MEMORANDUM of
UNDERSTANDING
This Agreement, dated the 26
th day of January, 2009, by and between REDS, LLC,
hereinafter referred to as “REDS”, and NITRO PETROLEUM,
INC., hereinafter referred to as “NITRO”.
WITNESSETH:
WHEREAS, REDS has acquired
individual Indian mineral leases located in and around CROW INDIAN
reservation in the State of Montana, and,
WHEREAS, NITRO, publicly held Oil
& Gas Company, is desirous of entering into an Agreement to
explore the acreage owned by REDS for oil and gas:
NOW, THEREFORE, the parties hereto
have agreed as follows:
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1.
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NITRO will have the right to obtain
from REDS leases covering the first ten wells (Phase One) to be
drilled on the lands described in Exhibit “A”, attached
hereto and made a part hereof as if fully set forth at length, and
NITRO will implement the procedures necessary to comply with the
regulatory authorities responsible for the approval and permitting
of wells on the said individual Indian lands. These first ten wells
will explore for oil and gas, as is fully described in Exhibit
“A”, it being expressly agreed to by the parties that
NITRO will be entitle to its proportionate part of all hydrocarbons
covered under the leases to be assigned.
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2.
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As consideration for the assignment
to NITRO of said leases by REDS, NITRO will pay REDS a signing
bonus of seventy-five thousand dollars ($75,000). It is agreed and
understood that the release of the signing bonus is contingent upon
REDS delivering to NITRO the TSR (Title Status Reports) reports for
each owner for each 160 acre tract and assign the unencumbered
leases for the160 acre tracts to NITRO signed by all owners and
fractional owners of the mineral rights for the 10 individual 160
acre tracts.
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3.
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In addition, NITRO further agrees to
escrow the sum of $250,000.00 (Two Hundred Fifty thousand dollars),
immediately after the leases have been deemed unencumbered and
accepted into record by the County of jurisdiction. NITRO has
agreed to pay for the lien research and to take full responsibility
to record the leases in the County courthouse. It is further
understood that REDS will give meaningful consultation and willful
assistance to assist NITRO in this process.
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4.
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This deposit will be paid to an
Escrow Agent, to be appointed by REDS, however REDS as indicated
that their escrow agent of choice will be SUN TRUST BANK located in
Nashville, Tennessee. The sum shall be released on a pro-rata basis
to REDS as each well lease and permit is approved by the Bureau of
Indian Affairs and the permitting by the Bureau of Land Management,
both being Federal Agencies having regulatory responsibilities in
these matters.
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5.
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It is further agreed that the
royalties to be paid shall be from gross 1/5 th (20%) of
all oil and gas produced, except for the coal royalties, which
shall be the 1/8 th royalty
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