Attached files
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| EX-10.1 - Kentucky USA Energy, Inc. | v192139_ex10-1.htm |
UNITED
STATES
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) July
23,
2010
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Kentucky USA Energy,
Inc.
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(Exact name of
registrant as specified in its
charter)
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Delaware
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333-141480
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20-5750488
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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321
Somerset Road, Suite 1, London, Kentucky 40741
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(Address
of principal executive
offices)
(Zip
Code)
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(606)
878-5987
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(Registrant’s
telephone number, including area
code)
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(Former
name or former address, if changed since last
report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01. Entry into a Material Definitive Agreement
On July
23, 2010, Kentucky USA Energy, Inc. (the “Company”) entered into a farm-out
agreement (the “Farm-Out Agreement”) with WW Petroleum Service, Inc., (“WWPS”)
relating to six oil and gas leases (the “WWPS Leases”) in Christian County,
Kentucky covering approximately 1,073 acres. WWPS owns a one hundred
percent (100%) working interest in the WWPS Leases. Pursuant to the
terms of the Farm-Out Agreement, the Company acquired the rights to drill,
complete and produce wells to explore for oil and gas from any formation more
than 1,250 feet below the surface.
Under the
terms of the Farm-Out Agreement, the Company will pay WWPS an overriding royalty
interest (“ORI”) of 1/8 of 8/8 from all production attained by the Company from
any formation more than 1,250 feet below the surface. The Company can
drill only one well per lease at any one time. Once a well is
completed on a lease, the Company can drill an additional well on that
lease. The Company must drill at least three (3) wells per year for a
period of three (3) years for a total of not less than nine (9)
wells. The Company must start drilling its first well on the WWPS
Leases within one (1) year of the date of the Farm-Out Agreement, it must start
six (6) wells within two (2) years and nine (9) wells within three (3)
years. Failure to meet this drilling timetable shall release all
undeveloped acreage back to WWPS.
If the
first well is a dry hole on the formations lying more than 1,250 feet below the
surface, but there is production from zones above 1,250 feet, the Company can
complete such well and produce from the formations between the surface and 1,250
feet and WWPS will be entitled to a 1/8 of 8/8 ORI on this well
location.
In the
event the first well produces from a formation lying more than 1,250 feet below
the surface, then in that event the Company will have the first right to drill a
twin well, for the purpose of drilling from the surface down to 1,250
feet. In that event, WWPS will be entitled to a 1/8 of 8/8 ORI on
production from the twin well. This right to drill a twin well will
last for three (3) years from the date of spudding in the original
well.
With
respect to one of the six leases, a 1/32 of 7/8 ORI, which would otherwise have
been assigned to WWPS, will instead be assigned to the original owner of the
lease for any well completed on this property. Also, one formation
known as the Jackson formation on one of the other six leases is reserved from
this Agreement and remains in the possession of WWPS.
120 days
after completion of a twin well or completion of an original well above 1,250
feet on any of the leases, the Company will be able to exercise rights to a new
well location on such lease for the purpose of production from the surface to a
depth of 1,250 feet. The Company can secure only one location at a
time for the purpose of production from the surface to a depth of 1,250 feet,
unless otherwise agreed by WWPS in writing. 120 days after completion
of each well drilled by the Company, the Company can exercise the right to one
additional well location.
The
Company has the right to twin or offset drill on each individual lease in the
WWPS Leases only after drilling a well to test the New Albany Shale formation on
each of the WWPS Leases.
All
currently existing wells on the WWPS Leases, whether in production or not, are
excluded from the Farm-Out Agreement.
The
Company has agreed to purchase all gas produced above the New Albany Shale by
WWPS at the well head price equal to the “Prospect” of the Texas Gas
Transmission Zone SL (less cleaning fee and deduction for inert materials) first
of the month index, or upon any other agreed upon index. The Company
will furnish and install meters, well head equipment, and up to four hundred
feet of gathering line for such wells. With respect to this gas, the
Company will receive a 1/8 of 8/8 ORI.
With
respect to the existing Corley #7 and Corley #8 wells owned by WWPS, the Company
has agreed to finish the installation required to put said wells into production
and to make any repairs made necessary by the installation of gathering lines
that would be necessary to place said wells into complete
operation. WWPS has agreed to assign to the Company a 1/8 of 8/8 ORI
in all gas produced from these two wells, from the Jackson Sand Formation only,
for as long as gas is produced and sold by WWPS.
In event
of a shut-in gas well, the Company will have five (5) years to place said well
into production. After five (5) years WWPS will have the option to
take ownership of such well.
The
foregoing description of the Farm-Out Agreement is qualified in its entirety by
reference to the Farm-Out Agreement, a copy of which is attached to this report
as Exhibit 10.1 and incorporated herein by reference.
To
perform its obligations under the Farm-Out Agreement, the Company will need to
raise additional capital. In order to obtain this capital, the
Company may need to sell additional shares of its common stock or other
securities, or borrow funds from private lenders. There can be no assurance that
the Company will be successful in obtaining additional funding in the required
amounts or on acceptable terms, if at all. If the Company is not able
to raise capital and meet the terms of the Farm-Out Agreement, the Company’s
business, results of operations, liquidity and financial condition will suffer
materially.
Item
9.01. Financial Statements and Exhibits
(d)
Exhibits
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10.1
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Form
of Farmout Agreement by and between WW Petroleum Services, Inc. and
Kentucky USA Energy, Inc. dated July 23,
2010
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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.
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Kentucky
USA Energy, Inc.
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Date:
July 30,
2010
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By:
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/s/
Steven Eversole
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Steven
Eversole
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Chief
Executive Officer
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