EXHIBIT 10.6
[VERDISYS(TM) LOGO] VERDISYS, INC.
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WEB: ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇ FAX: (▇▇▇) ▇▇▇-▇▇▇▇
LATERAL DRILLING SERVICE AGREEMENT FOR DELHI AND ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
NATURAL GAS SYSTEMS CORPORATION AND VERDISYS, INC.
This Lateral Drilling Services Agreement ("AGREEMENT") is dated as of September
22, 2003, by and between Verdisys, Inc., a California corporation ("VERDISYS"),
and Natural Gas Systems Corporation, a Delaware corporation ("NGS"). NGS seeks
to engage Verdisys to provide development expertise and lateral drilling
services, to NGS in the Delhi Gas Field and adjacent Franklin Properties in
Delhi, Louisiana (combined, the "DELHI FIELD").
1.0 LATERAL DRILLING
1.1 LOCATION OF SERVICES
Verdisys will provide lateral drilling services in ▇▇▇▇▇ in the Delhi Field
identified with greater specificity as to location on the attached Term and
Pricing Invoice, which may be updated by the constituent corporations from time
to time.
1.2 PARAMETERS OF DRILLING
Laterals will be drilled at a depth of no more than 5800' with a horizontal
maximum of 300'.
2.0 SERVICE FEES AND ROYALTY
2.1 LATERAL DRILLING SERVICE FEES
Verdisys Lateral Drilling Services ("DRILLING SERVICES") will be billed at the
time of commencement of drilling at the package rate set forth in the attached
Term and Pricing Invoice. The Drilling Services are for each individual well
site pertaining to this Contract. NGS shall be provided the Drilling Services at
the minimum number of ▇▇▇▇▇ and at the prices identified on the Term and Pricing
Invoice attached hereto. Verdisys will ▇▇▇▇ NGS upon completion of drilling
services at each well, including any additional laterals requested, with payment
due within thirty (30) days of completion of the well services.
2.2 INITIAL PAYMENT AND PROMISSORY NOTE TO SECURE DELHI FIELD
NGS will enter into the purchase and sale agreement for the Delhi Field and
close the purchase of the Delhi Field with an initial payment of $1,000,000.00
no later than September 25, 2003, subject to satisfactory review of the closing
documents and review of the related title opinions and environmental audits, and
shall make an additional payment of $200,000.00 for the Franklin Properties to
be paid no later than October 25, 2003. NGS, as part of the closing, will also
enter into a promissory note for $1,500,000.00 payable in twelve equal monthly
in installments beginning on January 31st, 2004 to the seller of the Delhi Field
(the "NOTE").
2.3 NET PROFITS INTEREST
In addition to the fee for Drilling Services, NGS shall assign to Verdisys a 70%
after-payout interest in the Net Profits from the NGS interests in the Delhi Gas
Properties (the "Verdisys NPI"). NET PROFITS shall be defined to be the net
revenues to the working interests of NGS from the Delhi Field less all gathering
fees, product marketing expenses, if any, lease operating
Service Contract - ▇▇▇▇ and Verdisys, Inc. 1
expenses, ongoing capital expenditures in the normal course of business,
standard ▇▇▇▇▇ overhead charges, other royalties and any other related fees and
expenses. PAY-OUT will be calculated when NGS has received from 100% of the Net
Profits an amount equal to the sum of (i) the Initial Payments, (ii) all
payments to service and retire the related Note, (iii) all capital expenditures
to develop and otherwise exploit and explore the Delhi Field including all
transaction costs of closing, plus (iv) a cash-on-cash return of ten percent
(10%) on (i) through (iii). Either Verdisys or NGS may audit the Net Profits
calculation upon ten days written notice within normal business hours on an
annual basis.
Neither Verdisys nor NGS shall be directly or indirectly liable or obligated in
any way to the other party or to any third party for any financing or other
payment obligations related to the Drilling Services, including principal,
interest, fees or other costs related thereto, except NGS's obligations under
the Note. The obligations of Verdisys are specifically limited to compliance
with the terms of this agreement related to the assignment of funds by Verdisys
to the Drilling Services Financing Escrow Account for the limited time period
described herein.
2.4 OPERATIONS
NGS will take over operations of the Delhi Field, but shall give reasonable
preference to utilization of either the existing operations staff or other staff
knowledgeable of the Delhi Field. NGS shall subcontract to Verdisys the
development operations of the Delhi Field subject to a development plan and
budget approved by NGS. After Payout, NGS and Verdisys shall mutually agree to
any change in the listed operator of the Delhi Field.
3.0 RESPONSIBILITIES OF PARTIES
3.1 VERDISYS SERVICES
Verdisys will provide lateral drilling to a depth of 5800' in the existing well
structure with four (4) laterals to a maximum horizontal distance of 300' from
the center of the well bore.
3.2 DEVELOPMENT BUDGET
NGS and Verdisys shall mutually agree to an annual development budget with
quarterly reviews and adjustments. In the event that a capital expenditure
incremental to the development budget is required, then NGS shall provide an
officer contact that will review for approval such expenditure within 48 hours
of notice with all relevant information. The development budget shall further
specify an amount of nonbudget expenditure within certain types of expenditures
that shall be within the approval authority of Verdisys for the purpose of
timely and reasonable operations.
The determination as to the appropriate number of laterals to be drilled to
obtain maximum return from the well will be made by NGS with the advice of the
on-site consulting geologist (or if not on-site consulting geologist is present
at the site, by any third party consulting geologist mutually acceptable to the
parties).
3.3 NGS SUPPORT
NGS agrees to provide sufficient, free and safe access to the Delhi Field and
the NGS facilities located thereon to permit timely performance of the Drilling
Services and field management. NGS may elect to have Verdisys be responsible for
preworking of the well to the described condition set forth in the "Verdisys
Statement of Work", and such services will be invoiced to the operator as an
operating cost. Verdisys will also provide or subcontract necessary "cleanup"
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of the well and strata as requested by NGS. NGS shall make such requests of
Verdisys with such timing and volume so as to allow efficient operation by
Verdisys.
4.0 OTHER AGREEMENTS
4.1 GUARANTY OF FUTURE SERVICES
Verdisys agrees to provide Drilling Services capacity to NGS for future projects
in the following amounts and on the following schedule at its standard fee:
2004 250 ▇▇▇▇▇
2005 500 ▇▇▇▇▇
2006 750 ▇▇▇▇▇
2007 - 2013 1,000 ▇▇▇▇▇ per year
4.2 RECIPROCAL FIRST RIGHT OF REFUSAL
NGS shall have a thirty (30) day, exclusive first right of refusal to review and
enter into an agreement to participate with Verdisys, subject to financing and
normal due diligence, on all oil and gas field projects developed or acquired by
Verdisys. Verdisys further agrees to advise NGS of anticipated projects at
initiation in order for NGS to timely make its election at the reasonably
earliest time.
Similarly, Verdisys shall have a thirty (30) day, exclusive first right of
refusal to provide Drilling Services on any oil and gas field project developed
or acquired by NGS.
5.0 WARRANTIES AND LIMITATIONS
5.1 TERMS AND CONDITIONS
All warranties related to Verdisys Lateral Drilling Services are contained in
the separate "Service Level Agreement" (SLA) document included with this
Contract.
5.2 PERFORMANCE
Verdisys will provide a minimum of four laterals per well to at a depth not to
exceed 5800' with laterals horizontal distance not to exceed 300'.
5.3 INDEMNIFICATION
Verdisys, at its own expense, shall indemnify, release and hold harmless NGS,
its subsidiaries, affiliates or assignees, and their directors, officers,
employees and agents and defend any action brought against same with respect to
any claim, demand, cause of action, debt, loss or liability, including
attorneys' fees and court costs, to the extent that it is based upon a claim
that the equipment used or Services provided hereunder infringes or violates any
patents, copyrights, trade secrets, licenses, or other property rights of any
third party. NGS may, at its own expense, assist in such defense if it so
chooses, provided that as long as Verdisys can demonstrate sufficient financial
resources, Verdisys shall control such defense and all negotiations relative to
the settlement of any such claim and further provided that any settlement
intended to bind NGS shall not be final without NGS's written consent, which
shall not be unreasonably withheld. In the event that Verdisys cannot
demonstrate sufficient financial resources to provide such defense, the NGS
shall have the right to advance legal expenses and direct such legal defense.
NGS shall promptly provide Verdisys with written notice of any claim which NGS
believes falls within the scope of this paragraph.
Service Contract - NGS and Verdisys, Inc. 3
Verdisys agrees to indemnify, release, defend and hold harmless NGS for any
liability or expense due to claims for personal injury or property damage (i)
arising out of the furnishing or performance of the equipment or the Services
provided hereunder or (ii) arising out of the fault or negligence of Verdisys,
its employees or agents.
6.0 MISCELLANEOUS
6.1 CONFIDENTIALITY
Each party agrees that it shall not disclose to any third party any information
concerning the customers, trade secrets, methods, processes or procedures or any
other confidential business information of the other party which it learns
during the course of its performance of this Contract, without the prior written
consent of such other party. Both parties agree to coordinate and receive
approval from the other party prior to any public announcement related to the
Delhi Field and this Agreement. This obligation will survive the cancellation or
other termination of this Contract.
6.2 GOVERNING LAW
This Contract shall be governed by and construed under the laws of the State of
Delaware or in such other jurisdiction as may be mutually agreed to by NGS and
Verdisys.
6.3 ASSIGNMENT
Either party may assign its rights under this contract with the prior written
notice to the other party, except the Drilling Services undertaken by Verdisys
herein may only be subcontracted or assigned with the prior consent of NGS. This
Contract is binding upon the parties and their successors and assigns.
6.4 AUTHORITY
Each party has all requisite power and authority to execute, deliver and perform
this Agreement. All necessary corporate proceedings of each party have been
taken to authorize the execution, delivery and performance of this Agreement.
This Agreement has been duly authorized, executed and delivered by each party,
constitutes the legal, valid and binding obligation of each party, and is
enforceable in accordance with its terms. Except as set forth elsewhere herein,
no consent, authorization, approval, order, license, certificate, or permit of
or from, or declaration or filing with, any federal, state, local or other
governmental authority or any court or other tribunal is required by either
party for the execution, delivery or performance of this Agreement. No consent
of any party to any contract, agreement, instrument, lease, arrangement or
understanding to which either party is a signer, or to which any of its
properties or assets are subject, is required for the execution, delivery or
performance of this Agreement
6.5 FURTHER ACTIONS
At any time and from time to time, each party agrees, at its expense, to take
such actions and to execute and deliver such documents as may be reasonably
necessary to effectuate the purposes of this Agreement.
6.6 AMENDMENTS
This Agreement sets forth the entire understanding of the parties with respect
to the subject matter hereof and supersedes all existing agreements among them
concerning such subject matter. This Agreement may be amended prior to the
Effective Time (notwithstanding stockholder adoption and approval) by a written
instrument executed by the Constituent Corporations with the approval of their
respective Boards of Directors.
Service Contract - NGS and Verdisys, Inc. 4
6.7 NOTICES
Any notice or other communication required or permitted to be given hereunder
shall be in writing and shall be mailed by certified mail, return receipt
requested, or by Federal Express or similar overnight delivery or courier
service or delivered in person against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement.
Notices hereunder shall be deemed delivered only upon actual delivery against a
signed receipt.
NATURAL GAS SYSTEMS CORPORATION: ▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
VERDISYS: Verdisys, Inc.
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Fax: ______________
6.8 WAIVER
Any waiver by any party of a breach of any provision of this Agreement shall not
operate as or be construed to be a waiver of any other breach of that provision
or of any breach of any other provision of this Agreement. Any waiver must be in
writing and be authorized by a resolution of the Board of Directors of the
waiving party.
6.9 BINDING EFFECT
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Constituent Corporations and their respective successors and assigns and
shall inure to the benefit of each indemnity.
6.10 SEVERABILITY
If any provision of this Agreement is invalid, illegal or unenforceable, the
balance of this Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
6.11 HEADINGS
The headings in this Agreement are solely for convenience of reference and shall
be given no effect in the construction or interpretation of this Agreement.
6.12 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement has been approved by resolutions duly adopted
by the Board of Directors of each party and has been signed by duly authorized
officers of each party, all as of the date first above written.
NATURAL GAS SYSTEMS CORPORATION VERDISYS, INC.
By: ________________________ By: ________________________
Title: _____________________ Title: _____________________
Date: ______________________ Date: ______________________
Service Contract - NGS and Verdisys, Inc. 5
TERMS AND PRICING INVOICE
Effective Date: , 2003
This Lateral Drilling Service Agreement ("AGREEMENT") is entered into by
Verdisys, Inc., a California corporation ("Verdisys") and NATURAL GAS SYSTEMS
CORPORATION, A DELAWARE CORPORATION ("CUSTOMER") as of the Effective Date
indicated above. This Agreement includes and incorporates the Terms and Pricing
Invoice attached hereto and the following Annexes indicated below and executed
by the parties:
[ ] Service Level Agreement (SLA) [ ] Statement of Work
[ ] ___________________________ [ ] ________________________
VERDISYS, INC. NGS ________________________
("VERDISYS") ("CUSTOMER")
BY: ___________________________ BY: ________________________________
NAME: ________________________ NAME: ______________________________
TITLE: ________________________ TITLE: _____________________________
DATE: ________________________ DATE: ______________________________
Verdisys Sales Representative or Agent Information
SALES REPRESENTATIVE OR AGENT PHONE FAX EMAIL
Customer Information: IT IS YOUR RESPONSIBILITY TO NOTIFY VERDISYS OF ANY CHANGE
IN CONTACT INFORMATION.
PRIMARY BUSINESS CONTACT EMAIL PHONE, WITH AREA CODE
MAILING ADDRESS WITH STREET, CITY, STATE, AND ZIP CODE FAX, WITH AREA CODE CELLULAR, WITH AREA CODE
Selected Services:
BASE PACKAGE: 4 1/2 OR 3 1/2 INCH ▇▇▇▇▇ (WITH UP TO four(4) LATERALS PER WELL):
Minimum Number of ▇▇▇▇▇: Fee Per Well Fee per additional laterals:
120 65,000.00 $3,750.00 Up to 12 per zone
ADDITIONAL: 2 7/8 INCH ▇▇▇▇▇ (WITH UP TO four (4) LATERALS PER WELL):
Number of ▇▇▇▇▇: Fee Per Well Fee per additional laterals:
65,000.00 $3,750.00 Up to 12 per zone
PAYMENT SOURCE (IF ANY): not applicable
ADDITIONAL SERVICES: Monthly Bandwidth INSTALLATION FEE PAYMENT TERMS
Customer Fee
Payment Terms
________
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