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JOINT EXPLORATION AGREEMENT
October 1, 2005
This Joint
Exploration Agreement (this “Agreement”) is entered
into as of the 1st day of October, 2005, by and among Harding
Company, a Texas corporation (“Harding”), and
Providence Resources, LLC, a Texas limited liability company
(“Providence”). Harding and Providence are sometimes
hereinafter collectively referred to as the “Parties”
or in the singular as a “Party”. This Agreement sets
forth the terms and conditions under which the Parties will jointly
acquire, explore, develop, and operate certain oil and gas and
related mineral interests and properties from time to time in
Comanche and Hamilton Counties, Texas.
In consideration
of the mutual covenants herein contained, the Parties hereby agree
as follows:
1. PURPOSE AND TERM
1.1 Purpose. The purpose of this Agreement is to set forth the
understanding of the Parties and to establish the relationship
pursuant to which they will jointly acquire, explore, develop and
produce (and/or plug if necessary) certain oil and gas leases, fee
interests and other oil and gas and related mineral interests and
properties (“Mineral Interests”) within the Area of
Mutual Interest (“AMI”), further defined in Article 9
below, and depicted on Exhibit “A” attached hereto and
made a part hereof for all purposes. Any Mineral Interest acquired,
explored, developed and produced (or plugged if necessary) by any
Party to this Agreement in the AMI during the term of this
Agreement shall be governed by the provisions of this
Agreement.
1.2 Term. The term of this Agreement shall be
divided into two (2) phases:
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(a)
The first phase (“Phase I”) shall commence on the date
hereof and terminate on August 1, 2006, unless extended in
accordance with the terms hereof. The transactions, obligations and
commitments of the Parties discussed in Articles 2 and 3 below
constitute all the transactions, obligations and commitments to be
undertaken during Phase I.
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(b)
The second phase (“Phase II”), if initiated by the
Parties in the manner discussed in Section 5.1 below, shall
commence on the termination date of Phase I and shall continue
until the last day of the twelfth month thereafter.
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1.3 Phase I and/or Phase II may be extended for six-month
periods thereafter or as otherwise mutually agreed to by the
Parties hereto.
1.4 Notwithstanding the foregoing, if Providence should fail to
meet its funding obligation in Section 3.1(b) of this Agreement by
the date specified in said Section 3.1(b) (or such other date as
the Parties shall mutually agree), this Agreement shall be
immediately terminated. In that event, any payments made by
Providence to Harding pursuant to Section 3.1(a) below shall be
retained by Harding and be applied to the purchase of 500 acres of
Mineral Interests within the AMI, with the specific acreage to be
as mutually agreed by the Parties or, if the Parties cannot so
agree, by a neutral third party mutually selected by Harding and
acceptable to Providence. It is agreed, however, that
notwithstanding a termination under this Section 1.2, the
provisions of this Agreement shall continue in full force as to any
Drilling Unit (as hereinafter defined) created pursuant to Section
5.3 hereof, and as to the terms of the AMI in Article 9 hereof.
2. PHASE I: PURCHASE AND SALE
2.1 Purchase and Sale. Harding agrees to sell and assign the
“Acquired Interests” to Providence and Providence
agrees to purchase and pay Harding for the Acquired Interests in
the manner described in Article 3 below. As used in this Agreement,
the term “Acquired Interests” means:
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(a)
The leasehold estates or working interests created by the oil and
gas leases described in Exhibit “B” attached hereto
(the “Leases”), and the lands covered by the Leases
(the “Lands”), and
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(b)
Any Mineral Interests within the AMI that are acquired by Harding
on or before November 29, 2005,
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up to an aggregate of 5,000 net mineral acres; provided,
however, that as soon as is reasonably practicable after execution
of this Agreement (in the case of Mineral Interests described in
Clause (a) above) or after acquisition of Mineral Interests of the
type described in Clause (b) above, Harding shall provide or make
available to Providence, for each parcel proposed to be included in
the Acquired Interests, all title opinions and other title-related
materials and information, all surveys, plat maps, geophysical or
geological data, and all other data or information in
Harding’s possession relating to such parcel (collectively,
“Parcel information”), and Providence shall be afforded
a reasonable opportunity after review of such Parcel Information to
accept or reject each such parcel; provided further that if
Providence consummates the purchase of the Acquired Interests
without objecting to the inclusion of a given parcel as to which it
was provided all Parcel information at least 30 days prior to such
consummation, it shall be deemed to have accepted that parcel.
Any sale of
Mineral Interests pursuant to this Section 2.1 shall be subject to
the royalties and overriding royalties affecting such Mineral
Interests as of the date of execution of this Agreement (in the
case of Mineral Interests discussed under Clause (a) above) or as
of the date of execution of the underlying lease or other
conveyance document pursuant to which the Mineral Interest is
acquired (in the case of Mineral Interests discussed under Clause
(b) above), in each such case aggregating not more than 24% of
8/8ths, and further subject to the terms and conditions set forth
in this Agreement.
2.2 Interests Reserved.
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(a)
Overriding Royalty Interest. In any assignment of Acquired
Interests or of any other Mineral Interests conveyed by Harding to
Providence pursuant to this Agreement, Harding shall reserve an
overriding royalty interest equal to the positive arithmetical
difference, if any, between 24% of 8/8ths and all royalties,
overriding royalties and other lease burdens affecting said Leases
as of the date of execution of this Agreement (in the case of
Mineral Interests discussed under Clause 2.1(a) above) or as of the
date of execution of the underlying lease or other conveyance
document pursuant to which the Mineral Interest is acquired (in the
case of any other Mineral Interests), as to all oil, gas,
casinghead gas and other liquid and gaseous hydrocarbons produced
and saved from or attributable to the Leases, proportionately
reduced to the leasehold interest on such Lease assigned to
Providence hereunder.
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(b)
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Carried Working Interest. In addition to the overriding royalty
interest, Harding reserves unto itself, its successors and assigns,
a carried working interest equal to ten percent (10%) with respect
to all wells drilled and completed in the AMI. The carried working
interest reserved by Harding will be carried free and clear of all
drilling and completion costs and free and clear of expenses into
the tanks, pipeline or marketing point to which the well or wells
may be connected. Such interest shall pay its proportionate share
of gross production taxes and all other taxes assessed against said
interest; and shall be subject to the Operating Agreement in the
form attached hereto as Exhibit “C” (the
“Operating Agreement”).
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2.3 Purchase Price. The purchase price for Harding’s
Interest in the Acquired Interests (the “Purchase
Price”) shall be calculated by multiplying $500 times the
total net mineral acres contained in the Acquired Interests as of
November 29, 2005, which shall be paid by Providence to Harding as
follows:
(a)
On the date of execution of this Agreement (the “Closing
Date”): $250,000; and
(b)
On or before November 29, 2005: The balance of the Purchase
Price.
2.4 Assignment of Acquired Interests. Simultaneously with the
payment specified in Section 2.3(b), Harding shall execute and
deliver to Providence a recordable assignment document in form and
substance reasonably acceptable to Providence, covering
Providence’s ownership interest in the Acquired Interests,
subject to any required consent to such assignment that may be
contained in the applicable leases. Such assignment shall be made
without warranty of title, except as to those claiming by, through,
or under Harding, but not otherwise, and shall be free and clear of
all liens, claims or encumbrances except for (i) Providence’s
proportionate part of valid and existing royalties and the
overriding royalty interests and carried working interest described
in Section 2.2 of this Agreement and (ii) any required consents of
lessors, which consents Providence shall work diligently to obtain
as promptly as possible after the Closing Date. If Harding is
unable to obtain any such consent to the assignment to Providence
by the 30th day following the Closing Date, Providence shall have
the right, but not the obligation, to assign the applicable Mineral
Interest back to Harding, in which event Harding shall promptly
refund to Providence the portion of the Purchase Price attributable
to the re-conveyed Mineral Interest.
3. OTHER PHASE I OBLIGATIONS
3.1 Acreage Acquisition Program. During Phase I (but after
November 29, 2005), Harding shall work to acquire additional
Mineral Interests within the AMI. Providence shall have the right
and option to purchase any such additional Mineral Interests for a
purchase price equal to 100% of the lease acquisition and bonus
costs plus an additional $150 per net mineral acre. Harding shall
notify Providence of the acquisition of any parcel of Mineral
Interests within the AMI promptly following such acquisition,
including with such notice all Parcel Information.
Providence shall
have a period of 30 days after receipt of such notice and Parcel
Information to furnish Harding written notice of its election
whether or not to acquire the parcel; provided, however, if a well
in search of oil or gas is being drilled within one mile of such
parcel at the time the notice is given, Providence shall have a
period of 48 hours after receipt of the notice (exclusive of
Saturdays, Sundays and legal holidays) within which to elect to
acquire the parcel, provided further, however, that the 48-hour
election period shall not apply unless Harding shall (i) give the
notice to Providence within two days after the date on which
Harding acquired the parcel, exclusive of Saturdays, Sundays or
legal holidays, (ii) furnish Providence with the approximate
location of the well then being drilled and the name of the
operator or drilling contractor drilling the well, and (iii)
specifically advise Providence that it shall have a period of 48
hours (exclusive of Saturdays, Sundays and legal holidays) within
which to elect to acquire the parcel.
Closing of the
purchase and sale of any parcel accepted by Providence pursuant to
this Section 3.1 shall occur at the offices of Harding within ten
days of the date Providence notifies Harding it accepts the parcel,
or at such other place or time as the parties shall agree. At the
closing Providence shall pay for the parcel in cash or other
immediately available funds and Harding shall transfer the parcel
to Providence using a recordable assignment document consistent
with that contemplated in Section 2.4 above.
Any parcel
purchased by Providence pursuant to this Section 3.1 shall be
conveyed subject to the same overriding royalty interest and
carried working interest applicable to Acquired Interests, as
discussed in Section 2.2 above. It is the objective of the Parties
to add 10,000 net mineral acres pursuant to this Section 3.1.
3.2 Seismic Obligation. Harding shall engage a mutually
acceptable seismic data contractor, to acquire, process and
interpret approximately 8 square miles of 3-D seismic over and
across the Acquired Interests. Providence shall fund 100% of
Harding’s cost of acquiring, processing and interpreting such
seismic data, up to $350,000 (or such greater amount as Providence
shall approve in writing in advance). Payment shall be made to
Harding within 15 days of receipt of Harding’s Authority for
Expenditure (“AFE”) for the seismic program, provided
such AFE is submitted to Providence no more than 30 days prior to
scheduled commencement of work and is accompanied by a schedule of
work provided or approved by the seismic contractor.
3.3 Drilling Obligation. Providence shall fund 100% of the costs
of drilling four wells (“Obligatory Wells”) in the AMI
in accordance with the provisions of Article 4 below. Three of the
Obligatory Wells shall be vertical wells drilled to test the Marble
Falls Formation and the fourth Obligatory Well shall be a
horizontal well to test the Barnett Shale Formation. The first
Obligatory Well shall be commenced on or before January 31, 2006
and drilled in accordance with Section 7.1. The Obligatory Wells
shall be drilled “back-to-back” by Harding with
locations, depths, and other parameters agreed to by the Parties at
the first Technical Meeting contemplated in Article 6 below.
Notwithstanding the obligatory nature of the Obligatory Wells,
Providence shall not be obligated to fund the cost of any
Obligatory Well unless and until it has been presented with and has
approved a reasonably detailed budget for the well.
4. CONTRIBUTIONS AND COST
SHARING
4.1 Administrative Costs/Professional Fees. Except as specified
in Section 4.2 below, during the term of this Agreement Providence
shall be responsible for and shall pay all administrative costs and
professional fees associated with activities conducted pursuant to
the terms of this Agreement by Harding’s office staff and
professional consultants. Harding shall provide Providence a
detailed accounting of all such costs, with appropriate back-up
documentation as reasonably requested by Providence, prior to any
request for payment or reimbursement pursuant to this Section
4.1.
4.2 Costs and Expenses. Except for those costs Harding shall be
entitled to as operator fees pursuant to the terms of the Operating
Agreement for all wells drilled pursuant to the terms of this
Agreement, all well-related costs, expenses and income shall be
borne, paid and received in the following proportions on a
well-by-well basis until each well is completed through the
pipeline connection as below provided:
Before Pipeline Connection After Pipeline
Connection Cost/Expense Income Cost/Expense Income Harding 0% 0%
10% 10% Providence 100% 0% 90% 90%
Such costs shall include, but shall not be limited to, the
acquisition of 3-D seismic and/or other geophysical and/or
geological surveys (beyond that contemplated in Section 3.3 above),
brokerage fees and costs, title opinion and other legal costs, and
all drilling, testing, completing, transportation, marketing and
operating costs that are not otherwise covered by the Operating
Agreement.
4.3 Payment of Costs. All costs and expenses shall be charged
and paid on an “actual invoice of costs incurred”
basis, without mark-up, and shall be paid by Providence within 30
days of receipt of Harding’s invoice with all back-up
documentation.
4.4 Ownership of Mineral Interests. Providence shall hold title
to all Mineral Interests on which operations are conducted pursuant
to this Agreement, except for (a) Mineral Interests acquired by
Harding and offered to Providence pursuant to Section 3.1 above,
and ultimately declined by Providence, and (b) Mineral Interests of
third parties, e.g., pooled interests.
5. PHASE II
5.1 Option to Enter Phase II. Upon completion of Phase I,
Providence shall advise Harding in writing whether it elects to
enter Phase II of this Agreement. If Providence elects not to enter
Phase II, this Agreement shall terminate; provided, however,
