EXHIBIT 10.30
PARTICIPATION AGREEMENT
Xxxxxxx Prospect
WHEREAS; Xxxxx X. Xxxxxxx Exploration, Inc., herein referred to as "ESN", is
currently the owner of or has negotiated for or is in the process of negotiating
for the rights to acquire all or a portion of certain oil and gas properties
herein after referred to as the Xxxxxxx Prospect located in the T & P RR. Co.
Survey Block 22, Sections 20, 21, 29 & 30 and containing 1480 acres of land,
more or less, a description of which is attached hereto as Exhibit "A".
AND WHEREAS; ESN now plans to develop potential oil & gas reserves on the said
Xxxxxxx Prospect by initially drilling three new xxxxx (the "Initial Xxxxx") on
the prospect acreage, those being the ESN # 1-29 Xxxxx, located 750' FWL &
1,500' FSL of Section 29 , the ESN # 1-30 Xxxxx, located 467' FEL & 2,000' FNL
of Section 30, both located in Block 22 of the T & P Survey Xxxxx County, Texas,
and thereafter drilling of a third well on the Xxxxxxx Prospect acreage at a
location to be mutually agreed to by the parties hereto.
NOW WHEREAS; Falcon Natural Gas Corp., herein referred to as "Participant",
wishes to participate with ESN in the drilling of the said Initial Xxxxx on the
Xxxxxxx Prospect acreage as stated above for a 75% (seventy-five per cent)
working interest, being a 55.80% (fifty-five & 80/100 percent) net revenue
interest (after taking into account the assignment by Falcon of a 0.45% ORRI
pursuant to a consulting agreement with Wood Xxxxxxx, LLC.) on a AFE 1/3 for 1/4
basis under the following terms and conditions:
1. ESN shall charge and the participant shall pay to ESN the amount of
$36,750.00 per 40-acre location ("Location Fee") for all xxxxx drilled on
the Xxxxxxx Prospect and upon the execution of this agreement the
Participant agrees to pre-pay to ESN the amount of $110,250.00 (one
hundred ten thousand, two hundred fifty dollars) representing the
Participant's cost for three initial location fees for the above mentioned
Initial Xxxxx.
2. The Initial Xxxxx drilled subject to this agreement on the said Xxxxxxx
Prospect will be on an AFE 1/3 for 1/4 basis with the Participant paying
100% of the cost of drilling and completing into the tanks or pipeline and
receiving by assignment from ESN a 75% working interest, being a 55.80%
net revenue interest, Wood Xxxxxxx receiving by assignment a 0.45% ORRI,
and ESN retaining a 25% working interest, being an 18.75% net revenue
interest carried through drilling and completion into the tanks or
pipeline. Each of the Initial Xxxxx drilled or re-entered and thereafter
completed will earn a 40-acre production unit unless the minimum unit
required for such well to produce 100% allowable is greater, in which case
the production unit will be increased to satisfy such requirement and the
location fee will be proportionately increased accordingly.
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3. Subject to the terms of this agreement the parties hereto will drill two
xxxxx, those being the ESN # 1-29 Xxxxx well and the ESN # 1-30 Xxxxx well
at the locations set out above and then one additional well of which the
location will be mutually agreeable between the parties hereto, each well
being to a proposed depth of +/- 5,900' or deep enough to test the Canyon
Sand formation on legal drill site units as required by the Texas Railroad
Commission. Upon the execution of this agreement and payment of the three
Location Fees to ESN by the Participant, ESN shall immediately attempt to
schedule a drilling rig to drill the ESN # 1-29 Xxxxx and then immediately
thereafter the ESN # 1-30 Xxxxx, with the anticipated target spud date of
the first well being on or about May 1, 2006. Upon a drilling spud date
being confirmed by a drilling company ESN will notify the Participant of
the scheduled spud date and thereafter ESN shall invoice the Participant
for its share of the drilling cost for such xxxxx. On or before 30 days
from the scheduled spud date of each well the Participant agrees to pay to
ESN at ESN's address the amount of $343,556.72 for each scheduled well
which represents the Participant's estimated 1/3 for 1/4 share of the
drilling and testing cost as set out in the AFE attached hereto as Exhibit
"B". After the drilling and testing phase of each well ESN will notify
Participant of the findings and if a completion attempt is deemed
warranted by the parties, Participant shall have 72 hours from such notice
by ESN to pay to ESN at ESN's address the Participant's estimated share of
the completion cost for each well, that being $428,250.05 as set out on
the AFE attached hereto as Exhibit "B". Failure of the Participant to
submit its share of the drilling and testing funds for the first two
scheduled xxxxx within the allotted time period when invoiced by ESN shall
represent the Participant's decision not to participate in any of the said
Initial Xxxxx and by so doing shall cause the immediate automatic
termination of the Participant's right title and interest, if any, in and
to the Xxxxxxx Prospect and xxxxx drilled thereon, and from that time
forward neither party shall have any obligation to the other and ESN shall
retain all money previously paid by the Participant, with regards to the
Xxxxxxx Prospect, as liquidated damages, and not as a penalty, the parties
agreeing that the damages to ESN would be difficult to ascertain. Failure
of the Participant to submit its share of the drilling and testing funds
for any well subsequent to the first two xxxxx within the allotted time
period when invoiced by ESN shall represent the Participant's decision not
to participate in any subsequent xxxxx and by so doing Participant shall
(a) retain all Participant's earned right, title and interest, if any, in
and to completed xxxxx and those units drilled thereon by the parties, and
(b) cause the immediate automatic termination of the Participant's right
title and interest, if any, other than the retained earned interest, in
and to the Xxxxxxx Prospect acreage and subsequent xxxxx and those units
drilled thereon, and from that time forward neither party shall have any
obligation to the other, save and except in relation to the Participant's
retained earned interest, and ESN shall retain all money previously paid
by the Participant, with regards to the Xxxxxxx Prospect, as liquidated
damages, and not as a penalty, the parties agreeing that the damages to
ESN would be difficult to ascertain. Notwithstanding anything to the
contrary a dry hole will not earn any acreage allocated to the dry hole.
4. ESN will attempt to drill, and if prudent, complete each of said three
Initial Xxxxx for the estimated cost as set out in the AFE attached hereto
as Exhibit "B" with $343,556.72 being allocated to drilling & testing
cost, herein referred to as Drilling Cost, and $428,250.05 being allocated
to completion, herein referred to as Completion Cost, all being on a 1/3
for 1/4 basis, meaning that the Participant will pay 100% of the AFE'd
cost and shall receive 75% of the working interest and ESN shall receive
25% carried working interest.
5. After drilling each of the Initial Xxxxx, if a completion attempt is
deemed warranted by ESN and Participant, then ESN will notify the
Participant of such completion and ESN shall make available any
information available to ESN concerning each well and the Participant
shall have 72 hours from the date of notice from ESN to pay to ESN at
ESN's address, the Participant's proportionate share of the AFE Completion
Cost for each well as set out above. Failure of the Participant to pay its
share of the AFE Completion Cost within the allotted time will result in
Participant's decision not to participate in the completion of such well
and the immediate forfeiture of all right title and interest by the
Participant in and to the subject well and ESN and the Participant shall
have no further obligation to the other with respect to the said well and
drilling unit except that settlement of actual costs as set out in
paragraph 8 below.
6. In the event that by a prudent operator decision of ESN, total depth could
not be reached or a completion attempt is considered not possible or, not
prudent or warranted by ESN, then ESN will consult with the Participant
and upon mutual agreement the well will be plugged as per the requirements
of the Texas Railroad Commission unless otherwise agreed to by the
parties.
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7. A final accounting of actual costs will be made within 45 days of plugging
or completion of each well. (A well shall be deemed completed when it is
hooked up and capable of producing into the tanks and/or pipeline.) Once a
final accounting of the actual Drilling Cost and/or Completion Cost is
made by ESN and if the AFE amount paid for the Drilling & Completion by
the Participant is more than the actual final cost then ESN will
immediately refund to the participant such overage. However, if said
actual cost is more than the AFE previously paid by the Participant, then
the Participant hereby agrees to immediately pay to ESN such difference.
8. The AFE attached hereto as Exhibit "B" sets out an estimate for Drilling
and Completion Costs for each of the Initial Xxxxx and shall be approved
by the Participant upon the execution of this agreement. Those costs so
designated by an asterisk (*) shall be fixed costs and shall not be either
more or less than that amount as set out in the AFE and shall be
relatively the same for all xxxxx drilled on the Xxxxxxx Prospect Acreage.
All other costs not designated by an asterisk may be adjusted either up or
down depending on the actual cost when a final accounting is made.
9. ESN will make a reasonably prudent operator's effort to re-enter,
re-drill, drill and complete xxxxx on the subject acreage as economically
as possible. In the event that any goods and services are necessary other
than those included in the AFE, such costs will be considered as
"additional costs" and will be billed out as per the terms of this
agreement to the Participant. The Participant hereby agrees to pay said
costs within 10 days from the receipt of such notice to pay its
proportionate share of "additional cost". Should the Participant fail to
pay the assessed amount of any "additional costs" within the allotted 10
day period, therefore choosing to go as a "non-consent party", then the
cost may be paid by ESN and ESN will be allowed to recover 400% of that
cost paid for the "non-consenting party" including operating costs from
its net production share before the "non-consenting party" will begin
receiving any revenue from any xxxxx on the Xxxxxxx Prospect.
10. On or about, but not before, 60 days of the plugging or first production
of the latter drilled of the first two proposed xxxxx ESN will propose to
drill the 3rd well of the Initial Xxxxx and the participant shall have 10
days from such notice in which to notify ESN in writing as to
Participant's desire to participate or not to participate in the drilling
of the said well. Participant's choice not to participate or not to
respond shall be deemed the Participant's choice not to proceed with the
drilling of the third well and thereby will result in the Participant's
loss of any right title or interest, if any, in and to the Xxxxxxx
Prospect and all locations not previously drilled under this agreement
including the Participant's right to continue drilling xxxxx on the
prospect acreage, save and except that the Participant shall retain its
interest in previously completed xxxxx.
11. On or about, but not before, 60 days from the date of the plugging or
first production of the third Initial Well ESN shall commence proposing
subsequent xxxxx to be drilled on mutually agreeable terms and well sites
in units of three xxxxx every 120 days, subject to rig availability, on
the Xxxxxxx Prospect acreage, in which Participant shall have the right
but not the obligation to participate. Participant shall have 15 days from
such proposal and notice by ESN to pay to ESN at ESN's address the amount
as stated above for three additional Location Fees. Should Participant
fail to pay said Location Fees within the allotted 15 day period, or if
the parties cannot agree on terms or locations within the time period,
then Participant shall have no right to continue to participate in the
drilling of xxxxx on the Xxxxxxx Prospect, and all of Participant's right
and interest shall automatically terminate with respect to the Xxxxxxx
Prospect, save and except the interest in xxxxx previously drilled under
this agreement on the Prospect Acreage. Should the Participant fail to
tender its share of the AFE Drill and Test Cost within 15 days of notice
from ESN of proposed xxxxx then the Participant shall have no right to
continue to participate in the drilling of xxxxx on the Xxxxxxx Prospect,
and the Participant's right and interest shall automatically terminate,
save and except the interest in xxxxx previously drilled under this
agreement on the Prospect Acreage. Participant will be entitled to
participate in the drilling and development of the Xxxxxxx Prospect in
units of 3 xxxxx at a time and only if it has participated in the
preceding unit, otherwise, Participant will have no right to participate
in any other acreage in the Xxxxxxx Prospect. ESN shall propose unit xxxxx
on or about, but not before, 60 days from the date of first production or
plugging of the last well drilled in the preceding unit. Participant shall
pay ESN Location Fees for each new proposed unit well within 15 days of
such notice of proposed xxxxx and Participant shall pay the AFE drilling
cost for the next 3 xxxxx 30 days prior to the next rig availability date
of each well.
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12. ESN shall be Operator of the Xxxxxxx Prospect and xxxxx drilled thereon,
and the Joint Operating Agreement attached hereto shall be executed by ESN
and Participant.
13. ESN reserves the right to resign as Operator at any time and ESN and
Participant shall mutually agree on a new Operator in accordance with the
terms of the Joint Operating Agreement.
14. The Participant understands there will be monthly operating costs
associated with maintaining a producing property (ies) for which the
Participant is liable and expected to pay for its proportionate share.
When possible the Participant's share of the operating cost will be
deducted proportionately from production revenue prior to disbursement of
revenue checks on a monthly basis. In most cases the revenue should exceed
expenses, however there may be instances when the production income is
less than the operating expense, in which case the Participant will
receive a billing statement detailing the operating expense overage, which
the Participant agrees to promptly pay.
15. Upon a successful completion of the subject well(s) and the establishment
of production, ESN shall prepare and deliver to the Participant the Joint
Operating Agreement (JOA) attached hereto and a Division Order (DO)
between ESN and the Participant, which the Participant hereby agrees to
promptly execute and return to ESN. Such JOA & DO shall govern the
operations of the well and describe the interest owned by the Participant
for revenue payments to the Participant. The execution of this Agreement
shall be deemed the Agreement of ESN and the Participant to the JOA
attached hereto as if both parties have signed same after production is
obtained on the first unit, but shall become effective upon the
establishment of production. Any conflict between the provisions of this
Participation Agreement and the joint operating agreement shall be
governed by the provisions of this Participation Agreement.
16. Within 30 days after the completion of a well ESN shall deliver or cause
to be delivered to the Participant a recordable Assignment of Interest
reflecting the Participant's proportionate share of interest in and to
that producing well and production unit in which the Participant has
participated.
17. Any notice provided or permitted to be given under this agreement shall be
in writing, and shall be deemed to have been duly given and received if
delivered personally, or sent by overnight delivery service or facsimile
transmission or within five (5) calendar days of mailing by registered or
certified mail (return receipt requested) to the party to be notified at
the following addresses or at such other addresses as shall be specified
by the parties by like notice:
If to ESN: Xxxxx X. Xxxxxxx Exploration, Inc.
Attention: Xxxxx X. Xxxxxxx, President
X.X. Xxx 000 000 Xxxx Xxxxx Xxxxxxxx XX
00000 Facsimile: (000) 000-0000
If to Participant Falcon Natural Gas Corp.
Attention: Xxxx X. Xxxxxxx, President
0000 Xxxx Xxxx Xxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
18. If any term or other provision of this agreement is held invalid, illegal
or incapable of being enforced under any rule of law, all other conditions
and provisions of this agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with
respect to either party.
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19. This agreement shall inure to the benefit of and be binding upon the
successors, heirs and assigns of the parties.
20. This agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and acknowledged this
agreement as of the 10th day of March 2006.
XXXXX X. XXXXXXX EXPLORATION, INC. PARTICIPANT
FALCON NATURAL GAS CORP.
/s/ Xxxxx X. Xxxxxxx /s/ Xxxx X. Xxxxxxx
---------------------------------- ---------------------------------
Xxxxx X. Xxxxxxx, President Xxxx X. Xxxxxxx, President
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EXHIBIT "A"
Xxxxxxx Prospect
Section 20: All, Save and Except the W/2NW/4 & E/2SE/4 containing 480 gross
acres more or less.
Section 21: All of section 21 containing 640 gross acres, more or less.
Section 29: W/2 of the South 400.00 acres containing 200 gross acres, more or
less.
Section 30: W/2SE/4 and E/2NE/4 of section 30 containing 160 acres, more or
less.
All being located in Block 22 of the T & P RR. Co. Survey, Xxxxx & Xxxxxx
Counties, Texas.
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