EXHIBIT 10.2
FARMOUT AGREEMENT
This agreement is made and entered into this 21 day of April, 2004, by
and between XXX X. XXXXXXX AND XXXXXX X. XXXXXXX, (hereinafter coIlectively
referred to as "FARMOR"), whose address is Xxx 000, Xxxxxxxxxxx, XX 00000, AND
PALUCA PETROLEUM, INC., whose address is P. O. Xxx 0, Xxxxxxxxxxx, XX 00000
(hereinafter referred to as "FARMEE").
WITNESSETH THAT:
WHEREAS, F ARMOR represents, without any warranty of title (express or
implied) except as is set out below, that FARMOR owns at least 78.5% of the net
working interest in and/or attributable to those certain oil and gas leases or
oil, gas and mineral leases covering the described lands herein, reference to
which leases in the records of the Xxxxxx County Clerk's office is here made for
all purposes, which leases are hereinafter referred to as the "Leases", insofar
as the Leases cover 320 gross acres of land, more or less, described as follows:
The South Half (8/2) of Section Twenty-Four (24), Township
Seven (7) North, Range Eleven (11) East, Xxxxxx County,
Oklahoma, except the Xxxxxxx formation which is reserved,
(which land is hereinafter referred to as the "Farmout Acreage"); and
WHEREAS, FARMOR and FARMEE are desirous of providing for the
exploration, development of formation other than the Xxxxxxx, which is the
present producing formation and operation of the Leases, insofar as the Leases
cover the Farmout Acreage, to the extent and in the manner hereinafter provided:
NOW, THEREFORE, in consideration of the premises, the mutual benefits
to be derived here from and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, FARMOR and FARMEE do hereby
COVENANT, UNDERSTAND, ACKNOWLEDGE and AGREE as follows:
TEST WELL
1.1 In consideration of the sum of Ten Dollars ($10.00) and other
valuable consideration, per acre assigned, which is non-refundable, the receipt
of which is hereby acknowledged, FARMEE, on or before two years from the date
hereof, is given the right to commence, o cause operations to be commenced for,
the actual drilling (i.e. spudding-in) of a well (hereinafter referred to as the
"Test Well") in search of oil and/or gas (which terms, as used herein, shall
mean oil, gas or other related hydrocarbons) at a legal location to be selected
by XXXXXX on the Farmout Acreage, or on land pooled with the Farmout Acreage.
After drilling the Test Well, FARMEE shall, by such testing and logging as would
a reasonably prudent operator under the same or similar circumstances, evaluate
the Test Well to determine if a completion attempt should be made. After FARMEE
has performed such testing, FARMEE shall determine whether or not an attempt
should be made to complete the Test Well as a producer of oil and/or gas or plug
and abandon same without making a completion attempt.
a. If FARMEE elects to attempt to complete the Test Well and such
completion attempt is successful, FARMEE shall cause the Test Well to
be equipped for production.
b. If FARMEE elects to complete the Test Well and if such completion
attempt is unsuccessful, or if FARMEE elects not to complete the Test
Well as a producer of oil and/or gas, XXXXXX will cause the Test Well
to be plugged in accordance with the rules and regulations of the
Oklahoma Corporation Commission.
1.2 If formations, conditions, or mechanical wellbore problems are
encountered which would render further drilling operations on the Test Well by a
reasonably prudent operator impracticable or which cannot be penetrated by the
use of customary drilling procedures or techniques (hereinafter referred to as
"impenetrable conditions"), FARMEE shall plug and abandon the Test Well. In the
event impenetrable conditions are encountered, FARMEE shall have the right to
extend the terms of this agreement if FARMEE commences a Substitute Test Well at
a legal location of FARMEE's choice on the Farmout Acreage, or on land pooled
with the Farmout Acreage, within 90 days after cessation of drilling operations
on the Test Well. In the event FARMEE drills the Substitute Test Well, the same
shall be drilled in accordance with the terms and conditions contained herein
which are applicable to the Test Well.
1.3 If the Test Well, or Substitute Test Well, results in a dry hole,
FARMEE, at its option, may drill another well at a legal location on the Farmout
Acreage, or on land pooled with the Farmout Acreage, under the conditions herein
stipulated, provided operations for the drilling of such well shall be commenced
within not more than 90 days following the date that drilling operations cease
in the well drilled hereunder resulting in a dry hole.
1.4 The FARMEE shall be liable for all surface damages in drilling the
Test Well or any Substitute Well
PAYMENT OF COSTS
2.1 FARMEE shall obtain and pay for all permits and licenses, if any,
required for conducting operations hereunder and shall strictly comply with all
applicable laws and ordinances and all applicable governmental rules,
regulations and orders in , connection with qualifying for and conducting
operations hereunder.
2.2 Unless hereinafter otherwise provided, the entire cost, expense,
and risk of the drilling, testing, completing, equipping, plugging, and
abandoning of each and every well drilled under the provisions hereof shall be
borne by FARMEE.
FAILURE TO DRILL AND OPTION
3. There is no obligation upon FARMEE to commence the Test Well under
the terms of this agreement. In the event FARMEE fails to commence operations
for the drilling of the Test Well on or before two years from the date hereof,
all rights of FARMEE shall terminate and all rights granted herein in this
farmout shall end and revert to FARMOR.
ASSIGNMENT
4.1 Upon drilling of the Test Well by FARMEE, FARMOR shall execute and
deliver to FARMEE, a recordable assignment covering all of FARMOR'S right, title
and interest in and to the Leases, except the presently producing formation,
insofar as the Leases cover the Farmout Acreage. Such assignment shall be made
subject to the following:
a. the terms and provisions of the Leases;
b. the reservation by F ARMOR of an overriding royalty equal to the
excess working interest above 78.5% net working interest, of the oil,
gas and all other hydrocarbons in, under and that may be produced,
saved and marketed from the Leases, insofar as the Leases cover the
Farmout Acreage; provided, however, that such overriding royalty shall
bear, absorb and be reduced by all royalties and overriding royalties
outstanding, under or against the Leases, insofar as the Leases cover
the Farmout Acreage, as of the date of this agreement, and provided,
however, that such overriding royalties shall be subject to being
proportionately reduced in the event the Leases cover less than the
entire mineral fee estate in the Farmout Acreage, and/or FARMOR owns
less than all of the working interest in and to the Farmout Acreage;
and
c. the terms and provisions of this agreement.
4.2 The effect of the foregoing assignment will be to vest title unto
FARMEE of an undivided 78.5% of 8/8 net revenue interest in and to the oil, gas
and all other hydrocarbons in, under and that may be produced, saved and
marketed from the Leases, insofar as the Leases cover the Farmout Acreage. The
foregoing assignment shall be dated to be effective as of the date of
spudding-in of the Test Well, as the case may be, and the assignment will be
executed without warranty of title, express or implied.
RIGHT TO POOL AND UNITIZE THE LEASE OR THE FARMOUT ACREAGE
5. FARMOR and FARMEE do hereby understand, acknowledge and agree that
FARMEE, its successors and assigns, shall have the right to pool and/or unitize
all or any portion of the Farmout Acreage with any other lease(s) and/or 1and(s)
unless limited by the terms of the leases being farmed out.
NOTICES. REPORTS AND ACCESS TO FARMOUT ACREAGE
6. Upon request, FARMOR shall be notified by FARMEE of all tests
conducted on any well drilled on the Farmout Acreage, or on land pooled
therewith, and F ARMOR shall have access to the Farmout Acreage, or on land
pooled therewith, at all reasonable times at its sole risk to inspect or observe
all operations conducted by FARMEE under the terms of this Agreement, and shall
have access at reasonable times to information pertaining to the development or
operation thereof. FARMEE, upon request, shall furnish FARMOR with copies of all
forms or reports filed with governmental agencies, daily drilling reports and
well logs and copies of written well test information.
TITLE INFORMATION
7. FARMOR shall furnish FARMEE with copies of all information
pertaining to the title to the Leases or the Farmout Acreage (including any and
all runsheets, xxxxxxx reports, abstracts, title opinions and curative
materials). FARMEE, at its sole cost and expense, may obtain any additional
title information it may desire. Any well drilled or caused to be drilled
hereunder shall not be commenced unless FARMEE shall have satisfied itself that
title to the Leases, insofar as the Leases covers the Farmout Acreage, is
approved for drilling and that the title to FARMOR thereunto as described herein
is valid and supportable. FARMEE may waive any. title requirements it may, in
its sole discretion, consider necessary, advisable or appropriate to waive.
GEOLOGICAL INFORMATION
8. FARMOR shall furnish FARMEE with all seismic and geological maps,
studies, analysis and information pertaining to the Leases or the Farmout
Acreage. XXXXXX shall have the right, at FARMEE's sole expense, to make copies
of such seismic and geological data.
WARRANTY BY FARMOR
9. FARMOR warrants that the leases being fanned out are in force and
effect, that all royalties have been paid, that the leases are free :from liens,
mortgages, or other encumbrances, and that FARMOR has the right to enter into
this Farmout Agreement
MISCELLANEOUS
10.1 For any well drilled on the Farmout Acreage, FARMEE agrees to
conduct its operations in a good and workmanlike manner and perform such
operations as would a reasonably prudent operator under the same or similar
circumstances and conditions. FARMEE also agrees to abide by the terms and
conditions of the Leases and FARMEE shall conduct operations hereunder in
compliance with applicable laws and ordinances and applicable governmental
rules, regulations, and orders.
10.2 Any notice required or permitted to be given hereunder may be
deemed to have been properly given (a) by telefax, followed by hard copy via
regular U.S. Mail, (b) by certified or registered U.S. Mail, return receipt
requested, or (c) three days after deposited in the U.S. Mail, with first-class
postage affixed, addressed to the party to whom notice is intended at the
following address of each party:
FARMOR: Xxx X. Xxxxxxx & Xxxxxx X. Xxxxxxx
Office: (000) 0 00x 0000
Fax: (000) 000-0000
Xxx 000
Xxxxxxxxxxx,XX00000
XXXXXX: Paluca Petroleum, Inc.
Attn: Xxxxxxx Xxxxxxxxx
X.X. Xxx 0
Xxxxxxxxxxx, XX 00000
Office: (000) 000-0000
Fax: (000) 000-0000
or at such other address as may from time to time be designated by the parties
hereto in writing.
10.3 Any provision hereof to the contrary notwithstanding, the parties
hereto do not intend and neither this agreement nor any action hereunder by any
party shall be construed or interpreted to create a partnership, mining
partnership, joint venture, association for profit or other relationship whereby
any party shall become liable for the acts or obligations of another party, and
the relationship created hereby shall be solely that of tenants-in-common. Each
of the parties hereto also agrees to execute whatever documents that may be
necessary to be excluded from the application of Subchapter K of Chapter I of
Subtitle A of the Internal Revenue Code of the United States.
10.4 This agreement shall extend to and be binding upon the parties
hereto, their respective successors and assigns.
10.5 The provisions of this agreement constitute the complete agreement
of the parties hereto with respect to the subject matter hereof. and supersede
all previous agreements, whether written or oral, with respect thereto.
10.6 This agreement is made and entered into in Holdenville, Oklahoma,
and is governed by the laws of the State of Oklahoma. The exclusive venue of any
action arising hereunder shall be in Xxxxxx County, Oklahoma.
10.7 In the event either party hereto has to file suit to enforce the
terms of this agreement the successful party shall be entitled to recover its
costs and reasonable attorney fees.
10.8 Time is of the essence in this agreement.
10.9 FARMEE shall not interfere with FARMOR'S access to the existing
well.
IN WITNESS WHEREOF, this agreement is executed by each of the parties
hereto on the date set opposite their name below, but shall be effective as of
the date first above written.
FARMOR FARMEE - Paluca Petroleum, Inc.
By: /s/ XXXXXXX XXXXXXXXX
_____________________
Xxxxxxx Xxxxxxxxx
President
_____________________
Xxx X. Xxxxxxx
/s/ XXXXXX X. XXXXXXX
_____________________
Xxxxxx X. Xxxxxxx
ACKNOWLEDGMENT
STATE OF OKLAHOMA )
) SS
COUNTY OF XXXXXX )
Subscribed and sworn to before me this 21st day of April, 2004, by Xxx X.
Xxxxxxx and Xxxxxx X. Xxxxxxx.
My Commission Expires:
fAp
/s/ XXXXX XXXXXXXXX
__________________________
Xxxxx Xxxxxxxxx
Notary Public - Commission
ACKNOWLEDGMENT
STATE OF OKLAHOMA )
) SS
COUNTY OF XXXXXX )
Subscribed and sworn to before me this 21st day of April, 2004, by
Xxxxxxx Xxxxxxxxx, as President of Paluca Petroleum, Inc.
ofA
/s/ XXXXX XXXXXXXXX
__________________________
Xxxxx Xxxxxxxxx
Notary Public - Commission
