PARTICIPATION AND EXCLUSIVITY AGREEMENTExclusivity No Shop Agreement |
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Exhibit
10.1
PARTICIPATION
AND
EXCLUSIVITY
AGREEMENT
This
PARTICIPATION AND EXCLUSIVITY AGREEMENT (the “Agreement”) is made among
Amerpro Industries US Ltd. (the “Participant”), a wholly owned
subsidiary of Amerpro Industries, Inc. (the “Parent”), Gulf Western
Petroleum Corporation (“GWPC”) and Caskids Operating
Company (“Operator”) and
is effective June 10, 2008 (the “Effective
Date”). Participant and GWPC are each a “Party” and collectively “Parties”. In
addition to granting an exclusive option to Participant to participate in
drilling on the Lease, this Agreement sets forth the terms, conditions, and
consideration of Participant for its evaluation of: (a) GWPC’s interests in and
to that certain oil, gas and mineral lease (the “Lease”) covering certain lands
(the “Prospect Area”)
located in Wharton County, Texas, as described on the attached Exhibit “A”; (b)
the Lease; and (c) title to the Prospect Area, and its subsequent participation
in the drilling and completion of certain oil and/or gas wells upon the Prospect
Area.
Subject
to the terms and conditions set forth herein, GWPC hereby grants to Participant
the exclusive right to conduct due diligence and to elect to participate in
drilling opportunities on the Lease. This exclusive right shall be in
effect from the Effective Date until 5 pm August 1, 2008 (the “Exclusivity
Period”).
Upon
Closing, this Agreement shall govern the drilling and development of the
Anderson No. 1, Anderson No. 2, Anderson No. 3 and Anderson No. 4 wells (each a
“Prospect Well” and
collectively, the “Prospect
Wells”) within the Prospect Area.
ARTICLE
1
EXCLUSIVITY
PERIOD AND DUE DILIGENCE
Payment
of Deposit
1.1
Subject to the terms and provisions of this Agreement, Participant shall deliver
to GWPC a deposit subject to the following terms and conditions (the
“Deposit”). Upon
execution of this Agreement, Participant shall pay to GWPC the amount
of one hundred thousand dollars ($100,000) and this shall be referred to as the
“Initial Deposit”. Before Closing (as defined below), Participant
shall use best efforts to attempt to pay to GWPC an additional
payment in the amount of one hundred fifty thousand dollars
($150,000) and this additional payment shall be referred to as the “Additional
Deposit” and together with the Initial Deposit shall be referred to as the
“Deposit”. Each such payment shall be by wire transfer to an account
nominated by GWPC or otherwise in immediately available funds. In the
event the Additional Deposit is not paid prior to
Closing, this Agreement shall not terminate and the amount of the
Prospect Generation Fee shall not be reduced by the amount of the Additional
Deposit..
Right
to Conduct Due Diligence
1.2
Subject to the timely receipt of the entire Deposit, during the Exclusivity
Period, GWPC hereby grants to Participant the exclusive right to conduct due
diligence as to GWPC’s title in and to the Lease and Prospect Area and the
sufficiency of the terms and conditions of the Lease and to elect to participate
in drilling opportunities on the Lease.
Access
to Records
1.3
During the Exclusivity Period, GWPC will provide and make available to the
Participant, upon request, all of its records relating to the Lease and the
Prospect Area, inclusive of all oil and gas leasehold documentation, all title
information including title opinions or landman runsheets, and, subject to any
applicable licensing restrictions, all geophysical data as reasonably requested
by Participant in order to assist Participant in the performance of its due
diligence on the Lease and the Prospect Area. Participant shall also
have access during normal business hours to all such information at GWPC’s
office in Houston, Texas. Participant understands and agrees that all
such records and other information provided pursuant to this Agreement are
material non-public information (“Confidential Information”) and
are being disclosed to Participant in strict confidence and shall not be copied
or distributed to any third parties without the prior written consent of
GWPC. Notwithstanding anything to the contrary in this Agreement,
such duty of confidentiality shall survive the termination of this Agreement for
a period of three (3) years.
NI-51-101
1.4
Participant acknowledges that it has received, reviewed and analyzed the
National Instrument 51-101 Evaluation “Oil and Natural Gas Reserves Oakcrest
Prospect, Wharton County Texas”, dated September 1, 2007, as prepared by MHA
Petroleum Consultants for GWPC (the “NI 51-101”).
Defects
1.5
By written notice(s) delivered to GWPC by July 1, 2008, (each a “Defect Notice”) Participant
may notify GWPC of the existence of any matter that it reasonably believes
constitutes a Defect. With the exception of the Special and Limited
Warranty (as defined herein), Participant hereby waives any Defects not
addressed in timely delivered Defect Notices. A “Defect” includes:
(a) failure
of GWPC to have good and defensible title in and to 95.75% working interest,
with royalty burdens totalling no greater than 28.0% in the Lease without
reduction, suspension or termination of such interest throughout the productive
life of the Lease, it being understood and acknowledged that the outstanding
4.25% working interest is a carried working interest held by Caskids in the
amount of 3.50% and Ben Carter, an individual, in the amount of
0.75%;
(b) failure
of GWPC to own such interests in the Lease free and clear of any liens or
encumbrances, other than those liens described on the attached Exhibit “C” in
favor of Metage Funds Limited and NCIM Limited (the “Permitted
Encumbrances”);
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(c) failure
of the Lease to cover 100% of the mineral rights as to oil and gas in the lands
and depths described therein, free and clear of any liens or encumbrances,
without reduction, suspension or termination throughout the productive life of
the Lease; and
(d) failure
of the Lease, and subsequent conveyances, to grant to GWPC the exclusive right
to operate for, explore, drill and produce 100% of the oil and gas on
the Prospect Area.
Right
to Cure Defects
1.6
GWPC shall have the right to cure any Defect prior to Closing. In the
event GWPC is unable to cure any Defect prior to Closing, Participant shall have
the right to terminate this Agreement.
Pre-Closing
Obligations of GWPC Regarding the Lease
1.7
During the Exclusivity Period, GWPC shall (except as otherwise
provided in this Agreement):
(a) maintain
and keep the Lease in full force and effect; and
(b) pay
timely any costs and expenses incurred in connection with the
Lease.
Refraining
from Certain Actions
1.8
During the Exclusivity Period, GWPC shall refrain from taking any of
the following actions without the prior consent of Participant (which consent
shall not be unreasonably withheld):
(a) sell,
assign, lien or encumber any interest in the Lease or Prospect
Area;
(b)
voluntarily waive or release any material rights with respect to any Lease or
voluntarily permit the Lease to lapse or expire;
(c)
enter into any contract requiring expenditure or for the sale or other
disposition, or any call or option for such purchase, of hydrocarbons to be
produced from the Lease;
(d)
supplement, modify or amend in any material respect the
Lease;
(e) commence
any drilling, reworking, completion or similar operations on the Lease;
or
(f)
commit to do any of the foregoing.
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ARTICLE
2
CLOSING
Conditions
to GWPC’s Obligations to Close
2.1
GWPC’s obligation to close is subject to the waiver by GWPC or satisfaction of
the following conditions at or before Closing:
(a) the
representations and warranties of Participant and Parent contained herein shall
be true and correct in all material respects at the Closing as though made at
and as of the Closing;
(b) participant
shall have performed and satisfied in all material respects the obligations,
covenants and agreements required hereunder to be performed and satisfied by
Participant at or before the Closing; and
(c) no
suit, action or other proceeding by a governmental authority or other third
person shall be pending or threatened that seeks substantial damages from GWPC
in connection with, or seeks to restrain, enjoin or otherwise prohibit the
consummation of, the transactions contemplated by this Agreement.
Conditions
to Participant’s Obligations to Close
2.2
Participant’s obligation to close is subject to the
waiver by Participant or satisfaction of the following conditions at or before
Closing:
(a) the
representations and warranties of GWPC contained herein shall be true and
correct in all material respects at the Closing as though made at and as of the
Closing;
(b) GWPC
shall have performed and satisfied in all material respects the obligations,
covenants and agreements required hereunder to be performed and satisfied by
GWPC at or before the Closing;
(c) no
suit, action or other proceeding by a governmental authority or other third
person shall be pending or threatened that seeks substantial damages from
Participant in connection with, or seeks to restrain, enjoin or otherwise
prohibit the consummation of, the transactions contemplated by this
Agreement;
(d) all
Defects which are the subject of timely Defect Notices have been cured to
Participant’s reasonable satisfaction, exercised in good faith, or waived by
Participant in writing;
(e) all
liens (excluding the Permitted Encumbrances) covering or affecting the Lease
have been released or at Participant’s sole discretion, subordinated to the
rights of Participant herein; and
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(f)
all consents to assign affecting the Lease or the transfer of interests to
Participant as contemplated herein, or to otherwise enter into this Agreement,
shall have been obtained.
Closing
2.3 The
Closing shall be held at 10:00 a.m. in the registered offices of the GWPC on
August 1, 2008, or at such other date or time, or in such other location, as
GWPC and Participant may mutually agree in writing (the “Closing”). Each
Party’s obligations at Closing are each a condition precedent to the other’s
obligations at Closing and each shall be deemed to have occurred
simultaneously.
ARTICLE
3
PROSPECT
GENERATION FEE
Payment
of Fees
3.1
At Closing, Participant shall pay to GWPC by wire transfer or other
immediately available funds the amount of one million two hundred thousand
dollars ($1,200,000) (the “Prospect Generation Fee”),
less the amount of Deposit paid by Participant (which sum is referred to as the
“Closing Amount” in consideration of GWPC’s geological and geophysical
interpretations, seismic data, leasehold and data acquisition costs and
administrative expenses relative to the Prospect Area and the right to
participate in the Prospect Wells.
3.2
At Closing, the Releases (as defined below) and the Closing Amount shall be
delivered to an escrow agent agreed upon by Participant and GWPC. The escrow
agent shall hold such items in escrow until the Option Fee has been received by
Metage Funds Limited and NCIM Limited. Upon delivery of the Option Fee,
Participant and GWPC shall instruct the escrow agent to deliver the Releases to
Participant and the Closing Amount to GWPC. Any fees or expenses charged by the
escrow agent shall be borne equally by Participant and GWPC.
ARTICLE
4
TERMINATION
Right
of Early Termination
4.1
This Agreement may be terminated at any time at or before Closing by notice
given at or before the Closing:
(a) by
mutual written consent of GWPC and Participant;
(b) by
GWPC if any of the conditions in Section 2.1 has been neither waived by GWPC nor
satisfied by the time of the Closing;
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(c) by
Participant if any of the conditions in Section 2.2 has been neither waived by
Participant nor satisfied by the time of the Closing; or
(d) by
Participant in its sole discretion.
Effect
of Termination
4.2 If
this Agreement is terminated pursuant to Section 4.1, this Agreement shall
become void and of no further force or effect except as set forth
herein. Participant and Parent agree that neither Participant, Parent
nor any of either of their affiliates, representatives or agents shall, for a
period of one year from the date of such termination, acquire, directly or
indirectly, any interest in and to the Lease or any acreage covered thereby,
including without limitation any replacement lease, lease renewal, top lease,
option, purchase agreement or other arrangement. In the event
Participant or Parent or any of either of their affiliates, representatives or
agents should acquire such an interest in contravention of this Section 4.2, the
interest so acquired shall, at GWPC’s option be conveyed to GWPC free and clear
of any liens and encumbrances and at no cost to GWPC. Further, but
without limiting the foregoing, in the event this Agreement is terminated
pursuant to Section 4.1, the Parties agree that if:
(a) GWPC
terminates this Agreement in accordance with Section 4.1(b) or Participant
terminates this Agreement in accordance with Section 4.1(d) (provided that the
provisions of Section 4.1(a), and 4.1(c) are inapplicable), GWPC shall accept
the Deposit (with all interest accrued thereon) as liquidated damages and as its
sole and exclusive legal and equitable remedy for Participant’s failure to
perform and neither Party shall have any further liability or obligation to the
other. The Parties acknowledge and stipulate that, by executing this
Agreement, GWPC loses substantial investment opportunity to market the Lease to
third persons during the Exclusivity Period; that damages for Participant’s
failure to satisfy the conditions in Article 3 (as well as the value of GWPC’s
investment opportunities without this Agreement) are difficult or incapable of
accurate estimation and that the Deposit (with all interest accrued thereon) is
a reasonable forecast of just compensation for any harm that might be caused by
Participant’s breach; or
(b) the
Parties jointly terminate this Agreement under Section 4.1(a), or Participant
terminates this Agreement in accordance with Section 4.1(c), then the Deposit
(with all interest accrued thereon) shall be refunded to Participant and neither
Party shall have any further liability or obligation to the other.
ARTICLE
5
TITLE
OPINION
Delivery
of Title
5.1
Prior to the issuance of the AFE for the Initial Well, GWPC hereby agrees
to have or cause to have the title for the drill site for the Initial Well
examined by an oil and gas title attorney and to provide Participant with a
photocopy of said drill site title opinion. GWPC agrees that if, in
the opinion of such attorney, GWPC does not own free and clear of any liens
(other than Permitted Encumbrances), 95.75% Working Interest and 72% Net Revenue
Interest in the Lease and/or the Lease does not cover 100% of the mineral rights
as to oil and gas in the lands being examined, then Participant in its sole
discretion may elect to terminate this Agreement.
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ARTICLE
6
AFE
AND DRILLING
Delivery
of AFE
6.1
GWPC shall deliver to Participant an Authority for Expenditure (“AFE”) for the dry hole costs
of the Anderson No. 1 Well, (the “Initial Well”) on or before
July 15, 2008. Each AFE prepared by the Operator shall be a good
faith estimate of the dry hole costs to drill a Prospect Well at a mutually
acceptable location to a total depth of 14,000 feet below the surface of the
earth or such shallower depth as the Parties may mutually select (“Objective
Depth”). Each subsequent AFE for a Prospect Well shall be
delivered to Participant at least thirty (30) days prior to the proposed spud
date for such well.
Payment
of AFE for Initial Well
6.2
Payment of the dry hole costs as reflected in an AFE for the Initial Well
shall be due and payable to Operator at Closing. Should Participant
not timely make remittance of the dry hole costs as set forth in the AFE for the
Initial Well, this Agreement shall, at the option of GWPC, be terminated in its
entirety pursuant to Section 4.1(b).
Delivery
of Subsequent AFE
6.3
No AFE for a subsequent Prospect Well shall be delivered to Participant
until at least fifteen (15) days after the prior Prospect Well (or any
Replacement Well, as defined herein) has been completed or plugged and
abandoned.
Payment
of AFE for Subsequent Wells
6.4
Participant shall make remittance of the dry hole costs (as set forth in the
applicable AFE) for subsequent Prospect Wells within thirty (30) days of receipt
of the applicable AFE. If Participant fails to make such payment to
Operator within five (5) business days after receipt of a notice from GWPC of
failure to timely pay such costs, Participant shall forfeit all interest in and
to the subject Prospect Well, the right to participate in any future Prospect
Wells and all unearned acreage covered by the Lease and Participant shall retain
its rights in Prospect Wells for which Participant paid the dry hole costs as
set forth in the applicable AFE and the acreage earned or that may be earned by
such wells. Provided that GWPC is not in material breach of its
representations or obligations hereunder, Participant shall not be entitled to
any refund of any portion of the Prospect Generation Fee.
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Costs
to Reach Objective Depth
6.5
For each Prospect Well, the Participant shall be responsible for
100% of all costs, expenses or services necessary to reach Objective
Depth. These costs include, but are not limited to the
following:
(a) the
staking of locations, building of roads and performance of operations necessary
for the preparation of the drill site;
(b)
the furnishing of a suitable drilling rig;
(c) paying
for all surface or crop damage to the landowners associated with the drilling
and/or completion of the wells;
(d) providing
all water, fuel and chemicals needed to drill the wells to Objective Depth in a
prudent manner;
(e) providing
open-hole logs, necessary to evaluate the Prospect Wells in a prudent manner to
the Objective Depth, in order to obtain sufficient information to determine
whether or not casing should be set and a completion attempt should be
made;
(f)
plugging and abandonment of any of the Prospect Wells if a dry hole,
including backfilling of all pits and restoration of the surface;
(g) the
cost of any additional open-hole evaluation, sidewall coring, formation testing,
and sidewall core evaluation;
(h) the
cost of fuel, mud and chemicals, if any are required, after running the
open-hole logs to surface;
(i)
rig time for any of the above, at the contractor’s day rate;
and
(j)
such other costs attributable to the Prospect Well prior to reaching the
Objective Depth which are chargeable to the joint account as set forth in the
COPAS accounting procedures attached to the JOA.
Proceeding
with Prospect Well
6.6
After a Prospect Well has been drilled to the Objective Depth and the log(s) and
test(s) identified in the AFE have been run, the Operator shall advise
Participant as to whether it recommends attempting a completion or plugging and
abandoning such well.
Completion
Costs for Prospect Wells
6.7 If
the Operator proposes a completion of a Prospect Well pursuant to Section 6.6,
and Participant elects to participate in such completion attempt, Participant
shall be responsible for 100% of all costs and expenses related to such
completion attempt.
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Forfeiture
by Participant in Prospect Well
6.8 If the
Participant elects not to participate in such attempted completion operations,
Participant shall forfeit all right, title and interest in and to the Lease and
such Prospect Well and all future Prospect Wells to GWPC.
Retaining
Interest in Prior Prospect Wells
6.9
Notwithstanding Section 6.8, should Participant elect not to participate in such
a completion attempt, it shall be entitled to retain its interests in and to any
prior Commercial Wells (as defined below) and shall be entitled to retain the
acreage allocated to the proration unit for each such Commercial Well, or if no
proration unit has been designated for such Commercial Well, then forty (40)
acres in the form of a square with such Commercial Well as its center (if such
configuration is not possible or practicable, then such forty (40) acres in as
nearly the form of a square as possible under the circumstances).
No
Release for Prior Wells
6.10
Nothing in Sections 6.6 to 6.9 of this Agreement shall be construed as releasing
Participant from any liability for plugging and abandonment, environmental
damages, or other liability that arose from operations conducted upon the Lease
for any wells in which the Participant participated pursuant to this Agreement,
prior to the relinquishment of Participant’s interest.
P&A
Costs If Participant Elects Non-Completion of Prospect Well
6.11
If Participant elects not to participate in such a completion
attempt, and GWPC attempts such completion, GWPC shall assume responsibility for
100% of the plugging and abandonment costs of such well and agrees to defend,
hold harmless and indemnify Participant in connection with same.
Proceeding
with Dry Hole or Lost Prospect Well
6.12 In
the event that a Prospect Well is deemed by the Operator (provided such decision
is reasonable and in good faith) to be a dry hole, or is lost at any depth by
reason of any accident or casualty, or igneous rock or other impenetrable
substances are encountered, or loss of circulation or other conditions which
would render further drilling impracticable by methods currently in general use
in the oil and gas industry, Participant may elect one of the following
options:
(a) to
plug and abandon the Prospect Well and not commence drilling a Replacement Well;
or
(b) to
plug and abandon the Prospect Well and commence a replacement well (“Replacement Well”) on the
Prospect Area within sixty (60) days after plugging and abandonment of the
original Prospect Well.
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Replacement
Well
6.13
If, pursuant to Section 6.12(b), the Parties decide to drill a Replacement
Well, a new AFE will be provided and Participant will be responsible for all
costs related to the drilling and completion of the Replacement Well in the same
manner as any Prospect Well as provided in this Article 6.
Election
Not to Participate in Replacement Well
6.14
Should Participant elect not to participate in a Replacement Well as set
out in Section 6.12(a) above, then such Prospect Well shall be plugged and
abandoned at Participant’s sole cost and expense. Notwithstanding the
foregoing, should Participant elect not to participate in such a Replacement
Well and GWPC elects to commence such a Replacement Well, Participant shall
forfeit all rights in and to such Replacement Well. Participant shall
remain responsible for all costs of plugging and abandoning the original
Prospect Well, but Participant shall have no obligations or liability with
respect to such Replacement Well, and GWPC shall defend, hold harmless and
indemnify Participant in connection with same.
Retaining
Interest in Prior and Future Prospect Wells
6.15
Notwithstanding Section 6.14, if the Participant elects not to participate in a
Replacement Well, Participant shall:
(a) be
entitled to retain its interests in and to any prior Commercial Wells (as
defined below) and the acreage allocated to the proration unit for each such
Commercial Well, or if no proration unit has been designated for such Commercial
Well, then forty (40) acres in the form of a square with such Commercial Well as
its center (if such configuration is not possible or practicable, then such
forty (40) acres in as nearly the form of a square as possible under the
circumstances), and
(b) retain
the right to participate in all future Prospect Wells.
Completion
and Pipeline/Gathering Line Costs
6.16
Unless otherwise agreed to in writing by both Parties, or unless
Participant has forfeited its rights and interests in and to a given Prospect
Well, Participant agrees to pay 100% of completion and pipeline/ gathering line
interconnection costs for each Prospect Well within thirty (30) days of
receiving a cash call(s) from the Operator. Failure to timely pay to
the Operator pipeline/ gathering line interconnection costs following notice of
non-payment from GWPC and failure to cure such non-payment within five (5) days
of such notice will result in Participant forfeiting the entirety of its
interest in the Prospect Well being connected, any future Prospect Wells
and unearned acreage covered by the Lease. Notwithstanding
the foregoing, should Participant not make such payment, it shall be entitled to
retain its interests in and to any prior Commercial Wells and shall be entitled
to retain the acreage allocated to the proration unit for each such Commercial
Well, or if no proration unit has been designated for such Commercial Well, then
forty (40) acres in the form of a square with such Commercial Well as its center
(if such configuration is not possible or practicable, then such forty (40)
acres in as nearly the form of a square as possible under the
circumstances). Participant agrees to execute such documents and
assignments as may be reasonably requested by GWPC and Operator, including
amendment of this Agreement and the JOA to reflect the Participant’s forfeiture
of any Prospect Wells.
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ARTICLE
7
JOINT
OPERATING AGREEMENT
Execution
of Operating Agreement
7.1
At Closing, the Parties shall execute a Standard A.A.P.L. Form
610 - 1989 Revised Model Operating Agreement, substantially identical in form to
that form attached to this Agreement and made a part hereof as Exhibit “B” (the
“JOA”). The
JOA shall be executed by the Operator and shall be executed by GWPC, Ben Carter
and Participant as non-operators. It is hereby agreed that the JOA
will cover the Lease and all oil and/or gas operations on the Prospect Area that
are associated with Participant’s participation in the Prospect
Wells. If any provision of the JOA and this Agreement conflict, the
terms and provisions of this Agreement shall prevail.
Appointment
of Manager
7.2
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