DRAGON ENERGY CORPORATION NEW ORLEANS, LOUISIANA 70130-6155
DRAGON
ENERGY
CORPORATION
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XXXXXX,
XXXXX
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XXXXXXX,
XXXXXXXXX
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FAX
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TELEPHONE
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(000)
000-0000
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(504)
586-1717
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September
30, 2005
Argyle
Energy, Inc.
00000
Xxxxxxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Attention:
Xx. Xxxxx X. Xxxxxx
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Re:
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Side
Letter to First Amendment of Farmout
Agreement
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Xxxxxxx
Crossroads Prospect (Prospect No.
20)
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Escambia
County
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A L A B A M
A
Gentlemen:
The
First
Amendment
of Farmout Agreement dated September 30, 2005 ("Amendment") between DRAGON
ENERGY CORPORATION ("Dragon")
and ARGYLE
ENERGY, INC. ("Argyle"),
executed concurrently with this Side Letter to First Amendment of Farmout
Agreement ("Side Letter") provides for an extension of the Test Well
commencement date. The Amendment is subject to and contingent upon the following
additional terms and consideration:
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1.
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Notwithstanding
anything in the Farmout Agreement or the Amendment to the contrary,
Dragon
is hereby appointed operator of the Test Well and Operator under
the
Operating Agreement unless and until Dragon, at its sole discretion,
elects to resign. Dragon will make a good faith effort to perform
the
pre-drilling functions of Operator as
follows:
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a.
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Renew
the Xxxxxx X. Xxxxxx, et ux lease, the Amyrillis X. Xxxxx lease and
the
Xxxxx X. Xxxxx, et ux lease, all dated January 26, 2004, and recited
on
Exhibit "A" to the Farmout Agreement, for a one year primary term
(which
leases have already been renewed), and pay all applicable delay rentals
for all of the remaining leases listed on the Exhibit "A" to the
Farmout
Agreement up to March 31, 2006.
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Argyle
Energy, Inc.
Attention:
Xx. Xxxxx Xxxxxx
September
30, 2005
Page
2
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b.
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Form,
or cause to be formed, a 160 acre drilling unit covering the SW/4
of the
SW/4 of Section 17, the SE/4 of the SE/4 of Section 18, the NE/4
of the
NE/4 of Section 19, and the NW/4 of the NW/4 of Xxxxxxx 00, Xxxxxxxx
0
Xxxxx, Xxxxx 0 Xxxx, Xxxxxxxx County, Alabama, or, alternatively,
a
suitable 240 acre drilling unit covering the prospective
reservoir.
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c.
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Obtain
supplemental abstracts; mineral title opinions, supplemental title
opinions, and perform necessary title curative work covering the
240 acres
subject to the Leases.
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d.
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Obtain
appropriate surface leases and surface damage releases for the Test
Well.
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e.
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Obtain
all required governmental and environmental permits for drilling
the Test
Well.
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f.
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Prepare
an AFE for drilling of the Test
Well
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g.
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Make
arrangements to secure a drilling rig and negotiate a drilling rig
contract. Argyle shall advance any necessary deposit and be responsible
for any penalties which may be incurred as a result of cancellation
of the
rig contract.
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2.
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In
consideration for the Amendment and the services of Dragon described
herein, Argyle has advanced the sum of Thirty Thousand and 00/100
Dollars
($30,000.00) in cash to Dragon as a deposit for the cost of lease
renewals
and delay rentals described above, and agrees to pay Dragon the sum
of
$10,000 per month plus third party costs for management services.
In
addition, Argyle agrees to advance to Dragon 100% of all other estimated
pre-spud costs, by wire transfer, within fifteen (15) days of Argyle's
receipt of a written AFE and invoice. Dragon will account to Argyle
for
expenditure of these advances.
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3.
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In
the event that Dragon elects to operate the drilling of the Test
Well,
Argyle shall wire transfer dry hole costs as required for drilling
the
Test Well on or before March 31,
2006.
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4.
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This
Side Letter may be extended by mutual consent of the parties, provided
that Argyle has fully funded, as required, the drilling of the Test
Well
prior to March 31, 2006.
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Argyle
Energy, Inc.
Attention:
Xx. Xxxxx Xxxxxx
September
30, 2005
Page
3
Please
indicate your acceptance of this Side Letter by dating, signing and thereafter
returning to the undersigned the enclosed duplicate copy. The remaining
counterpart should be retained far your files. If this SIDE
LETTER TO FIRST AMENDMENT OF FARMOUT AGREEMENT is circulated
and executed by facsimile transmission, the signatures of the Dragon and
Argyle
shall be considered as
original
and self-proving for all purposes under the law. This Side Letter may be
executed in
multiple
counterparts, each of which shall be deemed to be an original, binding, and
enforceable document, all of which shall constitute one and the same
instrument.
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Very
truly yours,
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DRAGON
ENERGY CORPORATION
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By:
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/s/
XxXxxx X. Xxxxxx
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XxXXXX
X. XXXXXX
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PRESIDENT
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MJF:rs
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Attachment
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AGREED
TO AND ACCEPTED
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THIS
30TH DAY OF SEPTEMBER 2005.
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ARGYLE
ENERGY, INC.
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BY:
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/s/
Xxxxx X. Xxxxxx
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XXXXX
X. XXXXXX
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SENIOR
VICE-PRESIDENT
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