EXHIBIT 10.1
LEASE ACQUISITION AND DEVELOPMENT AGREEMENT BETWEEN DOLPHIN
ENERGY
CORPORATION (BUYER/OPERATOR) AND APOLLO ENERGY LLC AND ATEC
ENERGY
VENTURES, LLC (SELLER/NON-OPERATOR) DATED FEBRUARY 22, 2005
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LEASE ACQUISITION AND DEVELOPMENT AGREEMENT
Between
Dolphin Energy Corporation
(Buyer/Operator)
and
Apollo Energy LLC and ATEC Energy Ventures, LLC
(Seller/Non-Operator)
February 22, 2005
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Table of Contents
PAGE
1.
Definitions..............................................................2
1.1
Definitions.....................................................2
2.
Consideration............................................................6
2.1
Escrow..........................................................6
2.2
First
Closing and Payment.......................................6
2.3
Second
Closing and Payment......................................6
2.4
Third
Closing and Payment.......................................6
2.5
Purchase
and Sale of Pending Leases.............................7
2.6
Top
Leases......................................................8
2.7
Assignment......................................................8
2.8
Closing
Conditions..............................................8
3. Reservations By
Seller...................................................8
3.1
Reserved
Production Payment.....................................8
3.2
Reserved
ORRI...................................................9
3.3
Backin
WI.......................................................9
4. Review of Records and
Title.............................................10
4.1
Review of
Records..............................................10
4.2
Title
Defects..................................................10
4.3
Additional
Acreage.............................................10
5. Buyer's
Covenants.......................................................11
5.1
Drilling
Commitment............................................11
5.2
Substitute
Well................................................11
5.3
Bruner
Agreement...............................................11
6. Area of Mutual
Interest.................................................11
7.
Operations..............................................................12
8. Confidentiality;
Access to Information..................................12
8.1
Confidentiality................................................12
8.2
Access to
Information..........................................13
9. Acceptance of Surface
Conditions........................................13
10.
Miscellaneous...........................................................13
10.1
Term...........................................................13
10.2
Force
Majeure..................................................14
10.3
Relationship of the
Parties....................................14
10.4
Audit
Rights...................................................15
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10.5
Like-Kind
Exchange.............................................15
10.6
Delay Rentals and Shut-in/Minimum Royalty
Payments.............16
10.7
Press
Releases.................................................16
10.8
Construction of
Agreement......................................16
10.9
Assignability..................................................16
10.10
Successors
and Assigns.........................................17
10.11
Counterparts...................................................17
10.12
Words and
Gender...............................................17
10.13
Partial
Invalidity.............................................17
10.14
Incorporation by
Reference.....................................17
10.15
Notices........................................................17
10.16
Governing
Law..................................................18
10.17
Entire
Agreement...............................................18
10.18
Disclaimers and
Release........................................18
10.19
Representations................................................19
10.20
No Third
Party Beneficiaries...................................20
10.21
No
Recording...................................................20
10.22
Necessary
Documents............................................20
EXHIBITS
A Lease Schedule
-- Existing Initial Leases
B Lease Schedule
-- Biscuit Ranch
C Lease Schedule
-- Miscellaneous Tracts
D Lease Schedule
-- Pending Leases
E Form of
Assignment of Oil and Gas Leases
F Form of
Operating Agreement
G Area of Mutual
Interest
H Form of Oil and
Gas Lease
I Form of Escrow
Agreement
ii
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LEASE ACQUISITION AND DEVELOPMENT AGREEMENT
THIS LEASE ACQUISITION
AND DEVELOPMENT
AGREEMENT ("Agreement"), is
entered into this 22nd day of February,
2005 (the "Effective Date"), by and
between Dolphin Energy Corporation, a
Nevada corporation, with an office at 1331
17th Street, Suite 730, Denver, Colorado 80202 (hereinafter referred to as
"Buyer"), ATEC Energy Ventures, LLC, a
Texas limited liability company ("ATEC"),
whose address is 415 Bayou Cove Ct.,
Houston, Texas 77042, Apollo Energy, LLC, a
Colorado limited liability company ("Apollo"), whose address is 1557 Ogden
Street, Suite 300, Denver, Colorado 80218 and the "Apollo
Nominees," as defined
below. ATEC, Apollo and the Apollo
Nominees may be collectively referred to as
"Seller," or the "Selling Parties," and Buyer and Seller may be
collectively
referred to as the "Parties" and each Buyer and Seller may be referred to
individually as a "Party."
RECITALS
WHEREAS, Seller owns
or will own certain
oil and gas leases
covering
approximately 4,000 Net Mineral Acres in lands located in Garfield County,
Colorado, as more particularly described on Exhibits A, B, C and D, to be
attached hereto (the "Initial Leases and
the "Pending Leases");
WHEREAS,
Apollo holds record title for and on behalf of
ATEC and the
Apollo Nominees pursuant to certain agreements among and between the Selling
Parties;
WHEREAS, the Apollo Nominees have designated Apollo to act for them
and
on their behalf in connection with the negotiation and execution of this
Agreement;
WHEREAS, Seller seeks
an operating company to conduct exploration and
development activities, including, without limitation, the drilling of
exploration wells and development wells on
lands covered by the Initial Leases,
the Pending Leases, and other Leases acquired or to be
acquired by Seller,
and
Buyer desires to acquire a 50% undivided
interest in the 4,000 Net Mineral Acres
comprising the Initial Leases and the Pending Leases and to conduct such
exploration and development activities in accordance with the terms and
provisions of this Agreement;
WHEREAS, Buyer is an operating company that has the necessary
financial
capabilities, personnel with the appropriate professional and technical
expertise and the appropriate equipment and infrastructure to conduct the
exploration and development activities
contemplated by this Agreement;
WHEREAS, Buyer
has conducted or will conduct an independent
investigation of the Leases and desires to
acquire the
Initial Leases and to
conduct such exploration and development
activities in accordance with the terms
and provisions of this Agreement; and
WHEREAS, to accomplish
the foregoing,
the Parties wish to
enter into
this Agreement.
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NOW, THEREFORE,
based on the above and in consideration of the
covenants and agreements contained herein, the receipt and
sufficiency of which
are hereby acknowledged, the Parties agree
as follows:
1. DEFINITIONS
1.1
DEFINITIONS. For
purposes of this
Agreement, capitalized
terms shall
have the meanings set forth herein.
"ACQUIRED INTERESTS" is defined in Article 6.
"ACQUISITION COSTS" means invoice amounts actually incurred and
paid by
Buyer to Seller or to a Non-affiliated Person to acquire a Lease, farmout,
assignment or other interest in
Hydrocarbons
or Production
Assets, including
without limitation, lease per acre bonus (including bonuses paid pursuant to
compulsory pooling orders), paid up delay
rentals, and amounts paid to Seller or
to a Non-affiliated Person for mineral take-offs, but excluding Seller's
Overhead Expense and broker fees and
expenses.
"AFFILIATE" means any
Person that (a) a Party either owns or otherwise
directly or indirectly controls, (b) owns or otherwise directly or indirectly
controls a Party, (c) is under common ownership or control with a Party by
another Person. "Ownership" means at least fifty
percent (50%), (or such lesser
percentage which results in actual de facto
control), of the
voting securities
or of profits, whichever is applicable.
"Control" means the
ability to control
the management or actions of the Person in
question, by whatever means.
"AMI" OR "AREA OF MUTUAL INTEREST" means all lands within the
geographical area outlined on Exhibit
G.
"APOLLO NOMINEES"
means the following
individuals and
entities: Joe
Freeman; Larry Gilmore; Eatex; Lynn McBride; Huckelberry; WYOTEX Oil Company;
JLW Investments.
"BACKIN WI" is defined in Section 3.3.
"BRUNER" means the third party which enters into the Bruner
Agreement.
"BRUNER AGREEMENT" means that certain Lease Acquisition and
Development
Agreement to be entered into between Seller and Bruner under which
Bruner will
acquire either a 25% or a 50% undivided
interest in the
Initial Leases and the
Pending Leases.
"CLOSING" means the
First Closing, the Second Closing, the Third
Closing, the closing under Section 2.5(b),
and/or any other
payment by Buyer in
exchange for an Assignment of an interest
in Net Mineral Acres in the Leases.
"DEFENSIBLE TITLE"
means record title to the Leases that: (i) entitles
Seller, and after the Closing Buyer, to receive and retain proceeds from the
sale of Hydrocarbons, without suspension, reduction (except pursuant to the
terms of this Agreement) or termination, not
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less than the net revenue interest(s) specified for each of the Leases on
Exhibits A through D (subject to
proportionate reduction, however, in the event
of pooling, unitization or communitization)
through plugging,
abandonment and
salvage of all wells now or hereafter located on the each of the Leases;
(ii)
obligates Seller, and after Closing Buyer, to bear the costs and expenses
attributable to the drilling, maintenance, repair, and operation of all wells
now or hereafter located on each of the
Leases, through
plugging, abandonment
and salvage of any of such wells (subject
to proportionate
reduction,
however,
in the event of pooling, unitization or communitization), in an amount not
greater than the working interest(s) specified for each of the Leases on
Exhibits A through D; (iii) for transfers
of federal Leases, is
approved by the
Bureau of Land Management, and (iv) is free and clear of all, liens,
encumbrances or other title defects that would have a material
and adverse
affect on Buyer's ownership of the Leases, or that are created by through
or
under Seller (except for the Reserved
Production
Payment or the
Reserved ORRI
and the Backin WI). For the purposes of
this definition,
"material and adverse"
means with respect to the WI and/or NRI of
the Lease, as set forth on Exhibits A
through D that Buyer can show through
affirmative
written documentation that
Seller does not own such WI and/or NRI.
"ESCROW" means an
arrangement and
account for deposit of the purchase
price pursuant to the escrow agreement in a
form similar to the attached Exhibit
I, to give effect to the applicable
provisions of this
Agreement, which
escrow
agreement shall terminate in any event on
or before December 15, 2005.
"EXISTING LEASE
BURDENS" means landowner royalties, overriding
royalties, net profits interests,
production payments
and similar payments out
of production owned by a Non-affiliated
Persons and shown of
record, in either
the applicable real estate records where the lands are located or in the
applicable federal records, on either the Effective Date or
the date on which a
Lease is acquired by Seller from a
Non-affiliated Person, whichever is later.
"FIRST CLOSING"
means the date on
which Seller
assigns to Buyer
and
receives consideration for a portion of the
Leases, as set forth in Section 2.2.
"FORCE MAJEURE" is defined in Section 10.2.
"HYDROCARBONS" means
any oil or gas in, under and that may be produced
after the Effective Time from Leases and lands,
including without limitation
crude oil, condensate, natural gas liquids and natural
gas regardless of source
rock, casinghead gas and coalbed
methane.
"INFORMATION" is defined in Section 8.1.
"INITIAL LEASES"
means the oil, gas and
mineral leases
described on
Exhibits A, B and C, together with such
additional
oil, gas and mineral
leases
which the Parties mutually agree to include on Exhibits A, B and C for the
purpose of the First Closing, the Second
Closing, and/or any subsequent Closing,
up to 2,000 Net Mineral Acres.
"LEASES" means the Initial Leases, the Pending Leases, and the
Acquired
Interests, together with such additional
oil, gas and mineral leases acquired by
Seller during the term
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of this Agreement, either by purchase or farmout, and paid for or earned by
Buyer pursuant to this Agreement.
"NET MINERAL
ACRES" means the number of acres of a full mineral
interest in a tract of land covered by a Lease on such
tract, even though the
said tract contains a greater number of
surface acres.
"NON-AFFILIATED PERSON" means a Person who is not an Affiliate.
"OPERATING AGREEMENT"
means an AAPL No.
610-1982 Revised Model Form
Joint Operating Agreement in the form
attached hereto as Exhibit F.
"OVERHEAD
EXPENSE(S)"
means costs
for routine accounting,
administrative, geological, land, engineering,
supervision, travel,
and office
services incurred by a Party to furnish either the personnel or facilities
necessary to perform its obligations
under this Agreement,
provided, however,
excluding direct overhead expense chargeable under the terms of the
Operating
Agreement.
"PENDING LEASES"
means the oil, gas and
mineral leases
described on
Exhibit D, together with such additional oil, gas and mineral leases which
the
Parties mutually agree to include on Exhibit D for
the purpose of the
Closing
pursuant to Section 2.5(b), and/or any subsequent Closing, and which shall be
comprised of all Net Mineral Acres other than the 2,000 Net Mineral
Acres of
Initial Leases, up to a total of 4,000 Net
Mineral Acres.
"PERSON" means
any individual, partnership, corporation, limited
liability company, trust, trustee, estate,
executor, administrator, guardian, or
other entity.
"PRODUCTION ASSETS"
means wellbores,
pipelines,
gathering systems,
production or processing facilities,
surface estate interests, rights-of-way, or
other surface uses, and other production
related infrastructure on the Leases.
"PROJECT COSTS" means all costs paid or incurred by Buyer in
connection
with or in respect to the acquisition
and development of the
Leases, excluding
however, any of Buyer's Overhead Expenses.
Project Costs shall
include, without
limitation, the purchase price for the Properties, payments with respect to
Acquisition Costs as paid by Buyer under
Article 2, costs and expenses incurred
for the drilling, reworking, sidetracking, deepening, testing, completing,
re-completing, equipping, plugging back, plugging and abandoning or
operating
any wells on the Leases, liquidated damages under Section
5.1(b), recording
of
oil, gas and mineral leases, assignments, and other transfers of interests
in
the Leases, abstracts, runsheets, mineral take-offs, title examination, and
obtaining title curative material with respect to the Leases,
consideration
paid, costs associated with easements, rights-of-way, construction and
installation of gathering, processing,
treating, compression, and transportation
infrastructure on the Leases, payments of
royalties, overriding royalties, delay
rentals, minimum rentals, shut-in gas royalty and the
proceeds attributable to
the Reserved Production Payment, the Reserved ORRI, costs of purchasing or
shooting seismic on the Leases, costs of gathering, processing, treating,
compression, and transportation of
production attributable to Buyer's production
of Hydrocarbons and attributable to the
Reserved Production Payment, but
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paid by Buyer, severance and ad valorem taxes, and all direct charges
attributable to the oversight and
administration of all activities conducted on
the Leases that would be chargeable under
the terms of the Operating Agreement,
as if it were effective as to the Leases
from and after Closing.
"PROJECT PAYOUT" means the first day of the month following the
date on
which Project Payout Account has a credit
balance.
"PROJECT PAYOUT ACCOUNT" is defined in Section 3.2.
"PROJECT REVENUES"
means all proceeds
received by Buyer from the sale
of Hydrocarbons attributable to Buyer's ownership
in the Leases,
proceeds from
the sale of seismic data covering the Leases and any
amounts received by
Buyer
from third parties as payment for gathering, treating, processing or
transportation of Hydrocarbons in
Production Assets
constructed by Buyer on the
Leases. In the event of an assignment of
Buyer's interest in the Leases, Project
Revenues shall include the items of revenue
described in the foregoing sentence
attributable to Buyer and Buyer's assigns
interest in the Leases.
"PROPERTIES" means all
the Leases, Production
Assets, and all other
real and personal property interests within
the AMI.
"RESERVED ORRI" is defined in Section 3.2, below.
"RESERVED PRODUCTION PAYMENT" is defined in Section 3.1, below.
"SECOND CLOSING"
means the date on
which Seller assigns
to Buyer and
receives consideration for the Leases described on Exhibit B, as set
forth in
Section 2.3.
"THIRD CLOSING"
means the date on
which Seller
assigns to Buyer
and
receives consideration for the Leases described on Exhibit C, as set
forth in
Section 2.4.
"THIRD PARTY OPERATING AGREEMENT" is defined in Article 7,
below.
"TITLE DEFECT"
means any lien, encumbrance, encroachment or other
defect in, on or associated with Seller's
title to a Lease,
excluding Existing
Lease Burdens, that would cause Seller not to have Defensive Title to such
Lease.
"TOP LEASE" means a lease between a third party (as lessor)
and Seller
(as lessee), which has not become effective as of the date of the applicable
Closing, as a result of a pre-existing
recorded oil and gas
lease pertaining to
all or a portion of the same tract of land,
and/or the same
undivided interest
in land, as the Top Lease, and which is to become
effective if and when the
pre-existing lease expires or is
terminated.
"WILLIAMS FORK FORMATION" means that certain formation as
identified by
Halliburton Resistivity Log curve in the
wellbore of the Encana Oil & Gas (USA)
Couey 30-15 (B-31) Well, with a total depth of 8,677 feet,
and which is located
in Section 30, Township 6 South, Range 92
West, Garfield County, Colorado.
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2. CONSIDERATION
For the consideration
set forth below, and subject to Section
2.8,
below, Buyer agrees to purchase from Seller
and Seller agrees to sell and assign
to Buyer the Leases, in accordance with the
following:
2.1 ESCROW.
Within three (3) business days after Board Approval
pursuant to Section 2.8(b), Buyer shall wire transfer Six Million Dollars
($6,000,000) into the Trust Account of Patton Boggs LLP or other mutually
agreed-upon third party ("Escrow Agent"), and shall cause the Escrow Agent
to
provide written confirmation to Seller of such
wire transfer. The
disbursement
of all funds from said account shall be made in accordance with the terms of
this Agreement, and pursuant to the Escrow
Agreement attached hereto as Exhibit
I. Notwithstanding anything in this
Agreement pertaining to the dates of Closing
or pertaining to the Leases
currently identified on Exhibits A through
D, the
intent of the Parties is that Buyer agrees
to purchase and Seller agrees to sell
a 50% undivided interest in the first 4,000 Net
Mineral Acres owned by
Seller
within the AMI, subject to the Parties
rights and obligations under Article 4.
2.2 FIRST CLOSING AND PAYMENT. On or before April 8, 2005, and
subject
to the terms and conditions set forth
herein, Seller agrees to sell and assign a
50% undivided interest in its right,
title and interest in
the portion of the
Initial Leases described on Exhibit A, using the
form of Assignment
attached
hereto as Exhibit E. Simultaneously with
such assignment, Buyer and Seller shall
instruct the Escrow Agent to pay a total sum to
Seller, by wire
transfer of
immediately available funds to an account
designated by Seller in writing, which
represents Three Thousand Dollars ($3,000.00) per Net Mineral Acre
(proportionately reduced to $1,500 for said 50%
undivided interest)
times the
total Net Mineral Acres under the Leases
described on Exhibit
A, or under other
Leases agreed to be assigned at said
Closing (the "First
Closing"),
in which
Seller is able to sell and assign
Defensible Title, as
determined in accordance
with Article 4, below.
2.3 SECOND CLOSING AND PAYMENT. Between April 9 and April 15, 2005,
and
subject to the terms and conditions set
forth herein, Seller
agrees to sell and
assign a 50% undivided interest in its right, title and
interest in the portion
of the Initial Leases described on Exhibit B, using the form of Assignment
attached hereto as Exhibit E. Simultaneously with such assignment, Buyer and
Seller shall instruct the Escrow Agent to pay a total sum to
Seller, by wire
transfer of immediately available funds to an account designated by Seller in
writing, which represents Three Thousand Dollars ($3,000.00) per Net Mineral
Acre (proportionately reduced to $1,500 for said 50%
undivided interest) times
the total Net Mineral Acres under the Leases
described on Exhibit A, or under
other Leases agreed to be assigned at said
Closing (the "Second
Closing"), in
which Seller is able to sell and assign
Defensible
Title, as determined in
accordance with Article 4, below.
2.4 THIRD CLOSING AND
PAYMENT. On or before
ninety (90) days from the
date of this Agreement, and subject to the terms and conditions set forth
herein, Seller agrees to sell and assign a
50% undivided interest in its right,
title and interest in the
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portion of the Initial Leases described on Exhibit C, using the form of
Assignment attached hereto as Exhibit E.
Simultaneously
with such
assignment,
Buyer and Seller shall instruct the Escrow Agent to pay a
total sum to Seller,
by wire transfer of immediately available funds to an account designated by
Seller in writing, which represents three Thousand
Dollars ($3,000.00)
per Net
Mineral Acre (proportionately reduced to
$1,500 for said 50% undivided interest)
times the total Net Mineral Acres under the
Leases described on
Exhibit B or C,
or under other Leases agreed to be assigned at said Closing (the "Third
Closing") in which Seller is able to sell and assign Defensible Title, as
determined in accordance with Article 4,
below. Seller
represents that it owns,
or will own by the Third Closing described
in this Section 2.4, Defensible Title
to 2,000 Net Mineral Acres in the Initial Leases as to all depths
included in
the Williams Fork Formation.
2.5 PURCHASE AND
SALE OF PENDING LEASES.
(a) Seller is currently engaged in negotiations
for oil and gas
leases covering 2,000 Net Mineral Acres (the "Pending Leases") as more
particularly described in Exhibit D, or to be acquired by Seller
within
the AMI after the date
of this Agreement.
Seller shall use its best
efforts to acquire
2,000 Net Mineral
Acres within the AMI,
above the
2,000 Net Mineral Acres of Initial Leases. Seller agrees that each of
the Pending Leases actually acquired will provide to Buyer,
after the
Reserved Production
Payment, Defensible Title to not less than a
seventy-eight
and 00/100ths
percent
(78.00%)
net revenue in
Hydrocarbons in the
Net Mineral Acres
covered by the Pending Lease as
to all depths included
in the Williams Fork Formation. Unless the
Parties mutually
agree otherwise, Buyer shall not be required to
acquire and pay for, or pay interest on the acquisition cost for, any
of the Pending Leases that do not meet the requirements stated
above.
(b) On one or more
mutually-agreeable
dates subsequent
to the
Third Closing,
and subject to the terms and conditions set forth
herein, Seller agrees
to sell and assign a 50% undivided interest in
its right, title and
interest in the Pending Leases described on
Exhibit D, or to be acquired by Seller within the AMI after the
date of
this Agreement, using the form of Assignment attached hereto as
Exhibit
E. Simultaneously with such assignment, Buyer shall pay a total sum to
Seller, by wire
transfer of immediately available funds to an account
designated by Seller
in writing, which represents Three Thousand
Dollars ($3,000.00)
per Net Mineral Acre
(proportionately
reduced to
$1,500 for said 50%
undivided interest)
times the total Net
Mineral
Acres under the Leases
described on Exhibit D, in which Seller is able
to sell and assign
Defensible Title,
as determined by the
Parties in
accordance with Article 4, below. Any and all Leases obtained by
Seller
after Seller has sold
and assigned a 50%
undivided interest in the
first 4,000 Net Mineral Acres to Buyer will be d
