TEXOIL, INC.
April 5, 2000
Trinity Energy Resources, Inc.
00000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxx Xxxxx
RE: Participation Agreement, Xxxxx Xxxxx Xxxxxxxx, Xxxxxx Xxxx Xxxx Xxxxxxxxx
Xxxxxx, Xxxxx
Dear Xx. Xxxxx:
This is the Participation Agreement between Texoil Company ("Texoil") and
Trinity Energy Resources, Inc. ("Trinity" or "Non-Operator") relative to the
drilling of an initial test well and subsequent operations in and on Texoil's
Xxxxx Xxxxx Xxxxxxxx, Xxxxxx Xxxx Xxxx, Xxxxxxxxx Xxxxxx, Xxxxx. The terms of
this Participation Agreement are as follows:
1.
OPERATING AGREEMENT
1. I Concurrently with the execution of this Agreement, the parties hereto are
executing the attached Operating Agreement, identified as Exhibit "A" and made a
part hereof for all purposes ("Operating Agreement"). The Operating Agreement
designates Cliffwood Production Co. as "Operator". Cliffwood Production Co. will
control all operations on the lands and leases covered by this Participation
Agreement. In the event of a conflict between the Participation Agreement and
the Operating Agreement, then the Participation Agreement shall prevail.
Texoil, Inc. - 000 Xxxxxxx Xxxxxxx Xx., Xxxxx 000 - Xxxxxxx, XX 00000-0000 Tel:
281/000-0000 - Fax: 281/000-0000
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1.2 The liens and security interests granted to Non-Operator by Cliffwood
Production Co., as Operator, and Texoil Company, as Non-Operator ("Texoil
Companies") under Article VII.B. of the Operating Agreement (a) shall attach to
the interests of both the Texoil Companies owned or hereafter acquired by either
of the Texoil Companies within the Contract Area for the Operating Agreement
including the oil, gas and mineral leases and personal property or fixtures on
or used or obtained for use in connection therewith, to secure the performance
of all of the obligations of both of the Texoil Companies under the Operating
Agreement, including, but not limited to, those set forth in Article VII.B. of
the Operating Agreement, and (b) shall include all of the interests and rights
set forth in Article VII.B. The other Non-Operators shall have all of the
applicable rights and remedies described in Articles VII.B., and the Texoil
Companies shall have all of the applicable rights, remedies and obligations
described in Article VII.B., the same as if fully set forth in this Section.
1.3 If Texoil Company, its affiliates or joint ventures controlled by Texoil or
its affiliates, no longer own an interest in the Contract Area, Cliffwood
Production Co. shall resign as Operator, except for selection of a new Operator
pursuant to the Operating Agreement.
2.
LEASES AND LEASE BURDENS
Texoil represents that it is the present owner and holder of the Oil,
Gas and Mineral Leases described on Exhibit "A" to the Operating Agreement
("Leases") covering approximately 1795.82 gross and 1584.95 net acres, subject
to the royalty interests reserved by the Lessors and overriding royalties in
favor of Xxxxxx Xxxxx in the Leases and the overriding royalty reserved by
Texoil as defined below ("Lease Burdens"). Texoil shall retain an overriding
royalty interest in the Leases equal to the difference between (i) twenty-five
percent (25%) and (ii) the sum of lessors' royalties and overriding royalty in
favor of Xxxxxx Xxxxx, proportionately reduced to the working interest acquired
by Trinity. Furthermore, Texoil shall retain an overriding royalty equal to the
difference between (i) twenty-five percent (25%) and (ii) the sum of lessors'
royalties and overriding royalty in favor of Xxxxxx Xxxxx, proportionately
reduced to the working interest acquired by Trinity, in any other leases
acquired within the Contract Area, which is defined in the Operating Agreement.
If Texoil acquires an interest in any other leases within the Contract Area with
lease burdens exceeding twenty-five percent (25%), Texoil shall reserve a
proportionate one-percent (1%) overriding royalty.
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3.
PROSPECT ACQUISITION FEE
3.1 As consideration for Trinity's interest in the Leases and the geophysical
information and data furnished by Texoil, Trinity agrees to pay Texoil the sum
of Eighteen Thousand Seven Hundred Fifty and No/ 100ths Dollars ( 18,750.00), in
cash, with the execution of this Participation Agreement as a "Prospect
Acquisition Fee". The Prospect Acquisition Fee does not include costs related to
the drilling of the Initial Test Well, the cost of title opinions, title
materials or curative work or the cost of oil, gas and mineral leases acquired
subsequent to the date of this Participation Agreement, nor does it include the
rental costs due subsequent to the date of this Agreement for any of the Leases
in the prospect.
3.2 Trinity will bear 6.25% of all costs related to the prospect including, but
not limited to, any and all lease acquisition costs and rentals. Trinity shall
have the option to acquire an additional 6.25% leasehold interest in this
prospect by notifying Texoil that it elects to acquire this additional interest
by May 1, 2000. Should Trinity elect to acquire this additional 6.25% leasehold
interest, then Trinity shall pay an additional $18,750 as a Prospect Acquisition
Fee and be responsible for 12.5% of all prospect costs. Additionally, all
interests herein shall be adjusted accordingly. Attached hereto as Exhibit "B"
is a land plat identifying the Xxxxx Xxxxx Prospect.
4.
INTEREST OWNERSHIP & PAYOUT
4.1 Subject to Section 3.2, Trinity will bear a six and one-quarter percent
(6.25%) working interest to Casing Point on the Initial Test Well and will earn
a 5.6250% working interest after Casing Point and prior to Payout (as defined
below). The net revenue interest in the Initial Test Well and prospect are
presently estimated at seventy- five percent (75.0%).
4.2 In addition, the working and net revenue interest referenced immediately
above will be proportionately reduced by fifteen percent (I 5%) at Payout of the
subject prospect and well. Such reversionary interest will be owned by Texoil.
Payout shall be defined as the first day of the month immediately following that
point in time when the cumulative net
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revenues derived from the Initial Test Well shall equal total unrecovered costs
paid by Trinity including the Prospect Acquisition Fee, leasehold, rentals and
related costs, the cost of drilling and completing said well plus the costs of
production facilities, all pre- production or other costs related thereto and
all costs related to the marketing and transportation of production and costs of
operating the Initial Test Well until Payout.
5.
ASSIGNMENT
Within fifteen (15) days following Trinity's acceptance of the
Participation Agreement and payment of the Prospect Acquisition Fee, Texoil will
execute and deliver an Assignment (with a special warranty and subject to the
Lease Burdens) to Trinity and Trinity's working interest (cost bearing, not net
revenue), subject to the other provisions of this Participation Agreement and
the Operating Agreement, shall be as follows: Drilling to Casing Point in the
Initial Test Well: 6.2500% Working Interest after Casing Point but prior to
Payout of the Initial Well: 5.6250% After Payout Working Interest in the Initial
Test Well: 4.6875% Working Interest in Subsequent Xxxxx: 4.6875%
6.
TITLE MATERIAL
Within ninety (90) days from the date of this Participation Agreement
and at the written request of Trinity, Texoil will furnish Trinity with copies
of all the Leases and any corresponding title material associated with the
prospect.
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7.
INITIAL TEST WELL
7.1 Before operations are commenced on the Initial Test Well, Operator will
fumishTrinity with an Authority For Expenditure ("AFE") to drill, evaluate and
plug and abandon the well(s). No more than thirty (30) days before operations
are commenced on the well, Operator will call for Trinity's working interest
share of the AFE, and Trinity will pay its share of the AFE within twenty (20)
days following receipt of the AFE. If Trinity has not paid its share of AFE
costs within said twenty (20) days, then Operator will send a final notice to
Trinity, granting Trinity an additional five (5) business days to pay Trinity's
share of said AFE costs. If all Non-Operators (including new participants) do
not tender the AFE costs and Texoil does not drill the Initial Test Well, Texoil
will return to Trinity its AFE costs applicable to the Initial Test Well.
7.2 In the event Trinity fails to timely pay its share of the AFE, Trinity's
rights hereunder will terminate without notice and the interest of Trinity shall
be subject to Article 9 below. The Prospect Acquisition Fee and any other costs
previously paid will not be refunded.
7.3 Subject to the receipt of the amount of the AFE from all Non-Operators,
availability of a suitable drilling rig and approval of title to the drillsite
lease and bottomhole location lease, Operator will commence operations to drill
the Initial Test Well at a legal location that is acceptable to Non-Operators on
or. before October 1, 2000. Operator will thereafter drill said Initial Test
Well with due diligence and in a workmanlike manner to the depth agreed upon
between the parties. The estimated objective formation(s) and depths of the
Initial Test Well are the (1) 6,700' Miocene sand, (2) 11,630' TVD/ 11,750' MD
Banfield sand, (3) 11,950' TVD/12,202' MDUpper Xxxxxxx sand, (4) 13,170'
TVD/14,123' MD Upper "S" sand, and (5) 13,650' TVD/14,879' MD Second Andrau
sand; the estimated total measured depth is 15,272' (13,900' TVD). The objective
formation and depths are defined as "Authorized Depth".
7.4 At such time as the Initial Test Well has been drilled to the Authorized
Depth agreed upon by the parties, Operator will run a Dual Induction or other
equivalent open hole electrical log from the total depth drilled to the bottom
of the surface casing, and such other methods and tools of evaluation that Will
insure proper evaluation of all formations in the well indicating hydrocarbons,
if under the then existing conditions, such methods of evaluation are prudent
("Casing Point").
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7.5 Within twenty-four (24) hours following Casing Point and all logs, cores,
and other tests have been completed, and the results thereof fumished to the
Non-Operator(s), each Non-Operator shall elect to:
(a) complete the well as an oil or gas well, or
(b) deepen the well, or
(c) sidetrack the well, or
(d) plug and abandon the well
7.6 If Operator recommends to complete, deepen or sidetrack the Initial Test
Well at Casing Point, Operator will fumish Trinity with an Authority For
Expenditure ("AFE") to complete (through sales point), deepen or sidetrack the
well, as applicable. No more than forty-eight (48) hours (if a rig is on
location) or five (5) days (if a rig is not on location) from receipt of such
AFE by Trinity, Trinity will pay its share of such AFE to Operator if it elects
to participate. Failure to timely pay its share of such AFE costs shall cause
Trinity's rights to terminate without notice and the interest of Trinity shall
be subject to Article 9 below. If all Non-Operators (including new participants
or Non-Operators acquiring Available Interests) do not tender their share of AFE
costs and Texoil does not complete, deepen or sidetrack the Initial Test Well,
Texoil will return to Trinity its share of AFE costs applicable to the
completion, deepening or sidetracking of the Initial Test Well. This provision
shall apply at Casing Point or other similar decision point as to each
recommendation to complete, deepen or sidetrack the Initial Test Well.
7.7 An election by a Non-Operator or Non-Operators representing the largest
percentage interest in the Initial Test Well, to complete the well as an oil or
gas well shall take precedence over an election to deepen the well, which shall
take precedence over an election to sidetrack the well, which shall take
precedence over an election to plug and abandon the well; provided, however,
that said well will not be plugged and abandoned if at least one Non-Operator
elects to complete said well and agrees to bear all costs attributable to such
operation. If Non-Operators cannot agree on the sand or formation in which to
complete the well, an election by a Non-Operator or Non-Operators representing
the largest percentage interest in the well to complete in a deeper sand or
formation shall take precedence over an election to complete in a shallower sand
or formation.
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7.8 If less than all Non-Operators elect to complete the well as an oil or gas
well, deepen or sidetrack the well, Article VI.B.2. of the Operating
Agreement shall not apply to such operations and the interest of the
non-participating Non-Operators shall be subject to Article 9 below.
8.
RELEASE OF LEASES & PAYMENT OF RENTAL OBLIGATIONS
8.1 If a Non-Operator elects to release, surrender or otherwise let a Lease or
interest therein expire, the interest of the party electing to surrender a Lease
shall be subject to Article 9 below.
8.2 Operator will be responsible for preparing and circulating monthly delay
rental obligation calendars to the Non-Operators. Monthly delay rental calendars
will be provided to the Non-Operators within forty-five (45) days of a rental
becoming due. Upon receipt of the calendar, Non-Operators will have fifteen (15)
days from receipt to make a formal written election. Failure to respond within
the fifteen (I 5) day time period will result in a forfeiture of Non-Operators
interest in and to those Leases. Non- Operators will then be subject to the
provisions of Article 9 below.
9.
DEFAULT/NON-CONSENT
9.1 In the event a Non-Operator:
(a) fails to timely pay in advance its share of the AFE pursuant to Article 7.1
hereof or timely pay its share of AFE costs pursuant to Article 7.6 hereof for
the Initial Test Well;
(b) elects not to participate in the completion, deepening or sidetracking of
the Initial Test Well at Casing Point or other similar decision point;
(c) elects to release a Lease or fails to pay for a Lease, renewal or extension;
and/or
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(d) elects not to pay a delay rental obligation
and if the "Non-Consent Operation(s)", as defined below, are conducted timely,
the "Non-Consenting Party", as defined below, shall reassign all of its interest
in the well or Leases to those parties who have elected to acquire the interest
of the Non-Consenting Party ("Available Interest"). Provided, however, (i) if
Trinity participated in drilling the Initial Test Well to the objective depth,
and (ii) the Non-Operators representing the largest percentage interest in the
Initial Test Well elected to deepen or sidetrack such well, and (iii) Trinity
elects not to participate in the deepening or sidetracking operation, then
Trinity shall retain all its rights down to the depth drilled prior to such
deepening or sidetracking operation and only the interest of Trinity in the
deepening or sidetracking operation as to the Contract Area shall be subject to
Section 9.3 below.
9.2 The elections pursuant to 9.1 (a) - (d) above are herein referred to as
"Non-Consent Operation(s)" and such non-participating or. defaulting
Non-Operator is referred to as a "Non-Consenting Party".
9.3 Operator will advise the other Non-Operators of the amount of Available
Interest. The other Non-Operators will, within twenty-four (24) hours (exclusive
of Saturdays, Sundays and legal holidays) after receipt of such notice, advise
Operator of each Non- Operator's election to:
(a) limit such Non-Operator's interest in the well, operation or Lease to which
the Available Interest applies, to such Non-Operator's original interest; or
(b) in addition to such Non-Operator's original interest, acquire such Non-
Operator's proportionate share, or more, of the Available Interest.
9.4 Failure to timely advise Operator of (a) or (b) above shall constitute an
election to limit participation to such Non-Operator's original interest, under
(a) above.
9.5 If the non-defaulting parties do not acquire all of the Available Interest,
Texoil will use its best efforts to obtain new participants for the remaining
Available Interest under terms and conditions of Texoil's choice. In the event
Texoil receives an offer from a prospective participant for the Available
Interest on terms more favorable than the terms on which Non-Operators acquired
their interest, Texoil shall not be required to offer such more favorable terms
to Non-0perators.
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9.6 Reassignment of the Available Interest by a Non-Consenting Party shall be
made immediately upon demand, without warranty, except as against the acts of
the assignor and free and clear of overriding royalty or similar burden, except
the Lease Burdens. Reassignment shall not relieve such Non-Consenting Party of
obligations and liabilities incurred prior to the date of the Non-Consent
Operation.
10.MISCELLANEOUS
10.01 Trinity or its representatives shall have the right, from time to time, by
appointment, to review and interpret, during normal business hours, any seismic,
lease data or other records in the possession of Texoil without charge to
Trinity. Trinity does not acquire any ownership or license to the seismic data.
10.2 This Participation Agreement will extend to and be binding upon Trinity and
Texoil, their representatives, successors and assigns forever.
If the foregoing correctly reflects Trinity's understanding of the Participation
Agreement, return one (1) executed copy of the Participation Agreement and the
Prospect Acquisition Fee to Texoil on or before, 5:00 p.m., April 19, 2000. If
this Participation Agreement is not timely executed and returned this
Participation Agreement may not thereafter be accepted without Texoil's written
consent.
Sincerely,
Texoil Company
Cliffwood Production Co.
By:
Xxxxx X. Xxxxxxxxx President
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AGREED TO AND ACCEPTED this 24th day of April, 2000.
TRINITY ENERGY RESOURCES, INC.
BY: /s/ Xxxxxx X. Xxxxx
Printed Name: Xxxxxx Xxxxx
Title: President / CEO
