Exhibit 10.11
EXPLORATION AGREEMENT
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This Exploration Agreement (the "Agreement") is entered into on January 31,
2006, (the "Effective Date") between Lexington Oil & Gas Ltd. Co., an Oklahoma
limited liability company, (referred to as "First Party") and Xxxxx Xxxxxx, LLC,
a Texas limited liability company, (referred to as ("Second Party"). First Party
and Second Party may be referred to collectively as the "Parties."
First Party and Second Party are interested in conducting joint exploration
operations, including the drilling of exploratory or development xxxxx, for the
discovery of and for the production of oil and/or gas in an area in XxXxxxxx and
Xxxxxx Counties, Oklahoma.
In consideration of the premises and the mutual covenants and agreements
set out in this Agreement, First Party and Second Party agree as follows:
I. Contract Area
The area covered by this Agreement, called the "Contract Area," consists of
those lands and leases described in Exhibit "A" attached hereto, all located in
XxXxxxxx and Xxxxxx Counties, Oklahoma.
II. Area of Mutual Interest
The area of mutual interest ("AMI") shall be defined as the Contract Area
and all areas within one mile of the boundaries of the leases assigned
hereunder. This AMI shall be subject to the existing AMIs and Farmouts as
provided to Second Party. The AMIs are with Orion Exploration, dated March 12,
2004 and amended April 5, 2004 (Coal Creek); AMI with Exok, Inc. dated June 29,
2004 (H9); Farmout with Faith Production, L.L.C. dated July 19, 2004 (Xxx
Xxxxxxx); and 3 Farmouts with Xxx X. Xxxxxxx & Xxxxxx X. Xxxxxxx dated April 21,
2004 (South Xxxxx).
III. Interested Parties, Lease Acquisition
A. Subject to the other terms and conditions of this Agreement, Avatar
Energy, LLC, a Texas limited liability company and an Affiliate of Second Party,
shall be the Operator of the Initial Test Well and any test well drilled under
the terms of this Agreement and the Operating Agreement.
B. First Party owns the oil and gas leases described in Exhibit A. Second
Party will pay $575,000 to First Party for an assignment to be delivered to
Second Party within 10 days after execution of this Agreement and simultaneously
with the payment of $575,000 to First Party by Second Party, First Party shall
deliver to Second Party an assignment of an undivided 50% of all the leases.
C. Prior to Operator expending any sums for drilling operations under the
terms of this Agreement or the Operating Agreement, for work that has been
mutually approved by the Parties, Operator shall prepare and furnish
Non-Operator (under the terms of the Operating Agreement) an Authority for
Expenditure ("AFE") stating the estimated cost of the well or operation. Rights
ascribed under the Operating Agreement include equal status for agreement on
AFE's, significant contractors, budgets, and budget category over runs in excess
of $10,000.
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IV. Initial Test Well
On or before April 21, 2006, Operator shall commence the drilling of at
least one well in search of oil and/or gas at a legal location on a lease owned
by First Party or a lease pooled therewith and shall continue the drilling of
the well with due diligence to a depth sufficient to test the Hartshorne Coal
formation or to a zone acceptable to both First Party and Second Party which is
sufficient to extend the term of the lease(s).
V. Subsequent Operations
The Parties shall, by mutual agreement, determine the amount and type of
exploratory work to be conducted by Operator on the lands included in the AMI,
including but not limited to the drilling of test xxxxx, seismic and subsurface
studies, and the priority and/or order in which Operator shall conduct
operations on the AMI.
In the event the Parties cannot mutually agree on the drilling of any test
well, after the Initial Test Well is drilling as provided for in Section IV., a
well may be drilled by one of the Parties in the following manner:
A. The Party electing to drill a test well shall submit a written proposal
of the operation by presenting the other Party with the depth, objective
formation, location, estimated cost, all in an AFE, and specify the commencement
date for the well. Within 30 days after the proposal is delivered, the other
Party shall make an election to participate in the well or assign its interest
under the terms and conditions set out in Exhibit "B". The Party proposing the
well must commence the well within 90 days of the date of the proposal or lose
the right to propose another well for a period of 60 days from the expiration of
the 90 day period. No Party may propose more than two xxxxx in any 30 day
period, unless all Parties agreed to an increase in the number of proposal that
may be made.
B. In the event a test well is proposed and the non-proposing party elects
not to participate in the drilling of the well, the non-participating party must
assign all of its right, title and interest in the test well to the proposing
party.
C. Should the Party drilling a test well pursuant to paragraphs A. and B.
of this Section fail to reach the objective depth in a well due to mechanical
difficulties of because of encountering conditions which are normally considered
in the industry to be impenetrable or which, in the Party's opinion would make
further drilling impractical by ordinary drilling methods, the party shall have
the right within thirty (30) days after good faith discontinuance of operations
on the test well, to commence actual drilling of a substitute test well at the
location of its choice within the same spacing unit, under the terms and
conditions prescribed for the test well. The substitute well should be treated
for purposes of this Agreement as if it were the test well for which it is
substituted.
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VI. Properties and Interest Subject to this Agreement
A. The properties and interests subject to this Agreement (the "Joint
Property") are: (1) the jointly owned oil, gas, and mineral leases and other
mineral or royalty interests and any renewals and extensions of any leases, (2)
all interest in leases acquired after the effective date of this Agreement
pursuant to B. below, and any renewals and extensions of those interests in
leases; (3) all equipment, machinery, supplies, and personal property used or
obtained in connection with the Joint Property, except, any portion of the Joint
Property to which an interest has been changed by non-participation in the
drilling of a well; and (4) any existing xxxxx or boreholes owned by First Party
on the lands or leases described in Exhibit "A".
B. If during the term of this Agreement, a Party purchases or in any other
manner acquires an oil, gas, and/or mineral lease or leases or mineral interests
(or any interest), on, in, or covering or affecting any of the lands located
within the AMI, the Party purchasing or otherwise acquiring the interests (the
"Acquiring Party") shall, within thirty (30) days after the date of the purchase
or acquisition, deliver to the other Party a written notice setting forth the
details concerning the purchase or acquisition, including the amount of
consideration paid or agreed to be paid for the lease or interest. This notice
should include all available title information concerning the purchase or
acquisition. The Party notified shall have the option, which may be exercised
only by written notice delivered to the Acquiring Party within twenty (20)
business days after receipt of the notice, to acquire an interest in the newly
acquired lease or interest equal to that Party's undivided interest in the Joint
Property as set forth in the Operating Agreement. On exercising the option, the
notified Party shall, within thirty (30) days, pay to the Acquiring Party the
proportionate share of the cost of the purchase or acquisition of the acquired
lease or interest, and the Acquiring Party shall deliver, within five (5)
business days after receipt of payment in full, an Assignment or Conveyance of
the interest in the acquired lease or interest on which the option has been
exercised. The Acquired Property shall then become a part of the Joint Property.
The Acquiring Party shall pay all delay rentals which may become due under the
terms of any lease acquired, and submit an invoice to the other Party for its
proportionate part of the rentals. If the option is not exercised within the
time and in the manner provided for above, the notified Party shall have no
interest in the property with respect to which the option was not exercised and
that property shall no longer be subject to the terms of this Agreement.
VI. Production in Kind
Each Party shall have the right and option for taking time to separately
market its share of production to which it may be entitled or may become
entitled to take in kind or separately market under the terms of this Agreement.
The right and option to taking kind may be exercised at any time and from time
to time so long as there is production from the Contract Area.
VII. Operating Agreement
A. Upon proposal of the first well, the parties will execute an Operating
Agreement in the form of that attached as Exhibit "B," the terms of which are
incorporated into this Agreement for all purposes, and which shall govern the
operation of all leases and interests in the Contract Area and the drilling of
any well under the terms of this Agreement.
B. In the event of conflict between the terms or provisions of this
Agreement and the terms or provisions of the Operating Agreement, the terms or
provisions of this Agreement shall control.
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VIII. Term
This Agreement shall be for a term commencing on the Effective Date and
shall continue in force, except as otherwise provided, for a period of one year
or until a later date on which all operations then being conducted by the terms
of this Agreement have been completed and all obligations of the Parties
provided for in this Agreement have been fully discharged. The term may be
extended for additional one year periods from year to year for four consecutive
one-year periods by the mutual consent of the Parties.
IX. Notices
Unless otherwise provided, all notices and communications to be given under
the terms of this Agreement shall be delivered by U.S. Mail, or facsimile,
addressed to the respective Parties as follows:
First Party: Lexington Oil & Gas Ltd., Co.
X.X. Xxx 000 Xxxxxxxxxxx, XX 00000 FAX: 000-000-0000
Second Party: Xxxxx Xxxxxx, LLC Operator: Avatar Energy, LLC
0000 X. Xxxxxxxxx Xxxxxxx 6211 W. Northwest Hwy.
Ste. C-256 Ste. C-256
Dallas, TX 75225 Xxxxxx, XX 00000
FAX: 000-000-0000 FAX: 000-000-0000
With a copy to: Xxxxx Xxxxxx, LLC 0000 XxXxxxxx Xxxxxx
Xxxxx 000 Xxxxxx, XX 00000 FAX: 000-000-0000
Unless otherwise specified in the notice, the date of a notice shall be the
date on which the written or faxed notice is delivered to the Party to whom it
is addressed. Each Party may change its address by notice to the other Party. No
transfer of any interest pursuant to the terms of this Agreement shall be
effective until the transferor or transferee (after complying with all other
requirements of this Agreement) notify all other Parties of the address and
designated representative of the transferee.
X. Laws and Regulations
The terms of this Agreement and all operations conducted under it shall be
subject to all valid laws, rules, regulations, and orders of any regulatory body
having jurisdiction, and be governed by the laws of the State of Oklahoma.
XI. Assignability
This Agreement shall be binding on the Parties and their respective heirs,
successors and assigns. All rights created by this Agreement are freely
assignable at anytime, but the Party assigning an interest shall give written
notice to the other Party to this Agreement prior to the time of the Assignment.
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XII. Force Majeure
The obligations of each Party, except for the payment of money, shall be
suspended while, but only for so long as, a Party is prevented from complying
with an obligation in whole or in part, by strikes, lockouts, acts of God,
unavoidable accidents, uncontrollable delays in transportation, inability to
obtain necessary materials in open markets, inadequate facilities for the
transportation of materials, or as a result of any order, requisition, or
necessity of the government, or other matters beyond the reasonable control of a
Party, whether similar to the matters specifically enumerated above or not;
provided, however, that performance shall be resumed within a reasonable time
after the cause of force majeure has been removed; and provided further that no
Party shall be required, against its will, to settle any labor dispute.
XIII. Captions and Titles
The captions and titles used in this Agreement shall not be construed as
adding meaning to the subject matter of this Agreement, but are used only for
reference and convenience.
XIV. Definitions
"Test Well" means any well the drilling of which is commenced during the
term of this Agreement at a location on land which, on the date of the
commencement of the drilling of the well, constitutes a part of the Joint
Property or property pooled therewith.
XV. Miscellaneous
In the event any party should elect to abandon or release all or any part
of its rights in the leases lying within the AMI, any renewals or extensions of
those leases, or any Joint Property, the party electing to do so shall notify
the Party no less than 30 days in advance of any abandonment or release, and if
requested to do so, within 30 days of the receipt of notice by the other Party
or Parties, shall immediately assign all rights to the other Party or Parties.
This Agreement is binding on and shall inure to the benefit of the Parties
and their respective heirs, devisees, legal representatives, successors, and
assigns.
This Agreement may be executed in any number of counterparts, each of which
shall be considered an original for all purposes, and all counterparts together
shall be deemed one and the same Agreement.
This Agreement is signed by each Party as of the date opposite their respective
signatures, and when signed by Parties shall be deemed effective as of the
stated Effective Date.
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First Party
Lexington Oil & Gas Ltd. Co.
/s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx, Director
/s/ Xxxxxxx Xxxxxxxxx
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Xxxxxxx Xxxxxxxxx, Vice President Operations
Second Party
Xxxxx Xxxxxx, LLC
/s/ Xxxxxx X. Xxxxxxxxxx
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Xxxxxx X. Xxxxxxxxxx, Member/Manager
Avatar Energy, LLC.
Date: January 31, 2006 Xxxxxx X. Xxxxxxxxxx, Member/Manager
Exhibits:
"A": Contract Area List
"B": Operating Agreement
EXHIBIT A
E/2 Township 7 North, Range 11 East; Township 5 North, Range 11 East;
Sections 26, 27, 28, 33, 34, 35 Township 6 North, Range 11 East; Township 8
North, Range 12 East; Township 9 North, Range 12 East; Township 9 North, Range
13 East; X/0 Xxxxxxxx 0 Xxxxx, Xxxxx 00 Xxxx, Xxxxxx and XxXxxxxx Counties,
Oklahoma
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