Exhibit 10.1
FARMOUT AGREEMENT
THIS AGREEMENT is entered into on the 1st day of September 2008 by and
between Xxxxxxx Xxxxxxxx Energy, Inc., a company existing under the laws of
Delaware (hereinafter referred to as "Farmor") and New Frontier Energy, Inc. , a
company existing under the laws of Colorado (hereinafter referred to as
"Farmee"). The companies named above may individually be referred to as "Party"
and collectively as the "Parties". Capitalized terms used herein are defined in
Exhibit A attached hereto and made a part hereof.
WITNESSETH:
WHEREAS, as of the date of this Agreement, Farmor holds a certain
percentage of the rights and obligations in the Underlying Leases and is the
Operator of the Focus Ranch Unit; and
WHEREAS, Farmor is willing to assign and transfer a certain undivided
interest in its rights and obligations in the Underlying Leases described in
Exhibit B to Farmee in accordance with the terms set forth herein and Farmee
wishes to acquire such interest, and Farmor is willing to designate Farmee as
the Operator of the Focus Ranch Unit;
WHEREAS, the Parties desire that this Agreement shall supersede and replace
any and all prior Agreements between the Parties pertaining to the Focus Ranch
Unit;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and obligations set out below and to be performed, the Farmor and Farmee agree
as follows:
ARTICLE 1
ASSIGNMENT OF INTEREST
1.1 Initial Grant
-------------
Upon the first to occur of a) the completion of testing of the Federal 12-1
well pursuant to the Independent Contractor Agreement between the Parties,
attached hereto as Attachment C, or b) 45 days after commencement of
testing of the Federal 12-1 well, Farmor shall assign and transfer to
Farmee, and Farmee agrees to accept, interests in the Underlying Leases as
follows:
A. Farmor shall transfer to Farmee an undivided 99% of Farmor's Interests
in the Underlying Leases, and the Parties shall execute and deliver
the Assignments. The above described interests shall be from surface
to total depth, and include rights to oil, gas, or any other substance
covered by the Underlying Leases. Farmee's interests under this
Agreement shall be fully assignable. Farmor shall submit the
Assignment to the Government for approval within ten (10) days of the
Assignments.
B. Concurrent with the transfer of the Underlying Leases by Farmor to
Farmee, Farmor shall resign as operator of the Focus Ranch Unit and
agrees to vote for Farmee as successor unit operator under the terms
of the Focus Ranch Unit Agreement and Unit Operating Agreement.
C. Farmor shall make any geologic and geophysical information and
evaluations of the Focus Ranch Unit in its possession available to
Farmee. Farmor makes no warranties as to the accuracy of such
information.
1.2 Operations
----------
Farmee shall conduct all operations under this Agreement in accordance with
the terms of the Focus Ranch Unit Operating Agreement, all applicable laws
and such other agreements governing ownership or operations on the Focus
Ranch Unit. Farmor shall have no control over Farmee's operations subject
to this Agreement.
1.3 Lease Payments
--------------
Farmor has provided to Farmee all data necessary for Farmee to assume
rental payment responsibilities on the Underlying Leases. Beginning with
rental payment due on or after the first of the month of the month
following the Assignments, Farmee shall be responsible for the payment of
all rentals, shut-in gas royalties, and minimum royalties payable under the
terms of the Underlying Leases. However, neither party shall have liability
to the other for any failure to timely or properly pay such rentals or
other payments.
ARTICLE 2
CONDITIONS PRECEDENT TO ASSIGNMENT
2.1 Conditions
----------
The execution of the Assignment hereunder shall not be subject to any
conditions precedent.
ARTICLE 3
CONSIDERATION:
3.1 Consideration for Assignments
-----------------------------
In consideration for receiving the assignments described in sections 1.1,
Farmee agrees as follows:
A. Farmee shall be liable for all plugging, abandoning, and reclaiming of
all areas within the Underlying Leases in accordance with all laws,
rules or regulations in effect at the time of abandonment and any
agreement affecting the Underlying Leases or access thereto.
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B. Farmor shall reserve a production payment ("Production Payment") in an
amount equal to Two Million Dollars ($2,000,000 U.S.) payable out of
35% of the Net Proceeds at the wellhead from the sale of oil, gas, and
associated hydrocarbons produced from the Underlying Leases subject to
this Agreement to the extent that such Net Proceeds are attributable
to the Underlying Leases. "Net Proceeds" shall mean revenues from the
sale of such production by Farmee less royalties, existing overriding
royalties, taxes measured by the value of production, operating costs,
and costs to gather, treat, process, compress, dehydrate, and sell the
production. Farmor's rights are limited to funds payable out of Net
Proceeds from the Underlying Leases subject to this Agreement and
Farmor shall have no recourse against Farmee for any amounts other
than those payable out of Net Proceeds.
C. Farmee shall have the right to fulfill its obligations under this
Agreement in total by making payments to Farmor totaling $2,000,000,
regardless of the source of the payments.
D. At such time as Farmor has received out of production from all xxxxx
subject to this Agreement the full amount of its Production Payment as
described above, or at such time as Farmee has fulfilled its
obligations to Farmor under Paragraph 1.1(c), Farmor's right to any
Production Payment shall expire.
E. Should any subcontractors be necessary to assist Farmee in achieving
its obligations under this Agreement, such subcontractors shall be
selected in the sole discretion of Farmee.
3.2 Farmee shall not be liable in damages to Farmor for failure to commence,
drill, test, complete or equip any well, but Farmee shall remain subject
only to the obligations stated in Article 3.1(a).
3.3 Any costs, expenses, fees, or duties payable to a Government in connection
with the Assignment, excluding taxes described in Article 7, herein shall
be borne and paid by Farmee.
ARTICLE 4
PENDING LITIGATION
4.1 Pending Litigation
------------------
Farmor currently has a civil action pending against Xxxxx Ranches, LLC in
Federal District Court for the District of Colorado Civil Action No.
07-cv-2393 RPM. Upon assignment of the interests described in Article 1.1
the following shall occur:
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A. Farmor consents to Farmee intervening in Farmor's suit against Xxxxx
Ranches, LLC ("the Litigation"). Farmor agrees to protect and defend
Farmor from and against all claims that may be asserted by Xxxxx
Ranches, LLC, for any costs, expenses, fees, claims, damages and
liability of any nature or kind pertaining to the Litigation.
B. Farmee and Farmor shall consult regarding all major strategic
decisions effecting the Litigation. In the event that the Parties are
unable to agree on any major strategic decision, Farmor shall retain
separate counsel.
C. Farmor shall have the right to retain its own counsel to ensure
Farmor's interests are protected. Such costs shall be borne solely by
the Farmor.
D. By separate agreement, Farmor and Farmee have agreed to matters
pertaining to counsel and fees.
E. Farmor agrees to reasonably cooperate with Farmee in relation to this
lawsuit.
F. Farmor shall not assign the Easement Agreement to Farmee without first
having obtained the consent of Xxxxx Ranches LLC. The Parties shall
continue to work in conjunction and shall use reasonable efforts to
obtain consent necessary to effectuate the assignment of the Easement
Agreement from Xxxxx Ranches, LLC. Among the steps the Parties plan to
take in attempting to obtain the consent of Xxxxx Ranches, LLC to an
assignment of the Easement Agreement are the following:
i.) Farmee shall offer to post a bond in an amount equal to
estimated reclamation or restoration costs to be undertaken on
the Xxxxx Ranch pursuant to the terms of the Easement Agreement.
ii.) If necessary, Farmor may remain the responsible party for
the purposes of reclamation as contemplated under paragraph 9 of
the Easement Agreement in the event Farmee is unable to reclaim,
or fails to reclaim in any way. In such event, the bond described
above shall be made payable to Farmor in the amount of Farmor's
continuing obligation.
Farmee will be conducting its testing operations on the Federal 12-1
Well hereunder and under the terms of the Independent Contractor
Agreement. Farmee acknowledges that its ingress and egress to and from
the Federal 12-1 Well will in part be over the Xxxxx Ranches and
Farmee agrees to comply with all terms of the Easement Agreement and
the Preliminary Injunction obtained by Farmor, including the notice
requirements prior to entry. Farmee acknowledges that it has received
a copy of the Easement Agreement and the Preliminary Injunction.
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Farmee has elected to enter into this agreement with the express
understanding that Xxxxx Ranches, LLC may not grant consent to the
assignment of the Easement Agreement and Farmee accepts all risks in
connection with the inability to obtain an assignment of the Easement
Agreement and further assumes all risks relating to the pending
litigation with Xxxxx Ranches LLC.
ARTICLE 5
OBLIGATIONS UNDER THE UNDERLYING LEASES
5.1 Acceptance of Prior Terms
-------------------------
Farmee hereby ratifies, confirms and accepts the terms of the Underlying
Leases and during the Interim Period, Farmee agrees to abide by the terms
of such agreements to the extent of its Working Interest.
ARTICLE 6
UNDERTAKING OF THE PARTIES
6.1 Farmor Obligations
------------------
During the Interim Period, Farmor shall comply with the following:
A. Material Developments. Farmor shall promptly notify Farmee and provide
details upon the occurrence of: (a) any written notice of default or
termination received or given to Farmor with respect to the Underlying
Leases or the Focus Ranch Unit, (b) any written notice of any pending
or threatened claim, demand, action, suit, inquiry or proceeding
related to the Underlying Leases or Focus Ranch Unit, or (c) any event
or condition between the date of this Agreement and the Approval Date
that would render impossible Farmor's performance of its obligations
under this Agreement.
B. If during the Interim Period, any decision or approval is required
which would affect the Farmee's interest in the Underlying Leases,
Farmor shall consult with Farmee and vote its interest or take such
action as may be in accordance with Farmee's instructions.
6.2 Farmee Obligations
------------------
Insurance. During such time as Farmee is conducting operations under this
Agreement, Farmee shall maintain workmen's compensation insurance meeting
statutory requirements and general liability insurance with limits of
$5,000,000 single limit.
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Except as otherwise disclosed on the attached schedules, all warranties
made herein are as of the date of execution of this Agreement. The Parties
shall not take any action, or fail to take any action, prior to the
Approval Date that would result in a breach of any representations or
warranties under this Agreement.
7.1 Mutual Representations and Warranties
-------------------------------------
A. Corporate Authority. Each Party is duly organized and validly existing
under the laws of the United States. To the extent required, each
Party is qualified to conduct business in the jurisdiction as
necessary to perform the Agreement. Each Party has all requisite
corporate power and authority to enter into this Agreement, to perform
its obligations hereunder, and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by each Party and constitutes a legal, valid and binding
obligation of each Party, enforceable against each Party in accordance
with its terms.
B. Other Representations and Warranties. Except as disclosed in schedules
attached to this Agreement, the execution, delivery, and performance
of this Agreement by each Party, the consummation of the transactions
contemplated hereby, and the compliance with the provisions hereof
will not, to the best of each Party's knowledge and belief,:
(a) violate any applicable Laws/Regulations, judgment, decree or
award;
(b) contravene the organization documents of a Party; or
(c) result in a violation of a term or provision, or constitute
a default or accelerate the performance of an obligation
under any contract or agreement executed by a Party hereto.
C. All representations and warranties given under this Article 6 shall,
for the contractual term set forth herein, be deemed repeated and
valid, true and correct as of the Approval Date, and each Party agrees
to inform the other Party of any material changes to the facts in the
representations and warranties prior to the Approval Date or the
execution of the Assignment, whichever is later. D. Each of the
Parties agrees to indemnify and hold the other Party harmless for any
claims, causes of action, or liabilities, which arise out of the
breach of any of the warranties and representations under this Article
by the indemnifying Party.
7.2 Farmee' Representations and Warranties
--------------------------------------
Farmee has sufficient funds to enable it to fulfill all of its obligations
under this Agreement and the Independent Contractor Agreement. Farmee has
the technical capability, personnel and resources to fulfill its
obligations under this Agreement and the Independent Contractor Agreement.
7.3 Disclaimer of Other Representations and Warranties
--------------------------------------------------
Except for the representations and warranties provided in this article,
Farmor and Farmee make no, and disclaim any, warranty or representation of
any kind, either express, implied, statutory, or otherwise, including,
without limitation, the accuracy or completeness of any data, reports,
records, projections, information, or materials now, heretofore, or
hereafter furnished or made available to Farmee in connection with this
agreement.
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ARTICLE 8
TAX
8.1 Tax Obligations
---------------
Each Party shall be responsible for reporting and discharging its own tax
measured by the profit or income of the Party and the satisfaction of such
Party's share of all obligations under this Agreement. Each Party shall
protect, defend and indemnify each other Party from any and all loss, cost
or liability arising from the indemnifying Party's failure to report and
discharge such taxes or satisfy such obligations. The Parties intend that
all income and all tax benefits (including deductions, depreciation,
credits and capitalization) with respect to the expenditures made by the
Parties hereunder will be allocated by the Government tax authorities to
the Parties based on the share of each tax item actually received or borne
by each Party. If such allocation is not accomplished due to the
application of the Laws / Regulations or other Government action, the
Parties shall attempt to adopt mutually agreeable arrangements that will
allow the Parties to achieve the financial results intended.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidentiality
---------------
Except as otherwise provided in the Underlying Leases or Focus Ranch Unit
Agreement or Unit Operating Agreement, each Party agrees that all
information disclosed under this Agreement, except information in the
public domain or lawfully in possession of a Party prior to the date of
this Agreement, shall be considered confidential and shall not be disclosed
to any other person or entity without the prior written consent of the
Party which owns such confidential information. This obligation of
confidentiality shall remain in force during the term of this Agreement and
for a period of two (2) years thereafter.
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ARTICLE 10
NOTICES
10.1 Notices
-------
All notices authorized or required between the Parties by any of the
provisions of this Agreement shall be in writing and delivered in person or
by courier service or by any electronic means of transmitting written
communications which provides written confirmation of complete
transmission, and properly addressed to the other Party. Verbal
communication does not constitute notice for purposes of this Agreement,
and e-mail addresses and telephone numbers for the Parties are listed below
as a matter of convenience only. A notice given under any provision of this
Agreement shall be deemed delivered only when received by the Party to whom
such notice is directed, and the time for such Party to deliver any notice
in response to such originating notice shall run from the date the
originating notice is received. "Received" for purposes of this Article
shall mean actual delivery of the notice to the address of the Party
specified hereunder.
Name: New Frontier Energy, Inc. Name: Xxxxxxx Xxxxxxxx Energy, Inc.
Address: 0000 X. Xxxxxxxxx Xxxx. Address: 0 Xxxxx Xx., Xxxxx 0000
Xxxxxxxxx, XX Xxxxxxx, XX 00000
Attention: Xxxx Xxxxx Attention: Xxxx Xxxxxxx
Facsimile: Facsimile:(000) 000-0000
Email: xxxxxx@xxxxxx.xxx Email: xxxxxxxx@xxxxxxxxxxxxxxx.xxx
Telephone: 000-000-0000 Telephone:(000) 000-0000
ARTICLE 11
LAW AND DISPUTE RESOLUTION
11.1 Governing Law
-------------
This Agreement has been entered into and shall be construed and enforced in
accordance with the laws of the State of Colorado, without reference to the
choice of law principles thereof.
This Agreement shall be subject to the exclusive jurisdiction of the courts
in Arapahoe County in the state of Colorado. The parties to this Agreement
agree that any breach of any term or condition of this Agreement shall be
deemed to be a breach occurring in the State of Colorado by virtue of a
failure to perform an act required to be performed in the State of Colorado
and irrevocably and expressly agree to submit to the jurisdiction of the
courts of the State of Colorado for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions
contemplated hereby. The parties irrevocably waive, to the fullest extent
permitted by law, any objection which they may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in the State of Colorado, and further irrevocably waive any
claim that any suit, action or proceeding brought in the State of Colorado
has been brought in an inconvenient forum.
Neither party shall have any right or obligation to engage in any
arbitration proceeding regarding issues arising under this Agreement.
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ARTICLE 12
FORCE MAJEURE
12.1 Force Majeure
-------------
If Farmee is rendered unable, in whole or in part, to carry out its
obligations under this Agreement due to Force Majeure, performance is
excused to the extent it is affected by the Force Majeure and Farmee's
obligations hereunder shall be suspended during the period of Force
Majeure. The term "Force Majeure" will mean an act of God, strike, lockout
or other industrial disturbance, act of the public enemy, war blockage,
public riot, lightning, fire, flood, explosion, governmental action,
governmental delay, restraint, or inaction, delays in obtaining permits,
unavailability of equipment, and any other cause, whether of the kind
specifically enumerated above or otherwise, which is not reasonably within
Farmee's control. Farmee shall give notice to Farmor of the Force Majeure
within a reasonable time after the events occur, and reasonably describe
the events constituting the Force Majeure.
ARTICLE 13
GENERAL PROVISIONS
13.1 Relationship of Parties
-----------------------
The rights, duties, obligations and liabilities of the Parties under this
Agreement shall be individual, not joint or collective. It is not the
intention of the Parties to create, nor shall this Agreement be deemed or
construed to create, a mining or other partnership, joint venture or
association or a trust. This Agreement shall not be deemed or construed to
authorize any Party to act as an agent, servant or employee for any other
Party for any purpose whatsoever except as explicitly set forth in this
Agreement. In their relations with each other under this Agreement, the
Parties shall not be considered fiduciaries except as expressly provided in
this Agreement.
13.2 Further Assurances
------------------
Each of the Parties shall do all such acts and execute and deliver all such
documents as shall be reasonably required in order to fully perform and
carry out the terms of this Agreement.
13.3 Waiver
------
No waiver by any Party of any one or more defaults by another Party in the
performance of any provision of this Agreement shall operate or be
construed as a waiver of any future default or defaults by the same Party
whether of a like or of a different character. Except as expressly provided
in this Agreement, no Party shall be deemed to have waived, released or
modified any of its right under this Agreement unless such Party has
expressly stated, in writing, that it does waive, release or modify such
right.
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13.4 Joint Preparation
-----------------
Each provision of this Agreement shall be construed as though all Parties
participated equally in the drafting of the same. Any rule of construction
that a document is to be construed against the drafting party shall not be
applicable to this Agreement.
13.5 Severance of Invalid Provisions
-------------------------------
If and for so long as any provision of this Agreement shall be deemed to be
judged invalid for any reason whatsoever, such invalidity shall not affect
the validity or operation of any other provision of this Agreement except
only so far as shall be necessary to give effect to the construction of
such invalidity, and any such invalid provision shall be deemed severed
from this Agreement without affecting the validity of the balance of this
Agreement.
13.6 Modifications
-------------
There shall be no modification of this Agreement except by written consent
of all Parties.
13.7 Priority of Agreement
---------------------
In the event of any conflict between the provisions of the main body of
this Agreement and its Exhibits, the provisions of the main body of the
Agreement shall prevail. In the event of any conflict between this
Agreement and the Focus Ranch Unit Agreement or Focus Ranch Unit Operating
Agreement, this Agreement shall prevail unless such would be in violation
of the Laws of Colorado or the terms of the Underlying Leases
13.8 Headings
--------
The topical headings used in this Agreement are for convenience only and
shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any
topic are to be found in any particular Article.
13.9 Counterpart Execution
---------------------
This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Agreement for all purposes;
provided that no Party shall be bound to this Agreement unless and until
all Parties have executed a counterpart. For purposes of assembling all
counterparts into one document, either party is authorized to detach the
signature page from one or more counterparts and, after signature thereof
by the respective Party, attach each signed signature page to a
counterpart.
13.10 Entirety
--------
With respect to the subject matter contained herein, this Agreement (i) is
the entire agreement of the Parties; and (ii) supersedes all prior
understandings and negotiations of the Parties.
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13.11 Merger
------
This Agreement shall not merge but shall survive all conveyances of
interests.
New Frontier Energy, Inc. Xxxxxxx Xxxxxxxx Energy, Inc
by by
/s/ Xxxx Xxxxx //signed//
------------------------ ------------------------
Xxxx Xxxxx, President
Dated this ____ day of August, 2008 Dated this ____ day of August, 2008
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EXHIBIT A
DEFINITIONS
Agreement means this Farmout Agreement together with the Exhibits, and any
extension, renewal or amendment hereof agreed to in writing by the Parties.
Approval Date means the date on which the Government formally approves or
endorses the Assignment of the Working Interest transferred hereunder.
Assignment means the document, attached as Exhibit D, by which the interest in
the Underlying Leases transferred and conveyed to the Farmee by the Farmor as
provided hereunder.
Complete or Completion means the point at which the well is producing
hydrocarbons in commercial quantities or that all testing has conducted and a
decision has been made to plug and abandon the well.
Commercial Quantities means Hydrocarbons sufficient to cover the payment of all
royalties and any and all expenses associated with the producing and operating
an oil and/or gas well or a productive oil and gas field.
Drill site means the area located in the Niobrara or Frontier formations in the
Focus Ranch Federal 12-1 well, located in Section 00, Xxxxxxxx 00 Xxxxx Xxxxx 00
Xxxx, Xxxxx Xxxxxx, Xxxxxxxx.
Easement Agreement means the Easement and Surface Damage Agreement dated July 7,
2003, from Xxxxx Ranches, LLC as Grantor to Xxxxxxx Xxxxxxxx Energy, Inc. as
Grantee in which Grantor conveyed to Grantee an easement and right-of-way to
access a portion of the Underlying Leases.
Government means the government of United States or the State of Colorado and
any political subdivision, agency or instrumentality thereof.
Interim Period means the period commencing from the date of the execution of
this Agreement until the Approval Date.
Operator means the entity designated to conduct operations under this Agreement.
Proceeds means income received as a result of operations under this Agreement.
Preferential Rights means a right held by any third party to pre-empt the
transaction contemplated by this Agreement or affect its terms in any way.
Substitute Well means a well commenced after the initial, or prior, well was
abandoned due to impracticability or Force Majeure
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Testing means an operation intended to evaluate the capacity of a Zone to
produce Hydrocarbons.
Underlying Leases means all leases which are subject to this Agreement and
attached in Exhibit B.
Working Interest means an interest in property that entitles the owner of that
interest to a share of the mineral production from the property, after payment
of costs and royalties.
Zone means a stratum of earth containing or thought to contain an accumulation
of Hydrocarbons separately producible from any other accumulation of
Hydrocarbons.
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