Exhibit 10.2

FARMOUT AGREEMENT

Date: March 31, 2003

STATE OF TEXAS

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COUNTY OF WALLER

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THIS AGREEMENT is entered into by and among Texas Brookshire Partners, Inc.,
whose address is 10603 Grant Rd., Houston, Texas 77070 (hereinafter collectively
referred to as "Farmor") and Texas Energy Exploration II, LLC, whose address is
457 Eden Ranch Dr., Canyon Lake, Texas 78133 (hereinafter referred to as
"Farmee").

1. Stated Purpose. The stated purpose of this Agreement will be to set forth the
terms and conditions by which Farmee will earn the right to receive an
assignment of all of Farmor's right, title and interest in and to those certain
oil, gas and mineral leases covering lands situated within the geographical
parameters of the Brookshire Dome Field, Waller County, Texas, and being further
described in Exhibit "A", "A-1", "A-2" and Exhibit "B" attached hereto and made
a part hereof for all purposes (the "Farmout Acreage")

2. Farmee's Commitments. The following terms and conditions constitute
preconditions which must be met by Farmee prior to giving rise to any
obligations on the part of Farmor under the terms of this Agreement.

2.1 Drilling Obligation. Farmee, at its sole risk and expense (including title
and curative matters) will commence actual operations for the drilling or
reworking of the initial test well located upon the Farmout Acreage on or before
45 days after this Farmout Agreement date to a depth sufficient enough to
penetrate the cap of the Brookshire Dome or to a depth of 3,000 feet from the
surface of the earth, whichever is the lesser depth. Reworking the existing
wells located on the said farmout acreage shall apply to this farmout agreement
also. Failure by Farmee to commence operations within the time frame and to the
depth set forth herein shall, ipso facto, effect termination of this Agreement
in its entirety.

2.2 Insurance. At least five (5) days prior to commencement of drilling
operations, Farmee will furnish to Farmor a copy of Farmee's insurance policy in
amounts acceptable to Farmor, and naming Farmor as co-insured.

2.3 Well Data. Farmee will provide Farmor copies of all daily drilling reports
and all data obtained in connection with the operations, including, but not
limited to, all title opinions, logs, cores or cuttings.

2.4 Indemnity. Farmee will comply with all of the terms and conditions contained
in the leases covering the Farmout Acreage and all of the rules and regulations
promulgated by the Railroad Commission of Texas, and shall indemnify and hold
harmless Farmor from and against any and all claims or causes of action, of any
kind or character, asserted by anyone in connection with Farmee's operations
upon the Farmout Acreage.

 

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3. Rights earned and Overriding Royalty reserved. In the event of successful
operations by Farmee, it will have earned from Farmor an assignment of all of
Farmor's right, title and interest in and to a 2 acre square around those wells
drilled on the Farmout Acreage, with a depth limitation of 100' below the
deepest producing well. Said assignment will reserve to Farmor an overriding
royalty of 12.5% of 8/8ths, proportionately reduced in the event leases covering
the Farmout Acreage cover less than 100% of the mineral estate hereunder, of all
oil and/or gas produced and saved from the Farmout Acreage until payout. After
payout of the initial test well, Farmor's retained overriding royalty interest
will immediately increase to 20% of 8/8ths of all oil and/or gas produced and
saved from the Farmout Acreage, same to be proportionately reduced in the event
the leases covering the Farmout Acreage cover less than 100% of the mineral
estate thereunder. For purposes of this Agreement, payout is defined as the day
following the day when the value of net production from the initial test well
(total production after deducting the Lessor's royalty and all presently
existing, outstanding overriding royalty which is herein represented to be as of
the date of this agreement no more than Thirty Percent (30%) between Lessor's
royalty and other burdened overriding royalty of record), including any
applicable production or severance taxes, shall equal the actual cost of
drilling, testing, completing, equipping and operating the initial test well,
including title opinions, paid by Farmee, to develop said acreage as a prudent
operator. In the event that a portion of Farmors title fails, the overriding
Royalty described herein, shall be reduced proportionally. Should the initial
test well drilled on the farmout acreage result in a dry hole or be incapable of
"Commercial Production", Farmee agrees to promptly plug and abandon such well
according to the rules and regulations of the Railroad Commission of Texas.
"Commercial Production" is herein defined as production revenue generated from
the initial test well being greater then operating expenses on a month by month
basis.

3.1 Accounting. Farmee will maintain a payout account for the benefit of Farmor
and will provide Farmor a monthly accounting setting forth total production of
any well(s) on the leases and proceeds of production paid by the purchaser
thereof.

3.2 Direct Payment. Farmor shall be entitled to receive direct payment of
proceeds of oil and/or gas attributable to its retained overriding royalty
interest. Farmee agrees to execute and deliver such documents as may be
requested or required by Farmor or purchaser of production to entitle Farmor to
receive such payment from the purchaser of hydrocarbons.

3.3 Free of Costs and Expenses. Farmor's retained overriding royalty share of
oil and gas produced shall never be charged with or be burdened by any
deductions for gathering, separating, storing, dehydrating, compressing,
transporting, manufacturing, processing or treating Farmor's retained overriding
royalty interest, nor shall the volume of gas to be used to calculate Farmor's
royalty be reduced for any gas produced from the Farmout Acreage and used by
Farmee as fuel for lease operations, or for compression or dehydration.

4. Operating Agreement. All operations conducted by Farmee on the Farmout
Acreage shall be conducted and subject to a mutually acceptable Joint Operating
Agreement ("JOA") naming Texas Energy Exploration II, LLC as Operator. Both
Farmor and Farmee shall be a party to said JOA and such JOA shall control all
operations on the initial test well, or its Substitute, and any subsequent
operations conducted on the Farmout Acreage. Should the terms and provisions of
the JOA be in conflict with the provisions of this Agreement, then, as between
the parties hereto, this Agreement shall prevail.

 

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5. Subsequent Operations. Should Farmee drill the Initial Test Well, to total
depth as defined in Article 2.1 herein, Farmee shall have the continuing right
to drill or rework additional wells on the Farmout Acreage as long as Farmee
commences operations on the Farmout Acreage within a period of Sixty (60) days
after completion of the previous well, should such well be a commercial
producer, or within a period of Sixty (60) days of the plugging and abandonment
of the previous well, should such well be drilled as a dry hole. "Operations"
are herein defined as the penetration by the drill bit on the drilling rig to
the surface of the earth and to continue such drilling operations as any
reasonably prudent operator would drill under the same or similar circumstances.
Should Farmee fail to drill such additional wells on a timely basis, Farmor's
right as to the balance of the Farmout Acreage shall expire, and Farmee shall
earn rights from Farmor as to only those wells drilled and capable of
"Commercial Production", in the form of a 2 acre square around each such earned
well(s). Should production cease or lapse on the Farmout Acreage, this Agreement
shall terminate unless Farmee conduct drilling or reworking operations within a
period of Sixty (60) consecutive days in a good faith effort to restore
"Commercial Production", as defined in Section 3, of Oil and Gas substances in
paying quantities on the Farmout Acreage. Each subsequent well drilled by Farmee
on the Farmout Acreage shall be burdened with Farmee's overriding royalty
interest as defined in Section 3 herein.

6. Farmor's Commitment.

6.1 Assignment. Subject to Farmee's full compliance with the terms set forth in
Section 2 and Section 3 hereinabove, Farmor agrees to execute and deliver to
Farmee within Thirty (30) days following successful "Commercial Production" as
heretofore defined of the Initial Test Well, an assignment of all of Farmor's
right, title and interest in the form of a 2 acre square around the Initial Test
Well on Farmout Acreage, reserving Farmor's overriding royalty interest
described in Section 3.1, to be executed without warranty, either express or
implied.

7. No Pooling of Farmout Acreage. Farmee may not pool the Farmout Acreage
without the express written consent of Farmor, and any attempted pooling without
such consent will be void, ab initio.

8. No Assignment of Farmout Acreage. No assigment of this Agreement, or the
rights granted hereunder, may be made by Farmee without the express written
consent of Farmor, and any purported assignment shall be void, ab initio.

9. Miscellaneous.

9.1 This Agreement shall be binding upon Farmor and Farmee, their successor and
assigns.

9.2 This Agreement shall be construed and enforced in accordance with the laws
of the State of Texas and venue conclusively established in Harris County,
Texas.

9.3 This Agreement shall not be deemed to create any mining partnership,
commercial partnership or other partnership relationship, or joint venture of
any kind or character, and the liabilities of each party hereto shall be several
and not joint.

9.4 This Agreement embodies all of the terms, covenants and conditions as
between the parties and may not be amended except by written instrument duly
executed by both Farmor and Farmee.

 

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This Agreement being executed this 31st day of March, 2003.

FARMORS:

TEXAS BROOKSHIRE PARTNERS, INC.

/s/ R. M. Baker

FARMEE:

TEXAS ENERGY EXPLORATION II, LLC

/s/ Michael Christopher

 

 

 

 

 

 

 

 

 

 

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EXHIBIT "A"

To farmout Agreement between Texas Brookshire Partners, Inc. et al (Farmor) and
Texas Energy Exploration II, LLC (Farmee) covering 11 acres (more or less) in
Waller County, Texas, described as follows, and as indicated in the attached
exhibit A-1 and A-2 Plat Maps;

11 acres of land, more or less, out of the William Cooper League, A-20, and
being further described in that Certain Mineral Deed from Harry C. Smith, et ux
to Sam Harrison, dated March 12, 1929, as recorded in Volume 52 at Page 256 of
the Deed Records of Waller County, Texas.

The following leases are being farmed out insofar and only insofar as to the
extent of acreage contained within the William Cooper League A-20, Waller
County, Texas, as described above. See attached Exhibit A-1 and A-2 Plat Maps
for more detail.

Lessor:   Mary James Sisk Breeden
Lesee:   Chief Operating Company
Date:   September 18, 2001
Recorded:   Volume 707, Page 138

Lessor:   James R. Carson, III
Lesee:   Chief Operating Company
Date:   September 24, 2001
Recorded:   Volume 703, Page 148

Lessor:   Mack C. Milner, Jr.
Lesee:   Chief Operating Company
Date:   September 25, 2001
Recorded:   Volume 703, Page 392

Lessor:   Robert Charles Carson
Lesee:   Chief Operating Company
Date:   September 24, 2001
Recorded:   Volume 708, Page 860

Lessor:   Eldridge Dickinson Ryman
Lesee:   Chief Operating Company
Date:   September 24, 2001
Recorded:   Volume 707, Page 133

Lessor:   William A. Haskell
Lesee:   Chief Operating Company
Date:   September 17, 2001
Recorded:   Volume 707, Page 124

 

 

 

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Lessor:   Martha Ratliff
Lesee:   Chief Operating Company
Date:   September 17, 2001
Recorded:   Volume 711, Page 273

Lessor:   Barbara R. Degnan
Lesee:   Chief Operating Company
Date:   September 24, 2001
Recorded:   Volume 707, Page 384

Lessor:   Ruby Ruth Bentinck
Lesee:   Chief Operating Company
Date:   September 17, 2001
Recorded:   Volume 707, Page 119

Lessor:   Julia Ryman Holmes
Lesee:   Chief Operating Company
Date:   September 24, 2001
Recorded:   Volume 707, Page 143

In the event it is determined Texas Brookshire Partners, Inc. has additional
leases in the 11 acres noted above, those leases will also subject to this
farmout but only as to the acreage within this 11 acre Tract.

 

 

 

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EXHIBIT "B"

Fifteen (15) acres of land, a part of the Wm. Cooper League situated in Waller
County, State of Texas, more particularly described as: Beginning at the N. W.
Corner of a 45 acre tract sold to Geo. Curry; Thence West 107 2 vrs. to a stake
S. 10 W. 7 vrs. a red oak marked X; Thence South 788 vrs. to South boundary
Thence two Hackberrys marked X; Thence East 107 2 vrs. to S. W. Corner of Geo.
Curry's tract; Thence North 788 vrs. to the place of beginning containing within
said boundaries 15 acres of land. Being the same 15 acres of land conveyed by
Jacob Hill to Harry C. Smith by deed of date, October 24, 1896 and recorded in
Vol. 28 pages 180-2 in the Deed Records of Waller County, State of Texas.

 

 

 

 

 

 

 

 

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