PARTICIPATION AGREEMENT RE: FROST NATIONAL BANK DEEP PROSPECT, LIVE OAK COUNTY, TEXAS
EXHIBIT
10.1
RE:
FROST NATIONAL BANK DEEP PROSPECT,
LIVE
OAK COUNTY, TEXAS
This
Participation Agreement (“Agreement”) is made and entered into effective as of
the 7th day of June, 2006 (“Effective Date”), by and between Bayou City
Exploration, Inc., a Nevada Corporation (hereinafter “Company”) and True North
Energy Corp. (hereinafter “Participant”). Company and Participant are sometimes
hereinafter referred to, individually, as a “Party” and, collectively, as the
“Parties”.
WHEREAS,
Company
has identified a prospect for oil and gas (“Prospect”), known to the Parties as
the Frost National Bank Deep Prospect, and purchased, or is in the process
of
purchasing, oil and gas leases the (“Leases”) on such Prospect, and;
WHEREAS,
Participant has expressed a desire to participate with Company in the drilling
of a test well in search of oil or gas on the Leases or portions thereof and
in
the further development of the Leases, if warranted, and;
WHEREAS,
the
Parties desire to join together and enter into a final and binding agreement
to
fully express the terms and conditions which are to govern between the Parties
as to the development of the Prospect, and;
NOW,
THEREFORE,
for and
in consideration of the mutual covenants and promises herein contained, the
Parties hereby agree as follows:
| 1. |
|
Contemporaneously
with the execution hereof, the Parties shall execute the Joint Operating
Agreement (“JOA”) and Memorandum of Joint Operating Agreement, naming Bayou City
Exploration, Inc. as operator (“Operator”). The executed JOA is attached hereto
and incorporated herein as Exhibit “A”. The JOA shall control the operations
conducted on the Prospect. Should there be a conflict between the terms and
conditions of this Agreement and the JOA, the terms and conditions of this
Agreement shall prevail.
| 2. |
LEASEHOLD
|
Company
represents, but does not warrant that it owns, or is in the process of
acquiring, certain oil, gas and mineral leases within the Prospect area as
depicted on the Plat labeled Exhibit “H” of the JOA attached hereto and
incorporated herein as Exhibit “A” to this Agreement.
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| 3. |
PARTICIPANTS
INTEREST
|
Participant
hereby elects to earn a 12.5% working interest after payout in the Leases
pursuant to the terms of this Agreement and the JOA by participating in the
drilling of the Test Well.
| 4. |
PROSPECT
COSTS
|
Participants
share of current cost to be charged by Company with respect to the Prospect
including, but not limited to, prospect fee, lease bonus, land brokerage,
permitting, drafting/surveying, legal, title curative, geological and
geophysical costs are $94,888.00 (“Prospect Costs”). Participant agrees to
pay the sum of $94,888.00, being its share of the current Prospect Costs upon
execution of this Agreement. The parties acknowledge that there may be
additional necessary expenditures incurred by Company prior to spudding the
test
Well, including but not limited to additional lease bonus, land brokerage,
permitting, drafting/surveying, legal, title curative, geological and
geophysical costs. Participant agrees to pay 16.6666% of necessary
additional Prospect Costs. Appropriate and timely ▇▇▇▇▇▇▇▇ and payments
shall be made accordingly by the Parties. The entire Prospect Costs are fully
refundable in the event this Agreement is rescinded by Company for any reason
or
Company fails to cause the Initial Test Well to be drilled for any
reason.
| 5. |
INITIAL
TEST WELL
|
On
or
before August 1, 2006 (“Commencement Date”), subject to rig availability,
Company will commence or cause to be commenced, on behalf of the Joint Account,
operations for the re-entry of the Arco ▇▇▇▇▇▇ #1 as the test well (“Test Well”)
to evaluate the Prospect. The Test Well will be re-entered with due diligence
and in a good and workmanlike manner to a depth sufficient to test the ▇▇▇▇▇▇
formation which in this well is present from a depth of 11,900’ to a depth of
12,700’ (TVD) beneath the surface of the earth (the "Objective
Depth").
| 6. |
SUBSTITUTE
TEST WELL
|
In
the
event conditions render further re-entry operations impracticable prior to
reaching the Objective Depth in the Test Well, then, for a period of ninety
(90)
days after making the election, either Party shall have the right to propose
the
drilling of a substitute Test Well to the Objective Depth on the Leases or
on
lands pooled therewith. If Participant elects to participate in drilling the
substitute Test Well, the substitute Test Well shall be drilled under the same
terms as the Test Well and the substitute Test Well shall be deemed to be the
Test Well for all purposes under this Agreement.
| 7. |
EXPENSES
FOR DRILLING THE TEST
WELL
|
Participant
shall bear and pay, in the percentages set forth below, its share of the costs
and expenses described below. Such payment shall be due and payable to Company
on or before fifteen (15) days after receipt of an invoice or invoices for
such
costs or any portion thereof.
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A.
|
16.6666%
of the costs and expenses incurred in drilling the Test Well (and
any
substitute well therefore) to casing point, or to a lesser depth
if
impenetrable conditions are encountered in the well, and in plugging
and
abandoning the well if no completion attempt is made. The term “casing
point” shall mean that point in time when the Test Well has been drilled
to the Objective Depth, logged, evaluated and Company has notified
Participant that a completion attempt will be made.
|
|
B.
|
16.6666%
of the costs and expenses incurred in completing the Test Well (and
any
substitute well therefore) and in equipping the same for production,
and
for all title opinions and title curative work. Should a party not
elect
to participate in completion of the Test Well such non-participating
Party
will be subject to the provisions of Article VI section B of the
JOA.
|
| 8. |
SUBSEQUENT
▇▇▇▇▇
|
As
to any
subsequent ▇▇▇▇▇ drilled within the Prospect area, the Participant has the
option, but not the obligation, to participate in the drilling of such
subsequent ▇▇▇▇▇ by paying 12.5% of the costs and expenses of drilling such
well
including the cost of completing such subsequent well and equipping the same
for
production. Should a party not elect to participate in such subsequent well
such
non-participating Party will be subject to the provisions of Article VI section
B of the JOA.
| 9. |
INTERESTS
EARNED BY DRILLING TO OBJECTIVE
DEPTH
|
At
such
time as the Test Well has reached the Objective Depth and Participant has
elected whether or not to participate in the completion of the well at the
Objective Depth, Participant shall have earned an undivided 12.5% of the
leasehold interest in and to the Leases, with the exception of the Leases
included in the Test Well unit, and subject to the provisions of the Leases,
this Agreement and the JOA.
In
the
case of the Test Well unit Participant will earn 16.6666% working interest
before payout and 12.5% working interest after payout. “Payout” is defined as
that point in time when there has been recovered from one hundred percent (100%)
of production, less only royalties, overriding royalties and production taxes
an
amount of money equal to one hundred percent (100%) of the drilling, completing
and operating costs (during the payout period) of the initial test well. After
Payout, Participant will have an 12.5% working interest in the Test Well
unit.
Company
shall assign to Participant any interest earned, effective as of the date of
this Agreement, and such assignment shall be made within thirty (30) days after
the date on which the drilling rig has been released or the date on which the
Objective Depth has been reached which ever is later. The assignment shall
be
subject to, among other things, the terms and provisions of this Agreement,
the
terms and provisions of the JOA, and all royalties, overriding royalties,
payments out of production, and similar leasehold burdens affecting the Leases
and existing as of the Effective Date of this Agreement. The Parties acknowledge
the overriding royalty burdens owed to Sunray Operating Company, LLC. as set
out
in Article XVI Section 14 of the JOA and Company further represents that there
are no other overriding royalty burdens on the leasehold estate. The drilling
of
additional ▇▇▇▇▇ on the Leases and the operation of the Test Well and any
additional ▇▇▇▇▇ on the Leases or lands pooled therewith shall be governed
by
the terms of this Agreement and the provisions of the JOA when not in conflict
with this Agreement.
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10.
|
WELL
INFORMATION -
CONFIDENTIALITY
|
The
Parties agree that all information, data and other materials, including but
not
limited to wire line logs, mud logs, geological interpretations, seismic data
(subject to all of the terms and conditions of any third party licensor or
agreement) and other production data (“Data”) which might be obtained or
accumulated is to be non-public, confidential and proprietary in nature, except,
that such Data can be shown to affiliated companies, reputable engineering
firms, gas transmission companies, reputable financial institutions, reputable
and financially responsible third parties with whom a Party to this Agreement
is
engaged in negotiations for the sale of some portion of the interest in this
Prospect, or any governmental entities requiring such Data. The Parties agree
that the Data may not otherwise be disclosed, sold, traded, or published with
out the prior written consent of Company. The Parties, their agents, consultants
and independent contractors, at their sole cost, risk and expense, shall have
access at all times to the ▇▇▇▇▇▇▇ floor of all ▇▇▇▇▇ drilled under this
Agreement and to all information in connection with the drilling and testing
of
all such ▇▇▇▇▇. Operator agrees to send the Parties daily drilling reports
reporting drilling information consistent with accepted industry standards
including but not limited to work done, depth drilled, the results of tests
made
and oil and gas shows encountered. Operator shall furnish the Parties all well
data acquired in connection with the drilling and producing of such ▇▇▇▇▇
including but not limited to copies of the surveyors location plat, all wire
line and mud logs, reports showing the results of all tests and any forms and
reports filed with any State or Federal Agency.
| 11. |
NOTICES.
|
All
notices and information to be given hereunder shall be in writing and shall
be
sent by United States certified mail, telegram, telex, facsimile, email,
overnight delivery service or telecopy, postage or charges prepaid and addressed
to the Party to whom such notice is given as follows:
| If to Company: |
Bayou City Exploration, Inc.
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
|
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| If to Participant: |
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇
▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Email:
▇▇▇@▇▇▇▇▇▇▇.▇▇▇
|
| 12. |
ASSIGNMENT
AND BINDING EFFECT.
|
This
Agreement shall inure to the benefit of and be binding upon the Parties and
their successors and permitted assigns. Neither Party may assign its rights
and
obligations under this Agreement without the prior written consent of the other,
which consent will not be unreasonably withheld, delayed or conditioned. In
the
event of an assignment, the assignee shall agree to be bound by the terms and
provisions of this Agreement, including any JOA provided for hereunder. In
the
event of such assignment the assigning Party shall be relieved from all
obligations thereafter accruing, but not theretofore accrued, with respect
to
the interest assigned.
| 13. |
ENTIRETY
OF AGREEMENT.
|
This
Agreement and the Exhibits attached hereto constitute the entire agreement
between the Parties with respect to the subject matter hereof, and there are
no
representations or other agreements between the Parties except as expressly
set
forth herein and included within the Exhibits attached hereto. Any amendment
to
this Agreement shall not be effective unless in writing and executed by the
Parties to this Agreement.
| 14. |
GOVERNING
LAW.
|
This
Agreement and the rights and obligations of the parties hereunder shall be
governed by and interpreted, construed and enforced in accordance with the
laws
of the State of Texas (excluding any conflict of law rules which would refer
to
the laws of another jurisdiction). This Agreement shall be performable in
Houston, ▇▇▇▇▇▇ County, Texas and venue for any litigation to enforce a
provision hereof or construe this Agreement shall be in Houston, ▇▇▇▇▇▇ County,
Texas.
| 15. |
RELATIONSHIP
OF PARTIES.
|
This
Agreement is not intended to create a relationship of partnership or an
association for profit between or among the Parties. It is expressly agreed
that
the obligations and liabilities of the Parties are several and not joint.
Nothing contained in this Agreement shall be construed to create or impose
a
partnership duty, obligation or liability on any of the Parties or an
association for profit between or among the Parties. Notwithstanding the
foregoing provisions, if, for federal income tax purposes, this Agreement and
the operations hereunder are regarded as a partnership, each of the Parties
elects, under the authority of Section 761(a) of the Internal Revenue Code
of
1986, as amended, and applicable issued regulations, to be excluded from the
application of all provisions of Subchapter K of Chapter 1 of the Internal
Revenue Code of 1986, as amended. Should there be any requirement that a Party
give further evidence of this election, such Party shall execute such documents
and furnish such other evidence as may be required by the Internal Revenue
Service or as may be necessary to evidence this election.
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16.
|
TERM
OF AGREEMENT.
|
This
Agreement shall remain in force and effect for a period commencing on the
Effective Date hereof and, subject to the provisions hereof which provide for
an
earlier termination, ending on the date on which the JOA terminates in
accordance with the provisions of Article XIII. of the JOA.
| 17. |
SEVERABILITY
|
If
any
term, provision or condition of this Agreement is held invalid, unenforceable
or
contrary to applicable laws, it shall be reformed to the extent necessary to
conform, consistent with the intention of the Parties, to such laws, and if
such
provision cannot be so reformed, it shall be deemed deleted and the validity
of
the other terms, provisions and conditions shall not be affected.
| 18. |
MISCELLANEOUS
|
A.
The
titles and the section headings contained in this Agreement are inserted for
convenient reference only and shall not be construed as limiting or extending
the meaning of any provision of this Agreement.
B.
This
Agreement and any documents to be executed pursuant hereto may be executed
in
multiple counterparts, each of which shall constitute an original and all of
which, when construed together, shall constitute but one and the same
instrument.
C.
The
Parties hereby agree to do, execute or procure to be done and executed, any
and
all further necessary acts, deeds, documents and things within their power
to
give effect to this Agreement and its intent.
D.
No
waiver of any term, provision or condition of or rights under this Agreement
shall be effective unless in writing and signed by an authorized representative
of the waiving Party. The failure of either Party to insist upon the strict
performance of any term, provision or condition of this Agreement shall not
be
construed as a waiver or relinquishment in the future of the same or any other
term, provision or condition.
E.
If any
action at law or in equity is necessary to enforce or interpret any of the
rights or obligations under this Agreement, the prevailing Party shall be
entitled to reasonable attorney’s fees, costs, and necessary disbursements from
the non-prevailing Party in addition to any other relief to which the prevailing
Party may be entitled.
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If
the
foregoing sets forth your understanding of our agreement, please so indicate
by
signing in the space provided below and returning one (1) original of this
Agreement to the undersigned.
BAYOU
CITY EXPLORATION, INC.
| By: | /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||
| Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ | |||
| Title: President | |||
| TRUE NORTH ENERGY CORP. | |||
| By: | /s/ Massimiliano Pozzoni | ||
| Name: Massimiliano Pozzoni | |||
| Title: Chief Financial Officer | |||
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