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)
|
September
14, 2010
|
Kentucky USA
Energy, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
333-141480
|
20-5750488
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
of
incorporation)
|
File
Number)
|
Identification
No.)
|
321 Somerset Road, Suite 1, London, Kentucky
40741
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(606) 878-5987
(Registrant’s
telephone number, including area code)
(Former
name or former address, if changed since last report)
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):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
8.01. Other Events
Legal Proceedings
KY
USA Energy Chapter 11 Bankruptcy Proceedings
Background
Our
wholly owned operating subsidiary, KY USA Energy, Inc. (“KY USA Energy”),
through the execution of a Farm-Out Assignment, amended and corrected as of June
18, 2008 (the “K&D
Farm-Out Agreement”), with K&D Energy, a Kentucky partnership (“K&D Energy”),
secured a 100% working interest and a 75% net revenue interest from K&D
Energy in a leasehold in Western Kentucky covering approximately 3,000 acres
across nine oil and gas leases located in Muhlenberg, Christian and Todd
Counties, targeting gas extraction from the New Albany Shale (the “K&D
Leasehold”). To date, KY USA Energy has drilled fifteen (15)
wells on the K&D Leasehold. Sale of gas from certain of these wells began in
October 2009.
On May
21, 2010 KY USA Energy received a letter from legal counsel to K&D Energy
and each of the landowners (the “Landowners”) of the
nine leases of which the K&D Leasehold is comprised. The letter
claimed that KY USA Energy was in default of its obligations under the K&D
Farm-Out Agreement. Specifically, the letter claimed that KY USA
Energy was not paying K&D Energy and the Landowners the correct amount of
royalties due them on the sale of gas pumped from the wells on the K&D
Leasehold; that KY USA Energy had not drilled the minimum of 12 wells per year
required under the K&D Farm-Out Agreement and that, therefore, KY USA
Energy’s rights and interests under the K&D Farm-Out Agreement, except with
respect to the wells that already had been drilled and completed, were
terminated; that if the proper amount of royalties was not paid with respect to
the wells that already had been drilled and completed, KY USA Energy would lose
all rights to and interests in those wells and that the K&D Farm-Out
Agreement would be deemed terminated with respect to those wells; that KY USA
Energy was in breach of certain duties to repair damages on the leased
properties caused by its drilling efforts; and that, with respect to the design
and construction of its pipeline gathering system, KY USA Energy was in breach
of certain local safety regulations and certain state law requirements relating
to the obtaining of required licenses and permits and had failed to obtain
certain right-of-way easement agreements from certain of the
Landowners.
As a
consequence of the dispute with the K&D Energy and the Landowners, the
Landowners shut down the KY USA Energy wells and locked out KY USA Energy from
their properties. Because of this action, KY USA Energy has not been
able to access the wells that it drilled and is no longer able to produce and
sell gas from its wells that were shut down. As a result, our
business and KY USA Energy’s operations have been substantially
impaired.
We and KY
USA Energy strongly deny the allegations of K&D Energy and the
Landowners. We believe that case law in the State of Kentucky
supports our position that net revenue interest royalties should be paid on the
net amount of gas pumped from our wells after the removal of inert materials and
other impurities rather than on the gross amount of gas measured at the well
head prior to processing.
Bankruptcy
Court Proceedings
As a
result of the impairment of its business due to the Landowners’ lock-out, KY USA
Energy filed a voluntary petition for reorganization on September 14, 2010 in
the United States Bankruptcy Court, Western District of Kentucky, Bowling Green
Division (the “Bankruptcy Court”),
pursuant to Chapter 11 of Title 11 of the United States Code. The
protection of Chapter 11 is expected to allow KY USA Energy to reorganize its
business operations and finances. The case number assigned for KY USA
Energy’s reorganization proceeding is 10-11424.
KY
USA Energy has retained bankruptcy counsel, Harned, Bachert & McGehee PSC
(“HBM”), to
represent it in the bankruptcy proceedings.
On
September 15, 2010, HBM filed a motion, among others, with the Bankruptcy Court
to require the Landowners to turn over to KY USA Energy possession and control
of KY USA Energy’s property on the K&D Leasehold, including its
wells. In a hearing on September 24, 2010, the Bankruptcy Court
granted HBM’s motion and ordered the Landowners (i) to deliver to KY USA Energy
its property and (ii) not to impair or interfere in any way with KY USA Energy’s
access to and operation of its property, including its wells.
More
information about KY USA Energy’s reorganization case may be obtained from the
Clerk of the United States Bankruptcy Court for the Western District of
Kentucky, whose office is located at 450 U.S. Courthouse, 601 W. Broadway,
Louisville, Kentucky 40202. The telephone number for the Clerk’s
office is (502) 627-5700.
Civil
Action
On June
29, 2010, Thomasson Petroleum Enterprises, Inc. (“TPE”) filed a civil
action (the “Complaint”) against
KY USA Energy, in the Christian Circuit Court, Division No. I, Commonwealth of
Kentucky (the “County Court”) (Case No.
10-CI-00914). TPE and KY USA Energy entered into a Farm-Out Agreement
dated August 20, 2009 (the “TPE Farm-Out
Agreement”) pursuant to which TPE granted KY USA Energy certain drilling
rights on five leaseholds (the “TPE Leaseholds”)
located in Christian and Muhlenberg Counties, Kentucky. According to
representations made by TPE in the TPE Farm-Out Agreement, TPE is the owner of
100% of the working interests in the TPE Leaseholds. In the
Complaint, TPE claimed that KY USA Energy failed to pay TPE a $200,000 fee due
TPE upon execution of the TPE Farm-Out Agreement. TPE is demanding,
among other things, that the County Court find judgment in favor of TPE in the
sum of $200,000, with interest. KY USA Energy denies that it owes TPE
this money. Pursuant to the bankruptcy proceedings discussed above, this action
against KY USA Energy is currently stayed.
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.
Kentucky USA Energy, Inc. | |||
Date: September 27,
2010
|
By:
|
/s/ Steven Eversole | |
Steven Eversole | |||
Chief Executive Officer |