EXPLORATION AND DEVELOPMENT AGREEMENT WINDSOR PROJECT NORTH DAKOTA and MONTANA
Exhibit
2.1
WINDSOR
PROJECT
NORTH
DAKOTA and MONTANA
This Exploration and Development
Agreement (this “Agreement”), dated effective as of the 1st day of April 2009
(the "Effective Date"), is by and between ▇▇▇▇▇▇▇ Exploration Company, Inc., a
Kansas corporation, whose principal place of business is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ (hereafter “SECI”), and Northern Oil and Gas, Inc.,
a Nevada corporation, whose principal place of business is ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereafter “Participant”).
Whereas, SECI has acquired an interest
in certain oil and gas leases, lands and ▇▇▇▇▇ located in various counties in
North Dakota and Richland County, Montana, as described on Exhibits “A1” and
“A2”, attached hereto, as may be subsequently amended to reflect the exact
acreage acquired in the Windsor Project. These leases, lands and
▇▇▇▇▇, INSOFAR AND ONLY INSOFAR as such interests were acquired by SECI from
Windsor ▇▇▇▇▇▇, LLC, Windsor Dakota, LLC, Windsor Energy Group, LLC and/or
Gulfport Energy Corporation pursuant to that certain Purchase and Sale Agreement
dated effective April 1, 2009, are hereafter referred to as the “Windsor
Project”. Nothing herein shall impose any obligation on Participant
or otherwise limit Participant’s rights in any way with respect to any interest
in any oil and gas leases, lands or ▇▇▇▇▇ located in the various counties
described on Exhibits “A1” and “A2” attached hereto, as may be subsequently
amended, to the extent that such interest was acquired by Participant other than
pursuant to this Agreement.
Whereas, Participant wishes to
participate with SECI in the evaluation, drilling, and development of the
Windsor Project pursuant to the provisions of this Agreement.
Now therefore, the parties hereto, for
the mutual promises contained herein and other good and valuable consideration,
the sufficiency of which is hereby acknowledged, do hereby contract and agree as
follows:
|
|
1.
|
Participation
Interest: By execution of this Agreement, Participant
agrees to acquire, and SECI agrees to sell and assign to Participant, an
undivided share of the Windsor Project of i) thirteen and fifty-eight
one-hundredths percent (13.58%) of the interest in the oil and gas leases
and contractual rights limited to the wellbores shown in Exhibit “A1“ and
ii) four and five one-hundredths percent (4.5%) of the interest in the oil
and gas leases and contractual rights shown in Exhibit “A2“, the interests
so acquired being referred to herein individually and collectively as
“Participation Interest” . For the purposes of this Agreement,
Participant’s Participation Interest shall be calculated based on the
specific leases, or portions thereof, listed in the respective
Exhibits. Participant agrees to participate with its
Participation Interest in the exploration and development of the Windsor
Project and agrees to pay its Participation Interest share of all costs
incurred with respect to the Windsor Project pursuant to the terms set out
herein. Participant agrees that any interest acquired in the
Windsor Project by Participant shall be specifically subject to the terms
of this Agreement, the leases, options, and other agreements affecting the
interests acquired hereunder.
|
|
|
2.
|
Initial
Payment: Upon closing with Windsor, Participant shall
remit to SECI the sum of $7,300,000.00,
less deposit of $3,250,000.00
previously made by Participant, which represents Participant’s full share
of the purchase price for the Windsor Project for the interests acquired
by Participant hereunder.
|
|
|
3.
|
Project
Costs:
|
|
|
a.
|
Land and Lease
costs. Participant agrees to pay four and five
one-hundredths percent (4.5%) of the actual leasehold costs attributable
to the Windsor Project incurred or booked subsequent to April 1, 2009,
including the third party cost of due diligence conducted for the
acquisition of the Windsor Project, as set forth on SECI’s
invoices.
|
|
|
Invoices
for land and leasehold costs shall be payable within fifteen (15) days of
receipt of invoices.
|
|
b.
|
Other
Costs. As to all other costs, Participant shall pay, on
an at cost basis, its applicable Participation Interest share of all other
third party costs attributable to the Windsor Project, or chargeable under
the applicable Joint Operating Agreement to operations within the Windsor
Project in which Participant elects to participate pursuant to the
provisions of this Agreement, or in which Participant is obligated to
participate by the execution of this
Agreement.
|
|
|
4.
|
Advance
Billing: As to all Windsor Project costs, SECI may
invoice Participant for Participant’s share of the costs projected to be
incurred in the Windsor Project in the succeeding thirty (30) days, and
Participant agrees to remit the amount invoiced within fifteen (15) days
of receipt of such invoice.
|
|
|
5.
|
Funding Obligation –
Well Costs: As to all future ▇▇▇▇▇ drilled in the
Windsor Project in which Participant elects to participate, Participant
agrees to pay its applicable Participation Interest share of completed
well costs or through a frac, whichever is the latter, which costs shall
also include surface restoration. Payment for the estimated
cost of drilling and completion shall be made by Participant to SECI
within fifteen (15) days of receipt of such notice (invoice) or ten (10)
days following the actual spud date of a well, whichever is the later, to
assure prompt payment of the drilling contractor. Failure to
timely make such payment or to make payment within five (5) days following
receipt of written notice of failure to make such payment shall
constitute, at the SECI’s election, an election by Participant not to
participate in the well. SECI, at its option, may either
declare Participant to be a non-participating party in the well or require
payment of the amount due from Participant based upon their election on
the well previously made.
|
As to all
future ▇▇▇▇▇ drilled in the Windsor Project in which Participant elects to
participate, Participant agrees to assume its applicable Participation Interest
share of all non-participatory working interest (non-consent interest) acquired
from any third party where such interest is required to arrive at 100% of the
drillsite spacing unit working interest.
|
|
6.
|
Participation in
Extensions and Renewals: Participant shall be entitled to
participate in future drilling hereunder with its applicable Participation
Interest share of the leases acquired hereunder. Additionally,
Participant will be entitled to participate for its applicable
Participation Interest share of any lease extension, renewal or
replacement of any lease or portion thereof listed on Exhibits “A1” or
“A2”. The provisions of this paragraph 6 do not apply to any
options to lease or top leases of any lease listed in Exhibit “A1” or “A2”
which option or top lease is owned by SECI or Lario Oil & Gas Company
as of the Effective Date. Participant will have twenty (20)
days from receipt of a notice to acquire a lease extension, renewal or
replacement lease to either participate or not participate in the
acquisition as to its applicable Participation Interest share. Failure to
make a written election within twenty (20) days and remit payment
therefor, shall be deemed an election to not participate in the
acquisition. If Participant elects not to participate or is
deemed not to have participated in any such extension, renewal or
replacement lease, then Participant’s share of such lease shall be
retained by SECI with no obligation due Participant for such
interest.
|
|
7.
|
Drilling
Proposals/Operations: SECI will generally be responsible
for initiating well proposals. If, however, SECI receives a
well recommendation from Participant relative to a proposed location and
SECI does not initiate a well proposal comparable to that received from
Participant for circulation to all owners within sixty (60) days of
receipt of Participant’s drilling recommendation, then Participant may
initiate a proposal relative to such proposed
site.
|
A well
shall be proposed by mailing to all potential working interest owners a proposal
identifying the location of the well to be drilled, the estimated spud date, the
objective(s) to be tested, the geological
2
and/or
geophysical basis for the proposed well, and an Authority for Expenditure
(“AFE”). Parties receiving this well proposal will have twenty (20)
days from the date of receipt to elect to either i) participate as to their
working interest in the proposed drilling venture, or ii) elect not to
participate in the proposed drilling venture. Elections shall be made
in writing to the party proposing the well. Failure to timely elect
shall be deemed to constitute an election not to participate in the proposed
drilling venture. If participant elects not to participate in
the proposed drilling venture, Participant shall forfeit all rights in the
Windsor Project that lie within i) the applicable spacing unit and ii) all
sections cornering or adjoining the spacing unit, and shall reassign to the
participating party, all such Windsor Project leasehold working interest which
it owns in the spacing unit plus all sections cornering or adjoining the spacing
unit at no cost to the participating party. Any such reassignment
shall exclude any and all acreage located within the boundary of an existing
spacing unit in which a producing or drilling well is located or in which a well
has been proposed hereunder and in which Participant has elected to
participate. Notwithstanding the foregoing, however, in order for any
such forfeiture to occur and be binding on the non-participating Participant,
the participating party must commence, or cause to be commenced and pursue with
due diligence the operation set out in proposal within a period of ninety (90)
days after the date of the expiration of the election period.
The
parties hereto agree that at any given time, there shall be no more than 4
active drilling ▇▇▇▇▇ initiated by either party hereto, within the Windsor
Project, unless the parties agree otherwise. Exceptions will be
allowed for obligatory ▇▇▇▇▇ required to be drilled to fulfill contractual
obligations or lease expirations when such leases cannot be extended on
reasonable terms. Well proposals shall be considered in the order of
proposal unless the Parties agree otherwise.
SECI will
be the operator of the Windsor Project, including drilling and production phases
of operations conducted hereunder, and may not assign its responsibilities as
operator of the Windsor Project to any other party without Participant’s prior
written consent. Except for funding requirements, participation
elections and penalties detailed in the prior paragraphs, all operations in the
Windsor Project not currently subject to an existing Joint Operating Agreement,
("JOA"), shall be governed by a JOA prepared in the same format as Exhibit “B”
attached hereto, with the contract area being the spacing unit in which the well
is drilled. Insofar as it pertains to the parties hereto, in the
event of a conflict between the terms of this Agreement and any applicable JOA,
the terms of this Agreement shall prevail. In the event third party
working interest owners exist in a proposed spacing unit for a well drilled
pursuant to the terms hereof, Participant shall nominate SECI as operator for
the spacing unit.
|
8.
|
Net Revenue
Interest: Participant’s interest acquired hereunder
shall be subject to a two percent (2%) overriding royalty interest
retained by SECI as follows, which overriding royalty interest shall be
equal to two percent (2%) of all (i.e., 100%) mineral, oil and gas rights
relating to any property in the Windsor Project and shall be
proportionately reduced in all instances where the owners of the Windsor
Project collectively own less than one hundred percent (100%) of the
mineral, oil and gas rights relating to a property in the Windsor
Project:
|
|
i)
|
As to all leasehold
listed on Exhibit “A1” hereto, less and except those specific wellbores
identified thereon. (It is the intent of the parties hereto
that no additional overriding royalty interest will be reserved as to any
wellbore existing on the effective date
hereof.)
|
|
ii)
|
As to all leasehold
listed on Exhibit “A2”
hereto.
|
The two
percent (2%) overriding royalty assignment shall be immediately recorded in the
county records of the counties in which the leases are located.
Notwithstanding
the foregoing, as to any lease on which SECI retains or has the right to retain
an overriding royalty interest, Participant shall not receive a delivered net
revenue of less than 78% unless the delivered net revenue received by SECI is
less than 78%, in which case the leasehold will be assigned to Participant at
the same delivered net revenue received by SECI. Any corrections
of
3
assignments
of overriding royalty shall be recorded by SECI upon determination of the actual
net revenue interest received by SECI on a lease by lease basis.
|
9.
|
Leasehold: SECI
shall be responsible for maintenance of Windsor Project leases and shall
timely remit lease payments, rental and option extensions when due, and
comply with the other obligations of the lease(s) and option agreements on
behalf of Participant. SECI shall not be liable for either
direct or consequential damages resulting from SECI's failure to timely
make lease payment, rental or extension payment absent a showing of gross
negligence, willful misconduct or wanton disregard of responsibilities in
the failure to make such payment. Participant agrees to bear
its applicable Participation Interest share of any rental obligation
incurred by SECI on its behalf.
|
|
10.
|
Billings: Except
as otherwise provided above, billings attributable to Participant’s
interest in leases and operated ▇▇▇▇▇ shall be billed and payable pursuant
to the accounting provisions of the applicable
JOA.
|
|
11.
|
AMI: There
shall be no Area of Mutual
Interest.
|
|
12.
|
Term: The
terms of this Agreement shall bind the parties as to activities within the
Windsor Project for a period of fifteen (15) years from the date of this
Agreement, or so long as an applicable JOA remains in effect within the
boundaries of a spacing unit within the Windsor
Project.
|
|
13.
|
Notices: All
notices required hereunder shall be considered given when delivered
personally, or when received by facsimile or US Mail, properly addressed
as follows:
|
▇▇▇▇▇▇▇
Exploration Company, Inc.
▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn: ▇▇.
▇▇▇▇ ▇▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Northern
Oil and Gas, Inc.
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ – ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
Phone:
▇▇▇-▇▇▇-▇▇▇▇
Cell:
▇▇▇-▇▇▇-▇▇▇▇
Fax:
▇▇▇-▇▇▇-▇▇▇▇
Email:
▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
|
14.
|
Nature of
Agreement: The liabilities of the parties shall be
several and not joint or collective, and each party shall be responsible
only for its share of the costs and liabilities incurred as provided
hereunder. It is not the purpose or intention of this Agreement
to create any partnership, mining partnership, or association, and neither
this Agreement nor the operations hereunder shall be construed or
considered as creating any such legal
relationship.
|
|
15.
|
Marketing: The
Operator shall be responsible for marketing 100% of the production from
the ▇▇▇▇▇ drilled pursuant to this Agreement, and shall account to
Participant for its proportionate share thereof. Participant,
however, shall have the right to take and market its production in kind,
but in doing so shall also assume the obligations of disbursing revenue to
royalty and any others burden to its
interest.
|
4
Miscellaneous
Provisions:
|
a.
|
Subject
to the other provisions of this Agreement, this Agreement, and all
provisions hereof, shall inure to the benefit of, and be binding upon, not
only the parties hereto, but their respective heirs, successors, assigns,
and affiliates. The leasehold rights and contractual rights
acquired herein by Participant shall not be transferred, sold or assigned
without the express written consent of SECI, which consent shall not be
unreasonably withheld. If Participant, after receiving a
recorded leasehold assignment, encumbers, hypothecates, mortgages, or
pledges any or all interests so acquired from SECI, Participant
nevertheless expressly agrees that SECI has a first and prior right of
lien and offset against any revenues payable to Participant or its
successors or assigns, to the extent of any delinquent and unpaid expenses
then and thereafter owed to SECI, and Participant expressly agrees that
such first and prior right of lien and offset will be preserved in favor
of SECI in any documents executed by Participant which create an
encumbrance. .
|
|
b.
|
The
paragraph headings of this Agreement are inserted for convenience only,
and should not be considered a part of this Agreement or used in its
interpretation.
|
|
c.
|
The
parties hereto agree that all disputes between them arising out of, or in
connection with, this Agreement shall be resolved by arbitration as
provided herein. This agreement to arbitrate shall be conducted
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. If available, the panel used shall be selected
from arbitrators having at least 10 years of oil and gas experience and
employed by American Arbitration Association and the decision of the
arbitrators shall be the final and binding on all parties. All
arbitration shall be undertaken pursuant to the Federal Arbitration Act,
where applicable, and the decision of the arbitrators shall be enforceable
in any court of competent
jurisdiction.
|
The
parties involved in the arbitration agree that, within thirty (30) days of the
notice of arbitration, each party shall submit to the arbitration panel, their
respective desired outcome of the arbitration, together with supporting data
that was used in developing the outcome. The arbitration panel will
hold hearings during which the parties may submit additional
evidence. The arbitration panel will then be required to adopt one
parties’ desired outcomes and the panel will not have discretion to alter the
desired outcome selected.
This
Agreement shall be governed by and construed in accordance with the laws of the
State of Colorado.
|
d.
|
The
provisions of this Agreement are intended to be severable. If
any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the legality or
validity of the remainder of this
Agreement.
|
|
e.
|
This
Agreement constitutes the entire understanding of the parties in respect
to the subject matter hereof, in lieu of any prior agreement, and no
amendment, modification, or alteration of the terms hereof shall be
binding unless the same be in writing and signed by the party(ies) for
whom/which it is sought to be
enforced.
|
|
f.
|
Participant,
upon notice in writing to SECI, shall have the right to audit SECI’s
accounts and records relating to the joint account for an calendar year
within twenty-four (24) month period following the end of such calendar
year; provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of
accounts. Where there are two or more participants, Participant
shall make every reasonable effort to conduct a joint audit in a manner
which will result in a minimum of inconvenience to SECI. SECI shall bear
no portion of the Participant’s
audit
|
5
|
g.
|
cost
incurred under this paragraph unless agreed to by the SECI. The audits
shall not be conducted more than once each year without prior approval of
SECI and shall be made at the expense of those participants approving such
audit. SECI shall reply in writing to an audit report within
180 days after receipt of such
report.
|
|
h.
|
SECI
and Participant agree to keep the information obtained under this
Agreement confidential, but both parties shall have the right to use the
information derived hereunder in the normal course of their
business.
|
(signature
page follows)
6
Executed
effective as of the day and year first above written.
NORTHERN OIL AND GAS,
INC.
Date of
execution: May 22,
2009 By: /s/ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇
▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇
Chief Executive Officer
▇▇▇▇▇▇▇ EXPLORATION COMPANY,
INC.
Date of execution: May 21,
2009
By: /s/
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice-President
7
EXHIBITS
Exhibit Description
A-1 Project
Area/Lease Schedule
A-2 Project
Area/Lease Schedule
B
Joint Operating Agreement
8