Exclusive Contract Agreement
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Exclusive Contract Agreement
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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.
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.
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 ”).
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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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.
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.
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.
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.
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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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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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