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) February 4, 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) 245-5917
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Item 5. OTHER MATERIAL EVENTS.
On February 4, 1997 the Registrant entered into a definitive agreement to
participate in various oil and gas exploration projects in Alabama, Louisiana
and Texas with National Energy Group, Inc. ("NEGX"). Under the agreement the
Registrant will have the right and obligation to participate in approximately 10
planned exploration prospects in the three states and any additional exploration
prospects generated for NEGX by Sandefer Oil & Gas, Inc. and/or Charles M.
Meeks, for which NEGX serves as operator. The Registrant will participate in the
NEGX exploration prospects by paying 16 2/3% of drilling and acquisition costs
and fees for a 12 1/2% working interest in the identified prospects, provided
that if NEGX sells an interest in a prospect subject to the agreement on terms
more favorable than the terms applicable to Registrant, Registrant shall be
entitled to the more favorable terms. The agreement also extends to other
exploration prospects in which NEGX participates, including prospects generated
by third parties. On any third party prospects, the Registrant shall be subject
to the same terms and conditions upon which NEGX acquired its interest in the
third party prospect. The Registrant's maximum obligation for reimbursement of
prospect acquisition costs and costs of drilling under the agreement is limited
to $5,000,000 in each year of the two year agreement, provided that Registrant
may continue to participate at its election.
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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 10.28 Letter Agreement with National Energy Group, Inc. dated
February 4, 1997.
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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: February 19, 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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10.28 Letter Agreement with National Energy Group, Inc. 6
dated February 4, 1997.
5
NATIONAL ENERGY GROUP, INC.
February 4, 1997
Mr. Willard Pease, Jr.
President
Pease Oil and Gas Company
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8758
Re: Letter Agreement
Prospect Participation
NEG Exploration Prospects
Dear Mr. Pease:
Pursuant to our discussions, this Letter Agreement shall act to express the
mutual understanding and agreement by and between National Energy Group, Inc.
("NEG") and Pease Oil and Gas Company ("Pease") with respect to participation in
various oil and gas exploration prospects of NEG (individually "Prospect" and
collectively "Prospects") as more particularly described on Exhibit "A",
attached hereto and incorporated herein, and subject to the terms and conditions
hereof.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. Prospects. NEG and Pease agree that Pease shall have the right and the
obligation to participate in those certain Prospects for the interest shown
as described on Exhibit "A", which the parties agree may be amended from
time to time. Notwithstanding anything to the contrary, it is the intention
of the parties, unless otherwise specifically agreed in writing, the term
"Prospect" as used herein shall be limited to those Prospects generated by
Sandefer Oil & Gas, Inc. and/or Mr. Charles M. Meeks; provided that Nueces
Offshore (Mustang Island Exploration)/Texas described on Exhibit "A" shall
be included in the term "Prospects" for all purposes contained herein.
<PAGE>
Mr. Willard Pease, Jr.
President
Pease Oil and Gas Company
February 4, 1997
Page Two
2. Participation. The parties agree that Pease's participation in any Prospect
shall be on a promoted basis of 1/3 for1/4interest to the casing point of
the initial well in each Prospect, plus 1/3 for1/4of the actual prospect
fees and land acquisition costs of each Prospect. The interest acquired by
Pease hereunder shall be burdened by its proportionate share of any
overriding royalty interest in favor of Sandefer Oil & Gas, Inc., its
successors and assigns (collectively, "SOG"), but shall not be burdened by
any back-in interest in favor of SOG. The AFE put forth by NEG for each
Prospect shall be the basis of any promote to Pease described herein;
provided that the interest of Pease acquired in each Prospect shall not be
"promoted" by NEG on any basis other than 1/3 for1/4as described above. It
is further understood and agreed that in the event NEG should sell any such
Prospect under more favorable terms to another party purchaser other than
Pease, then in such event, Pease shall be entitled to participate in such
Prospect under the same terms and conditions as any such other purchaser.
3. Commitment. Pease agrees to participate, and NEG agrees to offer
participation to Pease in each of NEG's Prospects for a minimum interest
equal to one-eighth (1/8) of one hundred percent (100%) for any such
Prospect; provided that the obligation and commitment of Pease described
herein shall be limited as follows: (i) in the event Prospect "dry hole
costs" in the aggregate for each one year term during the term of this
Letter Agreement shall exceed the amount of FIVE MILLION DOLLARS
($5,000,000.00), Pease shall have the right, but not the obligation, to
participate in additional Prospects of NEG during such year and (ii)
notwithstanding any election by Pease with respect to Prospect "dry hole
costs" described above, all rights and obligations described herein shall
continue in full force and effect during the next succeeding year for so
long as this Letter Agreement and any extensions or renewals hereof shall
remain in effect. The term "dry hole costs" as used herein shall be defined
as land acquisition costs, plus estimated costs of drilling the initial
well through plugging and abandonment.
3.1 Future NEG Prospects. The parties further agree that Pease shall have
the obligation to participate in any future Prospects of NEG pursuant
to the same terms and conditions as described above, and Exhibit "A"
shall be amended from time to time to reflect such participation.
<PAGE>
Mr. Willard Pease, Jr.
President
Pease Oil and Gas Company
February 4, 1997
Page Three
3.2 Third Party Prospects. It is also agreed that in the event NEG
participates in a Prospect of a third party ("Third Party Prospect")
then in such event, Pease shall be entitled to participate in such
Third Party Prospect in which NEG is the Operator for up to one-eighth
(1/8) of the interest acquired by NEG, subject to Pease paying its
proportionate share of the costs and accepting the same terms and
conditions upon which NEG obtained its interest. In the event NEG is a
non-Operator in any such Third Party Prospect, NEG and Pease agree to
use commercially reasonable best efforts to enable Pease to
participate for the one-eighth (1/8) interest described in this
Paragraph 3.2. Pease shall have ten (10) working days following notice
by NEG of an opportunity to participate in a Third Party Prospect in
which to complete its due diligence and give written notice to NEG of
its intent to participate in such Third Party Prospect. Pease's
failure to timely res
pond in writing within such ten (10) day period
shall be deemed by NEG to be an election not to participate in such
Third Party Prospect.
4. Term. The initial term of this Letter Agreement shall be for a period of
two (2) years, commencing as of the date first written hereinabove and
ending on February 3, 1999 at 12:00 A.M. Central Time.
5. Related Agreements. The parties hereto further agree that all operations on
the jointly owned acreage shall be conducted pursuant to the terms of a
Participation Agreement and AAPL Form 610 1982 Joint Operating Agreement,
as modified, which shall be mutually agreed upon by all the working
interest participants in the Prospect, designate NEG as operator, contain a
mutually agreeable area of mutual interest to include the Prospect and
provide for mediation and arbitration in the event of a dispute among the
joint interest owners.
6. First Right of Refusal. If at any time Pease decides to sell a portion of
its interest in any Prospect to any party (other than to a subsidiary or
affiliate of Pease) it shall first notify NEG in writing that such interest
is for sale (the "Offered Interest"). NEG shall then have thirty (30) days
from receipt of such notice in which to make an offer in writing to
purchase the Offered Interest. NEG's failure to timely respond in writing
within such thirty (30) day period shall be deemed by Pease to be an
election by NEG not to make an offer to purchase the Offered Interest. Upon
receipt of NEG's offer to purchase the Offered Interest, Pease shall then
have ten (10) working days thereafter in which to accept or reject in
writing NEG's offer. Pease's failure to timely respond in writing within
such ten (10) working day period shall be deemed by NEG to be an election
by Pease to accept NEG's offer to purchase the Offered Interest.
<PAGE>
Mr. Willard Pease, Jr.
President
Pease Oil and Gas Company
February 4, 1997
Page Four
In the event Pease gives NEG timely notice in writing of its rejection of
NEG's offer to purchase the Offered Interest, Pease shall thereafter be
free to sell the Offered Interest to any other party; provided that in no
event shall Pease have the right to sell the Offered Interest to any such
party for an amount equal to or less that the amount offered by NEG. The
parties hereto agree that notwithstanding any other provision contained
herein, this Paragraph 6 shall not apply to successors and assigns of NEG,
except for subsidiaries or affiliates which may become successors or
assigns of NEG.
7. Drilling Obligations. During the term of this Letter Agreement, NEG shall
propose operations for each of the Prospects described on Exhibit "A" and
agrees that the initial well for each such Prospect shall be spudded on or
before the end of such term. In the event NEG has not spudded the initial
well on one or more of the Prospects prior to the expiration of the term of
this Letter Agreement, Pease shall have the right to withdraw its
participation from any such Prospect not spudded as of the expiration date.
8. CHOICE OF LAW. THIS LETTER AGREEMENT, THE LEGAL RELATIONSHIP OF THE PARTIES
AND ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS, WITHOUT REFERENCE TO THE LAWS OF ANY OTHER
JURISDICTION.
9. Mediation/Arbitration. In the event of a dispute between the parties to
this Letter Agreement, the parties agree to participate in good faith
negotiations in mediation in Dallas, Texas with a mediator experienced in
oil and gas transactions certified by the American Arbitration Association
or comparable organization, the costs of such mediator to be borne equally
by each of the parties. In the event a resolution is not agreed, the
parties further agree to participate in binding arbitration in Dallas,
Texas with arbitrator(s) experienced in oil and gas transactions pursuant
to the rules of the American Arbitration Association or similar
organization, the costs of which may be awarded to the prevailing party
together with a binding and nonappealable judgment on the award which may
be entered in any court having competent jurisdiction.
10. Notices. Any notice required hereunder shall be in writing; delivered to or
sent by U.S. Mail, postage pre-paid, or nationally recognized commercial
carrier service, postage or delivery charges pre-paid, or by telecopy with
a copy delivered to the U.S. Mail, postage pre-paid, addressed as follows
(or such other address as may be specified by five (5) days prior written
notice to the other party hereto):
<PAGE>
Mr. Willard Pease, Jr.
President
Pease Oil and Gas Company
February 4, 1997
Page Five
NEG: PEASE:
National Energy Group, Inc. Pease Oil and Gas Company
4925 Greenville Avenue 751 Horizon Court, Suite 203
Suite 1400 P.O. Box 60219
Dallas, Texas 75206-4095 Grand Junction, Colorado 81506-8758
Attn: Mr. William T. Jones Attn: Mr. Willard Pease, Jr.
Senior Vice President Title: President
Phone: (214) 692-9211 Phone: (970) 245-5917
Fax: (214) 692-9310 Fax: (970) 243-8840
11. Assignment. This Letter Agreement shall inure to the benefit of and be
binding upon NEG and Pease and their respective successors and assigns.
12. Completeness. This Letter Agreement supersedes all prior written or oral
agreements and understandings between the parties and constitutes the
complete agreement between the parties with respect to the subject matter
hereof. This Letter Agreement cannot be modified or amended except by
written instrument duly executed by NEG and Pease.
If the foregoing expresses our mutual understanding and agreement, please so
indicate by executing in the appropriate space below and returning one (1) fully
executed copy to the undersigned.
Sincerely,
National Energy Group, Inc.
/s/ William T. Jones
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William T. Jones
Senior Vice President
WTJ:ljg
ACCEPTED AND AGREED this
4th day of February, 1997.
Pease Oil and Gas Company
By: /s/ Willard Pease, Jr.
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Title: President
<PAGE>
EXHIBIT "A" attached to and made
a part of that certain LETTER AGREEMENT
by and between National Energy Group, Inc.
and Pease Oil and Gas Company
dated February 4, 1997.
PROSPECTS
Prospect Name Pease Participation Interest
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Northwest Bayou Sorrel / Louisiana 1/8
Berry Bayou / Louisiana 1/8
Southeast Gueydan / Louisiana 1/8
West Grand Bayou / Louisiana 1/8
Tiger Bayou / Louisiana 1/8
South Tiger Bayou / Louisiana 1/8
Knowles / Texas 1/8
Robertsdale / Alabama 1/8
[Unnamed] / Texas 1/8
Nueces Offshore
(Mustang Island Exploration) / Texas 1/8
