DEWEYVILLE PROSPECT WHITMAR AND TEXTERRA PARTICIPATION AGREEMENT TABLE OF CONTENTS ARTICLE ------- I DEFINITIONS..........................................................1 II TERM.................................................................2 III...
EXHIBIT 10.8
DEWEYVILLE PROSPECT
WHITMAR AND TEXTERRA
PARTICIPATION AGREEMENT
TABLE OF CONTENTS
ARTICLE
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I DEFINITIONS..........................................................1
II TERM.................................................................2
III LEASEHOLD, GEOLOGICAL, GEOPHYSICAL AND WELL COSTS....................2
IV INTERESTS EARNED AND ASSIGNMENTS.....................................4
V OPERATING AGREEMENT .................................................4
VI SUBSEQUENT WELL PROPOSALS AND OTHER OPERATIONAL
ACTIVITIES...........................................................5
VII AREA OF MUTUAL INTEREST .............................................6
VIII PREFERENTIAL RIGHTS..................................................7
IX NOTICES AND PROPOSALS................................................7
X ASSIGNABILITY........................................................8
XI TAXATION.............................................................8
XII MISCELLANEOUS........................................................9
PARTICIPATION AGREEMENT
THIS AGREEMENT made and entered into as of the 20th. Day of June, 2006, by
and between WHITMAR EXPLORATION COMPANY, an Oklahoma Corporation, having its
offices located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, (hereinafter
called "WhitMar"), and TexTerra Exploration Partners, LP with an address of ▇▇
▇▇▇▇ ▇▇▇., ▇▇▇▇. ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter called "TexTerra").
WITNESSETH:
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WHEREAS, WhitMar owns approximately 1,054 acres of oil and gas leasehold
(the "Prospect Leasehold") in ▇▇▇▇▇▇ County, Texas and Calcasieu Parish,
Louisiana, which leasehold is comprised of the leases described on Exhibit "A"
attached hereto and made a part hereof and which leasehold makes up WhitMar's
Deweyville Prospect, hereinafter referred to as "the Prospect". The Prospect
covers the area colored in yellow on the plat attached hereto as Exhibit "A-1",
which area is hereinafter referred to as the "Area of Mutual Interest" ("AMI");
and
WHEREAS, WhitMar shall drill or shall cause to be drilled an exploratory
test well on the Prospect Leasehold to the lesser of (a) a true vertical depth
("TVD") of 13,000 feet below the surface of the earth, or (b) a depth sufficient
to adequately test the Yegua Y-3 through Y-7 Sands, defined as those sands
occurring between the subsurface depth of 10,970 feet and 12,125 feet, as seen
on the electric log of the Prairie Producing #3 Hankamer Well, situated in Sec.
5- T9S - R13W, Calcasieu Parish, Louisiana (the "Contract Depth"). Such
exploratory test well is hereinafter referred to as the "Prospect Test Well";
and
WHEREAS, TexTerra hereby agrees to acquire from WhitMar an undivided
interest in the entirety of the Prospect Leasehold sufficient to give TexTerra
an undivided 2.5% working interest in the said Prospect Test Well, and TexTerra
agrees to participate in the said well with a 2.5% working interest, and WhitMar
hereby agrees to sell TexTerra a 2.5% working interest in such well, subject to
the conditions and mutual covenants set forth in this agreement; and
NOW, THEREFORE, for and in consideration of the promises and the respective
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obligations, duties and responsibilities of WhitMar and TexTerra to be kept and
performed as hereinafter set forth, it is mutually agreed between WhitMar and
TexTerra as follows:
ARTICLE I. DEFINITIONS
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Whenever used or referred to in this Agreement, unless otherwise expressly
provided, the terms defined below shall have the meanings assigned to them in
this Article. Such meanings shall apply equally to the singular and the plural.
1.1 "Additional Interest" shall mean any oil and gas leasehold interest
and/or mineral interest acquired within the AMI after the Initial Prospect Test
Well is drilled. It is understood that "Additional Interest" may include the
acquisition of developed leasehold as well as undeveloped leasehold in the AMI.
1.2 "Area of Mutual Interest" shall mean the area colored in yellow on the
plat attached hereto as Exhibit "A".
1.3 "Proposing Party" shall mean the party who has submitted a proposal to
drill a development well in the Prospect.
1.4 "Non-Proposing Party" shall mean the party receiving a proposal for
consideration from the Proposing Party.
1.5 " Prospect Test Well" as defined in the second paragraph of this
Agreement, shall mean the initial 13,000 foot well to be drilled on the Prospect
Leasehold to test Yegua Sands, which will be drilled or caused to be drilled by
WhitMar.
1.6 "Operator" shall mean WhitMar Exploration Company in regard to any well
drilled pursuant to this Agreement where WhitMar is a Participating Party. Where
WhitMar is a Non-Participating Party in a proposed well, the Participating
Parties shall mutually agree upon the Operator therein.
ARTICLE II. TERM
-----
2.1 This Agreement shall continue in force as to the Prospect Area as long
as any lease subject to this Agreement (including extensions or renewals of
same) is in full force and effect, unless otherwise extended or is terminated
earlier by mutual agreement of the Parties.
ARTICLE III. LEASEHOLD,GEOLOGICAL, GEOPHYSICAL AND WELL COSTS
--------------------------------------------------
3.1 Upon execution of this Agreement, TexTerra agrees to pay $10,000 for
geological, geophysical and land costs for its participation in the Prospect.
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3.2 On or before December 1, 2006, WhitMar shall commence drilling, or
shall cause to be commenced the drilling of the Prospect Test Well to Contract
Depth. TexTerra will participate in the said Prospect Test Well on a promoted
basis, whereby TexTerra will pay for 3.3333% of the costs associated with
drilling the said well to "casing point" for its 2.5% interest therein. "Casing
Point" as used herein means that point in time when the Prospect Test Well has
been drilled and logged to Contract Depth and logged to its objective depth, and
said well has been plugged and abandoned with the surface restored, or a
recommendation has been made to set production casing and attempt completion.
Where a completion attempt is made and TexTerra elects to participate in such
completion, the completion costs for the said Prospect Test well will be paid
for on a "heads-up basis"; whereby TexTerra will pay 2.5% of such costs for its
2.5% interest in the said well.
3.3 It is understood that WhitMar has negotiated a Turnkey Drilling
Contract with Greywolf Drilling Company for the Drilling of the Prospect Test
Well to Casing Point for $4,198,000, not including well site preparation costs
and title costs, and after Greywolf has provided WhitMar with electric logs of
the well bore, WhitMar and its partners will pay all costs to plug and abandon
or to run production casing and attempt completion. Attached hereto as Exhibit
"B" is the Authority for Expenditure ("AFE") setting forth the estimated costs
to drill and complete the Prospect Test Well, which AFE is based on the said
turnkey contract. Upon execution of this Agreement, TexTerra shall execute the
said AFE. Pursuant to the said turnkey drilling contract, the estimated costs to
reach Casing Point in the Prospect Test Well are $4,423,000 without a
contingency liner and $5,018,000 with the contingency liner. TexTerra's 3.3333%
share of such estimated costs to Casing Point is $147,432 without the
contingency liner and $167,266 with the contingency liner.
It is understood that the said AFE represents an estimate of the Prospect
Test Well costs only, and TexTerra shall pay the above said share of actual
costs for the drilling and completion of the said well. Notwithstanding anything
contained herein to the contrary, in the event that the costs incurred in the
Prospect Test Well should exceed 125% of the AFE amounts for before Casing Point
costs, then TexTerra shall participate in all costs incurred thereafter in the
Prospect Test Well to the extent of its 2.50% interest. In the event that costs
incurred in the Prospect Test Well exceed 150% of AFE, WhitMar shall issue a
supplemental AFE detailing the costs
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remaining to be incurred in the Prospect Test Well, and TexTerra shall have the
right to either execute said supplemental AFE and continue participation in such
well, or to withdraw from participation in the Prospect Test Well and be
relieved of further liability or obligation with respect to such well as of the
date of such election. In such event, TexTerra shall forfeit all rights under
this Agreement, including the price paid to participate in this prospect.
3.4 Inasmuch as Greywolf Drilling Company has required that WhitMar shall
prepay into escrow the agreed upon turnkey drilling amount, TexTerra hereby
agrees to prepay its agreed upon 3.3333% share of drilling costs to casing point
as shown in the said AFE. No sooner than thirty (30) days prior to spud date,
WhitMar will provide TexTerra with a ▇▇▇▇ for its 3.3333% share of drilling
costs, as shown in the said AFE, less the contingency liner estimate, and
TexTerra shall immediately fund such costs to WhitMar.
3.5 It is understood that by participating in the Prospect Test Well,
pursuant to Article 3.2 above, TexTerra will earn the right to participate in
any development well proposed in the future in the Prospect on a "heads-up
basis" for its 2.5% share of the Prospect Leasehold.
ARTICLE IV. INTERESTS EARNED AND ASSIGNMENTS
---------------------------------
4.1 Upon the execution of this Agreement, and upon WhitMar's receipt of all
payments due from TexTerra pursuant to Articles III. of this Agreement, WhitMar
shall assign to TexTerra an undivided 2.50% of the Prospect Leasehold, which
leasehold interest will be subject to twenty eight percent (28%) royalty and
overriding royalty burdens identified on Exhibit "A", leaving TexTerra with a
seventy-two percent (72%) net revenue interest ("NRI") in the Prospect
Leasehold. Such assignment by WhitMar to TexTerra shall be on a form
substantially identical to the form of assignment attached hereto and made a
part hereof as Exhibit "D".
4.2 If the Prospect Test Well is completed as a producer, TexTerra will be
entitled to production revenues from said well allocable to its 2.5% working
interest at a 72% NRI, and TexTerra will be responsible for 2.5% of the facility
costs, operating costs and expenses allocable to said well.
ARTICLE V. OPERATING AGREEMENTOPERATING AGREEMENT
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5.1 Any well drilled in the Prospect shall be drilled pursuant to the
Operating Agreement attached hereto as Exhibit "C". The AMI of this agreement
shall be the Contract
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Area of said Operating Agreement. In the event of any conflict between the terms
and provisions of this Agreement and the Operating Agreement, this Agreement
shall prevail.
ARTICLE VI. SUBSEQUENT WELL PROPOSALS AND OTHER OPERATIONAL
------------------------------------------------
ACTIVITIES
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6.1 After the said Prospect Test Well is drilled, any party hereto may
propose the drilling of an additional well in the Prospect Area. The proposal
shall be in writing, setting forth the location of the proposed well, depth and
formation(s) to be tested, and a detailed cost estimate. The Non-Proposing Party
or Parties shall have thirty (30) days or such lesser period as is set out by
the Proposing Party in the proposal to the Non-Proposing Party necessitated by
particular circumstances such as rig availability, threatened termination of
leasehold or other relevant factors. In no event shall the period be less than
ten (10) days excluding Saturday, Sunday, and legal banking holidays after
receipt of such proposal, within which to notify the Proposing Party of its
election to participate in the drilling of such well. Failure to so advise the
Proposing Party within the prescribed period shall constitute an election not to
participate in said well.
6.2 If an election is made by all Non-Proposing Parties to participate in
the proposed well, all costs and expenses in accordance with the drilling and
equipping of such well shall be borne on a "heads-up basis" by the participating
parties for their respective interest herein.
6.3 If WhitMar as the Proposing Party and/or if WhitMar, as a Non-Proposing
Party elects to participate in the proposed well, and if there is no third party
operator involved, WhitMar will operate the said well. If WhitMar elects not to
participate in the proposed well, the participating parties shall mutually agree
on an Operator.
6.4 If any party elects not to participate for its proportionate share in
an additional well proposed hereunder, such party relinquishes its leasehold
position in the proposed well with no retention of any beneficial interest
therein, LESS AND EXCEPT any rights earned hereunder in the Prospect Test Well
and leasehold rights covering production therefrom; this being commonly referred
to as an "in or out" provision.
6.5 All other operational activities in the Prospect shall be governed by
the Operating Agreement attached hereto as Exhibit "C".
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ARTICLE VII. AREA OF MUTUAL INTEREST:AREA OF MUTUAL INTEREST LAND PURCHASES
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7.1 In the event any party hereto acquires an Additional Interest covering
lands situated in whole or in part within the Area of Mutual Interest, the
acquiring party (hereinafter referred to as "Proposing Party") shall promptly
notify the non-acquiring party (hereinafter referred to as "Non-Proposing
Party") of such Additional Interest and shall attach a copy of the instrument
evidencing same, together with all title materials in its possession and an
itemized statement of the acquisition costs attributable to each such interest.
Such acquisition costs shall exclude any overhead, financial or other internal
costs incurred by the Proposing Party. The Non-Proposing Party shall have the
option to acquire its proportionate share of the Additional Interest on a "heads
up basis", pursuant to Article 3.1 herein, by notifying the Proposing Party of
its election in writing within fifteen (15) days after receipt of such offer; or
within forty eight (48) hours exclusive of Saturdays, Sundays and legal banking
holidays of receipt of such offer in the event a drilling rig is drilling or
standing by and accumulating charges anywhere within the proposed area in which
the Additional Interest is located after receipt of such offer. Failure of a
Non-Proposing Party to so notify the Proposing Party in the specified time
period shall be deemed an election not to participate. Should the Non-Proposing
Party elect to acquire its proportionate share of said interest, such party
shall, within thirty (30) days of its election pay to the Proposing Party its
share of the acquisition costs or assume its proportionate share of any
contractual commitment necessary to earn such Additional Interest. Upon such
payment, the Proposing Party shall promptly execute and deliver to the
Non-Proposing Party an assignment for its share of such interest, in customary
form and containing a "By, Through and Under" Warranty as to title of the
Additional Interest assigned. If the Proposing Party does not receive timely
payment from the parties who elect to so participate, the Proposing Party may
give such non-paying parties certified written notice that failure to receive
such payment in five (5) days shall be deemed an election by such non-paying
party to not participate in the acquisition of such interest.
7.2 It is understood that any Additional Leasehold Interest acquired in the
form of oil and gas leasehold shall be subject to the royalty and overriding
royalty burdens identified on Exhibit "A". referred to in Article 4.1
hereinabove.
7.3 It is understood and agreed that the terms and provisions of this
Article VII do not
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apply to the acquisition by a party to this Agreement of developed or
undeveloped leasehold in the AMI acquired as a result of a merger,
reorganization, consolidation, or acquisition of all or substantially all of
another company's assets.
ARTICLE VIII. PREFERENTIAL RIGHTS
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8.1 Prior to the drilling of the Initial Prospect Test Well, should
TexTerra desire to sell or farmout all or any part of its leasehold interest
acquired pursuant to this Agreement to any party other than an affiliate of
TexTerra or a party controlled by TexTerra, it shall promptly give written
notice to WhitMar, with full information concerning the proposed sale or
farmout, which shall include the name and address of the prospective buyer or
farmee (who must be ready, willing and able to perform under the terms and
conditions of the sale or farmout), and all other terms of the proposed sale or
farmout. WhitMar shall then have a preferential right for a period of twenty
(20) days after receipt of the notice, to elect to buy or farmin the interest of
TexTerra on the same terms and conditions. For the purposes of this Agreement,
the terms "farmout" and "farmin" shall be deemed as follows: A contract in which
one party agrees to assign to another, in whole or in part, leasehold interests
in certain acreage upon completion of drilling obligations and the performances
of any other covenants and conditions therein contained.
8.2 It is understood that this provision shall not apply in the case of a
merger, consolidation, and/or assignment to a corporate parent, subsidiary or
affiliate that is controlled by TexTerra and/or the principals of TexTerra.
ARTICLE IX. NOTICES AND PROPOSALS
----------------------
9.1 Except as otherwise provided, all notices and proposals that are
required to be given herein shall be given in writing and delivered by first
class, registered or certified mail, recognized courier service, and/or by
telephone facsimile and addressed to the party to which such notice is given as
follows:
TexTerra Exploration Partners, ▇▇ ▇▇▇▇▇▇▇ Exploration Company
▇▇ ▇▇▇▇ ▇▇▇, ▇▇▇▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
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9.2 The time periods specified herein in which a Non-Proposing Party must
make a response shall commence on the date the originating notice or proposal is
received by the Non-Proposing Party. Should the notice period end on a Saturday,
Sunday or legal banking holiday, the notice period shall be extended to end on
the next successive workday.
ARTICLE X. ASSIGNABILITY
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10.1 Prior to the drilling and completion or plugging and abandonment of
the Prospect Test Well, the rights hereby granted to TexTerra may not be
assigned or transferred, in whole or in part, without the express written
consent of WhitMar being first obtained (which consent shall not be unreasonably
withheld). Mergers, consolidation, and assignments to a corporate parent,
subsidiary, investor or affiliate shall not be deemed a transfer or assignment
requiring the consent of the other party; likewise an assignment to any entity,
domestic or foreign, that is controlled by TexTerra and/or the principals of
TexTerra shall not be deemed a transfer or assignment requiring the consent of
WhitMar. After the drilling of the Initial Prospect Test Well, the rights hereby
granted to TexTerra may be freely assigned.
ARTICLE XI. TAXATION
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11.1 This Agreement is not intended to create, and shall not be construed
to create, a relationship, a partnership, or an association for profit between
or among the parties hereto. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this Agreement and operations hereunder shall not constitute a partnership,
if for Federal income tax purposes this Agreement and the operations hereunder
are regarded as a partnership, each party hereby affected elects to be excluded
from the application of all of the provisions of Subchapter "K", Chapter "1",
Subtitle "A", of the Internal Revenue Code of 1986, as permitted and authorized
by Section 761 of the Code and the regulations promulgated thereunder. Any
operator designated under the terms of this Agreement is authorized and directed
to execute on behalf of each party hereby affected such evidence of this
election as may be required by the Secretary of the Treasury of the United
States or the Federal Internal Revenue Service, including specifically, but not
by way of limitation, all of the returns, statements, and the data required by
Federal Regulations 1.761-(2). Should there be any requirement that each party,
hereby affected, give further evidence of this election, each such party shall
execute such
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documents and furnish such other evidence as may be required by the Federal
Internal Revenue Service or as may be necessary to evidence this election. No
party shall give any notices or take any other action inconsistent with the
election made hereby. If any present or future income tax laws of the State or
States in which the area covered by this Agreement is located or any future
income tax laws of the United States contain provisions similar to those in
Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1986,
under which an election similar to that provided by Section 761 of the Code is
permitted, each party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each such
party states that the income derived by such party from operations hereunder can
be adequately determined without the computation of partnership taxable income.
ARTICLE XII. MISCELLANEOUS
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12.1 This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof, shall be governed by and construed in
accordance with the laws of the State of Texas, and may be executed in multiple
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.2 It is understood that if this Agreement is not fully executed by
TexTerra and returned to WhitMar within fifteen (15) days from the date set
forth hereinabove, WhitMar may terminate this Agreement.
12.3 It is understood that the only consequence of WhitMar's failure to
timely commence the drilling of the Prospect Test Well contemplated herein shall
be the ipso facto cancellation of this Agreement in its entirety and WhitMar's
immediate return of all funds paid by TexTerra to WhitMar
IN WITNESS THEREOF, THIS INSTRUMENT IS EXECUTED ON THIS THE 13th
DAY OF July 2006.
WITNESS: WHITMAR EXPLORATION COMPANY
/s/ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
WITNESS: TEXTERRA EXPLORATION PARTNERS, LP
By Terra Resources, Inc., its General Partner
/s/ ▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇ ▇▇▇▇▇▇▇
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By: ▇▇▇ ▇▇▇▇▇▇▇, Managing Director
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