FARMOUT AGREEMENT
EXHIBIT
10.2
THIS
AGREEMENT,
made
and entered into as of the ______ day
of
,
2007,
by and between ALTAMONT
OIL & GAS, INC.,
X.X. Xxx
000, Xxx Xxxx, XX 00000 and NUMBERS,
INC.,
0000
Xxxxxxxx Xxxxx, 00000 - 000 Xxxxxx, Xxxxxxxx, XX X0X 0X0, referred to as
“FARMOR”,
and
MAJESTIC
OIL & GAS, INC., CBM
Building, Cut Xxxx, XX 00000, hereafter referred to as “FARMEE”,
WITNESSETH:
WHEREAS,
Farmor
is the owner and holder of undivided interests in certain Oil and Gas Leases
covering lands situated in Pondera County-, Montana, more particularly described
on Exhibit “A” attached hereto, which lands are hereinafter referred to as the
“Subject
Lands”;
and
WHEREAS,
Farmee
has proposed the drilling of test xxxxx to explore for oil or gas at locations
on the Subject Lands, which xxxxx are hereinafter referred to as “Test
Xxxxx”;
and
WHEREAS,
Farmor
is
interested in seeing the Test Xxxxx drilled, and, if drilled in accordance
with
the terms and condi-tions hereof, Farmee shall have earned interests in the
Subject Lands to the extent hereinafter provided;
NOW,
THEREFORE, in
consideration of the mutual covenants, agreements, conditions and obligations
herein contained, it is agreed as follows:
ARTICLE
I.
Titles
1.1
Farmor makes no representations and warranties, either express or implied,
as to
the title or ownership of the Subject Lands. Farmor will furnish Farmee a copy
of any title opinions, leases, assignments, rental receipts or other title
data
which Farmor may have in its files concerning the Subject Lands. In the event
that Farmee desires to obtain and examine any other title data or to have
performed any title curative work, it may do so but at no cost or expense to
Farmor.
ARTICLE
II.
Initial
Test Well
2.1
Farmee, at its sole cost, risk and expense, shall commence or cause to be
commenced, the actual drilling of a Test Well at a location of its choice on
the
Subject Lands or on lands pooled or communitized therewith on or before
,
2007,
and shall thereafter drill the Test Well with due diligence and in a workmanlike
manner and in accordance with good oil field practices to a depth sufficient
to
penetrate the 4th Bow Island formation and shall complete the Test Well as
a
producing well, shut-in gas well, or dry hole within a reasonable time after
commence-ment. In the event Farmee should fail to timely commence the drilling
of Test Well or complete the Test Well as specified herein, then the only
consequence of such failure to perform shall be the forfeiture of
any
interest
to be earned by Farmee in the Subject Lands and the automatic termination of
this Agreement and all rights and privileges of Farmee hereunder.
2.2
In
the Event Farmee is unable to reach the objective depth -in drilling any Test
Well due to conditions beyond Farmee's control encountered subsurface, Farmee
may commence a substitute Test Well within thirty (30) days from the cessation
of drilling on the abandoned Test Well on a location of Farmee's choice on
the
Subject Lands and such substitute Test Well shall take the place of the
abandoned Test Well for all purposes hereof.
2.3
Notwithstanding the foregoing, Farmee shall remain liable for and indemnify
Farmor from any and all damages, liabili-ties or cause of action resulting
from
Farmee's actions relating to the Subject Lands.
ARTICLE
III.
Subsequent
Test Xxxxx
3.1
If
Farmee timely and properly drills the Initial Test Well provided for in Article
II hereof, whether completed as a producer of oil or gas, or plugged and
abandoned as a dry hole, Farmee shall have the exclusive right to drill
additional test xxxxx on the Subject Lands, or on lands pooled or communitized
therewith, at locations of Farmee’s choice in the same manner as provided for
drilling the Initial Test Well, provided, however, that Farmee shall drill
at
least two additional test xxxxx per calendar year.
3.2
Farmee shall have the continuing option to drill and earn interests in the
Subject Lands by drilling a minimum of two test xxxxx per calendar year. In
the
event Farmee fails to drill two xxxxx in any year, the only consequence shall
be
the forfeiture of any interest to be earned by Farmee in the Subject Lands
remaining undrilled by Farmee, but Farmee shall have and be entitled to all
interests theretofore earned under the terms of this Agreement.
ARTICLE
IV.
Assignments
of Interest
4.1
If
and when any Test Well is completed as a well capable of production, at Farmee’s
request, Farmor shall execute and deliver to Farmee the following assignments
as
may be appropriate, to wit:
4.1.1
Subject to Paragraphs 4.1.2 and 4.1.3 below, if any Test Well is completed
as a
well capable of producing oil or gas in paying quantities, Farmor shall assign
to Farmee fifty percent (50%) of Farmor’s leasehold working interest in the
production spacing unit applicable to said well as established by the
appropriate regulatory authority from the surface to the base of the lowest
stratigraphic horizon penetrated by drilling. In default of a production spacing
unit, said assignment shall cover the 40 acres upon which the well was
drilled.
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4.1.2
Each Test Well shall earn the interest set forth in Paragraph 4.1.1 only in
zones which do not have a produc-ible well existing in the Test Well’s spacing
unit or 40 acre tract at the time the Test Well is drilled. Farmor shall exclude
any such zones containing a producible well in the assignment made to Farmee
hereunder.
4.1.3
The
leasehold working interest assigned from Farmor to Farmee pursuant to Paragraph
4.1.1 hereof shall be made subject to landowner’s royalty and overriding royalty
burdens existing of record and as may be additionally created to convey to
Farmee its interests in an eighty percent (80%) net revenue interest lease.
-
Such assignment shall be in recordable form and/or on a form approved for
assignment by the State of Montana Department of Natural Resources and
Conservation and/or the U. S. Bureau of Land Management as and when applicable.
4.2
With
respect to any assignment made by Farmor to Farmee pursuant to Paragraph 4.1.1
hereof relative to a producing oil or gas well, then, as to each such well,
and
its permanent production spacing unit (as defined hereinafter), Farmor shall
be
deemed to have relinquished to Farmee, effective as of the date of first
production from such well, all of Farmor’s retained working interest and to such
well, the operating rights therein, and all equipment associated therewith,
and
all working interest production from said well, until such Test Well reaches
payout (as hereinafter defined). For purposes of this Agreement, “permanent
production spacing unit” shall be the spacing unit established by the Montana
Board of Oil and Gas Conservation or the participating area established by
the
federal government, whichever of the foregoing tracts is
applicable. Provided however, not withstanding anything contained herein, when the payout is achieved on any well, the Working Interest in such well shall be 50% to the Farmee and 50% to the Farmor (25% to Altamont Oil & Gas, Inc and 25% to Numbers, Inc).
4.3 “Payout”
shall be defined as that point in time, at the close of a calendar month, in
which the total costs and expenses of drilling, testing, completing, equipping
and operating the Test Well shall have been fully recovered by Farmee from
the
net revenue interest production accruing from such well to Farmee. However,
in
computing the net revenue interest production accruing to Farmee, no additional
burdens against Farmee’s working interest shall be included except for
pre-existing landowner’s royalty and overriding royalty burdens, it being agreed
that all net revenue interest calculations shall be made on the basis of an
eighty percent (80%) net revenue interest lease.
4.4 Farmee
shall maintain complete and accurate records of oil, gas, casing head gas,
and
other associated hydrocarbon substances produced, saved and marketed from each
such Test Well and shall furnish Farmor quarterly statements with sufficient
details to enable Farmor at all times to be currently informed as to the status
of the recovery of Farmee’s costs of drilling, testing, equipping, completing
and operating such Test Well.
ARTICLE
V.
Operating
Provisions
5.1
In
the event Farmee earns an assignment of interest in the Subject Lands, the
parties hereto shall enter into an Operating Agreement providing for operations
and sharing of costs and benefits on the Subject Lands within the production
spacing unit on which the Test Well is located or upon which future xxxxx are
drilled. Such Operating Agreement shall be effective as to each Test Well and
its production spacing unit from and after the date of first production from
such well Such Operating Agreement shall be the AAPL-610 Model Form Operating
agreement attached hereto as Schedule I.
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5.2
Altamont Oil & Gas, Inc. shall be designated as the Operator under the
Operating Agreement adopted by the parties hereto for operations on the Subject
Lands. It is understood and agreed, however, that said Operating Agreement
shall
be subject to the terms and provisions of this Agreement and whenever this
Agreement is inconsistent with the terms and provisions of said Operating
Agreement, then this Agreement shall prevail.
ARTICLE
VI.
Well
Information
6.1
At
all times during the drilling of any Test Well, Farmor, or its duly authorized
representatives shall, at Farmor's sole risk, have access to the xxxxxxx floor
and shall be entitled to receive all information during such operation,
including daily drilling reports showing the progress made in the Well and
such
other information as may be obtained in the conduct of any and all operations
on
the Well. Farmee shall furnish Farmor, at Farmee's cost and expense, copies
of
all logs run on the Well. Farmee shall take such cores and make such tests
as
would a reasonable and prudent operator under the same or similar circumstances,
and shall give Farmor hereto reasonable notice and sufficient time to have
a
representative present before any testing, coring or logging of a prospective
oil or gas zone. All such geological information shall be kept
confidential.
ARTICLE
VII.
Rentals
7.1
Farmee shall reimburse Farmor of one hundred percent (100%) of all rental
payments, if any, coming due and payable by Farmor as to the Subject Lands
during the time this Agreement is in force and effect. Upon Farmee earning
an
interest in the Subject Lands, subsequent rental or shut-in royalties will
be
paid by Farmee and shared in propor-tion to the parties respective working
interests therein.
7.2
The
party hereto responsible for payment of rentals shall diligently attempt to
make
proper payment, but shall not be liable to the other parties in damages for
the
loss of any lease or interest therein if, through mistake or oversight, any
rental payment is not paid or is erroneously paid.
ARTICLE
VIII.
Liability
of the Parties
8.1
Farmee shall, and does hereby indemnify and hold Farmor harmless from and
against any and all liens, encumbrances or claims for property damage, personal
injury or other damages to third parties resulting from or arising out of the
drilling, testing and completing of any Test Well. Farmee shall carry on all
operations hereunder as a prudent operator in accordance with good oil field
practices in strict compliance with all applicable laws, rules and regulations
of any governmental body or board having jurisdiction in the area of
operation.
8.2
The
liabilities of the parties hereto shall be separate and not joint or collective,
and each party shall be responsible for its obligations as set out herein.
This
Agreement does not create or
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evidence
any sort of a partnership, mining partnership, association or joint enterprise.
Each Party hereto elects to be excluded from the application of all provisions
of SubChapter K of Chapter 1, Subtitle A of the Internal Revenue Code of 1986
as
amended and makes the same election with respect to any state income tax laws
where such election is permitted.
ARTICLE
IX.
Insurance
9.1
At
all times during the drilling, testing and completing of any Test Well, Farmee
shall comply and cause subcontractors to comply, with the provisions of the
applicable workmen’s compensa-tion laws and shall carry and cause subcontractors
to carry insurance with reputable insurance companies meeting the following
minimum requirements.
9.1.1
Employer liability insurance covering each employee to the extent of $300,000.00
for each employee not covered by Workmen’s Compensation.
9.1.2
Public liability and property damage insurance or comprehensive general
liability insurance to the extent of $300,000.00 for injuries or death to one
person; $500,000.00 for injuries or death in any one accident; and $300,000.00
for property damage.
9.1.3
Automobile and public liability and property damage insurance covering all
automotive units to the extent of $300,000.00 for injuries or death to one
person; $500,000.00 for injuries or death in any one accident; and $300,000.00
for property damage.
ARTICLE
X.
Notices
19.1
All
notices, reports, information, data and other communications required or
permitted by the provisions of this Agreement to be given or sent by any party
hereto shall be deemed properly given or sent when delivered personally or
by
telephone, or if required to be in writing, mailed by certified or registered
mail, postage prepaid or given by telegram addressed to the party or parties
intended to receive the same at the respective addresses as
follows:
Altamont
Oil & Gas, Inc.
|
Majestic
Oil & Gas, Inc.
|
P.
X. Xxx 000
|
XXX
Xxxxxxxx
|
Xxx
Xxxx, XX 00000
|
Cut
Xxxx, XX 00000
|
Telephone:
(000) 000-0000
|
Telephone:
(000) 000-0000
|
ARTICLE
XI.
General
Provisions
11.1
The
article headings in this Agreement are for the purpose of convenience and
reference only and shall not be construed as interpretations of the
text.
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11.2
No
waiver on behalf of any of the parties hereto of any breach of the covenants,
conditions and provisions herein contained shall be effective or binding upon
such party unless the same be expressed in writing. Any waiver so expressed
shall not limit or affect such party's rights with respect to any other or
future breach.
11.3
Time
shall be of the essence hereof.
11.4
All
of the terms and conditions of this Agreement shall be construed as and shall
constitute covenants running with the oil and gas leasehold estate in the
subject lands and shall be binding upon and enure to the benefit of the parties
hereto and their respective successors and assignees.
IN
WITNESS WHEREOF, this
Agreement is executed by the parties herein as of the day and year first above
written.
FARMOR | FARMEE | |||
ALTAMONT OIL & GAS, INC. | MAJESTIC OIL & GAS, INC. | |||
By: | By: | |||
NUMBERS, INC. | ||||
By: |
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