EXHIBIT 10.4
FARMOUT AGREEMENT FOR ▇▇▇▇ CREEK UNIT, WY
FARMOUT AGREEMENT
(▇▇▇▇ CREEK UNIT)
THIS FARMOUT AGREEMENT made and entered into on the _ day of , 2014 by
and between Red Hawk Oil Exploration, Inc., a Wyoming corporation, with its
principal office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Farmor") and
Terex Energy Corporation, a Colorado limited liability company, with its
registered office at ▇▇▇ ▇▇▇▇ ▇▇. ▇▇▇. ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ("Farmee").
WITNESSETH:
WHEREAS Farmor owns working interests in oil and gas leases and
interests in well bores, tangible personal property and equipment within the
▇▇▇▇▇▇▇ Participating Area (the "PA") of the ▇▇▇▇ Creek Unit (the "Unit") in
Natrona and Converse Counties, Wyoming as more particularly described below; and
WHEREAS Farmee will commit to drill two ▇▇▇▇▇▇▇ Formation ▇▇▇▇▇ in the
PA of the Unit on the terms and conditions hereinafter set forth.
NOW THEREFORE, for and in consideration of mutual benefits, detriments,
and promises, the adequacy of which are hereby acknowledged, it is hereby
mutually agreed as follows:
1. DEFINITIONS.
(A) "Operating Unit Formation" means all formations from the surface to
the base of the ▇▇▇▇▇▇▇ formation only.
(B) "Effective Date" will mean the date hereof.
(C) "Farmout Lands" means the Farmor's working interests in and to the
Unit, leases, lands, personal property and other property as set forth in
Exhibit A attached hereto and made a part hereof.
2. EXHIBITS.
The following Exhibits are attached hereto and made ▇▇▇▇ of this
Agreement:
(A) Exhibit A is a general description of the Farmout Lands as limited
by the Unit terms.
(B) Exhibit B is a proposed AAPL Joint Operating Agreement between the
Farmor and Farmee, which agreement governs operations on the subject leases and
the various amendments thereto, all of which are incorporated herein by
reference.
3. COMMITMENT
-1-
(A) Farmor represents without warranty of title of any kind, either
express or implied, that it commits all of its right, title and interest in and
to the Farmout Lands. Farmor shall provide its title records to Fannee within a
reasonable time after the execution hereof. At Farmee's sole cost, risk and
expense Farmee may conduct such title examinations and secure such curative work
as it deems necessary to satisfy itself that title is acceptable.
(B) Farmee represents that it has all requisite power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement and the JOA to which it is a party and perform
all of its obligations set forth in the operative documents. Farmee shall
provide to Farmor a financial statement, net worth statement or documents
evidencing availability of a minimum ten million to execute the drill plan
contemplated by the parties herein.
4. EARNING AND OTHER ▇▇▇▇▇.
(A) THE EARNING ▇▇▇▇▇. On or before six (6) months from the date of
this Agreement Farmee shall pick locations and file APDs with the BLM and State
of Wyoming for two (2) ▇▇▇▇▇. On or before twenty four (24) months from the date
of this Agreement, Farmee agrees to commence, or cause to be commenced on the
Farmout Lands, at its sole cost and expense, the actual drilling of two (2)
vertical earning ▇▇▇▇▇ within the PA ("Earning ▇▇▇▇▇"). Farmee shall thereafter
continue the drilling of the Earning ▇▇▇▇▇ with due diligence to a bottom hole
location to adequately test the ▇▇▇▇▇▇▇ Formation, (such depth is the "Objective
Depth"). Should Farmee not reach and/or complete any Earning Well to the maximum
proposed bottom hole depth, but shall have adequately tested the ▇▇▇▇▇▇▇
Formation, Farmee shall be deemed to have met the earning requirements under
this Agreement for that Well.
(B) OPTION ▇▇▇▇▇. After drilling and completion of the Earning ▇▇▇▇▇ as
provided herein, Farmee shall have the continuing right but not the obligation
to drill, or cause to be drilled, additional well(s) at locations of its
choosing on the Farmout Lands not previously included in the spacing unit for a
well drilled pursuant to this Agreement or on lands pooled therewith, so long as
not more than 365 days shall elapse between rig release from one well and the
commencement of drilling operations for the next well (hereinafter referred to
as "Option ▇▇▇▇▇"). With regard to the drilling of any Option Well, Farmee
agrees to notify Farmor in writing of its intent to drill such well within 180
days from rig release from the previous well.
(C) REPLACEMENT ▇▇▇▇▇. If, prior to reaching the Objective Depth,
mechanical problems or conditions in the hole are encountered in any well
drilled pursuant to this agreement, which, in the opinion of Farmee acting as a
reasonable prudent operator render further drilling impracticable, Farmee may
elect to cease drilling operations and plug and abandon said well. In that
event, Farmee shall have 30 days from the date the drilling rig is released
within which to commence or cause to be commenced operations on the drilling of
a replacement well which shall serve to satisfy the obligations of this
Agreement relating to the well for which it replaces.
(D) COMPLETION. After any well drilled pursuant to this Agreement has
reached its total
-2-
depth, Farmee shall either commence, or cause to be commenced, completion of the
well as a producer of oil and/or gas in commercial quantities and diligently
prosecute such completion operations without unreasonable delays or plug and
abandon, or cause to be plugged and abandoned, the well as a dry hole in
accordance with all applicable Federal, State and local regulations.
(E) INJECTOR ▇▇▇▇▇. In the event the Earning Well(s) or Option ▇▇▇▇▇
produce such volume of water as to require injector well(s) to dispose of it,
Farmee shall drill such injector ▇▇▇▇▇(s) with due diligence to a bottom hole
location to dispose of said water in accordance with all applicable Federal,
State and local regulations.
5. FAILURE TO DRILL.
The only consequence of Farmee's failure to drill the Earning ▇▇▇▇▇
provided for in this Agreement shall be the ipso facto cancellation of this
Agreement and the termination of Farmee's rights to earn additional interest.
Any other cancellation of this Agreement shall not affect any rights theretofore
earned by Farmee, nor relieve Farmee of any obligations or responsibilities for
expenses and liabilities theretofore incurred. It is understood that Farmee
shall reassign to Farmor any of the Farmout Lands not included in a spacing unit
for the drilling of the Earning ▇▇▇▇▇ or any Option Well(s) within forty-five
(45) days after the cancellation of this Agreement for failure to drill.
6. ASSIGNMENT OF INTEREST.
Upon the drilling and completion of the Earning ▇▇▇▇▇ drilled in
accordance with the terms and provisions of this Agreement as ▇▇▇▇▇ capable of
commercial production or as a dry hole, Farmee shall be entitled to an
assignment from Farmor, which shall be delivered to Farmee within thirty (30)
days after Farmor's receipt of a written request therefor. The assignment shall
convey to Farmee I 00% of Farmor's interest in the Operating Unit Formation
(limited to those depths from the surface down to the stratigraphic equivalent
of the base of the ▇▇▇▇▇▇▇ Formation) in the PA. Any assignment made pursuant to
this agreement shall be made without warranty of title, either express or
implied and Farmee shall promptly file the assignment of record in the
appropriate county and federal offices, furnishing Farmor with a copy of same
when available.
7. RIGHT TO BACK IN INTEREST.
In the event that an Earning Well or Option Well drilled pursuant to
this agreement is capable of production in paying quantities, upon Farmee
recovering from the production of said well the costs of its drilling,
completing, equipping and operating, including payment of all royalties and
overriding royalties presently existing, Farmee shall promptly notify Farmor of
such recovery. Upon thirty (30) days notice by Farmor, Farmor at any time may
elect to back in and thereupon Farmee shall assign back to Farmor an undivided
Ten Percent (10%) of the interest assigned to Farmee in the well spacing unit on
a well by well basis. Farmee shall have the right of first refusal to purchase
said interest from Farmor.
-3-
8. JOINT OPERATIONS.
Subject to the reassignment obligation in Article 5 above, after Farmee
drills the first Earning Well then any and all further operations on Farmout
Lands shall be pursuant to the Joint Operating Agreement attached hereto as
Exhibit "B" and by this reference made a part hereof (the "JOA").
9. INFORMATION AND REPORTS.
As a further express consideration for this Agreement and not as a
covenant only, Farmee agrees to furnish to Farmor the geologic data, well
information and reports relating to any well drilled pursuant to this Agreement.
10. DELAY RENTALS.
It is agreed that from and after the date of this Agreement Farmee
shall pay and bear any and all rentals, minimum royalties and shut-in royalty
payments necessaty to maintain all leases in force and effect and shall provide
Farmor with evidence of each such payment no later than thirty days prior to the
applicable due date.
11. CONSENT REQUIREMENT.
This Agreement is personal in nature and may not be assigned without
first obtaining Farmor's written consent and Farmor shall not unreasonably
withhold such consent. When requesting consent to make an assignment of all or a
portion of this agreement, Farmee will provide the name(s) of the parties to
whom the assignment will be made.
12. FORCE MAJEURE.
Should Farmee be prevented from complying with any express or implied
covenant of this Agreement, except the payment of money, from conducting
drilling or reworking operations thereon or from producing oil and or gas
therefrom by reason of operation of force majeure, or any federal or state law
or any order, rule or regulation of governmental authority, then while so
prevented, Farmee's obligation to comply with such covenant shall be suspended,
and Farmee shall not be liable in damages for failure to comply therewith; and
this Agreement shall be extended while and so long as Farmee is prevented by any
such cause from conducting drilling or reworking operations on or from or
producing oil and or gas from said Farmout Lands; and the time while Farmee is
so prevented shall not be counted against Farmee anything in this Agreement to
the contrary notwithstanding. The term "force majeure" shall include any and all
delays caused by reason of fire, storm, flood, explosion, strikes and walkouts,
as well as the inability to secure drilling equipment, including rigs and crews,
if it can be demonstrated that Farmee has made a good faith effort to secure
same.
13. COMPLIANCE/INDEMNIFICATION.
-4-
Farmee shall comply with all applicable laws, orders, rules and
regulations affecting operations hereunder and shall comply fully with all
express and implied lease covenants. In the drilling of the Earning ▇▇▇▇▇ or
Option ▇▇▇▇▇ and otherwise complying with the terms and provisions of this
Agreement, Farmee is acting independently of Farmor and not as a partner in any
capacity, mining or otherwise. Farmor shall have no responsibility whatsoever in
connection with the drilling of any said well and it shall be drilled at
Farmee's sole cost, risk and expense. At all times Farmee shall keep any well
drilled pursuant to this Agreement and Farmor's interest in the Farmout Lands
free and clear of all liens and encumbrances of whatsoever kind and character,
including but not limited to liens for labor performed and material furnished to
such ▇▇▇▇▇. Farmee further agrees to indemnify and hold Farmor harmless from any
and all debts, claims, damages and liabilities of any nature incurred in
connection with Farmee's performance, as applicable, under this Agreement.
14. SURFACE DAMAGES.
Prior to conducting any operations on the Farmout Lands, Farmee shall
make satisfactory arrangements with the owner of the surface of the well
location for the payment of surface damages and to secure all necessary
easements relating to access to the well. Any well drilled pursuant to this
Agreement which is no longer capable of producing oil and/or gas shall be
plugged and abandoned by Farmee as soon as practicable. Upon plugging and
abandonment, Farmee shall restore the surface to its cond ition on the date of
this Agreement as nearly as reasonably practicable. All plugging and abandonment
operations shall be conducted in accordance with any applicable provisions of
the leases so occupied and in compliance with the requirements of all
governmental agencies having jurisdiction.
15. INSURANCE.
(A) At all times while conducting operations pursuant to this Farmout
Agreement, Farmee must maintain the following minimum insurance coverage. (i)
Workmen's Compensation & Employers Liability insurance for a combined total of
$500,000 for each occurrence; (ii) Public Liability and property damage
insurance for a combined total of $1,000,000 for each occurrence; and (iii)
Automobile liability insurance and property damage insurance in a combined total
of $1,000,000 for each occurrence.
(B) Farmee shall require contractors and subcontractors working or
performing services with respect to operations being conducted pursuant to this
Farmout Agreement to comply with the workmen's compensation laws of the State of
Wyoming and to carry such other insurance in such amounts as Farmee shall deem
necessary.
16. WELL TAKEOVER.
Farmee shall immediately notify Farmor of its intention to plug and
abandon any well drilled hereunder. Upon receipt of such notice, Farmar shall
have forty-eight (48) hours,
-5-
exclusive of Saturdays, Sundays, and legal holidays, to elect to take over such
well during which period Farmar may temporarily assume control of operations for
the purpose of conducting any surveys, tests or other operations as it may
consider, in its sole and reasonable discretion. In order to conduct its
operations during such 48-hour period Farmar shall have the option to use the
drilling rig Farmee has used for the drilling of the well, but the use thereof
by Farmar shall be under the terms and conditions of the existing contract
between Farmee and the drilling contractor. In the event Farmar elects to take
over the well, Farmee shall relinquish unto Farmar any and all rights to which
Farmee may be entitled in such well; provided, however, that Farmor's takeover
of the well shall not relieve Farmee of any of its liabilities or obligations
arising out of or relating to operations conducted prior to Farmor's takeover of
the well. Additionally, Farmar, at its sole option, shall earn all of Farmee's
rights (as if Farmar was Farmee) in any and all farmout or other agreements
acquired by Farmee from third patiies secured in support of drilling the well.
Should such option be exercised by Farmar, Farmee shall make all necessary
arrangements in order for Farmar to acquire such rights on an unpromoted basis
from Farmee. Further, at Farmor's sole option, Farmee agrees to farmout to
Farmar all of Farmee's leasehold interest in the Farmout Lands or lands included
within the Farmout Lands in a spacing or pooled unit therewith, on the same
terms and conditions as Farmar farmed out to Farmee under this Agreement. If
taken over by Farmar, all subsequent operations on the well, including the
eventual plugging and abandonment thereof, shall be at Farmor's sole cost, risk
and expense.
At all times subsequent to the completion of a well drilled hereunder
as a well capable of producing oil and/or gas, Farmee shall give Farmar at least
thirty (30) days advance written notice of its intent to plug and abandon same.
At any time during such 30-day period Farmar shall have the right and option to
take over such well in its then condition for additional testing by any method
it desires including, but not limited to, deepening or plugging back for
completion attempts at any depth, by paying to Farmee the reasonable salvage
value of any salvable material in the hole, less the reasonable estimated cost
of salvaging and plugging and abandonment. If Farmar does not elect to take over
the well, Farmee shall plug and abandon same at its sole cost, risk and expense.
Should Farmar elect to take over the well, Farmee shall immediately assign to
Farmar any and all leasehold or other rights acquired by Farmee for the drilling
of the well, limited to the spacing unit or pooled unit therefore, but exclusive
of the well bores of any other ▇▇▇▇▇ located thereon, free and clear of any
liens, burdens or any encumbrances of any nature whatsoever other than those
existing of record as of the date of this Agreement. If taken over by Farmar,
all operations on the well, includ ing the eventual plugging and abandonment
thereof, shall be at Farmor's sole cost, risk and expense. Notwithstanding any
provision in this Article to the contrary, the well takeover rights of Farmar as
provided in this Article shall be subordinate to any third party's prior
existing rights as of the date of this Agreement, and only to the extent such
rights conflict with those of Farmar under this Agreement.
17. FARMEE TO ACT AS OPERATOR.
With respect to all drilling, completion, plugging and other similar
operations hereunder, Farmee shall act as operator and shall, during the conduct
of all such operations, maintain in
-6-
force and effect, and file as applicable, all bonds, insurance policies,
designation of operator forms, sundry notices and other forms, instruments and
documents required under applicable Wyoming and federal laws, rules,
regulations, and applicable contracts.
18. FURTHER ASSURANCES.
The patiies hereto shall deliver any and all other instruments or
documents reasonably required to be delivered pursuant to, or necessary or
proper in order to give effect to, all of the terms and provisions of this
Agreement including, without limitation, all necessary assignments, division
orders, and such other instruments of transfer as may be necessary or desirable
to effectuate this Agreement.
19. NOTICES.
Whenever this Agreement requires or permits any consent, approval,
notice, request or demand from one party to another, the consent, approval,
notice, request, or demand must be in writing to be effective and shall be
deemed to have been given on the day personally delivered or, if mailed, on the
day it is enclosed in an envelope, properly stamped, sealed and deposited in a
post office or official depository maintained by the United States Postal
Service, certified mail, return receipt requested, addressed to the patiy to be
notified at the address stated below (or at such other address as may have been
designated by written notice):
Ifto Farmor: Red Hawk Oil Exploration, Inc.
▇.▇. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
with a copy to:
Brown, Drew, ▇▇▇▇▇▇ & Durham, LLP ▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Ill
Ifto Farmee: Terex Energy Corporation
▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇
20. GOVERNING LAW.
This Agreement has been entered into and shall be construed and
enforced in accordance with the laws of the State of Wyoming, without
reference to the choice of law principles thereof.
21. COUNTERPARTS.
This Agreement may be executed m multiple counterparts, each of which
shall be
-7-
deemed an original and shall be binding upon all executing parties.
22. FINAL AGREEMENT.
This Agreement supersedes any and all prior oral or written agreements
between the parties and cannot be amended except in writing signed by both
parties.
23. BINDING EFFECT.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, together with their respective heirs, successors and assigns.
IN WITNESS WHEREOF, this Farmout Agreement is executed to be effective
on the date and year first written above.
FARMOR:
RED HAWK OIL EXPLORATION, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------
Title: President
-------------------------------
FARMEE:
TEREX ENERGY CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Title: CEO
-------------------------------
-8-