April 12, 2005 Ken Hooper La Mesa Partners, L. C.
Exhibit
10.20
April
12,
0000
Xxx
Xxxxxx
Xx
Xxxx
Partners, L. C.
0000
Xxxxxxxx Xxxxxxx, Xxxxx 000
XxXxxxxx,
Xxxxx 00000
Gentlemen:
This
letter,
when accepted by you as hereinafter provided, shall constitute the entire and
complete agreement between La Mesa Partners, LC of McKinney, Texas, (“Farmor”)
and Affiliated Holdings, Inc., of Houston, Texas, (“Farmee”) with regard to
certain drilling operations to be performed by Farmee and the assignment by
Farmor to Farmee of certain oil and gas leasehold rights of the Hartford
Prospect in Ohio Co., Kentucky, as hereinafter set forth:
TITLE.
Farmor
represents but does not warrant that it is the owner and holder of a working
interest in that certain Oil and Gas Lease, whether one or more, described
on
Exhibit “A” (“Subject Lease”) covering the lands embraced by the Subject Lease
(“Subject Lands”). Farmor shall make available to Farmee a copy of the Subject
Lease and any other title data with respect thereto currently maintained in
the
files of Farmor, but there will be no obligation on the part of Farmor to
furnish Farmee with any additional title data or title curative materials with
respect to the Subject Lease. Farmee shall satisfy itself as to title to the
Subject Lease but shall furnish Farmor, free of cost, copies of any title
opinions acquired by Farmee in connection with the Subject Lands or any well
drilled pursuant to this agreement.
INITIAL
TEST
WELL.
On or
before July 15, 2005 (approximately 90) days from the date of this agreement,
Farmee shall commence the actual drilling of a test well (hereinafter referred
to as the “Initial Test Well”) for oil and or gas at a legal location on the
Subject Lands or lands pooled therewith, and Farmee shall thereafter prosecute
the drilling of the Initial Test Well with due diligence and dispatch in a
good
workmanlike manner, at Farmee’s sole cost, risk and expense, to a depth of two
thousand and seven hundred feet (2,700’) or a depth sufficient to adequately
test the base of the New Albany Shale Formation, whichever is the lesser depth,
and shall complete the Initial Test Well as a producer of oil and/or gas in
paying quantities or properly plug and abandon such well as a dry hole at its
sole cost, risk and expense. Failure to timely commence and drill the Initial
Test Well shall be an ipso facto termination of this agreement in its entirety
unless Farmor grants a written extension whereby allowing additional time for
such operations.
FARMOR
AND
FARMEE EACH AGREE THAT FARMEE MUST TIMELY DRILL THE INITIAL TEST WELL IN ORDER
TO BE ENTITLED TO EARN ANY RIGHTS FROM FARMOR AS FURTHER SET FORTH IN THIS
AGREEMENT.
SUBSTITUTE
WELL.
In the
event that during the course of the drilling of any Test Well, Farmee shall
encounter loss of hole, excessive water flow or any other conditions that render
further drilling of such well impractical with the use of ordinary rotary
drilling methods, Farmee shall have the right to commence, on or before the
expiration of thirty (30 ) days next succeeding abandonment of operations upon
such well, actual drilling of a substitute well at a location authorized for
the
well it is sought to replace under the previous terms of this Farmout Agreement.
If such substitute well shall be so commenced and drilled in accordance with
the
applicable terms and provisions hereof respecting such well, then the substitute
well shall be deemed for all purposes of this agreement to constitute such
well
for which it is a substitute and to have been timely commenced and drilled
in
accordance with the terms and provisions hereof respecting the
same.
RIGHTS
EARNED. In
the
event Farmee shall have timely commenced, drilled and completed the Initial
Test
Well as a producer of oil and/or gas in paying quantities or properly plugged
and abandoned same as a dry hole, and otherwise observed and complied with
all
of the terms and provisions of this agreement, then Farmor, following written
request from Farmee, shall prepare, execute and deliver to Farmee, without
express or implied warranty of title, an assignment of its entire aforesaid
interest in and to the Subject Lease, INSOFAR AND ONLY INSOFAR AS the Subject
Lease may be included within the drilling, spacing or production or proration
unit assigned to the Initial Test Well subject, however, to the reservations
by
Farmor as hereinafter specified. Said assignment shall be made subject to the
terms of this Farmout Agreement, and shall further reserve unto Farmor any
right
needed for the enjoyment of any other right or privilege reserved or
expected.
If
Farmee has
earned an the assignment discussed above (“Assignment”), it shall also be
entitled to a one-time election to purchase from Farmor the balance of the
Subject Lands not covered by the Assignment (“Additional Interest”) for a
purchase price (“Purchase Price”) of twenty dollars ($20.00 ) per net mineral
acre. Farmee must make its election to purchase the Additional Interest in
writing within forty-five (45) days of release of the last rig used (drilling
or
completion). If Farmee elects to purchase the Additional Interest, concurrent
to
receipt of the above specified payment Farmor will execute and deliver to Farmee
an assignment of all its interest in the Additional Interest subject to the
reservations stated herein.
PAYMENT. As
payment for the Purchase Price, Farmor agrees to a cash payment of one third
of
the Purchase Price at the time of the one-time election with the balance to
be
paid in the form of a convertible note, which note will be due twenty-four
(24)
months from the date of Farmee’s election to purchase the Subject Lands at an
annual interest rate of eight percent (8%) and a conversion price which is
a
twenty-five percent (25%) discount to the closing bid price on the date of
the
cash payment with a minimum conversion price of $1.00 per share.
RESERVATIONS.
With
respect to the rights to be assigned Farmee by Farmor as provided in the RIGHTS
EARNED provision herein, Farmor shall reserve unto itself an overriding royalty
interest, inclusive
of (a)
that certain previously created overriding royalty due Xxxx Xxxxx Wesson
pursuant to that certain Agreement between Farmor and Xxxxx Xxxxxx dated
September 18, 2001 and attached hereto as Exhibit “B” and (b) any other
previously created overriding royalties of record, equal to six percent of
eight-eighths (6.00% of 8/8ths) of the market value at the well as produced
of
all oil, gas, casinghead gas, condensate and related hydrocarbons that are
produced, saved and sold, free and clear of all costs of production other than
a
proportionate part of applicable production taxes, under the terms and
provisions of the Subject Leases attributable to the Subject Lands to the extent
the same are covered by such assignment, and the market value of the production
sold at the well shall be deemed to be the gross proceeds of the
sale.
PROPORTIONATE
REDUCTION. In
the
event the Subject Lease shall cover less than the full fee simple estate in
the
oil, gas, condensate, casinghead gas and related hydrocarbons located under
the
Subject Lands, and/or in the event that Farmor owns less than a one hundred
percent (100%) working interest in the Subject Lease as to formations underlying
the Subject Lands, and/or in the event the Subject Lease comprises less than
one
hundred percent of the entire proration unit assigned to any Test Well or
Initial Well, then the overriding royalty interest reserved by Assignor herein
shall be reduced accordingly.
LIABILITY.
The
entire cost, risk and expense of all operations performed by Farmee pursuant
to
this agreement shall be borne solely by Farmee, and Farmee shall hold Farmor
harmless from any and all claims, demands, liabilities or obligations of any
kind or character resulting from, relating to or arising in any manner from
such
operations (including, but not limited to attorney’s fees and expenses of
litigation and settlement incurred by Farmor in defending any such claims or
demands Farmor may have against Farmee by reason of Farmee’s breach of its
undertakings hereunder), Farmee shall not permit any liens of any kind or
character to be filed or asserted against the Subject Lease or the Subject
Lands
by any party whatsoever arising in any manner out of operations performed by
Farmee pursuant to this agreement, and Farmee, in conducting the operations
herein specified, shall observe and comply with all of the terms and provisions
of the Subject Lease, and shall restore the surface of the Subject Lands as
near
as practicable to its condition prior to the commencement of such operations.
Additionally, Farmee shall carry adequate insurance acceptable to Farmor for
operations performed by Farmee pursuant to this agreement and upon request
of
Farmor, Farmee shall furnish to Farmor a valid certificate evidencing such
insurance coverage.
ABANDONMENT
OF XXXXX.
If at
any time prior to any such assignment earned therefore as provided for herein,
Farmee desires to plug and abandon any Test Well, at least forty-eight (48)
hours prior to the plugging and abandonment of such well, Farmee shall notify
Farmor of its intent to plug and abandon such well, and Farmor shall have the
right, within forty-eight (48) hours after receipt of Farmee’s notice of its
intent to plug and abandon, to take over such well for additional testing any
method, or for deepening, with Farmor being solely responsible for all costs
and
expenses incurred in connection therewith, including standby rig time, if
required. In the event such well shall be taken over by Farmor for such purposes
and such work results in a completion attempt wherein such well shall be
completed as a producer of oil and/or gas, all of Farmee’s rights in such well
and in any related equipment, and in the right to earn an assignment hereunder
shall be extinguished and forfeited; provided, however, that Farmor agrees
to
pay Farmee the reasonable value of any salvageable material in the hole which
Farmee has contributed. In the event the completion attempt results in a dry
hole, Farmor shall plug and abandon such well at its sole cost and expense,
and
Farmee’s rights hereunder shall remain in full force and effect. Further, in the
event Farmor shall take over such well for such purpose but no completion
attempt is made, then Farmee agrees, upon receipt of notice for Farmor that
no
completion attempt will be made, to plug and abandon such well at Farmee’s sole
cost, risk and expense, except for normal plugging and abandoning costs caused
by such operations of Farmor and , in such case, the amount in excess of the
normal costs shall be borne by Farmor, and Farmee’s rights hereunder shall
remain in full force and effect.
SURRENDER
OF
INTEREST. If
at any
time after any such assignment as provided for herein has been delivered to
Farmee, Farmee desires to discontinue operations and to plug any Test Well
and
release, surrender or abandon Farmee’s interest earned hereunder by reason of
the drilling and completion of the same, Farmee shall notify Farmor in writing
and concurrently furnish Farmor with an electrical log acceptable to Farmor,
and
Farmor shall have thirty (30) days after receipt of such notice within which
Farmor my inspect and test such well and notify Farmee whether Farmor desires
to
take over the interest previously earned therefore by Farmee, and if Farmor
elects to take over such interest Farmee shall, within ten (10) days after
receipt of written notice from Farmor of such election, deliver to Farmor an
assignment of such interest (free and clear of all burdens not now existing)
and
of all the personal property and equipment related thereto and, upon receipt
of
such assignment, Farmor shall pay Farmee for the salvage value of the equipment
so assigned. For the purposes hereof “salvage value” shall be deemed to mean the
fair market value of salvageable equipment less the reasonable cost of salvaging
same.
RELATIONSHIP
OF PARTIES. In
conducting all operations contemplated herein. Farmee and Farmor shall act
independently of one another, so that no party hereto shall be acting as the
other’s agent, employee or partner or as a member of a joint venture with the
other, and in connection therewith, this agreement is not intended to create,
and nothing herein shall be construed to create, an association, trust, joint
venture, mining partnership or other partnership or entity of any
kind.
GEOLOGICAL
WELL REQUIREMENTS. In
connection with the drilling of any Test Well, Farmee shall provide Farmor
with
all geological, test and engineering data derived from drilling operations
of
the initial earning well.
LEASE
PAYMENTS. Farmor
agrees to make delay rental payments or minimum royalty payments, as applicable,
at the times and in the amounts which, in Farmor’s opinion, are necessary to
maintain its interest in the Subject Lease in full force and effect; provided,
however, that Farmor shall not be liable to Farmee in damage or otherwise for
untimely or improper payment thereof or failure to pay same through
inadvertence, mistake, clerical error or over sight, Farmee shall, upon
receiving an invoice from Farmor for any payments so made, promptly reimburse
Farmor for Farmee’s proportionate share of such payments, which shall be
calculated as the proportion that Farmee’s assigned interest in the Subject
Lease (without reduction for any depth limitation) bears to Farmor’s interest in
the Subject Lease prior to such assignment.
APPROVALS.
If the
approval of any governmental or tribal agency shall be required with respect
to
any assignments specified herein, Farmor and Farmee agree to cooperate in
obtaining said approval and, if necessary, this agreement shall be amended
to
conform with the requirements which may be imposed; provided, however, that
none
of said requirements, if any, shall change the substantive relationship of
Farmor and Farmee or in any way change their respective rights to receive
production from or attributable to the Subject Lands covered by the Subject
Lease.
RIGHT
TO
ASSIGN. Time
is
of the essence hereof, and this agreement shall be binding upon the parties
hereto and shall extend to and be binding upon their respective successors
and
assigns; provided, however, that his agreement shall not be assigned by Farmee
in whole or part to any person, firm or corporation without the prior written
consent of Farmor which is not to be unreasonably withheld. However,
notwithstanding any assignment by Farmee with the prior written consent of
Farmor, the assignment shall not be or become effective until Farmor shall
not
have been furnished with a duly executed copy thereof. Farmor shall have the
right to make the herein specified assignments solely to Farmee, and any
assignees under any such assignment shall look solely to Farmee for any
assignment of oil and gas leasehold rights that may be due them by reason of
Farmee’s assignment to them of an interest in this agreement. Any assignment by
Farmee shall be subject to the terms and conditions of this Agreement, to which
the Assignee thereon shall specifically agree to be bound.
NOTICES.
Except
as
otherwise specifically provided for herein, the notices specified herein shall
be in writing and will be deemed to have been received when personally delivered
or when deposited in the United States mail (postage prepaid) to the appropriate
party at the address set forth below or at the address such party shall
theretofore have designated by written notice to the notifying
party:
La
Mesa
Partners, Inc.
Affiliated Holdings, Inc,
0000
Xxxxxxxx Xxxxxxx 0000
Xxxxxxxx Xxxxxx
Xxxxx
000
Xxxxx 000
XxXxxxxx,
Xxxxx 00000
Xxxxxxx,
Xxxxx 00000
OFFICE:
800-709-5650 OFFICE:
(000) 000-0000
FAX:
000-000-0000 FAX:
(000)
000-0000
ACCEPTANCE.
If
the
foregoing correctly sets out your understanding or our agreement, please
evidence your acceptance by returning within seven (7) days from the date
hereof, one copy of this letter fully executed in the space provided below.
Our
failure to receive an accepted copy within fifteen (15) days gives us the option
of canceling this agreement, or granting you additional time within which to
accept it.
Very
truly yours,
La
Mesa Partners, Inc.
BY: _______________________
TITLE: _______________________
AGREED
AND ACCEPTED
This
________ day of April, 2005.
Affiliated
Holdings, Inc.
BY: _______________________
TITLE: _______________________
