Participation Agreement:
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Coalinga Nose Prospect
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(Revised March 1, 2001)
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A. Production Specialties Co. (Production) has entered into a farm out agreement
dated January 31, 2001 with Greka AM Inc. (Greka) and Production has further
farmed out to Brothers Oil and Gas (Brothers) a portion of the Greka farm out.
Brothers hereby offers Middlegate Investments Inc. (Optionee) an option to
participate in a 5% working interest in the farm out set out in Exhibit A
attached on the following basis:
a) Payment to Brothers of $5,000 US as a non-refundable deposit on signing this
agreement no later than March 5, 2001.
b) Payment of $12,500 US on March 9, 2001 after receipt of the due diligence
report and acceptance of the report by Optionee.
c) Payment of $42,500 US on or about May 1, 2001. This final payment completes
the exercise of the option and funds the estimated dry hole cost of the initial
test well on the project and related lease costs.
B. Brothers represents the following:
a) Production has entered into a heads of agreement and farm out with Greka
dated January 31, 2001
b) Production has entered into a farm out agreement with Brothers to be dated as
of January 31, 2001.
c) Terms of farm out to Brothers:
1) Brothers pays $15,000 US to Production on signing
2) Brothers pays $112,500 US to Production on completion of satisfactory
due diligence.
3) Brothers pays $425,000 US to Production prior to spudding the initial
test well.
4) Farmees earn as follows:
i) Pool A:
Initial Test Well
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Farmees pay 100% of working interest to earn a 69% net revenue
interest before payout. After payout. Greka backs in for 25%
working interest and farmees earn 52.50% net revenue interest.
Development Xxxxx
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Farmees pay 75% working interest to earn 52.50% net revenue
interest.
ii) Pool B:
Farmees pay 50% working interest to earn 38% net
revenue interest.
iii) On additional prospects, Brothers and Production
are negotiating a 50/50 farm out as in 4)(ii). but
do not guarantee this conclusion.
C. All parties agree:
a) To execute a mutually satisfactory 1992 AAPL Form 610 operating agreement
naming Production or its nominee as operator. This agreement will contain,
"custom of the trade" provisions.
b) To execute such other agreements as are deemed reasonable and necessary to
implement the intent of these agreements.
D. Optionees represent:
a) They have received adequate information on which to base their participation.
b) They agree that in the event of any failure to pay their share of the
non-refundable, due diligence, or initial (unintelligible) well payments,
Brothers may, at its option, cancel these agreements and retain funds advanced
as liquidated damages.
Please execute (unintelligible) copy and mail to: Send payments to:
Brothers Oil and Gas Inc.
Brothers Oil and Gas Inc. X/X (xxxxxxxxxxxxxx)
Xxx 00 Xxxx Xxxxxxxx Xxxx.
Xxxxxxxxx, XX V___ 1P1
(unintelligible) Island, BC
VON 2Y0
Or wire to:
Fax an executed copy to Bank of America, University Branch (7151)
250- 839-5863 0000 Xxxxx Xxxxxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxx 00000
(000)000-0000
Transit # 000000000
Account # (unintelligible)
Optionee Optionee
Brothers Oil and Gas Inc. Middlegate Investments Inc.
Signature:(unintelligible) Signature:(unintelligible)
3rd Floor Bahamas Financial Center
Phone (000) 000-0000 Xxxxxxx and Xxxxxxxxx (unintelligible)
Nassau, Bahama
Exhibit A
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Lessors: Greka AM and Nahama Energy
Acreage: 5000 acres + located in Fresco County, California
Optionees: receive due diligence report by Xxxx Xxxxxxxx P.E. dated February,
26, 2001 (attached as Exhibit B)
Farm out terms (100%) Interest
a) Non refundable deposit on signing agreement: $50,000 US
b) Payment for completion of satisfactory due diligence: $300,000 US
c) Estimated dry hole and lease payment due on or about
May 1, 2001: $850,000 US
$1,200.000 US
Production Specialties or Nominee to be operator of this prospect.
Initial Test Well #1 (Pool A)
a) Optionees pay 100% working interest to earn 59% net revenue interest before
payout. After payout, Greka et al back in for a 25% working interest and related
net revenue interest.
b) On development xxxxx, in Pool A, drilling and earning will be on a heads up
basis (75% working interest Optionees/ 25% working interest Greka et al).
Optionees will earn 52.50% net revenue interest before and after payout.
Initial Test Well (Pool B)
a) 180 days after the completion of a successful test well on Pool A, a second
test well will be spudded with Optionees having a 50% working interest and Greka
et al a 50% working interest.
b) All subsequent xxxxx on this pool will also be a 50/50 heads up basis.
Exh.10.2
