AGREEMENT dated this 22nd day of August 2003 by and among Vaquero Partners
LLC, a Texas limited liability company ("VP") and Vaquero Oil & Gas, Inc., a
Texas corporation ("VOG"), together with VOG's principal shareholders Xxxx Xxxxx
("Xxxxx") and Xxxx Xxxxxxxx ("Xxxxxxxx").
WHEREAS, VOG and Dune Energy, Inc. ("Dune") are the only members of VP;
WHEREAS, VP has entered into a master lease with the Welder family dated
August 22, 2003 (as may be amended from time to time, the "Master Lease", a copy
of which has been provided to the parties hereto), pursuant to which VP has
acquired the rights to develop certain lands owned by the Welders in Victoria
County, Texas (the "Welder Lands") as set forth in the Master Lease;
WHEREAS, VP desires to exploit certain oil and gas prospects that may
exist on the Welder Lands either for its own account or for sales to third
parties; and
WHEREAS, Xxxxx and Xxxxxxxx have experience operating, generating and
selling oil and gas prospects.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Retention of VOG by VP; Duties. (a) Pursuant to the terms of
this Agreement, VP hereby retains VOG to act as its operator of record with
respect to the Welder Lands leased by VP under the Master Lease and to generate,
market and sell prospects to third parties on the Welder Lands.
(b) In connection with the foregoing, VOG at its sole expense shall
perform all duties necessary to generate, market and sell prospects on the
Welder Lands including, but not limited to the following:
(i) work-up, generate and sell prospects to third parties on
terms approved by VP;
(ii) secure necessary drilling and completion equipment for
preparation of AFEs and for the timely drilling of xxxxx called for
under prospect sales and as called for under the terms of the Master
Lease;
(iii) provide on-site supervision of drilling operations on
prospects sold and oversee field personnel to assure the highest
standards are delivered to third party working interest owners on
the most priced advantaged terms achievable;
(iv) designate a specific employee of VOG as an Environmental
Compliance Officer on behalf of VP, VOG and Dune to monitor and
ensure environmental compliance of well operations with local, state
and federal guidelines and laws;
(v) maintain all land records on acquired and assigned leases
in accordance with the highest industry standards including those
established by the AAPL;
(vi) procure all necessary insurance and/or bonds necessary
for the conduct of oil and gas well drilling, completion and
production operations including liability and blowout insurance;
(vii) negotiate operating agreements with third parties on an
AAPL form with terms to be approved by VP;
(viii) prepare and file all requisite local, state and federal
reports on well drilling and completion and production operations
and procure any necessary permits;
(ix) monitor the timely disbursement of royalties to
landowners and/or other interested parties in VP Operated properties
and as called for under Section III of the Master Lease;
(x) market all oil and gas produced from leases acquired by VP
on behalf of VP and all other third party working interest owners
and ensure timely remittances to working interest owners from agents
or principals purchasing such production; and
(xi) maintain vendor relationships by providing timely
remittances of rendered invoices (as approved by VP) in a time frame
consistent with industry standards.
In order to effectuate the intent of this Agreement, VOG, through its
principals, shall maintain a daily dialogue with VP's Manager, Xxxx Xxxxxxxxxx.
Additionally, on the first day of each month during the Term of this Agreement,
VOG shall prepare and submit to VP for VP's approval, a Plan of Operation and
Budget for that month. VOG shall also provide VP with a weekly progress report
on VP's goals and objectives and prepare such other reports regarding VP's
operations and budget as VP may from time to time request.
Section 2. Status as Independent Contractor. This Agreement does not
create an employer/employee relationship with VOG, its officers, directors,
employees or agents. All services to be rendered by VOG hereunder shall be
personally rendered by Xxxxx, Xxxxxxxx and such other employees of VOG as VP
shall consent to in writing. VOG, Xxxxx and Xxxxxxxx further acknowledge that
VOG shall render all services hereunder as an independent contractor and that
Xxxxx and Xxxxxxxx shall devote all of their time, energy and attention to
performing VOG's obligations hereunder. Under no circumstance shall VOG, its
officers, directors, employees or agents have the authority to enter into any
agreements, incur any obligations or otherwise bind VP or Dune, without the
express prior written consent from a duly authorized officer of VP or Dune.
Section 3. Term. The initial term of this Agreement shall commence on the
date hereof and shall continue for a period of two (2) years thereafter, unless
sooner terminated in accordance with the terms contained herein. The Agreement
shall automatically renew for additional terms of one (1) year each, unless
either party shall have delivered written notice to the other of its intention
not to renew this Agreement, not later than ninety (90) days prior to the
expiration of the then current term.
Section 4. Advances to Develop Oil and Gas Prospects. (a) In order to
enable VOG to perform its obligations hereunder, VP shall deliver to VOG (i)
$150,000 as a one-time advance on prospect development fees (the "Prospect
Development Advance"), payable in accordance with subsection (b) below, (ii)
91,667 shares Dune's common stock (having an agreed upon value of $.02 per
share) and (iii) commencing on the date that VOG leases its office pursuant to
Section 5 below, $25,000 on the first day of each of the first six (6) months
during the Term of this Agreement and $12,500 on the first day of each month
thereafter for the balance of the Term, for prospect development fees. It is
expressly understood that neither VOG, its officers, directors, employees or
agents shall be entitled to any other remuneration other than as specifically
set forth in this Section 4.
(b) With respect to the Prospect Development Advance, VOG
acknowledges that it has heretofore received $30,000 of said fee. VP shall
deliver the remaining balance of the Prospect Development Advance ($120,000) to
VOG as follows: (i) no later than five (5) business days following the execution
and delivery of the Master Lease to VP, $45,000 in cash and (ii) no later than
September 15, 2003, $75,000 in cash.
(c) VOG shall be responsible for all expenses incurred by it, its
officers, directors, employees and agents in connection with the performance by
VOG of its responsibilities and obligations hereunder including, but not limited
to, any costs associated with maintaining its office pursuant to Section 5
below. Notwithstanding the foregoing, VP shall bear the costs associated with
licensing the Seitel 3D data set and, for the first six (6) months of this
Agreement, of retaining one geologist and one geophysicist, on terms approved by
VP. Commencing on the seven (7) month anniversary of this Agreement, the expense
of retaining one geophysicist and one geologist shall be shared equally between
VP and VOG.
Section 5. Maintainence of Office. No later than twenty-one (21) days
following the date hereof, VOG, at its sole expense, shall lease an office at
such location as shall be approved by VP. Any such office shall have adjacent
office space readily available for lease by Dune and in no event shall VOG's
office be situated further than one (1) mile from any office maintained by Dune.
VOG's office shall be of sufficient size to accommodate Trapp, Williams, such
number of clerical support persons as are necessary to carry out VOG's
obligations hereunder and at least one additional technical
staff member who shall be a geologist or geophysicist. In addition, the office
shall have a conference room and adequate storage space to maintain books and
records. VOG shall be responsible, at its own expense, for furnishing the office
and for installing all necessary telecommunications equipment, computers and
associated software.
Section 6. Property Rights. All rights in and to all data, information,
surveys, reports, leases, agreements, practices and processes related to oil and
gas prospects developed or which may be developed on lands leased pursuant to
the Master Lease and any other agreement(s) between VP and the Welder family,
whether developed by VOG, Xxxxx, Xxxxxxxx or any of VOG's officers, directors,
employees, agents or affiliates, shall be and at all times remain the sole and
exclusive property of VP.
Section 7. Representations and Warranties of VOG. VOG and each of Xxxxx
and Xxxxxxxx represent and warrant as follows:
(i) VOG is a corporation duly organized, validly existing and in
good standing under the laws of the state of Texas, and has the corporate power
to own its properties and carry on its business as now being conducted;
(ii) Xxxxxxxx, Xxxxx and Xxxxx Xxxxx ("Xxxxx") own 45%, 45% and 10%
respectively, of the issued and outstanding shares of capital stock of VOG,
which together constitute all of the issued and outstanding shares of VOG's
capital stock. All of such shares are validly issued, fully paid and
non-assessable, with no personal liability attaching to the ownership thereof,
and are owned free and clear of any lien, encumbrance or claim whatsoever. There
are no rights, options, warrants, conversion rights or agreements for the
purchase or other acquisition from, or sale or issuance by, VOG, Xxxxx, Xxxxxxxx
and Xxxxx of any shares of its capital stock. No third party has claimed a right
or interest in VOG and neither VOG, Xxxxx or Xxxxxxxx have any knowledge
regarding such a possible claim.
(iii) There is not pending, or, to the best of VOG's knowledge,
threatened, any claim, litigation, proceeding, order of any court or
governmental agency against VOG, Xxxxx or Xxxxxxxx which could have a material
adverse effect on VOG or result in a lien on the shares of VOG capital stock
owned by Xxxxx and Xxxxxxxx; and
(iv) This Agreement and the transactions contemplated herein have
been duly authorized by all necessary corporate action on the part of VOG and
has been duly executed and delivered by a duly authorized officer of VOG.
Section 8. Representations and Warranties of VP. VP represents and
warrants as follows:
(i) VP is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Texas, and has the
company power to own its properties and carry on its business as now being
conducted; and
(ii) This Agreement and the transactions contemplated herein have
been duly authorized by all necessary company action and has been duly executed
and delivered by the duly authorized officer of VP.
Section 9. Covenants of VOG. VOG, Xxxxx and Xxxxxxxx hereby covenant and
agree that:
(i) whenever VOG is required to secure drilling and completion equipment
hereunder, it shall solicit such services and equipment on an arms length
competitive bid process;
(ii) as soon as practicable following the date hereof, VOG will enter into
an "Area of Mutual Interest" Agreement with VP and Dune with respect to all
lands held by the Welder family, its affiliates heirs and assigns, including a
"halo" of land owned by third parties lying within a fifteen (15) mile radius of
such Welder holdings;
(ii) neither, VOG, Xxxxx, Xxxxxxxx nor any of their respective employees,
officers, affiliates or assigns shall acquire (or have the right to acquire),
any direct or indirect beneficial interest in any of the goods, services or
equipment used by VP and other third party working interest owners in drilling,
completion and production operations;
(iii) VOG will not sell, negotiate, pledge or assign or grant any security
interests in its ownership Interest in VP nor shall it permit to exist any
mortgage, pledge, security interest, encumbrance or lien upon its Interest in
VP; and
(iv) at no time shall Xxxxx or Xxxxxxxx own less than 30% individually,
and 60% collectively, of the aggregate issued and outstanding shares of VOG,
unless they have obtained the prior written consent of VP.
Section 10. Termination. This Agreement may be terminated as follows:
(i) upon the mutual agreement of the parties signed in writing;
(ii) by VP in the event of a material breach of this Agreement by VOG,
Xxxxx or Xxxxxxxx, which breach remains uncured for a period of thirty (30) days
following delivery of written notice to VOG of such material breach;
(iii) by VOG in the event that VP has failed to pay to VOG any amounts due
under Section 4 hereof and such failure remains uncured for a period of thirty
(30) days following delivery of written notice to VP of such non-payment.
(b) Upon the termination of this Agreement, VOG shall no
longer be entitled to receive any compensation hereunder.
Section 11. Indemnification. Each of the parties hereto agree to indemnify
and hold harmless the other parties hereto from and against any loss, cost,
liability, or expense (including reasonable attorneys' fees) incurred by such
party by reason of the breach of any of the representations, warranties,
covenants and agreements of each party contained in this Agreement.
Section 12. Benefit. This Agreement and the rights, powers and duties set
forth herein shall, except as provided herein, bind and inure to the benefit of
the successors and assigns of the parties hereto. VOG many not assign any of its
rights or obligations hereunder without the prior written consent of VP, and any
attempted assignment without such consent shall be void and without effect.
Section 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Texas. VP and VOG each
agree that the federal or state courts located in the State of Texas shall have
exclusive jurisdiction in connection with any dispute arising out of this
Agreement.
Section 14. Notices. Any notice or other written communications required
to be given hereunder shall be given or made by any party hereto to the other in
writing and shall be delivered by personal service or first class mail, postage
prepaid, or overnight courier addressed to the party's address set forth as
follows:
if to VP: Mr. Xxxx Xxxxxxxxxx
00 Xxxxx Xxxxxx Xxxx
Xxxxxxx, XX 00000
with a copy to: Xxxxxxx Xxxxx, Esq.
Xxxxx & Xxx Xxxxxx
0 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
if to VOG, Xxxxx
or Xxxxxxxx: Xx. Xxxx Xxxxx
#0 Xxxx Xxxxxx
Xxxxxxxxx, Xxxxx 00000
AND
Mr. Xxxx Xxxxxxxx
0000 Xxxx Xxxxxx
Xxxxx, Xxxxx 00000
or at such other address as the parties may give notice of to the other
party. Notices or written communications shall be deemed to have been
sufficiently given or made: (i) if by personal service, when performed, (ii) if
mailed, three (3) days after being deposited in the mail, postage prepaid, or
(iii) if by overnight courier, one (1) day after delivery to the overnight
courier company.
Section 15. Entire Agreement. This Agreement constitutes the entire
Agreement between the parties hereto and supersedes any and all prior and
written agreements between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified or amended unless signed by the
parties hereto.
Section 16. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first set forth above.
VAQUERO PARTNERS LLC VAQUERO OIL & GAS, INC.
By: /s/ Xxxx Xxxxxxxxxx By: /s/ Xxxx Xxxxx
----------------------------- -----------------------------
Name: Xxxx Xxxxxxxxxx Name: Xxxx Xxxxx
Title: President Title: President
/s/ Xxxx Xxxxxxxx
---------------------------------
Xxxx Xxxxxxxx, individually
/s/ Xxxx Xxxxx
---------------------------------
Xxxx Xxxxx, individually
And with respect to Section
4(b)(i) only:
DUNE ENERGY, INC.
By: /s/ Xxxx Xxxxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxxxx
Title: President
