Exhibit 10.5
PARTICIPATION AGREEMENT
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This Participation Agreement is made and effective as of the 20th day of
September, 2005 between the following parties:
Calibre Energy, Inc. (hereafter "Calibre")
1825 I Street NW
Washington, DC 20006
KEROGEN Energy, Inc. (hereafter "Kerogen")
Ashford Crossing II
1880 Dairy Ashford South, Suite 545
Houston, Texas 77077
WHEREAS, Kerogen is in the business of generating oil and gas prospects;
WHEREAS, Calibre is willing to fund the generation of shale gas prospects
by Kerogen and exploit such prospects with Kerogen on the terms set forth
herein.
NOW THEREFORE, the Parties, intending to be legally bound, agree as
follows:
I.
Generation of Prospects
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1.01 Kerogen will generate or identify in the market an initial shale gas
Prospect in that portion of the Williston Basin, as delineated on the attached
plat Exhibit "A" (Williston Basin) in general accordance with the proposal set
forth in Exhibit "B" attached hereto.
1.02 Kerogen may generate additional shale gas Prospects within the
Williston Basin. Any such additional "Prospects" generated by Kerogen during the
term hereof shall be offered to Calibre on the terms and conditions set forth in
this Agreement.
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II.
Generation Funding by Calibre
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2.01 Calibre will pay Kerogen the sum of $638,600 (plus approved third
party expenses) for generation of shale gas prospects within the Williston
Basin, with the payments to be made as follows: $350,000 on August 15, 2005;
$200,000 on or before October 15, 2005 and the balance to be paid upon
completion of the generation of a Prospect as per the attached Exhibit "B".
III.
Calibre Election
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3.01 All Prospects generated, identified or acquired by Kerogen, in the
Williston Basin, during the Term of this Agreement shall be offered to Calibre.
Calibre will have the opportunity to participate in the Prospect for 30% of the
interest available to Kerogen at the time of the Prospect Meeting. In the event
either party, or an affiliate of either party, makes an acquisition in which all
or a portion the assets are located within the boundaries of the Williston Basin
as depicted on Exhibit "A" that acquisition and all lands information and
production will be excluded from the terms of this Agreement, if the total
consideration to make the acquisition is excess of twenty million dollars
($20,000,000).
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3.02 Once a Prospect is generated by Kerogen as per Exhibit "B", the
Prospect (with studies) will be presented in writing to Calibre, and within
thirty (30) days there from, the parties will convene a meeting to discuss the
Prospect and a budget for the Prospect ("Prospect Meeting"). All material
presented by Kerogen at the Prospect Meeting will be considered "Intellectual
Property". It is also anticipated that during the Term of this Agreement Kerogen
will identify projects being developed by third parties, or propose to acquire
interests in projects which are already in the market. If Kerogen evaluates any
of these opportunities that it considers prospective, it may call a Prospect
Meeting (Note: if the opportunity is time sensitive to the degree that it may
not be available later, Kerogen may request a Prospect Meeting to occur within
48 hours) to present the opportunity to Calibre. For purposes of this Agreement,
such opportunity will also be referred to and be considered a Prospect. Within
fifteen (15) days from the Prospect Meeting, Calibre must elect in writing to
participate in the Prospect on the terms contained in this Agreement, or forfeit
all rights to such Prospect to Kerogen. Time is of the essence in Calibre
exercising its rights under this P. 3.02; failure to respond in writing within
the time provided shall be deemed an election not to participate. In the event
Calibre accepts the Prospect, it will be committing to 30% of Kerogen's actual,
total costs to acquire and develop the Prospect. All interpretive materials
created by Kerogen and presented at the Prospect Meeting ("Intellectual
Property"), shall remain the sole property of Kerogen until the Initial Test
Well has been drilled and evaluated in any given Prospect. Thereafter Calibre
will have earned a non exclusive license in the Intellectual Property for each
Prospect in which it participates. Calibre shall treat all Intellectual Property
provided to it by Kerogen as confidential. The parties will execute a binding
confidentiality agreement at the Prospect Meeting. Should Calibre elect not to
participate in any Prospect presented by Kerogen, it agrees to keep all
information provided at the Prospect Meeting confidential and further agrees not
to acquire any leases or rights to property within the Contract Area designated
by Kerogen for the Prospect for 2 years from the date the Prospect Meeting.
Should Calibre or any affiliate acquire such interests, it agrees to assign such
interests to Kerogen upon written request, at no cost.
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IV.
Leasing / Acquisition Program
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4.01 Once a Prospect is generated, approved and accepted by Calibre, the
parties shall immediately define in writing an Area of Mutual Interest (AMI) and
Contract Area around the geographic boundaries of the Prospect for the
acquisition of oil and gas leases. Any party acquiring an interest within the
AMI during the term of this agreement will offer the other party that other
party's percentage interest and if that party accepts by agreeing to pay its
percentage interest of actual costs then the ownership of any leases or
properties acquired by either party within the Contract Area will be owned:
Calibre 30% (Subject to Kerogen 10% Carried Interest)
Kerogen 70%
Thereafter, the parties shall initiate a leasing program to lease (or farm-in) a
block of prospective acreage within the Contract Area. The parties shall
endeavor to lease between 10,000 and 20,000 acres (or such additional acreage as
may be reasonable). In the event the Prospect is to be acquired by an
acquisition or earned under a farmout or participation arrangement, then Kerogen
will take such actions as are necessary to effect such transaction. Kerogen will
take title in its name, to either the leases or contractual rights as is
necessary to implement the plan set forth in the Prospect Meeting. At such time
as Calibre has participated in the Operations necessary to test the Prospect by
drilling as discussed in the Operations section below, Kerogen will prepare and
deliver recordable assignments to effectively convey 90% of 30% of its interest
in the drill site spacing unit for such well. Kerogen will reserve all rights
not conveyed in such assignments. Kerogen will either participate for, or secure
additional participants for 70% of its interest. In the event Kerogen is not
able to place all or a portion of the remaining 70%, it will offer that interest
to Calibre on the same terms as the 30% (adjusted proportionately to the
interest so accepted by Calibre), if Calibre accepts the additional interest the
parties will proceed to develop the Prospect with the necessary adjustments
being made to this Agreement. In the event the entire interest cannot be placed,
either with Calibre, Kerogen or third parties the Prospect will be treated as
not accepted and the Parties will not pursue it. The 10% of 30% reserved to
Kerogen is a carried working interest that will bear none of the drilling nor
completion costs in any of the wells drilled on any of the Prospects.
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4.02 Calibre will fund 30% of all of Kerogen's actual costs for leasing and
acquisition activities related to the Prospect. Kerogen may provide Calibre with
a cash call representing Kerogen's estimate of costs and expenses to be incurred
during the next succeeding calendar month. Calibre agrees to pay such cash call
invoice within 10 business days of receipt. In the event Calibre shall fail to
pay either an actual invoice or a cash call as provided hereunder, Kerogen may
tender a default notice in writing; if within thirty days of said notice the
payment is not received, Kerogen may elect to hold Calibre non-consent as
provided for under the Operating Agreement, or Kerogen may deem that such
default is an election to reject the Prospect, if drilling has not yet commenced
thereon. Calibre will have rights to audit the invoices pursuant to the
Operating Agreement, should it dispute any invoice.
4.03 Kerogen will be responsible for overseeing and directing the leasing
or acquisition program. Calibre will be consulted on both the budget and terms
being accepted for the leases and contracts being secured in the Contract Area.
Should either party want to acquire a lease, the terms of which the other party
does not want to accept, it shall have the right to do so. If such lease is
acquired for those terms, then that lease shall be excluded from the contract
area of the Operating Agreement described in Article VI. Calibre will have full
rights to access the lease and title data within any Prospect to assure itself
that title and environmental conditions of the properties being acquired are
acceptable to Calibre. Calibre is hereby waiving any claims of action it may
have against Kerogen as Kerogen performs its duties and carries out its
obligations hereunder, unless Kerogen is grossly negligent or performs acts of
willful misconduct. Any assignment(s) delivered pursuant to the terms of this
Agreement will be without warranty of title except by through and under Kerogen.
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V.
Kerogen Election
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5.01 Kerogen shall have the right and option at any time to exchange the
10% carried interest reserved above to a proportionately reserved 3% overriding
royalty interest, proportionately reduced to the Calibre 30% working interest.
VI.
Operations
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6.01 Once a Prospect is accepted, the parties will enter into a Joint
Operating Agreement as described in P. 6.02. The Contract Area of which will be
defined in the Prospect Meeting. Kerogen will be carried for 10% working
interest (proportionately reduced to Calibre's interest) through the tanks in
all wells drilled within the Contract Areas, during the term of the Joint
Operating Agreement for that Contract Area. Kerogen or a mutually acceptable
third party will be designated as the Operator for the Contract Area for any
Prospects.
6.02 All operations shall be conducted under the 1982 A.A.P.L. Model Form
Operating Agreement (Operating Agreement). Each Contract Area shall have a
separate Operating Agreement signed by the parties. In lieu of non-consent
penalties in the Operating Agreement, should Calibre not timely elect to
participate in a subsequent well, it shall be deemed to have relinquished its
interest in the well and all leasehold acreage not previously assigned within
the Contract Area to Kerogen.
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VII.
Term
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7.01 This Agreement shall continue for a Term expiring September 20th,
2007. (The term of the Operating Agreement(s) referenced in P. 6.02 shall be as
set forth in each Operating Agreement).
VIII.
No Partnership
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8.01 This Agreement does not create, and is not intended to create, a
partnership or joint venture between the parties, or a fiduciary or special
relationship between the parties.
IX.
Limitation of Assignment
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Without the prior written consent of the other Party, the rights and
privileges of this Agreement, or any Prospect, or rights to any Contract Area
generated pursuant to the terms hereof, may not be shown or sold by any party.
Such consent may not be unreasonably withheld. This Limitation of Assignment
provision will terminate upon the completion of the first well for each Contract
Area as to that Contract Area. Any Assignment of any interest acquired pursuant
to the terms of this Participation Agreement will be made specifically subject
to the terms and provisions of this Participation Agreement.
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X.
Entire Agreement and Amendments
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9.01 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof, and supersedes all other
agreements written or oral between the parties with respect to such subject
matter. This Agreement may not be changed, modified or amended except by a
written agreement between the Parties, which specifies that it amends this
Agreement.
XI.
Arbitration
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10.01 Any disputes arising out of or related to this Agreement must be
arbitrated in accordance with the rules for commercial arbitration disputes for
the American Arbitration Association.
XII.
Notice
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11.01 All notices authorized or required to be given pursuant to this
Agreement shall be in writing and may be delivered by hand, mailed by first
class airmail, sent by telecommunication, or overnight delivery to the address
set forth in this Agreement.
The notice shall be deemed to have been given and received:
a. if delivered, on the day on which it was delivered, excluding
Saturdays, Sundays and statutory holidays; or
b. if mailed, on the days received, or
c. if sent by telecommunication, on the first business day following the
day it was dispatched.
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A party may change its address for the receipt of notices at any time by
giving written notice thereof to the other party.
XII.
Counterpart Execution
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This Agreement may be executed in multiple counterparts.
CALIBRE Energy, Inc.
By: /s/ Edward L. Moses
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Edward L. Moses,
Sr. VP of Operations
KEROGEN RESOURCES, Inc.
By: /s/ Thomas Harris
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Thomas Harris
President
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