Attached files
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| 8-K - Kentucky USA Energy, Inc. | v192139_8-k.htm |
FARMOUT
AGREEMENT
THIS
FARMOUT AGREEMENT entered into this the ________ day of ____________________,
2010, by and between WW Petroleum Service, Inc., P. O. Box 74, Dixon, Kentucky,
42409, hereafter referred to as FARMOR; and Kentucky USA Energy, Inc., 321
Somerset Rd., Suite 1, London, Kentucky, 40741, hereafter referred to as
FARMEE;
WITNESSETH:
WHEREAS,
FARMOR owns six oil and gas leases in Christian County named and recorded as Max
Corley Heirs Lease containing approximately sixty acres, recorded in the office
of the Christian County Clerk in Oil and Gas Lease Book 43, Page 240; the Billy
Combs Lease containing approximately one hundred and sixty-nine acres, recorded
in the aforesaid Clerk’s office in Oil and Gas Lease Book 43, Page 298; the
David Draper Lease containing approximately one hundred and thirty-six acres,
recorded in the aforesaid Clerk’s office in Oil and Gas Lease Book 43, page 567;
the Milton Corley Lease containing approximately two hundred and eighteen acres,
recorded in the aforesaid Clerk’s office in Oil and Gas Lease Book 43, page 569,
and Oil and Gas Book 43, Page 571; the J. C. Willis Lease containing
approximately one hundred and fifty acres, recorded in the aforesaid Clerk’s
office in Oil and Gas Lease Book 43, Page 258; and the Kenny Sweeney Lease
containing approximately two hundred and seventy-eight acres, recorded in the
aforesaid Clerk’s office in Oil and Gas Lease Book 45, Page 408, hereafter
referred to as “Prospects”, and
WHEREAS,
the FARMEE desires to obtain a Farmout to drill on the Prospects;
and
WHEREAS,
the FARMOR is willing to grant such Farmout assignments.
NOW
THEREFORE, that for and in consideration of the mutual agreements and covenants
set forth herein, the FARMOR and FARMEE agree as follows:
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1.
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FARMOR
grants to FARMEE the rights to drill, complete and produce wells on the
Prospects within the terms and conditions of this Agreement, as set our
herein:
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a.
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FARMOR
shall assign to FARMEE well locations to produce from any formation more
than 1250 feet below the surface. FARMEE shall not permit more
than one location per lease at any one time. After completion
of each well FARMEE shall then permit an additional well of said
lease. Location of said permit would not conflict with a
location that would be prior permitted by
FARMOR.
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b.
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FARMOR
shall reserve a 1/8 of 8/8 Overriding Royalty Interest on this assignment
from all production attained by FARMEE from any formation more than 1250
feet below the surface.
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2.
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Upon
completion of drilling the first well, FARMEE shall have the right
to:
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a.
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If
the first well is a dry hole, on the formations lying more than 1250 feet
below the surface, but there is production from zones above 1250 feet,
then FARMEE can complete such well and produce from the formation between
the surface and 1250 feet; however, FARMOR shall be entitled to a 1/8 of
8/8 Overriding Royalty Interest on this well
location.
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b.
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In
the event the first well produces from a formation lying more than 1250
feet below the surface, then in that event, FARMEE shall have the first
right to drill a twin well, for the purpose of drilling from the surface
down to 1250 feet. In that event, the FARMOR shall be entitled
to a 1/8 of 8/8 Overriding Royalty Interest on that production from said
twin well. This right to drill a twin well shall be for a term
of three (3) years from the date of spudding in the original
well. A 250 foot radius from the original well will be
reserved. Said twin well shall be drilled within fifty feet of
original well.
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c.
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Concerning
the David Draper Lease of the Prospects, a 1/32 of 7/8 Overriding Royalty
Interest, which would otherwise have been assigned to FARMOR, shall
instead be assigned to David Draper, for any such well completed under
paragraph 2(a) or drilled under 2(b) above upon the Draper
Lease. Also, the Jackson formation on the Sweeney Lease is
reserved from this Agreement and remains the ownership of
FARMOR.
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d.
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After
120 days of completion of twin well [Paragraph 2(b)] or completion of the
original well above 1250 feet [Paragraph 2(a)], FARMEE shall exercise
rights to a new well location on same lease for the purpose of production
from surface to 1250 feet. FARMEE shall secure only one
location at a time for the purpose of production from surface to 1250 feet
unless otherwise granted by FARMOR in writing. After 120 days
from completion of each well drilled by FARMEE, FARMEE shall exercise the
right to one additional well location. FARMEE shall not
interfere with any wells or drilling locations that are in production or
development by FARMOR. FARMOR shall secure no more than two
drilling locations per lease at any one
time.
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e.
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FARMEE
is granted the right to twin or offset drill under Paragraph 2 on each
individual lease in the Prospects, only after drilling a well to test the
New Albany Shale formation on each lease in the
Prospects.
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f.
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All
current wells on the Prospects, whether in production or not, are excluded
from this Farmout Agreement.
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3.
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FARMEE
agrees to purchase all gas produced above the New Albany Shale by FARMOR
at the well head price equal from 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 index mutually agreed upon by
the parties. FARMEE agrees to furnish and install meters, well
head equipment, and up to four hundred feet of gathering line for such
wells. For such, FARMEE shall receive a 1/8 of 8/8 Overriding
Royalty. Excluded from this paragraph are the wells referenced
in Paragraph 4 below. This paragraph applies to the herein
farmed out leases only.
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4.
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As
to the Corley #7 and Corley #8 wells, FARMEE agrees to finish the
installation required to put said wells on production and make any repairs
caused by the installation of gathering lines that would be necessary to
place said wells into complete operation, and FARMOR agrees to assign to
FARMEE, a 1/8 of 8/8 Overriding Royalty in all gas produced from the
Corley #7 and Corley #8 wells for as long as gas is produced and sold by
FARMOR. This paragraph applies to the Jackson Sand Formation
only.
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5.
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FARMOR
will in a timely manner provide FARMEE with all title opinions and other
title information within FARMOR’S possession. FARMOR makes no
warranty of title other than its reasonable satisfaction of
ownership. FARMOR acknowledges the right of FARMEE to assign
and/or enter into an agreement with a third party for the development of
said Prospects. It is understood that this Agreement is an
assignment, not a partnership, and FARMOR bears no responsibility for the
actions of the FARMEE or its assignees. It is also understood
that FARMEE or its assignees bears no responsibility for actions by
FARMOR.
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6.
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FARMEE
and FARMOR shall share in all drilling and electric logs, production date,
geological data and any material which would be of benefit to the other
party in relationship to the Prospects. Each shall be allowed
access to drilling sites at their own
risks.
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7.
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FARMEE
shall have ninety days from signing to commence drilling the Draper/Corley
#1 well as permitted by FARMOR to test the New Albany
Shale. FARMEE assumes all responsibility and liability during
the drilling and completion of said well. After drilling of
said well, FARMOR shall transfer to FARMEE ownership and operation of said
well under the terms of this Agreement. FARMOR shall receive
from the original leaseholder (David Draper), a lease extension for the
drilling of said well. In the event that said extension is not
attained, then both parties are released from all duties and claims as it
pertains to the Draper Lease.
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8.
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FARMEE
agrees to drill no less than three (3) wells per year on said leases for a
period of three (3) years, being a total of no less than nine (9)
wells. Failure to commence three (3) wells within one (1) year,
six (6) wells within two (2) years, and nine (9) wells within three (3)
years from signing of this Agreement shall release all undeveloped acreage
back to FARMOR. FARMEE shall retain only the acreage held by
wells in production or in the process of being completed for
production.
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9.
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In
event that FARMEE has a shut-in gas well(s), FARMEE shall have five (5)
years to place said well(s) into production. After five (5)
years FARMOR shall have the option to take ownership of said
well(s).
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10.
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FARMEE
agrees to comply with the terms of the original lease agreements, as
recorded in the office of the Christian County Clerk, including the
payment of any shut-in gas well(s).
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11.
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FARMEE
is hereby granted the right for ingress and egress to these leases for all
purposes, and right-of-way for laying of feeder lines, gathering lines and
pipeline to produce these and surrounding
leases.
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WITNESS
EXECUTION on the date herein above appearing.
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FARMOR
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FARMEE
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WW
PETROLEUM SERVICE, INC.
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KENTUCKY
USA ENERGY, INC.
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By:
LUTHER WILSON, President
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By:
STEVEN D EVERSOLE,
President
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COMMONWEALTH
OF KENTUCKY
COUNTY OF
_____________________
The
foregoing Farmout Agreement was acknowledged before me by Luther Wilson,
President of WW Petroleum Service, Inc., a Kentucky Corporation, on behalf of
said corporation, on this the ________ day of ____________________,
2010.
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NOTARY
PUBLIC-STATE AT LARGE-KY
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My
Commission Expires:
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COMMONWEALTH
OF KENTUCKY
COUNTY OF
_____________________
The
foregoing Farmout Agreement was acknowledged before me by C. G. Collins,
Representative of Kentucky USA Energy, Inc., a Kentucky Corporation, on behalf
of said corporation, on this the ________ day of ____________________,
2010.
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NOTARY
PUBLIC-STATE AT LARGE-KY
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My
Commission Expires:
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THIS
INSTRUMENT PREPARED BY:
BASIL LAW
FIRM
231 W.
Main St.
Glasgow,
KY 42141
Phone:
270-651-9822
Fax:
270-651-8026
____________________________________________
DANNY J.
BASIL
Attorney
at Law
MY DOCS
(G) OIL & GAS-FARMOUT AGREEMENT