PURCHASE AND SALE
AGREEMENT
This Purchase and Sale Agreement (“
Agreement ”) is made on May 30 th , 2006
and shall become effective 45 days hence forth (the
“Effective Date”) and is made by and between, W.A.
Walker (“ Walker ”) and Quest Oil Corporation, a
Nevada corporation, (“ Quest ”) and is ratified
by Clyde L. Shinkle (“ CLS ”), Nancy Ann Glover
(formerly Nancy Ann Shinkle and hereinafter, “ NAS
”), Michael James Shinkle (“ MJS ”) and
Darleen Raulston (“ DR ”). (CLS, NSA, MJS and DR
are collectively referred to herein as “ Shinkle
”).
I.
The
Lease
WHEREAS, on
July 15, 2004, Shinkle entered into an oil and gas lease with
Walker (the “ 2004 Shinkle Lease ”), thereby
leasing to Walker, oil, gas and water rights (“ OGWR
”) underlying property (which shall be referred to herein as
the “ Shinkle Property ” and which shall be
described more completely in (i) the 2004 Shinkle Lease (a copy of
which is attached hereto and incorporated herein as “
Exhibit A ”), and (ii) the last paragraph of this
Section 1).
WHEREAS, the 2004 Shinkle Lease provides for (i)
a one year term (the “ Term ”), and (ii) for the
Term to be extended should there be any production (to “
Produce ” or “ Production ”) of oil
or gas or water (“ OGW ”) in the subject
property.
WHEREAS, since the execution of the 2004 Shinkle
Lease there has been Production of OGW; and such Production of OGW
has been evidenced by an Affidavit of Production (attached hereto
as “ Exhibit B ” and hereinafter referred to as
the “ Affidavit ”).
WHEREAS, as a result of the aforesaid
Production, the 2004 Shinkle Lease and the assignments related
thereto, are in full force and effect and are legally valid and
shall remain so long as there is production of OGW.
WHEREAS, in order to legally confirm and ratify
the legal validity and current effectiveness of the rights
underlying the 2004 Shinkle Lease as well as the current interests
of Walker and Shinkle in the same, Shinkle has executed the
attached Ratification Agreement (attached hereto as “
Exhibit C ” and hereinafter referred to as the “
Ratification ”).
WHEREAS, on June 29, 2005, Walker executed an
agreement (a copy of which is attached hereto as “ Exhibit
D ”) that assigned a 75% Net Revenue Interest
(hereinafter referred to as “ NRI ” the
definition of which is contained in the 2004 Shinkle Lease) in the
OGWR to the Shinkle Property to Milestone Energy Capital LLC
(“ Milestone ”). As a result of the Exhibit D
agreement, Shinkle retained a 12.5% royalty interest (hereinafter
referred to as “ RI ” and the definition of
which is contained in the 2004 Shinkle Lease) and Walker retained a
12.5% NRI in the OGWR in the Shinkle Property.
WHEREAS, on February 27, 2006 and May 17, 2006,
Milestone executed agreements (copies of which are attached hereto
as “ Exhibit E ” and “ Exhibit F
” respectively) with Walker which conveyed all of
Milestone’s interest in the OGWR in the Shinkle Property to
Walker.
WHEREAS, as of the date of this Assignment of
Lease, with respect to ownership of the OGWR in the Shinkle
Property, Shinkle owns a 12.5% RI, and Walker owns a 100% working
interest and an 87.5% NRI.
WHEREAS, the
2004 Shinkle Lease which is the subject of this Assignment of Lease
and which is related to the Shinkle Property is duly recorded in
Book 50 of Leases at Page 505, Office of Register of Deeds of
Greenwood County, Kansas.
II.
Terms and
Conditions
NOW THEREFORE,
in consideration of the following, and other good and valuable
consideration, receipt of which is hereby acknowledged, Walker
agrees to sell, assign, transfer, and convey to Quest, subject to
the terms of the consulting agreement, all (100%) of Walker's
right, title, and interest in the 2004 Shinkle Lease, the interests
underlying the documents in Exhibits D, E and F and the real
property covered by the 2004 Shinkle Lease, on the terms and
conditions set forth below.
1.
Consulting Agreement with W.A.
Walker . Quest shall
enter into a consulting agreement with W.A. Walker (attached as
“ Exhibit G ”).
2.
Restricted Common
Shares . (a) 500,000
restricted common shares of Quest; and (b) 700,000 restricted
common shares of Quest (“ Balance Shares ”). On
a pro-rata basis, the Balance Shares shall be adjusted down should
Quest not recover in gross revenues (net of bonuses and royalties
to Walker and Shinkle), within 18 months of the closing date, 110%
of the sum of: (a) $68,000; (b) $300,000; and (c) the actual cash
spent on the Minimum Commitment (as defined below).
3.
Minimum Commitment
. Within 45 days from the Effective
Date, Quest agrees to commence a work-over program of the 20
existing wells on the Shinkle Property requiring a capital
investment of not less than $80,000 (the “ Minimum
Commitment ”).
Quest shall have 45 days from the date of
execution of this Assignment of Lease to conduct due
diligence.
All parties
shall bear their own costs and fees.
III.
Quest to Perform 2004
Shinkle Lease
Quest accepts, on the terms and
condit