Exhibit 2.4
PROJECT DEVELOPMENT AGREEMENT
-----------------------------
This Project
Development Agreement (this "Agreement"), dated
January 7, 2005, is made and entered into
by and between Sonerra
Resources Corporation ("Sonerra"), a Texas corporation, whose
address is P. O. Box 631627, Nacogdoches,
Texas 75963-1627,
and
Nacogdoches Gas, L.L.C. ("Nacogdoches Gas"),
a New Hampshire
limited liability company, whose address
is 1 New Hampshire
Avenue, Suite 125, Portsmouth, NH
03801.
Sonerra currently
owns and/or is acquiring from its
affiliate, Pinnacle Energy Group, L.C., a
Texas limited liability
company ("Pinnacle"), and/or other third parties, certain
undivided leasehold working interests in and
to oil, gas and
mineral leases and will continue to
acquire oil, gas and mineral
leases within the area outlined and
shaded in yellow on
Exhibit
"A" attached hereto (the "Project Area") which Sonerra has
identified as being prospective for
hydrocarbon production. The
Project Area may be expanded or otherwise amended
by written
consent of the parties hereto.
Sonerra
and Nacogdoches Gas
desire to set forth
the terms
under which Nacogdoches Gas shall acquire
undivided leasehold
working interests in oil, gas and mineral
leases and participate
in the drilling and development of wells on such leasehold
interests within the Project Area.
The development
by Sonerra
and Nacogdoches Gas shall include the drilling
of three (3)
prospect wells, within the Project Area
(the "Phase I Wells") and
options for the drilling of up to five (5)
separate sets of three
(3) prospect wells each, within the
Project Area (the
"Optional
Wells"), in accordance with the terms and
conditions set
forth
herein. Each of the separate Phase I Wells and
Optional Wells
(if any) are sometimes hereinafter referred to
as a "Project
Well".
NOW
THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is
agreed by the parties
as
follows, to wit:
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I. PROJECT
RESPONSIBILITIES.
A. Sonerra shall act as
operator of both the Phase I Wells and
the Optional Wells. As operator, Sonerra shall be responsible
for
(i) acquiring the oil and gas leases within the Project Area,
(ii) conducting such geological and geophysical analysis of the
Project Area as may be required to identify various drilling
prospects that are to be explored and developed and the
corresponding location and objective(s) of each Project Well to
be drilled in the Project Area, (iii) conducting all drilling,
completion and producing operations and (iv) installing,
managing
and operating the gas gathering, transportation and marketing
facilities, in the Project Area.
B. Nacogdoches Gas shall
provide financing for the Allocated
Funding Percentage (as hereinafter defined) of the Total
Prospect
Costs (as hereinafter defined) for each Project Well. For the
purposes of this agreement, the term "Total Prospect Costs"
shall
be defined as (i) the reasonable Acreage Consideration and
G&G
costs (each as defined or set forth in the Participation
Agreement (hereinafter described) pertaining to each specific
Project Well), and (ii) the actual costs of all drilling,
testing, completing and equipping (including the costs of
installing any gas gathering facilities and the wellhead
production meter) of or for a Project Well.
C. The specific rights and obligations
of Sonerra, as
operator, and Nacogdoches Gas, as participant, for each
Project Well
(including
applicable
standards of
conduct) shall
be set forth in the Participation
Agreement that is executed for each such respective
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Project Well. The
terms of the Participation Agreement
for each Project Well
shall grant Nacogdoches Gas the
right, subject,
however, to the
specific
limitations
and conditions contained therein, to participate in the
in-field development drilling of the proven undeveloped
locations ("PUDs")
relative to any such Project Well.
The Participation Agreement for each Project Well shall
be substantially
similar in form and
content to
the
terms
of the exemplar
Participation Agreement attached
hereto as Exhibit B.
This Agreement and the agreements
contemplated herein include all horizons, intervals or
formations to
the extent stated in
the Participation
Agreement for each Project Well.
II. PHASE I WELLS.
Sonerra agrees
to drill and complete
and Nacogdoches
Gas agrees
to finance three (3) Phase I Wells at
locations of Sonerra's
choice within the Project Area
as follows:
1. Completion
of Phase I Wells.
Sonerra shall
make
good faith efforts to drill and complete the Phase
I Wells
not later than 120 days after the
Effective
Date.
2. Allocated
Funding Percentage.
For each
of the
Phase I Wells,
Nacogdoches Gas
shall fund 100%
of the Total Prospect Costs for each Phase I Well,
less the total percentage funded by any
current
Sonerra
investors, if
any (which, in the
aggregate, such
funding by the
current Sonerra
investors shall
not exceed 25% of the Total
Prospect Costs of any Phase I Well). The resulting
total net percentage
of the Total Prospect
Costs
of each respective Phase I Well to be
funded by
Nacogdoches Gas shall be defined as the "Allocated
Funding
Percentage".
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3. Funding.
Nacogdoches Gas
shall provide the
Allocated Funding
Percentage
of the Estimated
Total Prospect
Costs (hereinafter
defined) for
each Phase I Well within fifteen (15) days of the
receipt from Sonerra
of (i) notification of
(a)
the Allocated
Funding Percentage and (b) the
Estimated Total
Prospect Costs, and (ii) the
Participation Agreement pertaining to each such
Phase I Well. As used
herein, the term "Estimated
Total Prospect
Costs" shall be defined as a
reasonable estimate of
the ultimate actual
Total
Prospect Costs
to be determined by
Sonerra for
each separate Project
Well, prior to the
actual
drilling of each such Project Well. If after the
drilling and
completion of any Project Well, the
Estimated Total Prospect Costs (i) are found to be
in excess of the
actual Total Prospect
Costs or
(ii) are found to be less than the actual
Total
Prospect Cost,
the refund of excess
funding by
Sonerra to
Nacogdoches Gas
or the funding of
additional costs
to Sonerra by
Nacogdoches
Gas
relative to
such Project Well,
shall occur in
accordance with
the terms contained
within the
Participation
Agreement
pertaining to
such
matters.
III. THE SUNSTONE INTERESTS. In addition to financing its
Allocated Funding
Percentage of the Total Project Costs
of
the Phase I Wells, Nacogdoches Gas
agrees to finance
100%
of the purchase price, up to,
but not exceeding
$3.45 million, for the
acquisition by Sonerra of the oil
and
gas interests, properties and assets within the
Project Area, currently owned by SunStone Corporation
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(the
"SunStone
Interests"),
as more particularly
described in Exhibit
"C" attached hereto.
The terms of
financing and acquisition of the SunStone Interests shall
be
definitively set forth
in a separate written agreement
between the parties hereto.
IV. OPTIONAL WELLS. Within two (2) years after the
Effective
Date, Sonerra shall
propose to Nacogdoches Gas, five (5)
separate sets
containing three (3)
Project Wells each
("the Optional Well
Sets"). Nacogdoches
Gas shall have
the
option (but not the
obligation) to provide
financing
for
the Total Prospect
Costs for all of the Project Wells
contained within each of the Optional Well Sets upon the
same
basis and subject to
the same terms as provided for
and
with respect to the
Phase I Wells, including, but not
limited to,
Article II. 2. (Allocated Funding) and
Article II. 3. hereof
(Funding), but exclusive, however,
of
Article II. 1. hereof
(Completion of Phase I
Wells).
Sonerra shall
provide a written
proposal to
Nacogdoches
Gas
for each Optional Well Set, which shall contain
sufficient information
for Nacogdoches Gas
to make an
informed decision
regarding such proposal. In order to
exercise its option to participate in the drilling of and
provide financing for
an Optional Well Set,
Nacogdoches
Gas
shall provide written notice that
it will provide
financing for
the Optional Well Set
in accordance
with
the
terms hereof within twenty (20) days of
receipt of
Sonerra's written
proposal. Sonerra and
Nacogdoches Gas
agree that
the written proposals
for the Optional
Well
Sets
shall be presented to Nacogdoches Gas separately and
sequentially to
enable Nacogdoches Gas
to exercise
its
option with
respect to each Optional Well Set. The
written proposal
for an Optional Well Set will be
presented to
Nacogdoches Gas
after the completion of
drilling operations on
the second well and prior to the
completion of
the third well of the
prior Optional
Well
Set.
Notwithstanding
any of
the foregoing, if
Nacogdoches Gas elects
not or is deemed to
have elected
not
to exercise its option with respect
to any Optional
Well
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Set,
the rights of Nacogdoches Gas to participate in
future wells
shall automatically
terminate and
Sonerra
shall be relieved of its obligation to propose any
additional Optional
Well Sets, provided,
however, this
agreement shall
remain in full
force and effect with
respect to
all Project Wells previously financed by
Nacogdoches Gas.
This Agreement may be
extended by
the
written agreement
of the parties hereto
for additional
Optional Well Sets.
V. BALANCE ACCOUNT. Sonerra shall maintain an account,
referred to herein as
the "Balance Account", which shall
tabulate and track on
a continuous basis the net balance
occurring as
the difference between the (i) the
Cumulative Project
Costs, hereinafter defined, and (ii)
the
Cumulative Project
Proceeds, as hereinafter defined,
until Project
Payout, as hereinafter
defined. Sonerra
shall
furnish
to Nacogdoches Gas a monthly Balance
Account
statement, which
shall reflect all activity
occurring in
the Balance Account
for the previous
month
period and the current net balance.
A. Project Interests.
The Project Interests
shall include
(i) all
Phase I Wells, (ii) all Optional Wells
(collectively with
the Phase I
Wells, the "Project
Wells"), and
(iii) the SunStone Interests, which
together with the
Project Wells shall be
referred to
herein as the "Project Interests".
B. Cumulative Project Costs. "Cumulative Project Costs"
are the sum of (i) the Allocated Funding Percentage of
the Total Prospect Costs for the aggregate of all
Project Wells, (ii)
the purchase price of the SunStone
Interests plus an
amount equal to 10% of
the actual
purchase price of the SunStone Interests, and (iii)
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all workover
and/or recompletion costs paid by
Nacogdoches Gas prior to Project Payout (as hereinafter
defined), other
than costs deducted from gross
proceeds.
All costs and expenses of drilling,
completing,
equipping, and
operating
(provided,
however, Operator's overhead rates or fees set forth in
the Participation
Agreement or Operating Agreement
shall be at such designated rates) any Project
Well
under this
Agreement included in
the Balance
Account
shall be at Sonerra's actual cost.
C. Cumulative Project Proceeds. "Cumulative Project
Proceeds" are
the sum of (i) the
gross proceeds
from
oil and gas production received by Nacogdoches Gas from
the Project Interests,
after deducting (a)
severance,
production, windfall
profit, ad valorem and other
similar taxes payable
on such production, (b) lessor's
royalties, overriding
royalties and like burdens with
which the leasehold interests are burdened
(provided
that Sonerra shall not
reduce the net revenue interest
to less than the net revenue interest
stated in the
Participation
Agreement for each
Project Well),
(c)
Nacogdoches Gas'
Ownership Interest
(as hereinafter
defined) share
of the cost of
operating the
Project
Wells and Nacogdoches Gas' share of the cost of
operating the
SunStone Interests
during the period
prior to Project
Payout and (ii) all
