ARGYLE ENERGY, INC. 10777 Westheimer Suite 170 Houston, Texas 77042 Phone: (832)358-3900 Fax: (832) 358-3900 March 31, 2005
ARGYLE
ENERGY, INC.
00000
Xxxxxxxxxx
Xxxxx
000
Xxxxxxx,
Xxxxx 00000
Phone:
(000)000-0000
Fax:
(000) 000-0000
March
31,
2005
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Xxxxxx
Properties, Inc.
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Blue
Ridge Energy, Inc.
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Hjeltake
Rd.
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10777
Westheimer
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Xxxxxxxx
Xxxxxx
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Xxxxx
000
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Xxxxxx,
Xxxxxxxx Xxxxxx
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Xxxxxxx,
Xxxxx 00000 Majuro, MH 96960
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RE:
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Xxxxxxx
Crossroads Prospect Area, Escambia County,
Alabama
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Gentlemen:
When
accepted by you in the manner indicated below, this letter shall constitute
an
agreement by and between Argyle Energy, Inc. ("Argyle"), on the one hand, and
Xxxxxx Properties ("Xxxxxx") on the other, relative to the referenced Prospect
area.
1. Xxxxxx
recognizes and acknowledges that Argyle has presented to Xxxxxx certain
geological teas and concepts within the area outlined on the plat attached
hereto and marked Exhibit A for identification (the "Prospect").
2. Argyle
represents that it has the right to earn 75% of eight-eights working interest
in
various oil, gas and mineral leases which are located within the
Prospect.
3. Xxxxxx
desires to purchase Argyle's 75.0% of eight-eights (8/8ths) working interest
in
the Prospect. Argyle, in consideration of the cash payment provided for in
5.
below, and subject to the conditions and reservations contained herein, agrees
to convey the right to earn the herein described working interest to
Xxxxxx.
It
is
understood by Xxxxxx that among the obligations it is assuming under this
Agreement and the Joint Operating Agreement is the obligation to carry Dragon
Energy Corporation, et.
al.
for the
remaining 25.0% of eight-eights (8/8ths) working interest to casing point in
each well drilled on the Prospect.
4. Blue
Ridge Energy, Inc. ("XXXX") has access to certain geoscience data covering
the
lands within the Prospect, and XXXX, upon request, has agreed that for the
term
of this agreement, XXXX will perform geologic services on lands within the
Prospect on a nonexclusive basis, for use in connection with the exploration
and
development of the Prospect.
5. In
consideration of Argyle's transfer of the interest as described herein, Xxxxxx
has paid to Argyle the cash amount of $200,000.00 contemporaneously with
Xxxxxx'x acceptance of this Agreement, and Xxxxxx further agrees that on or
before September 30, 2005, or prior to supding the Initial Well, whichever
is
the earlier, it will make a second payment of $200,000.00 to
Argyle.
It
is
further understood that if the Initial Well planned to be drilled on the
Prospect is not spud on or before September 30, 2005, Xxxxxx shall immediately,
if not previously paid, make the second payment of $200,000.00 to Argyle as
provided above, and Xxxxxx shall reassign all of the right title and interest
acquired by Xxxxxx hereunder to Argyle.
6. Subsequent
to the execution of this Letter Agreement all operations on the Prospect shall
be conducted pursuant to the terms and conditions of this Agreement and the
Joint Operating Agreement. It is understood by Xxxxxx that the total of all
royalty and all other burdens provided for in said Joint Operating Agreement
shall be 30.0%.
7. This
Agreement and the Joint Operating Agreement shall constitute the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof, any change or modification hereto must be made in writing
and signed by both parties.
8. This
agreement shall be binding on the successors and assigns of both parties. Any
assignment or transfer of an interest in the Prospect shall be made subject
to
all of the terms and conditions of this Letter Agreement and the Joint Operating
Agreement. Should there be a conflict between the terms of this Letter Agreement
and the terms of the Joint Operating Agreement, the terms of this Agreement
shall control.
9. This
Agreement shall remain in force until the last oil and gas lease included in
the
Prospect has terminated.
10.
Xxxxxx
agrees that an escrow account shall be maintained at Amegy Bank of Texas,
Houston, Texas for Xxxxxx'x share of all cash advances for operations conducted
on the Prospect pursuant to this Agreement and the JOA. If XXXX requests a
cash
advance for an authorized operation pursuant to the JOA then Xxxxxx'x share
of
such cash advance shall be paid within fifteen (15) days of receipt of such
request by Xxxxxx into the escrow account to be paid out by the escrow agent
to
the maker of the invoice(s) incurred in connection with such authorized
operation, upon XXXX'x presentation of such invoice to the escrow agent. The
agreement governing the escrow account executed by and between XXXX, Xxxxxx
and
the escrow agent (the "Escrow Agreement") shall provide that in the event an
invoice, or charge or cost set forth in an invoice, submitted for payment to
the
escrow agent, is disputed by Xxxxxx (i) resolution of such dispute shall be
made
in accordance with the Joint Operating Agreement, (ii) Xxxxxx shall not give
notice of such dispute to the escrow agent nor request or demand that the escrow
agent not make payment of such disputed invoice, and (iii) regardless if the
escrow agent is made aware of such dispute, the escrow agent shall make payment
of such disputed invoice.
It
is
agreed by Xxxxxx that the cash advance amount it will pay into the escrow
account for any approved operation conducted hereunder shall be equal to 150%
times the total estimated cost for its share of such operation as determined
by
XXXX. Any positive balance remaining in the escrow account after the payment
of
all invoices with respect to each operation and each cash advance, shall be
paid
out to Xxxxxx. At any time when the remaining balance in the escrow account
for
an approved operation is, in XXXX'x judgment, less than 100% of the estimated
cost remaining to complete such operation, XXXX shall have the option to require
an additional cash advance from Xxxxxx in an amount sufficient to increase
the
account balance to an amount equal to 125% times the estimated remaining cost
to
complete the operation.
The
costs
associated with the Escrow Agreement, the escrow agent's fees and the incidental
cost of XXXX in paying invoices through the escrow agent shall be paid by
Xxxxxx.
11.
It
is
agreed by and between Xxxxxx and Argyle that XXXX shall be the Operator of
the
Xxxxxxx Crossroads Prospect and that all operations conducted by XXXX, as
Operator, shall be conducted pursuant to the terms of the Joint Operating
Agreement attached hereto as Exhibit "B". It is also agreed that XXXX shall
not
be required to maintain an interest in the Contract Area to serve as Operator
of
the Xxxxxxx Crossroads Prospect as provided in the Joint Operating
Agreement.
12.
In
addition to the Overhead Charges provided for in the Xxxxx Accounting Agreement,
attached to the Operating Agreement as Exhibit "C", Blue Ridge Energy, Inc.
("XXXX"), as Operator, shall charge Xxxxxx Properties a management fee for
each
well drilled on the Xxxxxxx Crossroads Prospect ("Prospect") equal to $10,000.00
per month. The management fee shall be charged for each month during which
XXXX
is engaged in preparations for and/or the drilling of each well located on
the
Prospect and shall include XXXX'x costs associated with in-house geological
management and mapping, geophysical management and computer modeling,
engineering management and planning, land management and administration, and
associated accounting functions.
13.
Xxxxxx
Properties will earn an assignment of the interest provided herein upon
completion of the drilling of the Initial Well on the Xxxxxxx Crossroads
Prospect.
14.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Texas without regard to conflicts of law principles. Claims arising
out
of or requiring the interpretation of this Agreement shall be brought and
litigated in the courts located within Xxxxxx County, Texas, and both parties
unconditionally consents and submits to the jurisdiction of such
courts.
If
the
foregoing corresponds to your understanding of the agreements we have reached
on
this matter, please indicate your acceptance in the space provided below and
return a fully executed copy hereof to me for my files.
Sincerely,
By:
/s/
Xxxxx Xxxxxx
AGREED
AND ACCEPTED THIS 31st DAY OF MARCH, 2005
XXXXXX
PROPERTIES
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/s/
Xxxxx Xxxxxx
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By:
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Xxxxx Xxxxxx | |
AGREED
AND ACCEPTED THIS 31st DAY OF MARCH, 2005
BLUE
RIDGE ENERGY, INC.
/s/
Xxxxx Xxxxxx
By:
Xxxxx
Xxxxxx
