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EXHIBIT 10.21
January 15, 1998
HarCor Energy, Inc.
Attention: Mr. Mark Harrington, CEO
5 Post Oak Park Blvd., Suite 2220
Houston, Texas 77027
Dear Mr. Harrington:
This Agreement dated effective January 8, 1998, is between HarCor Energy, Inc.
("Seller") and Penroc Oil Corporation ("Buyer") and evidences the agreement of
the parties with respect to various issues which were not fully resolved in
that certain Purchase and Sale Agreement dated December 3, 1997, but effective
as of January 1, 1998, at 7:00 A.M., local time (the "Purchase and Sale
Agreement"). All defined terms in the Purchase and Sale Agreement shall have
the same meaning herein.
For valuable consideration received, Seller and Buyer agree as follows:
1. Subsequent to the execution of the Purchase and Sale Agreement, Buyer
learned that an unforeseen downhole mechanical failure occurred in the
Beaurline No. 9 well, Beaurline/McAllen Ranch Area, South Texas, which
failure, if not fully corrected, would significantly and materially
reduce the value of the property. Seller and Buyer agree as follows
with respect to Seller's interest in the Beaurline #9 well and its
pooled or allocated producing unit (the "Well"): (a) The Purchase
Price shall be reduced by an amount equal to the PV10 value given to
this Well by the Ryder Scott Reserve Report previously furnished to
Buyer by Seller, being an amount equal to $714,911.00, and the Well
shall be excluded from the Property to be conveyed by Buyer at
Closing. (b) Seller will participate in necessary remedial operations
proposed by the Operator in an attempt to restore the Well to its
previous producing condition or in the drilling of a replacement well
to the financial extent as may be determined in Seller's sole
discretion. Seller will advise Buyer of all proposals and remedial
operations to restore the Well. (c) If the Well is restored by
sidetrack or redrill or associated operations, Seller will obtain at
its cost a new evaluation of the Well from Ryder Scott (the "New
Reserve Evaluation"), and Seller will promptly provide same to Buyer.
(d) Buyer will purchase the Well pursuant to the same terms and
provisions as the Purchase and Sale Agreement for a price qual to the
PV10 value given to the Well in the New Reserve Evaluation. Unless
otherwise agreed between Seller and Buyer, the Closing for Buyer's
purchase of the Well will take place at 10:00 A.M., local time, in
Seller's offices on the tenth (10th) business day after Buyer's
receipt of the new Reserve Evaluation, at which time Seller will
deliver to Buyer an executed assignment of the Well, in the same form
as the Assignment and Bill of Sale attached to the Purchase and Sale
Agreement, and Buyer will concurrently deliver the purchase price to
Seller in immediately available funds.
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2. Seller agrees to assist Buyer in obtaining any necessary consents for
Buyer to use any and all seismic data in Seller's possession or to
which Seller has access, including but not limited to all such three
dimensional and two dimensional seismic data covering any portion of
the Property, including, but not limited to, the Hostetter Area in
McMullen, Duval and Live Oak Counties, Texas, and the Lapeyrouse
(Starboard) Area in Terrebonne Parish, Louisiana, in the event Buyer
acquires the corresponding Property pursuant to the Purchase and Sale
Agreement, subject to the provisions of Section 1.1.7 of the Purchase
and Sale Agreement.
3. Seller and Buyer agree that Seller's rights in the 2D/3D Geophysical
computer workstation, associated peripheral devices and furniture,
including without limitation, plotter, digitizer and all related
software and software licenses shall constitute a part of the
Property, and Buyer agrees to pay $10,000.00 for such equipment, in
addition to the Purchase Price, without warranty and subject to the
disclaimers and other restrictions on transfer in the Purchase and
Sale Agreement.
4. Seller hereby authorizes Buyer to plug and abandon, on behalf of
Seller, the May B #1, the *WEI 32 #1, and the WEI 32 #3 located on
expired leases not a part of the Property in the Eumont Prospect, Lea
County, New Mexico. Buyer will bill Seller for such services and
Seller agrees to pay Buyer the billed costs within ten (10) business
days after receipt of Buyer's invoice.
5. The Warranted Property described in Exhibit "B" to the Purchase and
Sale Agreement, Schedule 1, Item 16. "California-Chowchilla" may be
transferred and assigned by Seller to the Non-Operator owning a fifty
percent (50%) interest therein prior to the Closing between Seller and
Buyer, and in such case shall be excluded from the Property, or if the
Non-Operator does not agree to accept the above interests prior to the
Closing, the Warranted Property described above will remain a part of
the Property and shall be transferred to Buyer at Closing, and Seller
will maintain its operator's bond concerning such property for a
period of ninety (90) days following Closing.
The authorized representatives of Seller and Buyer sign below indicating their
agreement to the terms of the Agreement on the date first above written.
Seller: Buyer:
HarCor Energy, Inc. Penroc Oil Corporation
By: /s/ MARK HARRINGTON By: /s/ M.Y. MERCHANT
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Mark Harrington M. Y. Merchant
Chief Executive Officer President
Chairman of the Board
* Also included in the plugging and abandonment are the Freedman State wells #1
and 2.
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CLOSING STATEMENT
This Closing Statement (the"Statement"), dated February 6, 1998, but
effective as of January 1,1998, at 7:00 a.m., local time, is between HarCor
Energy, Inc., a Delaware corporation ("Seller"), and Penroc Oil Corporation, a
Texas corporation ("Buyer"), in conjunction with that certain Purchase and Sale
Agreement (the "Agreement"), dated December 3, 1997, by and between Seller and
Buyer, and sets forth the subsequent understanding and agreement of Seller and
Buyer with respect to the subject matter of the Agreement. Capitalized terms
used herein without definition are used herein as defined in the Agreement.
Accordingly, in consideration of the mutual promises contained in this
Statement, Buyer and Seller agree as follows:
1. Attached hereto as Exhibit I and made a part hereof is a true and
correct copy of that certain Letter Agreement dated effective January
15, 1998, by and between HarCor Energy, Inc., and Penroc Oil
Corporation with respect various issues that were not fully resolved
in the Agreement, which terms and provisions thereof are incorporated
herein by reference thereto.
2. Pursuant to Section 7.3.3.3 of the Agreement Seller delivered to Buyer
a Certificate of the Chief Financial Officer of Seller setting forth
in reasonable detail the calculation of the estimate of the amount of
the Purchase Price adjustment; a true and correct copy of the
Certificate, as amended and corrected, is attached hereto as Exhibit
II and incorporated herein by reference.
3. In conjunction with the Certificate of the Chief Financial Officer,
the estimate of the adjusted purchase price and Section 7.3 of the
Agreement regarding Closing obligations, a Closing Settlement
Statement, including a recapitulation of the calculation of the
initially adjusted Purchase Price, is attached hereto as Exhibit III
and incorporated herein by reference.
4. By facsimile letter dated February 4, 1998, Seller notified Buyer of
the bank wiring instructions for the payment of the Purchase Price, as
initially adjusted, by Buyer as set forth in Section 7.3.2 of the
Agreement. A true and correct copy of which letter is attached
hereto as Exhibit IV and incorporated herein by reference. The
initial adjusted Purchase Price was calculated on the basis that
Closing would occur on February 6, 1998, but since Closing is
occurring February 12,1998, additional interest has accrued on the
Earnest Deposit held in escrow that would change the wiring
instructions, and in the interest of simplicity, the parties have
agreed not to change the wiring instructions, and that the difference
in accrued interest would be paid at Closing by Seller to Buyer. At
Closing Seller shall deliver its check in the amount of $404.44 to
Buyer, being the amount of the accrued interest since February 6,
1998.
5. By facsimile letter dated February 12,1998, received February 12, 1998
by Buyer, Seller notified Buyer that under Section 7.1 of the
Agreement that Seller postponed the Closing and that the Closing will
occur on February 12, 1998, at 11:30 a.m. A true and correct copy of
which letter is attached hereto as Exhibit V and incorporated herein
by reference.
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6. Seller and Buyer acknowledge that the Agreement was executed and
accepted by both parties by facsimile signature pages, that the
parties agree to execute original signature pages simultaneous with
the execution of this Statement, and that such original signature
pages shall be attached to the Agreement and with the same validity as
if same had been originally executed as of the time of execution of
the Agreement. A true and correct copy of the facsimile signature of
the Agreement is attached hereto as Exhibit VI and incorporated herein
by reference.
7. Seller and Buyer hereby acknowledge the Agreement, as executed, did
not include all Exhibits referenced throughout the terms and
provisions thereof, and certain of the Exhibits, as originally
attached, contained scrivener's errors or were incomplete with respect
to the descriptions, or certain of the Property was eliminated from
this transaction between Seller and Buyer due to the exercise of
preferential rights of purchase under certain Related Contracts. The
following described Exhibits, in the form attached hereto as
designated below, shall be the Exhibits to the Agreement as if such
Exhibits had originally been attached to the Agreement:
a. Exhibit A, Leases and Certain Related Contracts, including
Schedule I. Leases, Schedule II. Contracts, Schedule III.
Preferential Rights, and Schedule IV. Consents, all of which
is attached hereto as Exhibit VII and incorporated herein and
in the Agreement by reference.
b. Exhibit B, Warranted Property, including Schedule I. Inventory
of Wells and Schedule II. Value Allocation, all of which is
attached hereto as Exhibit VIII and incorporated herein and in
the Agreement by reference.
c. Exhibit C, Non Foreign Affidavit, styled "Non Foreign
Certificate", is attached hereto as Exhibit IX and
incorporated herein and in the Agreement by reference.
d. Exhibit D, Assignment and Bill of Sale, is attached hereto as
Exhibit X and incorporated herein and in the Agreement by
reference.
e. Exhibit E, Release Liens, is attached hereto as Exhibit XI and
incorporated herein and in the Agreement by reference.
f. Exhibit F, Certain Consents and Preferential Purchase Rights,
is attached hereto as Exhibit XII and incorporated herein and
in the Agreement by reference.
g. Exhibit G, Disclosure, is attached hereto as Exhibit XIII and
incorporated by reference.
8. Seller and Buyer acknowledge that Section 12.1 of the Agreement
provides that Seller transfers all production imbalances as of the
Effective Date to Buyer, that production imbalances, whether
underproduced or overproduced, are to be valued on the basis of
assuming permanent cessation of production as of the Effective Date,
that as of the Closing
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Date final gas balancing volume statements through December 31,1997,
have not been provided to Seller by all of the respective operators,
and that the applicable gas balancing agreements provide for a cash
balancing based on the actual price received for the gas in the
specific months in which the out of balance conditions occurred.
Seller and Buyer agree that settling the volumes, pricing and cash
balancing at the time of Closing is in the best interest of the
parties. Therefore Seller and Buyer agree that the provisions of
Section 12.1 of the Agreement are satisfied and that all imbalances
have been transferred at Closing based on the estimates of 50,564
MMBtu of underproduced gas at an average price of $1.68 for a total
cash value of $84,799.00, which cash value has been incorporated in
the initially adjusted Purchase Price as set forth in the Closing
Settlement Statement attached hereto as Exhibit III and as reflected
in the Certificate of the Chief Financial Officer of Seller attached
hereto as Exhibit II.
9. Section 7.3.1(v) of the Agreement provides that Seller shall deliver
to Buyer letters to third party pipeline operators notifying such
operators that Buyer shall operate all pipeline meters included in the
Property which are currently being operated by Seller. Seller has
delivered no such letters and represents to Buyer that Seller does not
operate any such pipeline meters as would require delivery of such
letters.
10. Seller and Buyer entered into that certain Escrow Agreement dated
December 31, 1997, by and between Penroc Oil Corporation, and HarCor
Energy, Inc., collectively as the "Other Parties", and Texas Commerce
Bank National Association, the "Bank", as Escrow Agent for the deposit
of the Earnest Money Deposit. The parties hereto acknowledge that no
additional amounts are required to be paid to the Escrow Agent in
accordance with the provisions of Sections 5.3.2 and 6.2.3 of the
Agreement. Seller and Buyer have executed the written instructions
dated February 6, 1998 directing the Escrow Agent to disburse the
Earnest Money Deposit and accrued interest to Seller. A true and
correct copy of which written instructions are attached hereto as
Exhibit XIV and incorporated by reference.
11. Should either Seller or Buyer desire to make a public announcement
regarding the conclusion of this transaction, such party shall comply
with Section 12.2 of the Agreement, and a true and correct copy of
such announcement will be attached to this Statement as Exhibit XV and
be incorporated herein.
12. Buyer acknowledges that Buyer has had an opportunity to inspect the
Property as provided in the Agreement, and Buyer makes no claim of
Adverse Environmental Conditions pursuant to Section 5.3 of the
Agreement, otherwise than agreed to by Seller and Buyer herein below.
a. Seller grants to Buyer written authorization to plug and
abandon the Freedman #1 and #2 Wells located on expired leases
not a part of the Property in the Eumont Prospect in Lea
County, New Mexico, including without limitation surface
restoration, in accordance with the rules and regulations of
the governmental authority having jurisdiction and related
agreements , and Seller agrees to be liable for all expenses
and liabilities incurred in connection therewith. Buyer shall
invoice Seller for such costs and expenses incurred in
relation thereto, and Seller agrees to
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pay the amount of the invoice to Buyer within ten(10) business
days after receipt of the Buyer's invoice.
b. Seller confirms Buyer's notification to Seller in November
1997 regarding the Federal D #3 Well located in the Eumont
Prospect. Seller authorizes Buyer to apply for the proper
state permits and commence the operations to conform the well
to be in compliance with the state regulations at Buyer's
sole cost and expense. Buyer and Seller agree that the costs
of such operations shall be $20,000.00. The Purchase Price
has been reduced by $20,000.00 as Seller's full payment to
Buyer, and Buyer releases Seller from any further cost by
reason of such matter.
c. Seller authorizes Buyer to complete the operations for the
environmental remediation of the surface conditions relating
to the tank battery sites on the Harris well, the State AD
well and the New Mexico 'E' State well, which operations have
not been completed due to adverse weather conditions and the
delays incident thereto. Seller and Buyer agree that the
remaining operations will cost $12,000.00, which cost and
expense will be borne by Seller and Buyer on an equal basis
according to a preexisting agreement. The Purchase Price has
been reduced by $6,000.00 as Seller's full payment and
satisfaction under this and the preexisting agreement to Buyer
to conduct such operations, and Buyer releases Seller from any
further cost by reason of such matter.
13. Seller hereby transfers and assigns to Buyer as of the Effective Date
all claims, causes of action, rights under contracts or applicable
law, and other rights that Seller may have against Cabot Oil & Gas
Corporation, its agents, representatives, successors and assigns,
relating to the fields in South Texas that are a part of the Property
relating to or arising out of the ownership or operation of the Leases
and other property described in Section 1.1 of the Agreement, and
Buyer shall indemnify, defend and hold Seller harmless from and
against any and all Claims caused by, resulting from or incidental to
the prosecution or otherwise of the rights assigned to Buyer in this
paragraph. Seller does not hereby transfer and assign to Buyer any
other claims, causes of action, rights under contracts or applicable
law, and other rights, excluded from the Property and reserved by
Seller pursuant to Section 1.2.2 of the Agreement (the "Excluded
Claims"). Notwithstanding anything in the Agreement to the contrary,
Seller shall indemnify, defend and hold Buyer harmless from and
against any and all Claims affecting the Property, or Buyer's
ownership or operations of the Property, after the Effective Date, and
resulting from or incidental to the Excluded Claims or Seller's
prosecution or assertion of the Excluded Claims.
14. Buyer has notified Seller in the attached list marked as Exhibit XVI
hereto of several Consents (to the assignment to Buyer of Leases)that
have not been obtained as of the date hereof. The most material of
these Consents are required from The Louisiana Land & Exploration
Company in the Lapeyrouse Area, Terrebonne Parish, Louisiana. Buyer
reserves all of its rights under Section 6.1.3 of the Agreement to
seek an adjustment of the Purchase Price at the time of the
post-Closing adjustment provided for in Section 7.3.3.4 of the
Agreement for the denial of such Consents, and if the Consents are
denied, the Purchase Price will be reduced by $20,000 at the time of
the post-Closing adjustment.
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15. Section 8.1 of the Agreement provides that Buyer shall assume
responsibility for all liabilities of Seller for net proceeds from
production attributable to the Property as currently held in suspense
to the extent such net proceeds are transferred to and delivered to
Buyer at the Closing. Seller acknowledges and agrees with Buyer that
Seller retains all liability of Seller under Section 8.1 of the
Agreement as no such net proceeds from production held in suspense
were transferred and delivered to Buyer.
16. Seller agrees to pay Invoice #8140-01 from Penwell Energy, Inc., dated
January 8, 1998 for costs related to the TXL "1" #1 well in the ERG
Prospect, Reeves County, Texas, in the amount of $56,340.00 pursuant
to Section 8.1 of the Agreement as a cost incurred in connection with
the operation of the Property before the Effective Date. Seller
represents to Buyer that the amounts of the invoice are not included
in the adjustments of the Purchase Price as reflected in the
Certificate of the Chief Financial Officer attached hereto as Exhibit
II.
17. In confirmation of Seller's representations in Section 3.1.1
(Corporate Authority) of the Agreement Seller has submitted to Buyer
the Certificate of Secretary of HarCor Energy, Inc., dated January 28,
1998. A true and correct copy of such Certificate is attached hereto
as Exhibit XVII and incorporated herein by reference.
18. In confirmation of Buyer's representations in Section 3.1.1(Corporate
Authority) of the Agreement Buyer has submitted to Seller the
Unanimous Consent of Board of Directors of Penroc Oil Corporation
dated February 3, 1998. A true and correct copy of such Consent is
attached hereto as Exhibit XVIII and incorporated herein by reference.
19. Section 10.2 of the Agreement provides that Seller will pay all
Property Taxes assessed for all tax periods through the Effective
Date, and such Property Taxes remain the obligation of Seller.
Attached hereto as Exhibit XIX and incorporated herein by reference is
the Certificate dated February 5, 1998, of the Chief Financial Officer
that there are outstanding unpaid Property Taxes in the amount of
$0.00. Seller shall furnish Buyer with evidence that all Property
Taxes for periods before the Effective Date have been paid at the time
of the post-Closing adjustment provided in Section 7.3.3.4 of the
Agreement.
20. Section 7.4 of the Agreement provides that within five (5) days after
Closing, Seller shall deliver to Buyer the originals of the Property
Records (as defined in Section 5.1) at a location designated by Buyer.
Buyer hereby designates Ted Rhodes as its representative to direct
preparation and delivery of the Property Records, the location of such
delivery, and to accept custody of the Property Records on behalf of
Buyer. The Property Records will be delivered at a time mutually
agreeable to the parties within five (5) days of Closing. Included
within the definition of Property Records is information contained in
the bound volumes containing the documents regarding the financing
agreements relating to the Release Liens. Buyer is willing to accept
a duplicated copy of such volumes and agrees to allow Seller to retain
the original for its records, and Seller agrees to deliver such
duplicated copy within five (5) days of Closing.
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21. The parties agree to resolution of the title issue set forth in
Paragraph No. 2 of the Statement of Title Defects letter dated
February 3, 1998, as set forth herein. Seller will deliver to Buyer a
fully executed, recordable instrument in which Saba Energy of Texas
Incorporated quitclaims all of its rights, titles and interests to
Buyer in and to that portion of the Property identified as Jennings
Lake Field, Matagorda County, Texas, and White Kitchen Field, LaSalle
County, Texas, in the Agreement, insofar and only insofar as the 6%
interest more fully described in Statement of Title Defects, effective
as of January 1, 1995, on or before the date of the post-Closing
adjustment, or the Allocated Value thereof, being 6% of $350,000.00 or
$21,000.00, shall be deducted from the Purchase Price and will be
accounted for in the final Purchase Price adjustment provided for in
Section 7.3.3.4 of the Agreement.
22. All alleged Title Defects and objections to the condition of the
Property given to Seller by Buyer in previous notices have been
satisfied or waived by Buyer, except as set out in this Closing
Statement.
The authorized representatives of Seller and Buyer sign below
indicating their agreement to the terms of this Statement on the date first
above written.
Seller: Buyer:
HarCor Energy, Inc. Penroc Oil Corporation
By: By:
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Name: Mark G. Harrington Name: M. Y. Merchant
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Title: Chairman and CEO Title: President
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