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February 7, 2012

 

Armada Oil Inc.

30872 Hunt Club Drive

San Juan Capistrano, CA 92675

 

Attn:David Moss

 

RE:Purchase and Option Agreement

Bear Creek Prospect & Overland Trail Prospect

Carbon County, Wyoming

 

Dear Mr. Moss:

 

This letter will evidence the agreement between TR Energy Inc., hereinafter
referred to as “TR”, whose mailing address is P. O. Box 479, Tyler, Texas
75710-0479, and Armada Oil Inc., hereinafter referred to as “ARMADA” , whose
mailing address is 30872 Hunt Club Drive, San Juan Capistrano, CA 92675,
relative to the acquisition by ARMADA of an interest in the oil and gas
leasehold estates covering certain lands in Carbon County, Wyoming, as more
fully described in Exhibit “A”, only insofar as that portion of the leases and
lands which are located within the two sections as described in Exhibit “A”
(said lands and the leases thereon being hereinafter sometimes referred to as
“Unit Acreage”), and the option to acquire additional acreage as shown by plat
attached as Exhibit “B”.

 

The terms, covenants, and conditions of this Agreement are as follows:

 

1. Acquisition of Leasehold Estate

 

On or before March 1, 2012, ARMADA shall deliver the sum of $900,000 to TR as
consideration for the Unit acreage. This amount will also cover the cost to
acquire any additional acreage in the Unit Acreage, title work, and title
opinions. On or before July 1, 2012, ARMADA shall have the option to deliver an
additional sum of $736,000 to TR for a 3rd drillsite tract containing up to 320
acres at a location to be mutually agreed upon at a later date.

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX

 

 

 

 

2. Test Well

 

On or before August 1, 2012, ARMADA shall commence, or cause to be commenced,
the drilling of the first test well for oil or gas at a legal location of its
choice in either section described below as the Unit Acreage (such well being
hereinafter called the “Test Well”), and shall thereafter drill said well
without unnecessary delay and in a workmanlike manner to depth of 9,500 ft. or a
depth sufficient to test the Casper formation, whichever is the lesser,
hereinafter called the “Contract Depth.” On or before 120 days from drilling the
first well under this agreement (being 120 days from the actual spud date),
ARMADA shall commence, or cause to be commenced, the drilling of the second test
well for oil or gas at a legal location of its choice on the other section
described below as the Unit Acreage (such well being hereinafter called the
“Test Well”), and shall thereafter drill said well without unnecessary delay and
in a workmanlike manner to depth of 9,500 ft. or a depth sufficient to test the
Casper formation, whichever is the lesser, hereinafter called the “Contract
Depth.” Should there be any delays in fulfilling the drilling obligations as set
forth due to reasons beyond the control of Armada (such as permitting, weather,
environmental, etc.) TR agrees to extend the due dates for drilling the two
wells described above and the option date as described in Paragraph #1 above in
a mutual agreement with Armada.

 

3. Substitute Well(s)

 

If, in the drilling of either of the Test Wells mechanical difficulties arise or
impenetrable substances are encountered which render further drilling impossible
or impracticable, or in the event said Test Well reaches Contract Depth and is a
dry hole, ARMADA shall promptly plug, but shall have the option to commence a
substitute well therefore at a location of ARMADA’s choice on the designated
Unit within 90 days from the date of such plugging and abandonment. Any
substitute well so commence shall drilled to the same depth and in the same
manner as is required for the Test Well provided for hereinabove, and the
drilling and completion thereof shall have the same effect hereunder as would
drilling and completing the Test Well. ARMADA shall have the right to drill as
many substitute wells as needed to meet the requirements of a Test Well,
provided that each such substitute well conforms to the requirement of this
section.

 

4. Drilling and Cost of Test Well and Any Substitute Well

 

The entire cost, risk, and expense of drilling, testing, completing, or plugging
if the Test Well is not productive, shall be borne exclusively by ARMADA.

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX

 

 

 

 

Any well drilled under terms of this agreement shall be drilled and completed or
plugged and abandoned in full compliance with all valid rules, regulations, and
laws of state, local or federal authorities and in accordance with approved
drilling practices. ARMADA agrees to fill pits and restore the property as
nearly as practicable to the same condition that existed prior to commencement
of drilling operations. ARMADA agrees to save and hold harmless TR from any and
all claims, liens, loss, cost, and expense arising out of or as a result of
ARMADA’s operations conducted under terms of this Agreement, including attorney
fees, if any.

 

ARMADA shall test formations covered by this agreement which, in ARMADA’s sole
judgment, appear productive of oil and/or gas at their discretion. TR, or its
affiliates, shall at all times have full and complete access to the derrick
floor and immediate access to all information obtained in the drilling and
testing of said well.

 

ARMADA shall:

 

(a)Notify TR when the well is permitted;

(b)Notify TR when actual drilling is commenced;

(c)Notify TR when said well has been drilled to Contract Depth;

(d)Provide TR daily drilling reports, copies of all logs, samples, cuttings,
etc.

(e)Notify TR in advance of logging, so as to permit TR, or its affiliates, to be
present during logging;

 

5. Titles

 

TR warrants title to the Unit Acreage by, through and under TR, and will, upon
request, furnish ARMADA with a copy of such title papers and other relevant
papers as it has in its files. There shall be no obligation on the part of TR to
furnish any abstracts of title, nor to do any curative work in connection with
title to said acreage. ARMADA shall use TR, or its affiliates, to handle all
aspects of Land Management under this agreement.

 

6. Assignment

 

When the first payment is received by TR, it shall execute and deliver for
acceptance by ARMADA with warranty of title, as to acts by, through and under TR
only, an assignment of 75% Net Revenue Interest in and to the leasehold rights
in the Unit Acreage. TR has previously conveyed, as an overriding royalty
interest, the difference between 25% and existing lease burdens. TR shall retain
no interest.

 

Said Assignment shall be made subject to all royalties, overriding royalties,
production payments, or other burdens against the Unit Acreage as of the date of
this agreement. Total burdens shall not exceed 25% and Net Revenue will be 75%.
In the event any lease is already burdened with a 25% royalty interest, TR shall
reserve a 1% overriding royalty interest.

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX

 

 

 

 

In the event the leases described in Exhibit “A” cover less than the full
mineral estate in the lands covered by the leases and/or TR owns less than the
full and undivided leasehold estate in the leases, the overriding royalty
interest reserved by TR shall be proportionately reduced.

 

ARMADA shall have the right to assign ownership in the leases to a third party.

 

Neither this letter nor the assignment contemplated herein is intended nor shall
they or either of them be construed as creating the relationship of partners
between us and no act done by either of us pursuant to the provisions hereof
shall be construed to create such a relationship.

 

7. Option to Purchase Additional Acreage

 

On or before March 31, 2013, ARMADA shall have the exclusive option, but not the
obligation, to acquire all the additional leasehold estate that TR has within
the confines of the Area of Mutual Interest (AMI) as shown by plat attached as
Exhibit “B”, being approximately 25,000 net acres. ARMADA shall notify TR of its
election, shall designate which acreage it wishes to acquire, and shall pay TR
the sum of $1000/net acre. ARMADA will draft and TR shall execute and deliver
for acceptance by ARMADA with warranty of title, as to acts by, through and
under TR only, an assignment of 75% Net Revenue Interest in and to the leasehold
rights. TR shall reserve, as an overriding royalty interest, the difference
between 25% and existing lease burdens.

 

Said Assignment shall be made subject to all royalties, overriding royalties,
production payments, or other burdens against the unit acreage as of the date of
this agreement. Total burdens shall not exceed 25% and Net Revenue will be 75%.
In the event any lease is already burdened with a 25% royalty interest, TR shall
reserve a 1% overriding royalty interest.

 

In the event the leases described in Exhibit “A” cover less than the full
mineral estate in the lands covered by the leases and/or TR owns less than the
full and undivided leasehold estate in the leases, the overriding royalty
interest reserved by TR shall be proportionately reduced.

 

8. Seismic Program and Additional Leasing

 

In the event ARMADA elects to perform a seismic program (or acquire existing
seismic data) within the AMI, ARMADA shall be responsible for 100% of the costs
of such program or data. ARMADA will also be responsible for 100% of the costs
to acquire new leases, which will include purchases and/or farmins from other
companies, and/or renew expiring leases within the AMI. On any farmin acreage,
TR shall receive a 1% overriding royalty interest.

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX

 

 

 

 

9. Additional wells

 

Should ARMADA drill, or cause to be drilled, any additional wells after the
first two (not including substitute wells as described above) within the AMI, TR
shall have the option to participate on a ground floor basis (drilling and
completion costs only) for up to 25% working interest on a well by well basis.
ARMADA and TR shall enter into a mutually agreeable Joint Operating Agreement,
naming ARMADA as operator. ARMADA shall use TR, or its affiliates, to handle all
aspects of Land Management under this agreement.

 

10. Notices

 

All notices, reports, samples, logs or other information required hereunder
shall be given, postage, and charges fully prepaid as set forth herein to TR at
the following address:

 

TR Energy, Inc.

P. O. Box 479

Tyler, TX 75710-0479

 

Attn:Billy Denman, CPL/ESA

Land Manager

 

Where applicable, such as the notices set out in Paragraph #3 above, e-mail to
wrdenman@gmail.com.

 

11. Time is of the Essence

 

Time is of the essence hereof, and if the operations specified are not commenced
by the commencement date and in the manner herein provided, or if ARMADA has not
timely complied with each and all of the terms and provisions of this Agreement,
TR shall be relieved of any and all obligations to make any contribution of
acreage herein specified or any part thereof, and this Agreement shall
terminate.

 

This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original and shall be binding on each party who signs a counterpart,
to the same extent as though all parties signed the same Agreement.

 

If the above and foregoing is acceptable to you, please indicate your acceptance
in the space provided below and return one (1) executed copy to TR.

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX

 

 

 

 

Regards,

 

 

 

W.L. Sudderth

Vice President of TR Energy, Inc.

 

 

 

 

Accepted this 8th day of February 2012.

 

 

 

ARMADA OIL INC.

 

 

 

_______________________________________

By: David J. Moss

Title: President

 

 

Exhibit “A”

 

 

All leases included in the lands described below in Carbon County, Wyoming.

 

Bear Creek Prospect – Section 24, T20N, R80W – 640 acres

 

Overland Trail Prospect – Section 17, T19N, R78W – 640 acres

 

P. O. Box 479, Tyler, Texas 75710-0479

903-595-4139 OFFICE

903-595-0344 FAX