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Exhibit 10.6
 
 
 
February 24, 2011
 
Blast Energy Services, Inc.
14550 Torrey Chase Blvd. Suite 330
Houston, TX 77014

Ladies and Gentlemen:

Reference is made to that certain Note Purchase Agreement, dated as of February
24, 2011 (as it may be amended, supplemented, restated or otherwise modified
from time to time, the “Purchase Agreement”) by and among Blast Energy Services,
Inc., a Texas corporation (the “Company”), and XXXXXXXXX, a Delaware limited
liability company (the “Investor”).  Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Purchase Agreement.
 
Pursuant to and in accordance with the terms and conditions of the Purchase
Agreement, the Investor agreed to purchase the First Tranche Note and the Second
Tranche Note from the Company. The Company and the Investor have agreed to make
certain other agreements among themselves as set forth in this letter agreement
(this “Agreement”) in addition to and apart from those in the Purchase
Agreement, but based on the extension of credit under the Purchase Agreement.
 
NOW, THEREFORE, in consideration of the foregoing and of the agreements herein
contained and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
 
1. Payments.  The Company hereby agrees that, in addition to the payments
required under the Notes and the other Transaction Documents, but in
consideration of the amounts advanced under the Purchase Agreement, the Company
shall pay or cause to be paid to the Investor 30% of all amounts earned (prior
to deduction by the Company or any other Person of any expenses, fees, costs,
taxes or other amounts in connection with such amounts earned) by the Company
under the Test Well (as defined in that certain Guijarral Hills Farmout
Agreement (as amended, amended and restated, supplemented or otherwise modified
from time to time, the “Farmout Agreement”) among the Company, Solimar Energy
LLC and Neon Energy Corporation) or the Substitute Well (as defined in the
Farmout Agreement; the Test Well and the Substitute Well are referred to herein
as the “Subject Well”); provided that if the Subject Well achieves an initial
production average equal to or greater than 400 barrels of oil equivalent per
day for the period commencing on the first day on which the Subject Well is at
full production (it being understood that full production shall be measured as
the highest production the Subject Well achieves within the first 60 days
following the date the Subject Well begins producing) and ending on the 30th day
thereafter (the “Triggering Event”), the Company’s obligation under this section
shall be limited to 30% of the Company’s earnings (prior to deduction by the
Company or any other Person of any expenses, fees, costs, taxes or other amounts
in connection with such earnings) on only 400,000 gross barrels of production
(the “400,000 Barrels”), from such wells (which may or may not include the
Subject Well) as the Company may determine in its sole discretion.  In the event
the Triggering Event occurs, this Agreement and the requirements hereunder shall
automatically expire upon payment to the Investor of the fees due above in
connection with such 400,000 Barrels.  Each such payment shall be made to the
Investor by the Company not later than one Business Day after such amount is
earned under the Farmout Agreement.  The parties acknowledge and agree that, for
purposes of this Section 1, amounts earned by the Company under the Subject Well
shall include, without limitation, amounts earned from the sale, assignment,
transfer or other disposition by the Company of any interest in the Subject
Well.
 
 
 
 

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2. Production Report and Lease Operating Statements.  Within 40 days after the
end of each production month (unless for gas, then within 60 days after the end
of each production month), (i) a report setting forth, for each calendar month
during the then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and the
revenues derived from such sales) for each such calendar month from the Subject
Well, and setting forth the related ad valorem, severance and production taxes
and lease operating expenses attributable thereto and incurred for each such
calendar month, and internet access to the Company, real time reports of sales
of production, and (ii) a statement from the “first purchaser” setting forth the
volumes of hydrocarbons sold, the price received and Company’s share of the
proceeds.
 
3. Representations and Warranties.  The Company represents and warrants to the
Investor that the execution and delivery by the Company of this Agreement, and
all other documents, instruments and agreements executed in connection with this
Agreement, and the performance by the Company of each of the transactions herein
contemplated (i) are and will be within the Company’s powers, (ii) have been
authorized by all necessary organizational action, (iii) are not and will not be
in contravention of any order of any court or other agency of government, of law
or any other indenture, agreement or undertaking to which the Company is a party
or by which the property of the Company is bound, or be in conflict with, result
in a breach of, or constitute (with due notice and/or lapse of time) a default
under any such indenture, agreement or undertaking or result in the imposition
of any lien, charge or encumbrance of any nature on any of the properties of the
Company and (iv) constitute the valid and binding obligation of the Company,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, receivership and similar
laws affecting the enforcement of creditors’ rights generally and general
equitable principles.
 
4. Right of First Offer; Right of First Refusal.  (a) If the Company or any
Subsidiary shall desire to raise new capital by the issuance of any Indebtedness
or equity interests (i) during the period commencing on the date of this
Agreement and ending on the date that is one year after the last maturity date
of any of the Notes or (ii) for so long as the Company is paying royalties to
the Investor pursuant to the Royalty Payment Agreement, then the Company or such
Subsidiary shall notify the Investor thereof in writing (an “Offer Notice”) and
the Investor shall, not later than five (5) Business Days after its receipt of
such Offer Notice, present to the Company or such Subsidiary in writing the
terms and conditions pursuant to which the Investor will purchase such
Indebtedness or equity interests (the “Offer Proposal”).  If the Company or such
Subsidiary and the Investor are not able to agree on the terms of the issuance
of such Indebtedness or equity interests within five (5) Business Days after the
delivery of such Offer Proposal, the Company or such Subsidiary shall be
permitted to negotiate with unaffiliated third parties for the issuance of such
Indebtedness or equity securities.  If the Company or such Subsidiary and the
Investor are able to agree on the terms of the issuance of such Indebtedness or
equity interests, then the Company or such Subsidiary and the Investor shall
consummate such transaction within twenty (20) Business Days thereafter.
 
 
 
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(b) If the Company or such Subsidiary has complied with the requirements set
forth in 4, in the event that the Company or such Subsidiary and the Investor do
not agree on the terms of the issuance of such Indebtedness or equity interests
or the Investor elects  not to make an Offer Proposal within the time period set
forth in 4, the Company or such Subsidiary may, for a period of ninety (90) days
(the “Offer Period”), attempt to identify an unaffiliated third party to provide
such new capital to the Company or such Subsidiary (a “Third Party Investor”);
provided, however, that the terms and conditions offered to any Third Party
Investor shall be no more favorable to the Third Party Investor than the terms
set forth in the Offer Proposal.  In the event that the Company or such
Subsidiary identify a Third Party Investor during the Offer Period, the Company
or such Subsidiary shall give to the Investor a written notice of the Company’s
or such Subsidiary’s intention to enter into a transaction with a Third Party
Investor (a “Notice of Intent”) stating the terms and conditions of such
transaction (which terms shall comply with the proviso of the immediately
preceding sentence); provided, that if the Company provides evidence reasonably
satisfactory to the Investor that such Third Party Investor is not an affiliate
of the Company or any of the Company’s Subsidiaries, then the Company shall not
be required to provide to the Investor the name of such Third Party
Investor.  The Company or such Subsidiary shall attach to the Notice of Intent a
duplicate original of the offer from the Third Party Investor, and the Notice of
Intent shall include evidence demonstrating the Third Party Investor’s
capability to consummate such transaction and the nature of the offer.  The
Investor shall then have the option to purchase, at the price and on the terms
set forth in the Notice of Intent, the Indebtedness or equity interests offered
thereby.  The Investor may accept such offer by delivering written notice to the
Company or such Subsidiary not later than five (5) Business Days after the
Investor’s receipt of the Notice of Intent.  If the Investor does not elect to
accept such offer within the time period set forth herein, the Company or such
Subsidiary may consummate the transaction with the Third Party Investor, upon
terms, including price, which are no more favorable to the Third Party Investor
than those specified in the Notice of Intent.  The closing of any purchase of
Indebtedness or equity interests by a Third Party Investor must take place
within twenty (20) Business Days of the expiration of the Investor’s option to
accept such offer under this 0 and, if the closing relates in whole or in part
to the purchase of Indebtedness that will not be subordinate to the obligations
of the Company to the Investor under the Notes and the other Transactions
Documents pursuant to a subordination agreement in form and substance acceptable
to the Investor, the proceeds of thereof are sufficient to pay in full the
obligations of the Company to the Investor under the Notes.
 
 
 
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5. Indemnification.  The Company hereby agrees to indemnify the Investor from
and against all losses, costs, expense, demands and damages whatsoever which the
Investor may suffer or incur in respect of any claims which have or may be
brought by any third party relating to this Agreement, the Transaction Documents
or the transactions contemplated hereby or thereby; provided that the Company
shall not be obligated to indemnify the Investor for any losses, costs,
expenses, demands or damages that are determined by a final and nonappealable
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Investor.  This indemnity shall continue
in full force and effect after the termination of the Purchase Agreement, the
other Transaction Documents, or this Agreement and notwithstanding the
completion of the other matters referred to in this Agreement.  This
indemnification is in addition to and shall not limit any other indemnification
agreement between Company and the Investor, and shall be included within the
obligations due to the Investor under the Purchase Agreement.
 
6. Effectiveness.  This Agreement shall be effective as of the date of this
Agreement, upon the Investor’s receipt of this Agreement, duly executed by
Company, and shall terminate upon the payment by the Company of the amounts
required to be paid pursuant to Section 1.
 
7. Agreement and Assignment.  This Agreement may be amended, modified, waived,
discharged or terminated only by a written instrument executed by Company and
the Investor.  This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties, except that Company may not
transfer, assign or delegate any of its respective rights, duties or obligations
hereunder.  Notwithstanding anything to the contrary herein, the Investor may
assign its rights under this Agreement without the consent of the Company. No
rights are intended to be created hereunder for the benefit of any third party
donee, creditor or incidental beneficiary of Company.
 
8. Governing Law.  This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such State.
 
9. Purchase Agreement.  Except for the matters expressly set forth herein, the
Purchase Agreement shall remain in full force and effect in accordance with its
terms.  This Agreement, and the definitions referenced herein, shall remain
effective, notwithstanding the termination of the Purchase Agreement.
 
10. Counterparts.  This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, and such
counterparts together shall constitute one and the same respective
agreement.  Signature by facsimile or PDF shall bind the parties hereto.
 
[SIGNATURE PAGES FOLLOW]
 

 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
 
XXXXXXXXX
   
By:
/s/ XXXXXXXXX
 
Name: XXXXXXXXX
 
Title: Authorized Signatory
 

 

 
Acknowledged and agreed and intending to be legally bound as of the date first
noted above:
 
BLAST ENERGY SERVICE INC.
   
By:
/s/ Michael L. Peterson
 
Name: Michael L. Peterson
 
Title: President