XXXXX ENERGY, LLC 000 X. Xxxxxxx
Xxx Xxxxxxx, XX 00000
000-000-0000 (ph)
000-000-0000 (fax)
Xx. Xxxxxxx Xxxxxxx Xxxxxx Xx.
American Stellar Energy, Inc.
0000 Xxxxx Xxxxx
Xxxxxxx, Xx 00000
Re: Participation Agreement
Corsicana Field
Xxxxxxx County, Texas
Gentlemen:
This letter when executed by all parties shall produce a formal agreement
evidenced under the terms and conditions outlined below, by which American
Stellar ("AS") shall participate with Xxxxx Energy, LLC ("Xxxxx") in the
exploration and production of Corsicana Field.
Xxxxx Energy has heretofore obtained from Spartan General Partners a
farmout of 1,000 acres of held-by-production leases (the "Farmout") with the
right to drill and earn an undivided ninety percent (90%) interest in the
Farmout lands, carrying Spartan for a 10% interest in each well. Upon
performance of the terms set forth below, AS shall earn an interest in the
Farmout leases.
1. AS shall tender to Xxxxx immediately available funds, representing land
and geological/geophysical expenses in the following manner.
A) $25,000.00 (Twenty-five thousand) upon execution of this agreement.
B) $25,000.00 (Twenty-five thousand) before participating in any well
beyond the initial test well.
2. At such time when 100% of the participating interest in the drilling of
the initial test well is placed, Xxxxx or its designated operator shall
invoice AS for 50% of the $150,000 estimated total cost to drill and complete
the initial test well on the Farmout. AS agrees to tender such payment within
thirty (30) days from receipt of the invoice. Failure to timely remit such
payment shall result in the forfeiture of all of AS's rights under this
Agreement and the forfeiture of the $25,000 previously paid for land and
geological/geophysical expenses.
3. Upon Armen's receipt of the assignment of the oil and gas leases to be
earned as provided for in the Farmout, and without the dilutive consideration
to the 10% carried working interest due Spartan for the first 20 xxxxx, Xxxxx
shall assign to AS an undivided 45% working interest in and to said leases,
delivering a 37% net revenue interest in each lease, thereby reserving unto
Xxxxx an overriding royalty interest in each lease equal to the difference
between current lease burdens and 74%, proportionately reduced.
4. Spartan is to be carried for a 10% interest in the drilling, testing,
completing and equipping the well into the tanks or gas gathering lines; for
the first twenty xxxxx drilled, to fulfill the obligations of the Farmout,
therefore AS agrees to pay an additional 5% of the total cost to drill and
complete in the next consecutive nineteen xxxxx after the initial test well on
the Farmout. AS agrees to tender such payment within thirty (30) days from
receipt of the invoice.
5. AS shall own an undivided 45% interest in each well drilled until
Payout. Payout is defined as that point in time when the Value (as
hereinafter defined) of the oil, gas and other hydrocarbons produced, saved
and marketed or taken from each well, equals the total cost of:
(a) drilling, testing, completing and equipping the well into the tanks
or gas gathering lines;
(b) the cost of operating the well up to the date of Payout;
(c) severance, production and/or mineral ad valorem taxes measured by
production and assessed on production from the well;
(d) royalty to the lessors in the well; and
(e) the overriding royalty reserved to Xxxxx and all other overriding
royalty or other burdens created by Xxxxx or its predecessors in
title.
Value shall be determined by the net proceeds realized from the sale of
such production, or the fair market value thereof at the wellhead if not sold
but taken for use in field operation. At Payout of each well, Xxxxx shall
back-in for and own a ten percent (10%) working interest in such paid-out
well, proportionately reduced to AS's initial interest in such well. At each
well Payout, AS shall execute and deliver assignments to Xxxxx sufficient to
xxxx Xxxxx with its back-in working interest.
6. Prior to spudding the first well on the Farmout, Xxxxx and AS shall
enter into a mutually acceptable Operating Agreement based on the AAPL
610-1989 form, naming Xxxxx, or its designee, as Operator.
7. Should Xxxxx propose the drilling of a well on the Farmout lands and AS
elects to not drill the well, then upon spudding of the well, AS shall assign
to Xxxxx all of AS's interest in the leases covering and affecting eighty (80)
acres around the proposed well location. Said 80 acres shall be formed as
near as practical in the shape of a square with the proposed well location at
the center of the square. At such time when the well achieves 400% Payout, AS
shall back-in for a 40.5% working interest in the wellbore. Such back-in at
400% Payout shall apply to any and all xxxxx drilled within said 80 acres.
8. AS shall not assign its rights to this Agreement without the prior
written consent of Xxxxx.
9. Should AS desire to sell all or any part of its interests earned under
or xxxxx drilled pursuant to this Agreement, it shall promptly give written
notice to the Xxxxx, with full information concerning its proposed
disposition, which shall include the name and address of the prospective
transferee (who must be ready, willing and able to purchase), the purchase
price, a legal description sufficient to identify the property, and all other
terms of the offer. Xxxxx shall then have an optional prior right, for a
period of fifteen (15) days after the notice is delivered, to purchase for the
stated consideration on the same terms and conditions the interest which AS
proposes to sell. However, there shall be no preferential right to purchase
in those cases where AS wishes to mortgage its interests, or to transfer title
to its interests to its mortgagee in lieu of or pursuant to foreclosure of a
mortgage of its interests, or to dispose of its interests by merger,
reorganization, consolidation, or by transfer of its interests to a subsidiary
or parent company or to a subsidiary of a parent company, or to any company in
which such party owns a majority of the stock.
10. Should there be any conflict between the terms of this Agreement and the
terms of the Operating Agreement to be entered into as set forth in paragraph
5. above, the terms and conditions of this Agreement shall prevail.
If the foregoing adequately sets out your understanding of our agreement,
please indicate so by signing in the space provided for below and returning
one copy of this letter so executed to the undersigned.
Sincerely,
/s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx
President
Agreed to and Accepted this
23rd day of February, 2004.
American Stellar Energy, Inc. Xxxxx Energy, LLC
/s/ Xxxxxxx X. Xxxxxx, Xx. /s/ Xxxxx X. Xxxxx
By: _____________________________ By: ____________________________
Xxxxxxx X. Xxxxxx, Xx. Xxxxx X. Xxxxx
Name: ________________________ Name: __________________________
President President
Title: _________________________ Title: ________________________
