SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 10, 1997
PEASE OIL AND GAS COMPANY
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(Exact name of registrant as specified in its charter)
Nevada 0-6580 84-0285520
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
751 Horizon Court, Suite 203, Grand Junction Colorado 81506-8718
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (970) 243-8840
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 10, 1997, the Registrant completed the acquisition, under a
Purchase and Sale Agreement dated December 31, 1996, of a 7.8125% After Prospect
Payout Working Interest ("APPO WI") in a producing oil and gas prospect
designated as the East Bayou Sorrel Prospect, in Iberville Parish, Louisiana.
The oil and gas prospect is an approximately 4,500 acre prospect operated by a
nonaffiliated independent oil and gas producer, National Energy Group, Inc.
("NEGX"). An exploratory oil and gas well, drilled to approximately 13,550 feet,
was placed on production by the operator of the prospect in December 1996. The
Registrant acquired the undivided APPO WI from three unrelated entities, Atocha
Exploration, Inc., Potosky Oil and Gas, Inc. and Browning Oil Company, Inc.,
following negotiations between the Registrant and the persons from whom the APPO
WI was acquired. There is no material relationship between any of such persons
and the Registrant or any of its affiliates, directors, officers or any
associate of any such director or officer. The purchase price for the
acquisition of the APPO WI was valued at $1.75 million dollars and consisted of
$875,000 of Registrant's cash and 315,000 shares of the Registrant's common
stock. The number of shares issued for the purchase price may be adjusted in the
event that the reported market price for Registrant's common stock is less than
$2.78 per share on the date that a registration statement registering the shares
issued in connection with the acquisition to the sellers for resale under the
Securities Act of 1933 becomes effective. The source of the cash used by
Registrant to complete the purchase was Registrant's working capital and
corporate funds.
The sellers of the APPO WI held the interest in the prospect for
exploration and development of the oil and gas resources. The Registrant intends
to continue to hold the assets acquired in connection with Registrant's oil and
gas business and to participate in the development of the asset acquired. The
prospect contains a discovery well which was tested in June 1996 at a sustained
rate of 1,026 barrels of oil per day and 980 Mcf of natural gas per day with a
flowing tubing pressure of 6,670 PSI on a 8/64" choke from a perforated interval
of 13,208 to 13,226 feet. The well was put on production in December 1996 and
has maintained flow rates similar to those experienced during the test period.
The interest acquired by the Registrant is essentially a carried working
interest in the prospect until all costs associated with acquiring and
developing the prospect are recovered from production. Through December 31,
1996, approximately $6.1 million had been spent on the prospect consisting of:
(a) $3.9 million for the drilling, completing and testing of the discovery well;
(b) $1.1 million on a production platform; and (c) $1.1 million incurred in
connection with an acquisition of existing oil and gas leases within the
prospect. There will be at least one more well drilled within the prospect with
an estimated cost of $3.9 million. All these costs, as well as any other costs
that may be incurred in the future for the acquisition, drilling or development
of oil and gas interests within the prospect, must be recovered prior to the
Registrant sharing in any operating expenses and revenues incurred or generated
from the existing well or other wells that may be drilled and developed within
the prospect.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Registrant is a Small Business Issuer. Under Item 310(c)(3)(i) of
Regulation S-B, financial statements relating to the assets acquired are
not required.
(b) Pro forma financial information.
Registrant is a Small Business Issuer. Under Item 310(d) of Regulation
S-B, pro forma information relating to the acquisition of the assets is not
required.
(c) Exhibits.
Exhibit 10.27 Purchase and Sale Agreement dated December 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 16, 1997
PEASE OIL AND GAS COMPANY
By /s/ Willard H. Pease, Jr.
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Willard H. Pease, Jr., President
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EXHIBIT INDEX
Exhibit Description Page No.
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10.27 Purchase and Sale Agreement dated December 31, 1996. 6
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into
effective as of the "Agreement Date," as that term is hereinafter defined,
between ATOCHA EXPLORATION, INC., a Louisiana corporation, 1201 Louisiana, Suite
1050, Houston, Texas 77002, BROWNING OIL COMPANY, INC., a Nevada corporation,
8080 N. Central Expressway, Suite 780, Dallas, Texas 75206, and POTOSKY OIL AND
GAS, INC., a Texas corporation, 10410 Memorial Drive, Houston, Texas 77024
(collectively "Sellers") and PEASE OIL AND GAS COMPANY, a Nevada corporation,
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718 ("Buyer")
(Sellers and Buyer, when referred to collectively, are hereinafter referred to
as the "Parties").
ARTICLE I
PURCHASE AND SALE
Subject to the terms and conditions of, and for the consideration set forth
in, this Agreement, Sellers agree to sell and convey and Buyer agrees to
purchase and pay for, effective as of midnight, Central Standard Time, December
31, 1996 (the "Effective Time"), SUBJECT TO THE EXCLUSION OF THE OVERRIDING
ROYALTY INTEREST AS PROVIDED FOR ON EXHIBIT "A," the following (the
"Properties"):
1.1 Oil and Gas Properties. All properties described on Exhibit "A,"
whether such properties are in the nature of servitudes, fee interests,
leasehold interests, licenses, concessions, working interests, farmout rights,
other contractual rights, royalty, overriding royalty, other non-working or
carried interests, operating rights or other mineral rights of every nature, and
any rights that arise by operation of law or otherwise, in all properties and
lands pooled, unitized, communitized or consolidated with such properties (the
"Oil and Gas Properties").
1.2 Wells. All oil, condensate or natural gas wells, water source
wells, and water and other types of injection wells, either located on the Oil
and Gas Properties or held for use in connection with the Oil and Gas Properties
under a Surface Contract (as hereinafter defined), whether producing, operating,
shut-in or temporarily abandoned, but excluding all permanently abandoned wells
and all wells that, prior to the Effective Time, must be plugged and abandoned
in accordance with the rules or regulations of any regulatory authority (the
"Wells").
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1.3 Severed Substances. All severed crude oil, natural gas, casinghead
gas, drip gasoline, natural gasoline, petroleum, natural gas liquids,
condensate, products, liquids and other hydrocarbons and other minerals or
materials of every kind and description produced from the Oil and Gas Properties
and either (a) in storage tanks at the Effective Time or (b) sold at or after
the Effective Time (the "Hydrocarbons").
1.4 Surface Contracts. All leases, easements, privileges, right-of-way
agreements, licenses or other agreements relating to the use or ownership of
surface and subsurface properties and structures that are used or held for use
in connection with the exploration and production of Substances from the Oil and
Gas Properties (the "Surface Contracts").
1.5 Equipment. All physical facilities or interests therein, including
but not limited to platforms, tanks and tank batteries, gas plants, disposal
facilities, storage facilities, buildings, structures, field separators and
liquid extractors, compressors, pumps, pumping units, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, implements, tools,
appliances, cables, wires, towers, casing, tubing and rods, gathering lines or
other pipelines, field gathering systems, field offices and the furniture and
fixtures and equipment of every type and description to the extent that the same
are used or held for use in connection with the ownership or operation of the
properties described in Sections 1.1 through 1.4, inclusive, whether located on
or off such properties (the "Equipment").
1.6 Information and Data. All (a) abstracts, title opinions, title
reports, title policies, lease and land files, surveys, analyses, compilations,
correspondence, filings with regulatory agencies, tax returns, financial
compilations, and other documents and instruments that in any manner relate to
the properties described in Sections 1.1 through 1.5, inclusive; (b) magnetic
tapes or reproducible copies of computer software and computer databases that
are owned by or licensed to Sellers that in any manner relate to the properties
described in Sections 1.1 through 1.5, inclusive; (c) geological, engineering,
exploration, production and other technical data, magnetic field recordings,
digital processing tapes, field prints, summaries, reports, maps,
interpretations, studies and other analyses, whether written or in
electronically reproducible form, that are in the possession of Sellers and in
any manner relate to the properties described in Section 1.1; and (d) all other
books, records, files and magnetic tapes containing financial, title or other
information that are in the possession of Sellers and in any manner relate to
the properties described in Sections 1.1 through 1.5, inclusive (the "Data").
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1.7 Contracts. All contracts, commitments, agreements, arrangements
that in any way relate to the properties described in Sections 1.1 through 1.6,
inclusive, including the production, storage, treatment, transportation,
processing, purchase, sale or other disposal of Hydrocarbons therefrom or in
connection therewith, and any and all amendments, ratifications or extensions of
the foregoing, together with (i) all rights, privileges, and benefits of Sellers
thereunder arising on or after the Effective Time and (ii) all claims for
take-or-pay or other similar payments arising before or after the Effective Time
that have not been disclosed in any Exhibit (the "Contracts").
1.8 Payment Rights. All (a) accounts, instruments and general
intangibles (as such terms are defined in the Uniform Commercial Code of
Louisiana) and (b) liens and security interests in favor of Sellers under any
law, rule or regulation or under the Contracts arising from the sale or other
disposition at or after the Effective Time of any of the properties described in
Sections 1.1 through 1.7, inclusive (the "Payments Rights").
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price; Base Purchase Price. The purchase price for the
Properties shall be One Million Seven Hundred Fifty Thousand and No/100
($1,750,000.00) Dollars (the "Base Purchase Price"), which shall be adjusted as
provided in Article 2.2 hereof to arrive at the "Final Purchase Price."
2.2 Final Purchase Price. In arriving at the "Final Purchase Price" the
Base Purchase Price shall be adjusted downward by the cost incurred by Buyer in
bringing title to the Oil and Gas Properties forward by updating title to the
working interest covered by the Title Opinions furnished to Buyer by Sellers
covering the lands of Schwing, Inc., Wilbert Funeral Home, Inc., and Wilbert's
Sons Ltd. Partnership, and the State Leases covering portions of Tract 29181
containing 10 acres and 141 acres, respectively, awarded to National Energy,
Inc., and W & T Offshore, Inc., respectively, and by providing copies of the
assignments consummating the acquisition of the Bayou Sorrel Field by National
Energy Group, Inc., from PANACO, Inc. and W & T Offshore, Inc. The Base Purchase
Price as adjusted pursuant to this Article shall be referred to as the "Final
Purchase Price."
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Sellers. Sellers represent and
warrant to Buyer the following:
3.1.1 Organization. Atocha Exploration, Inc., is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana and is duly qualified to carry on its business in the State of
Louisiana. Browning Oil Company, Inc., is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is duly
qualified to carry on its business in the State of Louisiana. Potosky Oil and
Gas, Inc., is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas.
3.1.2 Corporate Power. Sellers have full corporate power and authority
under the laws of their respective states to conduct their business as presently
conducted, to perform their obligations under this Agreement, and are entitled
to own the Properties.
3.1.3 Conflicts. The consummation of the transactions contemplated by
this Agreement will not violate, be in conflict with, or constitute a default
under any provision of the articles of incorporation, bylaws or governing
documents of any Seller, any provision of any agreement or instrument to which
or by which any Seller is a party or by which it is bound, or any judgment,
decree, judicial or administrative order, award, writ, injunction, statute, rule
or regulation applicable to any Seller or the Properties.
3.1.4 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, including any necessary board or
shareholder approval, by Sellers or any third parties owning any equitable or
beneficial interest in the Properties.
3.1.5 Enforceability. This Agreement has been duly executed and
delivered on behalf of Sellers, and at the "Closing," as that term is
hereinafter defined, all documents and instruments required to be executed and
delivered by Sellers in order to consummate the purchase and sale provided for
in to this Agreement shall be executed and delivered. This Agreement does, and
such documents and instruments shall, constitute legal, valid and binding
obligations of Sellers enforceable in accordance with their terms.
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3.1.6 Broker's Fees. Sellers have incurred no liability, contingent or
otherwise, for broker's or finder's fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.
3.1.7 Litigation and Claims. To the best of Sellers' information,
knowledge and belief, no lawsuit, action, claim, demand, filing, cause of
action, administrative proceeding or other litigation or proceeding is pending
or threatened before any court or governmental agency as of the date of this
Agreement that might result in impairment, loss or diminution of Sellers' title
to the Properties or hinder or impede their ownership or operation. No written
or oral notice from any governmental body or any other entity has been received
by any Seller (i) claiming any violation or repudiation of the Properties or any
violation of any law or any environmental, conservation or other ordinance,
code, rule or regulation or (ii) requiring, or calling attention to the need
for, any work, repairs, construction, alterations or installations on or in
connection with the Properties with which such Seller has not complied.
3.1.8 Evaluation Data. To the best of Sellers' knowledge and belief,
each of the maps, and all of the geological and production data, pricing data,
reserve data or other data or documentation heretofore furnished by Sellers to
Buyer ("Evaluation Data"), was complete, and the information reported therein
was correct, in all material respects as of the date of such delivery.
3.1.9 Default. To the best of Sellers' knowledge and belief, no Seller
is in default or violation of (a) any law, order, writ, injunction, ordinance,
code, rule, regulation or decree of any governmental body, agency or court or of
any commission or other administrative agency or (b) any agreement or obligation
to which it is a party or by which it is bound or to which it or the Properties
may be subject. With respect to the ownership, operation, production and sale of
hydrocarbons and carrying on the business of Sellers, Sellers have complied with
all laws, rules and regulations applicable thereto.
3.1.10 Tax Compliance. To the best of Sellers' knowledge and belief,
Sellers have timely filed or caused to be filed all federal, state, local and
foreign tax and information returns required under all applicable statutes,
rules and regulations, and all taxes with respect to the Properties (other than
those being contested in good faith for which adequate provisions will be made)
shown on said returns to be due and additional assessments which are due and
payable have been paid.
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3.1.11 Marketable Title. Sellers have or will have at the Effective
Time, Marketable Title to the Properties. "Marketable Title" shall mean such
title as is free and clear of all Encumbrances other than Permitted Encumbrances
and which entitles Sellers to (i) a Net Revenue Interest in each well, lease or
unit no less than, and (ii) a Working Interest in each well, lease or unit no
greater than, the relevant percentages set forth in Exhibit "A," throughout the
productive life of such well, lease or unit, free of Permitted Encumbrances. The
foregoing provisions of this paragraph notwithstanding, the Assignment, as
attached hereto, shall warrant title by, through, and under Sellers, but not
otherwise. "Encumbrance" shall mean any mortgage, lien, security interest,
pledge, charge, encumbrance, claim, limitation, irregularity, burden or defect.
"Permitted Encumbrances" shall mean any or all of the following:
(a) Encumbrances that arise under operating agreements to secure
payment of amounts not yet delinquent and are of a type and nature customary in
the oil and gas industry;
(b) Encumbrances that arise as a result of pooling and unitization
agreements, declarations, orders or laws to secure payment of amounts not yet
delinquent;
(c) Encumbrances securing payments to mechanics and materialmen and
Encumbrances securing payment of taxes or assessments that are, in either case,
not yet delinquent or, if delinquent, are being contested in good faith in the
normal course of business;
(d) lessor's royalties, overriding royalties, division orders,
reversionary interests and other similar burdens that do not operate to reduce
the Net Revenue Interest of Sellers in and to the Properties to less than the
amount set forth in Exhibit "A";
(e) consents to assignment by governmental authorities that are
obtained on or prior to the Closing Date;
(f) conventional rights of reassignment obligating Sellers to reassign
their interests in any portion of the Properties to a third party in the event
it intends to release or abandon such interest prior to the expiration of the
primary term or other termination of such interest;
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(g) easements, rights-of-way, servitudes, permits, surface leases,
surface use restrictions and other surface uses and impediments on, over or in
respect of any of the Properties that, as of the Effective Time, appear of
record in the public records of the parish wherein the Properties are located,
provided that they do not interfere materially with the ownership, operation,
value or use of the Properties, taken as a whole; and
(h) rights reserved to or vested in any municipality or governmental,
tribal, statutory or public authority to control or regulate any of the
Properties in any manner, and all applicable laws, rules and order of any
municipality or governmental or tribal authority.
3.1.12 Sellers' Interest. The interests described in Exhibit "A"
constitute all of Sellers' interest in the Oil and Gas Properties and Wells, it
being Sellers' intent to sell to Buyer all of Sellers' right, title and interest
in the Oil and Gas Properties and Wells, except as otherwise specifically set
forth in Exhibit "A".
3.1.13 Status of the Leases. To the best of Sellers' knowledge and
belief, with respect to the Leases described in Exhibit "A" (the "Leases"):
(a) The Leases have been maintained according to their terms, in
compliance with the agreements to which the Leases are subject;
(b) The Leases are presently in full force and effect, and all other
oil and gas leases covering the lands described in the Leases have expired and
are no longer of any force or effect;
(c) Sellers and their predecessors-in-title, or the respective
designees of any of them, have made or caused to be made all payments, including
royalties, delay rentals and shut-in royalties provided for in the Leases;
(d) No other Party with an interest in any of the Leases at any time
is in breach or default with respect to any of its obligations thereunder;
(e) There has not occurred any event, fact or circumstance which with
the lapse of time or the giving of notice, or both, would constitute a breach or
default on behalf of any of the Sellers, any of their predecessors-in-title or
any other parties;
(f) Neither Sellers nor any other party with an interest in any of the
Leases nor any of the Lessors at any time have given or threatened to give
notice of any action to terminate, cancel rescind or procure a judicial
reformation of any of the Leases or any provisions thereof.
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3.1.14 Contracts and Agreements. To the best of Sellers' knowledge and
belief, all of the contracts or agreements which will burden or encumber the
Properties or to which the Properties will be subject after Closing (the
"Contracts") are set forth on Exhibit "A." To the best of Sellers' knowledge and
belief, all of the Contracts and other obligations of Sellers that relate to the
Properties are in full force and effect. To the best of Sellers' knowledge and
belief, no Seller or any other party to the Contracts (a) is in breach of or
default, or with the lapse of time or the giving of notice, or both, would be in
breach or default, with respect to any of its obligations thereunder to the
extent that such breaches or defaults have an adverse impact on any of the
Properties or (b) has given or threatened to give notice of any default under or
inquiry into any possible default under, or action to alter, terminate, rescind
or procure a judicial reformation of any Contract. Sellers do not anticipate
that any other party to a Contract will be in breach of or default under or
repudiate any of its obligations thereunder to the extent that such breach or
default will have an adverse impact on any of the Properties. The Contracts are
consistent with, and do not give rise to breaches of the representations and
warranties of Sellers herein.
3.1.15 Operations. To the best of Sellers' knowledge and belief, all
of the Wells have been drilled and completed within the boundaries of the Leases
or within the limits otherwise permitted by contract, pooling or unit agreement,
and by law, and all drilling and completion, and plugging and abandonment, of
the Wells and all development and operations on the Properties have been
conducted in compliance with all applicable laws, ordinances, rules, regulations
and permits, judgments, orders and decrees of any court or governmental body or
agency. No Well is subject to any penalty or liability because of any
overproduction or any other violation of applicable laws, rules, regulations or
permits or judgments, orders or decrees of any court, governmental body or
agency which would prevent any of the Wells from being entitled to its full
legal and regular allowable.
3.1.16 Accuracy of Representations and Warranties. None of the
statements, representations or warranties made by Sellers in this agreement or
in any exhibit or certificate delivered pursuant to this Agreement contains any
untrue statement or any material fact or omits to state any material fact
necessary to be stated in order to make the statements, representations or
warranties contained herein or therein not misleading. Sellers have no knowledge
or belief of any matter which materially and adversely affects (or may
materially and adversely affect) the operations, prospects, value or condition
of any of the Properties, which has not been set forth in this Agreement or the
Exhibits hereto.
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3.1.17 AFE's and Commitments. Except as otherwise indicated on Exhibit
"A", there are no authorizations for expenditure ("AFE's") or other oral or
written commitments ("Commitments") to drill or rework Wells or for capital
expenditures pursuant to any of the Contracts, applicable to the Properties.
3.1.18 Approvals and Preferential Rights. There are no approvals
required to be obtained by Sellers as a result of this Agreement or the
transactions provided for herein, except those that are obtained by Sellers at
or prior to Closing, and there are no preferential purchase rights that affect
the Properties, except those for which Sellers provide waivers at or prior to
Closing.
3.1.19 Production Burdens, Taxes, Expenses and Revenues. To the best
of Sellers' knowledge and belief, all rentals, royalties, excess royalty,
overriding royalty interests and other payments due under or with respect to the
Properties have been properly and timely paid. All ad valorem taxes, property
taxes, production taxes, severance taxes and other taxes based on or measured by
the ownership of the Properties or the production of Hydrocarbons therefrom have
been properly and timely paid. All expenses payable under the terms of the
Contracts and attributable to the Properties have been properly and timely paid
except for such expenses as are being currently paid prior to delinquency in the
ordinary course of business. All of the proceeds from the sale of Hydrocarbons
are being properly and timely paid to Sellers by the purchasers of production
without suspense.
3.1.20 Pricing. To the best of Sellers' knowledge and belief, the
prices being received for the production of Hydrocarbons do not violate any
Contract, law or regulation. Where applicable, all of the Wells and production
of Hydrocarbons therefrom have been properly classified under appropriate
governmental regulations.
3.1.21 Gas Regulatory Matters. All necessary rate and collection
filings and all necessary applications for well determinations under the Natural
Gas Act of 1938, as amended, the Natural Gas Policy Act of 1978, as amended, and
the rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") thereunder have been filed with the appropriate state and federal
agencies, and each such application has been approved by or is pending before
the appropriate state or federal agency. "Good Faith Negotiations" have been
neither initiated nor waived, nor has the right to initiate such re-negotiations
been compromised in any manner, pursuant to FERC Order No. 451 or any revisions
thereof, or any orders predicated thereon, under any gas sale or purchase
contract in effect on July 18, 1986 covering any of the Properties. None of the
Properties is subject to any offer of take-or-pay credits for gas transported
pursuant to FERC Order No. 500. None of the Properties have been abandoned under
FERC Order No. 490 or any revisions thereof.
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3.1.22 Production Balances. To the best of Sellers' knowledge and
belief, none of the purchasers under any production sales contracts or
prepayment agreements are entitled to "make-up" or otherwise receive deliveries
of Hydrocarbons at any time after the Effective Time without paying at such time
the full contract price therefor. No one is entitled to receive any portion of
the interest of any Sellers in any Hydrocarbons or to receive cash or other
payments to "balance" any disproportionate allocation of Hydrocarbons under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, or other similar agreements.
3.1.23 Environmental Matters. To the best of Sellers' knowledge and
belief, none of the Properties are subject to, or in a condition which could
subject them to, any claims or demands, whether for injury or death to persons
or damages to property, any claim, injury, action, loss, cost, expense,
liability, penalty, charge or damage, including without limitation reasonable
attorney fees, and all costs and expenses of all actions, suits, proceedings,
demands, assessments, claims and judgments, whether direct, pending, threatened,
contingent or otherwise, related to the generation, treatment, storage,
transportation, discharge, emission or disposal of hydrocarbons and of hazardous
materials, pollutants, contaminants or wastes on or from the Properties, as such
terms are defined and used by, and any other substances affected by, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Right-To-Know Act, the Hazardous Materials Transportation
Act, the Oil Pollution Act, the Clean Water Act, the Safe Drinking Water Act, or
the Clean Air Act, all as they have been or may be amended from time to time, or
any other applicable federal, state or local statute, rule, regulation or
ordinance.
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3.2 Representations And Warranties Of Buyer. Buyer represents and warrants
to Sellers the following:
3.2.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada.
3.2.2 Corporate Power. Buyer has all requisite power and authority to
carry on its business as presently conducted, to enter into this Agreement, to
purchase the Properties on the terms described in this Agreement, and to perform
its other obligations under this Agreement.
3.2.3 Conflicts. The consummation of the transactions contemplated by
this Agreement will not violate, be in conflict with, or constitute a default
under any provision of the articles of incorporation, bylaws or governing
documents of Buyer, any provision of any agreement or instrument to which or by
which Buyer is a party or by which it is bound or any judgment, decree, judicial
or administrative order, award, writ, injunction statute, rule or regulation
applicable to Buyer or the Properties.
3.2.4 Enforceability. This Agreement has been duly executed and
delivered on behalf of Buyer, and at the Closing all documents and instruments
required to be executed and delivered by Buyer in order to consummate this sale
and purchase pursuant to this agreement, shall be executed and delivered. This
Agreement does, and such documents and instrument shall, constitute legal, valid
and binding obligations of Buyer enforceable in accordance with their terms.
3.2.5 Broker's Fees. Buyer has incurred no liability, contingent or
otherwise, for broker's or finder's fees relating to the transactions
contemplated by this Agreement for which Sellers shall have any responsibility
whatsoever.
3.2.6 Accuracy of Representations and Warranties. None of the
statements, representations or warranties made by Buyer in this agreement or in
any exhibit or certificate delivered pursuant to this Agreement contains any
untrue statement of any material fact or omits to state any material fact
necessary to be stated in order to make the statements, representations or
warranties contained herein or therein not misleading.
3.3 Survival of Representations and Warranties. The representations and
warranties of Sellers in this Article III and the representations and warranties
of Buyer in this Article III shall apply as of the time of Closing. The
following shall survive the Closing: (a) Sellers' representations and warranties
in paragraphs 3.1.1 through 3.1.4; (b) Sellers' warranty of title in paragraph
3.1.11 by, through, and under Sellers, but not otherwise; and (c) Buyer's
representations and warranties in paragraphs 3.2.1 and 3.2.2.
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ARTICLE IV
COVENANTS
4.1 Closing Conditions. Sellers shall cause all the representations and
warranties of Sellers contained in this Agreement to be true and correct on and
as of the Closing Date. To the extent the conditions precedent to the
obligations of Buyer are within the control of Sellers, Sellers shall cause such
conditions to be satisfied on or prior to the Closing Date and, to the extent
the conditions precedent to the obligations of Buyer are not within the control
of Sellers, Sellers shall use their best efforts to cause such conditions to be
satisfied on or prior to the Closing Date.
4.2 Registration Statement. Buyer covenants and agrees to use reasonable
commercial efforts to file a registration statement on Form S-3 or other
appropriate form on or before January 10, 1997, but in no event on or before
Closing, with the United States Securities and Exchange Commission, registering
the shares of the $0.10 par value per share common stock of Buyer to be
delivered to Sellers at Closing, for resale as provided for in Paragraph 6.3.6
and to have the registration statement declared effective within a reasonable
time thereafter.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Sellers' Conditions. The obligations of Sellers at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions:
5.1.1 Buyer's Representations and Warranties Shall Be True At Closing.
All representations and warranties of Buyer contained in this Agreement shall be
true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing Date, and
Buyer shall have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by Buyer at or
prior to the Closing.
5.1.2 No Restraining or Prohibiting Orders. No order shall have been
entered by any court or governmental agency having jurisdiction over the Parties
or the subject matter of this contract that restrains or prohibits the purchase
and sale contemplated by this Agreement and which remains in effect at the
Closing Date.
12
<PAGE>
5.2 Buyer's Conditions. The obligations of Buyer at the Closing are
subject at the option of Buyer, to the satisfaction at or prior to the Closing
of the following conditions:
5.2.1 Sellers' Representations and Warranties Shall Be True at
Closing. All representations and warranties of Sellers contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations were made at and as of the Closing Date, and Sellers shall
have performed and satisfied all material agreements in all material respects
required by this Agreement to be performed and satisfied by Sellers at or prior
to the Closing.
5.2.2 No Restraining or Prohibiting Orders. No order shall have been
entered by any court or governmental agency having jurisdiction over the Parties
or the subject matter of this Agreement that restrains or prohibits the
transaction contemplated by this Agreement and which remains in effect at the
Closing Date.
5.2.3 Adverse Material Changes. In Buyer's sole, good faith judgment,
there shall not occur, prior to Closing, adverse material change or difference
from information furnished by Sellers to Buyer, or relied upon by Buyer in
making its offer with respect to the Properties, Sellers' interest in the
Properties, the value of the Properties, Sellers' financial condition, or the
condition of the Properties (except depletion through normal production within
authorized allowables and rates of production), and none of the Properties shall
have suffered any material destruction, damage or loss.
5.2.4 Operational Condition of the Equipment. Buyer has fully
satisfied itself that all Equipment owned or used by Sellers with respect to
ownership and/or operation of the Properties is in good repair, working order
and operating condition and is adequate for the operation of the Properties.
5.2.5 Evidence of Release of Liens and Encumbrances. Sellers shall
furnish Buyer evidence that all liens and encumbrances not expressly identified
herein as Permitted Encumbrances have been released prior to or simultaneously
with closing, said evidence to be satisfactory to Buyer in its sole discretion.
5.2.6 Consents and Approvals. All consents and approvals required to
be obtained for the assignment of the Properties to Buyer shall have been
obtained, and all preferential purchase rights arising in connection with the
assignment of the Properties to Buyer shall have been waived or shall have
expired.
13
<PAGE>
5.2.7 Compliance. Sellers shall have performed and complied in all
material respects with each of the covenants and conditions required by this
Agreement of which performance or compliance is required prior to or at the
Closing.
5.2.8 No Pending Suits. No suit, action or other proceeding before any
court or governmental agency shall be pending or threatened in which it is
sought to restrain or prohibit the performance of or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
5.2.9 Approval of Title. Buyer shall have approved Sellers' Marketable
Title to the Properties.
5.2.10. Prospect Costs. Sellers shall deliver to Buyer a written
statement signed by W & T Offshore, Inc., identifying in reasonable detail all
prospect costs as of September 30, 1996, to be considered in the calculation of
"Prospect Payout," as that term is defined in the letter agreement described as
item 1. in C. of Exhibit "A" to this Agreement.
5.2.11 Additional Letters. Sellers shall deliver to Buyer letters in
the forms attached hereto as Exhibit "C" fully executed by the parties
identified thereon.
5.2.12 Board Approval. The board of directors of Buyer shall have
approved the transactions contemplated by this Agreement.
ARTICLE VI
CLOSING
6.1 Closing Date. Unless the Parties hereto mutually agree otherwise, and
subject to the conditions stated in this Agreement, the consummation of the
transactions contemplated hereby (herein called the "Closing") shall be held at
or before 5:00 p.m., Central Standard Time, December 31, 1996, or at such other
time as Buyer and Sellers may agree in writing. The date Closing actually occurs
is herein called the "Closing Date." Time shall be of the essence of this
Agreement.
6.2 Place Of Closing. The Closing shall be held at the offices of
- -----------------------------, or at such other place as Buyer and Sellers may
agree in writing.
14
<PAGE>
6.3 Closing Obligations. At the Closing, the following events shall occur,
each being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
6.3.1 Assignment. Sellers shall execute, acknowledge and deliver to
Buyer an assignment, bill of sale and conveyance (in sufficient counterparts to
facilitate recording) substantially in form and substance as set forth in
Exhibit "B" hereto (the "Assignment"), conveying the Properties to Buyer.
6.3.2 Declaration of Agreement for Exploitation of Mineral Interests.
If no declaration in compliance with ss. 2731 et seq. of Title 9 of the
Louisiana Revised Statues sufficient to bind third persons acquiring an interest
in the Oil and Gas Properties has been filed of record in the office of the
Clerk of Court of Iberville Parish, Louisiana, Sellers shall execute,
acknowledge, and deliver to Buyer such a declaration.
6.3.3 Agreements To Be Subject To Sellers' Interest in the Oil and Gas
Properties. In the event that Buyer's investigation of the title to the Oil and
Gas Properties indicates to Buyer in its sole discretion that any third party
has acquired any interest in the Oil and Gas Properties which was originally
burdened by Sellers' interest in the Oil and Gas Properties but which, due to
the absence of an appropriate agreement or the absence of a Declaration as
described above, is no longer subject to Sellers' interest, Sellers shall
furnish Buyer an agreement from such third party or parties to be subject to
Sellers' interest in the Oil and Gas Properties.
6.3.4 Satisfactory Evidence of Release of Liens and Encumbrances.
Sellers shall furnish Buyer evidence that all liens and encumbrances not
constituting Permitted Encumbrances have been released, said evidence to be
satisfactory to Buyer in Buyer's sole discretion.
6.3.5 Delivery of Possession. Sellers shall deliver to Buyer exclusive
possession of Sellers' interest in and to the Properties.
6.3.6 Payment of Purchase Price. Against delivery of the documents and
materials described above, Buyer shall (a) pay to each Seller separately by
certified check or wire transfer its proportionate share of the sum of the EIGHT
HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($875,000.00), each Seller to
receive the amount set out next to its name as follows:
15
<PAGE>
Atocha Exploration, Inc. $393,750
Browning Oil Company, Inc. $350,000
Potosky Oil and Gas, Inc. $131,250
and (b) deliver to each Seller separately its proportionate share of 315,000
shares of the $0.10 par value per share common stock of Buyer, each Seller to
receive the number set out next to its name as follows:
Atocha Exploration, Inc. 141,750
Browning Oil Company, Inc. 126,000
Potosky Oil and Gas, Inc. 47,250
Each certificate shall bear the following restrictive legend:
The securities represented by this certificate may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the securities Act of 1933
(the "Act"), or pursuant to an exemption from registration under
the Act, the availability of which is to be established to the
satisfaction of the Company.
Prior to the time Sellers assign, sell or otherwise dispose of their respective
shares, the restrictive legend cannot be removed. The registration statement
referred to in Paragraph 4.2 will register the shares "for resale." Accordingly,
the restrictive legend will only be removed at the time Sellers assign, sell or
otherwise dispose of those shares. Sellers, or their agents effecting the
transaction, will be required to contact the Company's transfer agent to
determine the procedure that is best to follow to have their shares transferred
without a restrictive legend upon the assignment, sale or other disposition of
Sellers' shares.
6.3.7 Prospect Costs. Sellers shall deliver to Buyer a written
statement signed by Sellers and National Energy Group, Inc., identifying in
reasonable detail all prospect costs as of September 30, 1996, to be considered
in the calculation of "Prospect Payout," as that term is defined in the letter
agreement described as item 1. in C. of Exhibit "A" to this Agreement.
6.3.8 Additional Letters. Sellers shall deliver to Buyer fully
executed letters in the forms attached hereto as Exhibit "C."
16
<PAGE>
ARTICLE VII
POST-CLOSING OBLIGATIONS
7.1 Files And Records. Within fifteen (15) days after the Closing Date,
Sellers shall, upon the request of Buyer, deliver to Buyer such copies of files
and records relating to the Properties as are in Sellers' possession or subject
to Sellers' control.
7.2 Sales Taxes And Recording Fees. Sellers shall pay any sales taxes
occasioned by the sale of the Properties. Buyer shall pay all documentary,
filing and recording fees required in connection with the filing and recording
of any assignments.
7.3 Indemnification. After the Closing and to the extent permitted by law,
Sellers and Buyer shall indemnify each other as follows:
7.3.1 Sellers' Indemnities. Sellers shall defend, indemnify and save
and hold Buyer harmless against all claims, costs, damages, losses, expenses,
obligations and liabilities with respect to the Properties, which arise from
occurrence or nonoccurrences taking place either in whole or in part prior to
the Effective Time.
7.3.2 Buyer' s Indemnities. Buyer shall defend, indemnify and save and
hold Sellers harmless against all claims, costs, damages, losses, expenses,
obligations and liabilities with respect to the Properties which arise from
events or occurrences taking place after the Effective Time.
7.4 Survival. All representations, warranties, covenants, agreements, and
indemnities of or by the Parties shall survive the execution and delivery of any
of the instruments to be delivered at closing.
7.5. Stock Adjustment. If, on the date the registration statement described
in Paragraph 4.2 becomes effective (the "Registration Date"), the average of the
reported closing bid and asked prices (the "Effective Price") for the stock
described in Paragraph 6.3.6 is less than TWO AND 78/100 ($2.78) DOLLARS per
share, the difference in value shall be accounted for by Buyer to Sellers either
by (i) the payment of cash equal to the difference or (ii) the delivery to
Sellers of the number of shares of the $0.10 par value common stock of Buyer
with an aggregate Effective Price on the Registration Date equal to such
difference. The method by which Buyer accounts to Sellers shall be within the
sole discretion of Buyer. If Buyer elects to deliver additional shares, Buyer
shall register those shares for resale at the time the next registration
statement for securities of Buyer is filed by Buyer with the Securities Exchange
Commission.
17
<PAGE>
7.6 Further Assurances. After Closing, Sellers and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action as may be necessary or advisable to carry
out their obligations under this Agreement and under any document, certificate
or other instrument delivered pursuant hereto.
ARTICLE VIII
TERMINATION OF AGREEMENT
8.1 Termination Without Liability. The Parties may terminate this Agreement
and the transactions contemplated herein without any liability to each other
whatsoever in the following instances:
8.1.1 Termination by Sellers. By Sellers if the conditions to their
obligations at Closing as set forth in this Agreement are not satisfied in all
material respects or waived as of the Closing Date.
8.1.2 Termination by Buyer. By Buyer if the conditions to its
obligations at Closing as set forth in this Agreement are not satisfied in all
material respects or waived as of the Closing Date or in the event of a
"Casualty Loss," as that term is hereinafter defined. "Casualty Loss" shall
mean, with respect to all or any portion of the Properties, any destruction by
fire, blowout, storm, or other casualty or any taking, or pending or threatened
taking, in condemnation or expropriation or under the right of eminent domain of
any of the Properties, prior to Closing.
8.1.3 Termination by Mutual Agreement. At any time by the mutual
written agreement of the Parties.
8.1.4 Termination For Failure of Timely Closing. By Sellers and/or
Buyer if the Closing shall not have occurred by the Closing Date provided,
however, that a Party cannot so terminate if it is in breach of this Agreement.
8.2 Liabilities Upon Termination. Except as otherwise provided in this
Agreement, if this Agreement is terminated for any reason or is breached,
nothing contained herein shall be construed to limit Sellers' or Buyer' s legal
or equitable remedies, including damages for the breach of failure of any
representation, warranty, covenant or agreement contained herein or the right to
specific performance of this Agreement.
18
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 Exhibits. The exhibits referred to in this Agreement are hereby
incorporated into this Agreement by reference and constitute a part of this
Agreement.
9.2 Notices. All notices and communications required or permitted under
this Agreement shall be in writing, and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if mailed or telecopied, when received by the
Party charged with such notice, however, that such notice should be addressed as
follows:
If to Buyer:
Pease Oil and Gas Company
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506-8718
Attn: Willard H. Pease, Jr., President
fax: (970) 243-8840
If to Atocha Exploration, Inc.:
Atocha Exploration, Inc.
1201 Louisiana, Suite 1050
Houston, Texas 77002
Attn: W. David Willig, President
fax: (713) 654-5018
If to Browning Oil Company, Inc.:
Browning Oil Company, Inc.
8080 N. Central Expressway, Suite 780
Dallas, Texas 75206
Attn: Michael R. McWilliams, President
fax: (214) 739-4458
If to Potosky Oil and Gas, Inc.:
Potosky Oil and Gas, Inc.
10410 Memorial Drive
Houston, Texas 77024
Attn: Robert Potosky, President
fax: (713) 654-5018
19
<PAGE>
Any Party may, by written notice so delivered to the others in compliance with
this paragraph, change the address provided for above.
9.3 Amendments. This Agreement may not be amended except by a written
instrument signed by all Parties hereto.
9.4 Alienability. Neither Sellers nor Buyer may assign their rights or
obligations hereunder without the written consent of all Parties. Subject to the
foregoing, this Agreement shall be binding upon the Parties hereto and their
respective successors and assigns.
9.5 Third-Party Beneficiaries. Nothing in this Agreement shall entitle
anyone other than Sellers and Buyer to any claim, cause of action, remedy or
right of any kind.
9.6 Counterparts. This Agreement may be executed by Buyer and Sellers in
any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
9.7 Governing Law. This Agreement and the transactions contemplated hereby
shall be construed in accordance with, and governed by, the laws of the State of
Louisiana.
9.8 Entire Agreement. This Agreement, including the exhibits hereto,
constitutes the entire understanding among the Parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter. In conformity
with the Doctrines of Merger and Contractual Integration, the letters of intent
among the Parties dated November 19, 1996, giving rise to this Agreement shall
merge with this Agreement on the Agreement Date, and the letters of intent shall
thereafter have no force and effect.
9.9 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect.
9.10 Waiver. No waiver of any of the provisions of this Agreement shall
constitute or be deemed a waiver of any other provision hereof, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
20
<PAGE>
9.11 Captions. The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Agreement.
9.12 "Including". In this Agreement, the word "including" means "including,
but not limited to."
9.13 Construction. In construing this Agreement, no consideration shall be
given to the fact or presumption that one Party had a greater or lesser hand in
its drafting.
9.14 Costs. Each Party shall pay its own costs, including fees and expenses
of its own counsel, consultants and accountants, in connection with the purchase
and sale of the Properties, except as otherwise provided for herein. Sellers
shall discharge all Encumbrances other than the Permitted Encumbrances. Sellers
shall pay all sales and other transfer taxes, if any, incurred in connection
with the transaction contemplated by this Agreement. Buyer shall pay all
documentary, filing and recording fees.
9.15 Publicity. Sellers and Buyer shall consult with each other with regard
to all publicity and other releases issued at or prior to the Closing concerning
this Agreement and the transactions contemplated by it, and except as required
by applicable law or the applicable rules or regulations of any governmental
body or stock exchange, no Party shall issue any such publicity or other release
without the prior written consent of the other Parties.
9.16 Gender And Number. As used in this Agreement, the masculine, feminine
or neuter gender and the plural or singular number shall each be deemed to
include the others whenever the context so indicates.
This Agreement has been duly executed by Buyer and Sellers this ------ day
of ----------- 19--- (the "Agreement Date").
SELLERS:
ATOCHA EXPLORATION, INC.
/s/ W. David Willig
--------------------------------
W. David Willig, President
BROWNING OIL COMPANY, INC.
/s/ Michael R. McWilliams
--------------------------------
Michael R. McWilliams, President
21
<PAGE>
POTOSKY OIL AND GAS, INC.
/s/ Robert Potosky
--------------------------------
Robert Potosky, President
BUYER:
PEASE OIL AND GAS COMPANY
/s/ Willard H. Pease, Jr.
--------------------------------
Willard H. Pease, Jr., President
STATE OF
ss. ------------------
ss.
COUNTY OF
ss. ------------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by W. David Willig, President of ATOCHA EXPLORATION,
INC., a Louisiana corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
22
<PAGE>
STATE OF
ss. --------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Michael R. McWilliams, President of BROWNING OIL
COMPANY, INC., a Nevada corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
STATE OF
ss. -------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Robert Potosky, President of POTOSKY OIL AND GAS,
INC., a Texas corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
23
<PAGE>
STATE OF
ss. -------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Willard H. Pease, Jr., President of PEASE OIL AND
GAS COMPANY, a Nevada corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
24
<PAGE>
EXHIBIT "A"
TO
PURCHASE AND SALE AGREEMENT
This Exhibit "A" sets forth the description of the property interests
covered by the Purchase and Sale Agreement to which this Exhibit "A" is
attached. All of the terms defined in the Purchase and Sale Agreement and used
in this Exhibit "A" have the same meanings given therein.
This Exhibit "A" and the Purchase and Sale Agreement cover and include the
following:
(a) All of Sellers' right, title and interest in and to the oil, gas and
mineral leases described herein or subject to any of the pooled units described
herein, as such leases and pooled units have been or may be modified from time
to time, and/or lands described in and subject to such oil, gas and mineral
leases (regardless, as to such leases and/or lands, of any surface acreage
and/or depth limitations set forth in any description of any of such oil, gas
and mineral leases), except as otherwise provided for herein, and all of
Sellers' right, title and interest in and to any of the oil, gas and minerals
in, on or under the lands, if any, described on this Exhibit, including, without
limitation, all contractual rights, servitudes, fee interests, leasehold
interests, overriding royalty interests, non-participating royalty interests,
mineral interests, production payments, net profits interests, or any other
interest measured by or payable out of production of oil, gas or other minerals
from the oil, gas and mineral leases and/or lands described herein, except as
otherwise provided for herein;
(b) All of the foregoing interests of Sellers as such interests may be
enlarged by the discharge of any payments out of production or by the removal of
any charges or encumbrances together with Sellers' interests in, to and under or
derived from all renewals and extensions of any oil, gas and mineral leases
described herein, it being specifically intended hereby that any new oil and gas
lease (i) in which an interest is acquired by Sellers after the termination or
expiration of any oil and gas lease, the interests of Sellers in, to and under
or derived from which are subject to the lien and security interest hereof, and
(ii) that covers all or any part of the property described in and covered by
such terminated or expired leases, shall, to the extent, and only to the extent
such new oil and gas lease may cover such property, be considered a renewal or
extension of such terminated or expired lease;
(c) All right, title and interest of Sellers in, to and under or derived
from any operating, participation, exploration, letter, farmout, and bidding
agreements, assignments and subleases, whether described in this Exhibit "A," to
the extent, and only to the extent, that such agreements, assignments and
subleases cover or include (i) any of Sellers' present or future right, title
and interest in and to the wells, leases, units and/or lands described in this
Exhibit "A," (ii) any of Sellers' present or future right, title, and interest
in and to wells, leases, units and/or lands described in or covered by any such
agreements, assignments and subleases specifically described in this Exhibit
"A," or (iii) cover or include any other undivided interests now or hereafter
held by Sellers in, to and under the described wells, leases, units and/or
lands, including, without limitation, any future operating, participation,
exploration, letter, farmout and bidding agreements, assignments, subleases and
pooling, unitization and communitization agreements and the units created
thereby (including, without limitation, all units formed under orders,
regulations, rules or other official acts of any governmental body or agency
having jurisdiction) to the extent and only to the extent that such agreements,
assignments, subleases, or units cover or include the described wells, leases,
units and/or lands;
(d) All right, title, and interest of Sellers in, to and under or derived
from all presently existing and future advance payment agreements, oil,
casinghead gas and gas sales, exchange, and processing contracts and agreements
including, without limitation, any of those contracts and agreements that are
described on this Exhibit "A" to the extent, and only to the extent, those
contracts and agreements cover or include the described leases and/or lands
herein; and
<PAGE>
(e) All right, title and interest of Sellers in, to and under or derived
from all existing and future permits, licenses, easements and similar rights and
privileges that relate to or are appurtenant to any of the described leases
and/or lands.
Notwithstanding the intention of this Purchase and Sale Agreement to cover
all of the right, title and interest of Sellers in and to the described wells,
leases, units and Lands, except as otherwise provided for herein, Sellers hereby
specifically warrant and represent that the interests covered by this Exhibit
are not greater than the working interest nor less than the net revenue
interest, overriding royalty interest, net profit interest, production payment
interest, royalty interest or other interest payable out of or measured by
production set forth in connection with each oil and gas well, lease and unit
described in this Exhibit. In the event Sellers own any other or greater
interest, such additional interest shall also be covered by and included in this
Purchase and Sale Agreement, except as otherwise provided for herein.
The designation "Working Interest" or "W.I." means an interest owned in an
oil, gas, and mineral lease that determines the cost bearing percentage of the
owner of such interest. The designation "Net Revenue Interest" or "N.R.I." means
net revenue interest, or that portion of the production attributable to the
owner of a working interest after deduction for all royalty burdens, overriding
royalty burdens, or other burdens on production, except severance, production,
windfall profits and other similar taxes. The designation "Overriding Royalty
Interest" or "O.R.R.I." means an interest in production which is free of any
obligation for the expense of exploration, development and production, bearing
only its prorata share of severance, production, windfall profits and other
similar taxes and, in instances where the document creating the overriding
royalty interest so provides, costs associated with compression, dehydration,
other treating or processing or transportation of production of oil, gas or
other minerals relating to the marketing of such production. The designation
"Royalty Interest" or "R.I." means an interest in production which results from
an ownership in the mineral fee estate or royalty estate in the relevant land
and which is free of any obligation for the expense of exploration, development
and production, bearing only its prorata share of severance, production,
windfall profits and other similar taxes and, in instances where the document
creating the royalty interest so provides, costs associated with compression,
dehydration, other treating or processing or transportation of production of
oil, gas or other minerals relating to the marketing of such production.
"A.P.P.O." shall mean after prospect payout as that term is defined by the
contracts and agreements described in item C. below and any letters or
agreements required by this Purchase and Sale Agreement.
A. LEASES
1. Oil, Gas and Mineral Lease dated January 10, 1994, filed February
16, 1994, recorded in COB 467, Folio 474, Entry No. 71, Iberville
Parish, Louisiana, from Schwing, Inc., as agent for Virginia Campbell
Becker, et al., to UMC Petroleum Corporation, covering the lands more
particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
2. Oil, Gas and Mineral Lease dated December 27, 1995, effective
December 14, 1995, filed February 21, 1996, recorded in COB 485, Folio
364, Entry No. 99, from Wilbert Funeral Home, Inc., to W & T Offshore,
Inc., covering the lands more particularly described therein.
A-2
<PAGE>
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
3. Oil, Gas and Mineral Lease dated June 14, 1996, filed July 1, 1996,
recorded in COB 489, Folio 158, Entry No. 75, from Wilbert's Sons
Limited Partnership, to W & T Offshore, Inc., covering the lands more
particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
A-3
<PAGE>
4. That certain Lease awarded August 14, 1996, from the State of
Louisiana to National Energy Group, Inc., covering a portion of State
Lease Tract 29181, described as Tract A, containing 10 acres, more or
less, being more particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.234375%
5. That certain Lease awarded August 14, 1996, from the State of
Louisiana to W & T Offshore, Inc., covering a portion of State Lease
Tract 29181, described as Tract B, containing 141 acres, more or less,
being more particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.8203125%
B. UNITS
1. The W & T Offshore, Inc. - CIB. HAZ. 3 Sand, Reservoir A, Unit as
created by Order No. 374-U of the Office of Conservation of the State
of Louisiana dated December 5, 1996, but effective on October 22,
1996.
A.P.P.O.W.I. - -----------%
A.P.P.O.N.R.I. - ------------%
2. The W & T Offshore, Inc. - CIB. HAZ. 2 Zone, Reservoir B. Unit as
created by Order No. 374-P-1 of the Office of Conservation of the
State of Louisiana dated December 5, 1996, but effective on October
22, 1996.
A.P.P.O.W.I. - -----------%
A.P.P.O.N.R.I. - ------------%
C. CONTRACTS
1. Letter agreement dated December 15, 1995, among Supply Development
Group, Inc., Transworld Exploration & Production, Inc., Atocha
Exploration, Inc., Potosky Oil & Gas, Inc., Liberty Energy
Corporation, Fortune Petroleum Corporation d/b/a Fortune Natural
Resources Corporation, Browning Oil Company, Inc., UMC Petroleum
Corporation, Bonray, Inc., and National Energy Group, Inc., regarding
participation in the East Bayou Sorrel Prospect, Iberville Parish,
Louisiana.
2. Operating agreement dated December 15, 1995, for the East Bayou
Sorrel Contract Area, Iberville Parish, Louisiana, among W & T
Offshore, Inc., as Operator, and Supply Development Group, Inc.,
National Energy Group, Inc., Liberty Energy Corporation, Fortune
Petroleum Company d/b/a Fortune Natural Resources Corporation,
Transworld Exploration & Production, Inc., Browning Oil Company, Inc.,
Potosky Oil & Gas, Inc., Atocha Exploration, Inc., and Bonray, Inc.,
as Non-Operators.
A-4
<PAGE>
3. Letter agreement dated April 19, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and National Energy Group, Inc.,
regarding the optional back-in interest in the East Bayou Sorrel
Prospect, Iberville Parish, Louisiana.
4. Letter agreement dated July 18, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and Browning Oil Company, Inc.,
regarding the A.P.P.O. back-in interest, East Bayou Sorrel Prospect.
5. Letter agreement dated July 30, 1996, among W & T Offshore, Inc.,
Supply Development Group, Inc., Transworld Exploration & Production,
Inc., Atocha Exploration, Inc., Bonray, Inc., Potosky Oil & Gas, Inc.,
Liberty Energy Corporation, Fortune Petroleum Corporation d/b/a
Fortune Natural Resources, Inc., Browning Oil Company, Inc., and
National Energy Group, Inc., regarding the area of interest for the
East Bayou Sorrel Prospect, Iberville Parish, Louisiana.
D. EXCLUSION
Notwithstanding any other provision to the contrary contained in this
Exhibit "A," the Purchase and Sale Agreement does not cover or include that
certain overriding royalty interest of Sandefer Oil & Gas, Inc., W. David
Willig, and Robert A. Potosky equal to 3% of 8/8ths of production in the
Area of Interest provided for in the Agreements, including the interest
provided for in Exhibit "A" of the letter agreement described in C. above
as item 1, to the extent Sandefer Oil & Gas, Inc., W. David Willig, and
Robert A. Potosky are entitled to receive such an interest, the parties not
intending to create such an interest by this Purchase and Sale Agreement.
A-5
<PAGE>
EXHIBIT "B"
TO
PURCHASE AND SALE AGREEMENT
[ASSIGNMENT FORM]
ASSIGNMENT OF INTEREST IN OIL, GAS AND MINERAL LEASES
STATE OF LOUISIANA '
' KNOW ALL PERSONS BY THESE PRESENTS:
PARISH OF IBERVILLE '
THAT, ATOCHA EXPLORATION, INC., a Louisiana corporation, 1201 Louisiana,
Suite 1050, Houston, Texas 77002, BROWNING OIL COMPANY, INC., a Nevada
corporation, 8080 N. Central Expressway, Suite 780, Dallas, Texas 75206, and
POTOSKY OIL AND GAS, INC., a Texas corporation, 10410 Memorial Drive, Houston,
Texas 77024 (collectively, "Assignors") for and in consideration of the sum of
TEN AND NO/100 ($10.00) DOLLARS and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, has
granted, sold, transferred, assigned and conveyed and does hereby GRANT, SELL,
TRANSFER, ASSIGN and CONVEY to PEASE OIL AND GAS COMPANY, a Nevada corporation,
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718 a Delaware
corporation ("Assignee") all of their right, title and interest, except for the
overriding royalty interest provided for in Exhibit "A" of item 1 below, under
the following agreements (the "Agreements"):
1. Letter agreement dated December 15, 1995, among Supply Development
Group, Inc., Transworld Exploration & Production, Inc., Atocha
Exploration, Inc., Potosky Oil & Gas, Inc., Liberty Energy
Corporation, Fortune Petroleum Corporation d/b/a Fortune Natural
Resources Corporation, Browning Oil Company, Inc., UMC Petroleum
Corporation, Bonray, Inc., and National Energy Group, Inc., regarding
participation in the East Bayou Sorrel Prospect, Iberville Parish,
Louisiana.
2. Operating agreement dated December 15, 1995, for the East Bayou
Sorrel Contract Area, Iberville Parish, Louisiana, among W & T
Offshore, Inc., as Operator, and Supply Development Group, Inc.,
National Energy Group, Inc., Liberty Energy Corporation, Fortune
Petroleum Company d/b/a Fortune Natural Resources Corporation,
Transworld Exploration & Production, Inc., Browning Oil Company, Inc.,
Potosky Oil & Gas, Inc., Atocha Exploration, Inc., and Bonray, Inc.,
as Non-Operators.
3. Letter agreement dated April 19, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and National Energy Group, Inc.,
regarding the "After Prospect Payout Interest," as that term is
hereinafter defined.
4. Letter agreement dated July 18, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and Browning Oil Company, Inc.,
regarding the "After Prospect Payout Interest," as that term is
hereinafter defined.
5. Letter agreement dated July 30, 1996, among W & T Offshore, Inc.,
Supply Development Group, Inc., Transworld Exploration & Production,
Inc., Atocha Exploration, Inc., Bonray, Inc., Potosky Oil & Gas, Inc.,
Liberty Energy Corporation, Fortune Petroleum Corporation d/b/a
Fortune Natural Resources, Inc., Browning Oil Company, Inc., and
National Energy Group, Inc., regarding the area of interest for the
East Bayou Sorrel Prospect, Iberville Parish, Louisiana.
<PAGE>
6. Letter agreement dated December 10, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., Browning Oil Company, Inc., Supply
Development Group, Inc., Liberty Energy Corporation, Bonray, Inc., and
Transworld Exploration & Production, Inc., regarding the East Bayou
Sorrel Prospect, Iberville Parish, Louisiana.
7. Letter agreement dated ______________, 19____, between National
Energy Group, Inc., and Pease Oil; and Gas Company regarding the East
Bayou Sorrel Prospect, Iberville Parish, Louisiana.
The rights herein assigned include, but are not limited to, and Assignors
do hereby GRANT, SELL, TRANSFER, ASSIGN and CONVEY to Assignee, the option to
acquire in accordance with the Agreements an undivided 7.8125% of 8/8ths
interest, effective upon the occurrence of "Prospect Payout," as that term is
defined in the Agreements (the "After Prospect Payout Interest"), with a net
revenue interest in each Lease and Unit not less than the net revenue interest
(the "NRI") identified for the Lease or Unit in parentheses following the
description of such Lease or Unit, in and to the following Oil, Gas and Mineral
Leases and Units:
1. Oil, Gas and Mineral Lease dated January 10, 1994, filed February
16, 1994, recorded in COB 467, Folio 474, Entry No. 71, Iberville
Parish, Louisiana, from Schwing, Inc., as agent for Virginia Campbell
Becker, et al., to UMC Petroleum Corporation, covering the lands more
particularly described therein (5.625% NRI).
2. Oil, Gas and Mineral Lease dated December 27, 1995, effective
December 14, 1995, filed February 21, 1996, recorded in COB 485, Folio
364, Entry No. 99, from Wilbert Funeral Home, Inc., to W & T Offshore,
Inc., covering the lands more particularly described therein (5.625%
NRI).
3. Oil, Gas and Mineral Lease dated June 14, 1996, filed July 1, 1996,
recorded in COB 489, Folio 158, Entry No. 75, from Wilbert's Sons
Limited Partnership, to W & T Offshore, Inc., covering the lands more
particularly described therein (5.625% NRI).
4. State Lease No 15357 dated August 19, 1996, recorded in COB 491,
Folio 860, Entry No. 123, from the State of Louisiana to W & T
Offshore, Inc., covering the lands more particularly described therein
(5.234375% NRI).
5. State Lease No. 15358 dated August 19, 1996, recorded in COB 492,
Page 57, Entry No. 9, from the State of Louisiana to National Energy
Group, Inc., covering the lands more particularly described therein
(5.8203125% NRI).
6. The W & T Offshore, Inc. - CIB. HAZ. 3 Sand, Reservoir A Unit, in
the Bayou Sorrel Field, as created by Order No. 374-U of the Office of
Conservation of the State of Louisiana dated December 5, 1996, but
effective on October 22, 1996 (_________ NRI).
7. The W & T Offshore, Inc. - CIB. HAZ. 2 Zone, Reservoir B Unit, in
the Bayou Sorrel Field, as created by Order No. 374-P-1 of the Office
of Conservation of the State of Louisiana dated December 5, 1996, but
effective on October 22, 1996 (_____________ NRI).
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<PAGE>
as well as any and all other Leases in which the Agreements entitle the
Assignors to the After Prospect Payout Interest, in the Areas of Interest
described as follows:
1. BEGINNING at a point which is the Southwest corner of Section 24,
Township 10 South, Range 11 East Iberville Parish, Louisiana;
THENCE in an Easterly direction to a point which is the Southeast
corner of the West Half of Section 33 of said Township and Range;
THENCE in a Northerly direction to a point which is the point of
intersection of the Northeast, Northwest, Southeast and Southwest
Quarters of Section 21 of said Township and Range;
THENCE in a Westerly direction to a point which is the Northeast
corner of Lot or Tract 10, Section 19 of said Township and Range;
THENCE in a Southerly direction along the Easterly boundaries of
Lots or Tracts 10 and 11 of said Section to a point which is the
Southeast corner of said Lot or Tract 11, said point being in the
Northerly line of Section 30 of said Township and Range;
THENCE in an Easterly direction to a point which is the
Northeastern corner of Section 10 of said Township and Range;
THENCE in a Southerly direction along the line between Sections 9
and 10 of said Township and Range 4500 feet to a point on said line;
THENCE West to a point in the Westerly line of Section 11 of said
Township and Range;
THENCE in a Southerly direction along the Western boundaries of
Sections 11 and 24 of said Township and Range to a point which is the
Southwest corner of said Section 24;
THENCE in an Easterly direction along the Southerly boundaries of
Sections 24, 25, 31, 32, and 33 to a point which is the Southeast
corner of the West Half of Section 33 of said Township and Range, and
the point of beginning.
2. BEGINNING at a point which is the Northwest corner of the Southeast
Quarter of Section 21, Township 10 South, Range 11 East, Iberville
Parish, Louisiana;
THENCE in an Easterly direction to a point on the East line of
said Section which is the Northeast corner of the Southeast Quarter of
said section;
THENCE South along the Eastern boundary of said section as called
for in conflict with the Western boundaries of Sections 73, 74, and 75
of said Township and Range and along the Eastern boundary of Sections
28 and 33 of said Township and Range to a point which is the Southeast
corner of the Northeast Quarter of Section 33 of said Township and
Range;
C-3
<PAGE>
THENCE in a Westerly direction to a point which is the Southwest
corner of the Northeast Quarter of said Section;
THENCE in a Northerly direction to the point of beginning.
TO HAVE AND TO HOLD the above described property and premises, together
with all and singular the rights and appurtenances thereto in any way belonging,
unto Assignee and its successors and assigns, and Assignors do hereby bind
themselves and their successors and assigns to warrant and forever defend all
and singular the said property and premises unto Assignee and its successors and
assigns against every person whomsoever lawfully claiming or to claim the same
or any part thereof, by, through or under Assignors, but not otherwise.
This Assignment is made subject to the following terms, conditions,
reservations and limitations:
1. This Assignment is made pursuant to, in accordance with, and subject to
the terms, covenants, and conditions of, that certain Purchase and Sale
Agreement dated --------------, 19--, by and between Assignors and Assignee.
2. This Assignment is made subject to the terms, covenants and conditions
of the Leases and the Agreements.
3. The interests assigned herein shall bear, on and after the time of, but
not before, Prospect Payout, their proportionate share of all royalties,
overriding royalties, and other similar lease burdens in effect, whether or not
of record, as of the effective date of this Assignment.
4. This Assignment and its terms, covenants and conditions shall be binding
upon and inure to the benefit of Assignors and Assignee, and their respective
heirs, devisees, legal representatives, successors and assigns.
IN WITNESS WHEREOF, this instrument is executed the ----- day of
- ----------------, 19----, but effective as of midnight, Central Standard Time,
December 31, 1996.
ATOCHA EXPLORATION, INC.
/s/ W. David Willig
--------------------------------
W. David Willig, President
C-4
<PAGE>
BROWNING OIL COMPANY, INC.
/s/ Michael R. McWilliams
--------------------------------
Michael R. McWilliams, President
POTOSKY OIL AND GAS, INC.
/s/ Robert Potosky
--------------------------------
Robert Potosky, President
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared W. David
Willig, to me personally known, who, being by me duly sworn did say that he is
the President of ATOCHA EXPLORATION, INC., a Louisiana corporation, and that the
instrument was signed in behalf of the corporation by authority of its Board of
Directors; and that he acknowledged the instrument to be the free act and deed
of the corporation.
------------------------------------
Notary Public
C-5
<PAGE>
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared Michael
R. McWilliams, to me personally known, who, being by me duly sworn did say that
he is the President of BROWNING OIL COMPANY, INC., a Nevada corporation, and
that the instrument was signed in behalf of the corporation by authority of its
Board of Directors; and that he acknowledged the instrument to be the free act
and deed of the corporation.
------------------------------------
Notary Public
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared Robert A.
Potosky, to me personally known, who, being by me duly sworn did say that he is
the President of POTOSKY OIL AND GAS, INC., a Texas corporation, and that the
instrument was signed in behalf of the corporation by authority of its Board of
Directors; and that he acknowledged the instrument to be the free act and deed
of the corporation.
------------------------------------
Notary Public
C-6
<PAGE>
EXHIBIT "C"
TO
PURCHASE AND SALE AGREEMENT
[ADDITIONAL LETTERS]
<PAGE>
[LETTER AGREEMENT BETWEEN NATIONAL ENERGY GROUP, INC., AND PEASE OIL AND GAS
COMPANY ON TERMS TO BE AGREED UPON BY THE PARTIES THERETO]
