FARMOUT
AGREEMENT
Rio Vista Gas
Field
Cache Slough
Prospect
Solano County,
California
THIS AGREEMENT
is made effective the 25th day of May, 2005 between Production
Specialties Company (hereinafter referred to as “PSC”)
and Delta Oil and Gas, Inc. (hereinafter referred to as
“DOG”).
WHEREAS, PSC
represents and warrants that it has the right to earn an interest
in oil and gas leasehold interests in and to certain lands located
in Sections 6, 7 & 18, Township 4 North, Range 3 East,
M.D.B.M., Solano County, California. Said lands being further
described on the attached Exhibit “A” and Area of
Mutual Interest (AMI).
WHEREAS, DOG
desires the right to earn from PSC an assignment, pursuant to
paragraph 3 below, of PSC’s interest in said leases, lands
and Prospects. PSC is willing to grant such right and/or option as
provided herein.
NOW, THEREFORE,
for and in consideration of the mutual promises and covenants
contained herein, to be kept and performed by the parties hereto,
and other valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto do hereby agree as
follows:
On or before
July 1, 2005, on behalf of DOG and its partners, PSC shall
participate in drilling the initial test well (“C&C
Minerals-NNG #1-7”) to a depth of 7,000’ TVD or deep
enough to adequately test the Mokelumne, Bunker and Starkey seismic
anomalies. The Test Well shall be directionally drilled to
intersect potential productive sands.
DOG shall pay
18.75% of 100% of all costs and expenses of drilling, testing
completing and equipping the C&C Minerals-NNG #1-7 which shall
include the costs of the wellhead and other required surface
production equipment, and all pipelines and meters required to
produce and transport the gas production to a gas sales line or
other point where the production can be marketed and sold, or
18.75% of 100% of all costs associated with the plugging and
abandoning the C&C Minerals-NNG #1-7, whichever is the case. An
Authorization for Expenditure for the C&C Minerals-NNG #1-7
shall be forwarded to DOG prior to commencement of drilling
operations. This Authorization of Expenditure shall represent the
estimated cost of the C&C Minerals-NNG #1-7 and PSC shall have
the right to demand and receive from DOG payment in advance of its
respective share of the Authorization of Expenditure. DOG shall pay
the full amount of the payment so invoiced prior to commencement of
drilling operations. In the event
DOG fails or
refuses to make such advance payment, then DOG shall forfeit all of
its right, title and interest under this Agreement.
The
Authorization for Expenditure is merely PSC’s reasonable good
faith estimate of the costs and expenses of the #1-7 Well. Actual
costs and expenses of the #1-7 Well may exceed the Authorization
for Expenditure in which case DOG shall pay its proportionate share
of all such excess costs and expenses. PSC shall have the right to
demand and receive from DOG payment in advance of its respective
share of any estimate costs and expenses in excess of the
Authorization for Expenditure. If DOG fails or refuses to make any
such advance payments, DOG shall forfeit all right, title and
interest under this Agreement.
If the Test
Well is completed as a well capable of producing oil and/or gas in
paying quantities, DOG shall own and be entitled to 12.50% of
8/8ths working interest in and to the Oil and Gas Leases set out in
Exhibit “A”. Said working interest of leases shall be
delivered to DOG at no less than 68% of 8/8ths net revenue interest
in the Test Well. PSC makes no representation or warranty of net
revenue interest except for the foregoing warranty
