JOINT VENTURE PARTNERSHIP AGREEMENT
This AGREEMENT, when executed by R.J. Clark representing, Permian Energy
Services, L.P ("PES"), and Paul Cothran, representing DayStar Oil & Gas
Corporation, ("DAYSTAR") will constitute a full and binding agreement
enforceable under the legal statutes of the state of Texas.
WHEREAS, DAYSTAR currently owns and/or has exclusive ownership rights to
oil and gas producing acreage in Harris County, Texas, that includes the
Cherry, Coe, and Sterling-Redfern Leases hereinafter referred to as the
"Humble Field Leases".
WHEREAS, DAYSTAR has agreed to allow PES to install its proprietary thermal
recovery equipment, hereinafter referred to as the Thermal Pulse Unit
("TPU") for the purpose of stimulating and producing selected oil wells;
WHEREAS, both DAYSTAR and PES recognize the commercial benefits to the use
of the TPU technology, both parties agree to hold all elements, written and
oral, pertaining to the Humble Field Leases and all other related information
such as marketing strategies, operational and reservoir techniques, and
mechanical designs in strict confidence for a period of time consistent with
the duration of the longest active producing lease involving the TPU.
THEREFORE, DAYSTAR and PES agree in good faith and best efforts on the
I. TERM & CANCELLATIONS
1. The initial term of this AGREEMENT shall be for a period of NINETY (90)
days. This term shall be referred to as the "Test & Evaluation Period". The
term of the Test and Evaluation Period shall begin following the first day of
active operation of the TPU at any individual well within the Humble Field
2. This AGREEMENT can only be extended if PES exercises its option on
purchasing the working interest in the Humble Field Leases.
3. PES, at its sole discretion, will have the exclusive right to suspend
and/or to terminate the use of the TPU on any well during the Test &
Evaluation Period by giving three (3) days advanced, written notice to
a. PES will have the unrestricted right to remove, at its sole expense, all
TPU equipment, and other equipment, surface and down hole, that it paid for
during the course of the well lease program.
b. PES will leave the location in a "no worse" condition upon abandonment
of the production.
4. DAYSTAR can cancel this AGREEMENT if PES fails to deliver the TPU equipment
in a timely manner and/or if the equipment fails to operate within safety
guidelines prescribed by DAYSTAR.
5. DAYSTAR can cancel this AGREEMENT if the TPU makes no measurable
improvement in the oil and gas production in first three (3) producing
wells providing all mechanical equipment, surface and subsurface, work
within standard operating parameters.
II. WORKING INTEREST OWNERSHIP AND OPTIONS
1. DAYSTAR shall give PES a ONE HUNDRED AND TWENTY (120) day option period
to purchase FIFTY PERCENT (50%) working interest in each of the Humble
Field Leases for a total price of TWO HUNDRED THOUSDAND DOLLARS ($200,000).
This option must be exercised by PES in writing within TEN (10) working days
prior to the end of the Test & Evaluation Period or March 31, 2005 whichever
2. Should PES exercise its option to purchase the working interest in the
Humble Field Leases, DAYSTAR will allow PES to pay for the Working Interest
in production payments and/or regular installment payments to be made and
finalized within a TWO (2) year period.
a. PES will allow DAYSTAR to offset and to retain TWENTY FIVE PERCENT (25%)
of its net, monthly revenue from its working interest revenue to be used for
payment until the TWO HUNDRED THOUSDAND ($200,000) debt is paid.
b. DAYSTAR will not charge any interest for the deferred payment plan on the
6. DAYSTAR will give PES the Right of First Refusal to participate up to FIFTY
PERCENT (50%) of the Working Interests on any future leases that might be
acquired in the shallow Caprock structure of the Humble Salt Dome Field.
a. The shallow Caprock structure is defined as any oil and gas bearing
structure less than ONE THOUSAND FEET (1000) below the surface of the ground.
b. Payment for these leases shall be made at the time of closing and custody
III. RIGHTS & RESPONSIBILITIES OF DAYSTAR
1. DAYSTAR will designate the Operator of Record for the Humble Field Leases,
and that designee will perform all clerical and fiduciary duties such as
compiling production reports and making payments for royalty, tax, working
interests disbursement, and operational costs. Cost for Operator of Record
will be consistent with industry standards.
2. DAYSTAR will permit PES's full access to all available well files and
production records for the purpose of evaluating potential candidate wells
for stimulation and subsequent ongoing production. Furthermore, DAYSTAR
will detail all past stimulation techniques used on prospective wells and
their historical reaction to the stimulation.
3. DAYSTAR will afford PES full access to the physical property known as
the Humble Field Leases.
4. DAYSTAR will supply petroleum and reservoir engineering services as
DAYSTAR deems it necessary at no charge for the TPU stimulation project(s),
and make suggestions as to the best candidates for the TPU stimulation.
5. DAYSTAR will supply its existing field personnel at no cost to the Joint
Venture and coordinate their activity so that they might assist PES in its
efforts to stimulate and to produce selected wells. Cost for roustabout
services and other Labor support will be shared equally by both parties.
Should this AGREEMENT be extended beyond the Test & Evaluation Period, DAYSTAR
will pay its proportionate amount as required by its Working Interest.
6. DAYSTAR will provide and pay for all well head fittings, hoses, valves,
flow lines, injection lines, surface tanks, and electrical service necessary
to connect the TPU to any singular or multiple wells, production and
injection, during the Test and Evaluation Period. Should this AGREEMENT
be extended beyond the Test & Evaluation Period, DAYSTAR will pay its
proportionate amount as required by its Working Interest.
7. DAYSTAR will pay for all bottom hole cleanout costs, i.e. rig time, reverse
rig, spot acid jobs to any singular or multiple well during the Test and
Evaluation Period or until PES exercises its option to purchase the working
interest. Should this AGREEMENT be extended beyond the Test & Evaluation
Period, DAYSTAR will pa