NORTH FRANKLIN PROSPECT AGREEMENT
NORTH FRANKLIN PROSPECT
AGREEMENT
This AGREEMENT made and entered into this 5th day of December, 2003, by and between
▇▇▇▇▇▇ EXPLORATION, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ #▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
A Nevada corporation, hereinafter called “▇▇▇▇▇▇”, and
SILVER STAR ENERGY, INC.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
A Nevada corporation, hereinafter called “Silver Star”, collectively referred to as the “Parties”.
WITNESSETH:
WHEREAS ▇▇▇▇▇▇ is the owner of a certain oil and gas prospect (hereinafter referred to as “the Prospect”), covering and embracing the lands (hereinafter referred to as “said lands”), in the Area of Mutual Interest (hereinafter referred to as “AMI”), shown on the attached Exhibit “A” and described as follows:
Township 6N – Range 4E, M.D.B.& M
All of Section 13, 14, 23, & 24
WHEREAS Silver Star desires to earn an assignment of all of ▇▇▇▇▇▇’▇ interest in the Prospect and in said lands for the consideration and on conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:
| 1. | Definitions: For
the purposes of the Agreement, the following definitions and/or interpretations
shall apply: |
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A. |
Completed Well is a well, which
has been fully equipped for the taking of production, through and including
the tanks for an oil well |
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and through and including the Christmas
tree for gas, or plugged and abandoned, if a dry hole. |
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| B. | Paying Quantities means a quantity
(in the judgment of a reasonable and prudent operator) of oil, gas (including
any gaseous hydrocarbons produced with oil) and/or gas (including any
liquid hydrocarbons produced with gas) sufficient to repay, with a reasonable
profit, the cost and expense of operating the well. |
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| C. | Contract Depth is a depth sufficient
to fully test the ▇▇▇▇▇▇▇ formation or 7,800 ft., whichever is first encountered. |
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| D. | Term of Agreement is as long
as operations are being conducted on the leased lands. |
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| E. | Net Revenue is that revenue derived
from the sale of hydrocarbons from the oil/gas well after costs associated
with the production of the same as described in the ▇▇▇▇▇ Agreement have
been deducted. |
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| F. | Spud is defined at the commencement
of actual drilling operations at the drill site of an oil or gas well. |
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| G. | Un-promoted Working Interest is
defined as one in which only actual drilling costs and completion costs
are charged without the inclusion of Land, Geologic and Geophysical costs
or Fees and Prospect Fees, etc. |
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| H. | Operator is defined as ▇▇▇▇▇▇
or its assigns, working under a Joint Operating Agreement, performing
the functions of preparing, drilling, completing and producing the Prospect. |
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| I. | Carried Working Interest is defined
as a working interest in the Prospect, without cost to the owner thereof
through the completion of the initial test well. |
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| 2. | Consideration: As consideration for the interest in the Prospect, Silver Star shall pay: | |
| 1. | At signing of the Agreement - $85,000.00 |
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| 2. | At spud of the initial test well - $15,000.00 |
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| 3. | At completion of the initial test well
- $25,000.00 |
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| 3. | Retained Rights: ▇▇▇▇▇▇ shall retain rights in the Prospect of: | |
| 1. | A two and one-half percent Overriding
Royalty on all lands within the AMI. |
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| 2. | A five percent of one hundred percent
(5% of 100%) Working Interest Carried through the completion of the initial
test well. |
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3. |
The right to participate in the Prospect
as to a five percent of one hundred percent (5% of 100%) Working Interest.
Said Working Interest shall be “un-promoted”. |
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| 4. | Additional Payments:
In addition to the payments set forth above, Silver Star shall be
responsible for payment to ▇▇▇▇▇▇ of: |
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1. |
All expenses for lease extensions and
rentals of existing leases, including a twenty percent (20%) management
fee. |
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2. |
All expenses for acquisition of any
additional leases acquired within the AMI, including a twenty percent
(20%) management fee. |
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3. |
All expenses in connection with the
drilling and completion of the initial test well on the Prospect. |
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| 5. | Additional Working Interest
Election: In the event that ▇▇▇▇▇▇ elects to participate up to five
percent of one hundred percent (5% of 100%) working interest, in addition
to its five percent of one hundred percent (5% of 100%) carried working
interest, ▇▇▇▇▇▇ shall be responsible for its proportional share of expenses
of said five percent (5%) working interest. Said Working Interest shall
be “un-promoted” with election to take place no later than five
(5) business days after the issuance of the AFE for drilling of the initial
test well. |
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| 6. | Administration: The
Prospect shall be administered according to the following conditions: |
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1. |
▇▇▇▇▇▇ shall manage or contract for
all aspects of leasing and land acquisition with the AMI. |
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2. |
▇▇▇▇▇▇ shall manage or contract for
all aspects of drilling, completion and production on or from the prospect
lands. |
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3. |
Operator shall commence the actual drilling
of a test well on the said lands on or before September 30th,
2004 or a date mutually acceptable to both parties at a location mutually
acceptable between the Parties. Should Silver Star and ▇▇▇▇▇▇ disagree,
▇▇▇▇▇▇ shall not unreasonably withhold its consent to Silver Star’s
proposal. Thereafter Operator shall diligently and continuously prosecute
the drilling of said test well in a proper and workmanlike manner to contract
depth and to complete said test well within 45 days of the commencement.
Said test well shall be drilled, completed or abandoned at Silver Star’s
sole cost, risk and expense. In the event that ▇▇▇▇▇▇ contracts for any
drilling or productions services, ▇▇▇▇▇▇ shall have on-site access to
all operations on the subject lands. ▇▇▇▇▇▇’▇ access shall be at
its sole risk. Silver Star shall have on-site access to all operations
on the subject lands subject to ▇▇▇▇▇▇’▇ approval. Both ▇▇▇▇▇▇’▇
and Silver Star’s access shall be at its sole risk. |
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4. |
In the event any well provided for herein
is lost for any reason prior to being drilled to contract depth, or Operator
has encountered |
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during the drilling of any
well mechanical difficulty or formation or condition which would render
further drilling impractical or impossible, Operator shall plug and abandon
such well and thereafter commence a substitute well at a mutually agreed
location within forty-five (45 days after cessation of Operators drilling
operations in the prior well, or at a time mutually agreed between Silver
Star and ▇▇▇▇▇▇. In the event of a disagreement, ▇▇▇▇▇▇ shall not unreasonably
withhold its consent in these matters. Any substitute well drilled hereunder
shall be drilled subject to the same terms and conditions and to the same
depth as provided for the well so lost or abandoned. Any reference herein
or hereafter made to the test well shall be deemed to be a reference to
any substitute well or ▇▇▇▇▇ which may be drilled therefore. |
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| 7. | Assignment of Interest: |
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1. |
By the performance of the
covenants and conditions hereof and upon completion of the test well as
a producer of oil and/or gas in paying quantities and in accordance with
the terms and conditions hereof, Silver Star shall earn and receive within
fifteen (15) days thereof an interest in said lands as follows: |
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1. |
An assignment of one hundred percent
(100%) of all of ▇▇▇▇▇▇’▇ interest in the North Franklin Prospect
Area. The assignment to Silver Star from ▇▇▇▇▇▇ shall be subject to an
overriding royalty of two and one-half percent of one hundred percent
(2.5% of 100%). In any event, ▇▇▇▇▇▇ covenants and agrees to deliver to
operator no less than an average of seventy-six percent (76%) net revenue
interest for the said lands. |
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2. |
In addition, any new leasehold interest
acquired within the AMI during term hereof by Silver Star of ▇▇▇▇▇▇ shall
be subject to said overriding royalty interest reserved by ▇▇▇▇▇▇, being
two and one-half percent of one hundred percent (2.5% of 100%) and the
carried 5% Working Interest. All information acquired in the drilling
of any well by Operator in the AMI shall be furnished to ▇▇▇▇▇▇ in a timely
manner and at no cost to ▇▇▇▇▇▇ and working interest we elect to hold. |
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8. |
Test Well: For the
purposes of this Agreement, the Test Well shall be defined as the initial
well drilled on the North Franklin Prospect under the terms of this Agreement.
Operator shall notify each Participant of the projected spud date of the
Test Well not more than thirty (30) days prior to that date. Each Participant
shall, not later than ten (10) days following receipt of said notice,
advance its Participation Share of one hundred percent (100%) of said
Test Well’s estimated AFE drilling costs to Operator. Operator shall
promptly commence and diligently continue with the actual drilling of
the proposed Test Well after the receipt of all the Test Well’s drilling
costs. In the event any Participant fails to so advance the drilling funds
for the Test Well, ▇▇▇▇▇▇ may, at its |
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option, terminate this Agreement in its entirety
as to that Participant by delivering to such Participant a written notice
of termination. In the event this Agreement is so terminated, said Participant
shall forfeit all funds previously paid to ▇▇▇▇▇▇ and have no rights or
obligations under this Agreement, except any obligations accruing prior
to such termination. |
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| 9. | Completion Operations: In the event ▇▇▇▇▇▇,
as Operator, decides to attempt a completion of the Test Well, each Participant
shall, prior to Operator undertaking any completions, and upon verbal
notice immediately followed by written notice from Operator, advance its
Participation Share of the estimated AFE completion cost to Operator unless
such Participant elects not to participate in the completion attempt and
instead elects to terminate its further rights and forfeit all amounts
paid or required to be paid under this Agreement prior to the completion
attempt, in which case this Agreement shall automatically terminate as
to such Participant, and such Participant shall have no further rights
or obligations under this Agreement except for the rights and obligations
accruing prior to termination. |
| 10. | Drilling Obligations: Within one-hundred and
eighty (180) days from and after the date of the commencement of production
of oil or gas in paying quantities in the test well, or at a time mutually
agreed between the Silver Star and ▇▇▇▇▇▇, Operator shall commence drilling
operations of the next well. Operations for drilling of each successor
well thereafter shall commence within three-hundred and sixty-five (365)
days from and after the cessation of drilling operations in the preceding
well, or at a time mutually agreed between the Operator and ▇▇▇▇▇▇, until
the lease land has been fully developed. As used in the paragraph, the
term “cessation of drilling operations” shall not include a
temporary stoppage of drilling operations in the same well, nor to a stoppage
of longer duration for such purposes where such stoppage is approved in
writing by ▇▇▇▇▇▇. In the event of a disagreement, ▇▇▇▇▇▇ shall not unreasonable
withhold its consent in these matters. |
| 11. | Liability and Indemnification: Each party
hereto shall be liable and responsible for and shall indemnify and hold
the harmless (including costs and attorney’s fees) from and against
any claim or actions following injury to illness or death of any person
and any loss or damage to any property occurring in connection with the
performance or non-performance of this agreement only to the extent of
its own negligence and that of its agents, servants, employees and contractors.
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| 12. | Authority for Expenditure: Operator shall
issue an Authority for Expenditure (“AFE”) thirty (30) days
prior to the month in which it intends to conduct a given operation. Silver
Star shall pay to the Operator the amount proscribed on the AFE no later
than the close of business on the tenth business day following the delivery
of the AFE. Any AFE for existing rentals or new lease acquisition shall
contain a twenty percent (20%) management fee for Operator. This section
of the Agreement does not apply to any AFE or supplemental AFE issued
during the course of actual drilling operations. In that instance the
Joint Operating Agreement shall govern as to the timeliness of payment.
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13. |
Insurance: While
operations are being conducted hereunder on any leasehold interest covered
hereby, Operator agrees to acquire and/or maintain adequate general and
automobile liability insurance covering operations hereunder with limits
of at least $1 million per occurrence. In addition, Operator agrees to
acquire and/or maintain Workmen’s compensation insurance in accordance
with applicable state laws and employer’s liability insurance. Operator
further agrees, upon request, to furnish ▇▇▇▇▇▇ and or Silver Star prior
to commencing operations, either valid certificates of insurance certifying
the above coverage or evidence of Operator being a qualified self-insurer. |
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14. |
Failure to Fund: |
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1. |
In the event Silver Star fails to advance
the drilling funds, in a timely manner, for the Test Well or any other
prospect cost or leasehold operation, ▇▇▇▇▇▇ may, at its option, terminate
this Agreement in its entirety as to Silver Star by delivering to such
Participant a written notice of termination. In the event this Agreement
is so terminated, Silver Star shall forfeit all funds previously paid
to ▇▇▇▇▇▇ and have no rights or obligations under this Agreement, except
any obligations accruing prior to such termination. |
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2. |
If termination is in conjunction with
or prior to the drilling of the initial test well, Silver Star shall immediately
forfeit all of its right, title and interest to and in the Prospect. If
termination is in conjunction with operations subsequent to the completion
of the initial test well, Silver Star shall immediately forfeit all of
its right, title and interest to and in the Prospect, with the exception
of the well bore and a surrounding area of eighty (80) acres centered
on the well bore. In the event Silver Star defaults in the drilling of
any well, there shall be no liability on the part of Silver Star for such
failure, other than liability for loss or damage occasioned to lands or
injury or death as a result of or as a consequence of Operator’s
operations hereunder. Upon Operator’s failure to conduct the drilling
operations on the test well as provided for herein, ▇▇▇▇▇▇ may, at its
option, take possession of all tools placed thereon by Operator and complete
said operations at ▇▇▇▇▇▇’▇ sole cost and liability. |
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15. |
Joint Operating Agreement:
All operations on the leased lands within the AMI shall be governed
by a mutually acceptable Joint Operating Agreement with, among other attachments,
a ▇▇▇▇▇ Accounting Procedure. The said Joint Operating Agreement and Accounting
Procedure is attached hereto as Exhibit ”B”. For the purpose
of determining Operator’s reimbursable costs and expenses for any
well in which Operator retains a working interest, the said ▇▇▇▇▇ Accounting
Procedure, as herein modified, shall control. In the event of a conflict
between the provisions of the Operating Agreement and/or the Accounting
Procedure and this Agreement, the terms of the latter shall control. |
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1. |
If operations for a replacement well
or reworking operations are not commenced within forty-five (45) days
thereafter, Operator shall |
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immediately inform ▇▇▇▇▇▇
in writing of such fact and ▇▇▇▇▇▇ shall have the option, to be exercised
within fifteen (15) days, to reacquire free of cost the rights assigned
to Silver Star hereunder free and clear of liens and encumbrances insofar
as said rights cover and embrace the lands attributable to any such well,
if ▇▇▇▇▇▇ elects to reacquire any of said lease(s) (or any part or interest
as herein provided), ▇▇▇▇▇▇ shall also have the option to acquire any
well, together with the material in and around such well then on said
lands and necessary in the provisions of this paragraph 14 shall be applicable
to all operations conducted by Operator in which ▇▇▇▇▇▇, as to the interest
in the said lease covered by this Agreement, either does not own a working
interest or is not participating in an operation with a working interest. |
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| 2. | Operator shall drill all
▇▇▇▇▇ necessary to protect the said lands from drainage through offset
▇▇▇▇▇ said lease(s). |
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| 3. | If Operator should elect
to abandon any well either drilled on the said lands or on said unit of
production, or if any well either on the said lands or on said unit of
production ceases to produce in paying quantities and if actual drilling
operation of such well at a price equal to the reasonable salvage value
of said materials. |
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| 4. | In the event Operator desires
to surrender any of the said lease(s) as to all or any part of said lands
covered thereby or to allow any of said lease(s) to terminate or expire,
Operator shall notify ▇▇▇▇▇▇ and or Silver Star at least sixty (60) days
in advance of the anniversary date specified in such lease (or the date
to be surrendered, if other than the anniversary date) and ▇▇▇▇▇▇ and
or Silver Star shall have fifteen (15) days after receipt of such notice
of its election to take a reassignment of said lease as to the portion
thereof to be relinquished or to be allowed either to expire or terminate.
Should ▇▇▇▇▇▇ and or Silver Star elect to receive a reassignment, it shall
be delivered by Operator not less than fifteen (15) days prior to the
anniversary date of any such lease (or proposed date of surrender). Any
reassignment under terms hereof shall be free of cost to ▇▇▇▇▇▇ and or
Silver Star. In the event that both ▇▇▇▇▇▇ and Silver Star elect to accept
reassignment, the lease shall be apportioned according to their relative
proportional interest in the Prospect. |
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| 5. | As to each well drilled
on the leased lands, or lands within the AMI, Operator shall notify ▇▇▇▇▇▇
in writing of the following items: |
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1. |
The exact legal description of the location. |
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2. |
The date actual drilling is commenced. |
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3. |
The total depth drilled. |
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4. |
The date of completion. |
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5. |
Whether completed as a producer of oil
and/or gas or as a dry hole. |
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6. |
The date any production commences. |
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7. |
The date any well is shut-in. |
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8. |
The date and amount of payment of any
shut-in royalty. |
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Such written notice shall be given to ▇▇▇▇▇▇ within
five (5) days after the occurrence of each of said items. ▇▇▇▇▇▇ shall
promptly convey that information to Silver Star. |
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| 6. | Should Operator commence any well which will be drilling
over the end of the primary term of any said lease(s), Operator shall
give ▇▇▇▇▇▇ and or Silver Star written notice of such drilling at least
ten (10) days prior to the end of such primary term. |
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| 16. | Accounting Statements:
If any well is completed as a producer of oil and/or gas in paying
quantities, Operator shall furnish within ninety (90) days after the date
of completion, to ▇▇▇▇▇▇ and or Silver Star, an itemized statement of
the cost of drilling, testing, completing and equipping the well, together
with an inventory of the material and equipment therein, thereon and used
in connection therewith and Operator shall thereafter furnish ▇▇▇▇▇▇ and
or Silver Star with a monthly itemized statement of the cost of operations
and the quantities and qualities of oil, gas or other minerals which are
produced from said well, together with the amount of proceeds from the
sale of such production in the preceding month. Such reports, together
with a complete well record shall be furnished to ▇▇▇▇▇▇ and or Silver
Star pursuant to the provisions of the ▇▇▇▇▇ section Exhibit “C”
of the Joint Operating Agreement. |
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| 17. | Less than Full Leasehold
Estate: If a lease described herein covers less that a full oil and
gas leasehold estate in any lands described herein under such lease, or
if ▇▇▇▇▇▇’▇ interest in such lease covering any lands described herein
under such lease is less than the full oil and gas leasehold estate (excluding
and disregarding any applicable royalty, overriding royalty, production
payment or other burden to which leasehold estate is subject), then the
overriding royalty reserved out of the production from the lands in which
▇▇▇▇▇▇’▇ interest in the oil and gas lease bears to the full oil
and gas leasehold estate in such land, and the interest in the well in
which ▇▇▇▇▇▇ may acquire a working interest shall be in the proportion
that the oil and gas leasehold estate in such lease covering the lands
described herein bears to the full oil and gas leasehold estate in said
lands. |
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| 18. | Extension of Leases:
Each extension of any of the said leases, in whole or in part, shall
maintain and continue in effect the rights and interests reserved by ▇▇▇▇▇▇
in said leases so extended and in said lands covered thereby. Should a
renewal or new lease or leases covering the said lands, or a part of or
interest in the said lands, or a part of or interest in such a lease,
be acquired by ▇▇▇▇▇▇, or by a third party wholly or partly for Operator
or Operator’s benefit, within three (3) years from the date of the
expiration of the primary term of said lease, the rights and interests
herein reserved by ▇▇▇▇▇▇ shall attach and apply to each renewal or new
lease, the lands described therein and estate created thereby with the
same result and effect as such reserved rights and interests attach and
apply to the said lease, the said lands or in the estates created by the
said lease. Should ▇▇▇▇▇▇, acting as Agent for the Silver Star, acquire
any additional acreage within the AMI in addition to the acreage described
above, ▇▇▇▇▇▇ shall assign said leases to Silver Star per the terms and
conditions of this Agreement. Silver Star shall reimburse ▇▇▇▇▇▇ for all
of its costs and expenses related to the acquisition per the terms and
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conditions of this Agreement. ▇▇▇▇▇▇ shall maintain
rights and interest in the additional acreage the same as in all other
acreage subject to this Agreement. ▇▇▇▇▇▇ shall submit an AFE outlining
costs to Silver Star prior to the acquisition of the additional acreage.
Silver Star shall forward funds to ▇▇▇▇▇▇ to cover estimated costs prior
to acquisition in a timely manner. |
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| 19. | Notices: All notices and consents to be given
hereunder shall be in writing and shall be deemed to have been duly given
if delivered personally, telexed with receipt acknowledged, mailed by
certified mail, postage prepaid, or delivered by a recognized commercial
courier to the party as follows, or such other address as any party shall
have designated for itself by ten (10) days’ prior notice to the
other party: addressed to; ▇▇▇▇▇▇ Exploration, Inc., Attn: ▇▇▇▇ ▇. ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇ #▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and to Silver Star
at the address first set forth above. The time for such receiving party
to give any notice in response thereto shall begin to run on the day following
the date the originating notice is received, and responsive notice shall
be deemed given when deposited in the United States mail or telexed with
receipt acknowledged, or deposited with a recognized commercial courier,
properly addressed and with postage or charges prepaid. |
| 20. | Title: Operator, prior to commencing operations
for any well on the leased lands shall, at Silver Star’s sole expense,
conduct adequate title work and make reasonable effort to cure title defects.
Operator shall keep ▇▇▇▇▇▇ and or Silver Star advised of these efforts.
Operator shall promptly furnish ▇▇▇▇▇▇ and or Silver Star with copies
of all title reports, abstracts and attorney’s title opinions obtained
by it relating to said lease(s). Operator and ▇▇▇▇▇▇ shall make available
to each other, any title information it may have pertaining to said lease(s).
Neither party shall be liable for the accuracy of any title information
furnished pursuant to the foregoing. ▇▇▇▇▇▇ does not warrant title, either
expressed or implied, to the said lease(s). |
| 21. | Assignment: Silver Star may not assign this
Agreement, or its interest hereunder, in whole or in part without first
fully disclosing to ▇▇▇▇▇▇ the nature of the assignment, as to amounts,
terms and parties involved, and then without the prior written consent
of ▇▇▇▇▇▇. |
| 22. | Time is of the Essence: Time shall be the
essence of this Agreement in all of its parts. This Agreement may be executed
in any number of counterparts, each of which shall be considered as an
original for all purposes. The terms, covenants and conditions hereof
shall run in favor of and be binding upon the parties hereto, their successors
and assigns, and shall run with the said leases and lands. |
| 23. | Deposit: The $85,00.00 consideration shall
be paid to ▇▇▇▇▇▇ upon Silver Star’s execution of this Agreement.
Acknowledgment is made hereby that ▇▇▇▇▇▇ has received a non-refundable
deposit in the amount of $15,000.00 from Silver Star, which shall apply
to the total price should this Agreement be executed. |
| 24. | Authority: The Parties each represent and
warrant to the other that all requisite authority, corporate or otherwise,
required for the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereunder has been obtained, and furthermore
that the execution of this Agreement by the individuals(s) signing on
behalf of a partnership or corporation has been duly authorized. Each
Participant further represents and warrants to ▇▇▇▇▇▇ that such Participant
is financially sophisticated, and has significant experience in making
high risk investments like the investment contemplated by this Agreement,
and that such Participant has the ability to fully evaluate the benefits,
if any, and risks associated with such Participant’s participation
under this Agreement. |
| IN WITNESS WHEREOF, Silver Star has hereunder caused its name to be subscribed the day and year first above written. | |||||
| ▇▇▇▇▇▇ EXPLORATION, INC. | SILVER STAR ENERGY, | ||||
| By: | /s/ “▇▇▇▇ ▇. ▇▇▇▇” | By: | /s/ “▇▇▇ ▇▇▇▇▇▇▇▇” | ||
| ▇▇▇▇ ▇. ▇▇▇▇ - President | ▇▇▇ ▇▇▇▇▇▇▇▇ - President | ||||
| Date: December 5, 2003 | Date: December 5, 2003 | ||||