EXHIBIT 10.1
August 30, 2006
Xxxxxxx Xxxxxxx XxXxxx
c/o Petrogulf Corporation
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx
Vice President, Land and Legal
Re: Exploration Agreement for Wyandotte Prospect
St. Xxxx Xxxxxx, Louisiana
Gentlemen:
When executed by all parties, this letter shall serve as the exploration
agreement ("Agreement") between Falcon Natural Gas Corp. ("Falcon") and Xxxxxxx
Xxxxxxx XxXxxx ("Participant") regarding Participant's acquisition of certain
undivided interests, set out more particularly below, in the above-referenced
Prospect. It is agreed that Petrogulf Corporation ("Petrogulf") shall be
designated as the contract Operator on behalf of Falcon, Participant and any
other participants in the Wyandotte Prospect.
1. Falcon has identified prospective acreage and acquired the leasehold
rights needed to explore for oil, gas and other minerals underlying
the Prospect area depicted in Exhibit 1 hereto (the "Prospect
Area"). The current leasehold interests within the Prospect Area are
more particularly described in Exhibit 2 hereto (the "Leasehold").
Upon execution of this agreement, Participant shall pay Falcon the
sum of $554,021 as consideration for the Leasehold and Falcon shall
assign Participant a 15% working interest in the Leasehold within
the surface boundaries of the existing DB-4 Unit, established by the
Office of Conservation Order No-844-J effective November 30, 1999,
from the surface to the stratigraphic equivalent of the base of the
DB-4 Sand; a 50% working interest within the surface boundaries of
the existing DB-4 Unit below the stratigraphic equivalent of the
base of the DB-4 Sand; and a 50% working interest in the balance of
the Leasehold lying within the boundaries of the Prospect Area. Such
assignment shall convey a net revenue interest of seventy percent
(70%), proportionately reduced to the working interest being
acquired by Participant.
2. The parties have agreed to participate, on the terms set out herein, in
the drilling of a well ("Test Well") to a depth sufficient to evaluate the
DB-4 sand ("Objective Depth"), which is anticipated to be encountered at a
depth of approximately 16,500 feet. Participant shall pay 18% of the costs
incurred in the drilling the Test Well to Casing Point (hereinafter
defined) and 15% of the costs incurred after Casing Point. All subsequent
costs incurred within the AMI after reaching Casing Point in the Test Well
shall be on a "heads-up" basis (proportional to each party's working
interest). Participant shall commence operations on the Test Well within 6
months from the effective date of this Agreement, subject to rig
availability.
3. Contemporaneously with the execution hereof, the parties hereto shall also
execute and become subject to the Operating Agreement ("JOA"), naming
Petrogulf as Operator. The JOA and all exhibits thereto are attached
hereto and incorporated herein as Exhibit 3. Except to the extent of any
conflict with the provisions of this Agreement, the JOA shall control the
operations conducted on the Test Well and any subsequent xxxxx drilled on
the Test Well Unit. If a subsequent well or xxxxx are drilled elsewhere on
the AMI, the same form of JOA shall be applicable, modified only to
reflect the description of the lands covered (the "Contract Area") and the
interests of the parties therein. The Contract Area for each such
subsequent well shall be identified and agreed upon by the parties. Should
there be a conflict between the terms and conditions of the JOA (or any
subsequent-well JOA) and the terms and conditions of this Agreement, the
terms and conditions of this Agreement shall prevail.
4. The parties hereby establish an area of mutual interest ("AMI") consisting
of the land area identified on the plat attached hereto as Exhibit 1. All
interests in lands within the AMI subsequently acquired by either party
will be offered to the non-acquiring party on a 50/50 basis and at actual
cost. Promptly upon the acquisition of any mineral, royalty, overriding
royalty or leasehold interest or option or contract to acquire any of the
same, the acquiring party shall provide written notice to the other
parties, identifying the interest acquired, stating the consideration paid
therefor, and providing copies of the instrument(s) of acquisition, any
agreements or correspondence relating to same, any documents evidencing
costs incurred by the acquiring party, and a plat of the location of the
interest so acquired. Each non-acquiring party shall have a period of
fifteen (15) days after receipt of such notice in which to elect to
participate in such acquisition. If a non-acquiring party elects to
participate, it shall, at or before the expiration of said fifteen
(15)-day period, give written notice of such election to the acquiring
party and tender payment of its pro-rata share of the acquisition costs
thereof. If the interest is to be earned by conducting drilling or other
operations, the acquiring party's notice shall include an Authority for
Expenditure ("AFE") and estimated costs of such operations, and the
non-acquiring party's response period shall be extended to thirty (30)
days, and the response shall include such party's execution and return of
the AFE together with payment of its share of estimated dry hole costs of
the operations to be conducted. If less than all parties elect to
participation in an acquisition, the interest acquired shall be shared in
proportion to the interests of the electing parties, unless the electing
parties otherwise agree; and any such interest shall be subject to a JOA
identical to the JOA attached hereto, modified only as to the parties,
their interests in costs and production and the legal description of the
interest(s) covered thereby. The AMI shall expire when the parties, their
successors and assigns no longer own any oil and gas leasehold interests
in the AMI, but in no event shall the AMI remain in effect more than ten
(10) years from the effective date of this agreement.
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Petrogulf Corporation
August 30, 2006
Page 3
5. All assignments of oil and gas leases or other rights required to be
assigned hereunder shall utilize the form of assignment attached hereto as
Exhibit 4. The initial assignment of the existing oil and gas leases from
Falcon to Participant will assign such leases at a seventy percent (70%)
net revenue interest, proportionately reduced to the working interest
acquired by Participant. Leases subsequently acquired shall be assigned
subject to the burdens imposed thereon by non-affiliated third parties,
which are in existence when acquired by any party hereto. The interests
assigned shall be subject to the terms and conditions of the leases, all
of the royalties, overriding royalties and other burdens payable out of
production. Any such interest shall also be subject to the provisions of
the JOA.
6. The parties agree that the information supplied by Falcon or developed
from operations conducted hereunder concerning the Test Well and the
Prospect Area shall be subject to the confidentiality agreement set out as
Exhibit 5, which is attached hereto and incorporated herein.
7. Any controversy or claim arising out of or relating to this agreement, or
the breach thereof, except controversies involving less than $50,000,
shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment on
the award rendered by the arbitrator(s) may be entered in any court in
Houston, Xxxxxx County, Texas, having jurisdiction thereof. Any
arbitration brought under the terms of this Agreement shall be conducted
in the following manner: (1) Each of the parties to this agreement shall
appoint one person as an arbitrator. The two arbitrators so chosen shall
select a third impartial arbitrator within ten (10) days of the date on
which the second arbitrator is selected. The three arbitrators shall
determine all questions presented to them by majority vote. The decision
of a majority of the arbitrators shall be final and conclusive on the
parties. (2) The arbitration hearing shall be held at Houston, Xxxxxx
County, Texas, and the award of the arbitrators may be entered in any
court of competent jurisdiction in said county. (3) The parties agree that
the following time limitations shall govern the arbitration proceedings
conducted under the terms of this agreement: (a) any demand for
arbitration must be filed within thirty (30) days of the date on which the
dispute arises or the alleged breach occurs; (b) each party must select an
arbitrator within ten (10) days of receipt of notice that an arbitration
proceeding has commenced. In the event that no such selection is made, the
arbitrator selected by the other party may conduct the arbitration
proceeding without selecting any other arbitrator; (c) the hearing must be
held within sixty (60) days of the date on which the third arbitrator is
selected; (d) The arbitration award must be made within thirty (30) days
after the hearing; (4) The expenses of such arbitration shall be borne in
such proportion as the arbitrators shall decide.
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Petrogulf Corporation
August 30, 2006
Page 4
8. This Agreement and the rights and obligations of the parties hereunder
shall be governed by and interpreted, construed and enforced in accordance
with the laws of the State of Texas. This Agreement shall be performable
in Xxxxxx County, Texas.
9. This Agreement is the entire agreement of the parties, and may not be
modified except by a writing signed by both parties. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. There are
no third party beneficiaries to this Agreement.
10. The Parties hereto agree that they do not hereby intend to create a
partnership, mining partnership, partnership for tax purposes or
otherwise, or any agency or other fiduciary relationship, whereby any of
the parties hereto may become liable for the acts and deeds of the other
parties hereto, and to the extent permitted by law, the parties hereto
expressly negate the existence of any such relationship. Each party shall
be responsible for bearing and paying its share of costs and expenses
incurred as set out in this Agreement and the JOA. Further, each party to
this Agreement elects to be excluded from the application of all of the
provisions of Subchapter "K", Chapter 1, Subtitle "A," of the Internal
Revenue Code (IRC) of 1986, as amended, as permitted and authorized by IRC
section 761 and the regulation promulgated thereunder.
11. The parties hereto agree to cooperate fully in executing any and all
supplementary documents required or advisable or reasonably requested by
the other party and to take any and all additional actions that may be
necessary and appropriate to give full force and effect to the basic terms
and intent of this Agreement.
12. Falcon believes that the information provided by Falcon concerning the
geological, engineering or financial aspects of an investment in the Test
Well and Prospect is accurate, but does not make any warranty or
representation concerning the accuracy of same. Participant acknowledges
the risks inherent in any oil and gas investment, and Participant
represents that it has conducted its own "due-diligence" investigation and
is fully capable of evaluating such risks, and has consulted with its own
geological and engineering advisors and has made its investment decision
based solely on such due diligence and independent advice.
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August 30, 2006
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13. The participation by Participant under this Agreement is conditioned upon
the receipt by Falcon of an executed copy of this Agreement and the
operating agreement hereinafter mentioned, as well as the receipt of the
sums called for herein. Falcon shall have the right to rescind the offer
to participate if Participant fails to execute this Agreement within ten
(10) days after the date of this Agreement, or fails to timely pay the
sums required herein when said sums become due and payable.
14. The effective date of this agreement is August 1, 2006.
If the forgoing meets with your approval and assent, please acknowledge
your agreement to the foregoing terms and conditions by signing in the space
provided below and returning this original letter agreement to Falcon. A signed
copy has been provided for your records.
FALCON NATURAL GAS CORP.
By: /s/ Xxxx X. Xxxxxxx
-----------------------------
Xxxx X. Xxxxxxx, President
AGREED TO AND ACCEPTED this
30th day of August, 2006.
PARTICIPANT:
/s/ Xxxxx X. Xxxxxxxxxx, Attorney in Fact
-----------------------------------------
Xxxxxxx Xxxxxxx XxXxxx
AGREED TO AND ACCEPTED this
30th day of August, 2006
PETROGULF CORPORATION
By:/s/ Xxxxx X. Xxxxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxxxx
Executive Vice President
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