EXHIBIT 10.10
FARMOUT AGREEMENT
This Agreement is made and entered into this 14th day of July, 2004, by
and between 3MG FAMILY, INC., (hereinafter collectively referred to as
"FARMOR'), whose address is 0000 Xxxx 000 Xxxx, XxxxxxxxxXx, Xxxxxxxx 00000, and
PALUCA PETROLEUM, INC., (hereinafter collectively referred to as "FARMEE"),
whose address is P. O. Xxx 0, Xxxxxxxxxxx, Xxxxxxxx, 00000.
WITNESSETH THAT:
WHEREAS, FARMOR represents, without any warranty of title (express or
implied) except as is set out below, that FARMOR owns at least 79% 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, and set forth
in Exhibit "A" which is made a part hereof for all purposes, hereinafter
referred to as the "Leases", insofar as the Leases cover 320 gross acres of
land, more or less, described as follows:
North half (N/2) of Section 23, Township 7 North, Range 11 East, Xxxxxx
County, Oklahoma
(which land is hereinafter referred to as the "Farmout Acreage"); and
WHEREAS, FARMOR desires to produce the Booch formation, however, FARMOR
agrees to convey to FARMEE the right to develop and complete the Booch formation
if it should be the only formation shown to be a producer when drilling the Test
Well described below; and
WHEREAS, as to the remaining formations below the Booch, FARMOR and
FARMEE are desirous of providing for the exploration, development of formations,
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:
SECTION 1: TEST WELL
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 is given the right to commence, or 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 FARMEE 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 it 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.
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, XXXXXX 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.
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.
4. The FARMEE shall be liable for all surface damages in drilling the
Test Well or any Substitute Test Well.
SECTION 2: PAYMENT OF COSTS
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 thereunder.
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.
SECTION 3: FAILURE TO DRILL AND OPTION
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 agreement
shall end and revert to F ARMOR.
SECTION 4: ASSIGNMENT
1. Upon drilling of the Test Well by FARMEE, FARMOR shall execute and
deliver to FARMEE a recordable assignment in conformance with the
terms of this Agreement 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 79% 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 F ARMOR owns
less than all of the working interest in and to the Farmout Acreage;
and
c. the terms and provisions of this agreement.
2. The effect of the foregoing assignment will be to vest title unto
FARMEE of an undivided 79% 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.
SECTION 5: RIGHT TO POOL AND UNITIZE THE LEASE OR THE FARMOUT ACREAGE
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 land(s)
unless limited by the terms of the Leases being farmed out.
SECTION 6: NOTICES, REPORTS AND ACCESS TO FARMOUT ACREAGE
Upon request, F ARMOR shall be notified by FARMEE of all tests
conducted on any well drilled on the farmout Acreage, or on land pooled
therewith, and FARMOR 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.
SECTION 7: TITLE INFORMATION
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 material).
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.
SECTION 8: GEOLOGICAL INFORMATION
FARMOR shall furnish FARMEE with all seismic and geological maps,
studies, analysis and information pertaining to the Leases or the Farmout
Acreage. FARMEE shall have the right, at FARMEE's sole expense, to make copies
of such seismic and geological data.
SECTION 9: WARRANTY BY FARMOR
FARMOR warrants that the Leases being farmed 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.
SECTION 10: MISCELLANEOUS
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 reasonable prudent operator under the same or
similar circumstances and conditions. FARMEE also agrees to abide by
the terms and conditions of the Leases and FRAMEE shall conduct
operations hereunder in compliance with applicable laws and ordinances
and applicable governmental rules, regulations, and orders.
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: 3MG Family, Inc.
0000 Xxxx 000 Xxxx
Xxxxxxxxxxx, XX 00000
Office: (000) 000-0000
Fax: (000) 000-0000
FARMEE: Paluca Petroleum, Inc.
P. O. 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.
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.
4. This agreement shall extend to and be binding upon the parties hereto,
their respective successors and assigns.
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.
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.
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.
8. Time is of the essence in this agreement.
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
________________________ ____________________
Date: 7-14-04 Date: 0-00-00
XXXXXXXXXXXXXX
XXXXX XX XXXXXXXX )
) SS
COUNTY OF XXXXXX )
Subscribed and sworn to before me this 14th day of July, 2004, by Xxxx
Xxxxxxx, President of #MG Family, Inc.
fAp
/s/ XXXXX XXXXXXXXX
___________________________
Xxxxx Xxxxxxxxx
Notary Public - Commission
ACKNOWLEDGMENT
STATE OF OKLAHOMA )
) SS
COUNTY OF XXXXXX )
Subscribed and sworn to before me this 14th day of July, 2004, by
Xxxxxxx Xxxxxxxxx, as President of Paluca Petroleum, Inc.
ofA
/s/ XXXXX XXXXXXXXX
___________________________
Xxxxx Xxxxxxxxx
Notary Public - Commission #
