FARMOUT AGREEMENT
THIS FARMOUT AGREEMENT (this "Agreement") is entered into effective as of
September 22, 2000 (the "Effective Date"), by and among COLORADO WYOMING RESERVE
COMPANY, a Wyoming corporation ("Farmor"), whose address is 1801 Broadway, Suite
600, Denver, Colorado 80202, and ST OIL COMPANY, a Nevada corporation ("ST"),
whose address is 1801 Broadway, Suite 600, Denver, Colorado 80202, FM ENERGY
LLC, a California limited liability company ("FM"), whose address is 21484 Paseo
Portola, Malibu, California 90265, and THE SHORELINE COMPANIES, LLC, a Colorado
limited liability company ("Shorco"), whose address is Post Office Box 3437,
Englewood, Colorado 80155. ST, FM and Shorco may sometimes be collectively
referred to hereafter as "Farmees."
EXPLANATORY STATEMENT
A. Farmor owns the mineral working interests in and to certain oil and gas
leases and seismic options covering approximately 61,000 acres of land located
in the Paradox Basin in San Juan County, Utah, as described in EXHIBIT A
attached hereto and incorporated herein by this reference, together with
associated seismic data, maps and other related proprietary information. Such
leases and lands are subject to the burdens identified in EXHIBIT A. Such leases
and lands described in EXHIBIT A, subject to the burdens identified in EXHIBIT
A, may sometimes be collectively referred to hereafter as the "Lease Acreage."
B. Farmor has agreed to assign to Farmees, and Farmees have agreed to
accept from Farmor, certain working interests in the leases and seismic options
described in EXHIBIT A, in consideration of Farmees' completing, processing,
interpreting and providing to Farmor a three-dimensional seismic survey of up to
50 square miles covered by the above referenced oil and gas leases and seismic
options (the "Survey"); provided that the cost of such seismic survey shall not
exceed $1,100,000.00. Farmor shall have no obligation to make any assignment
until the seismic data resulting from the Survey (the "Data") has been
transferred to it on terms and in a form reasonably acceptable to it.
C. Effective as of even date herewith, Farmees have entered into a certain
Seismic Acquisition Agreement (the "Seismic Agreement") for purposes of funding
and performing the Survey. A copy of the Seismic Agreement is attached hereto as
EXHIBIT B and incorporated herein by this reference.
D. Effective as of even date herewith, Farmor and Farmees have entered
into a certain Tax Partnership Agreement, a copy of which is attached hereto as
EXHIBIT C and incorporated herein by this reference.
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AGREEMENT
NOW, THEREFORE, in consideration of the Explanatory Statement, the mutual
promises, covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Farmor and Farmees, each intending to be legally bound, hereby covenant and
agree as follows:
1.0 EXPLANATORY STATEMENT. The Explanatory Statement is true and correct,
and is incorporated herein by this reference.
2.0 3-D SEISMIC SURVEY. As soon as is reasonably practical after Farmees
have contributed funds pursuant to the Seismic Agreement, Farmees, acting in
accordance with the Seismic Agreement, shall commence the Survey, subject to the
cost limitations contained in Section 2.1 below. Farmees shall cause the Survey
to be completed in a diligent and workmanlike manner, not later than 180 days
after commencement, unless otherwise mutually agreed and subject to the force
majeure provisions of Section 7.0. Upon completion of the Survey, Farmees shall
cause the Data to be processed and interpreted in a diligent and workmanlike
manner.
2.1 COST OF SURVEY. The entire cost and expense of performing and
completing the Survey, and processing, analyzing and interpreting the Data
resulting therefrom, shall be borne by Farmees; provided, however, that such
aggregate cost and expense, general and administrative expense, management fees,
legal fees, consulting fees, contractor's fees and other expenses incurred in
connection with the Survey, shall not exceed the maximum amount of $1,100,000.00
(the "Maximum Cost"). Farmees shall not be obligated to expend more than such
Maximum Cost, nor shall they be obligated to expend all of such Maximum Cost.
2.2 ACCESS AND OWNERSHIP.
2.2.1 PROPRIETARY DATA. If Farmees, or any one of them,
conduct the Survey and acquire the Data, Farmees shall transfer to Farmor a
fifty percent (50%) ownership interest in the Data or in an entity owning the
Data. Farmor shall have no obligation to make the Assignments described in
Section 3 below until the Data has been transferred to it on terms and in a form
reasonably acceptable to it.
2.2.2 SPEC DATA. Farmees may, subject to the prior written
approval of Farmor, enter into a contract with a third party to conduct the
Survey and acquire the Data (a "Spec Survey"). If Farmees decide to pursue a
Spec Survey, Farmees must obtain the prior approval of Farmor of the terms and
conditions of the Spec Survey, including any related licensing agreements, which
approval shall not be unreasonably withheld or delayed.
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2.3 COPIES OF DATA. Farmor and Farmees, and their respective agents,
employees, consultants and representatives, shall each have access to the entire
Survey, including, without limitation, all original field data, tapes, surveys,
observer notes and processed data volume.
2.4 CONFIDENTIALITY. Except as and to the extent required by law and
subject to Section 2.2, Farmor and Farmees shall not disclose or use, and shall
direct their respective agents and representatives not to disclose or use, the
Data and any other associated information without the prior written consent of
all other parties hereto.
3.0 ASSIGNMENTS. Upon the date of delivery to Farmor of the first
processed copies of the interpretive maps of the Survey and the satisfaction of
the terms and conditions of Section 2.2 (hereafter referred to as "Full
Performance"), Farmees shall have earned an aggregate one-half (1/2) of Farmor's
right, title and interest in and to the Lease Acreage and Farmor's seismic
options (to the extent such seismic options have not been exercised by the date
of such assignment). As soon as reasonably practical after the date of execution
of this Agreement, Farmor shall execute and deliver into escrow three separate
assignments conveying such interests to Farmees, subject only to burdens of
record and agreements between or among the parties hereto, existing as of the
Effective Date (collectively, the "Assignments"), apportioned among Farmees as
follows:
ST 20%
FM 20%
Shorco 10%
3.1 ESCROW AGENT. Farmor and Farmees hereby designate and appoint
Trinity Petroleum Management, LLC, a Colorado limited liability company, whose
address is 1801 Broadway, Suite 600, Denver, Colorado 80202, as the escrow agent
to hold the Assignments and deliver them according to the terms of this
Agreement (the "Escrow Agent"). The Escrow Agent shall hold the Assignments in
trust for the benefit of Farmor and/or Farmees, as the case may be, and shall
deliver the Assignments (i) to the respective Farmees upon receipt of written
notice from Farmor that Full Performance has occurred within the time period
specified by this Agreement, or (ii) to Farmor upon receipt of written notice
from Farmor that Full Performance did not occur within the time periods
specified by this Agreement. The Escrow Agent shall deliver the Assignments to
the pertinent parties within five (5) business days of its receipt of the
operative written notice. The Escrow Agent shall be entitled to rely upon the
contents of any such written notice, without inquiring into the truth or
accuracy thereof. Farmor and Farmees, jointly and severally, shall indemnify,
defend and hold harmless the Escrow Agent from and against any and all losses,
damages, liabilities, cost and expenses that may be incurred by it arising out
of or in any way connected with its service hereunder, except for such losses,
damages, liabilities, costs and expenses as may result from the Escrow Agent's
gross negligence or willful misconduct. If, in the Escrow Agent's reasonable
opinion, there exists a bona fide dispute between Farmor and Farmees concerning
the delivery of the Assignments, the Escrow Agent may commence an
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interpleader action in any court of competent jurisdiction and deposit the
Assignments into the registry of such court.
3.2 NEGOTIATIONS. As soon as practical after delivery of the
Assignments to the Farmees, Farmor and Farmees shall market the project to the
industry for purposes of determining (i) the nature of any and all reasonable
development alternatives, including, without limitation, sale of the entire
project, and (ii) the value of the project. Thereafter, Farmor and Farmees shall
timely meet and conduct good faith negotiations to determine how best to realize
the value of the Prospect. All decisions as to further development (and/or any
other matter hereunder) must be approved by Parties holding an aggregate eighty
percent (80%) of the aggregate working interests held by Farmor and Farmees in
and to the Lease Acreage, assuming in all events that Farmees are entitled, or
have already received delivery of, the respective Assignments. In the event
Farmor and Farmees determine not to accept any industry proposal to purchase or
develop the project, or if no industry proposals are received, one or more of
the parties may notify the other parties that it desires to drill one or more
wells on the prospect. If Farmor and Farmees cannot in good faith agree upon
such drilling program, then the party or parties desiring to drill such well(s)
(the "Consenting Parties") may provide written notice to the other party or
parties (the "Non-Consenting Parties") of their intention to drill and the
Non-Consenting Parties shall have a period of thirty (30) days after receipt of
such notice in which to notify the Consenting Parties of their election to
participate or not to participate in such drilling program. Failure of any of
the Non-Consenting Parties to respond within such thirty (30) day period shall
be deemed an election not to participate. Upon any actual or deemed election not
to participate, each Non-Consenting Party making such election shall farmout its
entire interest in the Lease Acreage to the Consenting Parties, upon standard
industry terms and conditions.
3.3 RECORDING. Farmees shall be entitled to record their
respective Assignments upon receipt thereof.
4.0 LEASE MAINTENANCE. Throughout the term of this Agreement, Farmor shall
timely and promptly pay any and all lease maintenance costs and expenses
relative to the leases covering the Lease Acreage, including, without
limitation, delay rentals, and shall do any and all things reasonable necessary
to maintain such leases in full force and effect. Within fifteen (15) days after
receiving a bill therefor, Farmees shall reimburse Farmor for one-half (1/2) of
the total amount of such lease maintenance costs and expenses incurred and paid
by Farmor since March 30, 2000. If any of Farmor's seismic options expires
before Full Performance, any of the Parties may determine to exercise such
options prior to expiration, pursuant to the procedures set forth in Section 6.0
of this Agreement.
5.0 WARRANTIES OF FARMOR. Farmor hereby warrants, to and for the
benefit of Farmees, jointly and severally, that:
5.1 Farmor has good right and lawful authority to sell and convey
one-half (1/2) of its interest in the Lease Acreage to Farmees.
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5.2 The interest being assigned hereunder to Farmees is free and
clear of all liens, encumbrances, burdens and defects of title, and Farmor has
good, absolute and marketable title to the same, subject only to the items
specified in EXHIBIT A attached hereto.
5.3 The leases described in EXHIBIT A attached hereto are each in
full force and effect, have not been amended or modified and are valid and
subsisting leases covering the entire estates which they purport to cover; all
royalties, rentals and other payments due under the leases have been properly
and timely paid; and all conditions and obligations necessary to keep such
leases and all agreements or rights pertaining thereto in force have been fully
performed and satisfied.
5.4 Farmor's working interests in and to the leases described in
EXHIBIT A are accurately shown in such EXHIBIT A.
5.5 Farmor has not entered into any commitments or agreements with
respect to the interest being assigned to Farmees hereunder, except as specified
in EXHIBIT A attached hereto.
5.6 No suit, action or other proceeding is pending or, to the
knowledge of Farmor, threatened before any court or governmental agency which
might result in impairment or loss of Farmor's title to any part of its interest
in and to the Lease Acreage and/or the interest being assigned to Farmees
hereunder, or the respective values thereof. For purposes of this Section 5, the
"knowledge of Farmor" shall be limited to the actual knowledge of Farmor's Chief
Executive Officer.
5.7 All valid laws, regulations and orders of all governmental
authorities or persons having jurisdiction over the Lease Acreage have been
complied with, except where noncompliance would not have a material adverse
effect.
5.8 Farmor has received all necessary consents, permissions,
novations and approvals by third parties in connection with the sale, transfer
and assignment of the interest to Farmees, and all waivers of preferential
rights of third parties to purchase any part of such interest, except where the
failure of Farmor to obtain any consent, permission, novation or approval by a
third party would not have a material adverse effect.
6.0 AREA OF MUTUAL INTEREST. Farmor and Farmees hereby establish an area
of mutual interest encompassing the lands described in EXHIBIT E attached hereto
and incorporated herein by this reference (the "AMI").
6.1 TERM. The AMI shall remain in full force and effect for ten (10)
years from the Effective Date or so long as any of Farmor's or Farmee's
interests in the Lease Acreage remain or continue in force, whether extended by
production or otherwise (the "Term").
6.2 ACQUISITION OF NEW LEASES. If within the Term any Party
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hereto acquires an oil and gas leasehold interest in the AMI, either by (i) an
oil and gas acquisition (whether it be the purchase of a new oil and gas lease,
the extension or renewal of an existing lease or the acquisition of leasehold
interests through the acquisition of another entity), (ii) entry into an
agreement whereby such leasehold interests may be earned through drilling or
other exploratory or geophysical operations, or (iii) exercising any one or more
of the unexercised seismic options held by Farmor, the acquiring Party shall
promptly notify the other Parties of such acquisition and/or agreement,
including with such notification all available title information and copies of
leases and pertinent instruments, together with details pertaining to the cost
and expense of such acquisition or any obligation which may be incurred pursuant
thereto. The Parties receiving such notice shall have a period of thirty (30)
days after receipt thereof in which to notify the acquiring Party of its
election to participate or not to participate to the extent of its proportionate
interest. Failure of the Parties receiving such notice to respond to the
notifying Party within such thirty (30) day period shall be deemed an election
not to participate. The rights of the Parties to this AMI shall be subject to
the terms, provisions and conditions of such leasehold interests and farmout
agreements acquired by the Parties in the AMI; provided, however, that such
leasehold interests and farmout agreements shall not be subject to any
additional burdens created by Farmor or Farmees in the nature of royalties,
overriding royalties or production payments, unless Farmor or Farmees is/are
contractually obligated as of the Effective Date to grant such or similar
interests.
6.3 ASSIGNMENT OF INTERESTS TO PARTICIPANTS. If a Party elects to
participate, the acquiring Party shall promptly assign the participating Parties
an interest in the oil and gas leasehold interest proportionate to their
interest in the Lease Acreage and subject to the proportionate part of all the
existing burdens of record and prior agreements between the Parties (royalty,
overriding royalty and production payments, if any, subject to the limitations
of Section 6.2 above).
6.4 NON-PARTICIPATION. Non-participation by any Parties in such an
acquisition shall result in the acquired leasehold interest becoming the sole
and exclusive property of the participating Parties and they will be assigned
the share of the non-acquiring Parties pursuant and proportionate to their
interest in the Lease Acreage.
7.0 FORCE MAJEURE. If Farmees are rendered unable, wholly or in part, by
force majeure to carry out their obligations under this Agreement, other than
the obligation (if any) to make payments of money, the obligations of Farmees,
so far as they are affected by the force majeure shall be suspended during the
continuance of the force majeure. The term force majeure shall mean an act of
God, strike, lockout or other disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action or inaction, unavailability of equipment and any other cause, whether of
the kind specifically enumerated above or otherwise, which is not reasonably
within the control of Farmees.
8.0 MISCELLANEOUS.
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8.1 WAIVER. No failure to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights hereunder and under any documents and
instruments executed in connection with this Agreement shall be in addition to
all other rights provided by law. No modification or waiver of any provision of
this Agreement or any documents or instruments executed in connection herewith,
nor consent to departure therefrom, shall be effective unless in writing and no
consent or waiver shall extend beyond the particular case and purpose involved.
No notice or demand given in any case shall constitute a waiver of the right to
take other action in the same, similar or other instances without such notice or
demand.
8.2 SURVIVAL. Any of the terms and covenants contained in this
Agreement which require the performance of either party after execution hereof
shall survive the execution and delivery of this Agreement and all documents
related hereto.
8.3 ASSIGNMENT. A party hereto shall not transfer or assign this
Agreement without the prior written consent of the other parties, and any such
transfer or assignment without such prior written consent shall be null and
void. Notwithstanding the foregoing, a party may transfer or assign this
Agreement to an entity that is an affiliate of such party. The term "affiliate"
shall mean a person or entity that, now or hereafter, directly or indirectly
controls, is controlled by, or is under common control with, a specified party.
A person or entity shall be deemed to control another person or entity if such
person or entity possesses, directly or indirectly, the power to direct or cause
the direction of the management policies of such other person or entity, whether
through the ownership of voting securities, by contract or otherwise.
8.4 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, without regard
to principles of conflicts of laws.
8.5 ATTORNEYS' FEES. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, the prevailing party or parties shall be entitled to an award
of its or their reasonable attorneys' fees and costs to be fixed by the
arbitrator, trial court, and/or appellate court.
8.6 TITLES AND CAPTIONS. All section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.
8.7 NOTICES. Any notice under this Agreement shall be in writing and
shall be effective when actually delivered in person, one (1) business day after
being sent via facsimile to a party at the facsimile number set forth below or
three (3) business days after being deposited in the U.S. mail, registered or
certified, postage prepaid and addressed to the party at the address stated in
this Agreement or such other address as either party may designate by written
notice to the other.
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8.8 ENTIRE AGREEMENT. This Agreement and all other documents
executed in connection herewith contain the entire understanding between and
among the parties and supersede any prior understandings and agreements among
them respecting the subject matter of this Agreement.
8.9 AGREEMENT BINDING. This Agreement shall be binding upon, and
inure to the benefit of, the respective administrators, successors and assigns
of the parties hereto.
8.10 FURTHER ACTION. The parties hereto shall execute and deliver
all documents, provide all information and take or forbear from all such action
as may be necessary or appropriate to achieve the purposes of this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed in several
counterparts and all so executed shall constitute one Agreement, binding on all
the parties hereto even though all the parties are not signatories to the
original or the same counterpart.
8.12 PARTIES IN INTEREST. Nothing herein shall be construed to be to
the benefit of any third party, nor is it intended that any provision shall be
for the benefit of any third party.
8.13 SAVINGS CLAUSE. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FARMOR:
COLORADO WYOMING RESERVE COMPANY
By: /S/ KIM FUERST
--------------------------------------
Name: Kim Fuerst
Title: President
Facsimile Number: ______________
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FARMEES:
ST OIL COMPANY
By: /S/ SALLIE S. TIPPIE
---------------------------------------
Name: Sallie S. Tippie
Title: Vice President
Facsimile Number: 296-0329
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FM ENERGY LLC
By: /S/ JAMES E. MOORE
---------------------------------------
Name: James E. Moore
Title: Co-Chairman
Facsimile Number: 310-456-6469
THE SHORELINE COMPANIES, LLC
By: /S/ F. ROBERT TIDDENS
---------------------------------------
Name: F. Robert Tiddens
Title: Managing Member
Facsimile Number: 970-428-0529
