TREK OIL AND GAS, INC.
000 XXXXXX XXXXXX, XXXXX 0000
XXXXXXX, XXXXX 00000
(000) 000-0000
March 18, 1999
Saratoga Resources, Inc., a Texas Corporation
0000 X. Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxx Xxxxx
Re: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT
Gentlemen:
Reference is made to the discussions regarding Saratoga Resources, Inc.'s,
a Texas Corporation ("Saratoga") engagement of Trek Oil and Gas, Inc.
("Consultant") to perform the following ("Services"): identify and develop
opportunities to explore for, exploit and produce, oil, gas and other minerals
within the Project Area, as defined below ("Prospects"). In the performance of
the Services, Consultant shall review, evaluate, analyze and where applicable
reprocess certain geophysical and geological data and information compiled by
Saratoga including but not limited to, seismic lines and records, shotpoint
maps, velocity surveys, geophysical and geological interpretations, well logs
and other similar or related geophysical and geological data and/or information
("Data"). Pursuant thereto, Saratoga and Consultant, on behalf of themselves
and their respective successors and assigns, agree as follows:
I.
ENGAGEMENT
Saratoga hereby engages Consultant to provide the Services on a non
exclusive basis in consideration of, and in accordance with, the further
conditions and covenants of Saratoga and Consultant set forth herein. As used
herein, the term "Project Area" means those ONSHORE areas which are identified
on the program list and attached as Exhibit "A" hereto.
II.
PROSPECT GENERATION
Consultant will assign certain of its employees or representatives to
perform the Services at Trek's offices, during Trek's normal business hours, in
an effort to identify and dvelop Prospects within the Project Area for
recommendation to Saratoga, subject to the following:
A. Saratoga and Consultant shall keep all such interpreted data strictly
confidential for as long as this Agreement remains in effect. Saratoga
agrees to allow Consultant the right to maintain copies of shop point
base maps and tapes and seismic lines in Consultant's offices for any
Prospect generated or in the process of being generated by Consultant.
B. As a result of performing the Services, Consultant may determine, as a
matter of its reasonable judgment, that it is necessary or appropriate to
acquire additional seismic data with respect to one or more potential
Prospects. In such circumstances, Consultant may
(but shall not be obliged to attempt to obtain additional seismic data from
third parties covering portions of the Project Area without the necessity
of giving notice to, or receiving approval from, Saratoga; provided that
(1) any additional seismic data obtained by the Consultant pursuant to this
Section II.B. shall be at the Consultant's sole cost and expense, subject
to reimbursement by Saratoga solely upon the conditions, and limited to the
extent, provided in Section III of this Agreement; (2) any additional
seismic data acquired by Consultant from third parties shall be retained by
Consultant in accordance with any applicable license, confidentiality or
other agreements; (3) any charges related to paper copies, tape or film
reproduction shall be an expense of consultant.
III.
PROSPECT PROPOSALS
If Consultant identifies or develops any Prospects during the term of this
Agreement, Consultant shall submit a recommendation of Saratoga by means of a
formal presentation to appropriate Saratoga personnel which shall include,
without limitation, an outline of the Prospect Area, maps, plats, logs, copies,
reproductions, additional seismic data acquired or purchased by Consultant
provided in II.B above, written memoranda and all other appropriate materials
relating to the identification, costs attributed to prospects development,
time-tables, exploration and development, of the Prospect and designation of an
area of mutual interest ("AMI") to the extent reasonably necessary to promote
the orderly development of, and protect the interests of Saratoga and
Consultant in, a Prospect ("Prospect Analysis"). In all cases, Consultant or
its designee shall act as Operator of the Prospect.
A. Saratoga shall have thirty (30) days ("Election Period") in which to
evaluate the Prospect provided that, the Election Period shall not begin
until Consultant has delivered, and Saratoga has received, written
notice that the Election Period has begun which shall be no earlier than
the formal presentation date of the Prospect Analysis. Any Prospect
which Saratoga accepts shall be referred to as an "Approved Prospect"
and any Prospect which Saratoga rejects shall be referred to as a
"Rejected Prospect". If Saratoga fails or refuses to provide written
notice to Consultant accepting a prospect on or before the end of the
applicable Election Period, Saratoga shall be deemed to have rejected
that Prospect.
B. During or after the Election Period, Saratoga, or Consultant on behalf
of Saratoga, may offer third parties the opportunity to acquire all or a
portion of its rights to participate in operations on a Prospect, subject
to all of the terms, conditions and covenants of this Agreement.
C. All operations contemplated by a Prospect Analysis would be conducted in
accordance with the terms and provisions of an operating agreement
governing the Prospect in the form attached as Exhibit "B" hereto, to
obtain access to the necessary rights, titles and interest in the acreage
included in the prospect or Ami, if applicable ("Operating Agreement").
D. Regardless of its election to accept or reject a Prospect, Saratoga
shall be assigned an overriding royalty interest equal to one percent
(1.0%) of eight-eights (8/8ths) in leases or interests owned and/or
acquired by Consultant or its agents pursuant to this Agreement (the
"Prospect Override"). The Prospect Override shall only be applicable to
leases or interests in which Consultant, its assigns, agents or
designeees have a net revenue ownership interest greater than 75%,
proportionally reduced to the interest originally acquired and shall not
be applicable to acreage or interest owned by third parties whether or
not such interests are pooled with leases or interests owned or acquired
by Consultant. The Prospect Override shall apply to the interest as
acquired by, through or under Consultant and shall not be subject to any
additional burdens, encumbrances, or promotes placed upon it by
Consultant in such leases or interests covering the Prospect or AMI
("Prospect Override"). Such Prospect Override shall be proportionately
reduced to the working interest originally acquired of Consultant and/or
its assigns. The Prospect Override shall be in addition to any other
interests Saratoga may participate in, earn or acquire in an Approved
Prospect. If the NRI acquired is equal to or less than 75% then a
mutually agreeable substitute compensation will be assigned to Saratoga
and be based on a 3.0% carried working interest of the interest
originally acquired to sales point.
B. As compensation for the Services, Consultant shall own (1) each Prospect
Analysis exclusively for a period of 2 years form the date of formal
presentation to Saratoga and (2) all rights, titles and interests, if
any, which may hereafter be acquired subject to (a) Saratoga's Prospect
Override and (b) election to approve and participate in operations
conducted on and obtain a working interest in Leases covering acreage in,
an Approved Prospect.
IV.
APPROVED PROSPECTS
Upon acceptance of a Prospect Analysis from Consultant ("Approved
Prospect"), Saratoga shall participate in all operations on the Prospect to the
extent of, and be entitled to earn and/or acquire up to a thirty-three and
one-third percent (33.33%) of eight-eights (8/8ths) working interest,
proportionately reduced to the aggregate interest acquired by Consultant,
Saratoga or third parties acquiring an interest by, through or under Saratoga
as may be applicable, in the Prospect or AMI, if applicable and subject to the
burdens mentioned in this agreement. Within twenty (20) days of receipt of an
invoice from Consultant, Saratoga shall reimburse thirty-three and one-third
percent (33.33%) of eight-eithts (8/8ths) of Consultant's actual aggregate
costs attributable to generating the Prospect (excluding the monthly overhead
by Consultant, if any, obtaining access to the necessary rights, titles or
interest sin leases covering acreage with in the Prospect or AMI, if
applicable, or other actions undertaken or costs incurred by, the Consultant
with respect to the Prospect and shall bear thirty-three and one-third percent
(33.33%) of eight-eights (8/8ths) of all future costs and liabilities, subject
to the Operating Agreement. Despite anything to the contrary in this Agreement
or otherwise, failure by Saratoga to timely reimburse Consultant as provided
herein shall be an automatic election not to participate for a working interest
in the Prospect. In the event that Saratoga accepts a Prospect on behalf of a
third party, Saratoga's acceptance shall disclose the identity or, and the
consideration paid by, the third party and Saratoga's acceptance shall be
subject to the following additional conditions:
A. A. Consultant shall have a preferential right to acquire the working
interest offered to a third party on the same terms offered by the third
party for a period of five (5) days after Consultant's receipt of notice
of Saratoga's acceptance.
B. If Consultant fails or refuses to exercise its preferential right to
acquire Saratoga's interest within the period specified in Section III.A
above, then Saratoga shall assign all or part of its rights, titles, and
interests in the Prospect to the third party subject to this Agreement.
Thereafter, Saratoga's assignee shall be vested with certain rights,
duties and obligations related to the Prospect as described in this
Agreement provided that Saratoga was in compliance with all provisions of
this Agreement at the time of the assignment to assignee.
V.
REJECTED PROSPECTS
Upon rejection of a Prospect Analysis ("Rejected Prospect"), Consultant
may (but shall be under no obligation to) proceed with operations to explore
and develop the Prospect without further notice to, or approval by, Saratoga
provided that (1) any and all undertakings, activities or operations
attributable, or in any way related, to a Rejected Prospect shall be at
Consultant's sole risk, cost and expense, and (2) after Project Payout,
Saratoga's Prospect Override shall automatically increase to three percent (3%)
of eight-eights (8/8ths) proportionately reduced to the entire interest
acquired by Consultant in the leases covering the Prospect or the AMI, as
applicable and shall be no greater than a multiple of 3 to the override
originally assigned Saratoga. For purposes hereof, Project Payout shall mean
that point in time when the proceeds Consultant has actually
4.
received from production of all xxxxx located with the prospet or AMI, if
applicable, (after subtracting the royalties paid to the Lessor(s) under the
lease(s), Saratoga's Prospect Override, transportation charges, third party
processing or handling fees and any taxes) equal all acosts incurred by
Consultant including, but not limited to existing seismic data purchases, new
siesmic data acquisition including the costs of permitting, acquisition,
damages, brokerage and processing and all costs incurred by Consultant for
leases, lease brokerage, title curative, location preparation, damages
drilling, completing and equipping all xxxxx thereon, reworking, constructing
and installing all platforms, caissons, production equipment processing
facilities and piplines associated therewith, and operating and maintaining
those xxxxx and facilities. All costs included in this Article shall be
reasonable and adequately documented. Saratoga agrees that for a period of one
(1) year following the termination of this Agreement, it shall not acquire an
interest in any Rejected prospect either along or in conjunction with others,
except for the project Override, and have no further claim or right to the
rejected prospect and its surrounding AMI.
VI.
LEASE ACQUISITION AND MAINTENANCE
Prior to Saratoga committing to participate as to its proportionate interest in
an Approved Prospect and/or as to any Rejected Prospect9s) as elsewhere herein
provided, Consultant, its agents, successors or assigns may in its sole
discretion, seek to acquire oil, gas and mineral leases, mineral interests or
other oil and gas rights ("Leases") whether by purchase, farmin, farmout,
option acreage contribution, or otherwise in such prospects generated by
Consultant in accordance with this Agreement. The acquisition of such leasees
and the terms, conditions and maintenance thereof shall be solely within the
discretion of Consultant. if and until such time as Consultant and Saratoga
become joint working interest owners as elsewhere herein provided Consultant
shall have no duty or obligation to maintain any leases in force and effect
whether by payment of delay rentals, shut-in royalty payments, operations or
otherwise. Further, it is agreed and understood that prior to the parties
becoming joint working interest owners hereby, Saratoga or any third party
acting on behalf of Saratoga shall not acquire any oil and gas leases, mineral
leases, or other rights within any Prospect generated by Consultant in
accordance with this agreement or any Areas of Mutual Interest established
under the Joint Operating Agreement attached hereto as Exhibit "C". Consultant
shall not commence or cause to be commenced any drilling activity of any nature
on any Leases acquired hereunder until the elections have been made by Saratoga
or any third party as provided in Article III.A above.
VII.
CONFIDENTIALITY
As between Saratoga and Consultant, all the Data shall remain the
property of, and be owned by, Saratoga. Consultant shall not provide the Data,
including copies or extracts thereof, to third parties without the prior
written consent of Saratoga. Notwithstanding the foregoing, Saratoga and
Consultant agree:
A. In the event Saratoga should receive notice that Consultant has
abrogated the terms of an applicable license or other agreement,
Consultant shall not utilize the affected Data covered by that
license or other agreement thereafter and shall return to
Saratoga's personnel the affected Data, including copies or
extracts thereof and any work product prepared by or for
Consultant therefrom, which may have previously been utilized by
Consultant in performing the Services here under.
B. Consultant understands and hereby acknowledges that neither
Saratoga nor any of its employees, agents or representatives
makes any representation or warranty as to the accuracy or
completeness of the Data, and Consultant agrees that Saratoga
shall not be held liable in any way to Consultant, its
representatives or any other person as a result of Consultant's
review of or reliance upon any of the Data. Consultant shall
further fully defend, protect, indemnify and hold Saratoga, its
officers, employees, representatives, and agents harmless from
and against any and all claims, demands, suits, and causes of
action of every kind and character, relating to, or arising out
of, or in any way incidental to the use, review and reliance on
the Data. This indemnity shall apply, without limitation, to any
liability imposed upon any party indemnified hereunder as a
result of any statute, rule, regulation or theory of strict
liability.
C. Consultant shall have the right to show Saratoga's proprietary
data pertinent to a Prospect to third parties with Saratoga's
written authorization which shall not be unreasonably withheld.
D. The provisions of this Article VII shall survive as long as
Consultant or its assigns, heirs or successors maintain any
leases within the AMI which are subject to this Agreement.
VIII.
ASSIGNABILITY
Consultant shall not assign this Agreement, or its obligation to
provide the Services, to any third party without the written consent of
Saratoga. In the event that Consultant is able to generate one or more
Prospects and obtain access to the necessary rights, titles and interests in
the acreage included in a Prospect or AMI, if applicable, Consultant, Saratoga
or such third parties as may participate in the Prospect through Consultant or
Saratoga shall enter into an Operating Agreement, and thereafter those parties
may assign an interest in their respective rights in the Prospect or AMI, if
applicable, subject to the provisions of the Operating Agreement. Consultant,
shall not include in any Operating Agreement entered into by Contractor terms,
conditions or provisions that favor Consultant to the detriment of Saratoga.
IX.
OTHER AGREEMENTS
This Agreement is specifically subject to that certain Seismic Data
Licensing Agreement dated the 30th day of January, 1998, by and between Seitel
Data, Ltd., Saratoga Resources, Inc. and Lobo Energy, Inc. In the event there
is a conflict between the terms of this agreement and the terms of the Seismic
Licensing Agreement, the terms of the Seismic Licensing Agreement will control.
X.
TERM
This Agreement shall be for a term of one year from the date hereof
unless extended by mutual agreement. Notwithstanding the foregoing, either
party may terminate this Agreement upon thirty (30) days written notice to the
other party beginning ninety days after the effective date of this Agreement.
Either Party may terminate this Agreement immediately in the event of any
material breach hereof.
XI.
NOTICES
Any notice or other communication hereunder between the parties hereto
shall be in writing and shall be deemed to have been given only upon receipt
thereof. The address of each party for such purpose shall be:
Saratoga Resources, Inc.
000 Xxxxxxxx, #0000
Xxxxxx, Xxxxx 00000
Tel. (000) 000-0000
Fax (000) 000-0000
Trek Oil and Gas Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Tel. (000) 000-0000
Fax
Each party may change their address by delivering their new address to the
other party.
XII.
BUSINESS OPPORTUNITIES
Saratoga and Consultant expressly reserve the right to develop or
participate in additional businesses or business opportunities as may be
presented to, or discovered by, either during the term hereof, including,
without limitation, conducting or participating in operations for the
exploration and development of oil and gas except as provided in Section V
herein. Without limiting the generality of the foregoing, Saratoga and
Consultant hereby acknowledge:
A. Each party is actively engaged in various aspects of the oil and
gas business, and anticipate conducting, or participating in,
activities to generate, explore and develop opportunities
similar to those contemplated by this Agreement pursuant to
existing agreements and relationships, which (1) each party has
disclosed to the reasonable satisfaction of the other, (2)
neither party's interest should be impaired, restricted or
otherwise affected hereby, and (3) may be conducted
simultaneously with those contemplated hereby. Consultant, to
the extent Consultant believes reasonable or necessary, may
pursue opportunities with third parties within the Project Area
except where such actions would foreseeably result in the damage
to, or loss of, a Prospect or AMI, if applicable, generated
pursuant to this Agreement.
B. As a result of participating in opportunities similar to those
set forth herein, each party acknowledges that the successful
generation, exploration and development of any Prospect pursuant
to this Agreement is subject to numerous risks and may be
influenced by numerous factors beyond either party's control. In
addition to the customary risks of conducting exploratory or
development operations on, and obtaining production of oil and
gas in paying quantities from, leases owned by a party at the
time an exploration project is agreed upon, Saratoga and
Consultant acknowledge that there is no assurance that access to
the necessary rights, titles and interests in acreage included
in any Prospect or AMI, if applicable, can be obtained.
Consequently, neither party shall have any obligation to the
other pursuant to this Agreement, in the event Consultant is
unable to generate, or to obtain oil and gas production from,
any Prospects in the Project Area.
XIII.
RELATIONSHIP OF THE PARTIES
This Agreement is not intended to create, and shall not be construed
to create, a relationship or partnership, joint venture or an association for
profit between or among the parties hereto, it being understood that Consultant
is an independent contractor and is not to be deemed an agent of Saratoga.
XIV.
GOVERNING LAW
This Agreement and all matters pertaining hereto shall be governed and
determined by the laws of the State of Texas.
XV.
INTEGRATION
7.
This Agreement constitutes the entire agreement or the parties and
supersedes all prior agreements, understandings, conversations or other
correspondence concerning the subject matter hereof.
This Agreement shall not be amended, except by written instrument
executed by both parties hereto.
If the foregoing correctly sets forth the agreement and understandings
between the parties, please execute both copies and return one to the attention
of the undersigned whereupon this proposal shall constitute our agreement as to
the matters herein set forth.
Very truly yours,
SARATOGA RESOURCES, INC.
By: /s/ Xxxxxx X. Xxxx
------------------
Xxxxxx X. Xxxx
President
ACCEPTED AND AGREED TO THIS 19TH DAY OF MARCH, 1999.
TREK OIL AND GAS, INC.
By: /s/ Xxxx X. Mount
-------------------
Xxxx X. Mount
Vice President
Accepted and Agreed to this 19th day of March, 1999.
Exhibit "A" -Contract Area List
Seismic Data Programs
