AGREEMENT Masterson/Providence Area Cottle and King County, Texas

Exhibit 10.18

AGREEMENT

Xxxxxxxxx/Providence Area

Xxxxxx and King County, Texas

This Agreement (the "Agreement") is made and entered into this 1^st day of June, 2002, by and between TREK RESOURCES, INC. ("Trek"), whose address is 0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000, and P.C. XXXXX OIL PRODUCERS, INC. ("Xxxxx"), whose address is X.X. Xxx 0000, Xxxxxxx Xxxxx, Xxxxx 00000.

1.     The Leases, the JOA and the Contract Area

Trek owns the oil and gas leases numbered 1 through 4 (the "Trek Leases") described on Exhibit "A", insofar as such leases cover the lands delineated on Exhibit "A", which leases are hereinafter referred to collectively as the "Trek Leases";

Xxxxx owns the oil and gas lease (the "Xxxxx Lease") described on Exhibit "B", insofar as such lease covers the lands delineated on Exhibit "B";

Upon the execution and delivery of this Agreement, Trek and Xxxxx agree to enter into an operating agreement (the "JOA") in the form attached as Exhibit "C", naming Trek as the Operator, which operating agreement shall cover all of the oil and gas leases and lands described on Exhibits "A" and "B". The lands described on Exhibits "A" and "B" are collectively referred to hereinafter as the "Contract Area".

2.     Commitment Xxxxx

A. Within ten (10) day of the Xxxxx' execution of this Agreement, Xxxxx shall open a bank account (the "Special Drilling Account") at First American Bank and Xxxxx shall deposit $400,000.00 into such account. The Special Drilling Account shall be used to fund 100% of the cost to drill three xxxxx (the "Commitment Xxxxx") to casing point. Copies of all invoices received by Trek for charges incurred in drilling the Commitment Xxxxx shall be provided to Xxxxx upon Trek's receipt of same. Trek shall attempt to pay such drilling invoices in a manner to take advantage of any offered discount, but shall communicate with Xxxxx prior to making such payments.

The Commitment Xxxxx shall be drilled as follows:

B. Within 90 days of the funding of the Special Drilling Account as called for in 2.A. above, Trek will commence the drilling of a well (the "Initial Test Well") at a mutually acceptable location on the Trek Leases in either the SE/4 of Section 35 or the NE/4 of Section 38, X.X. Xxxxx Survey, and will prosecute the drilling of such well to a depth of 6,350 feet, or to a depth sufficient to test the Atoka Formation, whichever is deeper (the "Objective Depth"). In the event Trek and Xxxxx are unable to agree upon a location within the two quarter sections set forth above within ten days of Xxxxx' making the deposit called for in item 2.A. above, Trek will select a location within the two quarter sections set forth above for the drilling of the Initial Test Well. For purposes hereof, Casing Point shall be defined as that point in the drilling process after total depth has been reached, all open hole well tests have been performed and logs have been obtained. Upon reaching Casing Point, Trek and Xxxxx shall have the working interests as set forth in the JOA in the Initial Test Well. At Casing Point, Trek and Xxxxx shall each make an election to participate in such well or to be a non-consenting party in same, pursuant to the applicable provision of the JOA.

C. On or before 30 days after completion of the Initial Test Well, Trek will commence the drilling of a second well (the "Second Test Well") at a mutually acceptable location on the Trek Leases in either the SE/4 of Section 35 or the NE/4 of Section 38, X.X. Xxxxx Survey and will prosecute the drilling of such well to the Objective Depth. The Second Test Well will be located in the quarter section in which the Initial Test Well is not located. In the event Trek and Xxxxx are unable to agree upon a location within said quarter section for the Second Test Well within 5 days after completion of the Initial Test Well, Trek will select a location within said quarter section.

Prior to Trek's spudding the Second Test Well, Xxxxx shall deposit any funds needed to bring the account balance in the Special Drilling Account up to $200,000.00. The 30 day period in which to drill the Second Test Well as noted above shall be tolled until the Special Drilling Account has the requisite $200,000.00 balance.

Upon reaching Casing Point in the Second Test Well, Trek and Xxxxx shall have the working interests as set forth in the JOA. At Casing Point, Trek and Xxxxx shall each make an election to participate in the Second Test Well or to be a non-consenting party in same, pursuant to the applicable provision of the JOA.

D. Within 30 days after completion of the Second Test Well, Trek will commence the drilling of a third well (the "Third Test Well") within the NW/4 NE/4 or the NE/4 NW/4 of Section 39, X.X. Xxxxx Survey and will prosecute the drilling of such well to the Objective Depth. In the event Trek and Xxxxx are unable to agree upon a location within the two tracts set forth above for the Third Test Well within five (5) days after completion of the Second Test Well, Trek will select a location within said tracts. Trek and Xxxxx agree that the time period in which to begin drilling the Third Test Well shall be suspended from October 1 through February 28 to accommodate the surface owners.

Prior to Trek's spudding the Third Test Well, Xxxxx shall deposit any funds needed to bring the account balance in the Special Drilling Account up to $200,000.00. The 30 day period in which to drill the Third Test Well as noted above shall be tolled until the Special Drilling Account has the requisite $200,000.00 balance.

Upon reaching Casing Point, Trek and Xxxxx shall have the working interests in the Third Test Well as set forth in the JOA. At Casing Point, Trek and Xxxxx shall each make an election to participate in the Third Test Well or to be a non-consenting party in same, pursuant to the applicable provision of the JOA.

E. Trek will be the sole signatory party on the Special Drilling Account, however, all interest earned thereon shall remain in such account for use in drilling of xxxxx as set forth in this Agreement. The Special Drilling Account shall be used solely to provide funds for the Commitment Xxxxx. Notwithstanding the drilling cost estimate as set forth in the Authority For Expenditure (the "AFE") attached hereto as Exhibit "D" and the deposits into the Special Drilling Account as called for herein, Trek and Xxxxx agree that the Xxxxx' obligation to pay for the Commitment Xxxxx to Casing Point shall be based on actual cost incurred.

If, after the completion of the Third Test Well, there are funds remaining in the Special Drilling Account, such funds shall be immediately disbursed to Xxxxx, and such account will be closed.

If the cost to drill the Commitment Xxxxx to Casing Point exceeds the total amount deposited into the Special Drilling Account by Xxxxx, Trek shall notify Xxxxx of the amount and provide any requested documentation, and Xxxxx shall be obligated to pay such amount within fifteen (15) days of receipt of the request for such supplemental payment, unless a drilling rig is on location, in which case Trek shall issue the notice of an additional payment to Xxxxx by facsimile and the payment called for shall be due within three days of receipt of said notice.

3.     Existing Trek Xxxxx on the Contract Area

Trek and Xxxxx acknowledge that Trek currently operates the following xxxxx (the "Existing Trek Xxxxx") on the Contract Area:

X X Xxxxxx Nos. 1, 2, 3, 6, 7, 9 and 00

Xxxxxxxxx Xxxxx Xx. 0

The wellbores of the Existing Trek Xxxxx, together with any replacement xxxxx (the "Replacement Xxxxx") drilled within 200 feet of such xxxxx due to casing leaks or other mechanical failure, shall be excluded from the Contract Area and shall not be subject to the JOA. Trek shall maintain its 100% working interest in the Existing Trek Xxxxx or Replacement Xxxxx. Such xxxxx shall have allocated to them the minimum acreage (plus tolerance) required by the spacing rules of the Railroad Commission of Texas. Should those spacing rules be amended to allow increased density drilling, the acreage allocated to such xxxxx shall also be reduced to coincide with such new spacing rules.

4.    Cross- Assignments

Within 30 days after reaching Casing Point in the Third Test Well, Trek and Xxxxx will execute mutually acceptable cross assignments of interest as follows:

A. Trek will assign to Xxxxx 48% of Trek's interest in the Trek Leases, delivering an 80% net revenue interest to Xxxxx. Trek and Xxxxx acknowledge and agree that the Existing Trek Xxxxx will expressly be excluded from Trek's assignment to Xxxxx.

X. Xxxxx will assign to Trek 52% of Burn's interest in the Xxxxx Lease, delivering an 80% net revenue interest to Trek.

C. Even though cross-assignments will not be made until reaching Casing Point in the Third Test Well, the parties agree to immediately proceed with distributions of proceeds from any production from the Initial Test Well and/or the Second Test Well on the same basis as will be provided for in the cross assignments. The distribution to be made to Xxxxx shall be deposited into the Special Drilling Account as called for above, and shall be used to provide any requisite funding for drilling the Commitment Xxxxx to Casing Point.

D. All assignments will be made without warranty of title.

5.    Subsequent Operations after the Commitment Xxxxx

After the completion or plugging and abandonment of the Third Test Well, all subsequent operations on the Contract Area shall be undertaken pursuant to the terms of the JOA.

6.   Overriding Royalty Interests Held by Trek

Xxxxx acknowledges that Trek may own or retain certain overriding royalty interests in the Trek Leases, and that such overriding royalty interests are separate and apart from and do not merge into, Trek's net revenue interest as derived from Trek's working interest. Therefore, Trek's overriding royalty interests will never be shared with Xxxxx under this Agreement.

7.    Payment/Deposit Obligation

Xxxxx understands that the deposits/payments by Xxxxx as called for herein comprise a condition to obtaining an assignment in the Trek Leases or a contractual interest in the lands covered by the Trek Leases, and that the failure to satisfy such condition as aforesaid shall cause this Agreement to terminate ipso facto.

8.    Area of Mutual Interest

Trek and Xxxxx agree to establish an Area of Mutual Interest ("AMI") which shall consist of a one-half mile "halo" around the Contract Area. The AMI shall be effective as of the effective date of this Agreement. The AMI shall continue as long as the JOA is in force and effect. Should either party hereto, directly or indirectly, acquire an oil and gas lease from a mineral owner on an unleased tract within the AMI, or an assignment from a third party of a lease that has not previously been a producing lease, such party (the "Acquiring Party") shall immediately give written notice thereof to the other party, together with all pertinent details and information, including, but not limited to, legal description, costs, terms and conditions thereof. The non-acquiring party shall have ten (10) days from receipt of such notice to elect in writing to acquire its proportionate interest, under the same terms as the acquiring party, in the oil and gas leases by paying its proportionate share of the cost and assuming its proportionate share of the obligations. Failure to respond by the deadline stated herein shall be deemed an election not to participate in the acquisition as described in said notice. Failure to pay said proportionate share of costs within the same time period shall result in a forfeiture of the non-acquiring party's interest with the same effect as if said party had elected not to participate.

If the applicable lease acquired covers land both within and outside the AMI, the acquiring party may, at its option, offer either the entire interest or only that portion of the interest covering lands within the AMI. If less than the entirety is offered, the costs applicable to the offered interest shall be that portion of the total cost of the interest reduced to the ratio which the number of net acres covered by said interest and included within the AMI bears to the total net acres covered by said interest. If the entirety of the premises covered by the applicable lease is offered and the non-acquiring party acquires its proportionate interest, the AMI shall automatically be expanded to take in such additional lands and shall be subject to the terms and provisions of this Agreement. If two or more offerings are made in the same notice by an acquiring party, the non-acquiring party shall have a separate right of election as to each such interest.

Notwithstanding anything to the contrary above, Trek and Xxxxx agree that the following described lands shall be excluded from the provisions of this Paragraph 8. for so long as Xxxxx owns its present interest in the oil and gas leasehold estate thereof:

The North Half of Section 53 and the 27 acre triangle out of the Southwest corner of Section 39, A-474, all in the X.X. Xxxxx Survey, King County, Texas

9.    Force Majeure

Trek and Xxxxx shall not be liable to each other for any delays or damage or any failure to act hereunder (other than the failure to pay money) that may be due, occasioned, or caused by reason of any laws, rules, regulations, or orders promulgated by any federal, state, or local governmental agency or agency or any court of law or by the rules, regulations, or orders of any public body or official purporting to exercise authority or control respecting the activities and operations contemplated hereunder, or due, occasioned, or caused, directly or indirectly, by strikes, action of the elements, weather or water conditions, inability to obtain fuel or other critical materials or supplies, or any other cause beyond the control of the non-performing party. In the event of the occurrence of any of the foregoing, the obligations of the non-performing party shall be suspended during the continuance of any such event or condition, and the time permitted for performance under this Agreement shall be extended for a period of time equal to the period of such suspension.

10.   Entire Agreement

When executed by the duly authorized representatives of Trek and Xxxxx, this Agreement shall constitute the entire agreement between the Trek and Xxxxx, and shall supersede and replace any and all other writings, understandings, or memoranda of understanding entered into or discussed prior to the execution date hereof.

11.   Savings Clause

The invalidity of any one or more of the provisions of this Agreement shall not affect the remaining portions of this Agreement, and in case of any such invalidity, this Agreement shall be construed as if the invalid provisions had not been inserted.

12.   Notices

All notices between Trek and Xxxxx authorized or required by any of the provisions of this Agreement, unless otherwise specifically provided, shall be given in writing and delivered in person, by mail, courier service or telegram, postage or charges prepaid, or by telex or telecopier and addressed to the party to whom the notice is given as follows:

Trek Resources, Inc.

0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000

Xxxxxx, Xxxxx 00000

214.265.1161 Voice

000.000.0000 Fax

P.C. Xxxxx Oil Producers, Inc.

X.X. Xxx 0000

Xxxxxxx Xxxxx, Xxxxx

940.691.1215 Voice

000.000.0000 Fax

13.   Parties Bound

The terms, provisions, covenants and conditions hereof shall be deemed to be covenants running with the interests which are the subject hereof and as such, shall extend to, be binding upon and inure to the benefit of Trek and Xxxxx and their successors and assigns.

14.   Amendments

This Agreement may be amended, modified, changed, altered or supplemented only by written instrument duly executed by Trek and Xxxxx specifically for such purpose and which specifically refers to this Agreement.

15.   Conflicts

Except as otherwise specifically provided herein, in the event of conflict between provisions of this Agreement and the JOA, the provisions of this Agreement shall control.

16.   Governing Law

This Agreement and the exhibits attached hereto shall be governed by and interpreted in accordance with the laws of the State of Texas.

17.   Time for Execution

If this Agreement is not fully executed within 10 days of the date first written above, this Agreement and the rights of the parties hereunder shall be of no further force and effect.

EXECUTED as of the date written above.

TREK RESOURCES, INC.

By:_____________________________

Xxxxxxx X. Xxxxxxxxxx

Its: President

P.C. XXXXX OIL PRODUCERS, INC.

By:_________________________

Its:__________________________

Attachments

Exhibit "A": Trek Leases and the lands covered thereby

Exhibit "B": Xxxxx Lease and the lands covered thereby

Exhibit "C": Joint Operating Agreement

Exhibit "D": Authority For Expenditure

Exhibit "A"

(Trek Leases)

To Agreement dated June 1, 2002, between

Trek Resources, Inc. and P.C. Xxxxx Oil Producers, Inc.

Lease No. 1:
Date:	Xxxxxx 0, 0000
Xxxxxx:	Xxxx Xxxxx Xxxxxxxxxx, Individually and as Independent Executrix under the Will of X. X. Xxxxxxxxxx, Xx., deceased; Xxxxxxx X. Xxxxxxxx, joined by her husband, P. P. Xxxxxxxx: Xxxxx X. Xxxxx, joined by her husband, X. X. Xxxxx
Lessee:	X. X. Xxxxxxx
Recorded:	Volume 24, Page 485, Oil and Gas Lease Records, Xxxxxx County
Amended:	Volume 25, Page 394, Oil and Gas Lease Records, Xxxxxx County

INSOFAR AND ONLY INSOFAR AS SUCH LEASE COVERS THE FOLLOWING DESCRIBED LANDS:

	1891.60 acres out of the X.X. Xxxxx Survey describes as follows:
	TRACT I: Being the East 82.60 acres of Xxxxxxx 00, Xxxxxxxx 000;
	TRACT II: Being the North 373.30 acres of Xxxxxxx 00, X- 000;
	TRACT III: Being the North 353.00 acres of Xxxxxxx 00, X- 000;
	TRACT IV: Being the East 442.80 acres of Xxxxxxx 00, X- 000; and
	TRACT V: Being all 639.90 acres of Xxxxxxx 00, Xxxxxxxx 000,
Xxxxx Xx. 0:
Date:	September 22, 1973
Lessor:	Xxxx Xxxxx Xxxxxxxxxx, Individually and as Independent Executrix under the Will of X. X. Xxxxxxxxxx, Xx., deceased; Xxxxxxx X. Xxxxxxxx, joined by her husband, P. P. Xxxxxxxx: Xxxxx X. Xxxxx, joined by her husband, X. X. Xxxxx, X.X. Xxxxxx and wife, Xxxxx Xxxxxx
Lessee:	X. X. Xxxxxxx
Recorded:	Volume 25, Page 199, Oil and Gas Lease Records, Xxxxxx County

INSOFAR AND ONLY INSOFAR AS SUCH LEASE COVERS THE FOLLOWING DESCRIBED LANDS IN THE X.X. XXXXX SURVEY:

The North 353 acres of Xxxxxxx 00, X- 000

Lease No. 3
Date:	August 23, 1973
Lessor:	The First National Bank of Fort Worth, as Independent Executor and Trustee of the Estate of X. X. Xxxxxxxxx, Xx., deceased, and as Trustee for the Xxxxx X. Xxxxxxxxx Trust; X. X. Xxxxxxxxx, III, et al
Lessee:	H. S."Xxx" Xxxxxxx
Recorded:	Volume 11, Page 280, Oil and Gas Lease Records, King County, Texas

INSOFAR AND ONLY INSOFAR AS SUCH LEASE COVERS THE FOLLOWING DESCRIBED LANDS:

INSOFAR AND ONLY INSOFAR AS such lease is included in the 352 acre Designation of Gas Unit filed for the Xxxxxxxxx Ranch Xx. 0, XXX Xx. 00000, which Unit is recorded in Volume 13, Page 000, Xxx xxx Xxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx

Lease No. 4:
Date:	Xxxxxx 0, 0000
Xxxxxx:	Xxxx Xxxxx Xxxxxxxxxx, et al
Lessee:	X. X. Xxxxxxx
Recorded:	Volume 24, Page 488, Oil and Gas Lease Records, Xxxxxx County

INSOFAR AND ONLY INSOFAR AS such lease is included in the 352 acre Unit created for the X.X. Xxxxxx No. 3 Well, which Unit is recorded in volume 31, Page 210, Oil and Gas Records, Xxxxxx County, Texas

Exhibit "B"

(Xxxxx Lease)

To Agreement dated June 1, 2002, between

Trek Resources, Inc. and P.C. Xxxxx Oil Producers, Inc.

Date:	June 25, 2001
Lessor:	Xxxxxx Xxxxxxxx
Lessee:	P.C. Xxxxx Oil Producers, Inc.
Recorded:	Volume 165, Page 183, Official Public Records, Xxxxxx County, Texas
Description:	320 acres comprised of the following three tracts:
	127 acres out of Block 26, Subdivision "A", 3-D Ranch
	in Sections 35 and 36, X.X. Xxxxx Survey, A-471 and X-000,
	Xxxx 00 acres of the N/80 acres of Block 12, Subdivision "A", 3-D Ranch
	in Section 36, X.X. Xxxxx Survey, A-471
	130 acres, being the North 80 acres and the East 50 acres of the South 80 acres
	Block 27, Subdivision "A", 3-D Ranch
	in Sections 35 and 36, X.X. Xxxxx Xxxxxx, X-000 xxx X-000