Confidential Treatment Requested Confidential portions of this document
have been redacted and have been separately filed with the Commission.
December __, 1999
Saratoga Resources, Inc., a Texas Corporation
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▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Re: GEOPHYSICAL/GEOLOGICAL DATA REVIEW AGREEMENT
Gentlemen:
Reference is made to the discussions regarding Saratoga Resources,
Inc.'s a Texas Corporation ("Saratoga") engagement of Trek Oil and Gas, Inc.
("Consultant") to perform the following ("Services"): identify and develop
opportunities to explore for, exploit and produce, oil, gas and other minerals
with the Project Area, as defined below ("Prospects"). In the performance of the
Services, Consultant shall review, evaluate, analyze and where applicable
reprocess certain geophysical and geological data and information compiled by
Saratoga including but not limited to, seismic lines and records; shotpoint
maps, velocity surveys, geophysical and geological interpretations, well logs
and and other similar or related geophysical and geological data and/or
information ("Data"). Pursuant thereto, Saratoga and Consultant, on behalf of
themselves and their respective successors and assigns, agree as follows:
I.
ENGAGEMENT
Saratoga hereby engages Consultant to provide the Services on a
non-exclusive basis in consideration of, and in accordance with, the further
considerations and covenants of Saratoga and Consultant set forth herein. As
used herein, the term "Project Area" means those ONSHORE areas which are
identified on the program list and attached as Exhibit "A" hereto.
II.
PROSPECT GENERATION
Consultant will assign certain of its employees or representatives to
perform the Services at Trek's offices, during Trek's normal business hours, in
an effort to identify and develop Prospects within the Project Area for
recommendation to Saratoga, subject to the following:
▇. ▇▇▇▇▇▇▇▇ and Consultant shall keep all such interpreted data strictly
confidential for as long as this Agreement remains in effect. Saratoga
agrees to allow Consultant the right to maintain copies of shot point base
maps and tapes and seismic lines in Consultant's offices for any Prospect
generated or in the process of being generated by Consultant.
B. As a result of performing the Services, Consultant may determine, as a
matter of its reasonable judgment, that it is necessary or appropriate to
acquire additional seismic data with respect to one or more potential
Prospects. In such circumstances, Consultant may (but shall not be obliged
to attempt to obtain additional seismic data from third parties covering
portions of the Project Area without the necessity of giving notice to, or
receiving approval from, Saratoga; provided that (1) any additional seismic
data obtained by the Consultant pursuant to this Section II.B. shall be at
the Consultant's sole cost and expense, subject to reimbursement by
Saratoga solely upon the conditions, and limited to the extent, provided in
Section III of this Agreement; (2) any additional seismic data acquired by
Consultant from third parties shall be retained by Consultant in accordance
with any applicable license, confidentiality or other agreements; (3) any
charges related to paper copies, tape or film reproduction shall be an
expense of consultant.
III.
PROSPECT PROPOSALS
If Consultant identifies or develops any Prospects during the term of
this Agreement, Consultant shall submit a recommendation to Saratoga by means of
a formal presentation to appropriate Saratoga personnel which shall include,
without limitation, an outline of the Prospect Area, maps, plats, logs, copies,
reproductions, additional seismic data acquired or purchased by Consultant
provided in II.B. above, written memoranda and all other appropriate materials
relating to the identification, costs attributed to prospects development,
time-tables, exploration and development, of the Prospect and designation of an
area of mutual interest ("AMI") to the extent reasonably necessary to promote
the orderly development of, and protect the interests of Saratoga and Consultant
in, a Prospect ("Prospect Analysis"). In all cases, Consultant or its designee
shall act as Operator of the Prospect.
A. Saratoga shall have thirty (30) days ("Election Period") in which to
evaluate the Prospect provided that the Election Period shall not begin
until Consultant has delivered, and Saratoga has received, written notice
that the Election Period has begun which shall be no earlier than the
formal presentation data of the Prospect Analysis. Any Prospect which
Saratoga accepts shall be referred to as a "Approved Prospect" and any
Prospect which Saratoga rejects shall be referred to as a "Rejected
Prospect." If Saratoga fails or refuses to provide written notice to
Consultant accepting a Prospect on or before the end of the applicable
Election Period, Saratoga shall be deemed to have rejected that Prospect.
B. During or after the Election Period, Saratoga, or Consultant on behalf of
Saratoga, may other third parties the opportunity to acquire all or a
portion of its rights to participate in operations on a Prospect, subject
to all of the terms, conditions and covenants of this Agreement.
C. All operations contemplated by a Prospect Analysis would be conducted in
accordance with the terms and provisions of an operating agreement
governing the Prospect in the form attached as Exhibit "B" hereto, to
obtain access to the necessary rights, titles and interest in the acreage
included in the Prospect or AMI, if applicable ("Operating Agreement").
▇. ▇▇▇▇▇▇▇▇▇▇ of its election to accept or reject a Prospect, Saratoga shall
be assigned an overriding royalty interest equal to one percent (1.0%) of
eight-eighths (8/8ths) in leases or interests owned and/or acquired by
Consultant or its agents pursuant to this Agreement (the "Prospect
Override"). The Prospect Override shall only be applicable to leases or
interests in which Consultant, its assigns, agents or designees have a net
revenue ownership interest greater than 75%, proportionally reduced to the
interest originally acquired and shall not be applicable to acreage or
interests owned by third parties whether or not such interests are pooled
with leases or interests owned or acquired by Consultant. The Prospect
Override shall apply to the interest as acquired by, through or under
Consultant and shall not be subject to any additional burdens,
encumbrances, or promotes placed upon it by Consultant in such leases or
interests covering the Prospect or AMI ("Prospect Override"). Such Prospect
Override shall be proportionally reduced to the working interest originally
acquired of Consultant and/or its assigns. The Prospect Override shall be
in addition to any other interests Saratoga may participate in, earn or
acquire in an Approved Prospect. If the NRI acquired is equal to or less
than 75% then a mutually agreeable substitute compensation will be assigned
to Saratoga and be based on a 3.0% carried working interest of the interest
originally acquired to sales point.
E. As compensation for the Services, Consultant shall own (1) each Prospect
Analysis exclusively for a period of 2 years from the date of formal
presentation to Saratoga and (2) all rights, titles and interests, if any,
which may hereafter be acquired subject to (a) Saratoga's Prospect Override
and (b) election to approve and participate in operations conducted on and
obtain working interest in Leases covering acreage in, an Approved
Prospect.
IV.
APPROVED PROSPECTS
Upon acceptance of a Prospect Analysis from Consultant ("Approved
Prospect"), Saratoga shall participate in all operations on the Prospect to the
extent of, and be entitled to earn and/or acquire up to a thirty-three and
one-third percent (33.33%) of eight-eighths (8/8ths) working interest,
proportionally reduced to the aggregate interest acquired by Consultant,
Saratoga or third parties acquiring an interest by, through or under Saratoga as
may be applicable, in the Prospect of AMI, if applicable and subject to the
burdens mentioned in this agreement. Within twenty (20) days of receipt of an
invoice from Consultant, Saratoga shall reimburse thirty-three and one-third
percent (33.33%) of eight-eighths (8/8ths) of Consultant's actual aggregate
costs attributable to generating the Prospect (excluding the monthly overhead by
Consultant, if any, obtaining access to the necessary rights, titles or
interests in leases covering acreage with in the Prospect or AMI, if applicable,
or other actions undertaken or costs incurred by, the Consultant with respect to
the Prospect and shall bear thirty-three and one-third percent (33.33%) of
eight-eighths (8/8ths) of all future costs and liabilities, subject to the
Operating Agreement. Despite anything to the contrary in this Agreement or
otherwise, failure by Saratoga to timely reimburse Consultant as provided herein
shall be an automatic election not to participate for a working interest in the
Prospect. In the event that Saratoga accepts a Prospect on behalf of a third
party, ▇▇▇▇▇▇▇▇'s acceptance shall disclose the identity of, and the
consideration paid by, the third party and ▇▇▇▇▇▇▇▇'s acceptance shall be
subject to the following additional conditions:
A. Consultant shall have a preferential right to acquire the working interest
offered to a third party on the same terms offered by the third party for a
period of five (5) days after Consultant's receipt of notice of Saratoga's
acceptance.
B. If Consultant fails or refuses to exercise its preferential right to
acquire Saratoga's interest within the period specified in Section III.A
above, then Saratoga shall assign all or part of its rights, titles, and
interests in the Prospect to the third party subject to this Agreement.
Thereafter, ▇▇▇▇▇▇▇▇'s assignee shall be vested with certain rights, duties
and obligations related to the Prospect as described in this Agreement
provided that Saratoga was in compliance with all provisions of this
Agreement at the time of the assignment to assignee.
V.
REJECTED PROSPECTS
Upon rejection of a Prospect Analysis ("Rejected Prospect"), Consultant
may (but shall be under no obligation to) proceed with operations to explore and
develop the Prospect without further notice to, or approval by, Saratoga
provided that (1) any and all undertakings, activities or operations
attributable, or in any way related, to a Rejected Prospect, shall be at
Consultant's sole risk, cost and expense, and (2) after Project Payout,
Saratoga's Prospect Override shall automatically increase to three percent (3%)
of eight-eighths (8/8ths) proportionally reduced to the entire interest acquired
by Consultant in the leases covering the Prospect or the AMI, as applicable and
shall be no greater than a multiple of 3 to the override originally assigned
Saratoga. For purposes hereof, Project Payout shall mean that point in time when
the proceeds Consultant has actually received from production of all ▇▇▇▇▇
located with the Prospect or AMI, if applicable, (after subtracting the
royalties paid to the Lessor(s) under the lease(s), Saratoga's Prospect
Override, transportation charges, third party processing or handling fees and
any taxes) equal all costs incurred by Consultant including, but not limited to
existing seismic data purchases, new seismic data acquisition including the
costs of permitting, acquisition, damages, brokerage and processing and all
costs incurred by Consultant for leases, lease brokerage, title curative,
location preparation, damages drilling, completing and equipping all ▇▇▇▇▇
thereon, reworking, constructing and installing all platforms, caissons,
production equipment, processing facilities and pipelines associated therewith,
and operating and maintaining those ▇▇▇▇▇ and facilities. All costs included in
this Article shall be reasonable and adequately documented. Saratoga agrees that
for a period of one (1) year following the termination of this Agreement, it
shall not acquire an interest in any Rejected Prospect either along or in
conjunction with others, except for the Project Override, and have no further
claim or right to the rejected prospected, and its surrounding AMI.
VI.
LEASE ACQUISITION AND MAINTENANCE
Prior to Saratoga committing to participate as to its proportionate
interest in an Approved Prospect and/or as to any Rejected Prospect(s) as
elsewhere herein provided, Consultant, its agents, successors or assigns, may in
its sole discretion, seek to acquire oil, gas and mineral leases, mineral
interests or other oil and gas rights ("Leases") whether by purchase; farmin,
farmout, option acreage contribution, or otherwise in such prospects generated
by Consultant in accordance with this Agreement. The acquisition of such leases
and the terms, conditions and maintenance thereof shall be solely within the
discretion of Consultant. If and until such time as Consultant and Saratoga
become joint working interest owners as elsewhere herein provided Consultant
shall have no duty or obligation to maintain any leases in force and effect
whether by payment of delay rentals, shut-in royalty payments; operations or
otherwise. Further, it is agreed and understood that prior to the parties
becoming joint working interest owners hereby, Saratoga or any third party
acting on behalf of Saratoga shall not acquire any oil and gas leases, mineral
leases, or other rights within any Prospect generated by Consultant in
accordance with this Agreement or any Areas of Mutual Interest established under
the Joint Operating Agreement attached hereto as Exhibit "C." Consultant shall
not commence or cause to be commenced any drilling activity of any nature on any
Leases acquired hereunder until the elections have been made by Saratoga or any
third party as provided in Article III.A. above.
VII.
CONFIDENTIALITY
As between Saratoga and Consultant, all the Data shall remain the
property of, and be owned by, Saratoga. Consultant shall not provide the Data,
including copies or extracts thereof, to third parties without the prior written
consent of Saratoga. Notwithstanding the foregoing, Saratoga and Consultant
agree:
A. In the event Saratoga should receive notice that Consultant has abrogated
the terms of an applicable license or other agreement, Consultant shall not
utilize the affected Data covered by that license or other agreement
thereafter and shall return to Saratoga's personnel the affected Data,
including copies or extracts thereof and any work product prepared by or
for Consultant therefrom, which may have previously been utilized by
Consultant in performing the Services hereunder.
B. Consultant understands and hereby acknowledges that neither Saratoga nor
any of its employees, agents or representatives makes any representation or
warranty as to the accuracy or completeness of the Data, and Consultant
agrees that Saratoga shall not be held liable in any way to Consultant, its
representatives or any other person as a result of Consultant's review of
or reliance upon any of the Data. Consultant shall further fully defend,
protect, indemnify and hold Saratoga, its officers, employees,
representatives, and agents harmless from and against any and all claims,
demands, suits, and causes of action of every kind and character, relating
to, or arising out of, or in any way incidental to the use, review and
reliance on the Data. This indemnity shall apply, without limitation, to
any liability imposed upon any party indemnified hereunder as a result of
any statute, rule, regulation or theory of strict liability.
C. Consultant shall have the right to show Saratoga's proprietary data
pertinent to a Prospect to third parties with ▇▇▇▇▇▇▇▇'s written
authorization which shall not be unreasonably withheld.
D. The provisions of this Article VII shall survive as long as Consultant or
its assigns, heirs or successors maintain any leases within the AMI which
are subject to this Agreement.
VIII.
ASSIGNABILITY
Consultant shall not assign this Agreement, or its obligation to
provide the Services, to any third party without the written consent of
Saratoga. In the event that Consultant is able to generate one or more Prospects
and obtain access to the necessary rights, titles and interests in the acreage
included in a Prospect or AMI, if applicable, Consultant, Saratoga or such third
parties as may participate in the Prospect through Consultant or Saratoga shall
enter into an Operating Agreement, and thereafter those parties may assign an
interest in their respective rights in the Prospect or AMI, if applicable,
subject to the provisions of the Operating Agreement. Consultant, shall not
include in any Operating Agreement entered into by Contractor terms, conditions
or provisions that favor Consultant to the detriment of Saratoga.
IX.
OTHER AGREEMENTS
This Agreement is specifically subject to that certain Seismic Data
Licensing Agreement dated the 30th day of January, 1998, by and between Seitel
Data, Ltd., Saratoga Resources, Inc., and Lobo Energy, Inc. In the event there
is a conflict between the terms of this agreement and the terms of the Seismic
Licensing Agreement, the terms of the Seismic Licensing Agreement will control.
X.
TERM
This Agreement shall be for a term of one year from the date hereof
unless extended by mutual agreement. Notwithstanding the foregoing, either party
may terminate this Agreement upon thirty (30) days written notice to the other
party beginning ninety days after the effective date of this Agreement. Either
Party may terminate this Agreement immediately in the event of any material
breach hereof.
XI.
NOTICES
Any notice or other communication hereunder between the parties hereto
shall be in writing and shall be deemed to have been given only upon receipt
thereof. The address of each party for such purpose shall be:
Saratoga Resources, Inc.
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Tel. (▇▇▇) ▇▇▇-▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
Trek Oil and Gas Inc.
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Tel. (▇▇▇) ▇▇▇-▇▇▇▇
Fax:
Each party may change their address by delivering their new address to the other
party.
XII.
BUSINESS OPPORTUNITIES
Saratoga and Consultant expressly reserve the right to develop or
participate in additional businesses or business opportunities as may be
presented to, or discovered by, either during the term hereof, including,
without limitation, conducting or participating in operations for the
exploration and development of oil and gas except as provided in Section V
herein. Without limiting the generality of the foregoing, Saratoga and
Consultant hereby acknowledge:
A. Each party is actively engaged in various aspects of the oil and gas
business, and anticipate conducting, or participating in, activities to
generate, explore and develop opportunities similar to those contemplated
by this Agreement pursuant to existing agreements and relationships, which
(1) each party has disclosed to the reasonable satisfaction of the other,
(2) neither party's interests should be impaired, restricted or otherwise
affected hereby, and (3) may be conducted simultaneously with those
contemplated hereby. Consultant, to the extent Consultant believes
reasonable or necessary, may pursue opportunities with third parties within
the Project Area except where such actions would foreseeably result in the
damage to, or loss of, a Prospect or AMI, if applicable, generated pursuant
to this Agreement.
B. As a result of participating in opportunities similar to those set forth
herein, each party acknowledges that the successful generation, exploration
and development of any Prospect pursuant to this Agreement is subject to
numerous risks and may be influenced by numerous factors beyond either
party's control. In addition to the customary risks of conducting
exploratory or development operations on, and obtaining production of oil
and gas in paying quantities from, leases owned by a party at the time an
exploration project is agreed upon, Saratoga and Consultant acknowledge
that there is no assurance that access to the necessary rights, titles and
interests in acreage included in any Prospect or AMI, if applicable, can be
obtained. Consequently, neither party shall have any obligation to the
other pursuant to this Agreement, in the event Consultant is unable to
generate, or to obtain oil and gas production from, any Prospects in the
Project Area.
XIII.
RELATIONSHIP OF THE PARTIES
This Agreement is not intended to create, and shall not be construed to
create, a relationship or partnership, joint venture or an association for
profit between or among the parties hereto, it being understood that Consultant
is an independent contractor and is not to be deemed an agent of Saratoga.
XIV.
GOVERNING LAW
This Agreement and all matters pertaining hereto shall be governed and
determined by the law of the State of Texas.
XV.
INTEGRATION
This Agreement constitutes the entire agreement of the parties and
supersedes all prior agreements, understandings, conversations or other
correspondence concerning the subject matter hereof.
This Agreement shall not be amended, except by written instrument
executed by both parties hereto.
If the foregoing correctly sets forth the agreement and understandings
between the parties, please execute both copies and return one to the attention
of the undersigned whereupon this proposal shall constitute our agreement as to
the matters herein set forth.
Very truly yours,
SARATOGA RESOURCES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
ACCEPTED AND AGREED TO THIS 19th day of March, 1999.
TREK OIL AND GAS, INC.
By: /s/ ▇▇▇▇ ▇. Mount
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▇▇▇▇ ▇. Mount
Vice President
ACCEPTED AND AGREED TO THIS 19th day of March, 1999.
Exhibit "A" Contract Area List
Seismic Data Programs
EXHIBIT "A"
SEISMIC DATA PROGRAMS
Confidential material redacted and filed separately with the commission.
EXHIBIT "B"
A Standard Form A.A.P.L. Form 610 Model Form Operating Agreement 1982 will serve
as Exhibit B.
