Exhibit 10.1

PARTIAL CANCELLATION AGREEMENT

THIS PARTIAL CANCELLATION AGREEMENT (“Agreement”), dated May 10, 2016, and is to
be considered effective as of even date herewith (the “Effective Date”), by and
among Dala Petroleum Corp., a Delaware corporation (“Dala DE”), Dala Petroleum
Corp., a Nevada corporation (“Dala NV”), Chisholm Partners II, LLC (“Chisholm
II”), a Louisiana limited liability company, and certain members of Chisholm
Partners II, LLC set forth on the signature pages hereto (each individually a
“Chisholm Member” and collectively the “Chisholm II Members”).

WITNESSETH:

A.

On June 2, 2014, Dala DE, then-known as “Westcott Products Corp.”, its
wholly-owned subsidiary, Dala Acquisition Corp., a Nevada corporation (“Merger
Subsidiary”), and Dala NV executed and delivered an Agreement and Plan of Merger
(the “Merger Agreement”) and all required or necessary documentation to complete
a merger (collectively, the “Transaction Documents”), whereby Merger Subsidiary
merged with and into Dala NV, and Dala NV was the surviving company under the
merger and became a wholly-owned subsidiary of Dala DE on the closing of the
merger (the “Merger”). The respective Boards of Directors of Dala DE and Dala
NV, along with Dala DE, as the sole stockholder of Merger Subsidiary, and Dala
NV’s sole stockholder Chisholm II, which owned 100% of the outstanding voting
securities of Dala NV, approved the Merger by written consent, and Articles of
Merger were filed with the Secretary of State of the State of Nevada on June 3,
2014, effecting the Merger. Prior to the Merger, Chisholm II assigned to Dala NV
the rights to engage in oil exploration and development on approximately 300
leases in north central Kansas, with total acreage of approximately 80,000 acres
(the “Property”). As consideration for the Merger, Dala DE issued 10,000,000
shares of its common stock (the “Merger Shares”) to Dala NV’s sole member
Chisholm II in exchange for receiving all of the outstanding shares of common
stock of Dala NV. The Merger Shares were then immediately distributed by
Chisholm II on a pro rata basis to its members, including the Chisholm II
Members that are party to this Agreement.

B.

In conjunction with the Merger, Dala DE received $2,025,000 from investors in
consideration of the issuance of 2,025 shares of its Series A 6% Convertible
Preferred Stock at the offering price of $1,000 per Unit (the “Offering”). Each
Unit consisted of one share of Series A 6% Convertible Preferred Stock,
convertible at any time at the option of the Holder into common stock at the
conversion price of $0.70 per common share based on the total dollar amount
invested (subject to adjustment as set forth in the Company’s Series A 6%
Convertible Preferred Stock Certificate of Designation that was filed on May 30,
2014), and 1,429 warrants to purchase common shares of the Company at an
exercise price of $1.35 per share within three years of the “Effective Date,” as
such term was defined in the Stock Purchase Agreement for the Offering.

C.

The Merger and the Offering were governed by a series of Transaction Documents
including a Stock Purchase Agreement, Registration Rights Agreement, Agreement
and Plan of Merger, Private Placement Memorandum, Lock Up Agreements,
Certificate of Designation (collectively referred to herein as the “Transaction
Documents”).

D.

After the Merger and through May 2015, Dala DE, through its wholly-owned
subsidiary Dala NV, operated as an early-stage oil exploration company focused
on the Property. For the purposes of this Agreement, the

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combined operations of Dala DE and Dala NV are referred to herein as “Dala.” To
date, Dala has drilled five wells that had no commercial quantities of oil,
which were subsequently plugged and abandoned. Since May 2015, Dala has not had
sufficient funds to continue operations or its exploration program due to the
decline in the price of oil and difficult market conditions and due to the
Company’s financial condition.

E.

As a result of the lack of funds to continue its operations, the Company has
defaulted on some of the provisions in the Transaction Documents, including the
payment in cash of the dividends under the Certificate of Designation for the
Series A 6% Convertible Preferred Stock and other “Triggering Events” in Section
10 of the Certificate of Designation. The parties have evaluated and discussed
the viability of Dala’s continued operations and, as a settlement for the
violations of the Transaction Documents and in an effort to maintain the
Company’s viability, the parties have agreed to a partial separation of Dala’s
assets and a return of a portion of the Property to Chisholm II in exchange for
the return of a certain amount of the Merger Shares to the Company’s treasury by
the Chisholm II Members.

            NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants herein, the parties hereto agree as follows:

1.

Return of the Merger Shares

            Each of the Chisholm II Members shall surrender and transfer the
Dala DE common stock certificate(s) representing the number of shares of Dala DE
common stock listed below the signature of each Chisholm Member and further set
forth on Exhibit A attached hereto, representing a total of at least 70% of the
Merger Shares (the “Returned Shares”) along with medallion-guaranteed stock
powers (in a form similar to the sample attached as Exhibit F) sufficient to
such certificate(s), to the Board of Directors of Dala DE upon the execution of
this Agreement, and each Chisholm II Member hereby agrees that the Returned
Shares shall be considered no longer owned by the Chisholm II Members but shall
be considered returned and transferred to Dala DE’s treasury for cancellation.
Chisholm II shall coordinate with the Members of Chisholm II for the return of
the Return Shares and assignment of the oil and gas leases from Dala to Chisholm
II.

2.

Return of a Portion of the Property to Chisholm II

            Dala shall return a portion of the Property listed on Exhibit B
attached hereto to Chisholm II, which portion of the Property shall correspond
to the portion of the Merger Shares represented by the Returned Shares. Chisholm
II shall bear the cost and responsibility for all assignment and recording of
title to the transferred Property and any matter related thereto. Dala shall
retain the leases listed on Exhibit C attached hereto.

3.

Closing.

The return of the Merger Shares as set forth in Section 1 herein and the return
of a portion of the Property to Chisholm II as set forth in Section 2 herein
shall take place at a closing (the “Closing”), to be held at such date, time and
place as shall be determined by the parties at the same time as the closing of
the other Company transactions described in Section 17 herein.

At the Closing:

(a)

Chisholm II, on behalf of the Chisholm II Members, shall deliver to the Dala the
Returned Shares along with the medallion guarantees and other documents required
for the cancellation of the Returned Shares. The closing shall not occur unless
the amount of Returned Shares

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consists of at least 70% of the Merger Shares that were initially issued to the
Chisholm II Members as part of the Merger in June 2014. The amount of Property
to be returned to Chisholm II as part of this Agreement shall be proportionally
adjusted based on the amount of Returned Shares delivered by Chisholm II and the
Chisholm II Members.

For example, if 100% of the originally-issued Merger Shares are returned by the
Chisholm II Members as Returned Shares, Dala will receive 10,000,000 common
shares for cancellation and will then return to Chisholm 75% of the acreage in
the Property, or 60,000 acres (with Dala retaining 20,000 acres in the
Property). If 85% of the originally-issued Merger Shares are returned by the
Chisholm II Members as Returned Shares, Dala will receive 8,500,000 common
shares for cancellation and will then return to Chisholm 68.75% of the acreage
in the Property, or 55,000 acres (with Dala retaining 25,000 acres in the
Property). If 70% of the originally-issued Merger Shares are returned by the
Chisholm II Members as Returned Shares (the minimum threshold to close this
Agreement), Dala will receive 7,000,000 common shares for cancellation and will
then return to Chisholm 61% of the acreage in the Property, or 49,000 acres
(with Dala retaining 31,000 acres in the Property).

4.

Other Dala Assets

All other assets of Dala acquired by Dala before or after the Merger, including
both personal property, real property, and that portion of the Property not
being transferred to Chisholm II pursuant to the terms herein, shall remain the
sole and exclusive property of Dala. Chisholm II and each of the Chisholm II
Members hereby waive any rights or interests they may have in all such assets.

5.

Dala Liabilities

             Dala shall remain responsible for liabilities of Dala which accrued
or were incurred on behalf of Dala and are payable on the date of execution of
this Agreement and are specifically set forth on Exhibit D. Chisholm II shall
cancel all other liabilities owed to it by Dala as of the date of this
Agreement, and shall execute a waiver and release in the form attached hereto as
Exhibit E. Dala shall be responsible for any future debts of Dala including
those expenses incurred effectuating the terms of this Agreement.

6.

Indemnification

(a)

Subject to the terms and conditions of this Article 6, Dala shall indemnify,
defend and hold harmless William Gumma, Jonathan Wimbish, Clarence Cottman and
Chisholm Partners II (collectively, the “Indemnified Parties”)  from and against
any and all claims, actions, causes of action, demands, assessments, losses,
damages, liabilities, judgments, settlements, penalties, costs, and expenses
(including reasonable attorneys’ fees and expenses), of any nature whatsoever
(collectively, “Damages”) asserted against, resulting to, imposed upon, or
incurred by indemnified parties, directly or indirectly related to this
transaction or any way related to Dala.

(b)

As part of the consideration for the transaction contemplated hereunder, and, in
the absence of which the Indemnified Parties would not have entered into this
agreement, Dala hereby expressly retains, assumes, and covenants and agrees to
be fully responsible for all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
taxes, costs, expenses, duties and obligations. 

(c)

Indemnification proceedings.  In the event that any claim or demand for which
Dala (the “Indemnifying Party”), would be liable to the Indemnified Party under
this Section 6 is asserted against or sought to be

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collected from the Indemnified Party by a third party, the Indemnified Party
shall with reasonable promptness notify the Indemnifying Party of such claim or
demand, but the failure so to notify the Indemnifying Party shall not relieve
the Indemnifying Party of its obligations under this article 6, except to the
extent the Indemnifying Party demonstrates that the defense of such claim or
demand is materially prejudiced thereby.  The Indemnifying Party shall have 30
days from receipt of the above notice from the Indemnified Party (in this
section 6, the “Notice Period”) to notify the Indemnified Party whether or not
the Indemnifying Party desires at the Indemnifying Party’s sole cost and
expense, to defend the Indemnified Party against such claim or demand; provided,
that the Indemnified Party is hereby authorized prior to and during the Notice
Period to file any motion, answer or other pleading that it shall deem necessary
or appropriate to protect its interests or those of the Indemnifying Party and
not prejudicial to the Indemnifying Party.  If the Indemnifying Party elects to
assume the defense of any such claim or demand, the Indemnified Party shall have
the right to employ separate counsel at its own expense and to participate in
the defense thereof.  If the Indemnifying Party elects not to assume the defense
of such claim or demand (or fails to give notice to the Indemnified Party during
the Notice Period), the Indemnified Party shall be entitled to assume the
defense of such claim or demand with counsel of its own choice, at the expense
of the Indemnifying Party.  If the claim or demand is asserted against both the
Indemnifying Party and the Indemnified Party and based on the advice of counsel
reasonably satisfactory to the Indemnifying Party it is determined that there is
a conflict of interest which renders it inappropriate for the same counsel to
represent both the Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be responsible for paying separate counsel for the
Indemnified Party; provided however, that the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
all of the indemnified parties, regardless of the number of indemnified
parties.  If the Indemnifying Party elects to assume the defense of such claim
or demand, (i) no compromise or settlement thereof may be effected by the
Indemnifying Party without the Indemnified Party’s written consent (which shall
not be unreasonably withheld) unless the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party and (ii) the
Indemnifying Party shall have no liability with respect to any compromise or
settlement thereof effected without its written consent (which shall not be
unreasonably withheld).

7.

Governing Law and Forum

            This Agreement shall be construed and governed by and under the laws
of the State of Delaware, without regard to its choice of law principles.  Any
action, suit, or other legal proceeding which is commenced to resolve any matter
arising under or relating to any provision of this Agreement shall be commenced
only in a court of the State of Delaware (or, if appropriate, a federal court
located within the District of Delaware), and each party consents to the
jurisdiction of such court and agrees that legal process may be served by United
States certified mail, return receipt requested. Venue for any action shall be
in Dover County, State of Delaware (or, in the case of a federal court action,
in the District of Delaware).  Process in any proceeding referred to in the
preceding sentence may be served on any party anywhere.

8.

Notices

Any notice of other communication required or permitted by the Agreement must be
in writing and will be deemed given when (i) delivered in person; (ii) submitted
by facsimile with written confirmation of transmission; (iii) delivered by
overnight or two-day courier, with receipt and date of delivery stated; or (iv)
when mailed by U.S. First Class Mail addressed to:

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            (a)       

Dala at:

175 South Main Street

Suite 1410

Salt Lake City, Utah 84111

            (b)    

Chisholm II at:

1010 10th Street

Golden, CO  80401

(c)

The Chisholm II Members at the addresses listed on the signature pages attached
hereto.

9.

Waivers

            No failure of any party to insist on performance by another party,
of any its obligation in one instance will waive such party’s right to insist on
performance of that or any other obligation in the future. Any waiver by any
party of any provision of this Agreement shall be made expressly in writing and
not be considered to be a waiver of any subsequent breach of the same or any
other provision of this Agreement.

10.

Amendments

            This Agreement may not be modified or amended except by written
document signed by the parties.

11.

Parties

            This Agreement is for the benefit of, and binds, the parties, their
successors and permitted assigns.

12.

Cooperation

Chisholm II and each of the Chisholm II Members shall fully and promptly
cooperate with Dala with respect to the review and completion of financial
statements and reports required by the Securities Exchange Act of 1934, as
amended, for Dala or for any requests from any third party required to be
provided, including from any federal or state regulator or auditor. Dala shall
fully and promptly cooperate with Chisholm II with respect to any requests by
third parties related to any issue concerning the oil and gas leases being
returned to Chisholm II. At and at any time after the Closing, the parties shall
duly execute, acknowledge and deliver all such further assignments, conveyances,
instruments and documents, and shall take such other action consistent with the
terms of this Agreement to carry out the transactions contemplated by this
Agreement.

13.

Severability

            The provisions of this Agreement shall be deemed severable, and if
any part of any provision is held illegal, void or invalid under applicable law,
such provision shall be changed to the extent reasonably necessary to make the
provision, as so changed, legal, valid and binding. If any provision of this
Agreement is held to be illegal, void or invalid in its entirety, the remaining
provisions of this Agreement shall not in any way be affected or impaired but
shall remain binding in accordance with their terms.

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14.

Counterparts

This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.  This Agreement may be executed by facsimile or by email of
PDF or digital image format files of the executed signature page hereto.

15.

Further Assurances

Each party shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

16.

Related Transactions

Each of the parties hereto specifically acknowledges and agrees that they have
knowledge of certain Company-related transactions that are closing as of even
date herewith including:

(a)

The appointment of new people to the Company’s Board of Directors and to serve
as the Chief Executive Officer of the Company;

(b)

The cancellation of the warrants associated with the 675 Preferred Shares being
sold in private sale transactions;

(c)

The forgiveness of certain debt owed by the Company to some affiliates and
Preferred shareholders;

(d)

The payment by certain Preferred shareholders of certain liabilities owed by the
Company through the issuance of promissory notes;

(e)

The Cancellation of the Company’s Stock Option Plan;

(f)

The amendment of the Series A 6% Convertible Preferred Stock Certificate of
Designation to change the Conversion Price to $0.05 from $0.70.

(g)

The amendment of the Series A 6% Convertible Preferred Stock Certificate of
Designation to remove Section 7, “Certain Adjustments,” entirely;

(h)

The amendment of the Series A 6% Convertible Preferred Stock Certificate of
Designation to change the allowed “Permitted Indebtedness” amount to $200,000
from $100,000;

(i)

The waiver by the Company’s Preferred Shareholders of the Right of Redemption
upon Triggering Events for the Company’s violations of Section 10 of the
Certificate of Designation;

(j)

The waiver by the Company’s Preferred Shareholders of the late fee for unpaid
Dividends on the Series A 6% Convertible Preferred Stock as of January 1, 2016;

(k)

The waiver by the Company’s Preferred Shareholders of the First Right of Refusal
to purchase shares of the Series A 6% Convertible Preferred Stock from other
Preferred Shareholders as of even date herewith;

(l)

The waiver by the Company’s Preferred Shareholders of the “Most Favored Nation”
Provision in Section 4.18 of the Securities Purchase Agreement dated June 3,
2014; and

(m)

The execution of Stock Purchase Agreements between certain of the Chisholm II
members that own 675 shares of Dala DE’s Series A 6% Convertible Preferred Stock
and third parties through which the sellers are selling such shares of preferred
stock to a third party in a separate transaction.

[Remainder of page left intentionally blank; signature page to follow.]

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SIGNATURE PAGE TO PARTIAL CANCELLATION AGREEMENT

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
written above.

DALA DE:

Dala Petroleum Corp., a Delaware corporation

By: __/s/ William Gumma_______________

Name:

William Gumma

Title:

CEO

DALA NV:

Dala Petroleum Corp., a Nevada corporation

By: __/s/ William Gumma________________

Name: William Gumma

Title: President

CHISHOLM II:

Chisholm Partners II, LLC.

By: _/s/Clancy Cottman III________________

Name:

Clancy Cottman III

Title:

Managing Member

ABLE FAMILY TRUST

By: _/s/ Trey Able____________________

Name:

Trey Able, Trustee

Number of Shares Being Returned: 120,000

COTTMAN FAMILY TRUST DATED 1/17/2000

By: _/s/ Clancy Cottman__________________

Name:

Clancy Cottman III, Trustee

Number of Shares Being Returned: 1,550,000

EDWIN C. BROWN FAMILY TRUST

By: __/s/______________________________

Name:

Number of Shares Being Returned: 300,000

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J&M WIMBISH FAMILY TRUST

By: __/s/Jon Wimbish____________________

Name:

Jon Wimbish, Trustee

Number of Shares Being Returned: 800,000

KDND FAMILY TRUST

By: __/s/______________________________

Name:

Number of Shares Being Returned: 240,000

OIL & GAS TECHNOLOGY CONSULTANTS INC.

By: ____/s/____________________________

Name:

Number of Shares Being Returned: 960,000

ORINOCO REVOCABLE TRUST

By: _/s/ William Gumma__________________

Name:

William Gumma, Trustee

Number of Shares Being Returned: 1,830,000

By: __/s/Brian Bayley____________________

Name:

Brian Bayley

Number of Shares Being Returned: 600,000

By: __/s/ Charles Clark ___________________

Name:

Charles Clark

Number of Shares Being Returned: 60,000

By: __/s/Erin Cottman ____________________

Name:

Erin Cottman

Number of Shares Being Returned: 50,000

By: _/s/ Ronald J. Lincoln__________________

Name:

Ronald J. Lincoln

Number of Shares Being Returned: 120,000

By: _/s/ Terry Looper______________________

Name: Terry Looper

Number of Shares Being Returned: 1,410,000

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By: ____/s/ Bill Pearson____________________

Name:

Bill Pearson

Number of Shares Being Returned: 120,000

By: _/s/ Robert Pollack_____________________

Name:

Robert Pollock

Number of Shares Being Returned: 57,800

By: _/s/ Robert Redfearn____________________

Name: Robert Redfearn

Number of Shares Being Returned: 290,000

By: __/s/ Garrett Soden _____________________

Name:

Garrett Soden

Number of Shares Being Returned: 60,000

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EXHIBIT A

Shares Being Returned to the Company

As of March 3, 2016, assuming 100% participation by the Chisholm II Members.

This list will be updated at the Closing.

Shareholder Name

Stock Certificate Number

Number of Shares

J&M Wimbish Family Trust

1042

800,000

Robert L. Redfearn

1043

290,000

Terry Looper

1045

1,410,000

Able Family Trust

1046

120,000

Oil & Gas Technology Consultants Inc.

1047

960,000

Orinoco Revocable Trust

1048

1,830,000

Brian Bayley

1049

600,000

Edwin C. Brown Family Trust

1050

300,000

Bill Pearson

1051

120,000

Charles G. Clark

1052

60,000

Ronald J. Lincoln

1053

120,000

Garrett Soden

1058

60,000

KDND Family Trust

1059

240,000

Robert Pollock

1063

57,800

Erin Cottman

1065

50,000

Cottman Family Trust Dated 1/17/2000

1075

1,550,000

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EXHIBIT B

Leases to Be Delivered to Chisholm II

To be added upon filing with and processing by appropriate administrative
agencies.

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EXHIBIT C

Leases to Be Retained by Dala

Those leases not included in Exhibit B.

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EXHIBIT D

Continuing Dala Liabilities to Be Retained by Dala

 

All liabilities of Dala Petroleum Corp. and its subsidiary incurred as of the
Closing Date, and all future liabilities of Dala Petroleum Corp. except those
liabilities that are being forgiven in Exhibit E.

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EXHIBIT E

Waiver and Release of Certain Liabilities

Creditor

Description

Amount of Debt Forgiven

Chisholm Partners II, LLC

December 2015 Promissory Note

$7,315.08

Pacific Oil & Gas Company, LLC

June 2015 Promissory Note

$39,639.31

Balance assigned

Will Gray

Accrued salary prior to resignation in August 2015

$59,178.00

Clancy Cottman

Accrued monthly fee as director since May 2015

$12,500

Bill Gumma

Accrued monthly fee as director since August 2015

$0

Jon Wimbish

Accrued monthly fee as director since May 2015

$12,500

Chisholm Partners II, LLC

Accrued monthly fee under the Master Services Agreement since May 2015

$100,000

 

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EXHIBIT F

Sample Stock Power Form