LETTER AGREEMENT

 

This Agreement dated September 26th, 2006, and having an effective date of
September 26th, 2006, is made by and between MorMeg, LLC, a Kansas limited
liability company, referred to herein as “MorMeg”, and EnerJex Resources, Inc.,
a Nevada corporation, referred to herein as ”EnerJex”. MorMeg and EnerJex are
jointly referred to herein as “the parties”. It is the desire of the parties to
enter into this Letter Agreement (agreement) to define the terms of an option to
participate in a joint exploration effort in Woodson and Greenwood Counties,
Kansas, and to agree to certain major terms of a “Joint Exploration Agreement”
that the parties envision will be required to govern the joint exploration
project subsequent to the option herein described being exercised. To this end,
the parties agree to the following recitals:

 

A. RECITALS

 

1.

MorMeg owns and operates producing oil and gas leases with remaining primary and
secondary oil reserves, described in Exhibit “A” of this agreement. MorMeg has
performed certain evaluations to estimate the remaining oil and gas potential of
the leases. MorMeg desires to enter into a Joint Exploration Agreement (JEA) for
the purpose of offering working interest in and to the leases in exchange for
investment funds to further develop and produce the remaining oil and gas
reserves on the leases. The parties agree that the MorMeg owned leases referred
to herein are valued at Four Million United States Dollars ($4,000,000.00 US),
and that each of the separate lease blocks described in Exhibit “A” and Section
“B” are valued at Two Million United States Dollars ($2,000,000.00 US), on the
day this agreement is signed by the parties.

2.

EnerJex has enlisted the services of certain experts to independently evaluate
and quantify the remaining oil and gas reserves within the leases. As a result
of their independent evaluation, EnerJex believes that substantial commercial
oil and gas reserves remain to be produced on the leases. This is the basis upon
which Enerjex desires to inter into this agreement, and subsequent agreements,
to define a joint exploration arrangement with MorMeg to fully develop the
leases.

3.

The intent of the parties is to create an exclusive 90 day option for EnerJex to
secure financing for joint exploration participation in the MorMeg owned leases.
The activities and estimated cost of the participation are described in Exhibits
“B” and “C” of this agreement. The parties further intend to describe herein and
agree in advance to the major terms of a future Joint Exploration Agreement that
will control the joint exploration project after EnerJex secures the funds
necessary to complete the activities listed, with cost estimates, in Exhibits
“B” and “C” attached hereto.

4.

The parties agree that MorMeg will contribute working interest in and to the
producing leases, as well as all its knowledge, proprietary and intellectual
property concerning the leases, in the effort to develop the remaining oil and
gas reserves through primary and secondary means.

5.

EnerJex will contribute the exploration and development funding necessary to
fully develop the remaining oil and gas reserves in exchange for assignments of
in and to the leases, and working interest revenue from the production of oil
and gas from the leases, in the manner and amounts prescribed herein and in a
future Joint Exploration Agreement.

 

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B. DESCRIPTION OF LEASES

 

The parties hereby establish the legal description of two separate blocks of oil
and gas leases, individually referred to as “Black Oaks” and “Nickel Town”, and
collectively referred to as “the leases”. The leases are described in Exhibit
“A” hereof.

 

C. 90 DAY OPTION

 

MorMeg hereby grants to EnerJex a 90 day exclusive option, beginning at the
execution of this agreement, to secure necessary financing to complete the
activities described in Exhibits “B” and “C” hereof, and to participate in the
development and ownership of the leases. It is understood by the parties that
financing may be obtained in incremental amounts and not as one amount
representing the entire investment required to complete the activities in
Exhibits “B” and “C”. The parties agree that if only partial financing is
secured by EnerJex, then obtaining funds beyond the initial incremental minimum
amount may depend on satisfactory increases in oil production as a result of
previous expenditures in order to warrant further investment financing. For
purposes of minimum qualification to participate in the joint exploration as
described above, EnerJex must obtain and contribute no less than Four Million
United States Dollars ($4,000,000.00 US) for project activities. For and in
consideration of the above described 90 days option, EnerJex will pay MorMeg One
Hundred Thousand United States Dollars ($100,000.00 US).

 

D. AGREEMENT

 

Once EnerJex obtains the minimum financing, and desires to exercise its option
as stated above, EnerJex will so notify MorMeg and, within Fourteen (14) days of
said notification, sign a Joint Exploration Agreement (JEA) to govern the
activities envisioned above. Upon signing a mutually agreeable JEA, MorMeg will
receive a one time premium payment of Four Hundred Thousand United States
Dollars ($400,000.00 US) as inducement for item #3 below. In order to clarify
and expedite the creation of the future JEA, the parties hereby agree to the
following points envisioned to be major components of the future JEA.

 

1.

The parties will establish a separate operating account to receive
investment/finance funds and other revenue generated by the activities.
Accounting of the project’s financial matters will be undertaken jointly by the
parties or by mutual agreement.

2.

MorMeg will perform the field operations as the exclusive contractor for the
project’s activities. MorMeg will perform the activities as contractor at its
cost plus twenty percent of cost. In the case of drilling, MorMeg will use
thirteen dollars per foot as the cost figure to which twenty percent will be
added. All other invoices will be submitted for payment to the operating account
at MorMeg cost including any discounts or premiums available to MorMeg from
purchases in connection with the leases plus twenty percent.

3.

The current oil production, which is owned by MorMeg and estimated to be sixty
five barrels of oil per day, shall be made available to Enerjex only after it
has secured guaranteed funding for the entire amounts listed in Exhibits “B” and
“C” hereof. If the amount of guaranteed funding secured by EnerJex is less than
that listed in Exhibits “B” and “C”, but meets the minimum incremental amount of
Four Million United States Dollars ($4,000,000.00 US), EnerJex may participate
in the activities described in Exhibit “B” for Black Oaks only, and in that
event, only title and oil production from Black Oaks may be used to secure
financing for the project’s costs. If it is necessary for EnerJex to participate
in Black Oaks only, as described above, then after completion of all the
activities listed in Exhibit “B”, EnerJex shall be granted an eighteen month
option to participate in the Nickel Town lease block under the same terms as if
the leases were participated in together as described in this agreement and the
future JEA.

 

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4.

MorMeg will retain five percent (5.0%) carried working interest in and to the
leases. At pay-out of the project’s total expenses from revenue, MorMeg’s five
percent (5.0%) carried interest shall convert to a thirty percent (30.0%)
working interest in and to the leases. The term “pay-out” as used herein is
defined as that point in time when total cumulative revenue from the project
equals all the project’s expenditures including, but not limited to, royalties,
gross production or severance taxes, drilling, completion, and production
operating expenses.

5.

After EnerJex has contributed the minimum investment stated above, EnerJex will,
within a reasonable length of time, secure and contribute additional funding so
as not to cause more than thirty (30) days delay of project activities due to
lack of funding to complete the project. In the event EnerJex is successful in
obtaining the minimum first amount of project funding, but is not able to obtain
additional funding, or all funding, to complete all the activities described in
Exhibit “B”, MorMeg may cancel and declare the JEA of no force and effect from
the point of cancellation forward. In the event of cancellation of the JEA by
MorMeg, the following procedure and formula will be used to distribute the
ownership and pay the debts of the project.

 

A.

The project revenues from whatever source will be used to repay all debt
associated with the project.

 

B.

When the project debt is paid, the working interest of the individual leases
within the block will be assigned in the same proportion as the total EnerJex
investment bears to the pre-project commencement value stated in the recitals
above. The parties agree to reassign working interest if necessary to
redistribute the working interest according to the above formula.

6.

It is agreed that all the joint exploration activities and resources will be
dedicated to the Black Oaks project until the completion of all activities in
Exhibit “B”.

 

E. DATA SHARING

 

1.

The parties agree that, upon availability, each will supply the other with all
information relating to the activities herein described. Said information shall
include, but not be limited to, well logs, daily drilling reports, engineering
and reservoir studies, governmental and legal filings, production and sales
revenue accounting, and any other information pertinent to the activities herein
described, or to the parties interests herein.

2.

In the event one of the parties wants to sell its interest in the leases, the
selling party shall give the other the right of refusal to buy its interest on
the same terms and conditions as offered by the bona fide third party offeror.
If the right to purchase preferentially is not exercised within thirty (30) days
after the date notice of the terms of the purchase offer is given, then the
selling party shall have the right to sell and assign such interest to such
offeror on the terms stated in the notice.

F. ACCOUNTING AND TAXES

1.

This agreement is not intended to create, and shall not be construed to create,
a relationship of partnership or an association for profit between or among the
parties hereto. If, for federal income tax purposes, this agreement and the
operations hereunder are regarded as a partnership, each party hereby affected
elects to be excluded from the application of all of the provisions of
Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1954,
and any amendments thereto, as permitted and authorized by Section 761 of the
Code and regulations promulgated thereunder. Each party states and represents
that the income derived by such party from operations hereunder can be
adequately determined without the computation of partnership taxable income.

 

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2.

To the extent permitted by law, all deductions and credits, including, but not
limited to, intangible drilling and development costs, depreciation, rental
expenses, and investments qualifying for the investment credit where applicable,
shall be allocated to the party who has been charged with the expenditure giving
rise to the deductions and credits; and to the extent permitted by law, such
parties shall be entitled to the deductions and credits in computing taxable
income or tax liabilities to the exclusion of any other party.

 

G. FUTURE DOCUMENTS

The parties acknowledge that additional documents between them and or a third
party may be required in the future to fully comply, or complete the activities
described in this Agreement. The parties agree to sign said documents in an
expedient manner, so as not to create delays in fulfillment of terms or
activities of this agreement, or delays in transferring rights, or remedies of
this agreement.

H. RELATIONSHIP OF PARTIES

Except as authorized and in furtherance of the specific objectives of this
agreement, neither party shall be deemed or construed to be a partner or agent
of the other party. Other than the payments specifically provided for herein,
neither party is authorized by virtue of this agreement, to bind the other party
to any debt or obligation to any third party, nor to incur any debt or
obligation that would be enforceable as a joint or mutual debt or obligation of
the other party.

 

I. OTHER PROVISIONS

 

1.

In the event of disagreement between the parties in the interpretation of the
terms of this agreement, the parties, by their signature below, agree to
professional binding Arbitration of the disagreement in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Said arbitration to take place in Kansas City, Missouri, USA before a
single arbitrator. The prevailing party of the arbitration shall be entitled to
reimbursement of all their fees, and expenses associated and attributable to the
arbitration, including attorney fees.

2.

This agreement represents the entire agreement and understanding between the
parties, with respect to the transaction contemplated herein, and this agreement
supersedes all prior agreements, arrangements, and understandings related to the
subject matter hereof. No representations, warrantees, recitals, covenants, or
statements of intention have been made by, or on behalf of, any party hereto
which is not embodied in the agreement, or in connection with the transactions
contemplated hereby, and no party hereto shall be bound by, or liable for, any
alleged representation, warranty, recital, covenant, or statement of intention
not so set forth.

 

J. INTENT

 

In executing this agreement, it is the intent of the parties hereto to enter
into this agreement for the intentions set forth in the recitals above and this
agreement should be construed broadly to accomplish this purpose and intent. Any
omission of any issue, or any language implying any limitation of the scope of
this agreement is inadvertent and should be construed so as to give full effect
to the parties stated intent.

 

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K. CONFIDENTIALITY

 

The terms of this agreement are confidential and shall not be discussed,
disclosed or announced, except as required by law. Each party agrees not to
disclose any confidential information of the other party to any person, or to
use such confidential information except in furtherance of this agreement. The
use of any confidential information will be restricted to the personnel,
employees, agents or servants of the other party who must have access to such
confidential information to perform their services. Any documentation of
materials incorporating confidential information of a party shall be promptly
returned to that party upon the termination of this agreement.

 

L. WARRANTY OF CAPACITY

 

Each individual executing this agreement individually, or on behalf of other
persons, or entities, specifically acknowledges, represents, and warrants that
he or she is specifically authorized to enter into this agreement, individually,
or on behalf of the persons or entities, for whom he or she purports to have
authority.

 

M. WRITTEN MODIFICATION REQUIRED

 

Any modification or waiver of any provision of this agreement, or any consent of
any departure from the terms of this agreement shall not be binding unless the
same is in writing and signed by all the parties hereto.

 

N. COUNTERPARTS

 

This agreement may be executed in any number of identical separate counterparts,
each of which for all purposes is deemed to be an original, but all of which
shall collectively constitute one agreement.

 

AUTHORIZED SIGNATURES

 

In witness whereof, the parties have signed this agreement, effective as of the
effective date first written above.

 

MorMeg, LLC

EnerJex Resources, Inc.

 

 

by: Mark Haas                                               

by: Todd Bart                                                 

 

Title: Managing Member                              

Title: Chief Financial Officer                         

 

 

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