OPTION AGREEMENT
EXHIBIT 10.29
This option agreement (the “Option Agreement”), is made on August 13, 2020 (the “Effective Date”), by TORCHLIGHT ENERGY, INC., a Texas corporation, and TORCHLIGHT XXXXX, LLC, a Texas limited liability company, whose mailing address is 0000 X. Xxxxx Xxxx #0000, Xxxxx, XX 00000 and email address is xxxx@xxxxxxxxxxxxxxxx.xxx (collectively “Torchlight”), XXXXXXXXX XXXXX PARTNERS, LP, a Texas limited partnership whose mailing address is X.X. Xxx 0000, Xxxxxxx, XX 00000 and email address is xxx@xxxxxxxxxxx.xxx (“Xxxxxxxxx”), and XxXxxx Petroleum Corporation, a Texas Corporation, whose mailing address is 000 X. Xxxxx Xxx. Xxx. 000, Xxxxxxx, XX 00000 and email address is xxxxxxxxxx@xxx.xxx (“MPC”) collectively the “Parties”.
I – Drilling Obligation & Grant of Options
Xxxxxxxxx shall drill and complete, or cause to be drilled and completed, at its sole cost and expense (subject to Sections V and VII), a new lateral well on Torchlight’s Xxxxx Prospect1 (the “Well”) sufficient to satisfy Torchlight’s continuous development obligations on the southern half of the Xxxxx Prospect2 (“Southern Drilling Obligations”). Xxxxxxxxx shall satisfy the Southern Drilling Obligations no later than September 30, 2020. Provided, however, that Xxxxxxxxx shall be entitled to receive, as its sole recourse for the recoupment of Drilling Costs, the revenue from production of the Well attributable to Torchlight’s interest (“Production Revenue”) until such time as it has recovered its reasonable costs and expenses for drilling, completing, and operating the Well (“Drilling Costs”).
In exchange for Xxxxxxxxx satisfying the Southern Drilling Obligations, Torchlight grants to Xxxxxxxxx the exclusive right and option to perform operations, at Xxxxxxxxx’x sole cost and expense, on the Xxxxx Prospect sufficient to satisfy Torchlight’s continuous development obligations on the northern half of the Xxxxx Prospect (“Northern Drilling Obligations”),3 as defined below (the “Drilling Option”). Xxxxxxxxx will also pay to Torchlight $1,000.00 at the time this Option Agreement is executed and delivered as further consideration of the Options (“Option Fee”). In spite of anything to the contrary, if Xxxxxxxxx fails to satisfy the Southern Drilling Obligations by September 30, 2020, then the Options will automatically terminate, and Torchlight may retain the Option Fee as its sole remedy.
In the event that Xxxxxxxxx exercises such Drilling Option and satisfies the Northern Drilling Obligations, then Xxxxxxxxx shall have the option to purchase the Xxxxx Prospect under the terms of the Purchase and Sale Agreement which is attached as Exhibit “B” (the “Purchase Option”). The Drilling Option and Purchase Option may be collectively referred to herein as the “Options”.
| 1 | “Xxxxx Prospect” means Torchlight and its subsidiaries’ interests in the Xxxxx Prospect leases and the lands described in Exhibit “A” and the Assets as described in the Purchase Sale Agreement attached as Exhibit “B”. |
| 2 | The south half of the Xxxxx Prospect being those 5,131.44 net mineral acres in Sections 70, 71, 72, 73, 74, 75, 41, 86, 87 and 88 as described further in Exhibit “A” and the Assets as described in the Purchase Sale Agreement attached as Exhibit “B”. |
| 3 | The north half of the Xxxxx Prospect being those 4,630.64 net mineral acres in Sections 89, 90, 91, 102, 103, 104, 105, 106 and 107 as described further in Exhibit “A”. |
| OPTION AGREEMENT | - Page 1 - |
II - Option Period
The time during which Xxxxxxxxx may exercise the Options shall be from the Effective Date through and including December 1, 2020, unless extended under the terms of this Option Agreement (the “Option Period”). The Option Period may be extended to March 31, 2021 if Xxxxxxxxx: (1) has satisfied it obligations regarding the Well; (2) no later than December 1, 2020, delivers notice of intent to conduct operations sufficient to satisfy the Northern Drilling Obligations; and (3) on before December 15, 2020 conducts operations sufficient to satisfy the Northern Drilling Obligations.
III - Purchase Price of Xxxxx Prospect
The full purchase price of the Xxxxx Prospect is $12,690,704.00 for approximately 9,762.08 net mineral acres (the “Purchase Price”), and not less than a 74% net revenue interest (the “NRI”), which is payable as provided in this Option Agreement and the “Purchase Sale Agreement”, which is to be executed by the parties in the form of the document attached as Exhibit “B”, if Xxxxxxxxx elects to exercise the Purchase Option. The price per net mineral acre shall be $1,300.00.
As provided in the Purchase Sale Agreement, in the event Xxxxxxxxx establishes that Torchlight or its subsidiaries own more or less net mineral acreage or NRI than set forth above, the Purchase Price shall accordingly be proportionately increased or reduced by the price per net mineral acre.
Torchlight shall maintain and protect the leasehold interest until execution of the Purchase Sale Agreement or give Xxxxxxxxx thirty (30) days prior written notice of Torchlight’s intent not to maintain and protect said leasehold interest.
IV – MPC Reversionary Interest
In order to induce Xxxxxxxxx to enter into this Option Agreement, on the strict condition of Xxxxxxxxx closing the transaction pursuant to the Purchase Sale Agreement, then MPC (an entity wholly owned by Xxxx XxXxxx) agrees to reduce its reversionary interest burdening Torchlight’s proportionate interest in the Xxxxx Prospect (as described in that certain “Participation Agreement” dated May 1, 2016) from 20% to not more than 12.5%.
V - The Well
The Well shall be a lateral well drilled by, or caused to be drilled by, Xxxxxxxxx utilizing a stimulation method at a location and length approved, in writing and prior to commencement, by Xxxx XxXxxx or Xxxx Xxxxxxxxx. Xxxxxxxxx, its affiliates and agents shall have the right to use any and all necessary Torchlight facilities, including, but not limited to, Torchlight or its affiliates’ tank battery. At all times Xxxxxxxxx shall conduct itself and the operations in a manner consistent with a reasonably prudent operator.
| OPTION AGREEMENT | - Page 2 - |
If, during the drilling of the Well, Xxxxxxxxx shall encounter granite or any other practically impenetrable substance or encounter mechanical difficulties or if the hole is lost for any reason not reasonably within control of Xxxxxxxxx, Xxxxxxxxx shall have and is hereby granted the right to abandon said well; and Xxxxxxxxx may commence the actual drilling and completion, at Xxxxxxxxx’x sole costs and expense (subject to Section VII), of a substitute well to serve as the Well. If a substitute well is commenced, it will be drilled at a location and using a stimulation method and depth as approved by Xxxx XxXxxx or Xxxx Xxxxxxxxx. For the avoidance of doubt, the substitute well shall be deemed to be the Well for all purposes of this Option Agreement.
Torchlight shall instruct the payor of any proceeds of production to deliver all income attributable to Torchlight’s interest that is generated from the Well directly to Xxxxxxxxx until Xxxxxxxxx’x Drilling Costs have been recouped in full. In the event Torchlight receives any proceeds that should have been delivered to Xxxxxxxxx, Torchlight shall immediately notify Xxxxxxxxx and send the misdelivered proceeds to Xxxxxxxxx.
VI - Purchase Sale Agreement
Within ten (10) days of a timely election of Xxxxxxxxx’x exercise of the Purchase Option pursuant to Section IV, Torchlight and Xxxxxxxxx shall execute the Purchase Sale Agreement for the Xxxxx Prospect attached as Exhibit “B”.
The Parties covenant that at any time after the Effective Date of this Option Agreement, they will execute such additional instruments and take such actions as may be reasonably be requested by the party(ies) to confirm or perfect or otherwise to carry out the intent and purposes of this Option Agreement.
VII - Failure to Exercise Option
If Xxxxxxxxx does not exercise the Drilling Option in accordance with its terms and within the Option Period, the Purchase Option and the rights of Xxxxxxxxx will automatically and immediately terminate.
Pursuant to the terms of Section V, if Xxxxxxxxx fails to exercise the Purchase Option, Xxxxxxxxx shall retain any and all income from the Well until Xxxxxxxxx recoups all Drilling Costs, as Xxxxxxxxx’x sole recourse in recouping its Drilling Costs.
VIII - Notices
All notices provided for in this Option Agreement will be deemed to have been given if and when deposited in the United States mail by registered or certified mail, properly stamped and addressed to the party for whom intended, at the party’s address listed above, or when delivered personally in writing to the party, or via electronic mail to the addresses provided in the Option Agreement.
| OPTION AGREEMENT | - Page 3 - |
IX - Binding Effect and Miscellaneous Provisions
This Option Agreement and corresponding Purchase Sale Agreement are subject to any and all leases, assignments, or other public filings affecting the Assets, the Participation Agreement, that certain Farmout Agreement executed by and between Oxy USA, Inc. and Imperial Exploration, LLC on March 21, 2016, and that certain Joint Operating Agreement executed by, between, and among Torchlight Energy Operating, LLC, Torchlight Energy, Inc., and Imperial Exploration, LLC on May 1, 2016 (“JOA”).
This Option Agreement is not transferable nor assignable unless agreed to by the Parties in writing and will be binding on and inure to the benefit of the Parties to them and to their respective heirs, personal representatives, successors, and assigns. Any assignment made in violation of this requirement is void.
Except as otherwise expressly provided herein, no waiver with respect to this Option Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the Parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.
This Option Agreement may be executed in counterparts, each of which shall be deemed an original and both considered one and the same Option Agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. This Option Agreement shall only be binding on the Parties and their respective successors and assigns when executed by both of the Parties.
In connection with the negotiation and drafting of this Option Agreement, the Parties represent and warrant to each other that they have had the opportunity to be advised by attorneys of their own choice and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting Party shall not be employed in the interpretation of this Option Agreement or any amendments hereto.
If any provision of this Option Agreement is held to be illegal, invalid, or unenforceable under present or future law, such provision shall be fully severable and this Option Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically, as part of this Option Agreement, a provision as similar in terms and substance to such illegal, invalid, or unenforceable provision as may be possible and legal, valid, and enforceable.
| OPTION AGREEMENT | - Page 4 - |
The Parties agree that as between the Parties hereto the terms in this Option Agreement shall prevail should there be any conflict with any other agreement, including, but not limited to, the Purchase Sale Agreement.
Capitalized terms used but not defined herein shall have the respective meanings given to them in the Purchase Sale Agreement.
This Option Agreement shall be governed by and construed in accordance with the domestic laws of the State of Texas without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Texas. The Parties agree that venue is proper in Midland County, Texas and if venue is not mandatory shall be filed in a court of competent jurisdiction in Midland County, Texas.
This Option Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and assigns.
Each of the Parties agrees to execute, acknowledge, and deliver to the other party such further instruments, and take such other actions, as may be reasonably requested in order to more effectively assure to said other party all of the respective rights, titles, interests, and privileges intended to be assigned or inuring to the benefit of such party in consummation of the transactions contemplated hereby.
The Parties agree that this Option Agreement is intended to be a fully-integrated document, and all prior agreements or understanding regarding the subject matter are superseded by this Option Agreement.
A Party prevailing in any legal action arising from this Option Agreement shall be entitled to recover its reasonable and necessary attorney fees and costs from the non-prevailing Party(ies).
[Signature pages follow.]
| OPTION AGREEMENT | - Page 5 - |
The Option Agreement has been executed as of the Effective Date set forth above.
| TORCHLIGHT ENERGY, INC. | ||
| X: | /s/ Xxxx X. Xxxx | |
| Name: | Xxxx X. Xxxx | |
| Title: | CEO | |
| STATE OF TEXAS | § | |
| § | ||
| COUNTY OF | Collin | § |
BEFORE ME, the undersigned authority, on this day personally appeared Xxxx X. Xxxx, who being duly sworn, upon oath, says that he is authorized to execute this agreement; and he acknowledged to me that he executed the same for the purposes and considerations therein expressed, and in the capacity stated herein. SUBSCRIBED AND SWORN TO before me by the said Chief Executive Officer on this the 13th day of August, to certify which witness my hand and seal of office.
| /s/ Xxxx Xxxxxxx | ||
| Notary Public | ||
| In and For Said County and State | ||
| TORCHLIGHT XXXXX, LLC | ||
| X: | /s/ Xxxx X. Xxxx | |
| Name: | Xxxx X. Xxxx | |
| Title: | MGR | |
| STATE OF TEXAS | § | |
| § | ||
| COUNTY OF | Collin | § |
BEFORE ME, the undersigned authority, on this day personally appeared Xxxx X. Xxxx, who being duly sworn, upon oath, says that he is authorized to execute this agreement; and he acknowledged to me that he executed the same for the purposes and considerations therein expressed, and in the capacity stated herein. SUBSCRIBED AND SWORN TO before me by the said Manager on this the 13th day of August, to certify which witness my hand and seal of office.
| /s/ Xxxx Xxxxxxx | |
| Notary Public | |
| In and For Said County and State |
| OPTION AGREEMENT | - Page 6 - |
| XXXXXXXXX XXXXX PARTNERS, LP | ||
| X: | /s/ Xxxxxxx XxXxxx Xx | |
| Xxxxxxx
Xxxxx XxXxxx, Xx., CEO of Xxxxxxxxx Xxxxx Management, LLC, its General Partner | ||
| STATE OF TEXAS | § | |
| § | ||
| COUNTY OF | Midland | § |
BEFORE ME, the undersigned authority, on this day personally appeared Xxxxxxx X. XxXxxx, who being duly sworn, upon oath, says that he is authorized to execute this agreement; and he acknowledged to me that he executed the same for the purposes and considerations therein expressed, and in the capacity stated herein. SUBSCRIBED AND SWORN TO before me by the said CEO on this the 13th day of August, to certify which witness my hand and seal of office.
| /s/ Xxx Xxxxxx | ||
| Notary Public | ||
| In and For Said County and State | ||
| XXXXXX PETROLEUM CORPORATION | ||
| X: | /s/ Xxxx XxXxxx | |
| Name: | Xxxx XxXxxx | |
| Title: | President | |
| STATE OF TEXAS | § | |
| § | ||
| COUNTY OF | Midland | § |
BEFORE ME, the undersigned authority, on this day personally appeared Xxxx XxXxxx, who being duly sworn, upon oath, says that he is authorized to execute this agreement; and he acknowledged to me that he executed the same for the purposes and considerations therein expressed, and in the capacity stated herein. SUBSCRIBED AND SWORN TO before me by the said President on this the 13th day of August, to certify which witness my hand and seal of office.
| /s/ Xxx Xxxxxx | |
| Notary Public | |
| In and For Said County and State |
| OPTION AGREEMENT | - Page 7 - |
EXHIBIT “A”
| OPTION AGREEMENT | - Page 8 - |
EXHIBIT “B”
| OPTION AGREEMENT | - Page 9 - |
