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Exhibit 10.2

ARKANOVA ENERGY, INC.
8150 NORTH CENTRAL EXPRESSWAY
SUITE 1800
DALLAS, TEXAS 75206

 

July 24, 2006

Mr. David Griffin
P.O. Box 659
Elaine, AR 72333

Re:      Oil and Gas Lease Acquisition and Development Agreement

Dear Mr. Griffin:

          This letter (herein called the “Agreement”) constitutes the agreement
between Arkanova Energy, Inc., a Delaware corporation (“AEI”), and David
Griffin, an individual who is a resident of Phillips County, Arkansas
(“Griffin”), concerning the acqusition by AEI from Griffin of oil and gas leases
covering lands and minerals located in Phillips, Monroe and Desha Counties,
Arkansas, and the development of the lands and minerals covered by said leases.
The principal terms of the Agreement are as follows:

          1.      Mineral Ownership. Griffin hereby represents that he owns or
controls one hundred percent (100%) of the minerals underlying Fifty Thousand
(50,000) gross acres of land, more or less, in Phillips and Monroe Counties,
Arkansas (the “Lease Lands”), as more particularly described in Annex “A”
attached hereto, incorporated herein by reference and made a part hereof for all
purposes, and he hereby covenants that he will deliver to AEI one or more oil
and gas leases covering the entire Leased Lands. In addition, Griffin represents
that he owns or controls one hundred percent (100%) of the minerals underlying
Fifteen Thousand (15,000) contiguous gross acres of land, more or less, in Desha
County, Arkansas (the “Option Lands”) more particularly described in the annex
to the Option Agreement.(as such term is defined in Section 5 of this Agreement)
and he hereby covenants that he will deliver to AEI oil and gas leases covering
the entire Option Lands in the event that AEI exercises its option (a more
particularly described herein, to acquire same.

          2.      Delivery of Leases. From time to time hereafter but in no
event later than six (6) months for the date hereof, Griffin shall deliver to
AEI one or more oil and gas leases providing for the payment of a royalty to
Griffin of seventeen and one-half percent (17.5%), subject to to adjustment as
provided in Section 4 hereof, in the form attached hereto as Annex “B,”
incorporated herein by reference and made a part hereof for all purposes
covering one hundred percent (100%) of the minerals underlying the Leased Lands
he owns or otherwise controls, being approximately Fifty Thousand (50,000)
acres, in increments of not more than Eight Thousand Two Hundred Fifty (8,250)
acres unless otherwise approved by AEI, together with evidence of ownership in
form and substance reasonably satisfactory to AEI and its legal counsel. Each
oil and gas lease covering the Lease Lands, except the oil and gas lease
covering the last and final segment of the Lease Lands, shall be delivered
undated by Griffin, and Griffin hereby specifically grants to AEI his
irrevocable special power of attorney to date each such oil and gas lease the
date of the delivery of the last and final oil and gas lease delivered by
Griffin with respect to the Lease Lands or the date of filing of the applicable
oil and gas lease (or Memorandum relating thereto) in the

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records of the applicable county, whichever is earlier, and AEI and Griffin
agree that the term of each such oil and gas lease shall commence on the date
inserted by AEI as herein permitted. AEI covenants and agrees that it will
accept and timely pay the Lease Bonus (as such term is defined in Section 3
hereof) for each properly executed oil and gas lease in the form attached as
Annex “B” covering one hundred percent (100%) of the mineral interests, without
any title defect or curative issue, in the Lease Lands described in said oil and
gas lease, together with evidence of ownership of said minerals as herein
provided, that it receives from Griffin.

          3.      Payment for Leases. Upon acceptance of each oil and gas lease
delivered by Griffin to AEI as provided in Section 2 of this Agreement, AEI
shall cause to be delivered by wire transfer in immediately available funds to
such account as Griffin may designate to AEI the sum of Three Hundred and No/100
Dollars ($300.00) per net mineral acre covered by such oil and gas lease (the
“Lease Bonus”). AEI shall be deemed to have accepted an oil and gas lease upon
the later of (i) payment in full of the Lease Bonus for such oil and gas lease,
and (ii) notification in writing by AEI or its legal counsel that the evidence
of ownership with respect to the mineral interests covered by such oil and gas
lease has been accepted by AEI, and no oil and gas lease shall be effective to
convey an interest in the minerals covered thereby until it has been accepted by
AEI as herein provided. Griffin shall be responsible for all costs he and his
affiliates may incur in connection with each oil and gas lease up to the date of
acceptable of same by AEI.

          4.      Drilling Commitment. AEI shall drill and complete, if
warranted, not less than six (6) wells over a period of two (2) years at such
locations as may be selected by AEI after consultation with Griffin, with the
first of such wells to be commenced within six (6) months of the date of the
acceptance by AEI of the last of the oil and gas leases covering the Leased
Lands. Each well drilled and completed on the Leased Lands or, in the event the
option herein described is exercised by AEI, on the Option Lands, irrespective
or whether classified as an oil or gas well, that is capable of producing oil
and/or gas in paying quantities shall hold, and shall be considered for the
purposes of this Agreement to be production from, Six Thousand Four Hundred
(6,400) acres of the Lease Lands or Option Lands, as applicable. After AEI has
earned Thirty Eight Thousand Four Hundred (38,400) acres by drilling the wells
required to hold this acreage, the royalty percentage in the oil and gas leases
for all of the acreage in excess of Thirty Eight Thousand Four Hundred (38,400)
covered by leases from Griffin to AEI in the Area of Mutual Interest described
in Section 6 below shall decrease from Seventeen and One-Half percent (17.5%) to
Fifteen percent (15%).

          5.      Desha Option. Simultaneously with the payment of the
acceptance of the first oil and gas lease delivered by Griffin to AEI as
provided herein and in consideration for the payment of the Option Payment (as
such term is hereinafter in the Option Agreement (the “Option Agreement”)
attached hereto as Annex “C,” incorporated herein by reference and made a part
hereof for all purposes), Griffin shall grant to AEI an exclusive option (the
“Desha Option”) to acquire an oil and gas lease in the form attached hereto as
Annex “B” covering the mineral interests that Griffin owns or controls in the
Option Lands, which option shall be evidenced by the execution and delivery by
the parties of the Option Agreement. In the event that AEI does not exercise the
Option within the time period specified in the Option Agreement, AEI shall
deliver to Griffin a copy of all of the seismic interpretations and other
scientific materials in AEI’s possession relating to the lands covered by the
Option Agreement; provided, however, that notwithstanding the foregoing, AEI
shall not be required to deliver any data or information that is subject to a
confidentiality agreement, license or similar agreement with any third party
providing such information or data and that prohibits transfer of the
information or data.

          6.      Area of Mutual Interest. An Area of Mutual Interest (“AMI”) is
hereby established covering lands situated within Phillips, Monroe and Desha
Counties, Arkansas and all lands within Fifty (50) miles of the boundary of each
of such counties. If at any time Griffin or any of his

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affiliates, irrespective of whether before or following the execution of this
Agreement, acquires, is offered or learns of the availability to lease ofthe
minerals, or any part thereof, covering lands situated in whole or in part
within the AMI (an “AMI Interest”), Griffin shall give AEI prompt written notice
of the acquisition, offer or availability to lease of such AMI Interest,
accompanied by all pertinent data and information relating thereto, whereupon
AEI shall have a period of thirty (30) days after receipt of the notice in which
to elect to acquire such AMI Interest by delivering written notice of such
election within said time period. In a situation where Griffin or one of his
affiliates is offered a lease or learns of the availability to lease of acreage
within the AMI, he shall be entitled to receive from AEI an overriding royalty
interest equal to the difference between the actual royalty that AEI acquires in
said acreage and Fifteen percent (15%). The failure of AEI to timely deliver
such notice or payment as aforesaid shall be deemed an election by AEI not to
acquire the AMI Interest from Griffin.

          7.      Miscellaneous Provisions. The following provisions shall also
be applicable to this Agreement:

          A.      Notices. In the event a notice or other document is required
to be sent hereunder to a party hereto, such notice or other document shall be
in writing and shall be deemed to have been given upon receipt if either (i)
personally delivered, (ii) sent by prepaid first class mail, and registered or
certified and a return receipt requested, (iii) sent by overnight delivery via a
nationally recognized carrier or (iv) by facsimile with completed transmission
acknowledged to the party entitled to receive such notice or other document at
the address set forth below its name on the first page of this Agreement or at
such other address as such party shall request in a written notice, sent to the
other parties hereto. Any party may change its address by giving all other
parties notice of the change in accordance with this Section. A notice shall be
deemed to be received on the date that it is delivered in person, written
confirmation is received or it is placed in the United States mail with
appropriate postage.

          B.      Further Assurances. The Parties hereto agree to furnish upon
request to each other such further information, to execute and deliver to each
other such other documents, including the documents attached as annexes to this
Agreement; and to do such other acts and things, all as the other party hereto
may at any time reasonably request for the purpose of carrying out the intent of
this Agreement.

          C.      Waiver. The rights and remedies of the Parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
on the part of any party in exercising any right, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. To the
maximum extent permitted by applicable law, (i) no claim or right arising out of
this Agreement can be discharged by one party hereto, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party hereto; (ii) no waiver which may be given by a party hereto shall be
applicable except in the specific instance for which it is given; and (iii) no
notice to or demand on one party hereto shall be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.

          D.      Entire Agreement and Modification. This Agreement, the
attachments hereto and the agreements and instruments required to be executed
and delivered hereunder set forth the entire agreement of the parties with
respect to the subject matter hereof and supersede and discharge all prior
agreements (written or oral) and negotiations and all contemporaneous oral
agreements concerning such subject matter and negotiations. This Agreement may
not be

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modified, rescinded or terminated orally, and no modification, rescission,
termination or attempted waiver of any of the provisions hereof (including this
Section) shall be valid unless in writing and signed by the party against whom
the same is sought to be enforced.

          E.      Limitations on Assignment. Neither this Agreement, nor the
rights, privileges or obligations set forth herein, are assignable by Griffin to
any other person, and in the event of any assignment in contravention of this
Agreement, such assignment shall not be valid or enforceable.

          F.      Persons Bound. This Agreement shall apply to and be binding in
all respects upon, and shall inure to the benefit of the Parties hereto. Nothing
expressed or referred to in this Agreement is intended or shall be construed to
give any person or entity other than the Parties to this Agreement, and their
permitted successors and assigns, any legal or equitable right, remedy or claim
under or with respect to this Agreement, or any provision hereof, it being the
intention of the Parties hereto that this Agreement and all of its provisions
and conditions are for the sole and exclusive benefit of the Parties to this
Agreement, and for the benefit of no other person or entity.

          G.      Section Headings, Construction. The headings of articles and
sections contained in this Agreement are provided for convenience only. They
form no part of this Agreement and shall not affect its construction or
interpretation. All references to articles and sections in this Agreement refer
to the corresponding articles and sections of this Agreement. All words used
herein shall be construed to be of such gender or number, as the circumstances
require. Unless otherwise specifically noted, the words "herein," "hereof,"
"hereby," "hereinabove," "hereinbelow," "hereunder," and words of similar
import, refer to this Agreement as a whole and not to any particular section,
subsection, paragraph, clause or other subdivision hereof.

          H.      Time of Essence. With regard to all time periods set forth or
referred to in this Agreement, time is of the essence.

          I.      Specific Performance. Each party hereto acknowledges that a
remedy at law for any breach or attempted breach of this Agreement will be
inadequate, agrees that each other party hereto shall be entitled to specific
performance and injunctive and other equitable relief in case of any such breach
or attempted breach, and further agrees to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief.

          J.      Conflicts. To the extent that any conflict may arise between
the terms of this Agreement and the terms of the oil and gas leases or the
Option Agreement executed pursuant hereto, the terms of the applicable oil and
gas lease or the Option Agreement shall control over the terms of this
Agreement.

          K     . Absence of Finders. Neither AEI nor Griffin is a party to any
agreement that provides for the payment of a finder’s fee, brokerage fee,
commission or other fee or amount which is or may become payable to any third
party in connection with the execution or delivery of this Agreement or the
transactions contemplated herein and hereby, other than as follows: AEI has
agreed to pay a finder’s fee to Rodney H. Langford, and Griffin has agreed to
apy a finder’s fee to James Michael Hanks. AEI agrees to indemnify Griffin
against any and all claims for finder’s fees by Rodney H. Langford, and Griffin
agrees to indemnify AEI against any and all claims for finder’s fees by James
Michael Hanks.

          L.      Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF

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ARKANSAS AS TO OIL AND GAS REGULATORY MATTERS AND THE LAWS OF THE STATE OF TEXAS
AS REGARDS ALL OTHER MATTERS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS.

          M.      Dispute Resolution. The parties to this Agreement acknowledge
that disputes may arise between them, and it is in their best interests to
resolve such disputes in an orderly and consistent manner, and agree as follows:

  (a)

The parties will attempt to resolve promptly any controversy or claim arising
out of or relating to this Agreement or the transactions contemplated or
consummated pursuant to this Agreement (a “Dispute”), by negotiating directly
and in good faith. Both parties may seek the advice and assistance of legal
counsel in connection with any such negotiation.

          (b)

If the parties cannot resolve and settle a Dispute by private negotiation within
60 days after one party gives the other written notice that a Dispute exists,
the parties mutually agree to submit the Dispute to non-binding mediation, as
follows:

          (i)

Mediation shall occur in Dallas, Texas, before a single mediator, using the
facilities and mediation rules of a professional dispute-resolution organization
selected by mutual agreement of the parties (the "Mediation Organization"). If
the parties cannot agree on a Mediation Organization, they will use the
facilities and mediation rules of Judicial Arbitration and Mediation Services,
Inc. in Dallas, Texas (“JAMS”).

          (ii)

The parties shall jointly select a mediator from the panel of mediators
maintained by the Mediation Organization. The mediator must be an attorney who
has no prior business or professional relationship with either party. If the
parties are unable to agree on a mediator within 30 days after the Dispute is
submitted to mediation, the Mediation Organization will select a mediator who
possesses the indicated qualifications.

          (iii)

The parties will share the mediation filing fee equally, but will otherwise
separately bear their own costs and expenses (including legal fees) of
participating in the mediation process. Each party agrees to send at least one
representative to the mediation conference who has authority to enter into
binding contracts on that party s behalf. Each party further agrees to sign a
confidentiality agreement that prohibits the mediator from disclosing, orally or
in writing, any information the other party discloses to the mediator in
confidence at any stage of the mediation process.

          (iv)

Either party's failure or refusal to participate in mediation in accordance with
this Section 7.M.(b) shall be considered a dispute subject to binding
arbitration in accordance with Section 7.M.(c).

  (c)

If the parties cannot fully resolve and settle a dispute through mediation
within 30 days after the mediation conference concludes, all unresolved issues
involved in the Dispute shall be submitted to binding arbitration, as follows:

       

(i)           Either party may make a demand for arbitration.

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  (ii)

Arbitration proceedings shall be conducted in Dallas, Texas, before a single
arbitrator, using the facilities and commercial arbitration rules of the
Mediation Organization or another professional dispute-resolution organization
selected by Seller and reasonably acceptable to Buyer (the “Arbitration
Organization”). If Seller selects an Arbitration Organization other than the
Mediation Organization and Buyer reasonably objects to Seller’s choice, the
parties will use JAMS' facilities and commercial arbitration rules.

        (iii)

The Arbitration Organization's expedited arbitration procedure shall apply to
the arbitration proceedings. To the greatest extent permitted by law, the
parties waive the application of all rules of discovery and evidence the
Arbitration organization's expedited procedure does not expressly make
applicable.

        (iv)

The parties shall jointly select an arbitrator from the panel of arbitrators
maintained by the Arbitration Organization. The arbitrator must be an attorney
who has no prior business or professional relationship with either party and who
agrees to follow and apply the express provisions of this Agreement in
determining his or her award. If the parties are unable to agree on an
arbitrator within thirty (30) days after the arbitration demand is filed, the
Arbitration Organization will select an arbitrator who possesses the indicated
qualifications.

        (v)

The arbitrator‘s award shall be final and binding on all parties, and neither
party shall have any right to contest or appeal the arbitrator‘s award except on
the grounds expressly provided by the United States Arbitration Act (the
“Arbitration Act”). The party who demands arbitration shall pay the arbitration
filing fee, but the parties will otherwise separately bear their own costs and
expenses (including legal fees) of participating in the arbitration process.
Responsibility for the arbitrator s fees and expenses shall be determined as
part of the arbitrator s award.

        (vi)

The procedures contemplated by and the enforceability of this Section 7.M.(c)
shall be governed by the Arbitration Act and shall be interpreted and enforced
in accordance with United States federal judicial interpretations of the
Arbitration Act.

  (d)

The parties further agree to submit to the jurisdiction and venue of JAMS and
that service of process by certified mail, return receipt requested, shall be
sufficient to confer in personam jurisdiction over them. Buyer specifically
agrees to waive all questions of personal jurisdiction or venue for the purpose
of carrying out this provision.

        (e)

The party which does not prevail in any Dispute submitted to binding arbitration
as required by this Agreement shall be responsible for all fees and expenses,
including attorneys’ fees, incurred by the prevailing party in connection with
such Dispute.

          N.      Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this
Agreement, and all of which, when

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taken together, shall be deemed to constitute but one and the same agreement.

          If the foregoing correctly sets forth your understanding as to the
matters set forth herein, kindly so indicate by executing the enclosed copy of
this letter in the space provided below and returning it to the undersigned.

Very truly yours,

ARKANOVA ENERGY INC.

 

By:
Name:
Title:

Agreed and accepted as of, but not necessarily on, the date first above written.

 

___________________________________________
David Griffin

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