EASTERN STAR HOLDINGS INC.
Xxxxxx X. Xxxxxxx Xx. d/b/a
XXXXXXX OIL COMPANY August 27, 1997
0000 Xxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx
Re: Fiji Prospect - Yolo County - California ("Fiji Prospect")
Bali Prospect - Xxxxxx County - California ("Bali Prospect")
--------------------------------------------------------------------------------
The Agreement will constitute our understanding regarding Eastern Star Holdings
Inc. ("Eastern Star") purchase of an interest in the captioned prospects from
Xxxxxx X. Xxxxxxx Xx. d/b/a Xxxxxxx Oil Company ("Xxxxxxx"). The terms of the
Agreement are as follows:
1. Interest to be Acquired
1.1. Xxxxxxx will sell and Eastern Star will purchase all of
Xxxxxxx'x right, title and interest, (the "Interest") in the
Xxxxxxx Exploration Company, Inc. participation agreements
("SPA") relating to the Fiji Prospect and the Bali Prospect,
such agreements being attached hereto as Schedule "A". The
SPA provide that Xxxxxxx has the right to acquire 25% of all
interest acquired by Xxxxxxx Exploration Company, Inc. in
the Fiji Prospect and Bali Prospect.
2. Consideration
2.1. In consideration of the sale of the Interest in the SPA,
Eastern Star shall issue to Xxxxxx X. Xxxxxxx Xx. a total of
2,250,000 shares as follows:
(a) 1,500,000 shares (the "Acquisition Shares") to be
issued on Escrow Closing (as defined below);
(b) 750,000 shares (the "Performance Shares") to be issued
on Escrow Closing to be released to Xxxxxxx at such
time as there are a minimum of 10 xxxxx which have been
drilled with initial production rates of at least
1,500,000 cubic feet per day per well. The parties
agree to execute and deliver that form of Escrow
Agreement attached hereto as Schedule "B".
2.2. Xxxxxxx shall not be entitled to exercise any voting rights
attached to Acquisition Shares or the Performance Shares
prior to the Final Closing (as defined below). All shares
issued to Xxxxxxx shall be subject to any and all hold
periods required by appropriate securities legislation.
Page 2 of 5
2.3. In addition to the Acquisition Shares and Performance
Shares, Eastern Star shall pay to Xxxxxxx on Escrow Closing,
an amount equal to Xxxxxxx'x total cash investment in the
SPA less $300,000 (US). As at July 31, 1997, the amount that
would have been payable to Xxxxxxx was approximately
$360,000 (US).
2.4. Xxxxxxx shall retain a 2 1/2% gross overriding royalty
proportionately reduced leasehold interest actually acquired
by Eastern Star pursuant to the SPA (ie. if Eastern Star
acquires a 25% working interest, then the Xxxxxxx over
riding royalty interest will be 0.625%).
3. Bonus
3.1. Xxxxxxx shall be entitled to be issued a further 500,000
shares (the "Bonus Shares") of Eastern Star as a bonus if
the Interest payout occurs on or before December 31, 1999 or
at such later date as the parties may mutually agree. Payout
shall be defined as that time at which gross revenues
received by Eastern Star equal all direct costs of Eastern
Star associated with acquiring the acreage and drilling the
prospects including but not limited to the cash payment to
Xxxxxxx described in sections 2.3 and 6.2 (excluding
interest paid at Final Closing), seismic, drilling,
completing, XXX, production taxes, and royalties.
4. Representations/Warranties - Xxxxxxx
4.1. Xxxxxxx represents and warrants as follows:
(a) the SPA is valid, subsisting and enforceable in
accordance with its terms and Xxxxxxx is in compliance
with all terms, conditions, obligations and agreements
as required of Xxxxxxx under the SPA;
(b) Xxxxxxx is the sole and beneficial owner of the
Interest and there are no other rights, options,
encumbrances or liens relating to the Interest;
(c) subject to the consent of Xxxxxxx Exploration Company,
Inc., Xxxxxxx has the right and ability to enter into
this Agreement and that this Agreement when signed is
binding and enforceable in accordance with its terms;
(d) there are no actual, pending, or threatened actions,
suits, claims or proceedings regarding the Interest
and/or the SPA; and
(e) Xxxxxxx is not aware of any material fact or
circumstance which has not been disclosed which should
be disclosed in order to prevent the representations
and warranties provided herein from being misleading.
Page 3 of 5
5. Covenants- Eastern Star
5.1. Eastern Star covenants to use its reasonable best efforts to
fulfill the following conditions:
(a) Eastern Star shares being approved for listing on the
NASDAQ bulletin board on or before October 31, 1997;
and
(b) Eastern Star closing a private placement of its
securities for minimum gross proceeds of $1,000,000
(US) on or before October 31, 1997 on terms mutually
agreed to by the parties.
5.2. Eastern Star further covenants that it shall use its
reasonable best efforts to complete the private placement as
described in section 5.1(b) above on or before October 1,
1997 subject only to the shares of Eastern Star being listed
on the NASDAQ bulletin board.
5.3. Eastern Star represents and warrants to Xxxxxxx that as of
the date of this Agreement the capital structure of Eastern
Star is as set forth in Schedule "C" attached hereto and
made a part hereof.
6. Closing of Purchase and Sale - Escrow
6.1. The interim closing of the purchase and sale of the Interest
shall be completed on or before August 31, 1997 (the "Escrow
Closing") with the Interest and the Acquisition Shares and
Performance Shares being held in escrow subject to
completion of the listing and financing as described in
section 5.1(a) and 5.1(b) above.
6.2. At Escrow Closing, Eastern Star shall pay to Xxxxxxx the
amount as required by section 2.3 herein and at Final
Closing (as defined below)_ Eastern Star shall reimburse
Xxxxxxx for any and all further funds advanced by Xxxxxxx in
accordance with the Interest with interest at the rate of 8%
per annum.
6.3. At Escrow Closing, Xxxxxxx shall deliver into escrow any and
all documentation required to transfer the Interest as of
the date of Escrow Closing subject only to the Final
Closing, including without limitation, evidence of the
consent of Xxxxxxx Exploration Company, Inc..
7. Remedy for Failure to Comply with Covenants
7.1. In the event that Eastern Star fails to timely achieve all
of the conditions set forth in section 5.1(a) and 5.1(b),
then the transfer for the SPA to Eastern Star shall be
deemed rescinded and cancelled and Xxxxxxx X. Xxxxxxx, or
any assignee of Xxxxxxx X. Xxxxxxx acceptable to Xxxxxxx
(herein collectively referred to as "Grafham") shall be
required to purchase from Xxxxxxx a 12 1/2% working interest
in the SPA effective November 1, 1997. In such event, the
following shall apply:
(a) Xxxxxxx shall return the Acquisition Shares and
Performance Shares to Eastern Star and quitclaim all
right to the Bonus Shares, and Eastern Star shall quit
claim and release any and all right, title interest and
entitlement to the Interest free and clear of any
assignment or encumbrance arising by, through or under
Eastern Star;
(b) Grafham shall reimburse Eastern Star for any and all
funds paid to Xxxxxxx pursuant to the terms of this
Agreement;
Page 4 of 5
(c) Grafham shall pay to Xxxxxxx an amount which is equal
to the difference between $900,000 (US) and the cash
paid to Xxxxxxx by Eastern Star to November 1, 1997;
(d) Xxxxxxx shall sell, assign and set over to Grafham, a
12 1/2% working interest in the SPA subject to a
proportionately reduced 2 1/2% overriding royalty
interest;; and
(e) Xxxxxxx shall be responsible for his proportionate
share of funding of the SPA after Xxxxxxx has paid
$1,200,000 (US) of total project costs associated with
Xxxxxxx'x original 25% working interest.
7.2. Xxxxxxx agrees that Eastern Star's failure satisfy the
conditions set forth in section 5.1(a) and 5.1(b) herein
shall only entitle Xxxxxxx to those remedies in section 7.1
and Xxxxxxx hereby agrees to waive and release Eastern Star
from any and all damages, actions, claims, liabilities and
remedies arising directly or indirectly from such failure to
satisfy such conditions.
8. Closing of Purchase and Sale - Final
8.1. In the event Eastern Star satisfies all of the conditions
set forth in section 5.1(a) and 5.1(b), then on or before
November 1, 1997 (the "Final Closing"), Xxxxxxx shall
receive the Acquisition Shares and the payment required by
section 6.2 and Eastern Star shall receive all documents
transferring the Interest to Eastern Star.
9. Management
9.1. On Final Closing the management of Eastern Star shall be
composed of the following:
Xxxxxxx Director/Chairman
Grafham Director/CEO/President
Xxxxx Director
Xxxxxx Director
10. Incorporation of Subsidiary/Name Change
10.1. Eastern Star shall purchase the Interest through, or at the
election of Eastern Star on or before the Final Closing,
transfer the Interest to, a wholly-owned subsidiary to be
incorporated under the law of Nevada or Colorado, at the
election of Eastern Star prior to the Final Closing. In
addition, the parties agree to change the name of Eastern
Star to such other name as the parties may agree. Corporate
structure will be subject to further discussions.
11. Stock Restrictions
11.1. Eastern Star, Grafham and Xxxxxxx shall mutually agree on
an acceptable trading restrictions on certain free trading
shares of Eastern Star to be identified by Xxxxxxx and
Xxxxxxx.
Page 5 of 5
12. SPA
12.1. Upon the execution of this Agreement by all the parties and
upon Eastern Star obtaining the Interest hereunder, or
Xxxxxxx obtaining an interest hereunder, all of the terms
and conditions of the SPA shall apply as if Eastern Star or
Grafham had been an original contracting party thereto.
If you agree with the foregoing terms and conditions, please sign in the space
indicated below and return one original letter to the undersigned
Yours truly,
Eastern Star Holdings Inc. The foregoing terms and conditions are
Per: hereby accepted and agreed.
Xxxxxx Xxxxxxx Xxxxxx X. Xxxxxxx Xx. d/b/a
Director Xxxxxxx Oil Company
:jm
Xxxxxxx X. Xxxxxxx
Schedule "A"
Xxxxxxx
exploration company, inc.
Rocky Mountain Division
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
(000) 000-0000 - FAX (000) 000-0000
April 23, 1997
Fanchcr Oil Company 0000 X Xxxxxxxx, Xxxxx 000 Xxxxxx, XX 00000
Attn: Xx. Xxxxxx X. Xxxxxxx, Xx,
RE RM 96-002 Fiji Prospect
Participation Agreement
Yolo County, California
Gentleman:
In this Participation Agreement, Xxxxxxx Exploration Company, Inc., a Kansas
Corporation d/b/a Xxxxxx X. Xxxxxxx Exploration Company, Me. within the State of
California, shall hereinafter be referred to as "Xxxxxxx" and Xxxxxxx Oil
Company shall hereinafter be referred to as "Xxxxxxx".
This Agreement will constitute our understanding regarding Xxxxxxx'x purchase of
an interest in Xxxxxxx'x Fiji Prospect and the formation of an Area of Mutual
Interest.
The terms of this agreement are as follows:
1. Xxxxxxx is in the process of acquiring leasehold within the Fiji Prospect,
the general geographic area for which is set out on Exhibit " I ", attached
hereto and made a part hereof. Further, Xxxxxxx anticipates collecting and
processing approximately 25 square miles of 3D seismic within Fiji
Prospect.
2. Xxxxxxx has agreed to participate with Xxxxxxx for a proportionate 25%
share of leasehold acquisition and collection of 3D seismic data within the
Fiji Prospect. Maximum cost for seismic acquisition is estimated to be
$800,000. Land costs are estimated to be within a range of $250,000 to
$300,000, depending upon the amount of acreage eventually leased and the
price per acre. Xxxxxxx is responsible for spending its proportionate 25%
share of such amounts under tile terms of this agreement, assuming such
costs arc incurred within 12 months from the date hereof. If either or both
of such amounts are exceeded, Xxxxxxx may participate in additional
expenditures on a selected basis, under tile terms of this agreement.
Xxxxxxx agrees to be bound by the terms and provisions of leasehold in
which it participates. Xxxxxxx shall be responsible for the remaining 75%
of such obligations and shall hold Xxxxxxx harmless therefrom.
3. Xxxxxxx will reimburse Xxxxxxx for all leasehold and geophysical costs on
the basis of cost plus 35%, so that Xxxxxxx'x share. of actual costs is
33.75%. Xxxxxxx is currently in the process of acquiring leasehold in the
Fiji Prospect area. Simultaneous with the execution of this agreement,
Xxxxxxx will reimburse Xxxxxxx the sum of $117,787.50 which represents
leasehold, brokerage and seismic permitting costs incurred or anticipated
through April, 1997. Reimbursement for remaining costs, or estimates of
such costs, which may be made from time to time, will be made to Xxxxxxx by
Fiji Participation Agreement
Xxxxxxx Oil Company
Page 2
April 23, 1997
Xxxxxxx within 15 days from receipt of an invoice. Xxxxxxx agrees to pay
the remaining 66.25% of costs or to find other participants to pay such
costs.
4. An Area of Mutual Interest ("AMI") is hereby established consisting of
lands lying within Township 6 North, Ranges 3 and 4 East, Yolo County,
California. The AMI will be comprised of all lands located within the final
outline of the 3D seismic survey that is being conducted under the terms of
this agreement. When available, an outline of the survey, and thus the AMI,
will be attached hereto as Exhibit "2". This AMI shall remain in effect for
the term of any oil and gas leases which become subject to this agreement,
whether by acquisition, extension or renewal, and shall thereafter
terminate unless production is established on any portion of said lands
through this agreement, and shall then continue so long as there is
production. Fanchcr shall be obligated to acquire its proportionate share
of all leasehold acquired by Xxxxxxx within the AMI up to a maximum gross
(unpromoted) expenditure of $300,000. If this amount is exceeded, and if
additional expenditures are incurred for acquisition, Xxxxxxx will promptly
notify Xxxxxxx in writing of such acquisition, describing same and the cost
thereof. Xxxxxxx will have 10 days from receipt of such notice to elect
whether or not to participate for its proportionate share of such
acquisition, insofar only as same covers lands in the subject AMI. The
failure of Xxxxxxx to reply positively within the 10 day time period will
be deemed an election not to participate in the acquisition. Xxxxxxx shall
not acquire any interest within this AMI except through this agreement,
while in effect, without the express written consent of Xxxxxxx.
5. Xxxxxxx shall be responsible for payment of all delay rentals, minimum and
shut-in royalties, as well as any other payments required to maintain
leases in full force and effect. Xxxxxxx shall not be liable for failure to
properly make such payments, in the absence of gross negligence. Upon
receipt of an invoice, Xxxxxxx shall, within 20 days, reimburse Xxxxxxx for
its proportionate share of such payments, or, at Xxxxxxx'x election, notify
Xxxxxxx that it no longer desires to hold an interest in the applicable
lease(s), in which case Xxxxxxx'x interest shall be relinquished to
Xxxxxxx.
6. Xxxxxxx will retain Xxxxxxx'x proportionate share of title to all acquired
leasehold and/or farmin agreements beneficially for Xxxxxxx until such time
as a well is drilled and completed and a pooling agreement, if required,
has been filed. Xxxxxxx will then deliver an assignment to Xxxxxxx of its
proportionate share of leasehold in the revenue sharing unit or acreage
held by the well's production, on a well-by-well basis, subject to
obtaining any required consent to assign under the provisions of the lease
and/or farmin agreements. If such consent to assign cannot be readily
obtained, Xxxxxxx shall hold title to the leasehold and agreements on
behalf of Xxxxxxx. If such consent is obtained, Xxxxxxx will promptly make
assignment under the terms of this paragraph. The intent of this paragraph
is for Xxxxxxx to hold title beneficially for Xxxxxxx in order to avoid the
administrative time and expense involved in making assignments; however,
notwithstanding the provisions of this paragraph, Xxxxxxx may demand
assignment from Xxxxxxx of all leasehold to which it holds an interest
under the terms of this agreement. If such a request is made, Xxxxxxx will
make all reasonable efforts to provide the assignment in a timely manner,
subject to the provisions of this agreement. All leasehold acquired by any
method under this agreement (whether by Xxxxxxx or Xxxxxxx) will be subject
to a proportionately reduced 3.50% of 8/8ths overriding royalty interest in
favor of Xxxxxxx.
Fiji Participation Agreement
Xxxxxxx Oil Company
Page 3
April 23, 1997
7. It is anticipated that Xxxxxxx will propose xxxxx to be drilled within this
AMI on an ongoing basis. At the time of proposal, Xxxxxxx will provide
Xxxxxxx with written notice of its intended operation, specifying the
location of the well, estimated spud date, the depth and formation(s) to be
drilled, and an Authorization For Expenditure ("AFE") setting out estimated
dry hole and completion costs, and any other pertinent information. It is
expressly understood that Xxxxxxx will make best efforts to insure that its
AFEs represent actual anticipated costs. Upon receipt of notice of a
proposed well, Xxxxxxx shall have 20 days within which to notify Xxxxxxx,
in writing, of its election to participate. The failure of Xxxxxxx to so
elect within the time specified shall be deemed an election by Xxxxxxx not
to participate in the proposed well. If Xxxxxxx elects not to participate
in a proposed well, or is deemed to have so elected, it shall forfeit all
of its interest in the leasehold, farmins, options, etc. covering the lands
within the revenue sharing unit for the proposed well. Excepted from this
forfeiture would be: a) any area then established as a revenue sharing unit
for a producing well in which Xxxxxxx has previously participated, or b) a
well which is drilling or which has not spud, but in which Xxxxxxx has
committed to participate.
Should Xxxxxxx elect to participate in a well, it will be obligated to
participate in the entire proposed operation to casing point. An election
to participate will also obligate Xxxxxxx to acquire its proportionate
share of all interest acquired by Xxxxxxx in the well through lease
acquisition, farmin acreage and/or non-consent interest (wherein the
non-consent interest is acquired from a third party, unrelated to the
Xxxxxxx, Xxxxxxx and the other participants in Fiji Prospect, and where
said non-consent interest is required to make up 100% of the drillsite
working interest available for Xxxxxxx, Xxxxxxx and the other participants
in Fiji Prospect). In order to be entitled to the benefits of this numbered
paragraph, Xxxxxxx shall, within 90 days from expiration of the initial
notice period, spud the proposed well. The parties agree to make any and
all assignments, necessary to accomplish the above provisions. Except in
the case of an expiring lease, farmout agreement, farmout option agreement
or similar circumstance, only one well proposal may be made every 20 days
under the terms of this numbered paragraph. In all instances within this
numbered paragraph, the names Xxxxxxx and Xxxxxxx may be interchanged so
that either party may propose xxxxx. It is recognized that there are
additional working interest owners in this project area that have ongoing
working interest capabilities in each proposed well. Further, it is
recognized that said additional working interest owners in this project
area have the ability to propose xxxxx as set forth herein.
8. Xxxxxxx shall pay a $2,500 spud fee to Xxxxxxx for each well drilled under
the terms of this agreement, in which it participates.
9. An Operating Agreement in the form attached hereto as Exhibit "3" will be
executed for each well drilled under the terms of this agreement. The
Contract Area for each Operating Agreement will be comprised of the
designated revenue sharing unit for the well. In the event of a conflict
between the terms of this agreement and any such Operating Agreement, the
terms of this agreement shall prevail.
10. It is understood that the parties hereto may be required to negotiate
operating agreements with third parties. The parties agree that if there
are any conflicts between the Operating Agreement attached hereto and any
third party operating agreement, the terms of the Operating Agreement
attached hereto shall control the relationship between Xxxxxxx and Xxxxxxx.
Fiji Participation Agreement
Xxxxxxx Oil Company
Page 4
April 23, 1997
11. An Escrow Agreement in the form attached hereto as Exhibit "4" shall be
entered into between Xxxxxxx and Xxxxxxx for each well drilled under the
terms of this agreement. Article 1 of the Escrow Agreement provides a date
by which the participants in the well will deposit their funds into the
Escrow Account. Such date will be established by Xxxxxxx to be
approximately 10 days prior to spud of each well. If Xxxxxxx fails to
deposit its share of the applicable costs, including its spud fee as set
out in paragraph 8 of this agreement, by this date, it will be assumed that
Xxxxxxx does not wish to participate in the well. In this event, Xxxxxxx
shall give Xxxxxxx notice that it has not received its funds and Xxxxxxx
will either deliver such funds to Xxxxxxx by 1:00 PM MST on the next
business day or be subject to the provisions of paragraph 7 of this
agreement, covering non participation. Xxxxxxx shall be obligated to place
funds received from all participants in the same escrow account, in
pro-rata amounts based on their share of costs.
12. Xxxxxxx'x representatives shall have free access to any well within the
Fiji Prospect in which it participates at all times and to all records
pertaining thereto. In addition, all geological information obtained in the
drilling of any well, in which Xxxxxxx participates, shall be made
available. Xxxxxxx may provide a list of its geological requirements to
Xxxxxxx, which shall be provided by Xxxxxxx, as reasonable.
13. If Xxxxxxx terminates its legal existence, transfers its interest to a
successor and no longer owns an interest in the Fiji Prospect, or becomes
insolvent or bankrupt, or is placed in receivership, it shall cease to be
Operator without any action by Xxxxxxx or Xxxxxxx'x other Non-Operating
partners, except the selection of a successor. Xxxxxxx may be removed if it
fails or refuses to carry out its duties hereunder or is no longer capable
of serving as Operator by the affirmative vote of Xxxxxxx and Xxxxxxx'x
other Non-Operating partners owning a majority interest based on ownership
in the Fiji Prospect, after excluding the voting interest of Xxxxxxx. Such
resignation or removal shall not become effective until 7:00 o'clock A.M.
on the first day of the calendar month following the expiration of 60 days
after the giving of notice of resignation by Xxxxxxx or action by the Non-
Operators to remove Xxxxxxx, unless a successor Operator has been selected
and assumes the duties of Operator at an earlier date. Xxxxxxx, after the
effective date of resignation or removal, shall be bound by the terms
hereof as Non-Operator. A change of a corporate name or structure of
Xxxxxxx or transfer of Xxxxxxx'x interest to any single subsidiary or
parent corporation shall not be the basis for removal of Xxxxxxx.
Upon the resignation or removal of Xxxxxxx, a successor Operator shall be
selected by the affirmative vote of Xxxxxxx and Xxxxxxx'x other
Non-Operating partners owning a majority interest based on the ownership in
the Fiji Prospect. The successor Operator shall be selected from the
parties owning an interest in the Fiji Prospect at the time such successor
Operator is selected. If Xxxxxxx is removed or is deemed to have resigned,
fails to vote or votes only to succeed itself, the successor Operator shall
be selected by the affirmative vote of Xxxxxxx and Xxxxxxx'x other
Non-Operating partners in the Fiji Prospect owning a majority interest, and
after excluding the voting interest of Xxxxxxx.
This provision shall also apply to the resignation or removal of any
successor Operator.
Fiji Participation Agreement
Xxxxxxx Oil Company
Page 5
April 23, 1997
14. The parties hereto agree that all disputes between them arising out of, or
in connection with, this Agreement shall be resolved by arbitration as
provided herein. This agreement to arbitrate shall survive the rescission
or termination of this contract. All arbitration shall be conducted
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. If available, the panel used shall be selected from
arbitrators having at least 10 years of oil and gas experience and employed
by the American Arbitration Association and the decision of the arbitrators
shall be final and binding on all parties. All arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where applicable, and
the decision of the arbitrators shall be enforceable in any court of
competent jurisdiction.
15. Xxxxxxx will have full access to all seismic data and interpretations
thereof, for which it shares the cost of acquisition. If such data is ever
sold, Xxxxxxx will be entitled to 25% of tile proceeds of such sale.
Xxxxxxx will not trade the data or allow third parties to review same,
without Xxxxxxx'x express written consent.
16. All notices required herein shall be considered given when delivered
personally or when sent by facsimile or deposited in the U.S. Mail properly
addressed as follows:
Xxxxxxx Exploration Company, Inc. Xxxxxxx Oil Company
0000 Xxxxxxxx, Xxxxx 0000 0000 Xxxxxxxx, Xxxxx 000
Xxxxxx, XX 00000 Xxxxxx, XX 00000
FAX: (000) 000-0000 FAX: (000) 000-0000
17. The liabilities of the parties shall be several and not joint or
collective, and each party shall be responsible only for its share of the
costs and liabilities incurred as provided herein. It is not the purpose or
intention of this agreement to create any partnership, mining partnership
or association, and neither this agreement nor the operations herein shall
be construed or considered as creating any such legal relationship.
18. The terms and covenants hereof shall extend to, and be binding on, the
parties hereto, their heirs, successors, legal representatives and assigns;
however, Xxxxxxx will not assign its interest in this agreement without the
express written consent of Xxxxxxx. Such consent shall not be unreasonably
withheld. This agreement sets forth the entire agreement between the
parties hereto, and there are no oral agreements not set out herein in
writing.
If the foregoing terms correctly set forth our understanding, please execute and
return one copy of this agreement.
Very Truly Yours.
/s/ Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
District Xxxxxxx
AGREED TO AND ACCEPTED THIS 29th DAY OF April, 1997
XXXXXXX OIL COMPANY
By /s/ Xxxxxx X. Xxxxxxx Xx.
------------------------------------------
XXXXXXX OIL COMPANY
--------------------------------------------------------------------------------
Trinty Place - Suite 000 - 0000 Xxxxxxxx - Xxxxxx, Xxxxxxxx 00000-0000 - (303)
000-0000 - Fax (000) 000-0000
Xxxxxxx Exploration Company, Inc. April 29, 1997
0000 Xxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-4714
Attention: Xxxxx Xxxxxxx
RE: Fiji Prospect
Participation Agreement/JOA
Yolo County, California
Gentlemen,
Enclosed please find one copy of the referenced agreement which has been
executed on behalf of Xxxxxx X. Xxxxxxx, Xx. dba Xxxxxxx Oil Company, subject to
the following modifications:
1. All references to Xxxxxxx Oil Company in said prospect documents and
agreements shall be amended to read Xxxxxx X. Xxxxxxx, Xx. dba Xxxxxxx
Oil Company (Xxxxxxx).
2. Paragraph 3, page 2. Change the 15 day reimbursement on invoices to 30
days.
3. Paragraph 4, page 2. The time period under the AMI to respond to
acquisitions notices will be amended to 20 days.
4. Paragraph 5, page 2. Rental invoices will be reimbursed within 30 days
from receipt thereof.
5. Paragraph 6, page 2. Xxxxxxx agrees to provide Lease Exhibits,
spreadsheets and/or plats showing all leasehold and leasehold
acquisitions to Xxxxxxx upon request. Should Xxxxxxx elect to receive
assignments of all acquired leasehold, Xxxxxxx will make a good faith
effort to provide said assignments within 30 days.
6. Paragraph 7, page 3. Xxxxxxx will have 30 days from receipt of any
well proposal within the AMI in which to elect to participate for his
working interest share. In addition to the AFE and plat Xxxxxxx agrees
to provide a geologic prognosis and a Drilling Title Opinion and/or an
Abstract and Attorney's opinion for Xxxxxxx'x review.
7. Paragraph 11, page 3. Xxxxxxx agrees to provide the Escrow Agreement
referred to as Exhibit "4" approximately 30 days prior to spud of each
well.
8. Paragraph 15, page 4. Xxxxxxx will receive a license to all seismic
data acquired under this Agreement in which he shares in the cost of
said acquisition.
If these modifications arc acceptable to Xxxxxxx, please so indicate by signing
both copies of this letter and returning one fully executed copy to this office
for inclusion in our files. If you have any questions please contact me at the
letterhead number or Xxxx Xxxxxxxxxx at 863-4483 or 290-8683. Thank you for your
time and cooperation.
Yours Very Truly,
/s/ Xxxxxx X. Xxxxxxx Xx.
Xxxxxx X. Xxxxxxx Xx., dba
Xxxxxxx Oil Company
Agreed to and Accepted this 30th day of April, 1997.
Xxxxxxx Exploration Company, Inc.
/s/ X. Xxxxx Xxxxxxx
------------------------------------------
X. Xxxxx Xxxxxxx
Title District Xxxxxxx
Xxxxxxx exploration company, inc.
Rocky Mountain Division
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
(000) 000-0000 - FAX (000) 000-0000
April 23, 1997
Xxxxxxx Oil Company
0000 X xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xx. Xxxxxx X. Xxxxxxx, Xx.
RE: RM 96-004 Bali Prospect
Participation Agreement
Xxxxxx County, California
Gentlemen:
In this Participation Agreement, Xxxxxxx Exploration Company, Inc., a Kansas
Corporation d/b/a Xxxxxx X. Xxxxxxx Exploration Company, Inc. within the State
of California, shall hereinafter be referred to as "Xxxxxxx" and Xxxxxxx Oil
Company shall hereinafter be referred to as Fanchcr".
This Agreement will constitute our understanding regarding Xxxxxxx'x purchase of
an interest in Xxxxxxx'x Bali Prospect and the formation of an Area of Mutual
Interest.
The terms of this agreement are as follows:
1. Xxxxxxx is in the process of acquiring leasehold within the Bali Prospect,
the general geographic area for which is set out on Exhibit "1 ", attached
hereto and made a part hereof. Further, Xxxxxxx anticipates collecting and
processing approximately 40 square miles of 3D seismic within Bali
Prospect.
2. Xxxxxxx has agreed to participate with Xxxxxxx for a proportionate 25%
share of leasehold acquisition and collection of 3D seismic data within the
Bali Prospect. Maximum cost for seismic acquisition is estimated to be
$1,280,000. Land costs are estimated to be within a range of $180,000 to
$370,000, depending upon the amount of acreage eventually leased and the
price per acre, Xxxxxxx is responsible for spending its proportionate 25%
share of such amounts under the terms of this agreement, assuming such
costs are incurred within 12 months from the date hereof. If either or both
of such amounts an exceeded, Xxxxxxx may participate in additional
expenditures on a selected basis, under the terms of this agreement.
Xxxxxxx agrees to be bound by the terms and provisions of leasehold in
which it participates. Xxxxxxx shall be responsible for the remaining 75%
of such, obligations and shall hold Xxxxxxx harmless therefrom.
3. Xxxxxxx will reimburse Xxxxxxx for all leasehold and geophysical costs on
the basis. of cost plus 35%, so that Xxxxxxx'x share of actual costs is
33.75%. Xxxxxxx is currently in the process of acquiring leasehold in the
Bali Prospect area. Simultaneous with the execution of this agreement,
Xxxxxxx will reimburse Xxxxxxx the sum of $38,812.50 which represents
leasehold and brokerage costs incurred or anticipated through April, 1997,
Reimbursement for remaining costs, or estimates of such costs, which may be
Bali Participation Agreement
Xxxxxxx Oil Company
Page 2
April 25, 1997
made from time to time, will be made to Xxxxxxx by Xxxxxxx within 30 days
from receipt of an invoice. Xxxxxxx agrees to pay the remaining 66.25% of
costs or to find other participants to pay such costs.
4. An Area of Mutual Interest ("AMI") is hereby established consisting of
lands lying within Townships 7 and 8 North, Range 2 East, Xxxxxx County,
California. The AMI will be comprised of all lands located within the final
outline of the 3D seismic survey that is being conducted under the terms of
this agreement. When available, an outline of the survey, and thus the AMI,
will be attached hereto as. Exhibit "2". This* AM shall remain in effect
for the term of any oil and gas leases which become subject to this
agreement, whether by acquisition, extension or renewal. and shall
thereafter terminate unless production is established on any portion of
said lands through this agreement, and shall then continue so long as there
is production. Xxxxxxx shall be obligated to acquire its proportionate
share of all leasehold acquired by Xxxxxxx within the AMI up to a maximum
gross (unpromoted) expenditure of $370,000. If this amount is exceeded, and
if additional expenditure's are incurred for acquisition, Xxxxxxx will
promptly notify Xxxxxxx in writing of such acquisition, describing same and
the cost thereof. Fanchcr will have 20 days from receipt of such notice to.
elect whether or not to participate for its proportionate share of such
acquisition, insofar only as same covers lands in the subject AMI. The
failure of Xxxxxxx to reply positively within the 20 day time period will
be deemed an election not to participate in the acquisition. Xxxxxxx shall
not acquire any interest within this AMI except through this agreement,
while in effect, without the express written consent of Xxxxxxx.
5. Xxxxxxx shall be responsible for payment of all delay rentals, minimum and
shut-in royalties, as well as any other payments required to maintain
leases in full force and effect. Xxxxxxx shall not be liable for failure to
properly make such payments, in the absence of gross negligence. Upon
receipt of an invoice, Xxxxxxx shall, within 30 days, reimburse Xxxxxxx for
its proportionate share of such payments, or, at Xxxxxxx'x election, notify
Xxxxxxx that it no longer desires to hold an interest in the applicable
lease(s), in which case Xxxxxxx'x interest shall be relinquished to
Xxxxxxx..
6. Xxxxxxx will retain Xxxxxxx'x proportionate share of title to all acquired
leasehold and/or farmin agreements beneficially for Xxxxxxx until such time
as a well is drilled and completed and a pooling agreement, if required,
has been filed. Xxxxxxx will then deliver an assignment to Xxxxxxx of its
proportional share of leasehold in the revenue sharing unit or acreage held
by the well's production, on a well-by-well basis, subject to obtaining any
required consent to assign under the provisions of the lease and/or farmin
agreements. If such consent to assign cannot be readily obtained, Xxxxxxx
shall hold title to the leasehold and agreements on behalf of Xxxxxxx. If
such consent is obtained, Xxxxxxx will promptly make assignment under the
terms of this paragraph, The intent of this paragraph is for Xxxxxxx to
hold title beneficially for Xxxxxxx in order to avoid the administrative
time and expense involved in making assignments; however, notwithstanding
the provisions of this paragraph, Xxxxxxx may demand assignment from
Xxxxxxx of all leasehold to which it holds an interest under the terms of
this agreement. If such a request is made, Xxxxxxx will make all reasonable
efforts to provide the assignment in a timely manner, subject to the
provisions of this agreement All leasehold acquired by any method under
this agreement (whether by Xxxxxxx or Xxxxxxx) will be subject to a
proportionately reduced 3.50% of 8/8ths overriding royalty interest in
favor of Xxxxxxx.
7. It is anticipated that Xxxxxxx will propose xxxxx to be drilled within this
AMI on an ongoing basis. At the time of proposal. Xxxxxxx will provide
Xxxxxxx with written notice of its intended operation, specifying the
location of the well, estimated spud date, the depth and formation(s) to be
drilled, and an Authorization For Expenditure ("AFE") setting out estimated
dry hole and completion posts, and any other pertinent information. It is
Bali Participation Agreement
Xxxxxxx Oil Company
Page 3
April 23, 1997
expressly understood that Xxxxxxx will make best efforts to insure that its
AFEs; present actual anticipated costs, Upon receipt of notice of a
proposed well, Xxxxxxx shall have 30 days within which to notify Xxxxxxx,
in writing, of its election to participate. The failure of Xxxxxxx to so
elect within the time specified shall be deemed an election by Xxxxxxx not
to participate in the proposed well. If Xxxxxxx elects not to participate
in a proposed well, or is deemed to have so elected, it shall forfeit all
of its interest in the leasehold, farmins, options, etc. covering the lands
within the revenue sharing unit for the proposed well. Excepted from this
forfeiture. would be: a) any area then established as a revenue sharing
unit for a producing well in which Xxxxxxx has previously participated, or
b) a well which is drilling or which has not spud, but in which Xxxxxxx has
committed to participate.
Should Xxxxxxx elect to participate in a well, it will be obligated to
participate in the entire proposed operation to casing point.. An election
to participate will also obligate Xxxxxxx to acquire its proportionate sham
of all interest acquired by Xxxxxxx in the well. through lease acquisition,
farmin acreage and/or non-consent interest (wherein the non-consent
interest is acquired from a third party, unrelated to the Xxxxxxx, Xxxxxxx
and the other participants in Bali Prospect, and where said non-consent
interest is required to make up 100% of the drillsite working interest
available for Xxxxxxx, Xxxxxxx and. the other participants in Bali
Prospect). In order to be entitled to the benefits of this numbered
paragraph, Xxxxxxx shall, within 90 days from expiration of the initial
notice period, spud the proposed well. The parties agree to make any and
all assignments necessary to accomplish the above provisions. Except in the
case of an expiring lease, farmout agreemen, farmout option agreement or
similar circumstance, only one well proposal may be made every 20 days
under the terms of this numbered paragraph. In all instances within this
numbered paragraph, the names Xxxxxxx and Xxxxxxx may be interchanged so
that either party may propose xxxxx. It is recognized that there are
additional working interest owners in this project area that have ongoing
working interest capabilities in each proposed well. Further, it is
recognized that said additional working interest owners in this project
area have the ability to propose xxxxx as set forth herein.
8. Xxxxxxx shall pay a $2,500 spud fee to Xxxxxxx for each well drilled under
the terms of this agreement, in which it participates.
9. An Operating Agreement in the form attached hereto as Exhibit "3" will be
executed for each well drilled under the terms of this agreement. The
Contract Area for each Operating Agreement will be comprised of the
designated revenue sharing unit for the well. In the event o a conflict
between the terms of this agreement and any such Operating Agreement, the
terms of this agreement shall prevail.
10. It is understood that the parties hereto may be required to negociate
operating agreements with third parties. The parties agree that if there
are any conflicts between the Operating Agreement attached hereto and any
third party operating agreement, the terms of the Operating Agreement
attached hereto shall control the relationship between Xxxxxxx and Xxxxxxx.
11. An Escrow Agreement in the form attached hereto as Exhibit "4" shall be
entered into between Xxxxxxx and Xxxxxxx for each well drilled under the
terms of this agreement. Article 1 of the Escrow Agreement provides a date
by which the participants in the well will deposit their funds into the
Escrow Account. Such date will be established by Xxxxxxx to be
approximately 30 days prior to spud of each well. If Xxxxxxx fails to
Bali Participation Agreement
Xxxxxxx Oil Company
Page 4
April 23, 1997
deposit its share of the applicable costs, including its spud fee as set
out in paragraph 8 of this agreement, by this date, it will be assumed that
Xxxxxxx does not wish to participate in the well. In this event, Xxxxxxx
shall give Xxxxxxx notice that it has not received its funds and Xxxxxxx
will either deliver such funds to Xxxxxxx by 1:00 PM MST on the next
business day or be subject to the provisions of paragraph 7 of this
agreement, covering non participation. Xxxxxxx shall be obligated to place
funds received from all participants in the same escrow account, in
pro-rata amounts based on their share of costs.
12. Xxxxxxx'x representatives shall have free access to any well within the
Bali Prospect in which it participates at all times and to all records
pertaining thereto. In addition, all geological information obtained in the
drilling of any well, in which Xxxxxxx participates, shall be made
available. Xxxxxxx may provide a list of its geological requirements to
Xxxxxxx, which shall be provided by Xxxxxxx, as reasonable.
13. If Xxxxxxx terminates its legal existence, transfers its interest to a
successor and no longer owns an interest in the Bali Prospect, or becomes
insolvent or bankrupt, or is placed in receivership, it shall cease to be
Operator without any action by Xxxxxxx or Xxxxxxx'x other Non-Operating
partners, except the selection of a successor. Xxxxxxx may be removed if it
fails or refuses to carry out its duties hereunder or is no longer capable
of serving as Operator by the affirmative vote of Xxxxxxx and Xxxxxxx'x
other Non-Operating Partners owning a majority interest based on ownership
in the Bali Prospect, after excluding the voting interest of Xxxxxxx. Such
resignation or removal shall not become effective until 7:00 o'clock A.M.
on the first day of the calendar month following the expiration of 60 days
after the giving of notice of resignation by Xxxxxxx or action by the
Non-Operators to remove Xxxxxxx, unless a successor Operator has been
selected and assumes the duties of Operator at an earlier date. Xxxxxxx,
after the effective date of resignation or removal, shall be bound by the
term hereof as Non-Operator. A change of a corporate name or structure of
Xxxxxxx or transfer of Xxxxxxx'x interest to any single subsidiary or
parent corporation shall not be the basis for removal of Xxxxxxx.
Upon the resignation or removal of Xxxxxxx, a successor Operator shall be
selected by the affirmative to of Xxxxxxx and Xxxxxxx'x other Non-Operating
partners owning a majority interest based on the ownership in the Bali
Prospect. The successor Operator shall be selected from the parties owning
an interest in the Bali Prospect at the time such successor Operator is
selected, If Xxxxxxx is removed or is deemed to have resigned, fails to
vote or votes only to succeed itself, the successor Operator shall be
selected by the affirmative vote of Xxxxxxx and Xxxxxxx'x other
Non-Operating partners in the Bali Prospect owning a majority interest, and
after excluding the voting interest of Xxxxxxx.
This provision shall also apply to the resignation or removal of any
successor Operator.
14. The parties hereto agree that all disputes between them arising out of, or
in connection with, this Agreement shall be resolved by arbitration as
provided herein. This agreement to arbitrate shall survive the recission or
termination of this contract. All arbitration shall be conducted pursuant
to the Commercial Arbitration Rules of the American Arbitration
Association. If available, the panel used shall be selected from
arbitrators having at least 10 years of oil and gas experience and employed
Bali Participation Agreement
Xxxxxxx Oil Company
Page 5
April 23, 1997
by the American Arbitration Association and the decision of the arbitrators
shall be final and binding on all parties. All arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where applicable, and
the decision of the arbitrators shall be enforceable in any court of
competent jurisdiction.
15. Xxxxxxx will have full access to all seismic data and interpretations
thereof, for which it shares the cost of acquisition. If such data is ever
sold, Xxxxxxx will be entitled to 25% of the proceeds of such sale. Xxxxxxx
will not trade the data or allow third parties to review same, without
Xxxxxxx'x express written consent.
16. All notices required herein shall be considered given when delivered
personally or when sent by facsimile or deposited in the U.S. Mail properly
addressed as follows:
Xxxxxxx Exploration Company, Inc. Xxxxxxx Oil Company
0000 Xxxxxxxx, Xxxxx 0000 0000 Xxxxxxxx, Xxxxx 000
Xxxxxx, XX 00000 Xxxxxx, XX 00000
FAX: (000) 000-0000 FAX, (000) 000-0000
17. The liabilities of the parties shall be several and not joint or
collective, and each party shall be responsible only for its share of the
costs and liabilities incurred as provided herein. It is not the purpose or
intention of this agreement to create any partnership, mining partnership
or association, and neither this agreement nor the operations herein shall
be construed or considered as creating any such legal relationship.
18. The terms and covenants hereof shall extend to, and be binding on, the
parties hereto, their heirs, successors, legal representatives and assigns;
however, Xxxxxxx will not assign its interest in this agreement without the
express written consent of Xxxxxxx. Such consent shall not be unreasonably
withheld. This agreement sets forth the entire agreement between the,
parties hereto, and there are no oral agreements not set out herein in
writing.
If the foregoing terms correctly set forth our understanding, please execute and
return one copy of this agreement.
Very Truly Yours,
/s/ Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
District Xxxxxxx
AGREED TO AND ACCEPTED THIS 29TH DAY OF APRIL, 1997
XXXXXXX OIL COMPANY
By /s/ Xxxxxx X. Xxxxxxx Xx.
----------------------------------
XXXXXXX OIL COMPANY
--------------------------------------------------------------------------------
Trinty Place - Suite 000 - 0000 Xxxxxxxx - Xxxxxx, Xxxxxxxx 00000-0000 - (303)
000-0000 - Fax (000) 000-0000
Xxxxxxx Exploration Company, Inc. April 29, 1997
0000 Xxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-4714
Attention: Xxxxx Xxxxxxx
RE: Bali Prospect
Participation Agreement/XXX
Xxxxxx County, California
Gentlemen,
Enclosed please find one copy of the referenced agreement which has been
executed on behalf of Xxxxxx X. Xxxxxxx, Xx. dba Xxxxxxx Oil Company, subject to
the following modifications.
1. All references to Xxxxxxx Oil Company in said prospect documents and
agreements shall be amended to read Xxxxxx X. Xxxxxxx, Xx. dba Xxxxxxx
Oil Company (Xxxxxxx).
2. Paragraph 3, page 2. Change the 15 day reimbursement on invoices to 30
days.
3. Paragraph 4, page 2. The time period under the AMI to respond to
acquisitions notices will be amended to 20 days.
4. Paragraph 5, page 2. Rental invoices will be reimbursed within 30 days
from receipt thereof.
5. Paragraph 6, page 2, Xxxxxxx agrees to provide Lease Exhibits,
spreadsheets and/or plats showing all leasehold and leasehold
acquisitions to Xxxxxxx upon request. Should Xxxxxxx elect to receive
assignments of all acquired leasehold, Xxxxxxx will make a good faith
effort to provide said assignments within 30 days.
6. Paragraph 7, page 3. Xxxxxxx will have 30 days from receipt of any
well proposal within the AMI in which to elect to participate for his
working interest share. in addition to the AFE and plat Xxxxxxx agrees
to provide a geologic prognosis and a Drilling. Title Opinion and/or
an Abstract and Attorney's opinion for Xxxxxxx'x review.
7. Paragraph 11, page 3. Xxxxxxx agrees to provide the Escrow Agreement
referred to as Exhibit "4" approximately 30 days prior to spud of each
well.
8. Paragraph 15, page 4. Xxxxxxx will receive a license to all seismic
data acquired under this Agreement in which he shares in the cost of
said acquisition.
If these modifications arc acceptable to Xxxxxxx, please so indicate by signing
both copies of this letter and returning one fully executed copy to this office
for inclusion in our files. If you have any questions please contact me at the
letterhead number or Xxxx Xxxxxxxxxx at 863-4483 or 290-8683. Thank you for your
time and cooperation.
Yours Very Truly,
/s/ Xxxxxx X. Xxxxxxx Xx.
Xxxxxx X. Xxxxxxx Xx., dba
Xxxxxxx Oil Company
Agreed to and Accepted this 30th day of April, 1997.
Xxxxxxx Exploration Company, Inc.
/s/ X. Xxxxx Xxxxxxx
------------------------------------------
X. Xxxxx Xxxxxxx
Title District Xxxxxxx
