FARMOUT AGREEMENT
(THREE FORKS, INC.)
This FARMOUT AGREEMENT is entered into as of ____________________, 2012
by and between Holms Energy Development Corporation and Three Forks, Inc.
WITNESSETH
WHEREAS Holms Energy Development Corporation, ("Farmor") a Colorado
corporation, whose address is Helena Montana wishes to enter into a FARMOUT
agreement with Three Forks, Inc.., a Colorado corporation ,("Farmee"), whose
operating office is located at 555 Eldorado Blvd. Suite 100 Broomfield, Colorado
for the development of certain lands, and
WHEREAS, Holms Energy Development Corporation, desires to have the
Farmout acreage explored and developed for oil, gas and methane production; and
WHEREAS, Three Forks, Inc. has expressed its willingness to make such
exploration and development on the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and to be performed by the parties hereto, and the
mutual benefits to be received hereunder, the parties hereto do hereby agree as
follows;
FARMOR hereby grants FARMEE the right to explore for oil and gas and
methane production on the subject tracts and mineral interests listed on the
attached Exhibit "A" under the terms hereof as follows:
1. DEFINITIONS
(A) "Contract Depth" means a depth sufficient to test the through the
Ellenberger formation (5,000 feet or less).
(B) "Effective Date" will mean the execution date of this agreement.
(C) "Farmout Lands" means the Farmor's net interest in and to the minerals
owned by Farmor which are set forth in Exhibit "A" attached hereto and made
a part hereof which may be amended or modified from time to time hereafter
by mutual agreement in writing exclusively. Farmout lands shall be subject
to modification and adjustments based upon GPS survey and future agreements
of the parties.
2. EXHIBITS
The following Schedules and Exhibits are attached hereto and made part of this
Agreement:
(A) Exhibit "A" is a schedule of all individual sections or tracts comprising
approximately _________ gross acres, more or less, on which the minerals
are owned or leased by Farmor.
(B) Exhibit "B" is a map providing an overview and general description of
"Farmout" tracts located in Archer County, Texas, subject to formal
description and survey by the parties hereafter.
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3. CONSIDERATION AND COMMITMENT
(A) FARMEE agrees that on or before March 31, 2013, it will commence or cause
to be commenced the actual drilling of a minimum of 3 wells for oil and or
gas, hereinafter sometimes referred to as "Initial Wells" at a location of
its choice in any one tract described in Exhibit "A" and that it will
prosecute the drilling of said well with due diligence to a depth
sufficient to test the Ellenberger formation (hereinafter called Contract
Depth"). The well shall be drilled, and completed with reasonable diligence
and dispatch, or if a non-commercial well, shall be properly plugged and
abandoned. All drilling, equipping, plugging and abandonment, and other
operations shall be performed at the sole risk and expense of Farmee.
In the event an unusual event or delay occurs in drilling or permitting
which is pending on March 31, 2013, Farmee, upon showing that permit is
pending or that drilling rig is contracted and scheduled, will receive up
to a 30 day extension in drilling first well, hereunder.
(C) In the event the initial well is commenced, drilled and completed as a
producing well or plugged and abandoned as a dry hole in accordance with
this agreement, Farmee shall have the exclusive right, but not the
obligation, within days from the date of completion rig release from said
Initial Well to commence the drilling of the Second at a location of its
choice in any one tract described in "Exhibit "A". The Second Well shall be
drilled, and completed pursuant to the same terms and provisions as
contained herein for the drilling of the Initial Well. Farmee shall drill
up to 7 additional wells hereunder at a location of its choice so long as
no more than 60 days lapse between the release of the completion rig from
the previous well and the spudding of the next, on the subject farmout
lands.
(D) If because of encountering impenetrable substances, lost circulation, or
because of mechanical conditions making further drilling impractical before
contract depth is reached or if Initial well is completed as a dry hole,
Farmee shall have the right to drill a substitute well at a location of its
choice on the lease acreage, provided the actual drilling of said
substitute well shall be commenced not later than 120 days for the
cessation of the operations of such well. If such substitute well is
commenced, drilled and completed as provided herein, Farmee shall have
complied with this agreement to the same extent as if the well for which it
is a substitute had been commenced, drilled, and completed in accordance
herewith. Farmee shall be allowed to drill as many substitute wells as it
may deem feasible at its own discretion, risk and expense, in an effort to
comply with this agreement.
4. OPERATOR OF WELLS
Farmor shall be the operator of record until Farmee shall become qualified
to be an operator in the State of Texas but Farmee shall manage the development
wells drilled on behalf of Farmee on the behalf of Farmor.
5. INTEREST EARNED
(A) Farmor represents to Farmee that Farmor owns or leases 100% of the minerals
in the Farmout Lands listed on Exhibit "A", subject to 2% in total
overriding royalties on the leasehold acreage.
(B) In the event any Well hereunder is drilled, and completed as, a commercial
producer of oil and/or gas or methane at any depth and such well is located
upon any portion of the lease acreage on Exhibit "A" Farmor shall assign
and transfer to Farmee, in the section in which the well is located,
subject to the limitation in the last sentence of this paragraph,
one-hundred percent (100%) of its right, title and interest in and to the
oil and gas produced until payout under 5c hereof subject to a Overriding
Royalty interest reserved to Bill Baber of 2%, such overriding royalty to
be free and clear of any and all exploration, development, drilling,
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completion, production, processing , water disposal, and gas gathering
costs (the parties recognize that an existing other ORRR's are
outstanding). The Net Revenue Interest earned by Farmee shall not be less
than 80% of 100% in tracts listed on Exhibit "A" such wells shall hold the
mineral interest in the acreage only to the depth completed after 2 years.
During the 2 year period after completion, Farmee may explore any deeper
horizons without limitation and if completed as a producer, such wells
shall hold the acreage to depth completed.
(C) After date Farmee has received net revenues equal to its total costs Farmor
shall "Backin" to a 25% working interest in the farmed land revenues.
(D) This Farmout Agreement is intended to be a "drill to earn" agreement
whereby Farmor intends to convey its interest to Farmee ONLY by virtue of
Farmee drilling and completing 3 wells capable of commercial production of
oil and/or gas by the timely drilling and completing of each well on a
location by location basis. Farmee shall have the exclusive continuous
drill to earn option for all acreage listed on Exhibit "A," subject to
other terms and limitations hereof.
7. RENTALS
Farmor represents from the date of execution of this Agreement there are no
rentals due from Farmee and that Farmee shall not pay rentals on any leasehold
or on any leasehold Farmee earns by production.
8. ADDITIONAL PROVISIONS
(A) Farmor shall not make any proposal for the drilling of a new well on the
farmout lands subject to this agreement during any time the continuous
development period remains in effect without the written consent and
participation of Farmee
(B) Farmor agrees to defend the title to the lands listed on Exhibit "A."
(C) The parties hereto, their successors and assigns, shall have equal and
concurrent rights of ingress and egress on the farmout lands and adjacent
lands for the purpose of laying pipelines, water lines, dig pits, erect
structures, and to do and perform any and all other things incident to the
rights and interest of the parties. These rights shall be exercised in such
a manner as not to interfere unduly with the similar rights of the other
party thereto. Parties recognize and agree that Surface Use Agreements with
Surface Owners will have provisions with which the parties have to comply
and the parties agree to fully cooperate in so doing.
(D) Force Majeure provisions shall apply to all drilling commitments hereunder.
Should Farmee be prevented from complying with any express or implied
covenant of this farmout, from conducting drilling or reworking operations
thereon or from producing oil or gas by operation of a force majeure, which
shall include ONLY natural disasters or wars directly affecting the farmout
lands, any state or federal law or any order, rule or regulation of
governmental authority, then while so prevented, Farmee's obligations
hereunder shall be suspended and Farmee shall not be liable in damages for
failure to comply therewith; and this farmout shall be extended while and
so long as Farmee is prevented by any such cause from conducting drilling
or reworking operations on or from producing oil or gas from the premises,
and the time while Farmee is so prevented shall not be counted against
Farmee, so long as after a force majeure occurrence, upon termination of
such event, the Farmee shall promptly recommence its efforts hereunder.
Farmee's obligation to drill shall be suspended by acts of God, access road
closures to drill sites or production areas, inclement weather prohibiting
equipment from moving or working, or the inability to obtain drilling,
production or pipeline materials due to shortages, but equipment or
drilling or material related suspensions are limited to 90 days from the
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scheduled event. In the event that gas production become "shut-in" due to
lack of pipeline capacity, the parties agree that such "shut-in" condition
shall suspend this Agreement's terms for not longer than 1 (one) year from
date it becomes "shut-in," during which year Farmee shall propose an
acceptable remedy (acceptable in Farmors sole discretion) and implement
such remedy so that market rate (in the area) revenue for gas produced is
commenced or recommenced. In the event of a dispute under this provision,
Farmor shall send a written Notice of Intended Cancellation to Farmee and
Farmee shall have 30 days thereafter to cure and recommence substantial
activities.
(E) Geological information and well data from any Well drilled hereunder shall
be provided to Farmor by Farmee, in confidence, as trade secrets, not to be
published except as required by law or as directed by a governmental
authority having jurisdiction.
(F) Farmee may assign all of the rights and obligations created under this
Agreement, Subject to Farmor's written permission, which permission shall
not be unreasonably withheld.
(G) Farmor and Farmees shall enter into an "Area of Mutual Interest" Agreement
for a radius of one mile around the subject farmout lands on or before the
drilling of the initial well, on terms acceptable to Farmor, concurrent
herewith
(H) Farmor will provide an Abstract and Mineral Title Lawyer's Opinion within
sixty days hereafter on the Farmout Lands or on a tract by tract basis.
Farmee shall pay any costs thereof. If any title defects are noted, Farmor
agrees to take whatever action is appropriate to correct the defects,
promptly, to allow drilling to commence.
(I) Farmee shall comply with all provisions of the Surface Owners Agreements
negotiated by Farmor including payments required thereby to Surface Owners
(J) Farmee shall permit, upon request, Farmor's access to ALL drilling
information, logs, samples, completion records, production records and
product analysis.
(K) Each Party shall permit access to any pipeline owned by other Party or
assigns, likewise, on reasonable industry rates customary in the basin
(L) Each Party shall permit usage of any road improvements by other Parties or
assigns, however, such Party shall share its proportionate share of
maintenance and Surface Owners payment expenses for roads so used in
connection with its own oil and gas operations, whether drilling or
production.
(M) There are no depth restrictions imposed on Farmee subject to this
agreement, except to designated horizon specified herein above
(N) Farmor and Farmee agree as follows; Not withstanding anything to the
contrary contained herein, Farmees rights shall automatically terminate to
all rights below 100' below the stratagraphic equivalent of the deepest
common source of supply penetrated in any well spud 2 years after the
completion date of the well in the section, provided however, if farmee
should commence operations to drill, deepen, or rework a well under the
terms of this farmout agreement within such 2 years, the farmee shall have
the right to drill such well to completion and/or continue deepening and/or
complete reworking operations with reasonable diligence and dispatch, and
if oil or gas be found in paying quantities earn an assignment of such
stratagraphic equivalent.
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(O) Farmee may negotiate additional surface agreements, if necessary, for
drilling, construction of pipelines, compression and production facilities,
however, Farmee shall request Farmor's assistance in negotiating such
agreements, and Farmor shall use its best efforts in assisting Farmee.
(P) Each party agrees to pay all costs incurred or created by it in connection
with its own development and business activities. Farmee shall not be
responsible for debt created by prior or future development, drilling, or
completion activities of Farmor unless agreed to in writing, except that
Farmee shall be responsible for and liable for any payments required under
the Surface Use Agreements with Surface Owners attributable to its drilling
and operational activities.
(Q) When and if both parties (or their assigns) are producing bydrocarbons, the
Parties agree to share compression and treating equipment and facilities on
a percentage of product processed basis for cost sharing.
9. ADDRESS FOR SERVICE
The address for each of the Parties for service of notices shall be as
follows:
FARMOR: FARMEE:
Holms Energy Development Corporation Three Forks, Inc.
Helena, Montana 555 Eldorado Blvd.
Suite 100
Broomfield, CO 80021
10. ENTIRE AGREEMENT
This Agreement and the documents and instruments and other agreements among
the parties hereto as contemplated by or referred to herein contain every
obligation and understanding between the parties relating to the subject matter
hereof and merges all prior discussions, negotiations, agreements and
understandings, both written and oral, if any, between them, and none of the
parties shall be bound by any conditions, definitions, understandings,
warranties or representations other than as expressly provided or referred to
herein. All schedules, exhibits and other documents and agreements executed and
delivered pursuant hereto are incorporated herein as if set forth in their
entirety herein.
11. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, personal representatives,
legal representatives, and permitted assigns.
12. WAIVER AND AMENDMENT
Any representation, warranty, covenant, term or condition of this Agreement
which may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party hereto entitled to the benefit thereof, and
any term, condition or covenant hereof (including, without limitation, the
period during which any condition is to be satisfied or any obligation
performed) may be amended by the parties thereto at any time. Any such waiver,
extension or amendment shall be evidenced by an instrument in writing executed
on behalf of the party against whom such waiver, extension or amendment is
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sought to be charged. No waiver by any party hereto, whether express or implied,
of its rights under any provision of this Agreement shall constitute a waiver of
such party's rights under such provisions at any other time or a waiver of such
party's rights under any other provision of this Agreement. No failure by any
party thereof to take any action against any breach of this Agreement or default
by another party shall constitute a waiver of the former party's right to
enforce any provision of this Agreement or to take action against such breach or
default or any subsequent breach or default by such other party.
13. NO THIRD PARTY BENEFICIARY
Nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any Person other than the parties hereto and
their respective heirs, personal representatives, legal representatives,
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement, except as otherwise provided herein.
14. SEVERABILITY
In the event that any one or more of the provisions contained in this
Agreement, or the application thereof, shall be declared invalid, void or
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall remain in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such invalid, void or unenforceable provision with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such invalid, void or unenforceable provision.
15. EXPENSES
Except as otherwise provided herein, each party agrees to pay, without
right of reimbursement from the other party, the costs incurred by it incident
to the performance of its obligations under this Agreement and the consummation
of the transactions contemplated hereby, including, without limitation, costs
incident to the preparation of this Agreement, and the fees and disbursements of
counsel, accountants and consultants employed by such party in connection
herewith.
16. HEADINGS
The section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
any provisions of this Agreement.
17. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. Facsimile signatures shall be deemed valid and binding.
18. GOVERNING LAW
This Agreement has been entered into and shall be construed and enforced in
accordance with the laws of the State of Colorado, without reference to the
choice of law principles thereof.
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19. JURISDICTION AND VENUE
This Agreement shall be subject to the exclusive jurisdiction of the courts
of Jefferson County Colorado. The parties to this Agreement agree that any
breach of any term or condition of this Agreement shall be deemed to be a breach
occurring in the State of Colorado by virtue of a failure to perform an act
required to be performed under this Agreement and irrevocably and expressly
agree to submit to the jurisdiction of the courts of the State of Colorado for
the purpose of resolving any disputes among the parties relating to this
Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, or any judgment entered by any
court in respect hereof brought in Jefferson County, Colorado, and further
irrevocably waive any claim that any suit, action or proceeding brought in
Jefferson County, Colorado has been brought in an inconvenient forum.
20. PARTICIPATION OF PARTIES
The parties hereby agree that they have had the opportunity to be
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding, or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
21. FURTHER ASSURANCES
The parties hereto shall deliver any and all other instruments or documents
reasonably required to be delivered pursuant to, or necessary or proper in order
to give effect to, all of the terms and provisions of this Agreement including,
without limitation, all necessary assignments, division orders, and such other
instruments of transfer as may be necessary or desirable to effectuate this
Agreement.
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FURTHER, this agreement and its exhibits constitute the entire contract of
the parties and there are no agreements, undertakings, obligations, promises,
assurances or conditions, whether precedent or otherwise, except those
specifically set forth. IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date first written above.
Holms Energy Development Corporation
By: ____________________________
President
THREE FORKS, INC.
By: _____________________________
President
STATE OF )
COUNTY OF )
On this _____ day of ________________________, 2012, before me, the
undersigned, a Notary Public in and for said State, personally appeared,
President of Holms Energy Development Corporation, known to be the person whose
name is subscribed to this within this instrument, and who upon oath swore that
the statements therein contained are true and correct.
WITNESS my hand and official seal. My Commission expires:
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Notary Public
STATE OF )
COUNTY OF )
On this _____ day of _________________________, 2012, before me, the
undersigned, a Notary Public in and for said State, personally appeared,
President of Three Forks, Inc., known to be the person whose name is subscribed
to this within this instrument, and who upon oath swore that the statements
therein contained are true and correct.
WITNESS my hand and official seal. My Commission expires:
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Notary Public
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