EXHIBIT 10.5
MEMORANDUM OF UNDERSTANDING
BETWEEN
THE XXXXX FEE PROPERTIES,INC. (the "AFPI'), having an address for Notice
and delivery located at 0000 Xxxxx X Xxxxxx, Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxx Xxxxxxx.
PETROGEN INTERNATIONAL LTD., having an address for notice and delivery
located at Suite 3300 - 0000 Xxxxxxxxx Xxxxxxx, Xxxxxxx, Xxxxx 00000
DATE: August 4th, 2003
Dear Xx. Xxxxxxx:
As per our most recent discussions and subsequent to our meeting in Midland on
Wednesday, June 26t`, 2003 where we discussed Petrogen's interest in the 9,000
acre Xxxxx Ranch Project, Block "0; G-H and S-F", , Sections 113, 114, 126, 127,
128, 153, 154, 155, 166, 167, 168 and the East 1/2 of Sections 112, 129, 152,
169, Texas Railroad Commission Survey, Xxxxxxxx County, Texas (the "Property");
Petrogen International Ltd. (Petrogen) would like to proceed with the
commencement of a development initiative upon the Property under the following
terms as described in this Memorandum of Understanding (the "MOU").
ACKNOWLEDGEMENT
AFPI owns or controls the following
1) The Property, consisting of 9,000 acres of oil and gas leases
located in Xxxxxxxx County, Texas and further described as the Xxxxx Ranch, as
noted above.
2) Seventeen (17) existing xxxxx drilled (the "AFPI Xxxxx") to an
approximate depth of 5,000' and completed as gas producers and operated by AFPI,
as well as seventeen (17) identified new well drill site locations owned by AFPI
offsetting the AFPI Xxxxx.
3) Vested interest in an additional ten existing xxxxx drilled to an
approximate depth of 5,000' and completed as gas producers and currently
operated by a third party.
4) 3" Gas gathering system tied to El Paso's 36" transmission line.
PROPERTY OPTION
1) Petrogen shall reserve an option (the "Option") for a period of
thirty (30) days (the "Option Period") from the date hereof to perform a due
diligence review (the "Review") of the Property, and to thereafter enter into a
Formal Acquisition and
Development Agreement (the "Agreement"), which will govern development
operations performed by Petrogen upon the Property.
DRILLING COMMITMENT
1) AFPI agrees to deliver to Petrogen a 100% working interest (WI) - 75% net
revenue interest (NRI) lease and merchantable title on the Property on a
well-bywell basis.
2) Upon Petrogen's election to proceed with the development of the Property,
Petrogen shall have until December 1st, 2003 to spud a test well to be drilled
to a depth of two hundred fifty feet (250') below the top of the Xxxxxxxxxxx
formation (the "Test Well").
3) Upon spudding of the Test Well, Petrogen will assign a 15% WI upon the same
to AFPI.
4) Upon Petrogen having received net income from the Test Well equal to its
expenditures to drill and complete the same, Petrogen will assign AFPI an
additional 10% WI, providing for a total combined WI to the benefit of AFPI of
25% (the "Net WI").
5) If AFPI delivers any WI less than 100%, said WI will be proportionately
reduced from AFPI's Net WI.
6) Each well drilled by Petrogen will earn Petrogen that well drill spacing
unit, or, the acreage spacing unit as designated by the Texas Railroad
Commission, which ever is the larger, to the total depth it drills within said
acreage unit.
7) Petrogen agrees to drill at least four (4) new xxxxx per year to maintain
exclusive rights to its continued development interests upon the Property.
DEVELOPMENT COMMITMENT
1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to initiate a redevelopment program of the AFPI Xxxxx, the terms of which will
be outlined in the Agreement.
XXXXXXXX RANCH COMMITMENT
1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to initiate a re-development program of the existing #1 Xxxxxxxx and the #2
Xxxxxxxx wellbores (the "Xxxxxxxx Xxxxx").
2) At such time as Petrogen has spudded the Test Well, within ten (10) business
days thereafter, AFPI will effect the conveyance to Petrogen of a 100% WI 75%
NRI upon the one hundred sixty (160) acre spacing unit, or applicable Texas
Railroad gas unit, whichever is the larger, surrounding each of the Xxxxxxxx
Xxxxx as noted.
3) Additional terms regarding the balance of the Xxxxxxxx acreage and
development drilling of the same will be detailed in the Agreement.
XXXXXXX RANCH COMMITMENT
1) Upon spudding of the Test Well, Petrogen will have earned the exclusive right
to develop the Xxxxxxx Ranch under terms to be designated in the Agreement.
GAS DELIVERY
1) Upon the successful completion of the Test Well, or the successful
redevelopment of any of the AFPI Xxxxx upon the Property, AFPI agrees to gather,
compress and deliver gas production from the same to El Paso's 35" gas line for
the benefit of Petrogen for a fee of $0.50/MCF.
GENERAL TERMS
1) The proposed terms of this MOU together with any obligations contained herein
will be subject to the execution of the Agreement
2) The parties warrant employing good faith, due diligence, and best efforts
in the performance of this MOU. In the event of any dispute, the parties shall
employ the terms hereof and terms standard in the industry where not addressed
by agreements.
3) This MOU shall be kept confidential and no disclosure of the same shall be
made without mutual consent, which shall not be unreasonably with held.
If the aforementioned terms meet with your approval, please indicate so through
signing in the appropriate area below, and the same shall be binding upon us
from the date of acceptance forward.
Sincerely,
Petrogen International Ltd.
Xxxxx X. Xxxxxxxx
President, CEO
Agreed to and accepted this__________day of August, 2003
_____________________________________________
Xxxxx Fee Properties, Inc. - per Xxxx Xxxxxxx
