<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act
For the Transition Period from ________ to ___________
Commission File Number: 0-24971
Contango Oil & Gas Company
(Exact name of small business issuer as specified in its charter)
Nevada 95-4067606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 Buffalo Speedway, Suite 960
Houston, Texas 77098
Issuer's Telephone Number: (713) 960-1901
(Address and telephone number of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
The Registrant has 12,253,625 shares of Common stock, par value $.04 per
share, issued and outstanding as of October 26, 1999.
Traditional Small Business Disclosure Format (check one) Yes X No
--- ---
<PAGE> 2
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets (unaudited) 4
Statements of Operations (unaudited) 5
Statement of Shareholders 6
Statements of Cash Flows (unaudited) 7
Notes to Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis and Results
of Operation 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote
of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(Financial Statements Commence on Following Page)
3
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,000,339 $ 466,189
Accounts receivable 15,697 15,697
Prepaid expenses 25,360 8,003
------------ ------------
TOTAL CURRENT ASSETS 2,041,396 489,889
PROPERTY, PLANT AND EQUIPMENT
Furniture and Equipment 13,726 --
Accumulated Depreciation (610) --
------------ ------------
13,116 --
------------ ------------
TOTAL ASSETS $ 2,054,512 $ 489,889
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,427 $ 800
Preferred stock dividends payable -- 75,565
Accrued liabilities 86,341 --
------------ ------------
Total current liabilities 134,768 76,365
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock, Series B, $0.04 par value,
$30 per share liquidation preference and certain voting rights
125,000 shares authorized,
0 and 16,792 shares issued and
outstanding, respectively -- 672
Common stock, $0.04 par value,
50,000,000 shares authorized,
12,253,625 and 1,509,865 shares issued and
outstanding, respectively 490,145 60,395
Additional paid-in capital 3,543,921 2,168,399
Accumulated deficit (1,815,942) (1,815,942)
Deficit accumulated during development stage (298,380) --
------------ ------------
Total shareholders' equity 1,919,744 413,524
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,054,512 $ 489,889
============ ============
</TABLE>
4
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30, Cumulative
------------------------------ total from
1999 1998 Inception of
------------ ------------ Development
Stage
<S> <C> <C> <C>
EXPENSES:
EXPLORATION EXPENSE $ 10,000 $ -- $ 10,000
DEPRECIATION EXPENSE 610 -- 610
GENERAL AND ADMINISTRATIVE EXPENSE 290,070 19,294 290,070
------------ ------------ ------------
LOSS FROM OPERATIONS (300,680) (19,294) (300,680)
Interest income 2,300 7,065 2,300
------------ ------------ ------------
NET LOSS $ (298,380) $ (12,229) (298,380)
------------ ------------ ------------
DEFICIT ACCUMULATED DURING DEVELOPMENT
STAGE, BEGINNING OF PERIOD -- -- --
------------ ------------ ------------
DEFICIT ACCUMULATED DURING DEVELOPMENT
STAGE, END OF PERIOD $ (298,380) $ -- $ (298,380)
BASIC AND DILUTED LOSS PER SHARE (0.05) (0.01) (0.05)
============ ============ ============
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING 5,648,669 1,509,865 5,648,669
============ ============ ============
</TABLE>
5
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------- ------------------------------ Additional
Shares Amount Shares Amount Paid in Capital
--------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1999 16,792 $ 672 1,509,865 $ 60,395 $ 2,168,399
Preferred Stock Conversion (16,792) (672) 503,760 20,150 (19,478)
Sale of shares August 1999 6,460,000 258,400 387,600
Sale of warrants August 1999 24,600
Sale of shares September 1999 3,780,000 151,200 982,800
Net loss
--------- ------------ ----------- ---------- ------------
Balance September 30, 1999 -- $ -- 12,253,625 $ 490,145 $ 3,543,921
========= ============ =========== ========== ============
<CAPTION>
Accumulated
Deficit During Total
Accumulated Developmental Shareholders
Deficit Stage Equity
------------ ----------- ------------
<S> <C> <C> <C>
Balance June 30, 1999 $ (1,815,942) $ 413,524
Preferred Stock Conversion --
Sale of shares August 1999 646,000
Sale of warrants August 1999 24,600
Sale of shares September 1999 1,134,000
Net loss (298,380) (298,380)
------------ ----------- ------------
Balance September 30, 1999 $ (1,815,942) $ (298,380) $ 1,919,744
============ =========== ============
</TABLE>
6
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30, Cumulative
------------------------------ total from
1999 1998 Inception of
------------ ------------ Development
(unaudited) (unaudited) Stage
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (298,380) $ (12,229) $ (298,380)
Depreciation expense 610 -- 610
Changes in operating assets and liabilities
Increase (decrease) in accounts payable 47,627 (800) 47,627
Increase in prepaid expenses (17,357) (17,357)
Increase in accrued liabilities 86,341 -- 86,341
Net cash used in operating activities (181,159) (13,029) (181,159)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Furniture and Equipment (13,726) -- (13,726)
------------ ------------ ------------
Net cash used in investing activities (13,726) -- (13,726)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,804,600 -- 1,804,600
------------ ------------ ------------
Preferred stock dividends payable (75,565) -- (75,565)
------------ ------------ ------------
Net cash provided by financing activities 1,729,035 -- 1,729,035
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,534,150 (13,029) 1,534,150
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 466,189 559,102 466,189
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,000,339 $ 546,073 $ 2,000,339
============ ============ ============
</TABLE>
7
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
Maple Enterprises, Inc. ("Maple") was incorporated under the laws of the State
of Nevada on August 7, 1986. On July 8, 1988, Maple acquired approximately 99%
of the outstanding shares of Warner Technologies, Inc. ("Warner"), a privately
held California corporation, in exchange for shares of common stock and stock
options. On September 16, 1988, Warner merged into Maple, and the name of the
surviving company was changed to Warner Technologies, Inc. Warner provided
energy efficiency products and services in three principal areas: 1) turnkey
lighting retrofits, 2) building automation and control systems, and 3) strategic
energy planning services. These products and services were delivered to
commercial, industrial, and institutional buildings through contracts with
building owners and managers, as well as directly to utilities for their
customers' benefit. Warner was headquartered in Los Angeles and maintained
regional offices in Boston and San Diego.
Effective December 31, 1997, Warner sold substantially all of its operations to
its President and Executive Vice President. On March 31, 1998, Warner was
renamed MGPX Ventures, Inc. ("MGPX"), and the President and Executive Vice
President resigned from their positions.
Until July 1999, MGPX operated as a "shell" corporation, with minimal
operations, and was headquartered in Encino, California. After reviewing
numerous potential merger and acquisition candidates and business opportunities,
the board unanimously approved a transaction whereby MGPX hired new management
and adopted a plan to enter the oil and gas exploration and development business
and appointed Kenneth R. Peak as president and chief executive officer and a
director of the company. MGPX is required to present its financial statements as
a development stage enterprise starting July 1, 1999 (the inception of the
development stage).
On September 27, 1999, Contango held its annual meeting of stockholders. At the
meeting, the stockholders voted to amend the company's articles of incorporation
to change the name of the company from "MGPX Ventures, Inc." to "Contango Oil &
Gas Company"("Contango"). The stockholders also approved an amendment to the
articles of incorporation increasing the number of authorized shares of common
stock from 12,375,000 to 50,000,000
8
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DEVELOPMENTAL STAGE
ACCOUNTING
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all normal, recurring adjustments considered
necessary for a fair presentation have been included. All such adjustments are
of a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
MGPX's Form 10-KSB, as amended, for the year ended June 30, 1999. The results of
operations for the three months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended June 30, 2000.
Development Stage Accounting
Contango is a development stage enterprise engaged in the exploration, and
development of oil and natural gas in the United States. The company has no
producing oil and gas properties. For the period from July 1, 1999 through
September 30, 1999, Contango incurred cumulative losses of $298,380 and expects
that it will continue to incur losses and that its accumulated deficit will
increase until commencement of oil and gas production in quantities sufficient
to cover operating expenses occurs, if ever.
As of September 30, 1999, Contango had cash and cash equivalents of $2.0
million. Based on available capital resources, Contango believes that it will be
able to make its commitments and fund its operations through September 30, 2000.
Contango is subject to several categories of risk associates with its
development stage activities. Oil and gas exploration and development is a
speculative business and involves a high degree of risk. Among the factors that
have a direct bearing on Contango's prospects are uncertainties inherent in
estimating oil and gas reserves and future hydrocarbon production and cash
flows, particularly with respect to wells that have not been fully tested and
with wells having limited production testing histories; access to additional
capital; changes in the price of oil and natural gas;
9
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
services and equipment; and the presence of competitors with greater financial
resources and capacity.
Net Loss per Share
Basic net income (loss) per common share is computed by dividing the net income
(loss) by the weighted-average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if potential common shares had
been issued and if the additional common shares were dilutive. Diluted net loss
per common share is not presented because potential common shares are
anti-dilutive for all periods presented.
Income Taxes
The Company accounts for income taxes under the asset and liability method of
accounting. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is required when it is more likely than not that the Company will not
be able to realize all or a portion of its deferred tax assets.
10
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
Oil and Gas Property and Equipment
In accounting for oil and gas property and equipment, the company follows the
successful efforts method of accounting, capitalizing costs of successful
exploratory wells and expensing costs of unsuccessful exploratory wells.
Exploratory geological and geophysical costs are expensed as incurred. All
development costs are capitalized. The estimated undiscounted cost, net of
salvage value, of dismantling and removing major oil and gas production
facilities, including necessary site restoration, are accrued using the
unit-of-production method.
Other property and equipment is generally depreciated using the double-declining
balance method over estimated useful lives, which range from 5 to 7 years.
Repairs and maintenance are expensed, while renewals and betterments are
generally capitalized
NOTE 3 - SHAREHOLDERS' EQUITY
On August 25, 1999, MGPX completed a private placement of 6,460,000 shares of
its common stock for $0.10 per share and warrants to purchase 2,460,000 shares
of common stock, raising gross proceeds of $670,600.
On September 30, 1999, Contango completed a private placement of 3,780,000
shares of its common stock for $0.30 per share, raising gross proceeds of
$1,134,000.
Recent Developments
On October 15, 1999, Contango entered into an offer to purchase agreement to
acquire non-operated working interests in several producing and non-producing
leases. The purchase is scheduled to close prior to December 15, 1999 and is
subject to due diligence and customary closing adjustments. The company has paid
a $10,000 non-refundable performance deposit, which will be applied against the
purchase price at closing.
The stockholders approved the Contango Oil & Gas Company 1999 Stock Incentive
Plan, which provides for the issuance of up to 5,000,000 shares of common stock.
5,685,523 votes were received in favor of the stock incentive plan, 14,250 votes
against, 4,031 abstentions and 0 broker non-votes.
11
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CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Plan of Operation
The company's new business plan includes the following three principal
objectives:
o Exploration for oil and gas reserves with sophisticated, trend-leading
partners; and;
o Acquisition of natural gas and crude oil reserves; and
o Investment in energy industry entrepreneurial opportunities.
Initially we will focus on the first two objectives, described in greater detail
below. As we pursue these objectives, our business will be subject to all of the
risks associated with a start-up company in the competitive and volatile oil and
gas exploration and development business.
Oil and Gas Exploration
The Company has entered into exploration agreements with Alcorn Exploration and
Juneau Exploration, LLC. Oil and gas exploration requires significant outlays of
capital with no assurance of success. We intend to enhance our chances for
success by effectively using available technology, rigorously evaluating
sub-surface and regional data, and to the extent possible, managing dry-hole,
oil and gas price and financial risks.
Acquisition of Oil and Gas Reserves
Management intends to target negotiated acquisitions and to avoid data rooms and
competitive bidding situations. We will face competition from firms that are
well-established, successful, better capitalized and, in many instances, willing
to pay more for properties than what we might consider prudent.
Results of Operations
The following is a discussion of the results of operations for the quarter ended
September 30, 1999 compared to those for the quarter ended September 30, 1998.
The results of operations for the three months ended September 30, 1999 are not
directly comparable to results for the three months ended September 30, 1998,
when the company was essentially a "shell" corporation without operations.
Further, the company incurred start-up costs in the quarter ending September 30,
1999 as a result of the Company's entry into the oil and gas business.
12
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Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
During the quarter ended September 30, 1999, the Company incurred exploratory
and general and administrative expenses of $10,000 and $290,070 respectively.
Interest income for the same period totaled $2,300, and was derived from
interest earned on the Company's cash and cash equivalents.
Major components of general and administrative include $50,000 overhead
reimbursement under an exploration agreement, approximately $37,000 in salaries
and benefits, and approximately $77,000 in legal fees associated with the
company's year-end 10-K, Proxy, and two equity offerings. During the comparable
period in 1998, approximately $19,000 in general and administrative was incurred
primarily for salaries and insurance.
Liquidity
Contango believes that it will be able to satisfy its cash requirements for the
next 18 months, based on current expectations and commitments. Management
anticipates that Contango will need to raise additional capital during the next
twelve months to fund future exploration and acquisition opportunities.
Year 2000
The Company utilizes standard industry, Year 2000 compliant, software to
minimize reliance on customized products. As a result, the Company does not
expect any interruption in data processing due to failure of internal computer
hardware and software, however there can be no assurances that the Company will
not be affected due to its' reliance on industry partners.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 28, 1999, Contango held its annual meeting of
stockholders. At the meeting, the stockholders voted to amend the
company's articles of incorporation to change the name of the company
from "MGPX Ventures, Inc." to "Contango Oil & Gas Company." The
stockholders also approved an amendment to the articles increasing the
number of authorized shares of common stock from 12,375,000 to
50,000,000.
On August 25, 1999, Contango completed a private placement of 6,460,000
shares of its common stock for $0.10 per share and warrants to purchase
2,460,000 shares of common stock, raising gross proceeds of $670,600.
During September 1999 an additional private placement was underway. As
of October 6, 1999, 3,780,000 shares had been sold at $0.30 per share
for total proceeds of $1,134,000. The securities were offered and sold
to private investors pursuant to Regulation D under the Securities Act
of 1933 and there were no underwriting discounts, commissions or
finder's fees paid in connection with the placement. Purchasers of
stock and warrants in the placement included Kenneth R. Peak, the
president and chief executive officer of Contango, and Brad Juneau,
Joseph Romano and Darrell Williams, who along with Mr. Peak were
elected directors of Contango at the September 28 stockholders'
meeting.
Contango entered into an agreement with Juneau Exploration, LLC
effective as of September 1, 1999. Pursuant to the agreement, Juneau
Exploration will receive 400,000 shares of common stock as part of its
remuneration upon execution of the agreement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1999, five matters were
submitted to Contango's stockholders pursuant to the solicitation of
proxies for the company's annual meeting held September 28, 1999.
14
<PAGE> 15
At the meeting, Kenneth R. Peak, Brad Juneau, Joseph J. Romano, and
Darrell Williams were elected to serve as directors of Contango until
the next annual stockholders meeting. 5,701,804 votes were received in
favor of Mr. Peak's election, 5,701,804 in favor of Mr. Juneau's
election, 5,701,804 in favor of Mr. Romano's election and 5,701,804 in
favor of Mr. Williams election. 0 votes were cast against Mr. Peak's
election, 0 against Mr. Juneau's election, 0 against Mr. Romano's
election and 0 against Mr. Williams' election. No stockholders
abstained from casting their votes in the election of directors.
Besides the election of directors, the following four matters were
voted upon at the annual meeting:
1. The stockholders approved an amendment to the articles of
incorporation changing the name of the company from "MGPX
Ventures, Inc." to "Contango Oil & Gas Company." 5,701,804 votes
were received in favor of this proposal, 2,000 votes against, 0
abstentions and 0 broker non-votes.
2. The stockholders approved an amendment to the articles of
incorporation increasing the number of authorized shares of
common stock of Contango from 12,375,000 shares to 50,000,000
shares. 5,651,443 votes were received in favor of this proposal,
52,361 votes against, 0 abstentions and 0 broker non-votes.
3. The stockholders approved the Contango Oil & Gas Company 1999
Stock Incentive Plan, which provides for the issuance of up to
5,000,000 shares of common stock. 5,685,523 votes were received
in favor of the stock incentive plan, 14,250 votes against, 4,031
abstentions and 0 broker non-votes.
4. The stockholders ratified the selection of Arthur Andersen,
L.L.P. as Contango's independent certified public accountants to
audit the company's financial statements for the fiscal year
ended June 30, 2000.
ITEM 5. OTHER INFORMATION
Trading Symbol
Concurrently with changing the company's name to Contango, the
company's trading symbol on Nasdaq's over-the-counter bulletin board
was changed from "MGPV" to "BTUX."
15
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith or are incorporated herein by
reference:
Exhibit
No. Document Description
------- --------------------
(3) Articles of Incorporation and By-laws
3.1 Articles of incorporation of the Company, as amended
to date(1)
3.2 By-laws of the Company(1)
(4) Instruments Defining the Rights of Security Holders
4.1 Facsimile of Common Stock certificate of the
Company(1)
(27) Financial Data Schedule
27.1 Financial Data Schedule(2)
(99) Agreements
99.1 Alcorn/MGPX Oil & Gas Lease Acquisition Agreement(2)
99.2 Agreement dated as effective of September 1, 1999
between Contango Oil & Gas Company and Juneau
Exploration, L.L.C.(2)
----------------------------
(1) Included as an exhibit to the Company's Form 10-SB
registration statement filed on October 16, 1998, and
incorporated herein by reference.
(2) Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1999.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONTANGO OIL & GAS COMPANY
(Registrant)
Dated: November 11, 1999 /s/ Kenneth R. Peak
-----------------------------------------
Kenneth R. Peak, President and Chief
Executive Officer (Principal Executive
and Financial Officer)
17
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INDEX TO EXHIBITS
-----------------
27.1 -- Financial Data Schedule
99.1 -- Alcorn/MGPX Oil & Gas
Lease Acquisition Agreement
99.2 -- Agreement Between Contango
Oil & Gas and Juneau Exploration, L.L.C.
<PAGE> 1
EXHIBIT 99.1
ALCORN/MGPX OIL & GAS LEASE ACQUISITION AGREEMENT
THIS AGREEMENT, by and between Alcorn Exploration, Inc., a Texas
Corporation (hereinafter referred to as "Alcorn"); Alcorn-Texas Properties,
Inc., a Texas Corporation (hereinafter referred to as "Nominee") and MGPX
Ventures, Inc. (hereinafter referred to as MGPX), a Nevada Corporation. Alcorn
and MGPX are sometimes hereinafter referred to individually as a "Party" and
collectively as the "Parties".
RECITALS
WHEREAS, Alcorn is engaged in the business of exploring for oil and gas;
producing oil and gas; assembling prospects for the exploration of oil and gas,
developing oil and gas properties and purchasing producing oil and gas
properties in the State of Texas; and
WHEREAS, Alcorn and MGPX desire to participate in a joint effort to acquire
Leasehold Interest in the name of Nominee for the benefit of Alcorn and MGPX
within an Area of Interest as hereinafter set forth; and
WHEREAS, it is expected that initial exploration of such Leasehold Interest will
be conducted by third parties and primarily with capital provided by such third
parties pursuant to exploration agreements entered into by and between Nominee
and third parties. The exploration agreements will attempt to retain or acquire
an interest in the results of such exploration efforts; and
WHEREAS, in accordance with the terms and conditions herein, the parties may
elect to participate in the exploration drilling; and
WHEREAS, Alcorn and Nominee are willing to act on behalf of the parties hereto
in furtherance of the purposes and intent of this Agreement and to use their
best efforts to acquire Leasehold Interest in promising Prospects in accordance
with the terms and conditions of this Agreement for the benefit of the Parties;
and
WHEREAS, MGPX is willing to have Alcorn and Nominee act on behalf of the Parties
and is willing to provide capital to be expended for the acquisition of
Leasehold Interest, related geophysical costs and other costs as stated
hereinafter, in furtherance of the purposes and intent of this Agreement;
provided MGPX shall be entitled to a return of its invested capital as provided
for under the terms of this Agreement; and
WHEREAS, the business of this Agreement shall be carried out in the name of
Nominee and legal title to all Leasehold Interest acquired and held for the
benefit of Alcorn and MGPX shall be in the name of Nominee.
Page 1
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 As used in this agreement, the following terms have the
meanings ascribed:
(a) "Agreement" means this Alcorn/MGPX Oil & Gas Lease
Acquisition Agreement between Alcorn and MGPX.
(b) "Leasehold Interests" means any seismic option; oil,
gas or mineral lease or interest therein; fee
interest; unleased mineral interest or other oil, gas
or mineral right acquired by the Parties hereto
pursuant to this Agreement, including any such lease,
right or interest acquired or subject to acquisition
by the Parties under the terms of any farmout
agreement, lease purchase agreement, assignment from
third parties, option or any other type of agreement.
(c) "Acquisition Account" means the bank account or
accounts maintained by Alcorn pursuant to this
Agreement.
(d) "Prospect Acquisition Costs" means (i) costs of
acquiring Leasehold Interest, including but not
limited to lease bonuses, bank draft charges,
consultants and/or independent contractors, brokerage
fees, professional services, title examination, title
curative, petroleum data services and other expenses;
(ii) Leasehold Interest maintenance costs, including
but not limited to records maintenance, annual delay
rentals and bank charges; (iii) costs of attorney's
fees in connection with the acquisition and/or sale
of Leasehold Interest; (iv) geophysical costs and
expenses, including but not limited to the
acquisition of data, fees and expenses of consultants
or independent contractors performing geophysical
services and all brokerage fees; (v) cost of
geological fees and expenses paid by Alcorn to
geological consultants and (vi) marketing costs
related to the sale of a Leasehold Interest,
including but not limited to reproduction, drafting,
travel and all out of pocket expenses.
(e) "Acquisition Commitment" means the maximum amount
committed by MGPX for Acquisition Costs shall not
exceed $3,000,000.00 without the express written
consent of MGPX.
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(f) "Alcorn Overhead Cost" means $25,000.00 monthly
general and administrative expenses. The Alcorn
Overhead Cost will be allocated per diem on a
Prospect by Prospect basis with the allocation for
each Prospect beginning on the date a Prospect is
funded per the terms of this Agreement with the
allocation ceasing on the date a subsequent Prospect
is funded per the terms of this Agreement.
(g) "Area of Interest" means the Railroad Commission of
Texas Onshore Districts 1, 2, 3 and 4.
(h) "MGPX Acquisition Contributions" means payment made
by MGPX into the Acquisition Account upon the request
of Alcorn with MGPX's approval.
(i) "Prospect Sales Proceeds" means the cash
consideration paid by a third party for the
acquisition of a Prospect that was acquired with
funds from the Acquisition Account.
(j) "Prospect Payout" means when Prospect Sales Proceeds
equals the total of Prospect Acquisition Cost and
Alcorn Overhead Cost allocated per this Agreement to
the Prospect.
(k) "Prospect" means a specific geographic area within
the Area of Interest believed by Alcorn to have the
potential to produce oil and gas.
(l) "Payout Deficit" means when Prospect Sales Proceeds
are less than the total of Prospect Acquisition Cost
and Alcorn Overhead Cost allocated per this Agreement
to the Prospect plus any unrecovered Prospect
Acquisition Cost and Alcorn Overhead Cost from
Prospects approved and funded prior to the date of
approval and funding of the Prospect being sold.
(m) "Effective Date" means September 1, 1999.
(n) "Alcorn Incentive" means the difference between
Prospect Sales Proceeds and the sum of Prospect
Payout plus any unrecovered Prospect Acquisition Cost
and Alcorn Overhead Cost from Prospects approved and
funded prior to the date of approval and funding of
the Prospect being sold.
(o) "Promotional Interest" means any overriding royalty
interest, casing point
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carried working interest, back in after payout
working interest, production payment or any other
form of Leasehold Interest retained by Alcorn in the
sale of a Prospect to a third party.
(p) "Payback Point" means the point when Alcorn has sold
a Prospect to any party and the Prospect Sales
Proceeds are equal to Prospect Payout plus any
unrecovered Prospect Acquisition Cost and Alcorn
Overhead Cost from Prospects approved and funded
prior to the date of approval and
funding of the Prospect being sold.
ARTICLE II
PURPOSE
2.1 This Agreement is entered into for the purpose of generating
Prospects within the Area of Interest; evaluating and
acquiring Leasehold Interest within the Prospects, achieving
Payback Point and causing the initial exploration of the
Leasehold Interest acquired within Prospects to be conducted
by third parties with third party capital; however, both MGPX
and Alcorn shall have the right to purchase Prospects
generated, approved and funded under this Agreement. The
Parties will retain a Leasehold Interest in the results of
such initial exploration and any additional development of the
Prospects. Alcorn will for the benefit of the Parties use its
best efforts to locate and designate Prospects, acquire
Leasehold Interest within the Prospect area, achieve Payback
Point and arrange for the initial exploration of the Leasehold
Interests within a Prospect by third parties.
ARTICLE III
TERM
3.1 This Agreement shall remain in force and effect from the
Effective Date through August 31, 2002. It is agreed and
understood that either Party to this Agreement may terminate
this Agreement by giving one hundred and eighty (180) days
written notice to the other Party. In such event, this
Agreement shall expire one hundred eighty (180) days from
receipt of said notice by the other Party.
ARTICLE IV
ACQUISITION ACCOUNT
4.1 MGPX will contribute such amounts as Alcorn may request to be
used by Alcorn to cover Prospect Acquisition Costs; provided,
however MGPX shall have no
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obligation to make such contribution over and above the
$3,000,000.00 Acquisition Commitment.
4.2 Upon the execution of this Agreement, Alcorn shall establish
an Acquisition Account with a bank that is a member of the
Federal Deposit Insurance Corporation for purposes of
receiving payments or making disbursements in accordance with
this Agreement. MGPX shall have the authority to withdraw
funds from such account in accordance with Section 4.5. All
Prospect Acquisition Costs shall be paid with funds from the
Acquisition Account.
4.3 At any time after presentation of a Prospect to MGPX pursuant
to Section 6.4, Alcorn may request MGPX deposit funds into the
Acquisition Account in order for Alcorn to utilize those funds
for Prospect Acquisition Costs related to such Prospect.
Alcorn shall make such request in writing and MGPX shall,
within five (5) days of receipt of such notice, approve or
reject the request. If MGPX rejects the request the Prospect
will no longer be subject to this Agreement. If Alcorn does
not receive a reply within five (5) days it shall be deemed
MGPX rejected the request and the Prospect will no longer be
subject to this Agreement. If MGPX approves such request, MGPX
shall deposit or transfer the requested funds into the
Acquisition Account within three (3) banking days of such
approval. If the funds are not deposited or transferred within
three (3) banking days of approval it shall be deemed MGPX
rejected the request and the Prospect will no longer be
subject to this Agreement.
4.4 In consideration for Alcorn generating and submitting
Prospects to MGPX, MGPX agrees to fund the Acquisition Account
with Alcorn Overhead Cost on a monthly basis during the term
of this Agreement. MGPX will fund the Alcorn Overhead Cost on
the Effective Date of this Agreement and monthly thereafter on
or before the first of each month. In the event MGPX fails to
fund the Alcorn Overhead Cost this Agreement shall terminate
within thirty (30) days from receipt of written notice by MGPX
of such failure to fund the Alcorn Overhead Cost; unless, MGPX
remedies the default in payment of Alcorn Overhead Cost within
the thirty (30) days written notice period.
4.5 All funds in the Acquisition Account shall be held by Alcorn
in trust for MGPX; save and except, Alcorn Overhead Cost and
Alcorn Incentive. The funds in the Acquisition Account shall
only be disbursed to satisfy Prospect Acquisition Cost in
accordance with the terms of this Agreement, to return funds
to MGPX, to pay Alcorn Overhead Cost or to disburse Alcorn
Incentive.
4.6 Upon termination of this Agreement for any reason, all funds
deposited in the Acquisition Account and all interest accrued
shall be returned to MGPX as of the date of such termination.
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ARTICLE V
PROSPECT SALES AND INTEREST OF THE PARTIES
5.1 As one of the purposes of this Agreement is to sell Leasehold
Interest in Prospects to third parties under certain terms and
conditions; Alcorn shall not sell, assign, transfer, trade or
otherwise dispose of a Leasehold Interest unless MGPX has
approved the general terms and conditions of the sale. If the
Parties determine it is in the best interest of the Parties to
accept an offer by a third party to participate in a Prospect
generated by Alcorn, Alcorn may enter into an exploration
agreement for the Prospect with the third party that reflects
the approved terms of the trade.
5.2 The Parties agree ownership of the Promotional Interest
retained from the sale of a Prospect to a third party shall be
as follows.
Alcorn - 50%
MGPX - 50%
5.3 The Parties agree ownership of the Alcorn Incentive shall be
as follows.
Alcorn - 100%
MGPX - 0%
5.4 The Parties agree that in the event a Prospect sale to a third
party occurs and Payback Point does not occur and there is a
Payout Deficit the ownership of the Prospect Sales Proceeds
shall be as follows.
Alcorn - 0%
MGPX - 100%
5.5 The Parties agree that in the event MGPX purchases a Prospect
or a portion thereof generated, approved and funded under this
Agreement that is greater than a depth of 7,500 feet below the
surface of the Earth, it will be considered that Payback Point
has been reached proportionately and the amount of the Alcorn
Incentive shall be $75,000.00 proportionately reduced. In the
event Alcorn purchases a Prospect generated, approved and
funded under this Agreement that is greater than a depth of
7,500 feet below the surface of the Earth, the cash
consideration Alcorn shall pay for the Prospect shall be
Payback Point proportionately reduced to the interest
purchased.
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5.6 In the event MGPX and/or Alcorn purchases a Prospect
generated, approved and funded under this Agreement that is
greater than a depth of 7,500 feet below the surface of the
Earth; the Parties will retain a Promotional Interest in the
Prospect in the form of a two percent (2%) of 8/8ths
overriding royalty interest for all leases with a net revenue
interest greater than seventy-five percent (75%) or a one
percent (1%) of 8/8ths overriding royalty interest for all
leases with a net revenue interest less than or equal to
seventy-five percent (75%) and a twenty five percent (25%)
back in after payout working interest. Payout means the point
in time when MGPX's and/or Alcorn's interest in cumulative
revenues from production from the Prospect, after deducting
applicable royalties, overriding royalties which are not
solely the burden of MGPX and/or Alcorn, the Parties
overriding royalty, shut-in payments, delay rentals,
non-participating royalties and/or mineral interests and/or
any other similar burdens attributable to MGPX's and/or
Alcorn's interest, production taxes and other taxes (excluding
income taxes), shall first equal the sum of (a) 100% of the
costs and expenses incurred in drilling, testing, completing,
equipping and operating the first two wells drilled on the
Prospect, (b) the Alcorn Incentive (c) Prospect Acquisition
Costs and (d) any unrecovered Prospect Acquisition Cost and
Alcorn Overhead Cost from Prospects approved and funded prior
to the date of approval and funding of the Prospect purchased
by MGPX and/or Alcorn. The Promotional Interest will be owned
as follows.
Alcorn - 50%
MGPX - 50%
5.7 The Parties agree that in the event MGPX purchases a Prospect
or any portion thereof generated, approved and funded under
this Agreement that is less than a depth of 7,500 feet below
the surface of the Earth, it will be considered that Prospect
Payout has been reached proportionately reduced to the
interest purchased and the amount of the Alcorn Incentive
shall be $20,000.00 proportionately reduced to the interest
purchased. In the event Alcorn purchases a Prospect generated,
approved and funded under this Agreement that is less than a
depth of 7,500 feet below the surface of the Earth, the cash
consideration Alcorn shall pay for the Prospect shall be
Prospect Payout proportionately reduced to the interest
purchased.
5.8 In the event MGPX and/or Alcorn purchases a Prospect
generated, approved and funded under this Agreement that is
less than a depth of 7,500 feet below the surface of the
Earth; the Parties will retain a Promotional Interest in the
Prospect in the form of a two percent (2%) of 8/8ths
overriding royalty interest for all leases with a net revenue
interest greater than seventy-five percent (75%) or a one
percent (1%) of 8/8ths overriding royalty interest for all
leases with a net revenue interest less than or equal to
seventy-five percent (75%) and a twenty percent (20%) back in
after payout working interest. Payout means the point in time
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when MGPX's and/or Alcorn's interest in cumulative revenues
from production from the Prospect, after deducting applicable
royalties, overriding royalties which are not solely the
burden of MGPX and/or Alcorn, the Parties overriding royalty,
shut-in payments, delay rentals, non-participating royalties
and/or mineral interests and/or any other similar burdens
attributable to MGPX's and/or Alcorn's interest, production
taxes and other taxes (excluding income taxes), shall first
equal the sum of (a) 100% of the costs and expenses incurred
in drilling, testing, completing, equipping and operating the
first well drilled on the Prospect, (b) the Alcorn Incentive
and (c) Prospect Acquisition Costs. The Promotional Interest
will be owned as follows.
Alcorn - 50%
MGPX - 50%
5.9 In the event a third well is drilled on a Prospect purchased
by MGPX and/or Alcorn generated, approved and funded under
this Agreement that is greater than a depth of 7,500 feet
below the surface of the Earth, the ownership of the
twenty-five percent (25%) working interest shall be as
follows.
Alcorn - 50%
MGPX - 50%
5.10 In the event a second well is drilled on a Prospect purchased
by MGPX and/or Alcorn generated, approved and funded under
this Agreement that is less than a depth of 7,500 feet below
the surface of the Earth, the ownership of the twenty percent
(20%) working interest shall be as follows.
Alcorn - 50%
MGPX - 50%
ARTICLE VI
DUTIES OF ALCORN AND MGPX
6.1 Alcorn shall have and exercise the powers and be subject to
the duties set forth for the joint benefit of the parties.
Alcorn hereby agrees to have and exercise such powers and be
subject to such duties and to provide the services and perform
the functions assigned to it herein.
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6.2 Alcorn shall provide the services of the following personnel:
(a) Geological personnel for the purposes of planning,
geological studies and advice necessary in the
preparation and evaluation of potential prospects
within which to acquire Leasehold Interest; and
(b) Clerical personnel for the purpose of maintaining all
records necessary in connection with the joint
interests of the Parties.
6.3 Alcorn shall perform the following duties and have the
following responsibilities, subject to any specific
limitations contained in this Agreement.
(a) Arrange for such geological, geophysical,
engineering, land, and legal services as may be
necessary to carry on the activities contemplated by
this Agreement.
(b) Perform or cause to be performed geologic exploratory
work to evaluate potential Prospects.
(c) Negotiate for and acquire geophysical data.
(d) Negotiate for and acquire Leasehold Interest.
(e) Market Prospects to third parties.
(f) Negotiate and execute exploration agreements with
third parties for the exploration of Prospects owned
by the Parties.
(g) Maintain records and accounts as are customary in the
oil and gas industry and as may be necessary to
fulfill the requirements and obligations of the
Parties.
(h) Meet and comply with requirements of any governmental
or regulatory body.
(i) Any such other matters as may be necessary to carry
out the terms of this Agreement.
6.4 At such time as Alcorn has made a determination to pursue
assembling a Prospect, Alcorn will designate the particular
geographical area and assign the area a specific Prospect
name. Alcorn will then present the Prospect to MGPX for
approval and funding of the Prospect. Alcorn will provide MGPX
with the following materials
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to aid MGPX in it's evaluation.
(a) A plat depicting the Prospect area or a description
of the land within the Prospect,
(b) An estimate of Prospect Acquisition Cost.
(c) Information supporting the Prospect.
6.5 In the acquisition of Leasehold Interest, Alcorn shall cause
all title examination and curative performed in accordance
with accepted industry standards.
6.6 Alcorn shall timely notify MGPX of any annual delay rentals
due on any Leasehold Interest. Upon approval and funding by
MGPX, Alcorn shall pay such rentals from the Acquisition
Account. In the event MGPX does not approve or fund the annual
delay rentals, Alcorn shall have the option to pay such annual
delay rentals. If Alcorn exercises its option to pay the
rentals, Alcorn will become the sole owner of the Leasehold
Interest and such Leasehold Interest will no longer be subject
to this Agreement.
6.7 Title to all Leasehold Interest acquired pursuant to this
Agreement shall be held in the name of Nominee. All agreements
with third parties made on behalf of the Parties shall be in
the name of the Nominee. Alcorn and MGPX will be the
beneficial owners in the respective percentages specified in
Article V hereof. Each Party shall have the right at any time
to request and receive an appropriate assignment from the
Nominee of such Party's respective interest in any Leasehold
Interest. Nominee shall prepare, execute and record in a
workmanlike manner the Leasehold Interest assignment requested
by the Party. Any such assignments from the Nominee to the
Parties shall be in proper form; shall contain a special
warranty by, through and under Nominee and shall be made
expressly subject to all agreements with third parties
affecting the Leasehold Interest. Each Leasehold Interest
assigned shall be subject to all existing burdens.
6.8 Alcorn shall be responsible for the maintenance of all
operational records, Leasehold Interest, land maps, geological
maps, well data and seismic data.
6.9 Alcorn shall conduct the activities contemplated by this
Agreement in good faith and shall expend funds from the
Acquisition Account in an orderly manner. Alcorn shall perform
all of its duties hereunder in a good and workmanlike manner
and in conformity with accepted industry practice. Alcorn
shall have no liability of any kind, direct or contingent to
MGPX for losses sustained or liabilities incurred hereunder,
except, as may be the result of gross negligence, willful
misconduct, or fraud. Alcorn agrees to indemnify and hold MGPX
harmless from any liability
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arising out of or in connection with such gross negligence,
willful misconduct or fraud by Alcorn or its officers,
directors, employees or agents.
6.10 On or before the 15th day of each month commencing October 15,
1999, Alcorn will furnish MGPX a general status report of all
activities occurring during the previous month.
6.11 For the term of this Agreement Alcorn and Nominee shall
conduct all efforts in the Area of Interest exclusively for
and on behalf of Alcorn and MGPX pursuant to this Agreement;
save and except, Prospects MGPX failed to fund into the
Acquisition Account. It is agreed and understood that MGPX has
no such reciprocal exclusivity obligation to Alcorn.
ARTICLE VII
COSTS AND ACCOUNTING
7.1 Prospect Acquisition Costs made or incurred on behalf of the
Parties under this Agreement, Alcorn Overhead Cost, return of
funds to MGPX and Alcorn Incentive shall be paid out of the
Acquisition Account by Alcorn.
7.2 Alcorn shall supply MGPX, true, accurate and complete records
reflecting all receipts and all costs and expenses incurred in
connection with the activities performed per this Agreement.
Alcorn will provide MGPX a copy of the check register of the
Acquisition Account within five (5) days after the last day of
each month along with copies of all invoices paid.
7.3 MGPX shall provide Alcorn with a monthly statement reflecting
all receipts and disbursements during such monthly period. The
monthly statements will provide receipts and disbursements on
a Prospect by Prospect basis. All accounting records relating
to this Agreement shall be maintained in MGPX's offices in
Houston, Texas, and such records shall be open to Alcorn or
its representatives at all reasonable times during MGPX's
normal business hours. Alcorn shall have the right to audit
the books relating to this Agreement.
ARTICLE VIII
INCOME TAX
8.1 Each Party shall be responsible for the preparation and filing
of its own federal and state income tax returns. MGPX agrees
to provide Alcorn any necessary financial information in order
to assist Alcorn with respect to taxes.
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ARTICLE IX
REMEDIES
9.1 The Parties shall be entitled to any remedy available at law
or in equity for any breach of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 In connection with the transactions contemplated by this
Agreement, Alcorn and Nominee represent and warrant that: (a)
Alcorn and Nominee are corporations duly organized, existing,
and in good standing under the laws of the State of Texas,
with full power and authority to conduct their business as now
conducted and to own and operate their properties and other
assets; (b) Alcorn and Nominee have all requisite power and
authority to execute and deliver this Agreement and to perform
their obligations hereunder; and (c) this Agreement has been
duly and validly executed and delivered by Alcorn and Nominee,
and, assuming its due authorization, execution, and delivery
by MGPX, constitutes the legal, valid, and binding obligation
of Alcorn and Nominee, enforceable against Alcorn and Nominee
in accordance with its terms, except as such enforcement my be
limited by bankruptcy, insolvency, reorganization, moratorium,
or similar laws now or hereafter in effect relating to or
limiting creditors' right or by legal principles of general
applicability governing the availability of equitable
remedies.
10.2 In connection with the transactions contemplated by this
Agreement, MGPX represents and warrants that: (a) MGPX is a
Nevada corporation authorized to do business in the State of
Texas; (b) MGPX has all requisite power and authority to
execute and deliver this Agreement and to perform its
obligations hereunder; (c) this Agreement has been duly and
validly executed and delivered by Participant and, assuming
its due authorization, execution, and delivery by Alcorn and
Nominee, constitutes the legal, valid, and binding obligation
of MGPX, enforceable against MGPX in accordance with its
terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar
laws now or hereafter in effect relating to or limiting
creditors' rights or by legal principles of general
applicability governing the availability of equitable
remedies.
10.3 The Parties do not intend to create, nor shall this Agreement
be construed to create, a partnership, mining partnership,
joint venture, or other relationship of mutual agency between
the Parties, their relation with respect to this Agreement and
all rights, interests, and obligations hereunder being solely
one of co-owners or
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co-tenants. Nothing herein shall be construed as authorization
of one Party hereto to act as general agent for the other
Party nor to permit either Party to act for or on behalf of
the other Party outside the terms of the Agreement.
10.4 Time is of the essence of each and every provision of this
Agreement.
10.5 The Parties hereto agree to execute, acknowledge, and deliver,
as appropriate, such other and further instruments, documents,
and assurances as the other of them may reasonably require to
effectuate the purpose and intent of this Agreement.
10.6 All notices, requests, and other communications required or
permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile,
or mailed, certified or registered mail (return receipt
requested) with postage prepaid to the applicable party as
follows:
Alcorn Exploration, Inc.
2000 Post Oak Blvd., Suite 2410
Houston, Texas 77056
Attention: Mr. Richard B. Beard and
Mr. George A. Alcorn, Jr.
Telecopier: (713) 622-8015
Telephone: (713) 622-3800
MGPX
3700 Buffalo Speedway, Suite 960
Houston, Texas 77038
Attention: Mr. Kenneth Peak
Telephone: (713) 960-1901
Telecopier: (713) 960-1065
or to such other persons or entities or addresses as the
applicable Party shall furnish to the other Party in writing
in accordance with this Section 10.6. Delivery of notices
shall be effective only upon actual receipt by the intended
recipient (or in the case of facsimile transmission, the
completion of such transmission during the recipient's normal
business hours).
10.7 This Agreement, and the legal relations among the Parties
hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of Texas.
10.8 This Agreement embodies the entire agreement and understanding
of the Parties hereto in respect of the subject matter
contained herein; there are no restrictions,
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promises, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein; and this
Agreement supercedes all prior agreements and understandings
among the Parties with respect to such subject matter.
10.9 Neither this Agreement nor any other agreement between the
Parties nor any uncertainty or ambiguity herein or therein
shall be construed or resolved using any presumption against
any Party hereto or thereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement and
the other agreements between the Parties have been reviewed by
the Parties and their counsel and, in the case of any
ambiguity or uncertainty, shall be construed accordingly to
the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all Parties hereto.
10.10 The headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
10.11 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
10.12 The Parties shall make no press release or other public
announcement or public disclosure relating to this Agreement
or the subject matter of this Agreement, except as necessary
to meet legal or regulatory requirements, or as mutually
approved.
10.13 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") by three
(3) arbitrators. Each Party shall appoint one arbitrator who
shall be an impartial and independent person. If a Party fails
to appoint an arbitrator within thirty (30) days from the date
a Demand to Arbitrate was made under Rule 6, the AAA shall
make the appointment of the arbitrator. The two (2)
arbitrators thus appointed shall appoint the third arbitrator
who shall be an impartial and independent person. If said two
(2) arbitrators fail to appoint the third arbitrator within
sixty (60) days from the date a Demand to Arbitrate was made
under Rule 6, the AAA shall make the appointment of the third
arbitrator. Should any of the arbitrators appointed die,
resign, refuse or become unable to act before a decision is
given, the vacancy shall be filled by the method set forth in
this clause for the original appointment. The arbitration
shall be held in Houston, Texas. Judgment upon the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the dates of the individual acknowledgments, below, but same shall be
effective as of the Effective Date.
ALCORN EXPLORATION, INC.
By: /s/ GEORGE A. ALCORN
--------------------------------
George A. Alcorn, President
ALCORN-TEXAS PROPERTIES, INC.
By: /s/ GEORGE A. ALCORN
--------------------------------
George A. Alcorn, President
MGPX VENTURES, INC.
By: /s/ KENNETH PEAK
--------------------------------
Kenneth Peak, President
THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this 31st day of August,
1999, by George A. Alcorn, President of Alcorn Exploration, Inc. and
Alcorn-Texas Properties, Inc., both Texas corporations, on behalf of the
corporations.
/s/ RICHARD B. BEARD
-------------------------
Notary Public Signature
(PERSONALIZED SEAL)
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THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this 31st day of August,
1999, by Kenneth Peak, President of MGPX VENTURES, INC., a Nevada corporation,
on behalf of this company.
/s/ RICHARD B. BEARD
---------------------------
Notary Public Signature
(PERSONALIZED SEAL)
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<PAGE> 1
EXHIBIT 99.2
------------------------------------
AGREEMENT
dated as effective of September 1, 1999
between
CONTANGO OIL & GAS COMPANY
and
JUNEAU EXPLORATION, L.L.C.
------------------------------------
<PAGE> 2
AGREEMENT
This Agreement ("Agreement") is entered into effective as of September
1, 1999, between CONTANGO OIL AND GAS COMPANY, a Nevada corporation ("Contango")
and JUNEAU EXPLORATION, L.L.C, a Texas limited liability company ("JEX"). Each
of Contango and JEX may be referred to herein as a "Party" and together shall be
referred to as the "Parties."
RECITALS
1. JEX is a newly formed limited liability company whose primary
business purpose is to generate, screen, source, acquire and invest in oil and
gas exploration and/or development prospects (collectively "Prospects").
Contango is a newly formed corporation seeking to build a portfolio of oil and
gas reserves and related assets.
2. JEX is seeking participants to co-invest in Prospects, and Contango
desires to invest and participate in such Prospects generated and/or screened by
JEX on the terms and conditions set forth in this Agreement.
3. JEX will also from time to time have the opportunity to invest in
the acquisition of proved oil and gas reserves ("Reserve Acquisitions"), and
Contango desires to have the opportunity to invest alongside JEX in these
Reserve Acquisitions.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements set forth herein, Contango and JEX agree as follows:
1
<PAGE> 3
ARTICLE I - OBLIGATIONS
1.1 Co-Investment in Prospects. During the term of this Agreement, JEX
shall diligently generate, source, screen and negotiate the opportunity to
invest in Prospects, and Contango shall have: (a) the preferential right to
invest in up to ninety-five percent (95%) of the working interest available to
JEX in all such Prospects, and (b) the obligation to invest in a minimum
percentage (the "Minimum Percentage") of the working interest available to JEX
in all such Prospects that meet the parameters hereinafter set forth, such
percentage to be equal to the lesser of: (i) fifty percent (50%), or (ii) the
percentage derived by dividing $600,000.00 by the sum of the aggregate Allocable
Seismic Costs (as defined below) attributable to such Prospect, the acquisition
cost of oil and gas leasehold or other oil and gas interests within such
Prospect and the dry hole cost to of the initial well be drilled on such
Prospect by JEX and Contango (and other co-owners, if any) based on a bonafide
authorization for expenditures ("AFE") prepared with respect to such initial
well. Contango will not participate in the process through which JEX generates,
sources, screens and negotiates the Prospects in which JEX and Contango may
invest. Promptly after JEX has determined that any Prospect warrants the
drilling of an exploratory well and that it otherwise meets the parameters set
forth in this Agreement, JEX shall send to Contango its written recommendation
that JEX and Contango invest in such Prospect, together with an estimate of the
pro forma economics of such investment. Within five (5) business days after
receipt of such recommendation, Contango shall notify JEX in writing of the
percentage interest in such Prospect that Contango elects to take, which
percentage shall not be less than the Minimum Percentage of the working interest
available to JEX in such Prospect or greater than ninety-five percent (95%) of
the working interest available to JEX in such Prospect. Notwithstanding the
foregoing, Contango shall not be obligated to participate in any new Prospects
recommended by JEX during any calendar year once the aggregate costs and
expenses
2
<PAGE> 4
required to be invested by Contango during such calendar year to conduct
exploratory drilling operations on all previous Prospects in which Contango has
elected to invest with JEX during such calendar year, plus leasehold acquisition
costs and Allocable Seismic Costs required to be invested by Contango during
such calendar year exceeds Six Million Dollars ($6,000,000.00). JEX shall have
the obligation to acquire at least five percent (5%) of the working interest
available in the Prospects in which it has recommended that Contango invest.
1.2 Co-Investment in Reserve Acquisitions. As and when JEX intends to
make any Reserve Acquisition, it shall provide written notice to Contango of
such proposed Reserve Acquisition, together with an estimate of the pro forma
economics of such acquisition. Contango shall have the right, but not the
obligation, to take up to ninety-five percent (95%) of the interests available
to JEX in such proposed Reserve Acquisition by sending written notice to JEX of
such election within five (5) business days after Contango's receipt of JEX's
written notice. At the closing of any Reserve Acquisition in which Contango has
elected to participate, Contango shall pay its share of the purchase price for
such Reserve Acquisition, together with its share of all other costs and
expenses related thereto. If Contango elects to take a percentage of such
Reserve Acquisition, then all of the provisions of Article II - Compensation,
shall be applicable to such Reserve Acquisition. If Contango elects not to take
a percentage of such Reserve Acquisition then Contango shall have no further
rights to acquire an interest or participate in such Reserve Acquisition and
such Reserve Acquisition shall not be subject to this Agreement.
1.3 Investment Parameters. Every November, February, May and August,
beginning in November 1999, JEX shall advise Contango in writing of its estimate
of capital expenditures ("CAPEX") to be incurred in the following fiscal quarter
January-March, April-June, July- September, October-December, respectively, for
purposes of acquiring Prospects and conducting oil
3
<PAGE> 5
and gas exploration and development activities thereon. Such report shall
identify the Prospects to be acquired and those on which exploration and
development activities are proposed to be conducted, and shall provide an
allocation of the estimated CAPEX attributable to each such proposed investment
and operation. Contango shall transfer funds to JEX by the beginning of each
month for the amount of CAPEX estimated to incurred during such month, based on
the estimates previously provided by JEX. To the extent the actual CAPEX amounts
to be paid by Contango for any month vary from the CAPEX estimate for such month
provided by JEX to Contango, Contango shall receive a credit from JEX toward
future payments under this Section 1.3 to the extent the CAPEX estimate paid by
Contango exceeds Contango's share of the actual CAPEX amounts for such month and
Contango shall promptly transfer additional funds to JEX to the extent
Contango's share of the actual CAPEX amount for such month exceeds the CAPEX
estimate paid by Contango. If the funds are not transferred on any Prospect in
which Contango has not previously invested (a "New Prospect"), Contango shall be
deemed to have elected not to participate in the oil and gas exploration or
development operation(s) on such New Prospect that were to have been funded
thereby, with the consequences of such election being that Contango shall
relinquish all of its rights, titles and interests in and to such New Prospect
to JEX, and such New Prospect shall no longer be subject to the terms of this
Agreement. When Contango has transferred to JEX the initial monthly installment
of CAPEX to be expended with respect to any New Prospect, all subsequent
operations on such Prospect shall be subject to the terms of the Operating
Agreement referred to in Section 1.6 hereof.
1.4 Third-Party Investors. With respect to a particular Prospect in
which Contango has elected to participate and has transferred to JEX at least
the initial monthly installment of CAPEX to be expended with respect to such
Prospect, if the aggregate obligations of Contango exceed the
4
<PAGE> 6
amount available from Contango, or if Contango otherwise fails to provide funds
for such a Prospect as required under this Agreement, Contango shall be deemed
to have elected not to participate in that portion of the operations that were
to have been funded by the CAPEX that Contango failed to provide, JEX shall have
the right to provide such funds or to seek such funds from a third-party
investor or investors, and the consequences of Contango's failure to provide
such funds shall be as provided in the Operating Agreement described in Section
1.6 hereof.
1.5 Overhead and Other Costs. JEX shall be responsible for all overhead
costs relating to the sourcing, screening, negotiating and closing of the
purchase of each Prospect, including, without limitation, consulting fees and
such other costs as may be incurred in order to bring the Prospect to a status
at which JEX has acquired sufficient geological and geophysical information, as
well as sufficient oil and gas leasehold positions in the Prospect to support a
prudent proposal for drilling an exploratory or a developmental well thereon,
and Contango shall not be obligated to reimburse JEX for any such costs and
expenses other than JEX's Allocable Seismic Costs (as hereinafter defined) with
respect to each Prospect and JEX's out of pocket costs to purchase leasehold
positions on Prospects, except that for costs incurred on Prospects on which JEX
determined not to conduct any drilling operations, such costs shall not exceed
$200,000.00 in the aggregate ("Dead-End G&G Costs") on an annual basis. If
Contango has elected to participate in a Reserve Acquisition, Contango will
reimburse JEX for Contango's proportionate share of the due diligence overhead
costs associated therewith. For purposes of this Agreement, the term "Allocable
Seismic Costs" means that portion of the seismic costs incurred by JEX in the
acquisition and interpretation of seismic data allocated to such Prospect in a
manner determined by JEX.
5
<PAGE> 7
1.6 Operating Agreement. With respect to each Prospect acquired by JEX
in which Contango has elected to participate, the operating agreement that will
govern operations on such Prospect ("Operating Agreement") shall be, in the
order of priority:
a. An operating agreement mutually agreed upon by JEX
and Contango,
b. The operating agreement(s) that is (are) in effect
with respect to such Prospect at the time that JEX
and/or Contango first acquire an interest therein,
c. An operating agreement in the form last mutually
agreed upon by JEX and Contango with respect to any
Prospect previously acquired hereunder, and
d. An operating agreement in the form of an AAPL Model
Form 610-1989, with the most recent form of COPAS
Accounting Procedure (Onshore Operations) attached
thereto as Exhibit "C," with the non-consent penalty
percentages to be provided in Article VI.B.2. thereof
for exploratory drilling and developmental
operations, being respectively, 800% and 500%, and
with all other blanks and/or options therein and all
additional exhibits referred to therein completed
and/or prepared in such form as is then prevailing in
the vicinity of such Prospect for similar oil and gas
properties.
1.7 Southern Ute Indian Tribe. JEX is aware of the potential mutual
investment being considered between Contango and the Southern Ute Indian Tribe.
JEX shall have the right, but not the obligation, to invest in ten percent (10%)
of the interest available to Contango in any such transactions as they become
available from the Southern Ute Indian Tribe, such investments to be made on the
same basis as Contango. As partial consideration for such investment rights, JEX
shall
6
<PAGE> 8
assist in the due diligence for these Contango sourced deals for an amount of
time as shall be mutually agreed between Contango and JEX.
1.8 Alcorn Exploration. Contango (formerly known as MGPX Ventures,
Inc.) is party to that certain "Alcorn/MGPX Oil & Gas Lease Acquisition
Agreement" (the "Alcorn Agreement") executed on August 31, 1999, by and among
Alcorn Exploration, Inc. and Alcorn-Texas Properties, Inc. (collectively
"Alcorn") and MGPX Ventures, Inc. JEX shall have the right, but not the
obligation, to invest in a Designated Percentage (as hereinafter defined) of the
interest available to Contango in any transactions that become available under
the Alcorn Agreement, such investments to be made on the same proportionate
basis as Contango. As partial consideration for such investment rights, JEX
shall assist in the due diligence relating to such transactions that may become
available under the Alcorn Agreement for an amount of time as shall be mutually
agreed between Contango and JEX. For purposes of this Section 1.8, the term
"Designated Percentage" means: (a) 331/3% for Prospects already identified by
Alcorn and paid for by Contango, but not yet sold as of the date of this
Agreement, (b) 10% for Prospects already identified by Alcorn that have, as of
the date of this Agreement, been sold by Alcorn to a third party, with respect
to which Contango is able to negotiate the acquisition of all or a portion of
the interest of such third party, and (c) 5% for Prospects not yet identified
that arise under the Alcorn Agreement subsequent to the date of this Agreement.
For such Prospects subsequently identified under the Alcorn Agreement, as
referred to in clause (c) of the preceding sentence, but not for any of the
Prospects referred to in clauses (a) or (b), JEX will be entitled to the
compensation prescribed in Article II - Compensation hereof, on the same basis
as Prospects recommended by JEX under the terms of this Agreement.
1.9 JEX Management Fees and Other Compensation. JEX may from time to
time enter into agreements with third parties whereby (a) JEX has the right to
participate in oil and gas
7
<PAGE> 9
prospects and acquisitions with such third parties and/or (b) JEX receives
compensation for providing certain management, operational, technical or other
services to such third parties ("Third Party Participation Agreements"). Subject
to the terms of the applicable Third Party Participation Agreement, Contango may
have the right to participate with JEX in the prospects and acquisitions
generated under such Third Party Participation Agreement in accordance with the
terms of this Agreement. However, Contango shall have no right to share in any
management fees or other compensation of any kind or character (whether cash,
securities, overriding royalty, or other property, rights or interests) received
by JEX for services provided by JEX under such Third Party Participation
Agreement.
ARTICLE II - COMPENSATION
In return for performing its obligations under this Agreement,
including proposing Prospects in which Contango may elect to participate and
providing the CAPEX funding for at least 5% of the costs and expenses
attributable to working interest available in such Prospects, Contango shall
compensate JEX as set forth in this Article Two.
2.1 Contango Common Stock. As consideration for entering into this
Agreement JEX shall receive 400,000 shares of the common stock of Contango,
which the Parties agree have a fair market value of $0.10 per share as of the
effective date of the Agreement.
2.2 Overriding Royalty Interest. Upon the commencement of operations
for the drilling of the initial well drilled pursuant to this Agreement on each
Prospect in which Contango has elected or is obligated to participate, JEX shall
be entitled to an assignment or reservation of an overriding royalty interest
equal to 2.5% of Contango's net revenue interest in each Prospect, which
overriding royalty interest shall be inclusive of and shall bear the sum of any
and all other overriding royalty
8
<PAGE> 10
interests burdening Contango's net revenue interest in such Prospect that were
conveyed or required to be conveyed to other persons or entities who were
employed by JEX or engaged as consultants to JEX to assist in JEX's generation,
screening, sourcing and/or acquisition of such Prospect (the "JEX ORRI"). An
example calculation of the JEX ORRI is set forth on Schedule 2.2 attached
hereto.
2.3 Back-In After Program Payout. The term "Program," as used herein,
means, with respect to each calendar year during the term of this Agreement, all
Prospects in which Contango has participated on which drilling operations are
commenced by JEX and Contango during such calendar year, provided that the first
such calendar year shall be deemed to include the period commencing on the date
of this Agreement and ending on December 31, 2000. The term "Program Payout," as
used herein, means 9:00 am on the first day of the calendar month following the
calendar month during which Contango's share of all revenues from the sale of
oil, gas and other minerals produced from all Prospects included in a Program,
net of Contango's share of all royalties, overriding royalties and other similar
lease burdens, severance taxes, production taxes, excise taxes and other similar
taxes levied on or measured by such production, and lease operating expenses
attributable to such Prospects first equals or exceeds Contango's share of all
CAPEX expended for the acquisition of such Prospects and the conduct of
exploration, development and production operations thereon including any
Dead-End G&G Costs incurred by Contango. The term "Prospect Payout," as used in
Section 2.5 hereof, means 9:00 am on the first day of the calendar month
following the calendar month during which Contango's share of all revenues from
the sale of oil, gas and other minerals produced from any Prospect, net of
Contango's share of all royalties, overriding royalties and other similar lease
burdens, severance taxes, production taxes, excise taxes and other similar taxes
levied on or measured by such production, and lease operating expenses
9
<PAGE> 11
attributable to such Prospect first equals or exceeds Contango's share are all
CAPEX expended for the acquisition of such Prospect and the conduct of
exploration, development and production operations thereon. At Program Payout,
JEX shall be entitled to an assignment or automatic reversion of an undivided
twenty-five percent (25%) of Contango's working interest in the Prospects
included in such Program (the "JEX Back-in"). Contango shall maintain books and
records tracking the status of Program Payout with respect to each Program and
the status of Prospect Payout with respect to each Prospect, and shall issue
quarterly statements to JEX regarding the status of Program Payout for each such
Program and Prospect Payout for each Prospect. Simultaneous with JEX's
assignment to Contango of Contango's interest in each Prospect, both parties
shall execute a mutually acceptable form of memorandum of agreement and record
same in the appropriate records of any parish or county within which any of the
Prospects are located (or in the nearest adjacent parish or county, in the case
of oil and gas leases in the Outer Continental Shelf) to give public notice of
the JEX Back-in.
2.4 Assignments. Contango shall execute and deliver to JEX recordable
instruments assigning to JEX the JEX ORRI and the JEX Back-in with respect to
each Prospect, as and when provided in Sections 2.2 and 2.3 or the JEX ORRI and
JEX Back-in shall be reserved by JEX in any assignment to Contango with respect
to such Prospect. If any oil and gas leases or other interests within a Prospect
in which Contango has elected or is obligated to participate pursuant to Section
1.1 hereof were initially acquired in the name of JEX or any affiliate or
nominee of JEX, then within thirty (30) days after JEX's acquisition of an
interest in such Prospect, and thereafter, as and when additional interests are
acquired in such Prospect, JEX shall execute and deliver or cause to be executed
and delivered, to Contango recordable instruments assigning to Contango an
undivided fifty percent (50%) or such greater percentage (up to 95%) in which
Contango has participated of
10
<PAGE> 12
the working interest (or other interest) available to JEX in such oil and gas
leases or other interests in said Prospect
2.5 Options. JEX shall receive an option to purchase 100,000 shares
common stock of Contango for each Prospect that results in the drilling of an
exploration well on such Prospect that is capable of producing oil or gas in
paying quantities (a "successful well"), as well as for each Reserve Acquisition
in which Contango has invested with JEX. With respect to Prospects, the options
shall vest as follows: 33,333 options shall vest and become exercisable upon the
earlier of: (i) the test establishing that a successful well has been completed
or (ii) the date of first production from such well; 33,333 options shall vest
and become exercisable when Prospect Payout has occurred; and 33,334 options
shall vest and become exercisable when Contango's return on investment
attributable to such Prospect equals fifteen percent (15%). With respect to
Reserve Acquisitions, the options shall vest as follows: 33,333 options shall
vest and become exercisable upon closing of the Reserve Acquisition; 33,333
options shall vest and become exercisable when Reserve Acquisition Payout (as
hereinafter defined) has occurred; and 33,334 options shall vest and become
exercisable when Contango's return on investment attributable to such Reserve
Acquisition equals fifteen percent (15%). The per share exercise price of the
options shall be the greater of (i) $1.00 and (ii) the average closing price of
Contango common stock on the NASDAQ bulletin board for the 20 trading days prior
to logging the successful well in the case of Prospects, or prior to the
execution of a letter of intent to purchase in the case of a Reserve
Acquisition. The term "Reserve Acquisition Payout" shall be defined the same as
the term "Prospect Payout," as set forth
11
<PAGE> 13
in Section 2.3, with the exception that the revenues, the deductions from
revenues, and the costs and expenses to be considered shall be those relating to
the oil and gas interests acquired in connection with that particular Reserve
Acquisition, rather than solely with respect to a particular Prospect. The
number of shares of Contango common stock for which JEX is entitled to receive
an option to purchase and the exercise price of such options are subject to
adjustment as provided in Section 2.6. In case of any consolidation with or
merger of Contango with or into another person (except for a merger or
consolidation in which Contango is the continuing entity), or in case of any
sale, lease or conveyance to another person of the property of Contango as an
entirety or substantially as an entirety, all options granted under this Section
2.5 shall vest in full prior to the occurrence of such event.
2.6 Adjustment of Option Shares and Exercise Price. If Contango (i)
pays a dividend in shares of its common stock or makes a distribution in shares
of its common stock, in either case to holders of its shares of common stock,
(ii) subdivides its outstanding shares of common stock, (iii) combines its
outstanding shares of common stock into a smaller number of shares of common
stock, or (iv) issues, by reclassification or reorganization, other securities
or property of Contango to holders of its shares of common stock generally, then
the number of shares of Contango common stock purchasable upon the exercise of
options to be granted to JEX under Section 2.5 and the number of shares of
Contango common stock purchasable upon the exercise of options previously
granted to JEX under Section 2.5 shall be adjusted so that JEX shall be entitled
to receive the number of shares of common stock or other securities or property
of Contango which JEX would have owned or been entitled to receive if the option
had been granted or exercised, as the case may be, immediately prior to any such
event or any record date with respect thereto. Whenever the number of shares of
common stock purchasable upon the exercise of an option is adjusted, as herein
provided, the exercise price payable upon exercise of the option shall be
adjusted by multiplying such exercise price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of shares of common
stock purchasable upon the exercise of the option immediately
12
<PAGE> 14
prior to such adjustment, and of which the denominator shall be the number of
shares of common stock so purchasable immediately thereafter. An adjustment made
pursuant to this Section 2.6 shall become effective immediately after the
effective date of such event, retroactive to the record date, if any, for such
event, and prompt written notice thereof shall be given to JEX.
ARTICLE III - INDEMNITY
3.1 Indemnification. Each Party shall indemnify, hold harmless and
defend the other Party, its officers, directors, employees, agents, affiliates
(other than the indemnifying Party), successors and assigns (each an
"Indemnified Person") from and against any and all claims (including without
limitation third party claims for personal injury or real or personal property
damage), losses, damages, demands, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action, requirements, enforcement actions of any
kind, and all reasonable and documented costs and expenses incurred in
connection therewith (including but not limited to reasonable and documented
attorneys' and/or paralegals' fees and expenses) (collectively, "Claims"),
arising in whole or in part, out of default in the performance of, any
obligations of the indemnifying Party under this Agreement; provided, however, a
Party shall not be required to indemnify any Indemnified Person under this
Section 3.1 for any Claim to the extent resulting from the willful misconduct or
negligence of such Indemnified Person. It is expressly understood and agreed
that the indemnity provided for herein shall survive the expiration or
termination of and shall be separate and independent from any remedy under this
Agreement.
13
<PAGE> 15
3.2 Duty to Mitigate. Each Party agrees that it has a duty to mitigate
damages and covenants that it will use commercially reasonable efforts to
minimize any damages it may incur as a result of the other Party's performance
or non-performance of this Agreement.
ARTICLE IV MISCELLANEOUS
4.1 Term. This Agreement shall commence on the date hereof (the
"Effective Date") and shall remain in effect until terminated by either Party
upon thirty (30) days prior written notice; provided, however, that this
Agreement shall remain in effect with respect to any transaction(s) entered into
prior to the effective date of the termination until both Parties have fulfilled
their obligations with respect to such transaction(s).
4.2 Notices. All notices, requests, statements, invoices, payments and
other communications required or permitted by the terms hereof to be given to
any person shall be made to the following:
CONTANGO:
Contango Oil and Gas Company
Attn: Kenneth R. Peak
3700 Buffalo Speedway
Suite 960
Houston, Texas 77098
Facsimile No.: (713) 960-1065
JEX:
Juneau Exploration, L.L.C.
Attn: John B. Juneau
26902 Nichols Sawmill Road
Magnolia, Texas 77355
Facsimile No.: (281) 356-2666
Notices required to be in writing shall be delivered by letter, facsimile or
other documentary form.
Notice by facsimile or hand delivery shall be deemed to have been received by
the close of the
14
<PAGE> 16
business day on which it was transmitted or hand delivered (unless transmitted
or hand delivered after close in which case it shall be deemed received at the
close of the next business day). Notice by overnight mail or courier shall be
deemed to have been received two business days after it was sent. A Party may
change its addresses by providing notice of same in accordance herewith.
4.3 Successors and Assigns. Neither Party shall assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of the other Party; provided that neither party shall be precluded from selling,
assigning, transferring, pledging, mortgaging or hypothecating any of its
rights, titles or interests in any Prospects covered hereby, provided that such
party shall remain liable to the other for all of its obligation hereunder with
respect to such Prospect. Subject to the foregoing sentence, this Agreement
shall be binding upon and inure to the benefit of the Parties and their
respective successors and assigns.
4.4 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
4.5 Entirety. This Agreement and the annexes hereto constitute the
entire agreement between the Parties. There are no prior or contemporaneous
agreements or representations affecting the same subject matter other than those
herein expressed. Except for any matters which, in accordance with the express
provisions of this Agreement, may be resolved by verbal agreement between the
Parties, no amendment, modification or change herein shall be enforceable unless
reduced to writing and executed by both Parties.
15
<PAGE> 17
4.6 Non-Waiver. No waiver by any Party hereto of any one or more
defaults by the other Party in the performance of any of the provisions of this
Agreement shall be construed as a waiver of any other default or defaults
whether of a like kind or different nature.
4.7 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the Parties
that this Agreement shall not be construed as a third party beneficiary
contract.
4.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
4.9 No Warranty. JEX SHALL HAVE NO LIABILITY TO CONTANGO OR ANY OTHER
PERSON OR ENTITY FOR ANY INACCURACY OF ANY ESTIMATES OR PROJECTIONS PREPARED BY
JEX FOR CONTANGO UNDER THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE
ESTIMATES PROVIDED FOR IN SECTIONS 1.1 AND 1.3. JEX HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES AND REPRESENTATIONS (WHETHER EXPRESS, IMPLIED OR STATUTORY) AS TO
THE ACCURACY OF SUCH ESTIMATES AND PROJECTIONS.
4.10 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
4.11 Counterparts. This Agreement may be executed in multiple
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
CONTANGO OIL & GAS COMPANY,
a Nevada corporation
By:
------------------------------
Kenneth R. Peak
President
JUNEAU EXPLORATION, L.L.C.,
a Texas limited liability company
By:
------------------------------
John B. Juneau
Sole Manager
17
<PAGE> 19
SCHEDULE 2.2
SAMPLE CALCULATION OF JEX ORRI
1. Assuming (a) that JEX and Contango are investing in a Prospect in
which they collectively will acquire or have the opportunity to earn a one
hundred percent (100%) working interest having a seventy-five percent (75%) net
revenue interest attributable thereto, and (b) that Contango has elected to
invest in ninety-five percent (95%) of the working interest and JEX is investing
in the remaining five percent (5%) of the working interest, then JEX's
overriding royalty interest will be (.75 x .95 x .025), which equals .0178125.
Such entire overriding royalty interest shall be borne by and carved out of
Contango's proportionate share of the working interest. The resulting interests
of the parties would then be as follows:
<TABLE>
<CAPTION>
Aggregate
Working Net Revenue Interest Overriding Net Revenue
Party Interest Attributable to Working Interest Royalty Interest Interest
- -------- -------- -------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Contango 95% 69.46875% 0% 69.46875%
- -------- -------- -------------------------------- ---------------- -----------
JEX 5% 3.75% 1.78125% 5.53125%
- -------- -------- -------------------------------- ---------------- -----------
TOTAL 100% 73.21875% 1.78125% 75%
- -------- -------- -------------------------------- ---------------- -----------
</TABLE>
2. If the assumptions stated in the foregoing example are changed to
provide that Contango has elected to invest in fifty percent (50%) of the
working interest and that JEX (either alone or in conjunction with third
parties) is investing the remaining fifty percent (50%) of the working interest,
the resulting interests of the parties would be as follows:
<TABLE>
<CAPTION>
Aggregate
Working Net Revenue Interest Overriding Net Revenue
Party Interest Attributable to Working Interest Royalty Interest Interest
- -------- -------- -------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Contango 50% 36.5625% 0% 36.5625%
- -------- -------- -------------------------------- ---------------- -----------
JEX 50% 37.5% .9375% 38.4375%
- -------- -------- -------------------------------- ---------------- -----------
TOTAL 100% 74.0625% .9375% 75%
- -------- -------- -------------------------------- ---------------- -----------
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,000,339
<SECURITIES> 0
<RECEIVABLES> 15,697
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,041,396
<PP&E> 13,726
<DEPRECIATION> (610)
<TOTAL-ASSETS> 2,054,512
<CURRENT-LIABILITIES> 134,768
<BONDS> 0
0
0
<COMMON> 490,145
<OTHER-SE> 1,429,599
<TOTAL-LIABILITY-AND-EQUITY> 2,054,512
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 300,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,300)
<INCOME-PRETAX> (298,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (298,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (298,380)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
