EXHIBIT 10.1
PARTICIPATION AGREEMENT
THIS AGREEMENT is entered into on this 17 day of January, 2012 by and between
Natural Resource Group, Inc., a Colorado Corporation (hereinafter "NRG") and
National Petroleum Corporation, a Kansas Corporation (hereinafter "National").
The companies described above may be referred to as a "Party" or collectively as
the "Parties".
WHEREAS NRG has previously acquired leasehold interests in and to certain oil
and gas leases (all of which are currently held by production ("HBP")), as well
as some mineral fee interests, covering approximately 5,241 acres, that are more
particularly described in those leases listed in Exhibit "A" attached hereto and
made a part hereof (hereinafter the "Underlying Leases"); and
WHEREAS National has agreed to provide NRG with funds for certain development
projects on the Underlying Leases, in accordance with the terms and conditions
of this agreement (the "Agreement"),
NOW THEREFORE, in consideration for the obligations and promises set forth below
the Parties agree as follows:
I. PROMISSORY NOTE, OVERRIDING ROYALTY, MODIFIED
NET PROFITS INTEREST, AND OTHER TERMS
1.1 Funding Additional Development. NRG owns a 100% working interest and
an 82.5% net revenue interest in the Underlying Leases. National has
agreed, through the attached Convertible Promissory Note, to provide
funds to NRG to conduct the Additional Development on the Underlying
Leases. The Additional Development is generally described as (a) the
upgrading of the existing plant and related equipment; (b) any
permitting and related work necessary to drill three shallow gas ▇▇▇▇▇
on the Underlying Leases; and (c) the actual drilling and completion
of three shallow gas ▇▇▇▇▇ on the Underlying Leases. NRG shall use the
funds provided for in the Convertible Promissory Note ($350,000),
attached as Exhibit "B", for the purpose of conducting the Additional
Development. A detailed description and budget for expenditures
expected to be incurred by NRG for Additional Development is attached
hereto as Exhibit "B-1". Funds are made available for draw pursuant to
the Convertible Promissory Note in three (3) tranches, as follows:
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Draw Date Amount Purpose
--------- ------ -------
Date of Issuance $150,000 Phase I-Additional Development
As Drawn by NRG $100,000 Phase II-Additional Development
As Drawn by NRG $100,000 Phase III-Additional Development
The phases of Additional Development (Phase I, II and III) are as described
and inferred from the expected expenditures in each phase as provided by
Exhibit "B-1". The expected expenditures described in Exhibit "B-1" have
been prepared in good faith by NRG. The Parties acknowledge that the
development of oil and gas resources is inherently unpredictable. The
expenditures in Exhibit "B-1" may be subject to change in the event that
NRG encounters difficulties or unexpected circumstances in conducting the
Additional Development. NRG shall not incur any liability in regards to
Exhibit "B-1" so long as NRG acts in good faith to forward the general
purposes of the Additional Development. The funds provided pursuant to the
Promissory Note shall be kept by NRG in a segregated account. NRG shall
provide National, within 30 days of the end of each month commencing with
the month in which this Agreement is executed, a detailed statement
reflecting the type and amount of expenditures paid from funds drawn upon
the Convertible Promissory Note. Successive draws upon the Convertible
Promissory Note shall be available to NRG upon providing good and
sufficient evidence to National of NRG's successful completion of the
preceding phase(s) of the Additional Development and the payment of the
related expenditures. In the event NRG completes the Additional Development
and Convertible Promissory Note funds remain undrawn or unexpended, NRG
shall have the right to use the remaining funds for its general corporate
purposes.
1.1.A Election to Increase the "Additional Development".
Within forty (40) days of the conclusion of the Additional Development
described above, NRG shall provide National with a full accounting of costs
incurred. NRG shall also provide National with its good faith opinion as to
whether it is feasible to drill a fourth well with the remaining funds. If
it is NRG's good faith opinion that it is feasible to drill an additional
well out of the remaining funds then NRG shall proceed with the drilling of
the fourth well. If NRG indicates that it is not feasible then National
shall elect from 3 options:
(1) National may elect to increase the Maximum Amount of the
Promissory Note to such amount that the Parties mutually
agree is sufficient to provide for the drilling of a fourth
well, and provide such additional funds to NRG in a fourth
tranche.
(2) National may request an estimate from NRG concerning the
details and cost of shooting seismic on the Underlying
Leases. If there are sufficient funds remaining to cover the
expense of shooting seismic, National may elect to have NRG
use the funds for such purpose.
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(3) National may elect to consider the Additional Development
fully completed and the remaining funds may be used by NRG
in the sole discretion of NRG.
Upon receiving the accounting and opinion discussed above from
NRG, National shall have twenty (20) days to provide NRG with
written notice of its election. If National fails to provide
NRG with written notice, then National shall be deemed to have
elected the option specified in Article 1.1.A(3).
1.2 Modified Net Profits Interest in Existing ▇▇▇▇▇. Upon execution of
this Agreement, and as part of the consideration for National entering
this Agreement, NRG shall assign to National a 20% Modified Net
Profits Interest in the existing ▇▇▇▇▇▇ Field producing ▇▇▇▇▇ by
assignment in the form of Exhibit "C" attached, such ▇▇▇▇▇ being
described in Schedule "1" attached thereto.
1.3 Modified Net Profits Interest in Additional ▇▇▇▇▇. Upon the completion
of each of the ▇▇▇▇▇ drilled in the course of Additional Development
as described, above, NRG shall assign to National a 20% Modified Net
Profits Interest in such ▇▇▇▇▇, by completing and recording of a
Schedule "2" as referred to in Exhibit "C" attached hereto.
1.4 Assignment of Royalty Interest. Upon execution of this Agreement, NRG
shall assign to National a 1% Overriding Royalty Interest in the
Underlying Leases, such assignment to be in the form of Exhibit "D"
attached hereto.
1.5 Additional ▇▇▇▇▇▇ Acreage. In the event that NRG acquires additional
acreage that is within a 10 mile radius of any land covered by an
existing Underlying Lease, then all terms and provisions of this
Agreement shall apply to that acreage in addition to the Underlying
Leases, and Exhibit "A" shall be formally supplemented to include such
acreage and the Leases pertaining thereto. However, under no
circumstances shall this Article (1.5) be applied to more than 2,000
gross acres. This Article (1.5) shall apply for a period of three
years after the execution of this Agreement. At the conclusion of the
three year period Article 1.5 shall expire and be of no further
effect.
II. RIGHT TO FURTHER PARTICIPATION
2.1 Right to Further Participate. At the conclusion of the Additional
Development, upon mutual agreement, the Parties may engage in two
additional three-well drilling programs. There shall be no obligation
on the part of either Party to go forward with any further operations
under this Agreement other than those described in Article I, and
either Party may elect not to participate in further operations.
2.2 Additional Documentation in Event of Further Participation. In the
event the Parties mutually elect to participate in further development
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this Agreement may continue to govern the relationship between the
Parties, subject to such additional terms as the parties may then
agree.
III. REPRESENTATIONS, WARRANTIES AND OBLIGATIONS
3.1 NRG Obligations. NRG shall promptly notify National and provide
details regarding the occurrence of: (i) any written notice of default
or termination received or given to NRG with respect to the Underlying
Leases, (ii) any written notice of any pending or threatened claim,
demand, action, suit, inquiry or proceeding related to the Underlying
Leases.
3.2 NRG's Representations and Warranties.
(a) NRG holds the rights to certain interests in the Underlying
Leases described in Exhibit A, free and clear of any liens,
claims, burdens or encumbrances except for the security interest
held by Energy Oil and Gas, Inc. ("EOGI") with an approximate
unpaid balance of $190,000. EOGI's security interest in the
Underlying Leases shall be made second, subordinate and inferior
to National's Deed of Trust, Mortgage and Security Agreement as
described in the Convertible Promissory Note.
(b) The Leases are in full force and effect, and no notice of breach,
default or termination has been received by NRG, or to the
knowledge of NRG, by any other party. The Underlying Leases,
together with applicable law, contain the entirety of NRG's
obligation to the lessors, and no other understanding or
agreement exists between NRG and any lessor in relation to the
subject matter of this Agreement, except as otherwise stated in
this Agreement.
(c) Documents. NRG has provided National with complete and correct
copies of the Underlying Leases. NRG hereby warrants that all
rental payments due concerning the Underlying Leases have been
paid in a timely manner, and the Underlying Leases are currently
held in their entirety by production. These Leases are described
in Exhibit A.
(d) NRG is aware of no material claims, demands, actions, suits,
governmental inquiries, or proceedings pending, or to NRG's
knowledge, threatened in connection with the Underlying Leases
which would have an adverse effect upon the consummation of the
transactions contemplated by this Agreement.
(e) NRG is aware of no Preferential Rights or options to purchase
which will be triggered by the execution of this Agreement or
which would impair National's rights and interests under the
terms of this Agreement.
3.3 National's Representations and Warranties.
(a) There are no material claims, demands, actions, suits,
governmental inquiries, or proceedings pending, or to National's
knowledge, threatened against National which would have an
adverse effect upon this Agreement.
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(b) National has sufficient funds and reserves to enable it to
perform its obligations under this Agreement.
3.4 Mutual Obligations and Warranties.
(a) Corporate Authority. Each Party is duly organized and validly
existing under the laws of the country-regionplaceUnited States.
To the extent required, each Party is qualified to conduct
business in the jurisdiction as necessary to perform the
Agreement. Each Party has all requisite corporate power and
authority to enter into this Agreement, to perform its
obligations hereunder, and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by each Party and constitutes a legal, valid and
binding obligation of each Party, enforceable against each Party
in accordance with its terms.
(b) Other Representations and Warranties. Except as disclosed in
schedules attached to this Agreement, the execution, delivery,
and performance of this Agreement by each Party, the consummation
of the transactions contemplated hereby, and the compliance with
the provisions hereof will not, to the best of each Party's
knowledge and belief:
i. violate any applicable laws, regulations, judgment,
decree or award;
ii. contravene the organization documents of a Party; or
iii. result in a violation of a term or provision, or
constitute a default or accelerate the performance of
an obligation under any contract or agreement executed
by a Party hereto.
(c) All representations and warranties given under this Agreement
shall, for the contractual term set forth herein, be deemed
repeated and valid, true and correct as of the execution of this
Agreement, and each Party agrees to inform the other Party of any
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material changes to the facts in the representations and
warranties upon the occurrence of such change
3.5 Disclaimer of Additional Warranties.
(a) Except for the representations and warranties provided in this
article, NRG and National make no, and disclaim any, warranty or
representation of any kind, either expressed, implied, statutory,
or otherwise, including, without limitation, the accuracy or
completeness of any data, reports, records, projections,
information, or materials now, heretofore, or hereafter furnished
or made available to National in connection with this Agreement.
(b) National acknowledges that NRG makes no warranties regarding the
oil and gas potential related to or the likelihood of success of
the Underlying Leases.
(c) NRG makes no warranty of title concerning the Underlying Leases
subject to this Agreement. NRG agrees to indemnify National
solely regarding claims of any and all persons claiming by,
through or under NRG, but not otherwise. NRG expressly disclaims
any liability for title issues concerning the Leases which arose
prior to NRG taking a legal interest in the Underlying Leases
concerned.
IV. GENERAL PROVISIONS.
4.1 Due Diligence. NRG has made available to National all geologic and
geophysical information in its possession regarding the Underlying
Leases. This information includes but is not limited to seismic and
geologic data well logs, cement bond logs, well samples, and coring
data. NRG makes no representations of accuracy regarding such data.
National agrees to keep all such information confidential.
4.2 Acceptance of Prior Terms. National hereby ratifies, confirms and
accepts the terms of the Underlying Leases, and agrees to abide by the
terms of the Underlying Leases so far as it concerns National's
Modified Net Profits Interest and Overriding Royalty Interest.
4.3 Tax Obligations. Each Party shall be responsible for reporting and
discharging its own tax measured by the profit or income of the Party
and the satisfaction of such Party's share of all obligations under
this Agreement. Each Party shall protect, defend and indemnify each
other Party from any and all loss, cost or liability arising from the
indemnifying Party's failure to report and discharge such taxes or
satisfy such obligations. The Parties intend that all income and all
tax benefits (including deductions, depreciation, credits and
capitalization) with respect to the expenditures made by the Parties
hereunder will be allocated by the Government tax authorities to the
Parties based on the share of each tax item actually received or borne
by each Party. If such allocation is not accomplished due to the
application of the laws, regulations or other government action, the
Parties shall attempt to adopt mutually agreeable arrangements that
will allow the Parties to achieve the financial results intended.
4.4 Notices. All notices authorized or required between the Parties by any
of the provisions of this Agreement shall be in writing and delivered
in person or by courier service or by any electronic means of
transmitting written communications which provides written
confirmation of complete transmission, and properly addressed to the
other Party. Verbal communication does not constitute notice for
purposes of this Agreement, however e-mail is acceptable. A notice
given under any provision of this Agreement shall be deemed delivered
only when received by the Party to whom such notice is directed, and
the time for such Party to deliver any notice in response to such
originating notice shall run from the date the originating notice is
received. "Received" for purposes of this Article shall mean actual
delivery of the notice to the address of the Party specified
hereunder.
Name: Natural Resource Group, Inc. Name: National Petroleum Corp.
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇. Address: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇ Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇▇▇▇▇ Telephone:(▇▇▇) ▇▇▇-▇▇▇▇
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4.5 Governing Law and Dispute Resolution. This Agreement has been entered
into and shall be construed and enforced in accordance with the laws
of the State of StateplaceColorado. This Agreement shall be subject to
the exclusive jurisdiction of the courts in PlaceNameDenver
PlaceTypeCounty in the state of StateplaceColorado. The parties to
this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of
Colorado by virtue of a failure to perform an act required to be
performed in the State of Colorado and irrevocably and expressly agree
to submit to the jurisdiction of the courts of the State of Colorado
for the purpose of resolving any disputes among the parties relating
to this Agreement or the transactions contemplated hereby. The parties
irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this
Agreement, or any judgment entered by any court in respect hereof
brought in the State of Colorado, and further irrevocably waive any
claim that any suit, action or proceeding brought in the State of
Colorado has been brought in an inconvenient forum.
Neither party shall have any right or obligation to engage in any
arbitration proceeding regarding issues arising under this Agreement.
4.6 Force Majeure. If either Party is rendered unable, in whole or in
part, to carry out its obligations under this Agreement due to Force
Majeure, then performance (other than obligations for the payment of
money and the delivery of instruments) is excused to the extent it is
affected by the Force Majeure and both Parties' obligations hereunder
shall be suspended during the period of Force Majeure. The term "Force
Majeure" will mean an act of God, strike, lockout or other industrial
disturbance, act of the public enemy, war blockage, public riot,
lightning, fire, flood, explosion, governmental action, governmental
delay, restraint, or inaction, delays in obtaining permits,
unavailability of equipment, and any other cause, whether of the kind
specifically enumerated above or otherwise, which is not reasonably
within either Parties' control. Either Party claiming a Force Majeure
event shall give notice to the other Party of the Force Majeure within
a reasonable time after the events occur, and reasonably describe the
events constituting the Force Majeure.
4.7 Further Assurances. Each of the Parties shall do all such acts and
execute and deliver all such documents as shall be reasonably required
in order to fully perform and carry out the terms of this Agreement.
4.8 Waiver. No waiver by any Party of any one or more defaults by another
Party in the performance of any provision of this Agreement shall
operate or be construed as a waiver of any future default or defaults
by the same Party whether of a like or of a different character.
Except as expressly provided in this Agreement, no Party shall be
deemed to have waived, released or modified any of its right under
this Agreement unless such Party has expressly stated, in writing,
that it does waive, release or modify such right.
4.9 Joint Preparation. Each provision of this Agreement shall be construed
as though all Parties participated equally in the drafting of the
same. Any rule of construction that a document is to be construed
against the drafting party shall not be applicable to this Agreement.
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4.10 Severance of Invalid Provisions. If and for so long as any provision
of this Agreement shall be deemed to be judged invalid for any reason
whatsoever, such invalidity shall not affect the validity or operation
of any other provision of this Agreement except only so far as shall
be necessary to give effect to the construction of such invalidity,
and any such invalid provision shall be deemed severed from this
Agreement without affecting the validity of the balance of this
Agreement.
4.11 Modifications. There shall be no modification of this Agreement except
by written consent of all Parties.
4.12 Priority of Agreement. In the event of any conflict between the
provisions of the main body of this Agreement and its Exhibits, the
provisions of the main body of the Agreement shall prevail.
4.13 Headings. The topical headings used in this Agreement are for
convenience only and shall not be construed as having any substantive
significance or as indicating that all of the provisions of this
Agreement relating to any topic are to be found in any particular
article.
4.14 Counterpart Execution. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed an original
Agreement for all purposes; provided that no Party shall be bound to
this Agreement unless and until all Parties have executed a
counterpart. For purposes of assembling all counterparts into one
document, either party is authorized to detach the signature page from
one or more counterparts and, after signature thereof by the
respective Party, attach each signed signature page to a counterpart.
4.15 Entirety. With respect to the subject matter contained herein, this
Agreement (i) is the entire agreement of the Parties; and (ii)
supersedes all prior understandings and negotiations of the Parties.
4.16 Merger. This Agreement shall not merge but shall survive all
conveyances of interests.
4.17 Costs. NRG shall pay the costs of recording the instruments
(assignments and Deed of Trust, Mortgage and Security Agreement)
contemplated hereby for recording, together with any associated
registration fees, revenue stamps, mortgage taxes and the like.
4.18 Effective Date. This Agreement shall be effective upon execution by
both Parties.
Agreed and accepted this 17 day of January, 2012.
[Signature Page to Follow]
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NATIONAL PETROLEUM CORPORATION
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇ 1/17/2012
--------------------------------- ------------------------
By: ▇▇▇ ▇▇▇▇▇▇▇▇ Date
President
NATURAL RESOURCE GROUP, INC.
/s/ ▇▇▇▇ ▇▇▇▇▇ 1/17/2012
--------------------------------- ------------------------
By:▇▇▇▇ ▇▇▇▇▇ Date
Chief Executive Officer
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Schedule "1"
EXISTING ▇▇▇▇▇
Natural Resource Group, Inc. Royalty Assignment to National Petroleum Corp.
Descriptions
Well Location API Number Footage Assignor's Net
Revenue Interest
▇▇▇▇▇▇ 34-14 SESW 34 33S 62W 6PM ▇▇-▇▇▇-▇▇▇▇▇ All Depths 82.5%
▇▇▇▇▇▇ ▇-▇▇ ▇▇▇▇ 4 34S 62W 6PM ▇▇-▇▇▇-▇▇▇▇▇ All Depths 82.5%
Windy Point NWNW 3 34S 62W 6PM ▇▇-▇▇▇-▇▇▇▇▇ All Depths 82.5%
Mirah NWSW 3 34S 62W 6PM ▇▇-▇▇▇-▇▇▇▇▇ All Depths 82.5%
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Schedule "2"
ADDITIONAL ▇▇▇▇▇
Natural Resource Group, Inc. Royalty Assignment to National Petroleum Corp.
Descriptions
Well Location API Number Footage Assignor's Net
Revenue Interest
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