EXHIBIT 10.39
TEXTERRA EXPLORATION PARTNERS, LP
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
000-000-0000
March 22, 2006
Davidson Energy Partners, LP
0000 Xxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Re: Modification #1 to Farmout Agreement
Gentlemen:
This letter is Modification No. 1 ("Modification No.1") to the Farmout
Agreement dated January 10, 2006 between Davidson Energy, L.L.C. ("Davidson"),
Xxxxxxx Children's Trust No. 1 ("Trust") and TexTerra Exploration Partners LP
("TTEP").
1. Section 3 of the Farmout Agreement is modified by adding the
following sub-section:
(c) The authority of TIC to select the location for xxxxx on the
Leases shall be exclusive to TIC. Davidson and Trust agree that they
shall not, except as provided in Section 5 of the Farmout Agreement,
as modified by Modification No. 1, select any locations for any well
on the Leases or direct any drilling efforts on the Leases so long
as TIC selected xxxxx are productive in accordance with the
requirements of subsection (b) above. Failure to comply with this
provision will be deemed a material breach of the Farmout Agreement.
(d) It is understood and agreed that the Bellows Well #2 being
drilled by Davidson without TTEP participation is not considered in
calculating the "3 out of 5 drilled oil or gas xxxxx" referred to in
Section 3(b) of the Farmout Agreement.
There are no other changes or modifications to Section 3 which
otherwise remains in full force and effect.
Davidson Energy Partners, LP
March 22, 2006
Page 2
2. Section 5 of the Farmout Agreement is hereby deleted in its entirety
and replaced by the following:
5. Participation In Future Xxxxx.
(a) Davidson, Trust and TTEP agree that Davidson shall have the
right to select the second well location on the Leases.
Davidson has selected the site listed on Exhibit 1 to this
Modification to the lesser of the maximum depth drilled or
8,000 feet (the "Second Well"). Davidson has a One Hundred
Percent Working Interest to the Second Well spacing unit to
the lesser of the maximum depth drilled or 8,000 feet.
Standard well spacing rights shall apply to the Second Well.
Further depths of the Second Well's spacing unit shall be
subject to the Farmout Agreement. TTEP hereby notifies
Davidson and the Trust that it has elected not to participate
in this Second Well. Davidson and the Trust agree to provide
to TTEP the well logs and such other drilling information as
to the Second Well as TTEP shall request at the same time as
Davidson and Trust receive such information and documentation.
Davidson and Trust agree to provide TTEP with access to such
Second Well location, as is reasonably requested by TTEP.
(b) In connection with subsequent xxxxx, TTEP shall submit
notifications to Davidson relating to proposed future xxxxx in
accordance with the JOA. Davidson and Trust shall have the
right, but not the obligation, to participate in future xxxxx
on the Leases, in accordance with the JOA. In the event
Davidson and Trust decide to participate, the extent of
participation shall be a Twenty Five Percent (25%) working
interest for the next two additional well sites beyond the
Second Well ("Selected Xxxxx"), which shall be selected by
TIC, which Davidson and the Trust decide to participate. In
the event Davidson and Trust decide not to participate in a
well, Davidson and Trust will receive the carried interest as
described in sub-paragraph 5(d) below. The contributing
participation cost of each party shall be governed by the JOA.
(c) Following the Selected Xxxxx, the extent of participation
shall be Fifty Percent (50%) working interest. In the event
Davidson and Trust decide not to participate in such well or
xxxxx, Xxxxxxxx and Trust will receive the carried interest as
described in sub-paragraph 5(d) below. The contributing
participation cost of each party shall be governed by the JOA.
TTEP agrees to provide to Davidson and the Trust the well logs
and other such drilling information as to the Selected Xxxxx
and
Davidson Energy Partners, LP
March 22, 2006
Page 3
subsequent xxxxx on the Leases as Davidson and the Trust shall
request at the same time as TTEP receives such information and
documentation. TTEP agrees to provide Davidson and Trust with
access to the Selected Xxxxx and to sibsequent well locations
on the Leases, as is reasonably requested by Davidson and
Trust.
(d) TTEP shall promptly on the signing of this Modification
execute and deliver a recordable assignment of its working
interest in and to the Leases as to the spacing unit assigned
to the Second Well.
(e) In the event Davidson and the Trust together decide not to
participate in any future well or xxxxx on the Leases,
Davidson/Trust shall promptly deliver a recordable assignment
of their working interest in and to the Leases as to the
spacing unit assigned to the proposed well, reserving
therefrom only a back-in 10% (Ten Percent) working interest
("Backin Interest") which shall become effective if and when
TTEP reaches cumulative payout on the Leases, according to the
formula below. TTEP may assign its 100% (One Hundred Percent)
working interest in the particular spacing unit at any time,
subject to protection of the Backin Interest, and subject to
the limitations upon assignment set forth in the particular
Leases.
(f) Payout shall be deemed to have occurred as of the first day of
the month following the month in which the result of the
following formula is equal to or greater than one:
TTEP cumulative net production revenue
received by TTEP (from Initial Well plus
xxxxx subject to Backin Interest)
divided by
TTEP cumulative cost including capital costs
and lease operating expenses borne by
TTEP (from Initial Well plus xxxxx
subject to Backin Interest)
3. Davidson, Trust and TTEP hereby agree that there are no verbal
agreements between them and that all future actions modifications or
changes will be made only in accordance with the terms of the JOA
and the Farmout Agreement. There are no representations by either
party not contained herein. No modification herein or waiver of any
right or obligation shall impose any requirement on Davidson, Trust
or TTEP except as expressly stated herein.
Davidson Energy Partners, LP
March 22, 2006
Page 4
4. Except as specified above, there are no other changes or
modifications to the Farmout Agreement or the JOA, which shall
remain in full force and effect without change.
If the foregoing terms are acceptable to you, then please confirm your agreement
by signing this letter agreement in the space provided below.
Sincerely,
TEXTERRA EXPLORATION PARTNERS, LP
By: Terra Resources, Inc.
By: /s/ Xxx Xxxxxxx
----------------------------------
Xxx Xxxxxxx
Managing Director
TERMS AGREED AND ACCEPTED TERMS AGREED AND ACCEPTED
Davidson Energy Partners, X.X. Xxxxxxx Children's Trust No. 1
By: /s/ Xxxx Xxxxxx By: /s/ Xxxxx Xxx Xxxxxxx
--------------------------------- --------------------------------
Name: XXXX XXXXXX Name: Xxxxx Xxx Xxxxxxx
Title: V.P. Title: Trustee
Date signed: 3/22/06 Date signed: 3/22/06
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