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
following:
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
Lease.
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
DAYSTAR.
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
comes first.
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
working interest.
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
transfer.
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
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