inc.
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24.5%
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34.75%
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30.75%
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28.75%
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28.25%
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Xxx
X.Xxxxxxxx 2006 Trust
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7.5%
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9.25%
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9.25%
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9.25%
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9.25%
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Chicago
Mill Joint Venture
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0%
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18%
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12%
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9%
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9%
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Xxxxx
X. Xxxxx*
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8%
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8%
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8%
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8%
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8%
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Xxx
Exploration, Ltd.
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15%
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7.5%
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10%
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11.25%
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11.25%
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Xxxxxx
X. Xxxxxx, LLC
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25%
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12.5%
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16.67%
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18.75%
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18.75%
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Arrowhead
Resources, Inc.
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20%
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10%
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13.33%
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15%
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15%
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100%
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100%
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100%
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100%
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100%
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*Xxxxx
X.
Xxxxx'x interest, his heirs, successors and assignees, is subject to that
certain Operating Agreement dated September 1, 1006 covering the Contract
Area
and is not subject to this July 5, 2007 amendment thereto.
The
term
"After Payout" as used in this Agreement shall mean that point
in time at which the cumulative net proceeds (as hereinafter defined) of
each
well drilled are equal to the cumulative well costs (as hereinafter
defined).
A. The
term 'net proceeds' shall mean the proceeds derived by Operator prior to
payout
from each well as described in the Operating Agreement though the sale of
oil
and/or
gas produced and saved from or attributable to the production unit established
for each
well, after deducting therefrom all royalties, overriding royalties and other
leasehold burdens,
including gathering costs, marketing costs and all production, excise,
severance, windfall
profit and other taxes applicable to such production; and the salvage or
sale of
any
interest in any personal property, fixtures or equipment for the well or
used or
obtained
in connection therewith; and insurance contract settlements covering losses
to
property
pursuant to operations or activities covering the well.
B. The
term 'well costs' shall mean the actual, direct cost of drilling, completing,
testing,
equipping and operating the well, as determined in accordance with Exhibit
"C"
(XXXXX)
of the Joint Operating Agreement prior to the occurrence of
payout.
