EXHIBIT 10.4
[PETROGEN LOGO APPEARS HERE] PETROGEN
September 3, 2003
THE XXXXX FEE PROPERTIES, INC. (AFPI)
______________________________
0000 Xxxxx X Xxxxxx,
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxx Xxxxxxx
Dear Xxxx,
Re: MEMORANDUM OF UNDERSTANDING WITH PETROGEN INTERNATIONAL LTD. (Petrogen)
Thank you very much for taking the time to speak with Xxxx Xxxxxxxx and myself
this past week during our visit with you and Xxxx at your home in Midland; we
greatly appreciate your consideration in regard to Xxxxxxxx's interest to
develop the Xxxxx Ranch prospect as described in our Memorandum of Understanding
(MOU) of August 4th, 2003.
This letter is to advise you that Petrogen is electing to proceed with the
development of the Lease as per the terms set forth in the MOU, as well as those
other terms as we discussed during our visit with you last week.
We have included a list of those items we discussed in our meeting with you for
your review and approval as follows:
1. Petrogen will drill the first deep test to the Xxxxxxxxxxx formation on
or before January 1st, 2004; this deep test earns Petrogen the right to
fully develop the property as follows:
a) all deep wellbore locations available upon the entire 9,000
acre prospect
b) all shallow wellbore locations over the area of 2,900 acres
2. 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-by-well basis.
3. Xxxxxxxx will convey a 15% Carried Working Interest "through the tanks"
to AFPI upon every wellbore drilled.
4. Petrogen will convey an additional 10% Carried Working Interest "through
the tanks" to AFPI upon every wellbore drilled after it each said
wellbore has generated $500,000.00 of revenues to the benefit of
Petrogen.
5. Petrogen will drill no less than four (4) deep xxxxx per year on the
property to retain its right to continue deep well developments upon the
property.
6. Petrogen will drill no less than four (4) shallow xxxxx per year on the
property to retain its right to continue shallow well developments upon
the property.
7. It is agreed between AFPI and Petrogen that there are as many as two
horizons within all of the potential shallow wellbore locations that may
produce marketable quantities of hydrocarbons. To that end, Petrogen
must produce hydrocarbons from one of or both of those horizons within
the designated wellbore spacing unit upon the same on the following
schedule:
a) production from horizon 1: wellbore spacing unit is held by
production for the life of the well.
b) production from horizon 2: the same wellbore spacing unit held by
production from horizon 1 shall only be available to Petrogen to
produce potential hydrocarbons from horizon 2, if said production
from horizon 2 commences within one (1) calendar year after
production
has commenced from horizon 1. Wellbore spacing unit respective of
horizon 2 is held by production for the life of the well
thereafter.
c) If Petrogen does not produce hydrocarbons from horizon 2 within
the specified time periods as noted, it shall lose its right to
produce from horizon 2, allowing AFPl the right to convey the
lease for horizon 2 upon that wellbore spacing unit to a third
party of its choosing.
8. It is agreed between AFPI and Petrogen that there are as many as three
horizons within all of the potential deep wellbore locations that may
produce marketable quantities of hydrocarbons. To that end, Petrogen
must produce hydrocarbons from one of, two of or all three of those
horizons within the designated wellbore spacing unit upon the same on
the following schedule:
a) production from horizon 1: wellbore spacing unit is held by
production
b) production from horizon 2: the same wellbore spacing unit held by
production from horizon 1 shall only be available to Petrogen to
produce potential hydrocarbons from horizon 2, if said production
from horizon 2 commences within one (1) calendar year after
production has commenced from horizon 1. Wellbore spacing unit
respective of horizon 2 is held by production for the life of the
well thereafter.
c) Production from horizon 3: the same wellbore spacing unit held by
production from horizon 2 shall only be available to Petrogen to
produce potential hydrocarbons from horizon 3, if said production
from horizon 3 commences within one (1) calendar year after
production has commenced from horizon 2. Wellbore spacing unit
respective of horizon 3 is held by production for the life of the
well thereafter.
d) If Petrogen does not produce hydrocarbons from horizon 2 or 3
within the specified time periods as noted, it shall lose its
right to produce from horizon 2 or 3, allowing AFPI the right to
convey the lease for horizon 2 and/or 3 upon that wellbore spacing
unit to a third party of its choosing.
9. The size of all wellbore spacing units as noted shall be designated by
the Texas Railroad Commission.
If the details listed herein meet with your approval, please indicate so with
your signature in the space provided below and return by facsimile to
000-000-0000 at your earliest convenience. At such time of receipt of your
signed approval, we shall instruct our attorney's to commence drafting the
formal agreement for your review as soon as practicable thereafter.
Kind regards, Xxxxxx to and accepted on September 3, 2003 by
Petrogen, Inc. _________________________________________
Xxxxx X. Xxxxxxxx Xxxxx Fee Properties, Inc. - Xxxx Xxxxxxx
President, CEO
