FARMOUT AND AMI AGREEMENT GEARY PROSPECT NATRONA AND CONVERSE COUNTIES, WYOMING
▇▇▇▇▇
PROSPECT
NATRONA
AND CONVERSE COUNTIES, WYOMING
This
Farmout and AMI Agreement (“Agreement”) dated and effective as of _____________,
2008 (“Effective Date”), is made by and between TYLER
ROCKIES EXPLORATION, LTD.
(“FARMOR”), a Texas limited partnership, whose address is ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ and AMERIWEST
ENERGY CORP.
(“FARMEE”), a Nevada corporation authorized to do business within the State of
Wyoming, whose address is ▇▇▇ ▇▇▇▇ ▇▇▇,
▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇. FARMOR hereby agrees to assign to FARMEE all of
FARMOR’S leasehold interest in and to certain leases, subject to the rights and
reservations set out herein.
I.
FARMOUT AREA
A. Lands
and Leases. The
“Farmout Area” is comprised of all of FARMOR’S present leasehold interest in and
to the lands and oil and gas leases described on Exhibit “A-1” (“Leases”) and
the area outlined and labeled as the “AMI” on the plat attached hereto as
Exhibit “A-2”, insofar as said Leases cover oil or gas and all associated liquid
or liquefiable hydrocarbons. To the extent any oil and gas leases within the
AMI
are obtained by either party under the provisions of Article X during the AMI
Term, as defined in Article X, then subject to the terms of this Agreement,
those oil and gas leases shall also be considered part of the Farmout Area
and
included as Leases.
B. Renewals
or Extensions of Leases. As
long
as this Agreement remains in force and effect as to all or any part of the
Farmout Area, any new Lease or a renewal or extension of a Lease, whether
acquired by FARMEE or by FARMOR, shall be subject hereto, the same as if such
new, renewal or extension were described in Exhibit “A-1” and the lands covered
thereby fell within the Farmout Area. Should any Lease covered by the Agreement
contain greater burdens including, but not limited to, royalties, overriding
royalties and production payments after obtaining a new Lease or being renewed
or extended than it contained prior to said new, renewal or extension, then
that
portion of the burden on the new, renewed or extended Lease which is greater
than the burden that existed prior to said new, renewal or extension (exclusive
of the interests reserved by the parties hereunder) shall be borne entirely
by
the party creating it.
II.
FARMOUT ▇▇▇▇▇
A. Initial
Well.
On or
before May 1, 2009 (“Spudding Deadline”), FARMEE shall commence or cause to be
commenced the actual drilling (“spudding”) of a well, hereinafter called the
“Initial Well,” at a location of FARMEE’S choice within the Farmout Area. The
location selected by FARMEE will be a legal location or an exception location
approved by the governmental agency authorized to issue drilling permits.
Subject to the provisions of this Agreement, in the event that FARMEE fails
to
timely commence the Initial Well and/or fails to drill said well to the Contract
Depth, as defined below, then this Agreement shall automatically terminate,
and
FARMEE shall have no rights to earn any leasehold interest in and to the Farmout
Area from FARMOR.
B. Contract
Depth. The
Initial Well shall be drilled in a good and workmanlike manner and with due
diligence to at least the Dakota formation hereinafter called “Contract Depth”.
Each Additional Well shall be drilled to the depth and formation selected by
FARMEE in its sole discretion, but at such time as FARMEE has drilled a total
of
three (3) ▇▇▇▇▇ to at least the Contract Depth and regardless of whether said
▇▇▇▇▇ have been completed, then the assignment of fifty percent (50%) of
FARMOR’S interest the Leases within the Farmout Area shall be conveyed to FARMEE
as stated in Article IV.E.
C. Additional
▇▇▇▇▇.
Each
well spudded after the Initial Well shall be referred to as an “Additional
Well”. FARMEE may elect to drill Additional ▇▇▇▇▇ at locations of FARMEE’S
choice, but until the assignment of fifty percent (50%) of FARMOR’s interest in
the Leases within the Farmout Area as stated in Article IV.E., each Additional
Well must be spudded not later than one-hundred twenty (120) days after the
rig
release of the previous well. There shall be no requirement to attempt a
completion of the Initial Well or any Additional Well. Failure of FARMEE to
commence any ▇▇▇▇▇ hereunder as required shall not result in any penalty to
FARMEE other than the termination of FARMEE’S right to earn additional interests
in the Leases which have not been previously earned pursuant to this
Agreement.
D. Time
Between Spudding and Completion/Abandonment.
After
timely spudding any well hereunder, FARMEE will proceed to drill said well
in a
workmanlike manner without cessation of operations until FARMEE completes a
well
capable of producing oil and/or gas in paying quantities or until FARMEE plugs
and abandon the well within a reasonable time. For the purpose of calculating
the number of days between ▇▇▇▇▇, completion for any well hereunder shall be
the
date the drilling rig is released.
E. Substitute
Well.
If,
prior to reaching Contract Depth in any well which is being drilled pursuant
to
this Agreement, FARMEE encounters a formation or other physical condition in
the
well which renders further drilling impracticable, FARMEE may plug and abandon
such well and spud another well, referred to herein as a Substitute Well. The
Substitute Well shall be spudded at a location of FARMEE’S choice within 60 days
after the date of abandonment (being the date the drilling rig is released)
of
the well for which it is a substitute. The Substitute Well shall be drilled
subject to all provisions of this Agreement applicable to the abandoned well
for
which it is a substitute and reference to the Initial Well or Additional ▇▇▇▇▇
shall include its Substitute Well, if any.
F. Cost
and Liabilities.
Any
well drilling operations conducted pursuant to this Agreement, including without
limitation, drilling and completion or plugging and abandonment operations,
by
FARMEE shall be free of any costs or liability to FARMOR.
G. Assignment
of Drilling Location.
Upon
written request from FARMEE and if required by any state or federal governmental
agency having jurisdiction over the granting of drilling permits, FARMOR agrees
to assign to FARMEE those rights listed in Article IV, below, in the Leases
covering a forty (40) acre drilling location. Such assignment shall be done
so
as to not cause FARMEE material delays in obtaining the drilling permit and
of
spudding a well hereunder. In the event FARMEE fails to earn an assignment
pursuant to this Agreement for such well that FARMOR executed a drilling
location assignment, then FARMEE agrees to reassign to FARMOR all rights
previously assigned to it in that drilling location assignment, without creating
any encumbrances or additional burdens thereon.
H. Recognition
of Force Majeure. The parties acknowledge that circumstances beyond the
control of either party may limit or delay strict compliance with the deadlines
established under this Article, and agree that the provisions of Article XII.,
Force Majeure, may operate to supersede said deadlines.
III.
WELL DATA, ACCESS TO RIG FLOOR, AND TITLE
A. Tests.
During
the drilling of any well pursuant to this Agreement, FARMEE may test all oil
and/or gas shows encountered in the formation FARMEE may earn its interest
in
accordance with appropriate operating practices.
B. Access
to Rig Floor.
FARMOR
will have access, at its sole cost, risk and expense, to the rig floor in
connection with ▇▇▇▇▇ drilled by FARMEE so long as FARMEE is not hindered in
the
performance of its operations and duties; provided that provisions of this
Agreement pertaining to FARMEE’s compliance, indemnification, and insurance
requirements shall not apply with regard to FARMOR’s access to the rig
floor.
C. Ownership
of Data.
All
data, including without limitation test results, logs and cores, including
those
things contained in Exhibit “B” that are generated in the course of drilling,
testing and completing ▇▇▇▇▇ hereunder by FARMEE will be furnished to FARMOR.
All data furnished to FARMOR shall be treated as confidential, and FARMOR shall
not disclose or transmit such data to third parties.
D. Title. At
the
execution of this Agreement, FARMEE has remitted to FARMOR the sum of Fifty
Thousand Dollars ($50,000.00), which reimburses FARMOR for the costs of
conducting land brokerage services and title examination within the Farmout
Area, the product of which is already in the possession of FARMEE to use in
its
performance of this Agreement. On FARMEE’S request, FARMOR will provide FARMEE
with copies any additional title opinions and other title materials in its
possession, custody or control to which FARMEE does not already possess. FARMOR
will assume no responsibility for the accuracy of any such opinions and
materials and FARMEE may rely on any abstracts and title materials furnished
at
FARMEE’S own risk. On FARMOR’S request, FARMEE will provide FARMOR with copies
of all additional title opinions and curative materials pertaining to the
Farmout Area that FARMEE obtains during this Agreement.
IV.
ASSIGNMENT OF INTERESTS
A. Prerequisites
to Assignment.
Unless
otherwise provided in Article II.G., above, or Article IV.E., FARMEE shall
be
entitled to an assignment on the form substantially identical to that which
is
contained in Exhibit “C”, attached hereto, which will be prepared by FARMOR and
delivered to FARMEE within thirty (30) days after receipt of a request for
same,
conveying FARMOR’S leasehold interest in the Farmout Area as set forth in this
Article IV upon:
|
(1)
|
FARMEE
drilling to at least the Contract Depth and completing any well provided
for herein as a well capable of producing oil and/or gas in paying
quantities, and
|
(2) Creation
of a production unit around any well provided for herein in accordance with
Article IV.Q.
B. Effective
Date.
The
effective date of any assignment made hereunder shall be the date of spudding
the well.
C. No
Warranty.
Any
assignment made hereunder shall be without warranty of title, express or
implied, except by, through and under FARMOR, but not otherwise.
D. Taxes.
FARMEE
shall pay all production, severance, and ad valorem taxes assessed against
the
Leases conveyed to FARMEE under this Agreement on and after the effective date
of the assignment. Ad valorem taxes shall be prorated between the parties for
the year in which the conveyance is effective and in the year of any
re-assignment or reversion. Any increase in ad valorem taxes assessed against
the Leases conveyed to FARMEE as a result of ▇▇▇▇▇ drilled hereunder shall
be
for FARMEE’S account.
E. Oil
and Gas Rights Assigned.
Any
assignment made hereunder shall convey all of the right, title and interest
of
FARMOR in the oil, gas, and associated liquid or liquefiable hydrocarbon rights,
only, contained in those Leases comprising the Farmout Area, insofar as said
Leases are contained within the surface boundaries of a production unit formed
around the well (giving credit for any drilling location assignment made
pursuant to Article II.G.) entitling FARMEE to said assignment, however, in
the
event FARMEE drills its third well to at least the Contract Depth, then at
that
time, FARMEE shall have earned, and FARMOR shall also immediately assign to
FARMEE, an undivided fifty percent (50%) of FARMOR’S interest in all of the
remaining Leases within the Farmout Area that have not previously been earned
by
FARMEE, without depth limitation. The assignments for the three ▇▇▇▇▇ shall
be
made by FARMOR on a well-by-well basis without depth limitation.
F. Reservation
of Overriding Royalty.
In any
assignment made hereunder for units of each earning well, FARMOR will reserve
an
overriding royalty interest on that portion of the oil and gas, including
condensate, produced and saved from or allocated to FARMOR’S interest in the
Leases that is assigned to FARMEE, equal to the difference between 25% of 8/8ths
and all payments out of production for which FARMOR is responsible as of the
date of this Agreement (including but not limited to royalties, overriding
royalties, and production payments). It is the intent hereof for FARMOR to
deliver to FARMEE a 75% of 8/8ths net revenue interest in each Lease
proportionately reduced to FARMOR’S interest in the Leases. Said overriding
royalty shall be free and clear of all costs of exploring, drilling, producing,
separating, compressing, gathering, transportation, treating and marketing,
but
shall bear its part of gross production taxes and ad valorem taxes. This
overriding royalty shall be subject to the possibility of converting to a
working interest as prescribed by Article IV.J., below. Notwithstanding anything
contained herein to the contrary, FARMOR shall not receive or retain an
overriding royalty interest by this provision for those Leases taken by FARMEE
pursuant to Article XII.A., below.
G.
Proportionate
Reduction.
If
FARMOR owns less than the entire undivided leasehold estate in the Leases or
if
FARMOR’S Leases cover less than the entire fee simple estate, whether or not
such lease purports to cover the whole or fractional interest, then the
interests reserved to FARMOR therein shall be proportionately reduced to accord
with the interest assigned to FARMEE.
H. New
Leases and Lease Extensions and Renewals.
FARMOR’S reserved overriding royalty and all other rights and interests allowed
under this Agreement to be retained in any assignment made pursuant hereto,
shall apply to any renewal, extension or new lease (if, in the case of a new
lease, it is acquired to replace an expired Lease that had been previously
included in this Agreement) of any Lease which is subject to this Agreement,
whether taken or renewed in its entirety or in part, and which is acquired
by
FARMEE or on its behalf prior to or within one (1) year after the expiration,
termination, release, or abandonment of said Lease, except to the extent that
any expiration, termination, release or abandonment is caused by the acts or
omissions of FARMOR. Should such a lease contain a greater burden (including
but
not limited to royalties, overriding royalties and production payments) after
being taken a new, renewed or extended than it contained prior to said new,
renewal or extension, that portion of the burden on the new, renewed or extended
lease which is greater than the burden that existed on the date of this
Agreement, exclusive of the interests reserved by FARMOR hereunder, shall be
borne entirely by the party creating it.
I. Operating
Agreement. Upon
FARMEE earning an assignment from FARMOR, then the rights and obligations of
the
Parties for the earning well and the area so assigned for that earning well
shall be governed by an Operating Agreement, the form of which is attached
hereto as Exhibit “D”, except to the extent this Agreement modifies or amends
the terms of such Operating Agreement. Separate,
but identical, Operating Agreements shall govern for each well and its area
assigned pursuant to this Agreement. FARMEE shall be designated the “Operator”
for each Operating Agreement created by this Agreement.
J. Conversion
of Overriding Royalty.
In any
assignment made hereunder, FARMOR will reserve the option, to be exercised
at
Payout on a well-by-well basis, as hereinafter defined, to convert its reserved
overriding royalty to a 25% working interest at an 84.50% net revenue factor,
being a 21.125 net revenue interest, in the leasehold estate assigned to FARMEE
by FARMOR, subject to proportionate reduction, together with a like interest
in
the well which reached Payout, casing, surface equipment, and all personal
property used in connection therewith that is attributable to said leasehold
estate, free of any payments out of production created since the date of this
Agreement (including but not limited to overriding royalties and production
payments).
K. Notification
of Payout and Election.
FARMEE
shall notify FARMOR, in writing, when Payout is reached as to any well provided
for herein and shall furnish FARMOR with all necessary reports evidencing
Payout. FARMOR shall have thirty (30) days after receipt of such notification
and reports to provide its written election to convert its overriding royalty.
If FARMOR fails to timely notify FARMEE of its election, FARMOR shall be deemed
to have elected to not
convert
its overriding royalty to a twenty-five percent (25%) working interest. A
conversion election shall be effective as of 7:00 A.M. on the first day of
the
month following the month Payout occurs. Within forty-five (45) days after
notification of FARMOR’S election to convert its overriding royalty to a working
interest, FARMEE shall deliver to FARMOR an assignment and ▇▇▇▇ of sale, to
evidence the conversion to a leasehold interest. If FARMOR elects to convert
its
overriding royalty interest to a leasehold interest, such interest will be
subject to an Operating Agreement in the form attached hereto as Exhibit “D”,
which will be conformed to identify the Contract Area, being the proration
unit
for said well.
L. Payout.
Payout
shall be on a well-by-well basis and shall occur when the Net Proceeds, as
hereinafter defined, from the sale of all production from the well which
entitled FARMEE to the assigned lease premises equals the total tangible and
intangible costs of drilling, equipping (an oil well through the oil storage
tanks and a gas well through the point of sale), testing, completing, and
operating said well, as such costs are attributable to the interest
assigned.
M. Net
Proceeds.
“Net
Proceeds” is defined as the gross proceeds received from the sale of production
attributable to said Well or, if not sold but purchased or used by FARMEE off
the premises, the market value in the field of such production, less severance,
production, or other taxes payable on said production, shut-in royalties, and
payments out of production (including but not limited to royalties, overriding
royalties, and production payments) in effect on the effective date of this
Agreement, and the overriding royalties reserved herein. Market value as used
in
this paragraph shall mean the price which a producer would reasonably expect
to
receive from a third party under a new sales contract entered into during the
accounting period in which oil or gas was produced and purchased or used by
FARMEE.
N. Payout
Period.
The
period during which the Net Proceeds are to be applied against the costs is
called the “Payout Period”. Charges and expenditures during the Payout Period
shall be made in accordance with the provisions in the Accounting Procedure
attached hereto as part of Exhibit “D”. Nothing herein, or in said Accounting
Procedure, shall be construed as constituting joint operations during said
period. Well costs as referenced in Article IV.K., above, will not include
FARMEE’S ▇▇▇▇▇ overhead charges or salaries of FARMEE’S employees. Within 90
days after completion of any well provided for herein as a well capable of
producing oil and/or gas in paying quantities, FARMEE shall furnish the
cumulative costs of drilling, completing, and equipping said well as a producer.
Quarterly thereafter during the Payout Period, FARMEE shall furnish reports
showing operating expenses, production volumes, and proceeds from the sale
of
FARMEE’S share of production from the well for the preceding month.
O. Audit.
FARMOR
shall have the right to audit FARMEE’S records pertaining to all costs of any
well during drilling, Payout Period, and subsequent to Payout Period, in
accordance with the audit provisions of the Accounting Procedure attached as
part of Exhibit “D”.
P. Second
Well in Unit Prior to Payout of First Well.
If
FARMEE drills another well within a unit in which FARMEE by a prior well drilled
and earned a portion of the Farmout Area, but which first well has not yet
paid
out, then FARMOR will retain in such other well an overriding royalty and the
separate right to convert to a working interest at Payout in that other well,
separate and a part from the well earning the Leases within that
unit.
Q. Proration
Units. Subject
to requirements of the state or federal governmental agencies, the shape of
any
production unit for any successfully completed well shall be mutually determined
by FARMOR and FARMEE, but shall not exceed in area of 40 acres. FARMEE
shall be solely responsible for obtaining any agreements that may be required
from mineral and/or royalty owners for the formation of any units including
such
Leases, and that, to the extent that FARMEE fails to obtain such consents,
FARMEE shall bear any additional burdens on production, and any other
obligations or liabilities, resulting from such failure.
R. Cooperation
with Pooling and Unitization for ▇▇▇▇▇.
FARMEE
has the ongoing right to pool or unitize any part of the land within the Farmout
Area in order to establish production units for ▇▇▇▇▇ drilled hereunder with
other lands or interests when in FARMEE’S judgment it is necessary or advisable
in order to promote conservation, to properly develop or operate the land and
interests for such ▇▇▇▇▇. FARMOR agrees to cooperate in any such pooling and
unitization within the Farmout Area, including the execution and delivery of
documents necessary to effect said efforts.
V.
WELL TAKEOVER AND ABANDONMENT
There
is
no Article V. Well Takeover and Abandonment provision.
VI.
LEASE OBLIGATIONS
A. Surface. FARMEE
shall comply with all Lease provisions, express and implied by law pertaining
to
surface use, shall conduct its operations as would a reasonably prudent
operator, and shall restore the surface to its original condition insofar as
practicable, or as required by the applicable Lease provisions.
B. Responsibility
for Payments.
(1) Delay
Rentals Prior to Assignment.
As long
as this Agreement is in force, FARMOR shall use its best efforts to pay any
rental payments necessary to perpetuate the Leases subject to this Agreement
and
any payments provided for in any lease subject hereto to renew or extend such
lease. FARMEE agrees to promptly reimburse FARMOR for 100% of such rentals.
FARMEE’S obligation to reimburse FARMOR for such payments shall continue so long
as the lease for which payment is made is subject to the Agreement or assignment
unless at least 45 days prior to the date such payment is due, FARMEE notifies
FARMOR that FARMEE wishes to terminate the Agreement as to such lease or, if
a
lease has been assigned to FARMEE, that FARMEE wishes to reassign the lease
to
FARMOR.
(2) Shut-in
Payments Prior to Assignment.
In the
event it appears that FARMEE will complete a gas well and shut in that well
which requires the payment of shut-in payments prior to an assignment being
due
to FARMOR, then FARMEE shall give FARMOR immediate notice that timely shut-in
payments must be made. FARMOR shall then use its best efforts to pay any shut-in
payments due prior to assignment that may be necessary to perpetuate the
Leases.
(3) Confirmation
of Payment. Within
fifteen (15) days from the request of FARMEE, FARMOR shall provide such
documentation as is necessary to confirm timely payments by FARMOR.
C. Royalties
and Other Lease Burdens. FARMEE
shall be responsible for making all payments out of production attributable
to
the assigned lease premises, including but not limited to royalties, overriding
royalties, and production payments, beginning with the date of first production
from any well drilled on the assigned lease premises or land pooled therewith
and at all times thereafter. Such payments shall be made in accordance with
the
Leases or other instruments creating such payments and obligations, including
this Agreement.
VII.
COMPLIANCE AND INDEMNITY
A. Disposal
of Wastes and Cleanup. FARMEE
shall dispose of or discharge any waste from its operations (including but
not
limited to produced water, drilling fluids and other associated wastes) in
accordance with applicable local, state and federal laws, rules, and
regulations. To the extent required by law or by prudent oil field operation,
FARMEE shall keep records of the types, amounts and location of wastes that
are
disposed of onsite and those wastes relating to its operations hereunder that
are disposed of offsite. When and if any Lease or an interest therein which
is
earned and assigned in accordance with this Agreement is terminated, FARMEE
shall take whatever remedial action on the property is necessary to meet any
local, state, or federal requirements directed at protecting human health and
the environment at that time.
B. Compliance
with Laws, Release, and Indemnity
(1) FARMEE
SHALL COMPLY WITH ALL VALID LOCAL, STATE AND FEDERAL LAWS, RULES AND
REGULATIONS, INCLUDING BUT NOT LIMITED TO THOSE DIRECTED AT PROTECTING HUMAN
HEALTH AND THE ENVIRONMENT, SUCH AS (BY WAY OF EXAMPLE AND NOT LIMITATION AND
INCLUDING ALL AMENDMENTS) THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION
AND LIABILITY ACT OF 1980, THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS MATERIALS
TRANSPORTATION ACT, THE TOXIC SUBSTANCES CONTROL ACT, AND THE CLEAN AIR
ACT.
(2) FARMEE
ACKNOWLEDGES THAT THE LAND SUBJECT TO THIS AGREEMENT MAY HAVE BEEN USED FOR
OIL
AND GAS OPERATIONS IN THE PAST. FARMEE AGREES THAT ANY CONVEYANCE OF INTERESTS
HEREUNDER SHALL BE ON AN "AS IS" BASIS.
(3) FARMEE
SHALL RELEASE, DEFEND, INDEMNIFY AND HOLD FARMOR HARMLESS FROM ANY AND ALL
DAMAGES, EXPENSES (INCLUDING COURT COSTS AND ATTORNEY'S FEES), CIVIL FINES,
PENALTIES AND OTHER COSTS AND LIABILITIES (HEREINAFTER COLLECTIVELY REFERRED
TO
AS "CLAIMS") ARISING, ASSERTED, COMMENCED OR MADE ON OR AFTER THE EFFECTIVE
DATE
OF THIS AGREEMENT THAT RESULT FROM FARMEE’S ACTS AND OMISSIONS (OR THOSE OF
OTHER PARTIES ON YOUR BEHALF) IN CARRYING OUT OPERATIONS UNDER THIS AGREEMENT
AND/OR ON LEASES CONVEYED UNDER THIS AGREEMENT. THE ABOVE CLAIMS SHALL INCLUDE,
BUT NOT BE LIMITED TO, THOSE ASSERTED OR BROUGHT BY ANY PARTY (INCLUDING,
WITHOUT LIMITATION, FARMEE’S OR FARMOR’S, CONTRACTORS, ANY LANDOWNERS OR
INDIVIDUALS, LOCAL, STATE OR FEDERAL GOVERNMENTAL BODY OR AGENCY) FOR DEATH,
PERSONAL INJURY, DAMAGE TO PROPERTY OR NATURAL RESOURCES, AND/OR FAILURE TO
COMPLY WITH THE EXPRESS OR IMPLIED TERMS OF A MINERAL LEASE. SUCH CLAIMS SHALL
ALSO INCLUDE ANY THAT ARISE OUT OF THE PLUGGING AND ABANDONING OR FAILURE TO
PLUG AND ABANDON ANY ▇▇▇▇▇ ON OR IN LANDS COVERED HEREBY (WHETHER PLUGGED AND
ABANDONED PRIOR TO OR AFTER THE EFFECTIVE DATE OF THIS AGREEMENT) OR ARISING
OUT
OF THE REMOVAL OF OR FAILURE TO REMOVE ANY PIPELINE OR OTHER FACILITIES, OR
ON
ACCOUNT OF THE PRESENCE, DISPOSAL, AND/OR RELEASE OF ANY MATERIAL OF ANY KIND
IN, ON OR UNDER THE LANDS COVERED HEREBY (WHETHER OR NOT SUCH MATERIAL WAS
PRESENT PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT).
THE
TERMS OF THIS PROVISION (3) SHALL APPLY NOTWITHSTANDING THE STRICT LIABILITY,
JOINT NEGLIGENCE OR FAULT OF FARMOR OR ANY PARTY OR PARTIES. THE PROVISIONS
SET
FORTH IN THIS ARTICLE VII. SHALL SURVIVE TERMINATION OF THIS
AGREEMENT.
VIII.
FAILURE TO PERFORM
A. Operations.
In
addition to the rights granted to FARMOR in other provisions of this Agreement,
in the event of FARMEE’S failure to commence or complete the drilling of the
Initial Well or any Additional Well in the time and manner herein provided,
this
Agreement shall terminate as to all of the Farmout Area not previously earned
by
FARMEE; however, FARMEE shall continue to be responsible for all obligations
accrued by FARMEE prior to such default.
B. Notice
of Termination.
FARMOR
will give FARMEE written notice of termination, however in the event FARMEE
fails to commence the drilling of the Initial Well or any Additional Well,
termination will occur automatically and no such notice will be required to
effectuate the termination of FARMEE’S rights under this
Agreement.
IX.
INSURANCE AND FINANCIAL RESPONSIBILITY
Prior
to
the commencement of any drilling operations on the Farmout Area, and for as
long
as this Agreement remains in effect, FARMEE shall, at its own expense, provide
and maintain in force the following insurance covering its interest in the
Farmout Area:
(1) Worker’s
Compensation Insurance and Employer’s Liability Insurance as may be required by
the laws of the state deemed by law to govern operations hereunder;
and
(2) Comprehensive
General Liability Insurance covering both bodily injury liability and property
liability with a Combined Single Limit of $500,000 for each occurrence;
and
(3) Comprehensive
Automobile Public Liability and Property Damage Insurance with a combined single
limit of $500,000 for each occurrence; and
(4) Catastrophe
Comprehensive Liability Insurance with minimum limits of not less than
$1,000,000.
X.
AMI
A. AMI. By
this
Agreement, the parties hereby create an area of mutual interest (“AMI”) being
the same area and depths as the Farmout Area, whereby the Parties shall jointly
develop the Leases pursuant to this Agreement. The provisions of Article II,
above, control the parties’ actions related to FARMEE drilling and earning
interests held by FARMOR as of the Effective Date within the Farmout Area and
the AMI. The terms of this Article X shall apply during the AMI Term to those
matters between the parties relating to leased areas of the Farmout Area other
than those earned by FARMEE as drilling occurs pursuant to Article
II.
(i)
FARMEE is designated as ”Operator” of the AMI, and it shall be responsible for
seeing that leasing and exploration activities in the AMI are conducted. In
discharging its duties as Operator of the AMI, FARMEE shall have the same
liability to FARMOR as it does being the Operator of each Operating Agreement.
(ii)
FARMEE shall have the sole and exclusive right as between the parties to acquire
directly or indirectly any lease from third-parties within the AMI; provided
however, that in the event FARMOR does acquire a lease from a third-party within
the AMI during the AMI Term, then FARMEE shall have the right to acquire and
be
assigned its proportionate share of such lease from FARMOR at the same cost
and/or terms as FARMOR acquired the Lease under the same terms, deadlines and
costs as described in Paragraph X.A(iii) below but by substituting FARMOR for
FARMEE.
(iii) During
the AMI Term, if FARMEE acquires a Lease within the AMI that is not either
(1)
within an established unit for an earning well under Article II, above, or
(2)
outside of a unit established for a well to which the parties have previously
made an election to drill, then FARMEE shall notify FARMOR within thirty (30)
days of such acquisition.
(a) For
all
leases acquired by FARMEE from third-parties within the AMI during the AMI
Term,
FARMEE shall be responsible for paying all of the lease bonuses up to $500
for
each net mineral acre so acquired. FARMOR shall be responsible for paying its
50% working interest share for all lease bonuses that exceed $500 per net
mineral acre. FARMOR and FARMEE shall share equally in all other out-of-pocket
expenses incurred in leasing under this AMI provision. In such notice, FARMEE
shall include all pertinent information about the interest so acquired,
including written documentation as may be reasonably requested by FARMOR. For
a
period of fifteen (15) days from receipt of the notice, FARMOR shall the right,
but not obligation, to advise in writing FARMEE that it wishes to acquire an
undivided fifty percent (50%) interest in such lease, and at that same time,
remit its share of the acquisition costs for such Lease.
(b) In
the
event of the failure by FARMEE to receive FARMOR’S written notice and
reimbursement of acquisition costs of such Lease within fifteen (15) days from
receipt of such notice, it shall be deemed that FARMOR has declined to receive
its proportionate share of such Lease. If FARMOR declines or is deemed to have
declined to acquire its proportionate share of a Lease under this provision,
then that Lease shall be excluded from this Agreement for all purposes, and
FARMEE shall be free to participate in any future ▇▇▇▇▇ with such rights
separate and a part from this Agreement.
(c) Within
thirty (30) days after FARMEE’S receipt of FARMOR’S timely written notice and
share of acquisition costs, then FARMEE shall execute and deliver to FARMOR
the
appropriate assignment, without covenants of warranty, except by, through and
under FARMEE.
(d) If
FARMEE
acquires any Lease within a unit established for a well to be drilled or has
been drilled pursuant to Article II, above, then the Lease shall be considered
as a Lease which may be earned by FARMEE as to FARMOR’S purchased fifty percent
(50%) interest in such Lease.
C. AMI
Term. The
term
of this AMI provision shall commence upon the Effective Date of this Agreement,
and it shall continue for so long
as
FARMEE has the right to earn Leases under Article II, above. Upon either the
termination of FARMEE’S right to earn Leases or performance by FARMEE resulting
in the conveyance of all remaining Leases as provided in Article IV.E., the
AMI
provision contained in each Operating Agreement covering any portion of the
Farmout Area then existing shall become effective. Each such Operating Agreement
will be considered a separate agreement covering the Contract Area for each
such
agreement. If there are any Leases subject to this Agreement lying outside
Contract Areas on the date of termination, a separate Operating Agreement will
be deemed to be in effect to govern such Leases on a tract-by-tract basis within
the Farmout Area. The termination of this AMI provision shall not affect any
unsatisfied obligations any Party may have hereunder to another Party that
arose
prior to the termination date.
▇. ▇▇▇▇
Acreage.
Notwithstanding anything to the contrary herein, with regard to the the tract
of
land described as T.34N., R.77W. of the 6th
P.M.:
Sec. 28: N/2SE/4; Sec. 27: SW/4, W/2SE/4 (referred to as the “▇▇▇▇ Acreage”),
FARMOR shall not be entitled to receive any interest that FARMEE may receive
pursuant to a third party farmout agreement within the ▇▇▇▇ Acreage for the
first two (2) earning ▇▇▇▇▇ and their respective units pursuant to that
agreement. However, FARMOR shall be entitled to receive from FARMEE an
assignment of one-half (1/2) of the leasehold interest FARMEE may be assigned
from the third party farmor for those ▇▇▇▇ Acreage lands and leases which are
outside of the units of the first two (2) ▇▇▇▇▇ drilled under that third party
farmout.
XI.
ASSIGNMENT OF AGREEMENT
This
Agreement is binding upon the parties hereto, their successors, and assigns;
and
assignment of this Agreement shall not be made by FARMEE without prior written
notice to FARMOR, subject to the requirement that any proposed third party
assignee shall be financially responsible in the sole discretion of FARMOR.
Any
such assignment shall provide that the assignee will assume the proper and
timely performance of all of FARMEE’S obligations hereunder. Any assignment that
is not in compliance with the terms of this paragraph shall be null and void.
Consent by FARMOR to any such assignment shall not relieve FARMEE nor any
assignee from the rights and obligations as to any future assignment or from
the
timely and proper performance of any of FARMEE’S obligations hereunder, except
with the written consent of FARMOR. If FARMEE assigns this Agreement, it shall
assign all of its rights in this Agreement.
XII.
FORCE MAJEURE
A. Except
for the duty to make payments hereunder when due, and the indemnification
provisions under this Agreement, neither FARMOR nor FARMEE shall be responsible
to the other for any delay, damage or failure caused by or occasioned by a
Force
Majeure Event. As used in this Agreement, “Force Majeure Event” includes: acts
of God, action of the elements, warlike action, insurrection, revolution or
civil strife, piracy, civil war or hostile action, strikes, differences with
workers, acts of public enemies, federal or state laws, rules and regulations
of
any governmental authorities having jurisdiction in the premises or of any
other
group, organization or informal association (whether or not formally recognized
as a government); inability to procure material, equipment or necessary labor
in
the open market, acute and unusual labor or material or equipment shortages,
or
any other causes (except financial) beyond the control of either party. Delays
due to the above causes, or any of them, shall not be deemed to be a breach
of
or failure to perform under this contract. Neither FARMOR nor FARMEE shall
be
required against its will to adjust any labor or similar disputes except in
accordance with applicable law.
B. Neither
party that is unable, in whole or part, to carry out its obligations under
this
Agreement due to Force Majeure Event shall promptly give written notice to
that
effect to the other party stating in reasonable detail the circumstances
underlying such Force Majeure Event. Any party calling Force Majeure Event
shall
diligently use reasonable efforts to remove the cause of such Force Majeure
Event, and shall resume performance of any suspended obligations as soon as
reasonably possible after termination of such Force Majeure Event.
XIII.
GENERAL PROVISIONS
A. Relationship
of Parties.
It is
not the purpose or intention of this Agreement to create, nor shall the same
be
construed as creating any mining partnership, or partnership relation, nor
shall
the operations of the parties hereunder be construed to be considered as a
joint
venture. The liability of the parties hereto shall be several and not joint
or
collective.
B. Resolution
of Disputes:
The
parties hereby stipulate and agree that all claims, controversies, and disputes
(LESS AND EXCEPT THOSE CLAIMS WHICH ARE CRIMINAL IN NATURE) between FARMOR
and
FARMEE which are incident to, arise out of, or in any way connected with this
Agreement and/or the performance or breach of this Agreement shall be resolved
promptly, practically, fairly and as economically as reasonably practical.
Therefore, FARMOR and FARMEE hereby stipulate and agree that any and all claims,
controversies and disputes, as well as all disagreements regarding any
interpretation or application of this Agreement between said parties, shall
be
resolved pursuant to the procedures contained this provision of the Agreement.
(i)
Either party may send a notice of dispute to the other party, which notice
shall
clearly state the issue which the sending party has with the other party. Within
twenty-one (21) days from the receipt of such notice, the parties’ senior
management or representatives thereof shall meet to try to resolve the issue.
If
the parties cannot resolve the dispute through meetings with senior management
or their representatives within sixty (60) days from the first meeting, then
either party shall have the right to request binding arbitration.
(ii) Subject
to any modifications set forth in a written agreement executed by the parties,
binding arbitration shall be conducted in accordance with the following general
rules and guidelines:
(a) Arbitration
may be initiated by either FARMOR or FARMEE, or jointly.
(b) Such
arbitration shall be submitted to and conducted by the Denver, Colorado regional
office of the American Arbitration Association in accordance with its Commercial
Arbitration Rules in effect at that time.
(c) Except
as
provided below, a single qualified, independent and neutral arbitrator shall
be
chosen by the parties to the arbitration in accordance with the applicable
procedures of the American Arbitration Association.
(d) All
motions filed of a judicial nature, in connection with the arbitration, shall
be
filed only in the State Courts of Natrona County, Wyoming.
(e) All
such
arbitrations shall apply the substantive and procedural laws of the State of
Wyoming.
(f) The
arbitrator(s) shall be required to commence the actual hearing of the dispute
within sixty (60) days from the date the arbitrator has been chosen and agreed
to serve. The arbitrator(s) shall provide all parties to such arbitration with
a
copy of the arbitrator’s written decision or award within thirty (30) days of
the conclusion of the arbitration proceedings. Such decision or award shall
be
conclusive, final and binding on all parties to such arbitration and no party
may appeal such decision or award.
(g) The
arbitrator’s decision shall include assessment of the actual costs and expenses
of the parties, including reasonable and necessary attorney’s fees, and shall be
enforceable in any Court of competent jurisdiction. However, the costs for
the
arbitrator’s fees shall be borne equally between the FARMOR and FARMEE, and each
party shall be responsible for its payments to the arbitrator directly. All
other costs and expenses shall be borne by the party who incurred
them.
(h) The
arbitrator shall not award or assess any punitive, exemplary, indirect or
consequential damages in connection with such arbitration.
(i) Each
party hereto shall be limited to that discovery (written and by oral deposition)
reasonably necessary to adequately develop the case of each party. No party
to
such arbitration shall request or conduct more than four (4) depositions and
four (4) requests for admissions and/or the production of documents prior to
the
actual arbitration hearing.
(k) All
matters concerning the conduct of the arbitrator(s) shall be governed by the
provisions of the American Arbitration Association.
(l) In
the
event the claim, controversy, or dispute involves or reasonably could be
anticipated to involve an amount in excess of Five Hundred Thousand Dollars
($500,000.00) (excluding attorney fees and arbitration related costs), then
any
party to such arbitration may elect for such arbitration to be heard, conducted
and decided by a panel of three (3) qualified, independent and neutral
arbitrators instead of a single arbitrator, and such panel shall be chosen
by
the parties to the arbitration in accordance with the applicable procedures
of
the American Arbitration Association. In the event of a dispute between the
FARMOR and the FARMEE as to the amount in dispute or which reasonably could
be
anticipated to be in dispute, the FARMOR and the FARMEE agree that the first
arbitrator chosen by such parties shall conclusively make a determination in
regard to the amount involved or reasonably anticipated to be involved in such
dispute, thereby determining whether or not such arbitration shall be conducted
by a single arbitrator or by a panel of three (3) arbitrators.
C Severability.
In the
event any provision in this Agreement is determined to be invalid by a court
of
law, such determination shall not operate to invalidate any other provision
contained herein and said Agreement shall otherwise remain in full force and
effect according to its terms.
D. Headings.
The
underlined headings in this Agreement are used for convenience and shall not
be
considered in construing this Agreement.
E. Exhibits.
The
exhibits referred to in this Agreement are attached hereto and made a part
hereof. Should any provision of an exhibit attached hereto conflict with the
provisions of this Agreement, this Agreement will prevail to the extent of
the
conflict.
F. Previous
Communications.
This
Agreement supersedes and replaces any prior oral or written communications,
agreements or understandings between the Parties related to the subject matter
of this Agreement.
G. Amendments.
This
Agreement shall not be modified except by written instrument executed by the
parties hereto or their successors and assigns.
H. No
Waiver of Rights.
The
failure of either party to exercise any right granted hereunder shall not be
deemed as a waiver of such party's privilege to exercise such right at any
time
or times.
I. Forward
Looking Statements. The
parties are including the following cautionary statement in this Agreement
to
make applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements
made
by, or on behalf of any party hereto. Forward-looking statements include but
are
not limited to, statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements,
which are other than historical facts. The statements in this Agreement, as
well
as any oral statements and written materials provided by any party to the other
parties before or after the execution of this Agreement including, but not
limited to, production performance, recoverable reserves, projected revenues,
expenses, net income and expected drilling and development activities, etc.
are
forward-looking statements. Certain statements contained herein as well as
any
oral statements and written materials provided by any party to the other parties
before or after the execution of this Agreement, including but not limited
to
those statements which are identified by language that speaks of future events
such as “may”, “could”, “believe”, “expect”, “intend”, “anticipate”, “estimate”,
“continue”, “projected”, “future”, “will”, “seek”, and “plan”, are inherently
uncertain, and actual results or outcomes could differ materially from those
expressed in these forward-looking statements. Important factors that could
cause actual results to differ materially from those expressed in
forward-looking statements, include but are not limited to state and federal
regulatory development and statutory changes; the timing and extent of changes
in commodity prices and markets; the timing and extent of success in acquiring
leasehold interests and in discovering, developing, or acquiring oil and gas
reserves; significant changes from expectations in actual capital expenditures
and operating expenses and unanticipated delays or changes in costs; the nature
and projected profitability of pending and potential prospects and other
investments; uncertainty of oil and gas reserves estimates, etc. Furthermore,
such forward-looking statements speak only as of the date of this Agreement,
and
no party accepts or agrees to undertake any obligation to update any such
statement(s) to reflect the occurrence of new information, future events, or
otherwise.
J. Counterpart
Execution.
This
Agreement may be executed in any number of counterparts, each of
which
shall be considered an original for all purposes and shall be binding on the
party or parties executing same, notwithstanding the lack of execution of same
by all parties hereto.
[EXECUTIONS
ON FOLLOWING PAGE]
|
▇▇▇▇▇
PROSPECT
|
|
NATRONA
AND CONVERSE COUNTIES, WYOMING
|
|
EXECUTION
PAGE
|
|
IN
WITNESS HEREOF, this Agreement is executed by the Parties as of the
Effective Date.
|
|
TYLER
ROCKIES EXPLORATION, LTD.
|
|
By:__________________________
|
|
Name:_______________________
|
|
Its:__________________________
|
|
AMERIWEST
ENERGY CORP.
|
|
By:_________________________
|
|
Name:_______________________
|
|
Its:__________________________
|
|
EXHIBIT
A-1
|
|
LANDS
AND LEASES OF FARMOUT AREA AS OF THE EFFECTIVE
DATE
|
|
LANDS:
|
|
Township
34 North, Range 77 West, of the 6th
P.M., Natrona and Converse Counties, Wyoming:
|
|
Sec:
|
|
16: S/2S/2
|
|
17: SW/4,
S/2SE/4
|
|
20: All
|
|
21: All
|
|
22: SW/4,
SE/4
|
|
26: SW/4
|
|
27: W/2,
E/2
|
|
28: N/2,
SE/4
|
|
34: NW/4,
NE/4
|
|
35: NW/4
|
|
Leases:
|