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Exhibit 10.1

 
Crown Energy Company
333 North Portland
Oklahoma City, OK 73107
 
August 29, 2011

American Energy Development Corp.
Attn:  Joel Felix
9190 Double Diamond Parkway
Reno, NV 89521

Re:       Magnolia Prospect; Sections 20 & 21-8N-5E
             Pottawatomie County, Oklahoma
      Acree 1-20 and Magnolia 2-21

Dear Sirs:

When accepted and executed by you, this letter will evidence the agreement
between you (hereafter “Participant”) and Crown Energy Company (“Crown”) with
respect to Participant’s participation as a cost-bearing working interest owner
in Bullet Oil and Gas/Total Energy Partners Magnolia Prospect (“Prospect”). The
Existing Leases total 240 net acres. This Prospect requires the drilling of two
wells (“Test Wells”) to the base of the Simpson formation at approximately
4,550’ total depth in order to evaluate the productive potential of any/all of
the several porosity/permeability zones within the Simpson, and all other
potential productive zones at lesser depths (Earlsboro 3,600’, Misener 3,975’,
Hunton 4,000’, Viola 4,125’ estimated drill depths). The first Test Well drilled
will be the Acree 1-20. Subsequently, the second Test Well drilled will be the
Magnolia 2-21. The terms of your participation are as follows:

1.           Upon receipt of an invoice, Participant agrees to pay Crown the sum
of $1,008.00 [calculated as $300 per acre times 240 net acres times 1.40%], for
a corresponding one and four tenths percent working interest (1.40%) before
payout in and to the Prospect (“Participant’s Percentage”), including but not
limited to the interests in the oil and gas leases currently held by Crown
(“Existing Leases”) in an AMI (Area of Mutual Interest). Crown will deliver a
seventy eighty percent (78.0%) net revenue interest in such Existing Leases.
Upon receipt of Participant’s payment, Crown shall assign to Participant its
Participation Percentage in and to the Existing Leases.  Participant agrees to
pay Crown its Participation Percentage of any additional acreage obtained in the
Area of Mutual Interest through leasing or pooling at acquisition cost plus
$50.00 per net acre (“Subsequent Leases”).  Upon receipt of such payment, Crown
shall assign to Participant its Participation Percentage in and to the
Subsequent Leases subject to the retention by Crown of an overriding royalty
interest therein equal to the difference between existing leasehold burdens and
twenty two percent (22.0%), it being the intention of the parties that
Participant receive a seventy eight percent (78.0%) net revenue interest in the
Subsequent Leases. In the event that any Subsequent lease or pooled acreage has
existing burdens in excess of twenty two percent (22.0%), Crown shall reserve
only an overriding royalty interest of one and one-quarter (1.25%) percent but
in no event shall Crown delivery to Participant a lease with less than a 75% net
revenue interest.

2.           Upon receipt of an invoice, Participant agrees to pay Crown its
Participation Percentage of the total prospect fee of $30,000.00, the net amount
of which equals $420.00.

3.    Upon one hundred percent (100.0%) payout of Participant’s total capital
contributions to the Prospect as set out herein, an undivided twenty percent
(20%) of the interest assigned herein shall automatically revert to Crown, its
successors and assigns, together with a like interest in the Test Wells,
equipment and personal property located thereon (“Crown back-in”). Payout shall
be effective the first day of the month immediately following the date on which
the proceeds accruing to the interest assigned herein from the sale of
hydrocarbons from the Test Wells, after subtracting therefrom all operating
expenses, applicable taxes, royalty and overriding royalty burdens, is equal to
that portion of the sum of the costs allocable to the interest assigned herein
in drilling, testing, completing, equipping and operating the Test Wells, the
acreage cost paid by Participant pursuit to paragraph 1 herein and the prospect
fee paid by Participant pursuit to paragraph 2 herein. The back-in interest of
Crown shall be free and clear of any burdens, charges or lien, which may be
subsequently created by Participant. Participant’s Participation Percentage in
and to the Prospect shall be reduced by its proportionate share of the Crown
back-in and such Percentage shall be its After Payout Interest.

 
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In the event an additional well or wells are proposed within the Prospect, the
back-in working interest obligation will not apply and Participant’s
Participation Percentage in and to such additional well or wells shall be its
After Payout interest in the Test Wells. Should an additional well be proposed
prior to payout of the Test Wells, Crown shall be deemed to have its twenty
percent (20%) back-in working interest in which to make a decision/election in
said additional well. All additional wells will be drilled in accordance with
the terms of the enclosed JOA.

4.           The Area of Mutual Interest for the Prospect is Section 20 and 21,
Township 8 North, Range 5 East, Pottawatomie County, Oklahoma. The initial drill
site is SW/4 SE/4, Section 20, T-8-N, R-5-E, Pottawattamie County, Oklahoma. The
second Test Well’s location is in SE/4 SW/4 Section 21, T-8-N, R-5-E,
Pottawattamie County, Oklahoma.

5.   Within five (5) days of receipt of an invoice, Participant agrees to pay
and be responsible for its Participation Percentage of the cost of drilling the
initial Test Wells to casing point.

a.  
Subsequent to reaching casing point, and should Participant elect to participate
in the completion of the Acree 1-20, Participant shall pay its Participation
Percentage of the cost of completing said Test Well. Such costs shall be paid
within forty eight (48) hours of such election.

b.  
Subsequent to reaching casing point, and should Participant elect to participate
in the completion of the Magnolia 2-21, Participant shall pay its Participation
Percentage of the cost of completing said Test Well.  Such costs shall be paid
within forty eight (48) hours of such election.

c.  
A separate Authority for Expenditure (“AFE”) for the Acree 1-20 and the Magnolia
2-21 are attached hereto. Participant understands and agrees the AFEs are only
an estimate and that it is obligated to pay its Participation Percentage of
actual costs of both wells as described in numbered paragraph 4.

 
6.           Crown will be the Operator of the Test Wells and the
Prospect.  Crown intends to utilize with its affiliate, Basin Engineering, to
operate the prospect. Participant agrees to execute and return the enclosed
Joint Operating Agreement (“JOA”). Participant understands and agrees that
Crown, in its sole discretion, shall determine the actual depth and location of
the Test Wells and the manner in which they are drilled. In the event of a
conflict between the provisions of the JOA and the terms of this Agreement, the
terms of this Agreement shall prevail. The JOA will cover the entire Prospect
area.

7.           This Agreement is not intended to create, nor shall the same be
construed as creating, a mining partnership, commercial partnership, joint
venture or other partnership or agency relation, or as creating an association
taxable as a corporation.  Rather it is the intent and purpose of the Agreement
to create a relationship which is limited to the acquisition, co-ownership and
operation of oil and gas properties for the accounts of the parties individually
and in which the rights, obligations and liabilities of the parties shall always
be several and not joint or collective.

8.           Participant understands and agrees that the interests in the oil
and gas leases assigned by Crown have not been approved or disapproved by the
Securities and Exchange Commission or any State Securities Commission.  Further,
Participant understands such interests have not been registered under the
Securities Act of 1933 or under the securities laws of any state.

9.           Participant is an experienced and knowledgeable investor in the
oil, gas and mineral resources industry and has previously expended substantial
amounts in the acquisition and development of oil and gas properties.
Participant understands and agrees that Crown makes no guarantees or warranties
regarding the potential success or outcome of the Prospect and that investment
in the oil and gas industry are inherently risky.  Prior to purchasing these
interests, Participant has been advised by its counsel or such other persons as
it deems appropriate concerning the Prospect and this Agreement, and the tax,
legal, economic, risk and other considerations relating to such
purchase.  Participant is not relying on any advice or representations of Crown
or any representative thereof in purchasing the interests herein.  The interests
to be acquired by Participant are being acquired for Participant’s own account,
for investment, and not with a view to distribution or resale.  Participant may
not offer, sell, transfer, assign, pledge or otherwise dispose of or encumber
all or any part of the interests without the express written consent of Crown.

 
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10.           The terms, covenants and conditions of this Agreement shall extend
to, be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.

11.            This Agreement will be governed by and enforced in accordance
with the laws of the State of Oklahoma applicable to contracts made and to be
performed entirely therein.    This Agreement and its Exhibits contain the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions between the parties with respect to the subject matter herein.  Any
notice required or permitted hereunder shall be given as provided in the JOA.

If the foregoing meets with your approval, please sign all the enclosed
documents where marked. Return the following:

·
One signed AFE for each of the Test Wells;

·
One signed Participation Letter;

·
The signed and notarized Signature Pages to the Joint Operating Agreement;

·
Your check for the amount shown on the invoice.

Please retain all remaining documents for your records.

Sincerely,
 
 

/s/ Garry D. Crain  
Garry D. Crain
 
Executive Vice President
 

 

AGREED TO AND ACCEPTED THIS 16TH DAY OF SEPTEMBER, 2011.  PARTICIPANT ELECTS TO
ACQUIRE 1.40% OF THE PROSPECT.

 

By: /s/ Joel Felix   Title (if applicable):
Chief Financial Officer
  Address:
9190 Double Diamond Parkway
   
Reno, NV 89521
  Telephone:
(888) 542-7720
  Email Address:
joel@aed-corp.com
       

 
 
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