PARTICIPATION AGREEMENT RE: ZODIAC II PROSPECT, JEFFERSON DAVIS & CALCASIEU PARISHES, LOUISIANA
EXHIBIT
10.3
RE:
ZODIAC II PROSPECT, XXXXXXXXX XXXXX & CALCASIEU PARISHES,
LOUISIANA
This
Participation Agreement (“Agreement”) is made and entered into effective as of
the 7th day of June, 2006 (“Effective Date”), by and between Bayou City
Exploration, Inc. a Nevada Corporation (hereinafter “Company”) and True North
Energy Corp. (hereinafter “Participant”). Company and Participant are sometimes
hereinafter referred to, individually, as a “Party” and, collectively, as the
“Parties”.
WHEREAS,
Company
has identified a prospect for oil and gas (“Prospect”), known to the Parties as
the Zodiac 11 Prospect, and purchased, or is in the process of purchasing,
oil
and gas leases the (“Leases”) on such Prospect, and;
WHEREAS,
Participant has expressed a desire to participate with Company in the drilling
of a test well in search of oil or gas on the Leases or portions thereof and
in
the further development of the Leases, if warranted, and;
WHEREAS,
the
Parties desire to join together and enter into a final and binding agreement
to
fully express the terms and conditions which are to govern between the Parties
as to the development of the Prospect, and;
NOW,
THEREFORE,
for and
in consideration of the mutual covenants and promises herein contained, the
Parties hereby agree as follows:
| 13. |
JOINT
OPERATING AGREEMENT
|
Contemporaneously
with the execution hereof, the Parties shall execute the Joint Operating
Agreement (“JOA”) and Memorandum of Joint Operating Agreement, naming Bayou City
Exploration, Inc. (“Operator”). The executed JOA is attached hereto and
incorporated herein as Exhibit “A”. The JOA shall control the operations
conducted on the Prospect. Should there be a conflict between the terms and
conditions of this Agreement and the JOA, the terms and conditions of this
Agreement shall prevail.
| 14. |
LEASEHOLD
|
Company
represents, but does not warrant that it owns, or is in the process of
acquiring, certain oil, gas and mineral leases within the Prospect area as
depicted on the Plat labeled Area of Mutual Interest (“AMI”) attached hereto and
incorporated herein as Exhibit “B” to this Agreement.
| 15. |
PARTICIPANTS
INTEREST
|
Participant
hereby elects to earn a twenty five percent (25.0%) working interest in the
Leases pursuant to the terms of this Agreement and the JOA by participating
in
the drilling of the Test Well.
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| 16. |
PROSPECT
COSTS
|
Company
has an Agreement with Fairfield Industries (“Fairfield”) in which Fairfield will
pay for Geophysical and related reprocessing costs and Company will pay for
land
acquisition costs Fairfield and Company initially each own fifty percent (50%)
working interest in the Prospect. Company and Participant agree that for the
purposes of this agreement Geophysical costs will be considered equal to
Company’s land and prospect costs. Participants share of current land and
prospect cost to be charged by Company with respect to the Prospect, including
lease bonus, land brokerage, legal, engineering, surveying, unitization,
geological and geophysical costs which is $267,056.00 (“Prospect Costs”).
Participant will pay its share of such current and future Prospect Costs.
Participant agrees to pay the sum of $267,056.00 upon the execution of this
Agreement. The parties acknowledge that there may be additional expenditures
incurred by Company including but not limited to additional lease bonuses land
brokerage, drilling title examination, and curative. Appropriate and timely
xxxxxxxx and payments shall be made accordingly by the Parties. The entire
Prospect Costs are fully refundable in the event this Agreement is rescinded
by
Company for any reason or Company fails to cause the Initial Test Well to be
drilled for any reason. Because of multiple agreements made with other parties
and Fairfield which the data is subject to, Participant will not acquire any
leasehold interest in the area on lands covered by the data as shown on the
plat
attached hereto as Exhibit “C” unless Company gives written permission prior to
the acquisition of such leases.
| 17. |
INITIAL
TEST WELL
|
On
or
before December 31, 2006 (“Commencement Date”), subject to rig availability,
Company proposed to commence or cause to be commenced, operations for the
drilling of a test well (“Test Well”) in search of oil and/or gas at a legal
location of Company’s choice on the Prospect. The Test Well will be drilled with
due diligence and in a good and workmanlike manner to a depth sufficient to
test
the Siph D Formation or to a depth of 6600’ (TVD) and 8050’ (MD) beneath the
surface of the earth, whichever is the lesser depth (the "Objective
Depth").
| 18. |
SUBSTITUTE
TEST WELL
|
In
the
event impenetrable conditions which render further drilling impracticable are
met prior to reaching the Objective Depth in the Test Well, then, subject to
the
provisions of Section 5 above, for a period of ninety (90) days after making
the
election, either Party shall have the right to drill a substitute Test Well
to
the Objective Depth on the Leases or on lands pooled therewith. The substitute
Test Well shall be drilled under the same terms as the Test Well and the
substitute Test Well shall be deemed to be the Test Well for all purposes under
this Agreement.
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| 7. |
EXPENSES
FOR DRILLING THE TEST
WELL
|
Participant
shall bear and pay, in the percentages set forth below, its share of the costs
and expenses described below. Such payment shall be due and payable to Company
on or before fifteen (15) days after receipt of an invoice or invoices for
such
costs or any portion thereof.
|
A.
|
Thirty
three and one third percent (33.33%) of the costs and expenses incurred
in
drilling the Test Well (and any substitute well therefore) to casing
point, or to a lesser depth if impenetrable conditions are encountered
in
the well, and in plugging and abandoning the well if no completion
attempt
is made. The term “casing point” shall mean that point in time when the
Test Well has been drilled to the Objective Depth, logged, evaluated
and
Company has notified Participant that a completion attempt will be
made.
|
|
B.
|
Twenty
five percent (25.0%) of the costs and expenses incurred in completing
the
Test Well (and any substitute well therefore) and in equipping the
same
for production
|
| 8. |
SUBSEQUENT
XXXXX
|
As
to any
subsequent xxxxx drilled within the Prospect area, the Participant has the
option, but not the obligation, to participate in the drilling of such
subsequent xxxxx by paying twenty five percent (25.0%) of the costs and expenses
of drilling such well including the cost of completing such subsequent well
and
equipping the same for production. Should a party not elect to participate
in
such subsequent well such non-participating Party will be subject to the
provisions of Article VI section B of the JOA.
| 9. |
INTEREST
EARNED BY DRILLING TO OBJECTIVE
DEPTH
|
At
such
time as the Test Well has reached the Objective Depth and Participant has
elected whether or not to participate in the completion of the well at the
Objective Depth Participant shall have earned an undivided twenty five percent
(25.0%) of Company's leasehold interest in and to the Leases, subject to the
provisions of the Leases, this Agreement and the JOA.
Company
shall assign to Participant any interest earned, effective as of the date of
this Agreement, and such assignment shall be made within thirty (30) days after
the date on which the completion rig has been released or the date on which
the
Objective Depth has been reached which ever is later. The assignment shall
be
subject to, among other things, the terms and provisions of this Agreement,
the
terms and provisions of the JOA, and all royalties, overriding royalties,
payments out of production, and similar leasehold burdens affecting the Leases
and existing as of the Effective Date of this Agreement. The Parties acknowledge
the royalty burdens of Three percent (3.0%) owed to Seitel and Emce,Inc., as
a
result of agreements made with these parties. The drilling of additional xxxxx
on the Leases and the operation of the Test Well and any additional xxxxx on
the
Leases or lands pooled therewith shall be governed by the terms of this
Agreement and the provisions of the JOA when not in conflict with this
Agreement.
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| 10. |
WELL
INFORMATION -
CONFIDENTIALITY
|
The
Parties agree that all information, data and other materials, including but
not
limited to wire line logs, mud logs, geological interpretations, seismic data
(subject to all of the terms and conditions of any third party licensor or
agreement) and other production data (“Data”) which might be obtained or
accumulated is to be non-public, confidential and proprietary in nature, except,
that such Data can be shown to affiliated companies, reputable engineering
firms, gas transmission companies, reputable financial institutions, reputable
and financially responsible third parties with whom a Party to this Agreement
is
engaged in negotiations for the sale of some portion of the interest in this
Prospect, or any governmental entities requiring such Data. The Parties agree
that the Data may not otherwise be disclosed, sold, traded, or published with
out the prior written consent of Company. The Parties, their agents, consultants
and independent contractors, at their sole cost, risk and expense, shall have
access at all times to the xxxxxxx floor of all xxxxx drilled under this
Agreement and to all information in connection with the drilling and testing
of
all such xxxxx. Operator agrees to send the Parties daily drilling reports
reporting drilling information consistent with accepted industry standards
including but not limited to work done, depth drilled, the results of tests
made
and oil and gas shows encountered. Operator shall furnish the Parties all well
data acquired in connection with the drilling and producing of such xxxxx
including but not limited to copies of the surveyors location plat, all wire
line and mud logs, reports showing the results of all tests and any forms and
reports filed with any State or Federal Agency.
| 11. |
NOTICES.
|
All
notices and information to be given hereunder shall be in writing and shall
be
sent by United States certified mail, telegram, telex, facsimile, email,
overnight delivery service
or
telecopy, postage or charges prepaid and addressed to the Party to whom such
notice is given as follows:
| If to Company: |
Bayou City Exploration, Inc.
00000
Xxxxxxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Attention:
Xx. Xxxxxx Xxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email:
xxxxxxx@xxxxxxxxxxxxx.xxx
|
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| If to Participant: |
0000
Xxxxx Xxxxxx
00xx
Xxxxx
Xxxxxxx,
Xxxxx 00000
Attention:
Xxx
Xxxxxxx
Telephone: 000-000-0000
Email:
xxx@xxxxxxx.xxx
|
| 12. |
ASSIGNMENT
AND BINDING EFFECT.
|
This
Agreement shall inure to the benefit of and be binding upon the Parties and
their successors and permitted assigns. Neither Party may assign its rights
and
obligations under this Agreement without the prior written consent of the other,
which consent will not be unreasonably withheld, delayed or conditioned. In
the
event of an assignment, the assignee shall agree to be bound by the terms and
provisions of this Agreement, including any JOA provided for hereunder. In
the
event of such assignment the assigning Party shall be relieved from all
obligations thereafter accruing, but not theretofore accrued, with respect
to
the interest assigned.
| 13. |
ENTIRETY
OF AGREEMENT.
|
This
Agreement and the Exhibits attached hereto constitute the entire agreement
between the Parties with respect to the subject matter hereof, and there are
no
representations or other agreements between the Parties except as expressly
set
forth herein and included within the Exhibits attached hereto. Any amendment
to
this Agreement shall not be effective unless in writing and executed by the
Parties to this Agreement.
| 14. |
GOVERNING
LAW.
|
This
Agreement and the rights and obligations of the parties hereunder shall be
governed by and interpreted, construed and enforced in accordance with the
laws
of the State of Texas (excluding any conflict of law rules which would refer
to
the laws of another jurisdiction). This Agreement shall be performable in
Houston, Xxxxxx County, Texas and venue for any litigation to enforce a
provision hereof or construe this Agreement shall be in Houston, Xxxxxx County,
Texas.
| 15. |
RELATIONSHIP
OF PARTIES.
|
This
Agreement is not intended to create a relationship of partnership or an
association for profit between or among the Parties. It is expressly agreed
that
the obligations and liabilities of the Parties are several and not joint.
Nothing contained in this Agreement shall be construed to create or impose
a
partnership duty, obligation or liability on any of the Parties or an
association for profit between or among the Parties. Notwithstanding the
foregoing provisions, if, for federal income tax purposes, this Agreement and
the operations hereunder are regarded as a partnership, each of the Parties
elects, under the authority of Section 761(a) of the Internal Revenue Code
of
1986, as amended, and applicable issued regulations, to be excluded from the
application of all provisions of Subchapter K of Chapter 1 of the Internal
Revenue Code of 1986, as amended. Should there be any requirement that a Party
give further evidence of this election, such Party shall execute such documents
and furnish such other evidence as may be required by the Internal Revenue
Service or as may be necessary to evidence this election.
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| 16. |
TERM
OF AGREEMENT.
|
This
Agreement shall remain in force and effect for a period commencing on the
Effective Date hereof and, subject to the provisions hereof which
provide for an earlier termination,
ending
on the date on which the JOA terminates in accordance with the provisions of
Article XIII. of the JOA.
| 17. |
SEVERABILITY
|
If
any
term, provision or condition of this Agreement is held invalid, unenforceable
or
contrary to applicable laws, it shall be reformed to the extent necessary to
conform, consistent with the intention of the Parties, to such laws, and if
such
provision cannot be so reformed, it shall be deemed deleted and the validity
of
the other terms, provisions and conditions shall not be affected.
| 18. |
MISCELLANEOUS
|
A.
The
titles and the section headings contained in this Agreement are inserted for
convenient reference only and shall not be construed as limiting or extending
the meaning of any provision of this Agreement.
B.
This
Agreement and any documents to be executed pursuant hereto may be executed
in
multiple counterparts, each of which shall constitute an original and all of
which, when construed together, shall constitute but one and the same
instrument.
C.
The
Parties hereby agree to do, execute or procure to be done and executed, any
and
all further necessary acts, deeds, documents and things within their power
to
give effect to this Agreement and its intent.
D.
No
waiver of any term, provision or condition of or rights under this Agreement
shall be effective unless in writing and signed by an authorized representative
of the waiving Party. The failure of either Party to insist upon the strict
performance of any term, provision or condition of this Agreement shall not
be
construed as a waiver or relinquishment in the future of the same or any other
term, provision or condition.
E.
If any
action at law or in equity is necessary to enforce or interpret any of the
rights or obligations under this Agreement, the prevailing Party shall be
entitled to reasonable attorney’s fees, costs, and necessary disbursements from
the non-prevailing Party in addition to any other relief to which the prevailing
Party may be entitled.
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If
the
foregoing sets forth your understanding of our agreement, please so indicate
by
signing in the space provided below and returning one (1) original of this
Agreement to the undersigned.
BAYOU
CITY EXPLORATION, INC.
| By: | /s/ Xxxxxx Xxxxxx | |
| Name: Xxxxxx Xxxxxx | ||
| Title: President | ||
| TRUE NORTH ENERGY CORP. | ||
| By: | /s/ Massimiliano Pozzoni | |
| Name: Massimiliano Pozzoni | ||
| Title: Chief Financial Officer | ||
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