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EXHIBIT 10.12
EXCLUSIVE OPTION AGREEMENT TO ACQUIRE THE
INTEREST OF CONOCO INC. IN THE SWORD UNIT
SANTA XXXXX BASIN OFFSHORE CALIFORNIA
This agreement (hereinafter the "Offshore Pacific Agreement") entered into as
of the date set forth below is between Cotton Valley Energy Corporation, a
Nevada Corporation (hereinafter "Cotton Valley"), with its address at 0000
Xxxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx, 00000 and Offshore Pacific Limited
Partnership, a Nevada Limited Partnership (hereinafter "Offshore Pacific") with
its address at 000 Xxxxxxx Xxxxxx Xxxxxx, Xxxxxx, Xxxxx, 00000.
W I T N E S S E T H
WHEREAS, Conoco Inc. ("Conoco") currently owns 51.79217% working interest in,
and operates, the Sword Unit in the Channel Islands Area of the Santa Xxxxx
Basin of Offshore California, consisting of the following oil, gas and mineral
leases: XXX-X 0000, XXX-X 0320, OCS-P 0322 and OCS-P 0323, further described in
Exhibit A and Exhibit B attached hereto; and
FURTHER WHEREAS, PetroGreen Company, a Colorado Limited Liability Corporation
(hereinafter referred to as "PetroGreen"), has entered into a "Lease Interest
Purchase Option Agreement" dated May 5, 1992 and extended September 9, 1992 and
September 12, 1993 (hereinafter the "Conoco Option Agreement") backed by an
exhibit "Purchase and Sale Agreement", with Conoco to acquire all of Conoco's
interest in the Sword Unit; and
FURTHER WHEREAS, Offshore Pacific holds certain rights with respect to the
Conoco Option Agreement and is willing to release all its rights and interests
in the Conoco Option Agreement in favor of Cotton Valley; and
FURTHER WHEREAS, Offshore Pacific is willing to provide Cotton Valley the
opportunity to arrange the initial funding and letter of credit required of
PetroGreen under the Conoco Option Agreement and is willing to make
arrangements for Cotton Valley to acquire from PetroGreen its option to
purchase the Conoco interest in the Sword Unit held through the Conoco Option
Agreement; and
FURTHER WHEREAS, Cotton Valley has entered into a finders' fee agreement dated
as of March 1, 1995 with MIRO, a Texas General Partnership (the "MIRO
Agreement") relating to the introduction of Offshore Pacific and PetroGreen to
Cotton Valley;
NOW THEREFORE BE IT KNOWN
For ten dollars ($10.00) herewith paid, the mutual promises herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, Offshore Pacific
Offshore Pacific--Cotton Valley Agreement .....Page 1
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hereby agrees to exclusively assist Cotton Valley to acquire the right to
exercise the Conoco Option Agreement under terms and conditions which are set
forth below.
1. In the event Cotton Valley and PetroGreen do not, on or before
April 1, 1995, enter into an agreement (the "PetroGreen Agreement") whereby
Cotton Valley would have the right to acquire PetroGreen's option with Conoco,
this Offshore Pacific Agreement shall automatically terminate and neither party
shall have any liability or obligation to the other party.
2. Within 90 days following the date of execution of the
PetroGreen Agreement (hereinafter the "Offshore Pacific First Payment Date"),
Cotton Valley shall pay Offshore Pacific $100,000 by the delivery of a
cashier's check or bank wire transfer. If such payment is not timely made, the
PetroGreen Agreement shall be deemed to have been automatically assigned by
Cotton Valley to Offshore Pacific as of the Offshore Pacific First Payment
Date. Upon receipt of the payment, Offshore Pacific shall renounce and release
any claims it may have with respect to the Conoco Option Agreement, except as
set forth in this Offshore Pacific Agreement.
3. The parties hereto contemplate that the PetroGreen Agreement
will provide for a $200,000 payment to be made to PetroGreen by Cotton Valley
on or before June 30, 1995, or such other date as may be mutually agreeable
between PetroGreen and Cotton Valley (hereinafter the "PetroGreen First Payment
Date"). If such payment is not timely made, the PetroGreen Agreement shall be
deemed to have been automatically assigned by Cotton Valley to Offshore Pacific
as of the PetroGreen First Payment Date.
4. The parties hereto further contemplate that the PetroGreen
Agreement will provide for a closing of the property purchase under the Conoco
Option Agreement (the "Closing") whereby Cotton Valley will make certain cash
payments to PetroGreen and Conoco, and will further provide that Cotton Valley
would have the right to be assigned the entire 51.79217% interest being
acquired from Conoco. At the Closing, Cotton Valley will deliver Offshore
Pacific the following payments, marketable securities, and interests, LESS AND
EXCEPT those payments, marketable securities, and interests which are paid by
Cotton Valley at Closing to PetroGreen under the PetroGreen Agreement, which
are paid by Cotton Valley at closing to Conoco under the Conoco Option
Agreement, and which are paid by Cotton Valley to MIRO at Closing under the
MIRO Agreement:
A. Cash in the form of cashier's check or bank wire transfer in
the amount of $8,000,000.
B. $4,000,000 market value of marketable securities of publicly
traded corporations reasonably acceptable to Offshore Pacific and
engaged principally in the oil and gas industry, where: (i) the amount
of any single
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security delivered must be less than 10% of the total amount which is
issued and outstanding of that security; and (ii) any security
delivered must be listed and tradable on at least one of the
following: New York Stock Exchange, American Stock Exchange, Midwest
Stock Exchange, Pacific Stock Exchange, Toronto Stock Exchange,
Vancouver Stock Exchange, Alberta Stock Exchange, NASDAQ National
Market or NASDAQ Small Cap Market. Any affiliate of Cotton Valley
meeting the two foregoing requirements shall be deemed acceptable to
Offshore Pacific.
C. A carried working interest in the Sword Unit equal to
6.79217%, whereby the remaining 45% interest shall pay all capital
costs and expenses of the carried working interest through the
completion of construction of the first offshore multi-well production
platform and the drilling and completion of the first ten development
xxxxx.
5. During the year following the PetroGreen Payment Date, Cotton
Valley shall use its best efforts to sell at least two-thirds of its rights
under this offshore Pacific Agreement, the PetroGreen Agreement and the Conoco
Option Agreement (collectively, the "Rights") to other independent oil and gas
producing entities. To the extent that Cotton Valley is successful in selling a
portion of its Rights to entities who are willing to pay Cotton Valley more
than a pro rata share of Cotton Valley's purchase price and other payments
under the foregoing agreements, 50% of the excess proceeds from such sales
shall be paid by Cotton Valley to Offshore Pacific as received. If Cotton
Valley is able to require some of such entities to post some of Cotton Valley's
portion of the letter of credit required in the Conoco Option Agreement,
Offshore Pacific will not share in that benefit. A copy of each letter of
intent or agreement representing a sale shall be sent by Cotton Valley to
Offshore Pacific within ten business days of execution.
6. In the event that Cotton Valley has not entered into binding
agreements to sell at least 30% working interest in the Sword Unit from its
Rights by one year from the PetroGreen Payment Date, Cotton Valley shall assign
to Offshore Pacific any amounts of Rights it retains exceeding 15% working
interest in the Sword Unit, after taking into account delivery of the 6.79217%
carried working interest; and Cotton Valley shall deliver to Offshore Pacific
copies of all its correspondence with potential purchasers.
7. Both parties agree that operations of the Sword Unit, after
acquisition from Conoco, should be undertaken by an oil and gas company with
significant offshore experience and capability and will use their respective
best efforts to encourage Samedan Petroleum Corporation to become the operator.
If Cotton Valley sells of any of its interests as contemplated in Paragraph 5
above, Cotton Valley shall reserve and the retain voting rights
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for operator under the Sword Unit Operating Agreement with respect to the
interest sold. Cotton Valley shall vote for Unit Operator as directed in
writing by Offshore Pacific.
8. The parties have previously executed the Confidentiality
Agreement attached hereto as Exhibit C. Offshore Pacific specifically
authorizes Cotton Valley to provide confidential information and data as
defined in the Confidentiality Agreement to potential investors in Cotton
Valley or the Sword Unit, provided, however, that each such potential investor
execute a similar confidentiality agreement with Cotton Valley, and further
provided, however, that a copy of this Offshore Pacific Agreement may not be
shown to any person or entity without specific written approval from Offshore
Pacific with respect to such person or entity.
9. This Offshore Pacific Agreement shall be governed by the laws
of the State of Texas.
10. Should any additional instruments need to be executed,
certified, or delivered by one Party to the other, to any third party and/or
filed with or delivered to any public officer in order to carry out the purpose
and intent of this Offshore Pacific Agreement, each Party hereto agrees to
promptly execute and deliver any and all such instruments reasonable necessary
to carry out the purpose and intent of this Offshore Pacific Agreement.
11. This Offshore Pacific Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and each of which
alone, and all of which together, shall constitute one and the same instrument.
It is agreed to that a facsimile transmission signed copy of this Offshore
Pacific Agreement shall be treated and considered an original for all intended
purposes.
EXECUTED as of this 1 day of March, 1995.
OFFSHORE PACIFIC COTTON VALLEY ENERGY
LIMITED PARTNERSHIP CORPORATION
By: MILLENIUM GAS COMPANY
General Partner
/s/ C. XXXXXXX XXXXX /s/ XXXXX X. XXXXX
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C. Xxxxxxx Xxxxx, Xxxxx X. Xxxxx, Chairman
Vice President
/s/ XXXXXX X. XXXXXXX
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Xxxxxx X. Xxxxxxx, CEO
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