Exhibit 10.1

 

 

PARTICIPATION AGREEMENT

 

This Participation Agreement (hereinafter “Agreement”) is made and entered into
effective September 30, 2013, by and between PetroShare Corp., hereinafter
referred to as “PetroShare”, and Rancher Energy Corp. (“Participant”).

 

RECITALS:

 

A.           PetroShare has acquired certain oil and gas leases described on
Exhibit “A”, attached hereto (“Existing Leases”).

 

B.           Participant wishes to participate with PetroShare in the drilling,
and development of the Leases pursuant to the provisions of this Agreement.

 

Now therefore, the parties hereto, for the mutual promises contained herein and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, do hereby contract and agree as follows:

 

I.   DEFINITIONS

 

1.Effective Date: The Effective Date is September 30, 2013.

 

2.Existing Leases: The oil and gas leases on Exhibit “A”, attached hereto which
includes the acreage required for the drilling of the obligation well(s).

 

3.Obligation Wells: The wells will be drilled from a common well pad and will be
the Kowach #3-25 well, located in NESW Section 25, T6N R90W, a vertical well
bore and the Voloshin #3-25 well, located in NESW Section 25, T6N R90W;
directional well bore to test the Niobrara formation at approximately, 7850 feet
TVD. Upon reaching total depth in the first Obligation Well and upon the
completion of mud logging and open hole logging operations, PetroShare will
provide such data to all JOA working interest participants along with its well
evaluation report. JOA participants shall have forty eight (48) hours from the
receipt of the data to make its election whether to proceed with the drilling of
the second Obligation Well. In the event, a simple majority of JOA participants
elect not to proceed or not with the drilling of the second Obligation Well,
PetroShare shall release the rig and waive the requirement to drill the second
Obligation Well.    4.Operator: PetroShare Corp.

 

5.Operating Agreement: A joint operating agreement substantially in the form
attached hereto as Exhibit “B”.

 

6.Participant Interest: An Expense and Working Interest in the Leases and
Obligation Well(s) of 30.0% thereafter having a net revenue interest of not less
than 23.509%.

 

 

 

 

 

 

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7.Reversionary Working Interest: In the event that the acquisition contemplated
in that certain Letter of Intent dated September 12, 2013 by and between the
parties hereto is not completed, Participants Interest in the Leases and
Obligation Wells shall be reduced to 25.0% and the net revenue interest shall be
proportionately reduced. It is the intent that the Participant carry PetroShare
and bear all costs and expenses associated with the Leases and Obligation Wells
for 5.0% of the expenses associated therewith in the event the acquisition is
not completed as set forth herein.

 

8.Working Interest: The cost bearing interest created by oil and gas leases.
Working Interest may also refer to the share of ownership attributable to an
unleased mineral interest.

 

9.Net Revenue Interest: The share of the gross production proceeds after payment
of royalty and overriding royalty interests.

 

10.Project Area: As set forth in Exhibit A

 

 

II.   PROSPECT FEE

 

A.           Payment of Prospect Fee. Participant agrees to pay 30% of the total
cost and expense of the Obligation Wells for a 30% Working Interest (to be
reduced to a 25% Reversionary Working Interest in the event of the circumstances
described in Article I, (7), in lieu of a prospect fee.

 

III.   DRILLING AND DEVELOPMENT.

 

A.           Obligation Wells. Participant agrees to pay for its Participant
Interest share of the drilling, completion and equipping, or the plugging and
abandonment, of the Obligation Wells. PetroShare shall use its commercially
reasonable efforts to commence the drilling of the first Obligation Well by
October 15, 2013.

 

B.           Interests Earned. Upon Participant paying the Prospect Fee,
together with its share of the costs for the drilling, completion and equipping,
or the plugging and abandonment of an Obligation Well(s), Participant shall be
assigned an undivided interest in and to the Leases equal to Participant’s
Interest or the Reversionary Working Interest as the case may be, of
PetroShare’s interest in the Existing Leases as to the unit for such Obligation
Well, and as to all depths from the surface to the deepest depth drilled in the
Obligation Well. All assignments will be subject to all royalties, overriding
royalties, production payments, net profits interests and similar burdens
existing as of the date hereof. PetroShare shall proceed with recording such
assignments on a timely basis.

 

 

 

 

 

 

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C.           Subsequent Drilling and Development Operations. After drilling and
completion of the Obligation Well(s), all subsequent wells (“Subsequent Wells”)
and subsequent operations with respect to the Obligation Wells shall be proposed
in accordance with the Operating Agreement and the provisions of this Agreement
with Participant being responsible for its Participant Interest or Reversionary
Working Interest as the case may be, subject to any elections to not participate
in the Operating Agreement.

 

IV.   OPERATIONS WITHIN PROJECT AREA

 

A.           Operating Agreement. All operations within the Project Area shall
be conducted pursuant to the joint operating agreement attached hereto as
Exhibit “B” (“Operating Agreement”), reference to which is hereby made for all
purposes, except as expressly modified by the terms hereof. PetroShare Corp.,
shall be designated as Operator subject to the resignation and removal
provisions of the Operating Agreement. In the event of a conflict between this
Agreement and the Operating Agreement, this Agreement shall control.

 

B.           Cash Advances. Notwithstanding anything in the Operating Agreement
to the contrary, PetroShare shall have the right to require cash advances from
Participant with respect to the proposed drilling and completion of one or more
Obligation Well(s). Such request shall be in the form of one or more Authorities
for Expenditure (“AFEs”) and payment shall be due within 10 days following
receipt of the AFEs. Provided however, that such AFE’s shall not be issued by
PetroShare more than 30 days in advance of the confirmed spud date (i.e.
drilling commencement date) of the applicable Obligation Well(s).

 

 

V.   PROPORTIONATE REDUCTION

 

A.           Proportionate Reduction Clause: If an oil and gas lease or other
Mineral Interest covers less than the entire mineral fee estate, or if a party’s
interest in the applicable lease or Mineral Interest is less than a 100%
ownership interest, any interest conveyed or reserved pursuant to this Agreement
is intended to be proportionately reduced to accord to (i) the proportion of
mineral interest covered by the relevant oil and gas lease or other Mineral
Interest, and (ii) the proportion of ownership held by the conveying party, in
the case of a conveyance, or the burdened party, in the case of a reservation of
interest.

 

 

VI.   CONFIDENTIALITY

 

A.           Confidentiality. The parties acknowledge that the information that
is the subject matter of this Agreement (including but not limited to all well
information acquired by operations conducted under the Operating Agreement) is
sensitive and confidential proprietary information belonging to the parties.
Each party, for itself and its Affiliates, agrees not to release or disclose or
otherwise make the information available to or to furnish any of said
information to any third party without (i) obtaining the agreement of the third
party to maintain such information confidential and to not use such information
other than in connection with investing in or participating with or purchasing
interests from the disclosing party, or (ii) first obtaining the express written
consent of the other party. Any such release or disclosure if approved shall be
conditioned upon the third party expressly agreeing to all terms herein and
becoming a party to and subject to this Confidentiality Agreement. Nothing
contained above shall restrict or impair any party’s right to use or disclose
any of the information which is: (1) at the time of disclosure available to the
public through no act or omission of that party; (2) can be shown was lawfully
in that party’s possession prior to the time of this Agreement; or (3) is
independently made available to that party by a third party who is independently
entitled to disclose such information and that party shows that the right of
such third party to disclosure existed prior to the date of this Agreement.

 

 

 

 

 

 

 

 

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B.           Public Disclosure. Subject to the exceptions set forth below, and
unless otherwise agreed upon by the parties, prior to substantial leasing
completion in the AMI as contemplated by this Agreement, the parties intend to
keep material information concerning the entering into of this Agreement and the
location of the Project Area confidential to the extent any disclosure thereof
could impair the leasing activities of the parties. Notwithstanding such intent,
either party may make any public disclosure to the extent that, upon advice of
such party’s counsel, such disclosure is advisable to comply with United States
or state securities laws, rules or regulations. Any proposed press release or
other disclosure, shall be provided to the other party in advance on a
confidential basis for its information and comment.

 

VII.   TAX ELECTION

 

This Agreement is not intended to create, and shall not be construed to create,
a relationship of partnership or an association for profit between or among the
parties hereto except as provided herein. Each party hereby affected elects to
be excluded from the application of all the provisions of Subchapter “K”,
Chapter 1, Subtitle “A”, of the Internal Revenue Code of 1986 and all amendments
thereto.

 

VIII.   PAYMENT OF DELAY RENTALS AND LEASE EXTENSIONS

 

Operator shall be responsible for making any payment of delay rentals, shut in
royalties and minimum royalty payments on the Leases. Participant shall bear and
pay its share of such payments. Participant shall be billed and shall pay for
said costs in the manner set forth for the billing and paying of direct costs in
the COPAS accounting procedures attached to the form of Operating Agreement.
Operator shall not be liable to Participant for any loss resulting from a good
faith effort to properly do so.

 

 

IX.   NO JOINT LIABILITY

 

The rights, duties, obligations and liabilities of the parties hereto shall be
several and not joint or collective. Each party hereto shall be responsible only
for its obligations as herein set out and shall be liable only for its share of
the cost and expense as herein provided; it being the express purpose and
intention of the parties that their interest in this Agreement and the rights
and property acquired in connection herewith shall be held by them as tenants in
common. Except for the tax election which the parties may have made, it is not
the purpose or intention of this Agreement to create any mining partnership,
commercial partnership or other partnership.

 

 

 

 

 

 

 

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X.   ASSIGNMENTS OF LEASES

 

Any assignment of any interest pursuant to this Agreement by and between the
parties hereto shall be made with a special warranty of title by through and
under the assignor, but not otherwise and on the form attached hereto as Exhibit
“C” which shall be for recording in the official records of the county in which
the Lease lies. Where applicable, separate assignments of operating rights shall
likewise be made on such State and Federal forms as required by rule or
regulation. Any assignment hereafter executed shall specifically refer to, and
be made subject to, the terms and conditions hereof.

 

XI.   FORCE MAJEURE

 

Should any party be prevented or hindered from complying with any obligation
created hereunder, other than the obligation to pay money, by reason of fire,
flood, storm, act of God, governmental authority, governmental action or
inaction, failure or delay in obtaining any necessary permits, labor disputes,
war, the inability to secure qualified labor, geoscience data, title abstracts,
curative title work, lease brokers, entry onto the land, drilling equipment and
drilling rig(s) at prevailing market rates, drilling tools, materials or
transportation, or any other cause not enumerated herein but which is beyond the
normal control of the party whose performance is affected, then the performance
of any such obligation shall be suspended during the period of such prevention
or hindrance, provided the affected party promptly notifies the other party of
such force majeure circumstances and exercises all reasonable diligence to
remove the cause of force majeure.

 

XII.   EXHIBITS

 

The following exhibits are attached to this Agreement:

 

Exhibit “A” – Leases

Exhibit “B” – Form of Joint Operating Agreement

Exhibit “C” – Form of Assignment

 

If the terms of any of these Exhibits conflict with the terms of this Agreement,
this Agreement shall control.

 

 

 

 

 

 

 

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XIII.   MISCELLANEOUS

 

A.           Assignment: Participant may assign its interest under this
Agreement provided that Participant remains liable for or guarantees the
performance of its assignee and provided Participant gives PetroShare
appropriate documentation evidencing such assignment.

 

B.           Governing Law: This Agreement and other instruments executed in
accordance with it, except for assignments of lands, or the execution hereof
shall be governed by and interpreted according to the laws of the State of
Colorado. Forum and venue shall be exclusively in Denver, Colorado. As to
assignments of lands, they shall be governed by the laws of the State wherein
they lie.

 

C.           Entire Agreement: This Agreement, the documents to be executed
hereunder, and the Exhibits attached hereto constitute the entire agreement
between the parties, supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations or other agreements between the parties
except as specifically set forth herein. No supplement, amendment, alteration,
modification, waiver or termination of the Agreement shall be binding unless
executed in writing by the parties hereto.

 

D.           Waiver: No waiver of any of the provisions of the Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.

 

E.           Captions; Definition of “Including”: The captions in this Agreement
are for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. The term
“including” or “includes”, as used herein, shall mean “including, without
limitation,” and “includes, without limitation”.

 

F.           Binding: This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors, assigns
and legal representatives.

 

G.           Notices: Any notice hereunder shall be given in writing by mail,
courier, personally, E-mail or by facsimile and shall be effective when
delivered to the party intended to be notified. The contact information for each
party is as follows:

 

If to PetroShare:

 

PetroShare Corp.

7200 So. Alton Way, Ste B220

Centennial, CO 80112

Attn: Frederick J. Witsell

(303) 500-1168 Office

(303) 770-6885 fax

(303) 881-2157 cell

fwitsell@petrosharecorp.com

 

 

 

 

 

 

 

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If to Participant:

 

Rancher Energy Corp.

c/o A.L. (Sid) Overton, Esq.

6950 East Belleview Ave., Suite. 202

Greenwood Village, CO 80111

Attn: Jon Nicolaysen

(303) 779-5900 Office

(303) 779-6006 Fax

sidoverton@oalaw.net

 

Any party may change their foregoing contact information by notice to the other
party.

 

H.           Expenses: Except as otherwise provided herein, each party shall be
solely responsible for all expenses incurred by it in connection with this
transaction (including fees and expenses of its own counsel and accountants).

 

I.           Execution: This Agreement may be executed in multiple original
counterparts, all of which shall together constitute a single agreement and each
of which, when executed, shall be binding for all purposes thereof on the
executed party, its successors and assigns.

 

J.           Severability: If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any materially adverse manner to either
party.

 

K.           Arbitration: Any dispute arising under this Agreement (“Arbitrable
Dispute”) shall be referred to and resolved by binding arbitration in Denver,
Colorado, to be administered by and in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Arbitration shall be
initiated within the applicable time limits set forth in this Agreement and not
thereafter or if no time limit is given, within the time period allowed by the
applicable statute of limitations, by one party (“Claimant”) giving written
notice to the other party (“Respondent”) and to the Denver Regional Office of
the American Arbitration Association (“AAA”), that the Claimant elects to refer
the Arbitrable Dispute to arbitration. All arbitrators must be neutral parties
who have never been officers, directors or employees of the parties or any of
their Affiliates, must have not less than ten (10) years experience in the oil
and gas industry, and must have a formal financial/accounting, engineering or
legal education. The hearing shall be commenced within thirty (30) days after
the selection of the arbitrator. The parties and the arbitrators shall proceed
diligently and in good faith in order that the arbitral award shall be made as
promptly as possible. The interpretation, construction and effect of this
Agreement shall be governed by the Laws of Colorado, and to the maximum extent
allowed by law, in all arbitration proceedings the Laws of Colorado shall be
applied, without regard to any conflicts of laws principles. All statutes of
limitation and of repose that would otherwise be applicable shall apply to any
arbitration proceeding. The tribunal shall not have the authority to grant or
award indirect or consequential damages, punitive damages or exemplary damages.

 

 

 

 

 

 

 

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L.           Further Assurances: During the time in which this Agreement is in
effect, the parties shall, at any time and from time to time, and without
further consideration, execute and deliver or use reasonable efforts to cause to
be executed and delivered such other instruments of conveyance and contract, and
to take such other actions as either party may reasonably may request effect the
intent of this Agreement.

 

M.           Not to be Construed Against Drafter: The parties acknowledge that
they have had an adequate opportunity to review each and every provision
contained in this Agreement, that they have participated equally in the drafting
hereof and that they have had adequate time to submit same to legal counsel for
review and comment. Based on said review and consultation, the parties agree
with each and every term contained in this Agreement. Based on the foregoing,
the parties agree that the rule of construction that a contract be construed
against the drafter, if any, shall not be applied in the interpretation and
construction of this Agreement.

 

N.           Laws and Regulations: Any reference to any federal, state, local,
or foreign statute or law will be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires.

 

O.           Third-Party Beneficiaries: This Agreement is not intended to confer
any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.

 

P.           Investment Representations: Participant understands (1) that the
interests evidenced by this Agreement have not been registered under the
Securities Act of 1933, the Colorado Securities Act or any other state
securities laws (the “Securities Acts”).

 

Prior to acquiring the interests, Participant has made an investigation of the
PetroShare and its business and has had made available to it all information
with respect thereto which it needed to make an informed decision to acquire the
interest. Participant considers itself to be an entity possessing experience and
sophistication as an investor which are adequate for the evaluation of the
merits and risks of its investment in the interest.

 

 

 

 

 

 

 

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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
hereinabove provided.

 

Parties:

 

PETROSHARE CORP

 

 

By: ________________________

Name: Stephen J. Foley

Title: CEO

RANCHER ENERGY CORP.

 

 

By: ____________________________

Name: Jon Nicolaysen

Title: President & CEO

 

 

 

 

 

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EXHIBIT A

 

Leases Project Area

 

Attached to and made a part of that certain Participation Agreement by and
between PetroShare Corp and Rancher Energy Corp., dated September 30, 2013.

 

See Attached Lease Schedule

 

 

 

 

 

 

 

 

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EXHIBIT B

 

Joint Operation Agreement

 

Attached to and made a part of that certain Participation Agreement by and
between PetroShare Corp and Rancher Energy Corp., dated September 30, 2013.

 

See Attached JOA

 

 

 

 

 

 

 

 

 

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EXHIBIT “C”

 

ASSIGNMENT

 

STATE OF COLORADO )

COUNTY OF _________________ )

 

KNOW ALL MEN BY THESE PRESENTS, that PetroShare Corp., with an office at
______________________, hereinafter referred to as “Assignor”, for and in
consideration of the sum of TEN AND NO/100 DOLLARS ($10.00), the receipt and
adequacy of which is hereby acknowledged and full acquittance granted therefor,
has granted, sold, conveyed and delivered and does hereby grant, sell, convey
and deliver unto _________________ with an office at _____________________,
hereinafter collectively referred to as “Assignee”, ___% of Assignor’s right,
title and interest in the following properties (real, personal or mixed) and
rights (contractual or otherwise) unless expressly reserved or excluded herein,
the following being referred to herein collectively as the Assets:

 

(a)the oil and gas leases described on Exhibit “A”, attached hereto, in the
amounts of the working interests specified thereon (the “Leases”);

 

(b)The rights and interests in, to and under, or derived from, all of the
presently existing and valid unitization and pooling agreements and units
(including all units formed by voluntary agreement and those formed under the
rules, regulations, orders or other official acts of any governmental entity
having appropriate jurisdiction) to the extent they relate to any of the Leases;

 

(c)The rights and interests in, to and under, or derived from, all of the
presently existing and valid joint operating agreements, oil sales contracts,
casinghead gas sales contracts, gas sales contracts, processing contracts,
gathering contracts, transportation contracts, easements, rights-of-way,
servitudes, surface leases and other contracts to the extent they are described
on Exhibit “C”, attached hereto (the “Contracts”);

 

(d)The rights and interests in and to all personal property and improvements,
including without limitation, tanks, buildings, fixtures, machinery, equipment,
pipelines, utility lines, power lines, telephone lines, roads and other
appurtenances, to the extent the same are situated upon and/or used or held for
use by Seller in connection with the ownership, operation, maintenance and
repair of the Leases; and

 

(f)The rights and interests in all permits and licenses of any nature owned,
held or operated in connection with operations for the exploration and
production of oil, gas or other minerals to the extent the same are used or
obtained in connection with any of the Leases or other property described in
Exhibit “A” (“Permits”);

 

 

 

 

 

 

 

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TO HAVE AND TO HOLD the Assets, together with all and singular the rights and
appurtenances thereunto in anywise belonging, unto Assignee, its successors and
assigns, forever, subject to the following terms and conditions:

 

1.           Special Warranty of Title. Assignor represents and warrants that
the Assets are free and clear of all liens, encumbrances, security interests or
other adverse claims arising by, through or under Assignor, but not otherwise.
Assignor shall warrant and defend the title to the Assets conveyed to Assignee
against every person whomsoever lawfully claims the Assets or any part thereof
by, through, or under Assignor, but not otherwise.

 

2.           Successors and Assigns. The terms, covenants and conditions
contained in this Assignment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, and such terms,
covenants and conditions shall be covenants running with the land and with each
subsequent transfer or assignment of the Assets, or any part thereof.

 

3.           Participation Agreement. This Assignment is made in accordance with
and is subject to the terms, covenants and conditions contained in that certain
Participation Agreement dated as of ____________, 2013, by and between Assignor
and Assignee (“Participation Agreement”), all of which shall remain in full
force and effect in accordance with their terms as set forth therein and shall
not be deemed to have been merged with this Assignment. If there is a conflict
between the provisions of the Participation Agreement and this Assignment, the
provisions of the Participation Agreement shall control the rights and
obligations of the parties.

 

4.           Further Assurances. Assignor and Assignee agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful in carrying out the purpose of this
Assignment.

 

5.           Counterparts. This Assignment is being executed in multiple
counterparts each of which shall for all purposes be deemed to be an original
and all of which shall constitute one instrument.

 

ASSIGNOR:

PetroShare Corp.

 

By:

Name:

Title:

 

ASSIGNEE:

 

By: ________________________________________

Name:

Title:

 

 

 

 

 

 

 

 

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STATE OF__________________________ )

                                                                                )
ss.

COUNTY OF ________________________ )

 

 

The foregoing instrument was acknowledged before me this ____ day of ________,
2013, by _______________, as ___________of PetroShare Corp.

 

Witness my hand and seal.

 

My Commission Expires: ________________________       Notary Public

 

 

STATE OF__________________________ )

                                                                                )
ss.

COUNTY OF ________________________ )

 

 

The foregoing instrument was acknowledged before me this ____ day of ________,
2013, by _______________, as ________________ of ____________________.

 

Witness my hand and seal.

 

 My Commission Expires:___________________________        Notary Public