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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 1 of 8
Case 08-38121     Document 28-4     Filed in TXSB on 02/03/2009     Page 1 of 2

   
seal [seal.jpg]
 
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ENTERED
02/04/2009
 

IN RE:
 
§
 
CASE NO. 08-38121
   
§
   
YAZOO PIPELINE CO., L.P., ET AL.,
 
§
 
Chapter 11
   
§
   
DEBTORS.
 
§
 
(Jointly Administered)

INTERIM ORDER AUTHORIZING
DEBTORS TO ENTER INTO DEBTOR-IN-POSSESSION
FINANCING PURSUANT TO 11 U.S.C. §§ 364(c)

This matter coming on to be heard on the Emergency Motion (I) for Order
Authorizing Debtors to Enter into Debtor-In-Possession Financing Pursuant to 11
U.S.C. §§ 364(c), (d) and (II) Request for Final Hearing (the "Motion"), filed
by Yazoo Pipeline Co., L.P., Matagorda Operating Company, and Sterling
Exploration & Production Co., LLC, debtors and debtors-in-possession in the
above captioned jointly administered case (the "Debtors"); the Court having
reviewed the Motion and having heard the statements of counsel in support of the
relief requested therein at an interim hearing before the Court (the "Interim
Hearing"); it appearing to the Court that (a) the Court has jurisdiction over
this matter pursuant to 28 U.S.C. §§ 157, and 1334 and (b) this is a core
proceeding pursuant to 28 U.S.C. § 157(b)(2); the Court finding that notice of
the Motion and the Interim Hearing under the circumstances was sufficient, and
having determined that the legal and factual bases set forth in the Motion and
at the Interim Hearing establish just cause for the interim relief granted
herein:

NOW, THEREFORE, IT IS HEREBY ORDERED THAT:

1.          The Debtors are hereby authorized to borrow money and perform their
obligations hereunder and in accordance with, and subject to, the terms of this
Interim Order.

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 2 of 8
Case 08-38121      Document 28-4     Filed in TXSB on 02/03/2009     Page 2 of 2

2.           The DIP Financing (as that term is defined in the Motion) is
approved, on an interim basis, in accordance with the terms set forth in the
Letter Agreement attached hereto as Exhibit "A."

3.           The Debtors may borrow up to $115,724.20 between the date of the
entry of this Interim Order and the date of the Final Hearing, in accordance
with the budget attached hereto as Exhibit "B."

4.           Any  amounts  funded to the Debtors by Houston American
Energy,  Corp. ("HAEC") shall (i) have priority over any or all administrative
expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy
Code; (ii) be secured by a lien on all property of the Debtors' estates that is
not otherwise subject to a lien; and (iii) be secured by a junior lien on
property of the estate that is subject to a lien, without the necessity for HAEC
to file financing statements, deeds of trust, or any other document typically
required under applicable non-bankruptcy law required for perfection of liens.

5.           The Final Hearing is scheduled for February 20, 2009 at 2:00 p.m.
The Debtors shall provide notice of the Final Hearing by mailing a copy of this
Interim Order to the parties on the Debtors' service list. Any party objecting
to the relief sought at the Final Hearing shall file an objection and serve the
objection on Okin Adams & Kilmer LLP, attn. Christopher Adams, 1113 Vine Street,
Suite 201, Houston, Texas 77002 not later than 5 days before the Final Hearing.

Date: February   4,. 2009

     
UNITED STATES BANKRUPTCY JUDGE

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 3 of 8
Case 08-38121     Document 28-2     Filed in TXSB on 02/03/2009     Page 1 of 6

Logo [logo.jpg]

LETTER AGREEMENT
Date: February 3. 2009

Re:
In re Yazoo Pipeline Co., LP., Matagorda Operating Company, and Sterling
Exploration & Production Co., LLC, Jointly Administered under Case No. 08-38121,
in. the Bankruptcy Court for the Southern District of Texas (the "Bankruptcy
Court"}; debtor-in-possession loan from. Elliptical. Production LLC;

Houston American Energy Corp. ("HAEC") enters into this Letter Agreement
(-'Agreement*') with Yazoo Pipeline Co., L.P., Matagorda Operating Company, and
Sterling Exploration & Production Co,, LLC ("Debtors")- debtors and debtors in
possession in. the above referenced jointly administered bankruptcy ease, for
the purpose of providing debtor in possession financing (''DIP Financing') to
Debtors under the terms provided herein and in the proposed interim and final
debtor-in-possession orders.
 
Subject to the Bankruptcy Court entering its interim and final orders approving
the DIP Financing, HAEC agrees to provide DIP Financing to the Debtors pursuant
to the following terms and restrictions:

·
Amount:   Maximum  total   advances   of $300,000   (the   "Maximum   Borrowing
Amount"), bearing interest at ten (10%) percent per annum until paid. The
initial advances made by HAEC after approval of this Agreement on an interim
bases shall not exceed the Interim Funding Amount (defined below). HAEC will
advance up to     the Maximum Borrowing Amount provided that such advances are
for purposes-and in amounts set. forth in: a budget acceptable to HAEC after
approval by the Court of the DTP facility and budget on a. final basis under 11
U.S.C. § 364. The Maximum Borrowing Amount may include: (a) prior to entry of an
order approving a sale of • Debtors' assets to HAEC, not more than $75,000
for payment of Debtors' professional   fees allowed by order of the Bankruptcy
Court; and (b) after entry of an. order approving the sale of Debtors' assets to
HAEC and upon closing of such sale, not more than the remaining unadvanced
balance, if any, of the Maximum Borrowing Amount for payment of Debtors'
professional fees allowed by order of the Bankruptcy Court; provided further,
however, that none of the funds advanced pursuant to the DIP Financing may be
used to pay professionals to assert and/or pursue adverse claims against HAEC
that may arise out of this or any other agreement or dealings in this bankruptcy
case.   In the event of a Terminating Event, professionals and the United States
Trustee shall have a carve-out. from the collateral securing this DIP Financing
in the amount of S35,000.

·
Interim Funding Amount: Up to $115,724.20 to be advanced by HAEC and expended by
Debtors strictly for the purposes and in the amounts set forth on the attached
budget. The sum of up to $72,915,09 shall be advanced by HAEC upon entry of an
interim order approving this Agreement. Subsequent advances up to, but.
not-exceeding, the Interim Funding Amount shall be made for purposes and in
amounts set forth in the attached budget, upon written request by
Debtors.("Funding Request''). Within 2 business days of receipt of the Funding
Request, HAEC will fund to the Debtors' debtor-in-possession bank account, by
check, wire transfer, or electronic transfer, the amount requested in the
Funding Request, up to but not exceeding the Interim Funding Amount.

Houston American Enery Corp

801 Travis Street, Suite 1425  ●  Houston, TX 77002  ●  Telephone
713.222.6966  ●  Facsmile  713.22.6440

EX A

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 4 of 8
Case 08-38121     Document 28-2     Filed in TXSB on 02/03/2009     Page 2 of 6

·
Term: The earlier of ninety (90) days from entry of an interim order approving
this DIP Financing (unless terminated prior to maturity --: see terminating
events), or the date on which a sale of Debtors' assets to HAEC pursuant to the
terms set forth below is consummated, in which case ail amounts advanced, all
accrued interest and all expenses due under the tonus of the DIP agreement,
including attorneys' fees, shall be deemed paid in full as of the closing of
such sale to HAEC;

·
Interest Simple interest of 10% per annum.

·
Priority:

(A) On an interim basis:

·
(i) With priority over any or all administrative expenses of the kind specified
in section 503(b) or 507(b) of the Bankruptcy Code; (ii) secured by a lien on
all property of the Debtors' estates that is not otherwise subject to a lien;
and (hi) secured by a junior lien on. property of the estate that is subject to
a lien.(B) On a final basis: With a senior lien on all property of the Debtors'
estates, save and except that such senior lien shall not prime the liens
securing the claims of the State of Texas arising under the oil, gas and mineral
leases described on the attached schedule.

·
Books and Records: HAEC and its professionals shall have full and immediate
access to all financial books and records of the Debtors and their accountants
during normal business hours. HAEC may inspect and copy (whether in paper,
electronic or digital format) the books and records and remove such copies from
Debtors' place of business,

·
Restrictions on Expenditures: No expenditure of DIP funds is permitted unless
for the purposes and. in the amounts provided in the budget attached to the
Order approving' DIP financing.   Debtors shall provide HAEC with proof
reasonably satisfactory to HAEC that it has expended the funds in accordance
with the budget.   Failure to comply with the foregoing terms shall constitute
acts of default under the DIP lending agreement.

·
Debtors shall execute a promissory note, and such deeds of trust, security
agreements and other loan documents as may reasonably be required by HAEC to
evidence the indebtedness and perfect the required liens and security interests
provided herein.

Sale of Assets to HAEC: As a condition of HAEC's obligations to make advances
under the DIP facility provided under this Agreement, Debtors agree to negotiate
in good faith and diligently prosecute and support Bankruptcy Court, approval
(by confirmed Plan or order entered pursuant to 11. U.S.C. § 363, as HAEC may
elect) of an agreement for the sale to HAEC or its nominee of Debtors' assets,
including all rights to all seismic data, including seismic data owned by
Matbay, LLC (and all interests of Charles Cheatham or his familiy members or
affiliates in such assets), save and except the Reserved Assets, as defined
below, free and clear of all liens, claims and encumbrances on substantially the
following terms and conditions:

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 5 of 8
Case 08-38121     Document 28-2     Filed in TXSB on 02/03/2009     Page 3 of 6

(a)
HAEC shall pay $5.6 million, or the amount necessary to pay all allowed claims
against Debtors, whichever is less. If the total allowed claims are less than
$5..3 million, HAEC shall pay 50% of the difference to Debtors as additional
consideration for the sale of Debtors" assets.

(b)
HAEC shall pay Debtors an additional $400,000, payable $100,000 quarterly,
beginning ninety (90) days after the closing of sale, provided that Charles
Cheatham performs required consulting services over a one year period as
required by HAEC and abides by an Area of Mutual Interest/Non-Compete Agreement
within the area comprising the Counties in which existing prospects and assets
of Debtors are located and all contiguous Counties, within such one year period.
Charles Cheatham shall act as a consultant to HAEC during the one year following
the closing of sale, and shall be compensated in the amount of $10,000 per
month, provided that be devotes his full time and attention to assisting HAEC in
operating and developing the acquired properties during such one year period.
Charles Cheatham shall serve as directed by HAEC, at its sole discretion, and
all final decisions as to the operation to the properties shall be at the sole
discretion of HAEC. To the extent Debtors or their affiliates have acted as
operators of any of their leases under applicable JOA's, it is understood and
agreed that HAEC or the entity of its choice shall serve as operator(s)
following the closing of sale.

(c)
Reserved Assets: Sterling shall reserve a 15% working interest in all of its
oil, gas and mineral, leases and a 15% interest in all other tangible assets of
Sterling, such as production platforms, equipment and infrastructure facilities
located thereon (proportionately reduced to Sterling's interest). Sterling shall
immediately be required to pay its share of all JIB and AFE expenses and abide
by the terms of all applicable JOA's (ie, this will not. be a carried interest).
Likewise, Yazoo shall retain a 15% interest in its assets, proportionately
reduced to Yazoo's interest.

(d)
Break-up Fee: The Plan or motion to sell shall, provide that a break-up fee of
$200,000 and all amounts clue and owing under (the DIP facility would be due and
payable to HAEC out of the proceeds of sale should Debtors sell, their assets to
a party other than HAEC or its nominee.

(e)
All of the foregoing being subject to customary due diligence, acceptable title
to the properties, customary representations and warranties and definitive
agreements acceptable to HAEC's counsel, in his sole discretion.

·
Terminating events: dismissal of case; conversion to chapter 7; appointment of
trustee; appointment of examiner; confirmation of a plan that does not pay or
satisfy the full balance due under the DIP Financing according to the terms
hereof, including accrued interest, immediately upon the effective date of the
plan; entry of an order lifting the stay to allow enforcement a judgment, lien
or security interest against any portion of the assets of the Debtor's estate.

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 6 of 8
Case 08-38121     Document 28-2     Filed in TXSB on 02/03/2009     Page 4 of 6

   
HOUSTON AMERICAN ENERGY CORP.
           
By:
/s/ John F. Terwilliger    
Name:
John F. Terwilliger    
Its
President
               
Accepted by:
 
YAZOO PIPELINE CO., L.P.
           
By:.
Matagorda Operating Company, its General Partner
           
By:
/s/  Robert C. Cheatham
   
Name:
Robert C. Cheatham
   
Title:
President
                   
STERLING EXPLORATION & PRODUCTION CO., L.L.C.
           
By:
Matagorda Operating Company, its Manager
           
By:
/s/  Robert C. Cheatham
   
Name:
Robert C. Cheatham
   
Title:
President
                   
MATAGORDA OPERATING COMPANY
           
By-
/s/  Robert C. Cheatham
   
Name:
Robert C. Cheatham
   
Title:
President

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 7 of 8
Case 08-38121     Document 28-2     Filed in TXSB on 02/03/2009     Page 6 of 6
 

 
GLO SEQ
ST#
DSCRPTN
LOCATION
OPERATOR
GLO LEASE#
 
 
       
1
106
N/2
MAT BAY
CAMTERRA
MF098644
2
106
S/2
MAT BAY
CAMTERRA
MF098645
3
87
 
MAT BAY
CAMTERRA
MF100558
4
171
#2,3
MAT BAY
MAIN ENERGY
MF066160
5
173
 
MAT BAY
MAIN, STERLING
MF075870
6
181
 
MAT BAY
STERLING
MF066162
7
130
 
MAT BAY
STERLING
MF087956
8
65
 
MAT BAY
STERLING
MF100557
9
105
 
MAT BAY
STERLING
MF102118
10
53
 
MAT BAY
STERLING
MF101112
11
59
S
HI 60
STERLING
MF093224 & 93469
12
60
N/2
HI 60
STERLING
MF093069
13
51
S/2
HI 60
STERLING
MF093213
14
95
 
MAT BAY
STERLING
MF103187
15
71
 
MAT BAY
STERLING
MF103352
16
193
 
MAT BAY
STERLING
MF062801
17
194
 
MAT BAY
STERLING
MF073324
18
308
 
MAT BAY
STERLING

 
 

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Case 08-38121      Document 29     Filed in TXSB on 02/04/2009     Page 8 of 8

COMBINED CASH EXPENSES 2009
                                                         
CASH DISBURSEMENTS
 
02/03/09
   
2/07/09-2/28/09
   
02/03/09-02/28/09
 
KROGER-SUPPLIES FOR JEFFERSON COUNTY FIELD WORKERS
    1,276.96             1,276.96  
STATE OF TEXAS-SEVERANCE TAXES DEC 2008 FOR MATAGORDA BAY GAS
    996.41             996.41  
R. CHARLES CHEATHAM-FEB 2009 CONSULTING FEE
    7,500.00       7,500.00       15,000.00  
BARCO BAY-JAN 2009-COMPRESSOR RENTAL-CALHOUN/MATAGORDA BAY PRODUCTION & SERVICE
    4,200.00               4,200.00  
PAYROLL DUE 2/3/09 FOR TWO WEEKS ENDING 1/30/09
    21,820.91               21,820.91  
INSURANCE-GENERAL LIABILITY & UMBRELLA-FLATIRON PREM FIN FOR GENERAL
LIABILITY-JAN 2009
    4,474.12               4.474.12  
INSURANCE-HEALTH INSURANCE-BLUE CROSS-BLUE SHIELD-EMPLOYEE HEALTH INSURANCE-JAN
2009
    6,216.99               6,216.99  
INSURANCE-HEALTH INSURANCE-PRINCIPAL FINANCIAL EMPLOYEE GROUP DENTAL INS-JAN
2009
    443.75               443.75  
INSURANCE-EMPLOYEE LIFE INSURANCE-FT DEARBON LIFE -EMPLOYEE TERM LIFE
    141.50               141.50  
INSURANCE WORKMAN'S COMP-AMERICAN INTNL GRP-JAN PREM-DUE 1/29/09
    2,013.00               2,013.00  
GRAY WIRELINE SERVICE-ST 194 WELL #5-2 DAYS CHARGE TO PLUG WELL
    7,000.00               7,000.00  
COMPRESSOR RENTAL-JEFFERSON CTY JAN 2009-EXTERRAN
    15,130.45               15,130.45  
SOUTHERN FLOW COMPANIES GAS ANALYSIS DOW PIPELINE-YAZOO 12/29,/31/08/1/21/09
    593.00               593.00  
WOOD GROUP PRODUCTION SERVICES, INC.JAN 2009 RENTAL GENERATOR HI-60
    1,108.00               1,108.00  
RYAN MARINE -BOAT SERVICE TO HI-60-JAN 2009
            8,801.64       8,801.64  
GULF COAST COMPANIES, INC-HI 60-GLYCOL-JAN 2009
            3,665.00       3.665.00  
GULF COAST MEASUREMENT-HI-60 REPAIRS-JAN 2009
            1,555.20       1,555.20  
ACCENT BUSINESS PRODUCTS, INC-1099 FORMS FOR 2008
            123.14       123.14  
MICRO COMMUNICATION-HI 60 RIG COMMUNICATIONS FOR JANUARY 2009
            2,489.75       2,489.75  
XO COMMUNICATIONS JANUARY 2009 COMMUNICATION-OFFICE & INTERNET
            1,518.92       1,518.92  
VERIZON WIRELESS-CELL PHONE USE JAN 2009
            875.95       875.95  
GRIFFIN PARTNERS LTD-RENT JANUARY 2009
            8,184.09       8,184.09  
PRIVATE MINI STOREAGE-FILE STORE FOR JAN 2009
            235.00       235.00  
MATCHEK GAUGING-GAUGING-JAN-DOW PIPELINE
            600.00       600.00  
AGGREKO-GENERATOR RENTAL-JAN 2009-JEFFERSON COUNTY PRODUCTION
            6,285.42       6,285.42  
US TRUSTEE-MINIMUM QUARTERLY FEE 4TH QTR 2008
            975.00       975.00                            
TOTAL EXPENSES
    72,915.09       42,809.11       115,724.20  

 
 
Ex B

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