Exhibit 10.3
March 24, 2003
Xx. Xxxxx X. Xxxxx President/CEO Skyline Resources, Inc.
0000 Xxxxxxxxxx #000
Xxxxxxxx, Xxxxxxxx 00000
Phone: 000-000-0000
Fax: 000-000-0000
email: XXXXXXXXxx@xxx.xxx
Participation Agreement
Fly Creek Prospect (Coal Bank Draw & Xxxxxx Dome)
Moffat County, Colorado and Carbon County, Wyoming
Gentlemen:
Skyline Resources, Inc. (hereinafter referred to as "Skyline") has
previously acquired leasehold interests in and to certain oil and gas leases, as
well as some mineral fee interest, covering approximately 16,000 acres,
(hereinafter referred to as the "Prospect Area") that are more particularly
described in those leases (the "Leases") listed in Exhibit "A" attached hereto
and made a part hereof. Such interest shall be from the surface of the Earth to
the base of the Mesa Verde Formation. Cedar Ridge, L.L.C. (hereinafter referred
to as "Cedar Ridge"), has agreed to acquire a Thirty-Six and 666667/10000000
percent (36.666667%) working interest in the Prospect Area in accordance with
the terms and conditions of this agreement (the "Agreement"), the attachments to
this Agreement, and the Purchase and Sale Agreement dated February 17, 2003.
This Agreement, together with all exhibits attached hereto and made a part
hereof shall confirm and set forth the understanding of, and agreement to, the
terms and conditions whereby Cedar Ridge shall acquire the right to an
assignment of a Thirty-Six and 666667/10000000 percent (36.666667%) undivided
working interest in and to interests in the form of leasehold interests.
I.
CONSIDERATION, ASSIGNMENT AND AREA OF MUTUAL INTEREST
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1.1 At the time that Cedar Ridge and Skyline entered into the Letter of Intent
dated January 14, 0000, Xxxxx Xxxxx tendered to Skyline Twenty-Five Thousand
Dollars ($25,000.00) as an up front payment of a portion of the total purchase
price. Cedar Ridge will, upon execution of this Agreement, pay Skyline Three
Hundred Seventy-Five Thousand Dollars ($375,000.00), (hereinafter referred to as
the "Acquisition Price Balance") as payment in full for a Thirty-Six and
666667/100000 percent (36.666667%) of 8/8ths working interest in the Leases
within the Prospect Area as shown on Exhibit "B". Skyline shall retain
30.000000% of 8/8ths in the Prospect. As additional consideration, Cedar Ridge
shall pay on behalf of Skyline its retained 30.000000% share of costs through
the first $500,000.00 of Skyline's proportionate share of all costs. Thus, the
total amount of consideration for paid by Cedar Ridge for its 36.666667%
interest in the Prospect is Nine Hundred Thousand Dollars ($900,000.00) (i.e.,
$25,000.00 + $375,000.00 + $500,000.00). In the event that Cedar Ridge, at Cedar
Ridge's sole discretion, does not invest in the Prospect Area its own 36.666667%
share of future funding requirements plus funding on behalf of Skyline equal to
the entire $500,000 "carry" so that Skyline has not received the entire
$900,000.00 consideration to be paid for Cedar Ridge's interest in the Prospect,
then Cedar Ridge will earn a proportionate share of the 36.666667% working
interest, which shall be in the proportion that the sum of (a) the $400,000 paid
on or before the date of this Agreement, plus (b) the actual dollars invested by
Cedar Ridge on behalf of Skyline pursuant to the "carry", bear to the maximum
investment of $900,000.00 (e.g., $400,000/$900,000 = 44.444444% of 36.666667% =
Cedar Ridge "earned" working interest of 16.30%).
1.2 Upon receipt of the Acquisition Price Balance, Skyline shall immediately
make assignment to Cedar Ridge of an undivided thirty-six and 66667/1000000
percent (36.666667%) of 8/8ths working interest in and to the Leases covering
the Prospect Area acreage as identified on Exhibit "A" under a form of
assignment and xxxx of sale mutually agreeable to both parties, with all leases
being delivered at an eighty percent (80%) net revenue interest proportionately
reduced to Cedar Ridge's working interest. It is understood that eight (8) of
the leases are burdened by a royalty in excess of twenty percent (20%), and
those particular leases are accepted by Cedar Ridge at a lower net revenue
interest. Those particular leases are shown on Exhibit "AA". It is understood
that the Leases assigned to Cedar Ridge do not have any burdens imposed upon
them by Skyline or any of Skyline's affiliates (affiliate being any entity that
has a 5% or more interest in Skyline or in which Skyline has a 5% or more
interest. No party to this Agreement is to retain an override or impose any
additional burdens on any new acreage acquired. Any and all existing Overriding
Royalty Interests are set forth in those contracts set forth on Exhibit "A2".
Included with the Acquisition Price Balance is a 36.666667% working interest in
the nine (9) existing xxxxx, and associated production and disposal equipment,
as set forth on Exhibit "A1", subject to adjustment under Article 1.1 if the
full $500,000 "carry" is not paid by Cedar Ridge on behalf of Skyline.
Page 1 of 4
1.3 The black outlined area on the plat attached hereto and made a part hereof
as Exhibit "B" shall be hereinafter referred to as the "Area of Mutual
Interest," or "AMI" for the Fly Creek Prospect. Cedar Ridge shall be entitled to
its proportionate share of any additional acreage acquired within the Prospect
Area as provided in this Article 1.3. It is understood by the parties that
Skyline is unable to deliver all of the acreage indicated in its initial
negotiations with Cedar Ridge. As a result, Skyline has agreed to acquire at its
sole cost and expense the leasehold described on Exhibit "AB", and to deliver to
Cedar Ridge its 36.666667% proportionate share of such newly-acquired leasehold
working interest in these leases within thirty (30) days of closing. In the
event that Skyline fails to acquire the leases set forth on Exhibit "AB" within
the time period provided, then Cedar Ridge shall have the option to acquire
these interests and be credited with all of the lease costs and expenses
(including, but not limited to, brokerage costs, recording fees, and lease
bonus) incurred to acquire these interests against the $500,000 "carry"
described herein. All other leasehold acquisitions within said AMI in addition
of the leasehold interests described in Exhibit "AB" that are to be acquired by
Skyline at its sole cost and expense, shall be governed by the provisions of
Article XV.10. of the Joint Operating Agreement attached as Exhibit "C".
1.4 The assignment of interests in the Leases will be subject to the provisions
contained in the respective leases only and the Joint Operating Agreement
attached hereto as Exhibit "C"; provided that the parties agree that until the
$500,000 "carry" has been satisfied, Skyline shall be deemed to have given its
consent to a proposed operation solely by notifying Cedar Ridge it consents, and
Skyline shall have no obligation to comply with Article XV.5 of the Joint
Operating Agreement.
1.5 Cedar Ridge understands that Skyline is currently negotiating the
acquisition of additional leasehold interest in the Prospect Area that includes
all rights in approximately 8,900 acres adjacent to the existing Leases and the
deeper Niobrara rights on the existing Leases separate and apart from the
acreage described in Exhibit "AB". The parties agree that Cedar Ridge shall
supervise the additional leasehold acquisitions (outside of those described in
Article 1.3 as being acquired at the sole expense of Skyline) within the
Prospect Area, and that such acquisitions shall be on a "heads-up" basis with
each party bearing its proportionate share of the acquisition costs, and all
interests acquired will be delivered as received (i.e., no additional overriding
royalty interest shall be added).
II.
TERMS FOR OPERATIONS, INVESTMENT, AND PIPELINE
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2.1 Skyline and Cedar Ridge agree that all drilling and operations on the
Prospect Area will be governed by the terms and conditions of the A.A.P.L. Form
610-1982 Model Form Operating Agreement, as modified, and XXXXX 1984 Onshore
Accounting Procedure Joint Operations (said A.A.P.L. Form 610-1982 Model Form
Operating Agreement, and XXXXX 1984 Onshore Accounting Procedure Joint
Operations is attached hereto and will be collectively referred to as the
"Operating Agreement") which is attached hereto as Exhibit "C", and names Cedar
Ridge, L.L.C. as Operator. Skyline is currently subject to one or more operating
agreement(s), and Skyline by its execution of this Participation Agreement
hereby agrees to have any and all other affected parties elect to terminate the
existing operating agreement(s) and acknowledge that they are subject to the
Operating Agreement's terms and conditions as of the Closing Date. Additionally,
Skyline hereby confirms that the termination of the existing operating
agreement(s) and execution of the Operating Agreement shall not adversely affect
Cedar Ridge in any manner.
2.2 In the event that Cedar Ridge, in its sole discretion, determines that the
development of the Prospect Area is not progressing to its satisfaction before
Cedar Ridge completes its entire investment in the Prospect Area (i.e. inclusive
of the time in which Cedar Ridge has "carried" Skyline for its 30.000000%
working interest through the expenditure on behalf of Skyline of $500,000.00),
then Cedar Ridge has the option to discontinue payments under the "carry" as set
forth above. In this event, Cedar Ridge shall earn a proportionately reduced
working interest in the Prospect Area, based upon its actual amount of
investment as set forth in Article 1.1 above. In such an event, Cedar Ridge
shall promptly re-assign to Skyline the working interest in the Prospect Area
not earned by Cedar Ridge pursuant to Article 1.1, which assignment shall be in
the same form, including warranties, as the assignment from Skyline to Cedar
Ridge, and shall be free of any additional burdens over those contained in the
assignment from Skyline to Cedar Ridge.
2.3 Skyline has secured the investment capital to build a sixteen-mile pipeline
from the Prospect Area to Baggs, WY. Skyline agrees that Cedar Ridge shall be
entitled to participate in and own its proportionate share, being 36.666667% of
8/8ths of the pipeline and thereby have control of its ability to market its
working interest share of gas and other products.
Page 2 of 4
III.
NOTICES
3.1 Any notice or information required to be furnished hereunder shall be in
writing or by fax and given to the following parties:
CEDAR RIDGE: SKYLINE:
Cedar Ridge, L.L.C. Skyline Resources, Inc.
000 Xxxxxx Xxxxx 0000 Xxxxxxxxxx
Xxxxxxxx X Xxxxx 000
PO Box 3524 Xxxxxxxx, XX 00000
Xxxxxxx, XX 00000-0000 Attention: Xx. Xxxxx X. Xxxxx
Attention: Xx. Xxxxx Xxxxx Office: 000-000-0000
Office: 970-382-5990 FAX: 000-000-0000
FAX: 000-000-0000
3.2 Skyline and Cedar Ridge shall have the right to change their address for
notices by giving written notice of such change to the other party.
IV.
GENERAL TERMS
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4.1 This Agreement and all operations conducted on the AMI and the Leases shall
be subject to all valid and applicable laws, orders, rules and regulations of
any governmental body having jurisdiction over such operations. The obligations
of the parties hereunder are intended to be separate and not joint or
collective, and nothing in this Agreement or any act by Skyline or Cedar Ridge
shall ever be construed or implied as creating a mining partnership, commercial
partnership, or other partnership relation; it being the intention of the
parties hereto not to create, and this Agreement shall never be construed to
create, a mining or other partnership or joint venture.
4.2 Each party's obligations as set out in this Agreement are several and not
joint and each party shall be individually responsible for its own obligations
as set out in this Agreement and in the Operating Agreement.
4.3 This Agreement shall inure to the benefit of and be binding upon Skyline and
Cedar Ridge and their successors and assigns; and this Agreement shall
constitute a covenant running with the Leases, and any additional mineral
interests acquired under the terms of the AMI.
4.4 This Agreement and the interest in the Leases and/or Fee Interests assigned
to Cedar Ridge pursuant to this Agreement may be assigned or transferred, in
whole or in part, without the prior written consent of Skyline; provided,
however, that in such event Cedar Ridge shall remain liable for the performance
of its obligations under this Agreement, the Exhibits attached hereto, and all
other documents executed at closing, and further provided that any such
assignment shall nevertheless be void unless it is made expressly subject to
this Agreement. Likewise, this Agreement and the interest in the Leases and Fee
subject to this agreement may be assigned or transferred by Skyline, in whole or
in part, without the prior written consent of Cedar Ridge; provided, however,
that in such event Skyline shall remain liable for the performance of its
obligations under this Agreement, the Exhibits attached hereto, and all other
documents executed at closing, and further provided that any such assignment
shall nevertheless be void unless it is made expressly subject to this
Agreement.
4.5 THIS AGREEMENT, THE JOINT OPERATING AGREEMENT, AND ANY OTHER DOCUMENTS
EXECUTED AND DELIVERED PURSUANT HERETO AND THE LEGAL RELATIONSHIP BETWEEN THE
PARTIES WITH RESPECT TO THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO WITHOUT REGARD TO RULES
GOVERNING CONFLICTS OF LAW.
4.6 Cedar Ridge represents and acknowledges that prior to entering into this
Agreement, Cedar Ridge was advised by and has relied solely on its own legal,
tax and other professional counsel concerning this Agreement, the Leases and the
value thereof. Cedar Ridge represents and acknowledges that it is knowledgeable
in the area of oil and gas, including coal seam gas exploration and development,
and is able to bear the economic risk of any oil and gas investment Cedar Ridge
is obligated to or might choose to make in the Leases and that Cedar Ridge is
capable of evaluating the merits and risks of investments in the Leases. Cedar
Ridge represents and acknowledges that it is acquiring the Leases for its own
account and not for distribution or resale in any manner that would violate any
state or federal securities law, rule, regulation or order.
Page 3 of 4
4.7 This Agreement, the Purchase and Sale Agreement dated February 17, 2003, and
the documents dated March 7, 2003 and signed contemporaneously with this
Agreement, contain the entire understanding of the parties hereto with respect
to the subject matter hereof and shall supercede all prior agreements,
understandings, negotiations and discussions among the parties with respect to
such subject matter. No representations, inducements, promises, or agreements,
oral or otherwise, which are not embodied in this Agreement, the Purchase and
Sale Agreement dated February 17, 2003, and the other March 7, 2003 documents,
shall be of any force or effect. This Agreement may be executed in any number of
counterparts, each of which will be considered an original for all purposes.
Skyline and Cedar Ridge contributed to the preparation of this Agreement and the
terms and conditions contained herein shall not be construed in a light more
favorable to one party than the other.
4.8 If any one or more of the provisions of this Agreement shall be determined
to be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired, and the offending provision or provisions shall be
reformed, and the remaining provisions interpreted, so as to give effect, to the
maximum extent permissible, to the agreement of the parties as set out herein.
4.9 Neither Skyline nor Cedar Ridge shall make, nor permit any of its affiliates
or representatives to make, any news release or other public disclosure
pertaining to this Agreement or the transactions contemplated hereby without the
prior written approval of the other parties as to timing, form and content,
which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, either party may make such news release or other public disclosure
which, in the opinion of such party's legal counsel, is required to be made by
such party pursuant to the applicable securities laws or securities exchange
rules.
If the foregoing terms and conditions confirm your understanding of our
Agreement, please execute in the space provided below for your signature and
return one (1) fully executed original of this Agreement to our offices at the
above address.
Yours very truly,
CEDAR RIDGE L.L.C.
/s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Manager
Attachments
Agreed to and accepted this the 24th day of March, 2003, but effective February
28, 2003 at 11:59 p.m.
SKYLINE RESOURCES, INC
/s/ Xxxxx X. Xxxxx
-----------------------------------------
By: Xxxxx X. Xxxxx, President/CEO
