LEASE PURCHASE AGREEMENT

 

This Lease Purchase Agreement is entered into by Black Sable Energy, LLC
(“Seller”) and Venado Operating Company, LLC (“Buyer”) (Seller and Buyer are
sometimes referred to collectively herein as the “Parties”) as of the 31st day
of March, 2014 (the “Effective Date”).

 

STIPULATIONS

 

A.Seller and Buyer each own working interests in and to the oil and gas leases
described on Exhibit “A” attached hereto and made a part hereof for all purposes
(the “Leases”).

 

B.The rights of the Parties in and to the Leases are governed by the following
(all of which are collectively referred to herein as the “Existing Agreements”):

 

i.that certain Participation Agreement dated July 9, 2008 covering the Cobb
Field Prospect, Lee County, Texas, among Seller and Compass Resources Operating,
LLC (“Compass”), as amended (a) August 31, 2009 by Seller, Compass, and KA
Compass, LLC (“KAC”), (b) November 30, 2009 by Seller, Compass, and KAC, and (c)
March 3, 2010 by Seller, Compass, and KAC; and

 

ii.that certain Joint Operating Agreement governing the Shallow Prospect Area
dated July 11, 2008 among Seller and Compass Resources Operating, LLC, a
memorandum of which is recorded in Volume 1043, Page 461 of the Real Property
Records of Lee County, Texas; and

 

iii.that certain Joint Operating Agreement governing the Deep Prospect Area
dated July 11, 2008 among Seller and Compass Resources Operating, LLC, a
memorandum of which is recorded in Volume 1043, Page 471 of the Real Property
Records of Lee County, Texas.

 

C.Seller is the owner of: (i) an undivided 50.0% of 8/8ths working interest in
and to the Leases to those depths from the surface of the earth to 100 feet
beneath the stratigraphic equivalent of the Taylor Sand, as seen at 4690 feet in
the Black Sable Energy LLC – Lewis Trust No. 1 Well located in the J. Shaw
Survey, A-289, Cobb (Navarro) Field, Lee County, Texas (API No. 42-287-3245);
and (ii) an undivided 10.0% of 8/8ths working interest in and to the Leases as
to all other depths.

 

D.Buyer is the successor in interest to all of the right and obligations of
Compass and KAC under the Existing Agreements.

 

NOW, THEREFORE, for Ten and No/100 Dollars ($10.00) and other valuable
consideration, including the mutual promises and considerations described
herein, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:

 

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1.Sale of the Leases. Seller agrees to sell and assign exclusively unto Buyer
and Buyer agrees to buy from Seller, for delivery upon Closing and subject to a
reservation of overriding royalty by Seller: (i) an undivided 50.0% of 8/8ths
working interest in and to the Leases as to those depths from the surface of the
earth to 100 feet beneath the stratigraphic equivalent of the Taylor Sand, as
seen at 4690 feet in the Black Sable Energy LLC – Lewis Trust No. 1 Well located
in the J. Shaw Survey, A-289, Cobb (Navarro) Field, Lee County, Texas (API No.
42-287-3245); and (ii) an undivided 10.0% of 8/8ths working interest in and to
the Leases as to all other depths.

 

2.Seller’s Overriding Royalty.

 

a.Seller will reserve an overriding royalty interest in and to all of the oil,
gas and minerals that may be produced, saved and marketed from the Leases in an
amount equal to: (i) the positive difference between twenty-three percent (23%)
and the sum of the royalty provided for in the Leases and all other outstanding
royalty and overriding royalty burdens affecting the lands covered by the Leases
as of the Effective Date; or (ii) an undivided 0.50% of 8/8ths if the sum of the
royalty provided for in the Leases and all other outstanding royalty and
overriding royalty burdens affecting the lands covered by the Leases is
twenty-three percent (23%) or greater as of the Effective Date.

 

b.The overriding royalty interest reserved by Seller: (i) will be paid and
calculated in the same manner as the lessor’s royalty provided for in the
Leases; and (ii) will not be proportionately reduced to the actual interest in
the Leases if the Seller’s interest in the lands covered by the Leases covers
less than the entire and undivided fee interest in the Leases. Buyer will be
granted the authority to pool Seller’s reserved overriding royalty interest in
the same manner as provided for in the Leases, and any amendments thereto.

 

3.Seller Warranties. Seller represents and warrants to Buyer that:

 

a.Seller owns unencumbered marketable title to the working interest in the
Leases to be delivered to Buyer, provided that such warranty is limited to
claims by, through and under Seller, but not otherwise;

 

b.Seller has no actual knowledge of any existing or threatened actions or
proceedings adverse to any of the Leases;

 

c.Seller’s interests in the Leases are free from liens, encumbrances and burdens
other than those identified in the Existing Agreements;

 

d.Except for the Existing Agreements, Seller is not a party to any contracts or
agreements affecting the Leases that would affect the rights of Buyer;

 

e.Neither the execution or delivery of this Agreement nor the performance by
Seller of Seller’s obligations hereunder will violate or constitute a default
under any law, regulation, contract, agreement, consent, decree or judicial
order by which Seller is bound;

 

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f.Seller is a duly organized, validly existing legal entity, and in good
standing under the laws of its incorporation or organization, duly qualified to
carry on its business in Texas; and

 

g.Seller has all requisite power and authority to carry on its business as
presently conducted, to enter into this Agreement, to perform its obligations
under this Agreement and the consummation of the transaction contemplated by
this Agreement will not violate, or be in conflict with, any material provision
of the articles of incorporation, bylaws or other entity governance agreement of
Seller.

 

4.Closing. Within three (3) days of the execution of this Agreement, Buyer will
deliver the sum of $450,000.00 to Seller by wire transfer or check as
consideration for the Seller’s interest in the Leases and termination of the
Existing Agreements. Upon Buyer’s tender of the above payment, Seller will
promptly (and in any event no more than two (2) days after its receipt of
payment), deliver an assignment of the Leases dated effective March 31, 2014 to
Buyer in substantially the same form as the assignment attached hereto as
Exhibit “B” and made a part hereof for all purposes.

 

5.Termination of Existing Agreements. Upon the consummation of the transaction
contemplated in this Agreement, the Existing Agreements will terminate and be
null, void and of no force and effect. In addition, Seller expressly releases
Buyer from any obligations under the Existing Agreements to (i) pay a fraction
of Seller’s costs associated with the DPA Test Well (as defined in the Existing
Agreements), or (ii) reassign any interest in the Leases arising out of the
failure of Compass or KAC to drill the DPA Test Well, and any such obligations
are extinguished.

 

6.Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.

 

7.Binding Effect. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.

 

8.Severability Clause. If any provision of this Agreement shall be held invalid,
illegal, unenforceable or in conflict with the law of any jurisdiction, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

 

9.Merger Clause. This Agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof, superseding all negotiations,
prior discussions, and prior agreements and understandings relating to such
subject matter. This Agreement may only be amended by a subsequent writing
executed by both parties.

 

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10.Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be considered an original for all purposes. Any signature hereto
delivered by a party by facsimile transmission shall be deemed an original
signature hereto.

 

This Agreement is executed to be effective as of the date above. 

 

  Black Sable Energy, LLC             By: Robert G. Watson, Jr.   Its: President
                    Venado Operating Company, LLC               By: Joe D.
Sullivan, Jr.   Its: Vice President - Land

  

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Exhibit “A”

 

[Insert Description of the Leases]

 

 

 

 

 

 

 

 

 

 

 

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Exhibit “B”

 

[Insert Partial Assignment of Oil, Gas and Mineral Leases

With Reservation of Overriding Royalty]

 

 

 

 

 

 

 

 

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