Exhibit 10.1

 

December 12, 2016

 

Attn: B.P. Allaire

Foothills Petroleum Operating, Inc.

201 St. Charles Avenue, Suite 2500

New Orleans, LA 70170

 

Re:Participation Agreement

Houston River – Labokay Drilling Prospect

Calcasieu Parish, Louisiana

 

Gentlemen:

 

Magna Operating, LLC (“Seller”) is the owner of the 100% leasehold interest in
the Houston River Labokay Drilling (the “Prospect”) located in Calcasieu Parish,
Louisiana. The Prospect is situated beneath the lands covered by that certain
Oil, Gas and Mineral Lease and that certain Oil, Gas and Mineral Sublease
(collectively, the “Leases”) described on Exhibit “A-1” attached hereto and made
a part hereof, and the Area of Mutual Interest (“AMI”), set out and defined in
Section 6 hereof.

 

Foothills Petroleum Operating, Inc. is sometimes hereinafter referred to
“Participant.” Seller and Participant sometimes are referred to collectively as
the “Parties” or individually as a “Party.” Participant has agreed to
participate in the Prospect through purchase of all of Seller’s leasehold
interest, subject to the conditions and terms contained herein.

 

This Participation Agreement is hereinafter referred to as the “Agreement.”
Participation in the Prospect by Participant as to the above-stated interests
shall include and require payment to Seller of certain cash consideration and
the drilling of a test well for oil and gas under the Prospect. Participant’s
interest shall be burdened by the overriding royalty interests, outlined in
Section 3 hereof, as well as Seller’s option to back-in after payout of the test
well as provided in Section 5 hereof. The following sets forth the terms and
conditions of this Agreement and Participant’s participation in the Prospect:

 

Section 1: The Leases

 

Seller represents that it owns an undivided 100% leasehold interest in the
Leases, and is in possession of 3D seismic data and interpretations as per that
certain Agreement Concerning Use of Seismic Data dated effective January 1,
2013, amended April 15, 2013 by and between Tower Land Company, L.L.C. and Magna
Operating, LLC (the “Lawton Seismic Agreement”), covering the 240-acre tract of
land referenced in the AMI.

Page 1 of 13

Participation Agreement
HOUSTON RIVER-MITCHELL Prospect

 

  

Participant acknowledges that the assignment(s) made and the undivided leasehold
interests conveyed, pursuant to this Agreement, shall be subject to the terms
and provisions of the Leases, and such terms may include a requirement that the
Lessor deliver its written consent to an assignment of working interest prior to
any such assignment being made. Participant, as successors–in-interest to Seller
in the Leases, agrees to assume and perform all obligations imposed by the
Leases and to comply with all terms and conditions of the Leases. Copies of the
Leases have been made available to Participant for review and inspection.

 

Attached hereto as Exhibit “A” is a plat illustrating the lands covered by the
Leases and boundaries of the AMI.

 

Section 2: Consideration and Assignment

 

As consideration for an assignment of interest in and to the Leases and the
Prospect, Participant shall tender to Seller the sum of One Hundred Forty-Four
Thousand Dollars ($144,000.00). Such sum represents Participant’s share of the
land, lease, and administrative costs that Seller has incurred in the generation
and assembling of the Prospect as of November 15, 2016. As further consideration
for an assignment of interest in and to the Leases from Seller, Participant
hereby agrees and elects to participate in the cost, risk, and expense of
drilling the Prospect’s test well (defined and set out in Section 4 of this
Agreement and hereinafter referred to as the “Test Well”) as to the working
interest set forth beside Participant’s name under the column titled “WI BPO” on
Exhibit “B.”

 

Upon Seller’s receipt of (i) a duplicate original of this Agreement, executed by
Participant, (ii) Participant’s payment $144,000.00 as provided above, and (iii)
Lessor’s written consent to assignment of the Leases, Seller shall execute and
deliver to Participant an assignment in recordable form conveying the working
interest set forth beside Participant’s name under the column titled “WI BPO” on
Exhibit “B” in and to the Leases (the “Assignment”). Such interest represents
Participant’s interest in and to the Leases before “Payout”, as the term
“Payout” is hereinafter defined in Section 5. The Assignment and the interest(s)
conveyed therein shall be made subject to the terms and provisions of this
Agreement, the Leases, and the Operating Agreement set out in Section 7 below
and attached to this Agreement as “Exhibit F” (hereinafter the “OA”).
Participant’s interests shall be burdened by Lessor’s royalty as provided in the
Leases, the overriding royalty interests set forth below in Section 3 hereof, as
well as Seller’s hereinafter-described option to back-in after Payout. The
Assignment shall be more or less on the form attached hereto as Exhibit “C.” In
the event Seller is unable to obtain any of the necessary consents to
assignment, Seller and Participant shall enter into such other agreements,
recorded or unrecorded, as may be necessary to recognize the Participant’s
contractual rights to share in production (or the proceeds of production) and
their contractual obligation to pay expenses as to any such interest involved.
Notwithstanding any such agreements, Seller shall continue to utilize its best
efforts to obtain any necessary consent to assignment.

 

The Assignment shall convey to Participant the Leases with burdens (i.e., the
Lessor’s royalty in the Leases and the overriding royalty interest below) equal
to 28.00%, and each Participant’s net revenue interest in and to the Leases
shall be the product of Participant’s working interest (under column titled “WI
BPO” on Exhibit “B”) and 72.00%.

 

Page 2 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

Notwithstanding anything to the contrary hereinabove, if Participant fails to
execute and deliver this Agreement to Seller or to tender $144,000.00 to Seller
as provided herein within one (1) business day, this Agreement shall terminate,
and Participant shall have no right to receive assignment of interest in the
Leases, no right to be refunded any costs or expenses it may have incurred with
regard to the Prospect, and no right to participate in future AMI Acquisitions
hereunder.

 

Section 3: Overriding Royalty Interests

 

Participant’s interest in the Prospect is subject to the overriding royalty
interests set forth in this Section 3.

 

Attached hereto and made a part hereof as Exhibit “D” is a form of that
Assignment of Overriding Royalty Interest dated effective January 1, 2016,
executed by Magna Operating, LLC, as Assignor, in favor of Patrick J. McCarthy,
as Assignee, to be recorded in the Conveyance Records of the Clerk of Court of
Calcasieu Parish, Louisiana. Said Assignment of Overriding Royalty Interest has
not yet been recorded, but Seller hereby agrees to promptly record said
assignment and furnish a copy of recorded said assignment to Participant.

 

Attached hereto and made a part hereof as Exhibit “E” is a form of that
Assignment of Overriding Royalty Interest dated effective January 1, 2016,
executed by Magna Operating, LLC, as Assignor, in favor of Foothills Royalty
Pool I, LLC, a Wyoming limited liability company, as Assignee, to be recorded in
the Conveyance Records of the Clerk of Court of Calcasieu Parish, Louisiana.
Said Assignment of Overriding Royalty Interest has not yet been recorded, but
Seller hereby agrees to promptly record said assignment and furnish a copy of
recorded said assignment to Participant. A form of said assignment is attached
hereto as Exhibit “E” and incorporated by reference.

 

In the event either Party makes an “AMI Acquisition” defined and set out under
the terms of Section 6 of this Agreement, the acquiring Party (utilizing a form
substantially similar to the attached “Exhibit D”) shall immediately assign to
the above-stated Assignee, his heirs, successors, assigns, designee, or
designees an overriding royalty interest on oil and gas produced, saved, and
sold from such AMI Acquisition equal to the amount by which 28.00% exceeds, if
any, the total of all royalty and overriding royalty interests affecting such
AMI Acquisition at the time the AMI Acquisition is acquired. Notwithstanding
anything hereof to the contrary, it is understood and agreed that the amount of
overriding royalty interest due under this Section 3 shall not be greater than
5.00% of 8/8ths of the oil and gas produced, saved, and sold under any AMI
Acquisition nor less than 1.00% of 8/8ths of the oil and gas produced, saved,
and sold under any AMI Acquisition regardless of the total royalty and
overriding royalty burdens affecting such AMI Acquisition at the time it is
acquired.

 

The overriding royalty interest described in this Section 3 shall extend and
attach to renewals or extensions of the Leases as well as any renewals or
extensions of AMI Acquisitions, provided any such renewal or extension is
acquired during the term of the AMI. All of said overriding royalty interests
shall be subject to proportionate reduction.

 

Page 3 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

All working interests in and to the Leases and any AMI Acquisitions hereunder
shall be burdened proportionately by the above overriding royalty interests due
under this Section 3. Seller represents that as of the Effective Date of this
Agreement the Leases are not burdened by overriding royalty interests, of record
or not, which exceeds the overriding royalty interest set forth in the above
Assignment of Overriding Royalty Interest in this Section 3.

 

Section 4: Test Well

 

A. Subject to permitting, rig availability, and events of force majeure (as set
out in Section 11), Foothills Petroleum Operating, Inc. (hereinafter referred to
as “Operator”) shall use best efforts to commence, or cause to be commenced
drilling operations for a Test Well on the Prospect on or before January 31,
2017 (“Contract Spud Date”), to the following bottom hole location: NE/4 of
Section 5, T9S-R11W, Calcasieu Parish, Louisiana; XY coordinates: X = 1314375
and Y = 605000 NAD 27–Louisiana South. Failure by Participant to commence, or
cause to be commenced, drilling operations for a Test Well on or before the
Contract Spud Date despite Participant’s best efforts or as a result of an
incident of Force Majeure shall not result in a termination of this Agreement or
Participant’s rights and obligations hereunder.

 

Said Test Well shall be drilled to the lesser depth of (i) a total vertical
depth of 8,300 feet beneath the surface of the ground or (ii) a depth sufficient
to test the stratigraphic equivalent of the Nodosaria blanpiedi sand, top of
which is found at the measured depths of 8,490 feet (MD) on the electric log of
the Labokay Corp 5 Well No. 1 (API No. 1701922252, Serial No. 242300), 17,000
feet total depth, located in Section 4, Township 9S, Row 11W, Calcasieu Parish,
Louisiana (“Contract Depth”) and thereafter evaluated in accordance with good
oil field practices, and depending on the outcome of said evaluation, Operator
shall either plug and abandon the Test Well or make a recommendation for a
completion attempt.

 

Should Operator make a recommendation for a completion attempt and not recommend
to plug and abandon the Test Well, it is agreed and understood that Participant
shall pay to Seller the sum of One Hundred Eighty Thousand Dollars ($180,000.00)
within thirty (30) days of the Casing Point Election as defined in the OA, which
amount shall be considered and construed to be geological and geophysical costs.

 

Prior to the commencement of drilling operations for the Test Well, Operator
shall deliver to Seller an Authority for Expenditure (“AFE”) setting forth the
estimated costs and expenses in connection with the drilling of the Test Well to
Contract Depth (the “Estimated Dry Hole Costs”), which shall include a line item
of Twenty-Five Thousand Dollars ($25,000.00) (“Spud Fee”). Seller agrees to pay
the Spud Fee if and when it becomes payable under the Lawton Seismic Agreement.

 

Except as provided herein, all operations on the Test Well shall be conducted in
accordance with the OA. The Test Well shall be the same well referred to in the
OA as the Initial Well.

 

Page 4 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

B. If, during the drilling of the Test Well, formation conditions, mechanical
difficulties, impenetrable substances, or other conditions are encountered
beyond the control of Operator that make the further drilling of the Test Well
impossible or impracticable before reaching Contract Depth, Participant may
propose the drilling of a substitute well for the Test Well (hereinafter
referred to as the “Substitute Well”) at a legal location approved by Seller and
Participant and the drilling of such Substitute Well shall thereafter be
considered the Test Well for all purposes hereof.

 

C. If it becomes necessary to pay delay rentals in order to maintain either of
the Leases in effect prior to drilling the Test Well to Contract Depth, the
Parties agree to be responsible for and pay 100% of their respective shares of
all such delay rentals. Delay rentals which become due prior to reaching
Contract Depth in the Test Well shall be borne and paid by the Parties based on
their respective interests as set forth on Exhibit “B” under the column titled
“WI BPO.” Notwithstanding anything herein, prior to the commencement of
operations for the Test Well identified in Section 4 hereinabove, Participant
shall pay all delay rentals in a timely manner and in accordance with the terms
of the Leases.

 

Section 5: Payout, Working Interests After Payout, and Subsequent Wells

 

A. “Payout”, as it pertains to the Prospect, shall be defined for all purposes
in this Agreement as that point in time when Participant’s share of “Net
Production Proceeds” (as defined below) from all wells drilled on the Prospect,
including the Test Well, equals 100% of Participant’s share of the total
tangible and intangible costs of drilling, sidetracking, equipping, testing, and
completing all wells drilled on the Prospect, including the Test Well, and
operating all wells drilled on the Prospect, including the Test Well, prior to
Payout, including all costs associated with lease production facilities,
metering stations, and the laying of any flow lines necessary to establish
production for all wells drilled on the Prospect including the Test Well, and
also including all pre-drill costs and expenses of all wells drilled on the
Prospect including the Test Well associated with: (i) title examination and
rendering of a title opinion, acquisition of title curative documents, and
unitization, (ii) acquisition of requisite permits, easements, and
rights-of-way, including road rights-of-way for access to the location and
pipeline rights-of-way, (iii) cost of location damage settlements, location
construction and preparation, (iv) all costs of lease maintenance until Payout,
including rental payments, shut-in payments, surface lease payments, and other
similar costs due under the Leases, and (v) the total costs actually paid by
Participant to Seller hereunder, including but not limited to all geological and
geophysical costs to be paid by Participant to Seller hereunder. In the event
Operator receives payments or reimbursements for any costs associated with all
wells drilled on the Prospect including Test Well (e.g., vendor rebates, well
insurance claims), such payments or reimbursements shall be deducted from said
well costs in calculating Payout hereunder.

 

“Net Production Proceeds” are defined for all purposes in this Agreement as the
total proceeds received from the sale of oil, gas, and other associated liquids
and hydrocarbons produced from all wells drilled on the Prospect, including the
Test Well, and attributable to the Leases, less severance, production, and other
taxes payable on said production (the term “other taxes” as used hereunder shall
not include State or Federal income or franchise taxes), all royalties, the
overriding royalty interests set forth in Section 3, and any other burdens
applicable to the Leases as of the Effective Date hereof.

 

Page 5 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

Payout shall be effective the 1st day of the month following the month in which
Payout actually occurs. It is understood and agreed that in the event a
Substitute Well is drilled as per Section 4 above, the well costs set forth
above to be used in calculation of Payout hereunder shall include both the costs
attributable to all wells drilled on the Prospect including the Substitute Well
and the well for which it is a substitute (i.e., the original Test Well).
Likewise, Net Production Proceeds to be used in calculation of Payout shall
include production proceeds from all wells drilled on the prospect including the
Substitute Well and/or the well for which it is a substitute (i.e., the original
Test Well well bore) as such proceeds may be derived from one, both or all
wells. Operator shall provide Seller with monthly payout statements and shall
maintain appropriate records which will be made available to Seller for its
verification of Payout status.

 

B. Upon Payout, Seller shall have the option (not the obligation) to back-in for
20.0% of Participant’s total Working Interest Before Payout (being 20.0% of
Participant’s total WI BPO as set forth on Exhibit “B”) in the Leases, AMI
Acquisitions made prior to Contract Depth being reached in the Test Well, all
wells drilled on the Prospect including the Test Well, and all equipment,
production facilities and gas pipelines associated with all wells drilled on the
Prospect including the Test Well.

 

Seller hereto shall be notified in writing when Payout has occurred, and Seller
shall have thirty (30) days from its receipt of such notice to notify
Participant whether it elects to exercise its option to back-in, as described
above. Should Seller fail to provide its election notice within the 30-day
period, Seller shall be deemed to have elected to back-in.

 

Within fifteen (15) days of receipt of notice of Seller’s affirmative election
to back-in, Participant shall assign to Seller the working interest in the
Leases equal to the percentage set forth beside Seller’s name under the column
titled “Back-in WI” on Exhibit “B” (the “Back-in Assignment”). The Back-in
Assignment shall be a recordable instrument, unencumbered by any liens,
proportionately subject to this Agreement, the Leases, the OA, and the
overriding royalty interests set out in Section 3 above, and free and clear of
any additional burdens created by Participant.

 

The intended result of the Back-in Assignment shall be (in the case of Seller
electing to back-in) that the working interests in all wells drilled on the
Prospect including the Test Well and Leases are owned by the Parties in the
percentages set forth beside each Party’s name under the column titled “WI APO”
on Exhibit “B” to this Agreement.

 

Section 6: The AMI

 

Upon execution of this Agreement, an Area of Mutual Interest (“AMI”) shall be
established between the Parties covering and affecting, as to all depths, the
lands within the thick red outline depicted on Exhibit “A”, calculated to
contain 240 acres, more or less, containing lands situated in the N/2 of Section
5 and the NW/4 of Section 4, all within Township 9 South, Range 11 West, being
more specifically identified as the area within the confines of the HBY RA SUA
(Undrilled), as established by State of Louisiana, Office of Conservation Order
No. 1428-C, dated August 2, 2016. Seller shall continue to provide Participant
with access to all 3D seismic, in its possession, including interpretations and
AVO data relating to the lands within the AMI.

 

Page 6 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

This AMI shall remain in effect under the terms of this Agreement for five (5)
years from the Effective Date of this Agreement. In the event either of the
Parties acquires an oil and gas lease or interest in such lease (other than in
either one of the Leases), royalty interest, mineral interest, overriding
royalty interest (other than those set forth in Section 3 above), farmout or
other interest or contractual agreement providing or granting the right to
explore or drill for oil and gas within the lands covered by the AMI (an “AMI
Acquisition”), the acquiring Party shall, within fifteen (15) days of the AMI
Acquisition, offer to the non-acquiring Party the opportunity to participate for
its share of the AMI Acquisition by paying its share of the costs directly
associated with the AMI Acquisition. The notice from the acquiring Party to the
non-acquiring Party shall be written and include a complete description of the
AMI Acquisition, any related contract, evidence of consideration paid (e.g., a
copy of the paid draft or check) and any other pertinent data. Each Party
receiving such notice shall have ten (10) days after receipt within which to
elect to purchase its share of the AMI Acquisition by paying to the acquiring
Party its share of the acquiring Party’s cost in such AMI Acquisition as per
such notice, and, if applicable, delivering to the acquiring Party a written
assumption of its proportionate share of any obligation(s) assumed by the
acquiring Party in connection with such AMI Acquisition.

 

Notwithstanding anything to the contrary hereinabove, if a well is then being
drilled within the AMI, the result of which could affect the value of the AMI
Acquisition, the acquiring Party shall so advise the non-acquiring Party, and
the non-acquiring Party’s election to acquire a proportionate interest in such
AMI Acquisition must be made within forty-eight (48) hours, exclusive of
Saturdays, Sundays and holidays, after its receipt of such notice. Failure of
any non-acquiring Party to timely respond to the acquiring Party shall be deemed
an election by the non-acquiring Party not to acquire its proportionate share of
such AMI Acquisition. The acquiring Party shall promptly deliver to each
non-acquiring Party who has elected to acquire its proportionate share of such
AMI Acquisition, pursuant to the foregoing, an assignment in recordable form of
its respective share in such AMI Acquisition, which shall be without warranty of
title, either express or implied, except as to the claims of all persons
claiming or to claim the same or any part thereof, by, through or under the
assigning Party but not otherwise, and which shall be made subject to the terms
and conditions of this Agreement, including the overriding royalty interests
described above in Section 3, and the OA.

 

For purposes of offering an AMI Acquisition, the interests of the Parties in any
such AMI Acquisition shall be derived using the percentages set forth beside the
Parties’ respective names on Exhibit “B” under the column titled “WI APO,” and
accordingly, the costs of AMI Acquisitions shall be borne by the Parties based
on the interests set forth beside their names under the column titled “WI APO”
on Exhibit “B.” In the event a Party makes an AMI Acquisition covering lands
lying partly within and partly outside of the AMI, the acquiring Party shall
have the right, at its election, to so offer participation to the non-acquiring
Parties as to the entire area covered by the AMI Acquisition or only that part
lying within the AMI.

 

Page 7 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

Section 7: Operating Agreement

 

Contemporaneously with the execution of this Agreement, the Parties hereby agree
to execute an Operating Agreement in substantially the same form as attached
hereto and made a part hereof as “Exhibit F”, which designates Participant as
“Operator” and shall govern operations hereunder. Operator shall circulate the
OA for execution by the Parties and the Parties shall execute the OA and return
signature pages to Operator. In the event either Party fails to so execute the
OA, then that Party’s execution of this Agreement shall be considered for all
purposes to be a ratification and adoption of the OA. Operator agrees to
materially comply with applicable federal, state and local laws, ordinances,
rules, regulations, and orders in conducting its operations under the OA.

 

All operations conducted by Participant hereunder, prior to the occurrence of
Payout, including but not limited to the drilling, logging, coring, testing,
plugging and abandoning, cleaning, clearing and restoring the premises or
completing and equipping the test well or any well(s) provided for herein, shall
be drilled at Participants sole risk, cost and expense, and Participant shall
protect, indemnify and hold Seller harmless from all losses, costs, claims,
expenses, damages and liabilities arising out of or connected with Participant’s
performance, or failure to perform, under this agreement, or the acts of or
failure to act by Participants agents, employees, contractors and subcontractors

 

In the event of a conflict between the terms of this Agreement and the terms of
the OA, as it pertains to the interest of Seller and Participant, the terms of
this Agreement shall prevail and control.

 

Section 8: Well Information

 

During the drilling of any well hereunder, the Parties (and their duly
authorized representatives) shall have access at their own risk and liability to
the well location and derrick floor. Operator shall provide Seller with copies
of all well information in its possession and requested by Seller including, but
not limited to, drilling permits, surveyor’s location plats, daily drilling
reports, logs, cores, testing data, completion data, production data, and
plugging records regarding any well drilled hereunder.

 

Prior to the spudding of the test well, Participant agrees to furnish progress
reports every thirty (30) days on those efforts set out under Article 13. K
below and the efforts on the permitting of the well, location work and other
related pre-drilling activities, with governmental agencies with jurisdiction
and approval authority,

 

Section 9: Relationship of the Parties

 

This Agreement is not intended to create, and nothing herein shall be construed
to create, an association, a trust or joint venture, a mining partnership or
other partnership or entity of any kind or other relationship by which one Party
is liable for the obligations or acts, either of omission or commission of the
other Party. The Parties intend that all liabilities shall be several and not
joint or collective. Should this Agreement be construed to create an association
or partnership within the meaning of Subchapter K of Chapter I of Subtitle A of
the Internal Revenue Code of 1954, as amended, or within the meaning of any
similar statute of the State of Louisiana, as applicable, the Parties hereto
affirm that they have elected to be excluded from the application of each such
statute.

 

Page 8 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

 

Section 10: Assumption of Obligations

 

Participant accepts this Agreement subject to all of the terms, provisions, and
conditions hereof and of the attachments and exhibits hereto, and Participant
agrees to assume its proportionate share of the burdens and obligations of the
Lessee in each of the Leases and shall comply with all of the expressed and
implied covenants thereof, insofar and to the extent that they apply to the
lands covered thereby.

 

Section 11: Force Majeure

 

No Party hereto shall be liable to the other Party, its subsidiaries or
affiliates or any person, firm, or corporation in privity with such other Party,
its subsidiaries or affiliates, for any delays or damage or any failure to act
hereunder (except for the payment of monies due for costs and expenses already
incurred) that may be occasioned or caused by reason of any laws, rules,
regulations or orders promulgated by any federal, state or local governmental
agency or any court of law or by the rules, regulations or orders of any public
body or official purporting to exercise authority or control respecting the
activities and operations contemplated herein, or due, occasioned or caused,
directly or indirectly, by strikes, action of the elements, acts of God, weather
or water conditions, inability to obtain fuel, equipment, rig or crew or other
critical materials, means or supplies, failure to obtain government and/or
agency permits and/or approvals or any other cause beyond the reasonable control
of the non-performing Party (excluding financial distress or inability to pay
debts when due) and which are not within the control of the Party claiming
suspension and which by the exercise of due diligence such party is unable to
prevent or overcome. In the event of the occurrence of any of the foregoing, the
obligations of the non-performing Party shall be suspended during the
continuance of any such event or condition, and the time permitted for
performance under this Agreement shall be extended for a period of time equal to
the period of such suspension. Whenever a Party's obligations or rights are
suspended under this Section 11, such Party shall immediately notify the other
Party, give written explanation for the cause of force majeure relied on, and
exercise reasonable best efforts to promptly cure the cause of the force majeure
relied on and to resume performance.

 

Section 12: Notices

 

All notices, reports, and well information to be furnished or given hereunder
shall be directed to the Parties as provided on Exhibit “B” hereof (and as
supplemented by any well-data distribution form that is circulated with the OA).

 

Section 13: Miscellaneous

 

A.  All of the terms and provisions of this Agreement shall be binding on the
Parties, their heirs, successors, executors, personal representatives, and
permitted assigns.

 

Page 9 of 13

Participation Agreement
HOUSTON RIVER-Labokay Prospect

 

 

B.  The Parties shall, from time to time and upon reasonable request, execute,
acknowledge, and deliver, or cause to be executed, acknowledged, and delivered,
such instruments, and take such other action, as may be necessary or advisable
to carry out their respective obligations under this Agreement.

 

C.  Prior to the drilling of the Test Well to Contract Depth, Participant shall
not assign this Agreement or any of its rights or obligations under this
Agreement without obtaining the prior written consent of Seller.

 

D.  Participant represents and acknowledges that it is knowledgeable of the oil
and gas business and of its usual and customary practices and that investment
therein involves a material financial risk.

 

E.  Except for actions by, through and under Seller, together with the specific
representations contained in this Agreement, Participant acknowledges that
Seller makes no express warranty and disclaims all implied warranties and all
statutory warranties as to (i) the accuracy or completeness of the any data
furnished to Participant related to the Prospect, (ii) the presence of
hydrocarbons on or under the Prospect, or (iii) the results which might be
expected from any exploration, development, production, and/or hydrocarbon
marketing activities contemplated by this Agreement. Nothing contained in the
information referenced above, including but not limited to, reserve figures,
analyses, or representations of any kind, is or shall be relied upon as a
promise or representation of warranty, whether as to the past or the future
value of the properties or their prospect potential. Seller and its respective
employees, agents, representatives, officers, directors, and shareholders shall
have no liability of any sort to Participant (or any affiliate or associate of
Participant) under this Agreement arising from the use by any person of such
information. Participant has relied solely on the basis of its own independent
due diligence and investigation in making the decision to enter into this
Agreement and consummate the transactions contemplated hereby.

 

F.  If any one or more of the provisions of this Agreement shall be invalid,
illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired, and the offending provision or provisions shall be
reformed, and the remaining provisions interpreted, so as to give effect, to the
maximum extent permissible, to the agreement of the Parties as set out herein.

 

G.  This Agreement, together with its attachments and exhibits, contains the
entire understanding of the Parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements, understandings,
negotiations, and discussions among the Parties with respect to said subject
matter. No representations, inducements, promises, or agreements, whether oral
or otherwise, which are not embodied in this Agreement shall be of any force or
effect.

 

H.  Attached to and made a part of this Agreement are the following:

 

Exhibit “A” – Plat of Leases and AMI

Exhibit “A-1”– List of Leases

 

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Exhibit “B” – Interests of the Parties and Contact Information

Exhibit “C” – Form of Partial Assignment of Hydrocarbon Leases

Exhibit “D” – Assignment of Overriding Royalty Interest

Exhibit “E” – Assignment of Overriding Royalty Interest

Exhibit “F” – Operating Agreement

 

I.  This Agreement may be executed in any number of counterparts, each of which
having the force and effect of the original and shall bind and obligate all
those who execute this Agreement. The counterpart originals may be combined by
signature and acknowledgement page to form a single instrument.

 

J.  This Agreement is dated and made effective for all purposes as of December
12, 2016, (the “Effective Date”), and shall remain in effect for the longer of
five (5) years from the Effective Date or as long as the OA remains in effect.

 

K.  Participant agrees to use its best efforts to become duly licensed and
bonded with the State of Louisiana, and to take such other actions as reasonably
are necessary, in order for Participant to act as the Operator as provided for
herein.

 

L.  This Agreement shall be governed by and construed in accordance with the
laws of the State of Louisiana, without regard to any choice of law principles
that would require application of the laws of any other jurisdiction.

 

M.  The failure of any Party to seek redress for any violation, or to insist
upon the strict performance, of any provision of this Agreement shall not
prevent any Party from seeking redress for any subsequent act, or failure to
act, or to insist upon the strict performance of this Agreement. No single or
partial exercise by a Party of any right or remedy hereunder shall preclude
other or further exercise thereof or the exercise of any other right or remedy.

 

N.  No amendment to this Agreement shall be effective unless contained in an
instrument that specifically references this Agreement, is in writing, and is
executed by both Parties.

 

O.  Except as expressly stated herein, nothing herein shall be construed to
confer any benefit on any third party not a party to this Agreement or to
provide any rights to such third parties to enforce the provisions thereof.

 

P.  In interpreting this Agreement, the Parties agree that the provisions of
this Agreement shall be construed in an evenhanded manner and shall not be
construed against either Party on this basis of which Party drafted this
Agreement or section hereof. Each Party acknowledges it has had an opportunity
to consult with an attorney in connection with the drafting and negotiation of
this Agreement.

 

Please indicate your acceptance of the terms, provisions and conditions
contained in this Agreement, and all attachments and exhibits hereto, by
executing as indicated below and returning same to Seller on or before 5 PM,
December 12, 2016, and in accordance with Section 2 hereinabove, pay to Seller
the consideration of $144,000.00, which represents land, lease and
administrative costs incurred by Seller, in readily available funds within one
(1) business day of the full execution of this Agreement.

 

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[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Parties have executed or caused the Agreement to be
executed as of the Effective Date.

 

SELLER:       Magna Operating, LLC         By: /c/ Patrick J. McCarthy      
Patrick J. McCarthy, Manager   Its: Manager         PARTICIPANT:       Foothills
Petroleum Operating, Inc.         By: /c/ B.P. Allaire       B.P. Allaire  
Its:  President  

 

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