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EXHIBIT 10.17
PARTICIPATION AGREEMENT
TRAVA FIELD
▇▇▇▇▇ COUNTY, WYOMING
ESSEX ENERGY INC, of ▇▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇.▇., ▇▇▇▇▇▇▇, ▇▇, ▇▇▇ ▇▇▇, ▇▇▇▇▇▇,
(hereinafter referred to as "Essex") and GEOCAN ENERGY INC., of ▇▇▇-▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇, (hereinafter referred to as "Participant"),
hereby agree to enter into an agreement to drill and develop certain lands
located in ▇▇▇▇▇ County, Wyoming, subject to the following terms and conditions:
ARTICLE I.
CONSIDERATION
For and in consideration of US$7,500 due and payable upon execution of this
Agreement, and for and in consideration of the further payment to be provided by
Participant to Essex pursuant to the following paragraph hereof, Essex agrees to
assign to Participant, without warranty of title either expressed or implied,
other than in respect of any person claiming by, through, and under Essex, an
undivided 25% working interest in the Trava Unit as described in Exhibit "A"
attached hereto (hereinafter referred to as the "Farmout Lands"). By acquiring
an undivided 25% working interest in the Farmout Lands, Participant shall hold
an undivided 25% working interest in the producing Trava #3 and Trava #4 ▇▇▇▇▇,
in all field facilities and other tangibles as well as all leases and other
agreements relating thereto.
In addition to the above stipulated cash consideration Participant hereby agrees
to pay as more particularly provided for in Article II hereof, a 50% share of
the cost, risk and expense of drilling, testing, completing and equipping the
initial test well (hereinafter referred to as the "Test Well"), or in the
alternative in the event of a dry hole, Participant hereby agrees to pay an
undivided 50% share of the plugging and abandonment costs of the Test Well.
Costs shall, include without, limitation the preparation of the drill site title
opinion and the payment of surface damages and restoration costs.
Participant will be entitled to recover out of the proceeds of production from
the Test Well, 100% of its drilling, completion and equipping costs, as well as
the US $7,500 referred to in the first paragraph of this Article I, from 50% of
production from the Test Well calculated on a lease net revenue interest of 75%.
Until such time as Participant has recovered the foregoing costs, which, for
greater certainty, shall be net of all royalties ("Payout"), Essex shall retain
a 5% Gross Overriding Royalty (hereinafter referred to "GOR"). At Payout, Essex
has the election of converting its GOR to an undivided 25% working interest in
the Test Well whereupon the 50% working interest of the Participant shall reduce
to an undivided 25% working interest in the Test Well.
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ARTICLE II.
TEST WELL
On or before 120 days from Essex's receipt of an executed counterpart of this
Agreement, Essex hereby covenants and agrees that it shall commence, or cause to
be commenced, the actual drilling of the Test Well to be located at a mutually
agreeable location within the Farmout Lands and shall thereafter diligently and
in a good and workmanlike manner proceed to drill said Test Well to a true
vertical depth of 3800 feet beneath the surface of the earth, or to a depth
sufficient to test the Minnelusa "A" sand as shown in the log of the Rock Oil,
Trava #2 well located in the NwNw of Sec. ▇▇, ▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇, ▇▇▇▇▇ County,
Wyoming between the depths of 3630' and 3680', whichever is the lesser depth,
(hereinafter referred to as "Total Depth"). Participant shall pay to Essex
US$107,350 being Participant's estimated dry hole cost, as more particiularly
set forth in the Authority for Expenditure ("AFE") set out in Exhibit "B"
hereto, which payment shall be made immediately upon Essex confirming to
Participant that Essex has contracted for a rig to drill the Test Well. Essex
covenants and agrees with Participant that it will use such funds solely for the
purpose of drilling and completing or abandoning the Test Well as provided for
herein.
ARTICLE III.
SUBSTITUTE WELL
In the event the Test Well is lost or junked due to mechanical difficulty or
other circumstances, then in lieu of drilling to Total Depth, Participant for a
period of 60 days after rig release from the Test Well shall have the right to
propose, as well as the option to participate in the drilling of a substitute
well at approximately the same location as the abandoned Test Well. In the event
Participant proposes the drilling of or elects to participate in the drilling of
a substitute well, Essex covenants and agrees with Participant that such well
shall be drilled within 60 days of said proposal or said election, receipt of
Participants' estimated dry hole cost and estimated completion costs. All funds
provided under Article II in connection with the Test Well which have not been
expended shall be applied to the costs of drilling and completing or abandoning
the substitute well. Essex shall drill such substitute well in a like manner and
under the same terms and conditions to the depth specified for the Test Well,
and the term "Test Well" as used herein shall be construed to include the
substitute well drilled under the terms of this Agreement. In the event that a
substitute well is not proposed or the Participant elects not to timely
participate in the drilling of a substitute well, Essex shall no longer be
required to deliver the assignment of interest to Participant heretofore
mentioned and Participant shall forfeit the sum paid pursuant to Article I
hereof as liquidated damages and not as a penalty, whereupon this Agreement
shall be of no further force and effect with respect to Participant and
whereupon all funds provided under Article II in connection with the Test Well
which have not been expended shall be repaid by Essex to Participant.
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ARTICLE IV.
CASING POINT, COMPLETION ELECTION AND SUBSEQUENT OPERATIONS
After the Test Well has reached Total Depth, Essex or its designee shall test
all prospective formations in accordance with prudent operating standards and in
accordance with such standards as are applicable under the Operating Agreement
(as hereinafter defined). "Casing Point" shall occur and is defined as that
point in time when all tests, logs, coring and other evaluations have been
completed and the borehole is in the condition to run production casing. In the
event the Test Well is not completed and is plugged and abandoned as a dry hole,
Participant shall bear 50% of all actual costs in connection with the drilling,
testing, plugging and abandonment of the Test Well. Alternatively, should a
completion attempt be made upon the Test Well, Participant shall bear 50% of all
subsequent risks, costs and expenses in connection with such completion attempt
including equipping. Should Participant elect pursuant to the Operating
Agreement to participate in a completion attempt on the Test Well, Participant
shall pay its share of the estimated completion costs as set forth in the AFE
within 10 days from the date Participant elects to participate in such
completion attempt. Notwithstanding the non-consent provisions contained in the
Operating Agreement, any party who elects not to participate in the completion
attempt on the Test Well shall be deemed to have forfeited to the consenting
parties all of such non-consenting party's interest in the Test Well and the
Farmout Lands. Furthermore, after Participant has earned an interest in the
Farmout Lands hereunder, in the event Participant elects to participate in a
subsequent well or ▇▇▇▇▇, all such costs shall be borne by Essex and Participant
in proportion to their respective working interests therein.
ARTICLE V.
OPERATING AGREEMENT
All operations within the Farmout Lands and the AMI Area (as hereinafter
defined) shall be conducted in accordance with the terms of this Agreement and
an Operating Agreement substantially in the form as set out in Exhibit "C"
attached hereto (the "Operating Agreement") which shall name Essex or its
designee as operator. In the event of a conflict between the terms of this
Agreement and the Operating Agreement, the terms of this Agreement shall prevail
and control.
ARTICLE VI.
WELL INFORMATION
Participant or its representatives shall have access at its own risk and at all
times to the location and ▇▇▇▇▇▇▇ floor during the drilling of any well
hereunder. Participant shall further be entitled to all information concerning
any well drilled hereunder on the Farmout Lands and Essex shall provide daily
drilling reports to Participant relating thereto, unless Participant is
delinquent in the payment of its joint interest ▇▇▇▇▇▇▇▇ to Essex for a period
greater than 30 days in which event Essex at its sole option may withhold any
information to Participant.
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ARTICLE VII.
AREA OF MUTUAL INTEREST
Essex and Participant hereby agree to establish an Area of Mutual Interest
("AMI") comprised of Sections 15, 16, 17, 20, 21, 22, 27, 28, and 29 of Township
52 North and Range 67 West, ▇▇▇▇▇ County Wyoming (the "AMI Area"). In the event
that any party hereto hereafter acquires an oil and gas leasehold interest, or
contractual right to earn an oil and gas leasehold interest, covering lands
lying in whole or in part within the AMI Area, the acquiring party shall, in
writing, offer to assign, without warranty of title, to the non-acquiring
parties within fifteen (15) days of purchase or acquisition, the entire
proportionate interest which the non-acquiring parties are entitled to acquire
in the AMI Area under this Agreement. Such notice shall include a copy of the
lease or contract, paid draft and other pertinent and available data. Each
non-acquiring party shall, within fifteen (15) days after receipt of such offer,
elect whether to purchase such interest by paying the acquiring party such
non-acquiring party's proportionate part of the actual costs and expenses, if
any, incurred by the acquiring party in acquiring such lease or contract.
Failure of any non- acquiring party to timely notify the acquiring party shall
be deemed as an election by such non- acquiring party not to acquire its ratable
interest in the leasehold interest offered. When any non- acquiring party elects
not to acquire its proportionate interest from the acquiring party, such non-
acquiring party's interest in such lease or contract, which is the subject of
such offer shall be wholly owned by the acquiring party and shall not be subject
to this Agreement. If the acquisition consists of a farmout or agreement to earn
a lease, a party electing to participate must also agree to participate actively
in all operations necessary to comply with the provisions of such agreement. If
any well drilled under this Agreement qualifies as an earning well under the
terms of a farmout, leasehold rights earned thereby shall be owned solely by
those parties who participated in the drilling and completion of such earning
well. Any party hereto which was a non-consenting party in the drilling and/or
completion of such earning well shall own no interest in such leasehold rights.
Unless otherwise mutually agreed, this AMI shall terminate 6 months after the
expiration of the last lease within the AMI Area. All interests under this
paragraph shall be offered on an after casing point basis.
ARTICLE VIII.
MISCELLANEOUS
A. Article Headings
The article headings inserted in this Agreement are utilized solely for
reference purposes and do not constitute substantive matters to be
considered in construing the terms of this Agreement.
B. Time is of the Essence
It is specifically understood and agreed that time is of the essence
hereunder.
C. Liability
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It is not the purpose of this Agreement to create a partnership, mining
partnership, partnership for a specific purpose, joint venture, or any
other relationship, which would render the parties liable as partners,
associates, or joint venturers. Further, each of Essex and Participant
specifically agrees and covenants that it shall not engage in any
conduct which would violate state or federal securities laws,
regulations or rulings.
D. Entire Agreement
This Agreement, when joined by a fully executed Operating Agreement,
shall constitute the entire Agreement between the parties hereto
relative to the Farmout Lands and the AMI Area and supersedes any prior
agreements, promises, negotiations or representations, whether written
or oral, not expressly set forth in this in this Agreement. No
variations, modifications, or changes herein or hereof shall be
effective unless evidenced by written documents by both parties hereto.
E. Binding Agreement
The terms, covenants and conditions of this Agreement shall be binding
upon, and shall enure to the benefit of, the parties hereto and to
their respective heirs, executors, administrators, successors and
assigns, and such terms, covenants and conditions shall be deemed as
covenants running with the lands and leases covered hereby. It is
stipulated, however, that no assignment or transfer by Participant,
however accomplished, of any right, title, or interest acquired
hereunder shall relieve such party of any liability or obligation
herein assumed, except with written consent of the other parties.
F. Governing Law
The laws of the State of Wyoming shall govern this Agreement.
G. Further Assurances
The parties hereto shall execute, acknowledge and deliver such
instruments and take such actions as may be reasonably necessary to
fulfill their respective obligations under this Agreement. Essex hereby
covenants and agrees that it shall promptly execute, acknowledge and
deliver to Participant all transfers, assignments, novations and other
conveyances of title to the interest in and to the Farmout Lands earned
by Participant hereunder following the earning of an interest therein
by Participant.
H. Acceptance
If the foregoing fully sets forth your understanding of our agreement,
please so indicate by signing in the space provided below and return
one (1) fully executed original hereof on or before January 25, 2000.
DATED AND EFFECTIVE THIS ___________DAY OF _________, 2000.
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Essex Energy Inc For: GEOCAN Energy Inc.
By:_______________________ By: _____________________________
▇▇▇▇ Street, President Title: ___________________________