January 3rd, 2017

 

Houston American Energy Corp.

Attn: Mr. John P. Boylan, President

801 Travis, Suite 1425

Houston, TX 77002

Sent via-email: jpb@houstonamerican.com

 

  RE: Participation Agreement     WolfBone Prospect, Johnson & O’Brien Leases  
  Reeves County, Texas, containing 800 acres, more or less

 

Gentlemen:

 

This Letter Agreement (“Agreement”) dated January 3rd, 2017, but effective as of
the date executed by all parties (the “Effective Date”), is made by and between
Founders Oil & Gas III, LLC, a Delaware limited liability corporation, whose
address is 113 Corporate Drive, Midland, TX 79705, (“Founders”) and Houston
American Energy Corp., a Delaware corporation, whose address is 801 Travis,
Suite 1425, Houston, TX 77002, (“Houston American”). Founders and Houston
American are referred to herein individually as a “Party” or collectively as
“Parties”. This Agreement shall evidence the agreement between the Parties
concerning the acquisition of interests in certain oil and gas leases in and to
the captioned land, the drilling of the initial test well (the “ITW”) and any
subsequent well or wells (“Well”) on said lands and the operating and
development as more particularly set forth herein.

 

Founders is the owner of the oil and gas leases identified on Exhibit A (the
“Leases”) and lying within the boundaries of the lands identified on Exhibit
A-1, (the “Prospect”) and Houston American desires to participate in the
exploration, development and production of oil and gas from the Prospect.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties do hereby agree that
the exploration and development of the Prospect, the drilling of the ITW, and
any exploration and development within the Prospect shall be governed by the
terms of this Agreement and by a Joint Operating Agreement (“JOA”) entered into
between the Parties in accordance with the terms of this Agreement.

 

   

 

 

January 3rd 2017

 

1. Subject to the terms of this Agreement and upon receipt of the Lease Bonus
amount of $5,500.00 per mineral acre x 25.00% interest, to be paid no later than
February 28, 2017, Founders shall assign to Houston American an undivided
Twenty-Five percent (25.00%) of 8/8th interest in the Leases (Houston American’s
“WI”), subject to proportionate reduction language. The assignment to Houston
American (“Assignment”) shall be in the form attached hereto as Exhibit B, and
shall be subject to the terms and provisions of the Leases, the terms of this
Agreement and its attachments, any subsequent JOA executed by the Parties, and
shall be made with no warranty of title, except by, through and under Founders.
The Assignment shall deliver at least a Seventy-Five percent (75.00%) net
revenue interest in the Leases. In the event that any of the Leases require
consent of the Lessor prior to any assignment of said Lease to a third party and
such consent has not been acquired by February 28, 2017, the Parties agree that
the assignment from Founders to Houston American shall be executed as soon as
possible after obtaining Lessor’s consent to assign. In the event the consenting
Lessor requires information about Houston American prior to consenting to assign
the Lease, Houston American agrees to cooperate and provide all information
necessary to Founders to assist in obtaining the Lessor’s consent.     2. On or
before February 28, 2017, the Parties shall execute a JOA in substantially the
form of Exhibit C attached hereto, naming Founders or its sister entity,
Founders Oil and Gas Operating, LLC, as operator (“Operator”) and Houston
American as non-operator and governing the operations for each well within the
Prospect. On or before July 1, 2017, unless otherwise agreed to by the Parties,
the Operator shall commence actual drilling for the ITW on the Prospect as
further set forth in the JOA. The JOA shall be construed with and constitute an
integral part of this Agreement and shall govern the operation of the oil and
gas leases and all operations within the Prospect. In the event the terms of the
JOA shall be in conflict with this Agreement, the terms of the JOA shall
control. The Parties agree to execute a Memorandum of Operating Agreement
(“Memorandum”) in the form attached hereto as Exhibit D. The Memorandum shall be
filed in clerk’s official public records in Reeves County, Texas.     3. Houston
American shall bear and pay based on its WI all costs of drilling the ITW and
all subsequent wells drilled in the Prospect in accordance with the terms of the
JOA. Notwithstanding anything else contained herein to the contrary, the Parties
acknowledge that the Prospect is subject to a 5% working interest back-in after
payout to Greg McCabe, or his designee (the “McCabe Back-In”), and the details
of such back-in shall be set out in detail by separate agreement as well as the
JOA. The Parties shall bear their proportionate share of the McCabe Back-in.

 

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January 3rd 2017

 

4. If the Leases cover less than the entire fee mineral interest in the lands
covered by the Lease or if Founders owns less than the full leasehold estate in
the Lease, the respective interest in the Leases of Founders and Houston
American shall be proportionately reduced. Additionally, in the event of the
pooling of the Leases in accordance with the terms of the Leases by the
Operator, in accordance with the terms of the JOA, the interest of the Parties
shall be computed and paid in proportion that the surface of the Leases included
in such pooled unit bears to the total surface area included in such pooled
unit.     5. Once final lease acquisition has been completed, drill site or
drilling unit title approved, and a drilling rig scheduled, Operator shall
forward an Authority for Expenditure (“AFE”) for the drilling of the ITW along
with a generalized well procedure as set out in the JOA. The JOA shall govern
all operations conducted on the Prospect. The costs of drilling ITW and each
subsequent Well to casing point shall include, but not be limited to the
following:       a. Obtaining Title Opinion and costs for obtaining all
necessary curative materials;       b. Staking and building location and road;  
    c. Drilling the ITW and subsequent Wells to the objective depth in
accordance with the JOA;       d. Insurance and permit fees; and       e. All
logging, coring, testing and other open-hole evaluations.     6. Subject to the
terms set forth in the JOA, any notice required hereunder shall be in writing
and shall be delivered via US Mail, courier facsimile or overnight private mail
service. Notice shall be deemed given when received by the Party to whom it is
addressed. The address at which a Party hereto is to receive notice may be
changed from time to time by such Party by giving written notice of the new
address to the other Party.

 

  Notices shall be delivered to:           Houston American Energy Corp.
Founders Oil & Gas, Inc.   801 Travis, Suite 1425 113 Corporate Drive   Houston,
TX 77002 Midland, TX 79705   Attention: John P. Boylan Attention: Brian M. Sirgo
  Email: jpb@houstonamerican.com Email:bmsirgo@foundersoilandgas.com  
Facsimile: 713-222-0345 Facsimile: 432-684-7777

 

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January 3rd 2017

 

7. The rights and liabilities herein of Parties shall be individual and several
and not joint or collective. The Parties do not intend to create a mining
partnership or other partnership or association between themselves or to render
themselves liable as partners or associates. Nothing herein shall be construed
as an authorization of one party hereto to act as general agent for the other
party or to permit either party to act for or on behalf of the other party
outside the terms of this Agreement and the JOA.     8. This Agreement shall be
binding upon and shall inure to the benefit of the Parties and, except as
otherwise prohibited, their respective successors and assigns, provided that
nothing contained in this Agreement, or implied herein, is intended to confer
upon any other person or entity any benefits, rights or remedies. This Agreement
may not be assigned by either Party, in whole or in part, without the express
written consent of the other Party, which consent shall not be unreasonably
withheld, conditioned or delayed. Any subsequent assignment that has been
approved by the other Party hereunder shall contain a provision indicating that
the assignment is made subject to this Agreement and the JOA and the assignee
shall agree to be bound by the terms and conditions hereof.     9. This
Agreement, together with the Exhibits hereto, represents the entire agreement
between the Parties with respect to the subject matter hereof and replaces all
previous agreements, oral or written, made and entered into between the Parties.
This Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the Parties hereto.     10. This Agreement and
the transactions contemplated hereby shall be construed in accordance with, and
governed by, the laws of the State of Texas, without reference to its conflict
of law provisions. Should any provision of this Agreement be declared
unenforceable by operation of law or by reason of ambiguity, the remaining
provisions of this Agreement shall nonetheless remain in full force and effect
and the unenforceable provision shall be modified so as to conform to the intent
of the Parties with respect to such provision.

 

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January 3rd 2017

 

11. This Agreement is subject to approval by Houston American’s board of
directors. And, as the amount of capital required to commit to this project is
subject to Houston American’s ability to raise this amount in the public
markets, this offer is made subject to suitable financing. A resulting capital
raise of this size in the public markets may subject Houston American to
Securities and Exchange rules requiring a favorable vote by a majority of
Houston American’s shareholders. Therefore, this Agreement could be subject to a
shareholder vote for final approval.     12. This Agreement may be executed in
counterpart and each counterpart shall be deemed an original for all purposes
and shall be binding upon each Party executing the same, whether or not executed
by all Parties hereto.     13. This Agreement shall be effective as of the
Effective Date and shall remain in full force and effect until such time as the
first of the following occurs: (i) Founder does not receive an executed copy of
this Agreement, or (ii) Founders has not received from Houston American the
Lease Bonus amount as provided by Paragraph 2 above on or before February 28,
2017, or (iii) Houston American has executed the JOA and received the assignment
of its interest in the Leases from Founders as provided for herein fulfilling
the obligations set forth on this Agreement. Upon termination of this Agreement,
any and all ongoing relationship between the Parties will be governed by the
JOA.     If the foregoing correctly sets forth your understanding of our
agreement, please indicate your acceptance by your execution as set forth below
and return a fully executed copy of this Agreement.

 

  Founders Oil and Gas III, LLC         By: /s/ Brian M. Sirgo     Brian M.
Sirgo, President

 

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January 3rd 2017

 

Agreed to and accepted this 4th day of January, 2017.

 

  Houston American Energy Corp.         By: /s/ John P. Boylan     John P.
Boylan, President

 

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