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EXHIBIT 10.1
SALE CONTRACT FOR OIL AND GAS
LEASES
BETWEEN
Energy Program Accompany, LLC, a
Louisiana Limited Liability Company
AND
Penasco Petroleum, Inc., a Nevada
Corporation
Executed on this 24 th Day of August, 2006
Sale Contract for Oil and Gas
Leases
Be It Known That the
following Sale Contract for Oil and Gas Leases, hereinafter
referred to as "Agreement", is made by and between:
Energy Program Accompany, LLC , a
Louisiana Limited Liability Company, with its principal place of
business at 4409 Echo Bluff Drive, Plano, Texas 75024, hereinafter
referred to as "EPA" and represented by Paul Emerson as President,
and
Penasco Petroleum. Inc ., a Nevada
Corporation, with its principal place of business at 99801 Anderson
Mill Road, Suite 230, Austin, TX 78750, hereinafter referred to as
"Buyer" and represented by Leonard G. Garcia as President.
EPA and Buyer shall hereinafter together be
referred to as "parties herein".
Whereas EPA has sought to sell certain
oil wells and leases in northern Louisiana because of a lack of
time to devote to the business and an absence of available capital
to invest into new and existing
production; and
Whereas Buyer has sought to purchase oil
wells and leases that have the potential to obtain greater profits;
and
Whereas the parties herein believe that the
oil wells and leases to be sold by this Agreement can be made more
profitable with a strong investment oftime and capital;
Now Therefore , EPA and Buyer enter
into this Agreement on the following terms, conditions,
stipulations, covenants, mutual covenants, and performance as
herein defined above and below:
1.0 Sale of Oil Wells and Leases
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1.1 Subject to
retention by EPA of the overriding royalty interests defined by
Section 1.3 and for the consideration defined by Section 1.2, EPA
shall sell to Buyer the property described on Exhibit "A"
(hereinafter the "Property"). This sale shall be made without any
warranties, either expressed or implied, as to the condition of the
wells, Leases, oil, lease structures, roads, and/or equipment,
except for those warranties and representations expressly made
under Section 5.5.
1.2 The sale price
shall be $250,000.00 (Two Hundred Fifty Thousand Dollars) that
shall be paid in cash by Buyer to EPA by 2:00 pm Central Standard
Time on August 25, 2006, and this cash shall be wired into EPA's
account at Comerica Bank in Dallas, Texas.
1.3 EPA shall
retain a six and one-quarter percent (6.25 %) overriding royalty
interest on both the J.E. Holt A lease (including the #4, #10, #22,
and #24 wells and all wells that may be drilled on that lease) and
the Strahan lease. EPA shall also retain a one and one-quarter
percent (1.25%) overriding royalty interest on the McKay lease. The
overriding royalty interest shall be the specified percentage of
total production without any regard to lease expenses, except for
oil and gas severance taxes.
Page 1 of 12
2.0 Payment of Operating
Expenses
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2.1 Buyer shall be
responsible for any and all bills, expenses, fines, or taxes
(hereinafter "Expense" or "Expenses") from any supplier, service
provider, or government on the Leases that are incurred and/or
billed beginning September 1, 2006 (the "Effective Date"). EPA is
responsible for Expenses incurred and billed no later than August
31, 2006. Buyer shall be responsible for any property taxes
incurred and/or billed after the Effective Date. Buyer shall pay
any transfer taxes or fees from the sale of the Leases.
2.2 In the event
that EPA receives after the Effective Date of this Agreement an
Expense invoice(s) for which Buyer is responsible as governed by
Section 2.1, EPA shall fax or mail the invoice to Buyer within
three business days. Buyer agrees to pay EPA for the full amount of
such invoice within ten days of receipt.
2.3 Buyer shall
not use any EPA account established with any supplier, service
provider, or government beginning on the Effective Date, except
with the expressed written permission of EPA. Buyer shall establish
its own accounts with all suppliers, service providers, or
governments, and Buyer shall be responsible for changing billing
addresses and billing names for any supplier or provider that EPA
has used and that Buyer plans to use. Buyer shall also notify all
such suppliers and providers that EPA no longer own the Property
and are no longer responsible for payment.
2.4 Buyer shall
change the billing name and account with Northeast Louisiana Power
for the Holt, Mckay, and Strahan leases. Buyer shall place new
deposits with Northeast Louisiana Power, and EPA shall have the
right to receive back its deposits with Northeast Louisiana Power.
Buyer shall have no more than thirty days from the Effective Date
to cause this change.
3.0 Escrow of Lease Assignments and Transfer
Forms
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3.1 Under the terms
of Section 1.0, EPA shall execute lease assignments, bills of sale,
and such other documents as deemed necessary to effectuate the
transfers contemplated hereby in the reasonable discretion of Buyer
(the "Transfer Documents") and shall send the same to Buyer's
attorney within 5 days of the date of execution of this Agreement.
The Transfer Documents shall not be recorded and are null and void
until EPA is paid in full and all funds have cleared. The Transfer
Documents shall be immediately released to Buyer once the
above-mentioned condition and Section 3.2 are satisfied.
3.2 Within 5 days
of the execution date of this Agreement, EPA and Buyer shall
execute all applicable regulatory paperwork, including but not
limited to Form MD-10R-AO of the Louisiana Office of Conservation,
that shows the transfer of ownership and transfer of all
obligations to Buyer of the Property. Buyer and EPA agree to
immediately send all regulatory paperwork to the applicable
regulatory agency once Buyer is approved to become an operator of
record in Louisiana. Until such time as Buyer is approved and the
paperwork is sent to the applicable regulatory agency, EPA shall
retain possession of the original regulatory paperwork. Transfer
Documents shall not be recorded and are null and void until all
regulatory paperwork has been sent to the applicable regulatory
agency by certified mail, return-receipt requested.
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4.0 Operation of
Leases
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4.1 Unless
otherwise requested by Buyer, Buyer shall be responsible for the
day-to-day operation of the leases beginning on the Effective Date.
Buyer ratifies all operating decisions made by EPA prior to Buyer's
assumption of operations. EPA shall not be responsible and/or
liable for any operating decisions made after the Effective
Date.
4.2 Buyer shall
become the operator of record with the Louisiana Office of
Conservation for the leases as of the Effective Date and Buyer and
EPA agree to promptly take any steps necessary to complete a change
of operator with the Louisiana Office of Conservation. Buyer also
agrees not to sell oil under EPA's R-4 status with the Louisiana
Office of Conservation after the Effective Date. Each party shall
have the right to use any means and remedies available at law,
including but not limited to regulatory actions, specific
performance orders, and any other court orders, to enforce the
provisions of this section, and this right is exempt from the
provisions of Section 7.0. Each party shall indemnify the other
party for any attorney's fees and court costs if a party fails to
abide by the provisions of this section.
4.3 EPA shall be
responsible for any filings with the Louisiana Office of
Conservation and Louisiana Department of Revenue for all time
periods prior to and through August 31, 2006. Buyer shall be
responsible for all filings with the Louisiana Office of
Conservation and Louisiana Department of Revenue beginning
September 1,2006.
4.4 Buyer
understands that there is a state compliance order currently for
the Holt #22 oil well that mandates the plugging and abandoning or
re-commencing production of the well by November 13,2006. EPA shall
have no liability on this compliance order. EPA represents that it
knows of no other unresolved compliance orders, environmental
violations, and/or regulatory violations on the leases listed in
Exhibit A.
4.5 EPA has filed
or caused to be filed all tax returns that it has been or was
required to file, either separately or as a member of a
consolidated group, pursuant to applicable legal requirements. All
tax returns filed by (or that include on a consolidated basis) EPA
are true, correct, and complete. EPA has paid all taxes that have
become due pursuant to those tax returns or otherwise, or pursuant
to any assessment received by EPA, to the extent not being
contested in good faith. EPA does not have any knowledge of any
threatened tax assessment against it.
5.0 Liabilities, Warranties, and Representations
of the Parties
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5.1 Each party
herein shall hold harmless the other party from each of their
independent action(s) or transaction(s). Further, the parties
herein in this contract are to be construed and interpreted as
being absolutely independent entities, persons, or companies.
5.2 Each party
acknowledges that both oil and gas projects are high-risk ventures,
and each party expressly disclaims any warranty or guarantee,
either expressed or implied, made by itself and/or the other party
as to the profits or success of any business venture or of the
Leases.
5.3 Each party
herein expressly acknowledges that all projections, proposals,
analyses, information, and/or opinions, either expressed or
implied, provided by the other party and/or its management as
individuals shall not be construed as legal, financial, or business
advice and will not be relied on in determining any course of
action of the parties herein. Each party herein expressly
acknowledges that all projections, proposals, analyses,
information, and/or opinions, expressed or implied, provided by the
other party and/or its management as individuals may not be
accurate and may not conform to reality. Each party expressly
agrees to not rely on any projections, proposals, analyses,
information, and/or opinions, expressed or implied, provided by the
other party and/or its management as individuals, and each party
expressly agrees that the other party shall not be held liable in
the event such reliance does occur.
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5.4 Any limitation
on liability in this Section 5.0 shall not include willful and/or
malicious conduct, fraud, material misrepresentation as to a
party's intention in signing this Agreement, and gross negligence
where one party is found guilty by a court of competent
jurisdiction or arbitration panel under Section 7.0 of this
Agreement.
5.5 EPA hereby
represents the following:
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A. EPA has good title to the
Property in the proportions set forth on Exhibit "A", except
that
EPA does not warrant Buyer's ownership of the 3% of
the Working Interest on the J.E. Holt A lease owned of record by
Mcbride and Skinner.
B. EPA is the owner of the
entire share of EPA's portion of the interest in the Leases and
none of EPA's interest in the Leases or any sums payable thereunder
has been assigned or otherwise encumbered by EPA. There are no
claims or assertions of ownership or entitlement to distributions
from any lease production by any royalty or working interest owners
not having been disclosed to Buyer. EPA specifically agrees to
save, indemnify and hold Buyer harmless from any such claims
existing as of the Effective Date.
C. EPA has the full right,
power, and authority to sell and convey the Property to Buyer as
provided in this Agreement and to carry out EPA's obligations
hereunder, and all required entity action, if any, necessary to
authorize EPA to enter into this Agreement and to carry out its
obligations hereunder have been or by the effective date will have
been taken.
D. There are no liens or
encumbrances for indebtedness against the Property.
E. EPA has no knowledge of any
lawsuit or legal proceeding affecting the Property or any portion
thereof pending or being prosecuted in any court, or before any
federal, state, county or municipal department, commission, board,
bureau or agency or any other governmental instrumentality. There
are no proceedings pending or presently being prosecuted for the
reduction of the assessed valuation or taxes or other impositions
payable with respect to any portion of the Property.
F. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated by EPA will not: (i) result in the breach of any terms
or conditions of, or constitute a default under, any contract,
agreement, commitment, indenture, mortgage, pledge agreement, note,
bond, license or other instrument or obligation to which the EPA is
now a party or by which EPA may be bound or affected; or (ii)
violate any law or any rule or regulation of any administrative
agency or governmental body, or any order, writ, injunction or
decree of any court, administrative agency or governmental
body.
G. None of the Property nor the
ownership, leasing, occupancy or operation thereof is in violation
of any applicable law, code, rule, regulation, ordinance, license
or permit including, but not limited to, those related to building,
zoning or environmental matters and no notice from any governmental
body or other person has been served upon EPA claiming any
violation of such law, code, rule, regulation, ordinance, licen
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