PARTICIPATION AGREEMENT
EXHIBIT
10.1
THIS
AGREEMENT made and entered into as of the 28th
Day of
July, 2006, by and between WHITMAR EXPLORATION COMPANY, (hereinafter called
"WhitMar"), having its offices located at 000 00xx
Xxxxxx,
Xxxxx 000, Xxxxxx, XX 00000, and True North Energy Corporation (hereinafter
called “True North”), having a corporate office at 0000 Xxxxx Xxxxxx, Xxxxxxx,
XX 00000.
WITNESSETH:
WHEREAS,
WhitMar owns approximately 1,054 acres of oil and gas leasehold (the “Prospect
Leasehold”) in Xxxxxx County, Texas and Calcasieu Parish, Louisiana, which
leasehold makes up WhitMar’s Deweyville Prospect, hereinafter referred to as
“the Prospect”. The Prospect covers the area outlined on the plat attached
hereto as Exhibit “A”, which area is hereinafter referred to as the “Area of
Mutual Interest” (“AMI”); and
WHEREAS,
WhitMar intends to drill or cause to be drilled an approximate 13,300 foot
well
on the Prospect Leasehold to adequately test the Yegua Sands, hereinafter
referred to as the Prospect Test Well; and
WHEREAS,
True North hereby agrees to acquire from WhitMar a portion of the Prospect
Leasehold sufficient to give True North an undivided 10% working interest in
the
said Prospect Test Well, and True North agrees to participate in the said well
with a 10% working interest, and WhitMar hereby agrees to sell True North a
10%
working interest in such well , subject to the conditions and mutual covenants
set forth in this agreement; and
NOW,
THEREFORE, for and in consideration of the promises and the respective
obligations, duties and responsibilities of WhitMar and True North to be kept
and performed as hereinafter set forth, it is mutually agreed between WhitMar
and True North as follows:
ARTICLE
I. DEFINITIONS
Whenever
used or referred to in this Agreement, unless otherwise expressly provided,
the
terms defined below shall have the meanings assigned to them in this Article.
Such meanings shall apply equally to the singular and the plural.
1.1 “Additional
Interest” shall mean any oil and gas leasehold interest and/or mineral interest
acquired within the AMI after the Initial Prospect Test Well is drilled. It
is
understood that "Additional Interest" may include the acquisition of developed
leasehold as well as undeveloped leasehold in the AMI.
1.2 "Area
of
Mutual Interest" shall mean the area as so marked on the plat attached hereto
as
Exhibit "A".
1.3
"Proposing
Party" shall mean the party who has submitted a proposal to drill a development
well in the Prospect.
1.4 "Non-Proposing
Party" shall mean the party receiving a proposal for consideration from the
Proposing Party.
1.5 "
Prospect Test Well" shall mean the initial 13,000 foot well to be drilled on
the
Prospect Leasehold to test Yegua Sands, which will be drilled or caused to
be
drilled by WhitMar.
1.6 "Operator"
shall mean WhitMar Exploration Company in regard to any well drilled pursuant
to
this Agreement where WhitMar is a Participating Party. Where WhitMar is a
Non-Participating Party in a proposed well, the Participating Parties shall
mutually agree upon the Operator therein.
ARTICLE
II.
TERM
2.1 This
Agreement shall continue in force as to the Prospect Area as long as any lease
subject to this Agreement (including extensions or renewals of same) is in
full
force and effect, unless otherwise extended or is terminated earlier by mutual
agreement of the Parties.
ARTICLE
III.
LEASEHOLD,GEOLOGICAL, GEOPHYSICAL AND WELL COSTS
3.1 Upon
execution of this Agreement, True North agrees to pay WhitMar $100,000 as an
initial payment for its participation in the Prospect; which shall consist
of a
$42,500 payment for geological, geophysical and land costs and a $57,500 payment
as an xxxxxxx money deposit on its share of upcoming drilling costs for the
Prospect Test Well.
3.2 WhitMar
will drill or cause to be drilled the Prospect Test Well to test the Yegua
Sands
on the Prospect Leasehold. True North will participate in the said Prospect
Test
Well on a promoted basis, whereby True North will pay for 12.5% of the costs
associated with drilling the said well to “casing point” for its 10% interest
therein. “Casing point” as used herein means that point in time when a well has
been drilled and logged to its objective depth, and the well has been plugged
and abandoned with the surface restored, or a recommendation has been made
to
set production casing and attempt completion. Where a completion attempt is
made
and True North elects to participate in such completion, the completion costs
for the said Initial Prospect Test well will be paid for on a “heads-up basis”;
whereby True North will pay 10% of such costs for its 10% interest in the said
well.
3.3 It
is
understood that WhitMar has negotiated a Turnkey Drilling Contract with Grey
Wolf Drilling Company for the Drilling of the Prospect Test Well to casing
point
for a agreed upon costs not including insurance, well site preparation costs
and
title costs, and after Grey Wolf has provided WhitMar with electric logs of
the
well bore, WhitMar and its partners will pay all costs to plug and abandon
or to
run production casing and attempt completion. Attached hereto as Exhibit “B” is
the Authority for Expenditure (“AFE”) setting forth the estimated costs to drill
and complete the Prospect Test Well, which AFE is based on the said turnkey
contract. Upon execution of this Agreement, True North shall execute the said
AFE. It is understood that this is an estimate of costs only, and True North
shall pay its agreed upon share of actual costs for the drilling and completion
of the said well.
3.4 Inasmuch
as Grey Wolf Drilling Company has required that WhitMar prepay into escrow
the
agreed upon turnkey drilling amount, True North hereby agrees to pay, within
fifteen days of the date of this agreement, its agreed upon 12.5% share of
estimated drilling costs to casing point as shown in the said AFE, less the
contingency liner estimate and less the $57,500 xxxxxxx money deposit paid
pursuant to Article 3.1 herein.
3.5 It
is
understood that by participating in the Prospect Test Well, pursuant to Article
3.2 above, True North will earn the right to participate in any development
well
proposed in the future in the Prospect on a “heads-up basis” for its 10% share
of the Prospect Leasehold.
ARTICLE
IV. INTERESTS
EARNED AND ASSIGNMENTS
4.1 Upon
the
drilling and completion of the said Prospect Test Well, and upon WhitMar’s
receipt of all payments due from True North pursuant to Articles 3.1 and 3.2
of
this Agreement, WhitMar will assign to True North, by recordable assignment,
10%
of the Prospect Leasehold, which leasehold interest will be subject to twenty
eight percent (28%) royalty burdens, leaving True North with a seventy two
percent (72%) net revenue interest (“NRI”) in the Prospect Leasehold.
4.2 If
the
Prospect Test Well is completed as a producer, True North will be entitled
to
production revenues from said well allocable to its 10% working interest at
a
72% NRI, and True North will be responsible for 10% of the operating costs
and
expenses allocable to said well.
ARTICLE
V.
OPERATING AGREEMENT
5.1 Any
well
drilled in the Prospect shall be drilled pursuant to the Operating Agreement
attached hereto as Exhibit “C”. The AMI of this agreement shall be the Contract
Area of said Operating Agreement.
ARTICLE
VI. SUBSEQUENT
WELL PROPOSALS AND OTHER OPERATIONAL ACTIVITIES
6.1 After
the
said Initial Prospect Test Well is drilled, any party hereto may propose the
drilling of an additional well in the Prospect Area. The proposal shall be
in
writing, setting forth the location of the proposed well, depth and formation(s)
to be tested, and a detailed cost estimate. The Non-Proposing Party or Parties
shall have thirty (30) days or such lesser period as is set out by the Proposing
Party in the proposal to the Non-Proposing Party necessitated by particular
circumstances such as rig availability, threatened termination of leasehold
or
other relevant factors. In no event shall the period be less then ninety-six
(96) hours excluding Saturday, Sunday, and legal banking holidays after receipt
of such proposal, within which to notify the Proposing Party of its election
to
participate in the drilling of such well. Failure to so advise the Proposing
Party within the prescribed period shall constitute an election not to
participate in said well.
6.2 If
an
election is made by all Non-Proposing Parties to participate in the proposed
well, all costs and expenses in accordance with the drilling and equipping
of
such well shall be borne on a “heads-up basis” by the participating parties for
their respective interest herein.
6.3 If
WhitMar as the Proposing Party and/or if WhitMar, as a Non-Proposing Party
elects to participate in the proposed well, and if there is no third party
operator involved, WhitMar will operate the said well. If WhitMar elects not
to
participate in the proposed well, the participating parties shall mutually
agree
on an Operator.
6.4 If
any
party elects not to participate for its proportionate share in an additional
well
proposed hereunder, such party relinquishes its leasehold position in the
proposed well with no retention of any beneficial interest therein; this being
commonly referred to as an “in or out” provision.
6.5 All
other
operational activities in the Prospect shall be governed by the Operating
Agreement attached hereto as Exhibit "C".
ARTICLE
VII. AREA OF MUTUAL INTEREST:
7.1 In
the
event any party hereto acquires an Additional Interest covering lands situated
in whole or in part within the Area of Mutual Interest, the acquiring party
(hereinafter referred to as "Proposing Party") shall promptly notify the
non-acquiring party (hereinafter referred to as "Non-Proposing Party") of such
Additional Interest and shall attach a copy of the instrument evidencing same,
together with all title materials in its possession and an itemized statement
of
the acquisition costs attributable to each such interest. Such acquisition
costs
shall exclude any overhead, financial or other internal costs incurred by the
Proposing Party. The Non-Proposing Party shall have the option to acquire its
proportionate share of the Additional Interest on a “heads up basis”, pursuant
to Article 3.1 herein, by notifying the Proposing Party of its election in
writing within fifteen (15) days after receipt of such offer; or within forty
eight (48) hours exclusive of Saturdays, Sundays and legal banking holidays
of
receipt of such offer in the event an oil and gas rig is drilling or standing
by
and accumulating charges anywhere within the proposed area in which the
Additional Interest is located after receipt of such offer. Failure of a
Non-Proposing Party to so notify the Proposing Party in the specified time
period shall be deemed an election not to participate. Should the Non-Proposing
Party elect to acquire its proportionate share of said interest, such party
shall, within thirty (30) days of its election pay to the Proposing Party its
share of the acquisition costs or assume its proportionate share of any
contractual commitment necessary to earn such Additional Interest. Upon such
payment, the Proposing Party shall promptly execute and deliver to the
Non-Proposing Party an assignment for its share of such interest, in customary
form and containing a "By, Through and Under" Warranty as to title of the
Additional Interest assigned. If the Proposing Party does not receive timely
payment from the parties who elect to so participate, the Proposing Party may
give such non-paying parties certified written notice that failure to receive
such payment in five (5) days shall be deemed an election by such non-paying
party to not participate in the acquisition of such interest.
7.2 It
is
understood that any Additional Leasehold Interest acquired in the form of oil
and gas leasehold shall be subject to the royalty and overriding royalty burdens
referred to in Article 4.1 hereinabove.
7.3 It
is
understood and agreed that the terms and provisions of this Article VII do
not
apply to the acquisition by a party to this Agreement of developed or
undeveloped leasehold in the AMI acquired as a result of a merger,
reorganization, consolidation, or acquisition of all or substantially all of
another company’s assets.
ARTICLE
VIII. PREFERENTIAL
RIGHTS
8.1 Should
True North desire to sell or farmout all or any part of its leasehold interest
acquired pursuant to this Agreement to any party other than an affiliate of
True
North or a party controlled by True North, it shall promptly give written notice
to WhitMar, with full information concerning the proposed sale or farmout,
which
shall include the name and address of the prospective buyer or farmee (who
must
be ready, willing and able to perform under the terms and conditions of the
sale
or farmout), and all other terms of the proposed sale or farmout. WhitMar shall
then have a preferential right for a period of twenty (20) days after receipt
of
the notice, to elect to buy or farmin the interest of True North on the same
terms and conditions. For the purposes of this Agreement, the terms "farmout"
and "farmin" shall be deemed as follows: A contract in which one party agrees
to
assign to another, in whole or in part, leasehold interests in certain acreage
upon completion of drilling obligations and the performances of any other
covenants and conditions therein contained.
8.2 It
is
understood that this provision shall not apply in the case of a merger,
consolidation, and/or assignment to a corporate parent, subsidiary or affiliate
that is controlled by True North and/or the principals of True North.
ARTICLE
IX.
NOTICES AND PROPOSALS
9.1 Except
as
otherwise provided, all notices and proposals that are required to be given
herein shall be given in writing and delivered by first class, registered or
certified mail, recognized courier service, and/or by telephone facsimile and
addressed to the party to which such notice is given as follows:
|
True
North Energy Corporation
0000
Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
XX 00000
Attn:
Xxxx X. Folnovic
(000)
000-0000
|
WhitMar Exploration Company
000 00xx.
Xxxxxx, Xxxxx 000
Xxxxxx, Xx 00000
Attn: Xxxxxxx X. Xxxxxx
(000)
000-0000
|
9.2 The
time
periods specified herein in which a Non-Proposing Party must make a response
shall commence on the date the originating notice or proposal is received.
Should the notice period end on a Saturday, Sunday or legal banking holiday,
the
notice period shall be extended to end on the next successive
workday.
ARTICLE
X.
ASSIGNABILITY
10.1 The
rights hereby granted to True North may not be assigned or transferred, in
whole
or in part, without the express written consent of WhitMar being first obtained
(which consent shall not be unreasonably withheld). Mergers, consolidation,
and
assignments to a corporate parent, subsidiary or affiliate shall not be deemed
a
transfer or assignment requiring the consent of the other party; likewise an
assignment to any entity, domestic or foreign, that is controlled by True North
and/or the principals of True North shall not be deemed a transfer or assignment
requiring the consent of WhitMar.
ARTICLE
XI.
TAXATION
11.1 This
Agreement is not intended to create, and shall not be construed to create,
a
relationship, a partnership, or an association for profit between or among
the
parties hereto. Notwithstanding any provisions herein that the rights and
liabilities hereunder are several and not joint or collective, or that this
Agreement and operations hereunder shall not constitute a partnership, if for
Federal income tax purposes this Agreement and the operations hereunder are
regarded as a partnership, each party hereby affected elects to be excluded
from
the application of all of the provisions of Subchapter “K”, Chapter “1”,
Subtitle “A”, of the Internal Revenue Code of 1986, as permitted and authorized
by Section 761 of the Code and the regulations promulgated thereunder. Any
operator designated under the terms of this Agreement is authorized and directed
to execute on behalf of each party hereby affected such evidence of this
election as may be required by the Secretary of the Treasury of the United
States or the Federal Internal Revenue Service, including specifically, but
not
by way of limitation, all of the returns, statements, and the data required
by
Federal Regulations 1.761-(2). Should there be any requirement that each party,
hereby affected, give further evidence of this election, each such party shall
execute such documents and furnish such other evidence as may be required by
the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No party shall give any notices or take any other action inconsistent
with the election made hereby. If any present or future income tax laws of
the
State or States in which the area covered by this Agreement is located or any
future income tax laws of the United States contain provisions similar to those
in Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of
1986, under which an election similar to that provided by Section 761 of the
Code is permitted, each party hereby affected shall make such election as may
be
permitted or required by such laws. In making the foregoing election, each
such
party states that the income derived by such party from operations hereunder
can
be adequately determined without the computation of partnership taxable
income.
ARTICLE
XII.
MISCELLANEOUS
12.1 This
Agreement contains the entire agreement of the parties with respect to the
subject
matter hereof, shall be governed by and construed in accordance with the laws
of
the State of Texas, and may be executed in multiple counterparts, each of which
shall be an original but all of which together shall constitute one and the
same
instrument.
12.2 It
is
understood that if this Agreement is not fully executed by True North and
returned to WhitMar with the agreed upon $100,000 initial payment within five
(5) days from the date set forth hereinabove, WhitMar may, at its sole option,
terminate this Agreement. If True North does not pay the remainder of its share
of estimated drilling costs, as referred to in Article 3.4 herein, within 15
days of the date of this agreement, WhitMar may, at its sole option, terminate
this agreement; in which case the initial $100,000 payment paid by True North
shall be retained by WhitMar until such time as True North participates in
another prospect with WhitMar, at which time such $100,000 shall be credited
to
True North for its share of costs in such future prospect.
12.3 It
is
understood that the only consequence of WhitMar’s failure to drill the Prospect
Test Well contemplated herein shall be the ipso facto cancellation of this
agreement in its entirety and WhitMar’s immediate return of any funds paid by
True North to WhitMar.
IN
WITNESS THEREOF, THIS INSTRUMENT IS EXECUTED ON THIS THE 28TH DAY OF JULY,
2006.
| WITNESS: | WHITMAR EXPLORATION COMPANY | ||
| /s/ Xxxxxx Xxxxxxx | /s/ Xxxxxxx X. Xxxxxx | ||
|
|
Xxxxxxx X. Xxxxxx, President |
| WITNESS: | TRUE NORTH ENERGY CORPORATION | ||
| /s/ Xxxxxxxx Xxxxxx | /s/ Xxxx X. Folnovic | ||
|
|
Xxxx X. Folnovic, President |
