PERMIAN ENERGY SERVICES, L. P.
P.O. Box 433
Andrews, Texas 79714
Office: (000) 000-0000 Fax: (000) 000-0000
December 24, 2004
Xx. Xxxxx Merriam
Wyoming Energy Corporation
Torrington, Wyoming
Re: Assignment of Partial Ownership Rights of the DayStar Oil & Gas
Contract for the Humble Cap Rock Leases
Dear Xx. Xxxxxxx:
This Agreement ("AGREEMENT") memorializes discussions between Permian Energy
Services, L.P. hereinafter referred as ("PES") and the Wyoming Energy
Corporation, hereinafter referred to as ("WEC") relating to the assignment of
the identified ownership percentage of the DayStar Oil & Gas contract for the
development of the Humble Cap Rock Leases, See Attachment "A".
The "Humble Cap Rock Leases" consist of approximately 50 acres and all
indigenous well bores, right-of-ways, mineral rights in the shallow producing
zones (less than 1000'), surface equipment, pipeline gathering lines, or any
other related right, option, or privilege relating to the defined perimeters
of the lease hold acreage. Specific leases on the Cap Rock Property include
the Cherry and Xxx leases. Estimated Proved Undeveloped Reserves ("PUD's")
are 600 Barrels per acre foot. With an average net pay of 60 feet, this makes
for 36,000 Barrels per acre or 1.8 million barrels of oil on the 50 acres. A
full inventory of assets and legal description of all property will be
provided by XxxXxxx.
I. Assignment of the DayStar Oil & Gas Contract
X. XXX agrees to assign FIFTY PERCENT (50%) ownership of the DayStar Oil & Gas
Contract to WEC depending upon the amount and schedule of the funding
commitment on the part of WEC.
B. Accounting formats and procedures shall be supervised and approved by both
PES and WEC.
C. PES and WEC recognize the element of risk in any oil and gas venture. XXX
makes no claims of overall success of the Thermal Pulse technology as it
pertains to the DayStar Humble Cap Rock Project. Furthermore, PES makes no
guarantees as to the repayment of investment on the part of WEC or its
investors.
Initialed: PES_________
WEC_________
II. Phase One Funding Commitment and Ownership Percentages
A. Phase One Funding shall cover all projected costs for the Test & Evaluation
Period of the Humble Cap Rock Development.
B. On or before December 28, 2004, WEC will contribute a minimum of FORTY
THOUSAND DOLLARS ($40,000) into PES's checking account at the National Bank
of Andrews, Andrews, Texas. In the event that WEC fails to make this
payment on or before December 28, 2004, this AGREEMENT will be cancelled in
its entirety.
C. On or before January 5, 2005, WEC will contribute an additional TWENTY
THOUSAND DOLLARS ($20,000) into the PES checking account. In the event that
WEC fails to make this payment on or before January 5, 2005, this AGREEMENT
will be cancelled in its entirety and WEC shall forfeit any money and
ownership rights to equipment, production payments, and future options
regarding the DayStar Humble Cap Rock Project.
D. On or before January 20, 2005, WEC will contribute an additional TWENTY
THOUSAND DOLLARS ($20,000) into the PES checking account. In the event
that WEC fails to make this payment on or before January 15, 2005, this
AGREEMENT will be cancelled in its entirety and WEC shall forfeit any money
and ownership rights to equipment, production payments, and future options
regarding the DayStar Humble Cap Rock Project.
E. On or before January 30, 2005, WEC will contribute an additional ONE
HUNDRED TWENTY THOUSAND DOLLARS ($120,000) into the PES checking account.
1. In the event that WEC fails to make this payment on or before January
30, 2005, this AGREEMENT will be cancelled in its entirety and WEC shall
forfeit any ownership rights to production payments and to future options
regarding the DayStar Humble Cap Rock Project and PES assets.
2. PES shall be free to solicit other third party funding to complete the
Test and Development Period.
3. Should WEC default on this final payment, PES will repay the WEC
investment as per Section IV F-1.
F. All payments out of this account will be pre-approved by a mutually
agreed upon system of Authorization For Expenditures (AFE). Projected
expenditures are detailed in Attachment "B".
G. All revenues from the oil and gas sales from the Humble Cap Rock Project
will be deposited into this same account.
H. Net ownership of DayStar Humble Cap Rock is defined as FIFTY PERCENT
(50%) of either the production revenue during the Test & Evaluation Period
and/or FIFTY PERCENT (50%) of the Working Interest should both PES and WEC
exercise their purchase option.
Initialed: PES_________
WEC_________
1. During the Test & Evaluation Period, WEC shall be entitled to all revenue
generated during the ninety-day period provided all payment amounts are made
within the prescribed time periods. This represents FIFTY PERCENT (50%) of
the net, production revenue of the entire project.
2. XxxXxxx will be entitled to the other FIFTY PERCENT (50%).
3. PES will be compensated through budgeted salaries and expense
reimbursements.
III. Cancellation
A. In the event that the Thermal Pulse Unit fails to economically generate
oil production, WEC will have the arbitrary right to terminate its involvement
in the DayStar Humble Cap Rock Project.
B. Should WEC elect to terminate its involvement, WEC shall be allowed to
reclaim any remaining investment money in the PES account.
IV. Phase Two Funding and Ownership Percentage
A. Following a successful Phase One program, Phase Two Funding shall refer to
the money needed for well expansion and development of the DayStar leases.
B. Should PES and WEC mutually decide to exercise their purchase option of
the Working Interest in the Cap Rock Leases, Phase Two Funding shall be
required.
C. The available Working Interest available to PES/WEC on the Humble Cap
Rock Project will be FIFTY PERCENT (50%); the Net Revenue Interest available
to PES/WEC is THIRTY SEVEN AND ONE HALF PERCENT (37.5%).
D. Upon mutual agreement to purchase the FIFTY PERCENT (50%) Working
Interest, WEC shall contribute up to an additional TWO HUNDRED AND FIFTY
THOUSAND DOLLARS ($250,000) in cash and/or bank guarantees for the development
of the Cap Rock Leases.
1. Payment of this Phase Two funding shall occur within three (3) business
days of signing the purchase agreement with DayStar.
2. Disbursement will be done through mutually agreed upon AFE's.
E. Should both WEC and PES mutually agree to exercise their purchase option
for the Working Interest of the Cap Rock leases, WEC will be entitled to
THIRTY SEVEN AND ONE HALF PERCENT (37.5%) of the net revenue payment and PES
will be entitled to TWELVE AND ONE HALF PERCENT (12.5%) of the net revenue
payment until WEC recovers its total "out of pocket" investment. Following
the repayment of WEC's total investment, the ownership percentages shall
change to WEC receiving TWENTY FIVE PERCENT (25%) and PES receiving TWENTY
FIVE PERCENT (25%).
a. The payment to either WEC or PES shall be subject to the monthly debt
service to DayStar for the purchase price of TWO HUNDRED THOUSDAND DOLLARS
($200,000).
Initialed: PES_________
WEC_________
b. The payment to either WEC or PES shall be subject to their proportionate
share of the Lease Operating Expenses.
F. Should PES or WEC collectively decline to participate in the purchase of
the Working Interest, each party will be free to seek other funding options or
to self fund the purchase agreement and Phase II development.
a. In the event WEC declines to participate yet PES wants to continue forward,
PES will repay WEC ONE HUNDRED PERCENT (100%) of the investment spent on the
Humble Cap Rock Project excluding personal expenses. Repayment shall be in
the form of a ONE year note, payable in equal installments and charged an
annual interest rate of TEN PERCENT (10%).
b. In the event that PES declines to participate yet WEC wants to continue
forward, WEC will pay PES as per Section V-A.
V. Options and Exclusions
A. PES shall grant to WEC the Right of First Refusal on any future development
with DayStar in Humble, Texas area at the same formula as the Cap Rock
Project.
B. PES shall grant to WEC the option to purchase its entire ownership position
for the Humble Salt Dome Project for the following:
1. Cash Payment of $100,000
2. TWO MILLION (2,000,000) shares of common stock of WEC.
3. TWO MILLION (2,000,000) warrants for future common stock purchases at
FIFTEEN CENTS ($.15) per share.
4. This option period shall be for a period of three (3) months beginning
January 1, 2005.
C. PES shall grant to WEC the right to participate at a minimum ownership
position of FIVE PERCENT (5%) in any future project utilizing the Thermal
Pulse Unit on an "in-situ" stimulation project in the state of Texas in
which PES solicits other third party contributions.
1. Cost for any ownership percentages will be determined by PES as it
relates to the size and amount of the offering at the time.
2. This option shall be for a period of TWO (2) years beginning on the
date in which WEC first contributes to the Humble Cap Rock Project.
VI. Future Corporate Merger Potential
X. XXX and WEC agree that it is the ultimate goal to merge both companies
and their respective assets. Both parties agree to negotiate in good faith
so as to finalize a mutually acceptable merger within a six (6) month time
period beginning January 1, 2005.
B. PES and WEC will operate as separate entities until such a time as there
is a legal and fully executed purchase or merger agreement between PES and
WEC.
Initialed: PES_________
WEC_________
1. Terms of the purchase or merger agreement will be subject to mutual consent
of both PES and WEC.
2. Valuation of PES shall reflect market conditions of PES's oil and gas
reserve base and PES's long term contracts for mobile well treating.
C. Should PES and WEC agree on a corporate buyout or merger, PES will become
a wholly owned subsidiary of WEC and shall retain its ownership of the BI-Comp
Contract and all patents owned by PES. PES will act as the operations entity
for any field development work and all individual well treating.
D. The merger between PES and WEC will include funding criteria, stock
options, management bonuses, Board of Director Positions (minimum of two),
and performance goals.
This AGREEMENT represents in total the terms and conditions of the contract
between PES and WEC. This AGREEMENT supercedes and cancels any previous
agreement, either verbal or written, between the two parties. This AGREEMENT
cannot be changed or modified without prior, written acceptance of both PES
and WEC.
In the event that PES and WEC enter into irreconcilable differences, both
parties agree to accept the decision of an independent panel of industry
savvy arbitrators to be no more in number than three (3) and to be chosen
under the standard procedures and guidelines of the National Board of
Arbitration. Each party will have the right to choose one (1) member of
the panel with the third member being chosen by an independent advocate of
the Board of Arbitration.
If the above terms are acceptable to both parties, signatures in the
designated space attest to approval and confirmation to the terms of
this AGREEMENT.
Sincerely,
Permian Energy Services, L.P.
By _________________________________
X. X. Xxxxx
Managing Member
AGREED TO AND ACCEPTED
this day of December, 2004:
By _________________________________
Xxxxx Xxxxxxx
Chairman
