Exhibit 99.1
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement ("Agreement") is entered into as of the date
of signing below, but shall be effective as of the date of Effective Date of
Transfer hereinafter defined between QUINDUNO ENERGY, L.L.C., A TEXAS LIMITED
LIABILITY COMPANY ("Quinduno"] and PETROSEARCH ENERGY CORPORATION, A NEVADA
CORPORATION ("Petrosearch").
RECITALS:
A. Quinduno is the owner of leasehold working interests in certain oil and
gas leases situated in Xxxxxxx County, Texas more particularly described in
Exhibit "A" attached hereto ("Leases") together with various items of equipment
-----------
and personal property located on or about the Leases and used in connection
therewith.
B. Quinduno desires to sell and Petrosearch desires to purchase 100% of
Quinduno's interest in the Leases and equipment and personal property and each
has agreed that the sale should be consummated under the terms and conditions
hereof.
TERMS OF AGREEMENT:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Quinduno, and Petrosearch covenant and agree as
follows:
1. AGREEMENT TO SELL AND TO PURCHASE. Subject to each party's satisfactory
-------------------------------------
due diligence prior to the Closing Date (hereinafter defined), Quinduno hereby
agrees to sell, convey and assign unto Petrosearch, and Petrosearch hereby
agrees to accept and purchase from Quinduno for the Purchase Price (hereinafter
defined) and. on and subject to the conditions herein set Forth, the following
property hereinafter collectively referred to as the "Assets":
(a) one hundred percent (100%) of the leasehold working interest estate
attributable to the oil, gas and mineral leases and ratifications and
extensions thereof more particularly described upon Exhibit "A"
------------
attached hereto and made a part hereof, together with all easements,
servitudes, interests and contract rights appurtenant thereto (the
"Leases") together with a net revenue interest in the Leases which is
not less than eighty two percent of one hundred percent (82% of 100%)
[the "Net Revenue Interests"], but in any case, neither Quinduno or
its associates arc retaining any direct interest in the Assets other
than the reversionary interest discussed below; and
(b) one hundred percent (100%) of the fixtures, oil xxxxx, well bores,
water xxxxx, Surface pumping equipment, casing, downhole equipment,
storage tanks, produced and stored hydrocarbons, tubing, equipment,
dog houses, tools and personal property (collectively, the
"Equipment"), situated on or about the Leases, including without
limitation, the xxxxx ("Xxxxx") located on the Leases.
2. EFFECTIVE DATE OF TRANSFER. The effective date of transfer of the
-----------------------------
Assets shall be the Date of Closing (defined hereinbelow).
3. PURCHASE PRICE. The Purchase Price to be paid by Petrosearch for the
---------------
Assets, shall be the sum of the following and shall be paid according to the
following schedule:
(a) $500,000.00 cash plus 500,000 shares of Petrosearch Common Stock (with
customary Rule 144 legend) at Closing (hereinafter defined);
1
(b) $250,000.00 cash plus 500,000 shares of Petrosearch Common Stock (with
Rule 144 legend) delivered upon the earlier of March 15, 2006, or the
date of actual spudding or reentry (as applicable) of the first well
within Phase I;
(c) $500,000.00 cash plus 500,000 shares of Petrosearch Common Stock (with
Rule 144 legend) delivered upon the earlier of commencement (if any)
of Phase II of the Work Program or fourteen (14) months after the
Phase I payment set forth in 3(b) above;
(d) $750,000.00 cash plus 1,500,000 shares of Petrosearch Common Stock
(with Rule 144 legend) delivered upon the earlier of commencement (if
any) of Phase III of the Work Program or fourteen (14) months after
the Phase II payment set forth in 3(c) above; and
(e) In the event that Petrosearch and/or its successors and/or assignes
complete all Phases of the Work Program described in paragraph 8 below
and achieves "Payout" (defined herein), then Petrosearch and/or its
successors and/or assigns shall reassign to Quinduno a ten percent
(10%) working interest in the Leases. For purposes hereof, "Payout"
shall mean the time at which Petrosearch and/or its successors and/or
assigns recoups from net production proceeds payable to Petrosearch
100% of its cash expended for acquisition and capital expenditures
plus the additional sum of $7,500,000.
4. COOPERATION AND DUE DILIGENCE/PURCHASE PRICE ADJUSTMENT FOR DEFECTS
--------------------------------------------------------------------------
IDENTIFIED. The parties shall reasonably and promptly cooperate as to all
-----------
due diligence matters during the period prior to the Closing Date (the "Due
Diligence Period") and shall promptly exchange any and all documentation
reasonably requested in connection with the due diligence tasks, including
without limitation, copies of files, title information and technical data.
Further, Petrosearch shall be afforded immediate physical access to perform
tests or to inspect the Assets. In the event that during the Due Diligence
Period that Petrosearch discovers a title defect, an environmental matter
requiring remediation, gas imbalances, or other defects, then Petrosearch shall
advise Quinduno, in writing, of any such defect. Upon receipt of the defect
notice, Quinduno shall have thirty (30) days to cure the defect. If such defect
is not cured within such time, Petrosearch may elect to reduce the Purchase
Price by an amount equal to the allocated value of the defect as determined by
mutual agreement of the parties. If the parties are unable to agree on such a
value, Petrosearch shall have the right to terminate this Agreement without
further duty or liability hereunder.
5. PETROSEARCH CONDITIONS TO CLOSING. In connection with the Due Diligence
------------------------------------
Period, Petrosearch and Quinduno acknowledge that each of the following specific
items or events shall be performed or shall occur to the satisfaction of
Petrosearch as conditions to Petrosearch closing the purchase Transaction at the
Closing date.
(a) Petrosearch shall verify the accuracy and completeness of the
information provided by Quinduno and Hibernia Southcoast Capital and
shall confirm certain assumptions which Petrosearch has made regarding
title, operation, environmental condition, inventory and Net Revenue
Interest burdens affecting the Leases;
(b) Quinduno shall deliver an updated reserve evaluation which conforms to
the following: (i) by Xxxxx Xxxxx & Associates, (ii) effective date
October 1, 2005, (iii) conforms with SEC rules for the Proved reserve
category in all ways excepting the price deck to be used which will be
supplied by Petrosearch, (iv) includes estimates of probable and
possible reserves using the same price, cost and escalation
2
assumptions as the proved reserve estimate, and (v) reflects reserves
substantially the same as those originally provided by Quinduno.
(c) Identification of a satisfactory water source for the intended water
flood and, if the source is the High Plains (Ogallala) Aquifer,
determination by Petrosearch that approval for use can be obtained
within a reasonable time from appropriate federal, state and county
agencies.
(d) Approval by the Texas Railroad Commission of the X.X. Xxxxxx Lease as
a water injection unit in the Lower Albany Dolomite formation using
the water source identified above in paragraph 5(c).
(c) There shall have been no material adverse change to the Assets as of
the Closing Date.
(f) The covenants of Quinduno set forth in paragraph 7 below shall not
have been breached.
6. CLOSING. Closing shall take place on or before November 15, 2005 (the
--------
"Closing Date"), at a location mutually selected by the parties ("Closing"), at
which Closing, Quinduno and Petrosearch shall deliver to one another the
following documents:
DELIVERY OBLIGATIONS OF QUINDUNO:
---------------------------------
(a) Quinduno shall deliver an executed assignment of working interests
with special warranty of title in the form attached hereto as Exhibit
-------
"C" conveying from Quinduno to Petrosearch one hundred percent (100%)
---
of the leasehold working interest (being all of its interest) and not
less than eighty two percent (82%) net revenue interest in each Lease,
including all equipment and personal property.
(b) Quinduno shall deliver the originals of all Well files, geologic
materials, technical materials, title materials, and warranty
materials pertaining to the Assets.
DELIVERY OBLIGATIONS OF PETROSEARCH:
------------------------------------
(c) Petrosearch shall deliver the portion of the Purchase Price set forth
in paragraph 3 (a) above.
7. CONFIDENTIALITY, AMI RESTRICTIONS AND COOPERATION IN PUBLIC DISCLOSURE.
---------------------------------------------------------------------------
Unless and until this Agreement has been terminated as provided herein, for the
period from the execution hereof until the Closing Date, Quinduno shall not (i)
solicit, discuss or otherwise entertain, directly or indirectly, any offer to
acquire any of the Leases; (ii) provide information to others concerning the
Leases, except as required by law; or (iii) negotiate for or acquire ownership
in any leases within the Area of Mutual Interest hereinafter defined. Neither
Quinduno nor Petrosearch shall provide any information concerning the Leases or
any aspect of the transactions contemplated by this Agreement to any one other
than their respective officers, employees, representatives, lenders, investors,
counsel and accountants, except as is required by law. These limitations will
terminate on the earlier to occur of (i) the Closing of the transactions
contemplated herein, or (ii) such time as the information and data in question
becomes generally available to the oil and gas industry other than through the
breach by either party of the obligations of this paragraph. In the event that
Petrosearch proposes to issue a press release or file with the Securities and
Exchange Commission a form 8K or other document which discloses this proposed
transaction or the closing of the transaction, then Petrosearch shall deliver to
Quinduno at least forty eight (48) hours prior to release or filing, the
proposed text of same for
3
Quinduno's comments, if any (but not veto or right of approval). For purposes of
this paragraph 7, the Area of Mutual Interest shall be a one (1) mile radius of
any lands within the known boundaries of the Quinduno Field of Xxxxxxx County,
Texas, as defined by the Railroad Commission of Texas. In the event that this
Agreement is terminated prior to Closing, then Petrosearch agrees to refrain
from negotiating or taking any lease, renewal, ratification, extension or
mineral development agreement within the AMI for a period of two (2) years after
such termination.
8. PHASED WORK PROGRAM ON LEASES. Subsequent to Closing and subject to the
----------------------------------
timeline set forth in the Proposed Work Program and Capital Spending Plan
attached hereto as Exhibit "B" (the "Work Program"), Petrosearch shall begin
-----------
the Phase of the Work Program therein described.
9. OPTION TO REPURCHASE IF WORK PROGRAM TERMINATED. At any time after
-----------------------------------------------------
completion of the Phase I work, should Petrosearch determine, in its sole
discretion, to terminate further operations, then Petrosearch shall offer
Quinduno its interest in the Leases for a purchase price equal to an internal
rate of return to Petrosearch of twenty two and one half percent (22.5%),
calculated monthly using the Closing Date as the commencement point and taking
into account all acquisition cash, all capital expenditures plus a sum of
$7,500,000, and the net income received. Quinduno shall have forty-rive (45)
days to exercise its right of refusal to repurchase the leases and if it does
not exercise its right within such time, Petrosearch may, at its election, sell
its interests to a third party. In the event of a repurchase, Petrosearch shall
deliver to Quinduno all Well files and related materials obtained from Quinduno
at Closing.
10. NOMINATION BY QUINDUNO OF BOARD OBSERVER. Upon Closing, Quinduno may
---------------------------------------------
nominate a person acceptable to Petrosearch, in Petrosearch's sole discretion,
to observe the Petrosearch Board of Directors until such time as the Common
Stock shares paid to Quinduno for this acquisition equal or exceed 5% of
Petrosearch's outstanding Common Stock. At such point, Quinduno may replace the
nominated observer with a nominee to the Petrosearch Board of Directors which
must be acceptable to Petrosearch in its sole discretion. If Petrosearch
terminates further operations before Quinduno has replaced the observer with a
Board nominee, the observer will then be removed.
11. FUTURE OPERATIONS UNDER AAPL OPERATING AGREEMENT. In the event that
-----------------------------------------------------
Quinduno is assigned an after-Payout working interest in the Leases due to the
occurrence of Payout, then all future operations on the Leases shall be
conducted under the terms hereof and the terms of the 1989 AAPL Model Form
Operating Agreement attached hereto as Exhibit "D" (with XXXXX Exhibit)[the
----------
"Operating Agreement"], provided that in the event of a conflict between the
terms of this Agreement and the Operating Agreement, this Agreement shall be
controlling.
12. LIABILITIES OF THE PARTIES PRE-CLOSING AND POST CLOSING. Quinduno shall
----------------------------------------------------------
retain all liabilities related to the Assets prior to the Effective Date of
Transfer in the event of a Closing and Petrosearch shall be responsible for all
obligations after the Effective Date of Transfer (but only to the date of
reassignment if reassigned to Quinduno pursuant to paragraph 9 above). Each
party agrees to indemnify and hold the other harmless from any and all losses,
damages, claims and demands arising in connection with the indemnifying party's
period of responsibility.
13. TIME OF ESSENCE, SPECIFIC PERFORMANCE, ATTORNEYS FEES. Time is of the
---------------------------------------------------------
essence with respect to this Agreement and may be specifically enforced by
Petrosearch. If either party seeks to enforce, in law or in equity, any
provision contained herein, then the prevailing party in such proceeding shall
be entitled to attorneys fees, interest and all such other disbursements and
relief provided under law.
4
14. PAYMENT OF EXPENSES. Except as otherwise provided herein, all of the
---------------------
fees and expenses incurred by any party prior to the Closing in order to
complete the transactions required or permitted hereby shall be paid by the
party incurring such fees and expenses.
15. MODIFICATION OR AMENDMENT. The parties hereto may modify or amend this
---------------------------
Agreement only by written agreement executed and delivered by the respective
parties.
16. BINDING ON HEIRS AND ASSIGNS. This Agreement shall inure to and be
--------------------------------
binding upon the undersigned and their respective heirs, representatives,
successors and assigns.
17. COUNTERPARTS/ FACSIMILE SIGNATURES. For the convenience of the parties
------------------------------------
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement. A facsimile signature shall be
deemed equivalent to and binding as an original signature except when such
original signature is required by law.
18. NO WAIVERS. No waiver of or failure to act upon any of the provisions
-----------
of this Agreement or any right or remedy arising under this Agreement shall be
deemed or shall constitute a waiver of any other provisions, rights or remedies
(whether similar or dissimilar) nor shall such waiver or failure to act
constitute a continuing waiver or evidence of a binding course of conduct unless
expressly provided herein or expressly stipulated to in writing by the parties.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
20. ASSIGNABILITY. This Agreement shall not be assignable by either Party
--------------
without the written consent of the other Party.
21. NOTICES. Any notice, request, instruction or other document to be
--------
delivered hereunder or permitted hereunder shall be given in writing by
certified mail, return receipt requested, postage prepaid, or by overnight
courier, prepaid telegram, or personal delivery, as follows:
To Quinduno: Quinduno Energy, L.L.C.
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention; Xxxx X. Xxxxxxxxxx, President
(000) 000-0000 -Fax
To Petrosearch: Petrosearch Energy Corporation
000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxx, President
(000) 000-0000 - Fax
or to such other address or to the attention of such other person as shall be
designated in writing by any parry to the other party hereafter. All notices
will be deemed to have been given as of the date of receipt.
22. ENTIRE CONTRACT. This Agreement and the documents herein referenced
----------------
constitute (or when executed will constitute) the entire agreement between the
Parties, and shall supersede all other prior agreements and understandings, both
written and oral, between the Parties with respect to the subject matter hereof.
5
23. CAPTIONS FOR CONVENIENCE. All captions herein are for convenience or
--------------------------
reference only and do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
24. SEVERABILITY. In case any one or more of the provisions contained in
------------
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or enforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or enforceable provision had never been
contained herein.
25. NON-SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. Each of the
---------------------------------------------------------------
covenants, representations and warranties set forth in this Agreement shall be
deemed not to have survived the termination of this Agreement or the closing of
the transaction contemplated by this Agreement, as applicable, unless
specifically set forth in a separate document executed by the parties at the
time of or subsequent to the respective termination or closing, as applicable
provided however, the obligation of section 3 shall survive closing.
SIGNATURES APPEAR ON FOLLOWING PAGE
6
EXECUTED by the undersigned as of the Effective Date set forth above.
"Quinduno"
QUINDUNO ENERGY, L.L.C.
By: /s/ Xxxx X. Xxxxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxxxx
---------------------------------
Title: President and CEO
--------------------------------
Date signed: 10/18/05
--------------------------
"Petrosearch"
PETROSEARCH ENERGY CORPORATION
By: /s/ Xxxxxxx Xxxx
-----------------------------------
Name:
---------------------------------
Title: President
--------------------------------
Date signed: 10/28/2005
--------------------------
7
EXHIBIT "A"
-----------
[DESCRIPTION OF LEASES ]
------------------------
TO BE PROVIDED BY QUINDUNO
--------------------------
8
EXHIBIT "B"
-----------
PROPOSED WORK PROGRAM AND CAPITAL SPENDING PLAN
Phase 1: Commencing on the latter of 90 days from Closing Date or
availability of drilling equipment, the following work will be
initiated:
Drill and complete four water injection xxxxx offsetting the Xxxxxx #
00 producing well.
Fabricate and install a water injection station at the Central Tank
Battery on the X.X. Xxxxxx lease, drill water supply well and lay
water injection lines to the injection xxxxx.
Workover the Xxxxxx # 5, 23 and 30 xxxxx to return to production.
Upgrade or repair pumping equipment on Xxxxxx # 5, 6, 7, 8, 10, 19,
22, 23 and 30 producing xxxxx.
Phase II: Commencing on the earlier of 12 months from startup of water
injection in the Phase I water injection xxxxx or realization of a 10
fold increase in the combined monthly oil volume recovered from the
producing xxxxx included in the Phase I capital program, i.e., Xxxxxx
# 5, 6, 7, 8, 10, 19, 22, 23 and 30, the following work will be
initiated:
Drill and complete sixteen water injection xxxxx on Sections 158 and
159.
Upgrade CTB to handle increased fluid volume, drill additional water
supply well and lay water injection lines to the new injection xxxxx.
Workover the Xxxxxx # 2, 3, 26, 37 and 38 xxxxx to return to
production.
Upgrade or repair pumping equipment on Xxxxxx # 2, 3, 4, 9, 11, 12,
13, 14, 15, 16, 17, 18, 20, 21, 24, 25, 26, 27, 28, 37 and 38
producing xxxxx.
Phase III: Commencing on the earlier of 12 months from startup of water
injection in the Phase II water injection xxxxx or realization of a 10
fold increase in the combined monthly oil volume recovered from the
producing xxxxx included in the Phase I and Phase II capital programs,
i.e., Xxxxxx # 2. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,13, 14, 15, 16, 17,
18 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 30, 37 and 38 producing
xxxxx, the following work will be initiated:
Drill and complete ten water injection xxxxx on Sections 135 and 159.
Drill additional water supply well and lay water injection lines to
the new injection xxxxx.
Workover the Xxxxxx # 00, 33, 34 and 39 xxxxx to return to production.
Upgrade or repair pumping equipment on Xxxxxx # 29, 32, 33, 34, 35, 36
and 39 producing xxxxx.
9
EXHIBIT "C"
-----------
ASSIGNMENT AND XXXX OF SALE
---------------------------
STATE OF TEXAS Sec.
Sec. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF XXXXXXX Sec.
THAT QUINDUNO ENERGY, L.L.C., A TEXAS LIMITED LIABILITY COMPANY, whose
address is 0000 Xxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, hereinafter
referred to as "Assignor", for and in consideration of TEN AND NO/100 DOLLARS
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by Assignor, hereby grants, bargains, sells,
assigns, transfers and conveys unto PETROSEARCH ENERGY CORPORATION, A TEXAS
CORPORATION, whose address is 000 Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000
hereinafter referred to as "Assignee", the following described property,
hereinafter collectively referred to as the "Property":
(a) One Hundred Percent (100%) the leasehold working interest estate
in the oil, gas and mineral leases, agreements and ratifications and
extensions thereof more particularly described in Exhibit "A" attached
-----------
hereto and made a part hereof, together with all casements, servitudes,
interests and contract rights appurtenant thereto, to which interest is
attributable a net revenue interest in oil and gas of not less than 82% of
100% (the "Leases"); and
(b) One Hundred Percent (100%) of Assignor's interests in the
fixtures, oil xxxxx, well bores, water xxxxx, surface pumping equipment,
casing, downhole equipment, storage tanks, stored hydrocarbons, tubing,
equipment, and personal property (collectively, the "Equipment"), situated
on or about the Leases, including without limitation, any existing xxxxx
located on the Leases.
This Assignment is made subject to the terms of the Leases and to all
matters of record in Xxxxxxx County affecting the Property, but only to the
extent in force and effect. By acceptance hereof, Assignee agrees to assume and
perform its proportionate part of any and all obligations of the "Lessee"
prescribed or created by the Leases and further agrees to assume all plugging
obligations imposed by the Leases and applicable authorities. Taxes shall be
prorated as of the effective date. This Assignment and the covenants contained
herein shall inure to and be binding upon Assignor and Assignee, and their
respective successors and assigns.
TO HAVE AND TO HOLD, all and singular, the Property and interests assigned
herein unto Assignee, her successors and assigns forever. This Assignment is
made with full substitution and subrogation of Assignee in and to all warranties
and covenants heretofore given by others with respect to the Property or part
thereof and Assignor agrees to bind itself and its successors and assigns to
warrant and forever defend the title to the Property, all and singular, against
any person whomsoever claiming the same or part thereof by, through and under
Assignor, but not otherwise. WITH RESPECT TO ANY EQUIPMENT CONVEYED HEREWITH,
ASSIGNOR HEREBY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE AND CONVEYS THE SAID EQUIPMENT "AS IS".
EXECUTED on November , 2005, but to be effective as of November 1, 2005.
----
10
QUINDUNO ENERGY, L.L.C.
By:
-----------------------------------
Xxxx X. Xxxxxxxxxx, President
STATE OF TEXAS Sec.
Sec.
COUNTY OF XXXXXX Sec.
The foregoing instrument was acknowledged before me this _______ day of
November, 2005, by Xxxx X. Xxxxxxxxxx, President of Quinduno Energy, L.L.C., a
Texas limited liability company, on behalf of the limited liability company.
11
EXHIBIT "D"
-----------
[FORM OF OPERATING AGREEMENT]
-----------------------------
TO BE MUTUALLY AGREED AND ATTACHED AT CLOSING
---------------------------------------------
12
