EXHIBIT 10.6
Xxxx Xxxxx, President August 12, 2002
Houseco Petroleum
X. X. Xxxxxx
P.O. Box 842
Bristow, OK 74010
Re: Letter of Agreement
Dear Xxxx:
The purpose of this letter ("Letter") is to set forth the
agreements between Houseco Petroleum and X. X. Xxxxxx (collectively,
"Grantors"), and Xxxxxx Energy Group, Inc. ("HEG") (each a "Party" and
collectively, the "Parties") with respect to the acquisition by HEG of
certain oil and gas properties and leases known as the Xxxxx Prospect
located in Okmulgee County, Oklahoma, in exchange for the
consideration and on the terms and subject to the conditions set forth
below (the "Transaction").
1. Xxxxx Prospect
On the terms and subject to the conditions to be set forth in the
definitive documents and conveyances to be promptly negotiated in good
faith and entered into by the Parties ("Definitive Documents"),
Grantors agree to grant to HEG, an undivided 75% of 8/8ths working
interest (based on a net revenue interest of not less than 78.25% of
8/8ths) in, to and under all oil and gas leases, lands, xxxxx (whether
oil, gas, water supply or salt water disposal), together with a
proportionate interest in all well casings, surface and production
equipment, tank batteries, pipelines and other personal property now
or hereafter located on those lands known as the Xxxxx prospect,
comprising approximately 800 gross and net mineral acres of land
located primarily in Sections 22 and 23, T14N, R11E, Okmulgee County,
Oklahoma (the "Xxxxx Prospect").
2. Connection of Existing Xxxxx
For the consideration described below, Grantors agree, at their
sole cost and expense, to promptly commence and complete all work and
to provide all surface equipment, storage containers, pipeline
connections and other equipment and materials required to connect,
operate and produce seven existing xxxxx on the Xxxxx Prospect
mutually agreed to be reasonably capable of production of oil or gas
in commercial quantities.
3. Xxxxxxxx Test Well
The Parties shall promptly identify a mutually acceptable
drilling location and agree upon a drilling, logging and testing
program for an initial test well ("Test Well") to be drilled on the
Xxxxx Prospect. Grantors shall commence ("spud") the Test Well as
soon as reasonably practical and shall thereafter continuously
prosecute drilling and logging operations in accordance with standard
industry practices and in a manner that will allow thorough testing
of all potentially productive formations from the surface of the
earth to the base of the Xxxxxxxx formation, or to such other depth
or formation as may be mutually agreed between the Parties. In the
event the Test Well is completed as a well capable of the production
of oil and/or gas, Grantors shall further install, or cause to be
installed, all required surface equipment (including without
limitation all wellhead equipment, separators, pumping units, gas
lifting equipment, tank batteries, etc.), together with all required
hookups and connecting pipelines.
4. Xxxxxx Xxxxx
The Parties shall identify mutually acceptable locations for
reentering, perforating, acidizing and testing additional xxxxx on the
Xxxxx Prospect, or for drilling, testing and completing new xxxxx at
such times and to test such potentially productive formations as they
may agree. The Parties currently intend to focus their initial
efforts on reentering approximately six mutually agreeable existing
xxxxx to test the Xxxxxx zone (the "Xxxxxx Xxxxx"), but will
reevaluate their plans based upon the results obtained from the Test
Well and further review of all other available information.
5. HEG Interests
Notwithstanding the provisions of Paragraph 1, Grantors shall
retain a 75% of 8/8ths working interest (based on a net revenue
interest of not less than 78.25% of 8/8ths) in the Test Well. With
respect to all operations on the Xxxxx Prospect other than the initial
connections described in Paragraph 2 and the Test Well described in
Paragraph 3, Grantors and HEG shall participate on a "heads up" basis
in accordance with their respective working interests.
6. Joint Operating Agreement
Grantors and HEG shall negotiate and enter into a joint operating
agreement covering their working relationship with respect to their
joint interests and naming Houseco Petroleum as the Operator of their
combined interests. Such agreement shall be substantially in the form
of the 1989 (or newer) AAPL Model Form 610 Joint Operating Agreement
("JOA"). In connection with this JOA, Operator shall deposit all
funds paid by HEG for drilling operations into the drilling escrow
account previously established by Operator with Spirit Bank ("Drilling
Escrow Account"), from which Spirit Bank shall be authorized to
disburse payments only against actual invoices from Operator and its
subcontractors and suppliers, accompanied by corresponding lien
waivers, that have been previously approved in writing by a
representative designated by HEG.
7. Consideration.
(a) As consideration for the Transaction, HEG agrees to pay
Grantors, on or before August 30, 2002, the sum of $50,000.
Thereafter, HEG agrees to pay Grantors the sum of $25,000 per week
through the week of October 4, 2002, for a total of $175,000.
Grantors will deposit $75,000 of these payments into their Drilling
Escrow Account for HEG's estimated share of the Test Well and retain
the remaining $100,000. Grantors may allocate these payments between
their Drilling Escrow Account and payments to Grantors in such order
and at such times as they may reasonably determine.
(b) As additional consideration for the Transaction,
commencing with the week of October 11, 2002, HEG shall pay Grantors
the sum of $25,000 per week through the week of October 25, 2002, for
a total of an additional $75,000 to be paid to Grantors. Thereafter,
the Parties shall pay their respective shares of ongoing exploration,
development and operation expenses for the Xxxxx Prospect in
accordance with the procedures set forth in the JOA, provided that HEG
shall have the option to schedule payments for its proportionate 75%
share of such costs in installments of not more than $25,000 per week.
(c) HEG will further instruct Majestic Companies LTD
("Majestic") to issue 80,000 Shares of its preferred stock to the
persons and in the amounts designated by Grantors. These preferred
shares will have a conversion right of one share of preferred stock
for five shares of common stock (a total of 400,000 shares of common
stock). Majestic has previously agreed to promptly file and
thereafter diligently pursue a registration statement with the
Securities and Exchange Commission, pursuant to an SB-2 or other
filing, which would allow these Shares to be freely traded.
(d)HEG further agrees to support a minimum trading price of $0.50
per share for the 400,000 shares of Grantor's converted Majestic
common stock as follows. If the average trading price for shares of
Majestic common stock over the two week period immediately following
the date on which the registration of Grantors' shares becomes
effective is less than $.50 per share, HEG will either pay Grantors
400,000 times the difference between such average trading price per
share and $.50 per share in cash or will instruct Majestic to issue to
those persons designated by Grantors additional shares with an
aggregate value equal to the total amount of such difference. For
example, if the average per share price as of the valuation date were
$.40 per share, HEG would either pay Grantors an additional $40,000 in
cash or instruct Majestic to issue 100,000 additional shares to
persons designated by Grantors. If the average share price were $.50
or more, HEG would have no further price support obligation.
8. Condition Precedent
As a condition precedent to the obligations of the Parties
hereunder, HEG shall have the right to conduct such due diligence, at
its sole risk and expense, as it deems reasonably necessary to satisfy
itself as to the status of Grantor's title to and the potential of the
Xxxxx Prospect for the commercial production of oil and/or gas.
Grantors shall cooperate with HEG and its designated representatives
by promptly making available for their inspection and review originals
or accurate copies of all title, geologic, drilling, logging,
production and other information reasonably requested by HEG.
9. No Other Agreements
The Parties acknowledge and agree that this Letter supercedes and
replaces in their entirety any and all prior oral or written
representations, understandings or agreements between them. Each
Party further represents and agrees that it is not and has not been
represented by any broker or finder in connection with this Letter or
the Transactions described herein, and that no third party has any
rights of any kind whatsoever with respect to the subject matter of
this Letter.
10. Assignments
No Party may assign all or any portion of its rights under this
Letter to any other person without the express prior written consent
of all of the other Parties, provided that HEG may assign portions of
its interest to Freedom Oil & Gas and/or Claymore Energy to the extent
such parties assume the corresponding obligations of HEG with respect
to such assignments.
11. Counterparts
This Letter may be signed in one or more counterparts, each of
which shall constitute one and the same original, and shall become
effective when HEG has received a signature page, including a
facsimile or other electronic copy, bearing the signature of each Party.
If the foregoing accurately describes our mutual understandings
and agreements, please sign and date the attached original copy of
this Letter and fax a copy to me.
Very truly yours,
AGREED TO AND ACCEPTED
XXXXXX ENERGY GROUP, INC.
this ____ day of August 2002:
HOUSECO PETROLEUM
By: /S/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx, President
By: /S/ Bill House
Name: Xxxx Xxxxx, President
X. X XXXXXX
/S/ X.X Xxxxxx
