exv10w3



 






Exhibit 10.3




FARMOUT AGREEMENT




     This agreement is entered into this 24 day of March, 2006, by and between Razorback II, LP
(“Razorback”) and Parallel, L.P. (“Parallel”).



     1. Razorback agrees to sell and assign to Parallel and Parallel agrees to purchase from
Razorback an undivided one-half (1/2) of all of Razorback’s right, title and interest in and to
Dale Resources, LLC’s West Fork, West Gateway and Lone Star Prospects in Tarrant County, Texas (the
“Subject Prospects”), including, but not limited to, an undivided one-half (1/2) of all of
Razorback’s right, title and interest in, to, under, arising by virtue of and/or acquired by
Razorback by virtue of the agreements, contracts, assignments and other documents more particularly
described in Exhibit “A” hereto (the “Documents”), SAVE AND EXCEPT the interests in the foregoing
which were assigned by Razorback to Parallel by a separate Assignment of even date herewith (the
undivided one-half (1/2) interest in the Subject Prospects being assigned herein being hereinafter
referred to as the “Subject Interest”). The undivided one-half (1/2) of Razorback’s interest in
the Subject Prospects which Razorback is retaining is hereinafter referred to as “Razorback’s
Retained Interest.”



     2. To effectuate the assignment and sale contemplated herein, Razorback agrees to execute and
deliver to Parallel the assignment of the Subject Interest in the form of the assignment attached
as Exhibit “B” hereto (the “Assignment”).



     3. The effective date of the sale and assignment contemplated herein shall be March 1, 2006
(the “Effective Date”).



     4. In consideration of Razorback’s sale and assignment of the Subject Interest to Parallel,
Parallel shall pay, for the benefit of Razorback, up to Two Million One Hundred Fifteen Thousand
Eight Hundred Thirty-seven and 49/100 Dollars ($2,115,837.49) for the costs attributable to
Razorback’s Retained Interest for (i) drilling, testing, completing and equipping wells commenced
on lands encompassed by the Subject Prospects from and after the Effective Date, (ii) the total
costs of drilling, testing, completing and equipping the wells that were being drilled on the
Subject Prospects as of the Effective Date (which wells are described in Exhibit “C” hereto), and
(iii) the frac jobs to be performed on the wells described in Exhibit “D” hereto (the foregoing
costs described above in (i), (ii) and (iii) in this paragraph No. 4 hereinafter being referred to
as the “Carried Capital Costs”). From and after such time as either Parallel has paid such Carried
Capital Costs totaling $2,115,837.49, or Parallel elects not to pay any more of such costs,
Parallel shall have no further obligation to pay such Carried Capital Costs. The Carried Capital
Costs which Parallel elects to pay shall be paid by Parallel as such costs are incurred by
Razorback. If, and only if, Parallel elects not to pay the entire $2,115,837.49 in Carried Capital
Costs, Parallel shall reassign to Razorback all of the Subject Interests, except Parallel shall
retain the portion thereof for which Parallel has paid such Carried Capital Costs, including the
Wells for which Carried Capital Costs have been paid by Parallel, the oil and gas leases comprising
the spacing or proration unit for such Wells and all of the equipment and other personal property
used in connection therewith.



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     5. From and after the Effective Date, Parallel shall be liable for all costs, and shall be
entitled to all production, revenues and other benefits, attributable to the Subject Interests.
Razorback shall remain liable for all costs attributable to Razorback’s Retained Interest (except
the Carried Capital Costs which Parallel elects to pay) and shall retain all rights to the
production of oil and gas, the proceeds from the sale thereof and other revenues and benefits
attributable to Razorback’s Retained Interest.



     6. The parties hereto agree to execute such other assignments, agreements or other
instruments, and do and perform such other acts, which may be reasonably necessary in order to
effectuate the terms hereof.



     DATED: March 24, 2006.



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PARALLEL, L.P.
	 	 	 	RAZORBACK II, L.P.
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	Parallel Petroleum Corporation,	 	 	 	By:	 	/s/ Wallace L. Hall,	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	its general partner	 	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ John S. Rutherford
	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	John S. Rutherford, Vice President	 	 	 	 	 	Managing Member of Teason, LLC,	 	 
	 	 	 	 	 	 	 	 	General Partner of Razorback II, LP	 	 
	 

	 	 	 	 	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 





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EXHIBIT “A”




	 	 	 	 	 
	 

	 	attached to and made a part of that
certain Agreement
	 	 
	 

	 	dated March 24, 2006, by and between	 	 
	 

	 	Razorback II, LP and Parallel, L.P.	 	 






WEST FORK PROSPECT




     1. That certain Amended and Restated Participation Agreement dated May 18, 2004, as amended,
between Dale Resources, L.L.C. and Parallel Petroleum Corporation, et al, as Participants,
pertaining to the lands comprising the Area of Mutual Interest, described in the Exhibit “A”
attached thereto, in Tarrant and Dallas Counties, Texas, which amends and restates that certain
Participation Agreement dated May 1, 2003, entered into by and among the same parties.



     2. That certain Amendatory Agreement (Dale B Four Sevens Cross-Assignment Transaction)
entered into by and among Dale Resources, L.L.C., Parallel Petroleum Corporation, et al, among
other things, amending the Amended and Restated Participation Agreement described in Paragraph 1,
above, and other agreements described herein.



     3. That certain Operating Agreement dated May 1, 2003, as amended, between Dale Operating
Company, as Operator, and Parallel Petroleum Corporation, et al, as Non-Operators, pertaining to
the same lands covered by the Amended and Restated Participation Agreement described in Paragraph
No. 1, above, a Memorandum of which is recorded as Document No. D203319737 in the Real Property
Records of Tarrant County, Texas, as amended.



     4. That certain Lease Agreement dated May 3, 2003, as amended, entered into by and among Dale
Resources, L.L.C. and West Fork Partners, L.P., Tiggator, Inc. and Squaretop Partners, L.P., a
Memorandum of which, dated May 16, 2003, is recorded in Volume 16858, page 0241 of the Real
Property Records of Tarrant County, Texas, as amended by that certain Amendatory Agreement dated
May 18, 2004, entered into by and among such parties (the “Amendatory Agreement”).



     5. That certain Settlement Agreement and Mutual Release effective as of May 1, 2003, entered
into by and among Dale Resources, L.L.C., Parallel Petroleum Corporation, Premium Resources II,
L.P., Endeavor Energy Resources, et al, among other things, settling the “West Fork Lawsuit,” the
“Squaretop Lawsuit” and the” PR II Lawsuit.”



     6. Agreement dated May 18, 2004, entered into by and among Dale Resources, L.L.C., Parallel
Petroleum Corporation, et al, wherein such parties agree to pay to Premium Resources II, L.P.,
their pro rata share of the sum of $743,740.00.



     7. Escrow Agreement dated May 18, 2004 (among other dates), entered into by and among Dale
Resources, L.L.C. and “the West Fork entities,” as described therein, pertaining to the settlement
of the lawsuits described in No. 5, above.



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     8. Transportation and Acquisition Agreement, West Fork Prospect Area, Tarrant County, Texas,
dated May 18, 2004, entered into by and among Dale Resources, L.L.C., West Fork Pipeline Company,
L.P., Parallel Petroleum Corporation and Premium Resources II, L.P.



     9. That certain Well Operation and Subsurface Easement effective May 10, 2003, as amended,
entered into by and among West Fork Partners, L.P., Tiggator, Inc., Squaretop Partners, L.P., as
Grantors, and Dale Resources, L.L.C., as Grantee, a Memorandum of which, dated May 16, 2003, is
recorded in Volume 16858, page 0099 of the Real Property Records of Tarrant County, Texas, as
amended by the Amendatory Agreement.



     10. That certain Central Facilities Easement dated May 10, 2003, from West Fork Partners,
L.P., Tiggator, Inc., Squaretop Partners, L.P., as Grantors, to Dale Resources, L.L.C., as Grantee,
a Memorandum of which, dated May 16, 2003, is recorded in Volume 16858, page 0098 of the Real
Property Records of Tarrant County, Texas, as amended by Amendment to Central Facilities Agreement
dated May 18, 2004, entered into by and among such parties.



     11. Agreement dated November 18, 2004, by and between Four Sevens Oil Co., Ltd., Parrot
Gas Co., Ltd. and Dale Resources, L.L.C. and the Operating Agreement attached as Exhibit “A”
thereto, dated November 18, 2004, wherein Four Sevens Operating Co., Ltd. is Operator and Parrot
Gas Co., Ltd. and Dale Resources, L.L.C. are Non-Operators.



     12. That certain Partial Assignment and Bill of Sale (Carter “A” Well # 1H) effective August
1, 2005, recorded as Document No. D206044605 in the Real Property Records of Tarrant County, Texas,
from Dale Resources, L.L.C., as Assignor, to Parallel, L.P., et al, as Assignees, as amended by
Amendment thereto, effective August 1, 2005, to include in the matters included in “Permitted
Encumbrances” therein a .3% overriding royalty interest assigned by that certain Assignment of
Overriding Royalty Interest dated as of August 1, 2005, from Dale Resources, L.L.C. to Dale
Employee Royalty Pool, L.P.



     13. That certain Partial Assignment and Bill of Sale (Gateway Park Well # 1H) effective August
1, 2005, recorded as Document No. D206044608 in the Real Property Records of Tarrant County, Texas,
from Dale Resources, L.L.C., as Assignor, to Parallel, L.P., et al, as Assignees, as amended by
Amendment thereto, effective August 1, 2005, to include in the matters included in “Permitted
Encumbrances” therein a .3% overriding royalty interest assigned by that certain Assignment of
Overriding Royalty Interest dated as of August 1, 2005, from Dale Resources, L.L.C. to Dale
Employee Royalty Pool, L.P.



     14. That certain Partial Assignment and Bill of Sale (Gateway Park Well # 2H) effective
                     1, 2005, recorded as Document No. D206044607 in the Real Property Records of Tarrant
County, Texas, from Dale Resources, L.L.C., as Assignor, to Parallel, L.P., et al, as Assignees, as
amended by Amendment thereto, effective February 9, 2006, to include in the matters included in
“Permitted Encumbrances” therein a .3% overriding royalty interest assigned by that certain
Assignment of Overriding Royalty Interest dated as of August 1, 2005, from Dale Resources, L.L.C.
to Dale Employee Royalty Pool, L.P.



     15. That certain Partial Assignment and Bill of Sale (Brentwood Well A # 1H) effective July 1,
2005, recorded as Document No. D206044606 in the Real Property Records of



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Tarrant County, Texas, from Dale Resources, L.L.C., as Assignor, to Parallel, L.P., et al, as
Assignees, as amended by Amendment thereto, effective July 1, 2005, to include in the matters
included in “Permitted Encumbrances” therein a .3% overriding royalty interest assigned by that
certain Assignment of Overriding Royalty Interest dated as of August 1, 2005, from Dale Resources,
L.L.C. to Dale Employee Royalty Pool, L.P.



     16. That certain Partial Assignment and Bill of Sale (Parrot Well # 1H) effective July 1,
2005, recorded as Document No. D206044604 in the Real Property Records of Tarrant County, Texas,
from Dale Resources, L.L.C., as Lessor, to Parallel, L.P., et al, as Assignees.



WEST GATEWAY PROSPECT




     1. Participation Agreement, West Gateway Prospect, dated November 1, 2005, entered into by and
among Dale Resources, L.L.C., Parallel, L.P., et al.



     2. Operating Agreement dated November 1, 2005, for the West Gateway area, between Dale
Operating Company, as Operator, and Parallel, L.P., et al, as Non-Operators, and the Memorandum of
Operating Agreement effective November 1, 2005, currently unrecorded.



LONE STAR PROSPECT




     1. Area of Mutual Interest Agreement, Lone Star, effective March 1, 2005, entered into by and
among Matador Energy Company, Ltd. and Dale Resources, L.L.C., as ratified by all of the parties
ratifying such Agreement by Ratification Agreement entered into as of May 31, 2005, as acknowledged
by Acknowledgment of Ratification Agreement entered into as of May 31, 2005, by and between Dale
Resources, L.L.C., Dale Gas Partners, L.P., Dale Operating Company and Matador Energy Company, Ltd.




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EXHIBIT “B”




	 	 	 	 	 
	 

	 	attached to and made a part of that
certain Agreement
	 	 
	 

	 	dated March 24, 2006, by and between	 	 
	 

	 	Razorback II, LP and Parallel, L.P.	 	 






ASSIGNMENT




     For valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Razorback II, LP (“Assignor”) hereby sells, assigns, transfers and conveys unto Parallel, L.P.
(“Assignee”), whose address is 1004 N. Big Spring, Suite 400, Midland, Texas 79701,




an undivided one-half (1/2) of all of Assignor’s right, title and interest in and to Dale
Resources, LLC’s West Fork, West Gateway and Lone Star Prospects in Tarrant County, Texas
(the “Subject Prospects”), including, but not limited to, an undivided one-half (1/2) of all
of Assignor’s right, title and interest in, to, under, arising by virtue of and/or acquired
by Assignor by virtue of the agreements, contracts, assignments and other documents more
particularly described in Exhibit “A” hereto (the “Documents”), SAVE AND EXCEPT the
interests in the foregoing which were assigned by Assignor to Parallel by a separate
Assignment of even date herewith (the undivided one-half (1/2) interest in the Subject
Prospects being assigned herein being hereinafter referred to as the “Subject Interest”).



     This Assignment is made subject to all the terms and provisions of that certain Agreement
dated March                    , 2006, entered into by and between Assignor and Assignee.



     Assignor hereby warrants that (i) Assignor has good and indefeasible title to the Subject
Interests, (ii) the Subject Interests are one-half (1/2) of the interest acquired by Assignor in,
under and by virtue of the Documents, (iii) the Subject Interests are free and clear of liens and
encumbrances, (iv) that no interests have been created by Assignor which would increase the
cost-bearing interests attributable to the Subject Interests to more than, or reduce the interest
in the oil and gas production or other revenue attributable to the Subject Interests to less than,
one-half (1/2) of the revenue attributable to the interest acquired by Assignor by virtue of the
Documents, and (v) there is no prohibition, consent or approval required for this Assignment.



     Executed this                     day of                    , 2006, but effective as of March 1, 2006.



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	ASSIGNOR:	 	 	 	ASSIGNEE:	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	RAZORBACK II, L.P.	 	 	 	PARALLEL, L.P.	 	 
	 
	By:	 	      /s/ Wallace L. Hall,	 	 	 	By:	 	Parallel Petroleum Corporation,	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	     its general partner	 	 	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	By:
	 	     /s/ John S. Rutherford	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	Managing Member of Teason, LLC,	 	 	 	 	 	John S. Rutherford, Vice President	 	 
	 	 	General Partner of Razorback II, LP	 	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 





 









 






	 	 	 	 	 
	STATE OF TEXAS

	 	)	 	 
	 

	 	)	 	 
	COUNTY OF DALLAS

	 	)	 	 






     This instrument was acknowledged before me this 29th day of March, 2006, by Wallace L. Hall,
general partner, on behalf of Razorback II, LP, a Texas limited partnership.



	 	 	 	 	 
	 	 	 
	 	          /s/ Christina Gillilan
 	 
	 	Notary Public, State of Texas 	 
	 	 	 
	 



	 	 	 	 	 
	STATE OF TEXAS

	 	)	 	 
	 

	 	)	 	 
	COUNTY OF MIDLAND

	 	)	 	 






     This instrument was acknowledged before me this 24th day of March, 2006, by John S.
Rutherford, Vice President of Parallel Petroleum Corporation, general partner, on behalf of
Parallel, L.P., a Texas limited partnership.



	 	 	 	 	 
	 	 	 
	 	          /s/ Peggy Byron
 	 
	 	Notary Public, State of Texas 	 
	 	 	 



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EXHIBIT “C”




	 	 	 	 	 
	 

	 	attached to and made a part of that
certain Agreement
	 	 
	 

	 	dated March 24, 2006, by and between	 	 
	 

	 	Razorback II, LP and Parallel, L.P.	 	 





WELLS BEING DRILLED AS OF MARCH 1, 2006




Duck Head #2-H




Brentwood C #1-H




Parrot A #3-H




 









 





EXHIBIT “D”




	 	 	 	 	 
	 

	 	attached to and made a part of that
certain Agreement
	 	 
	 

	 	dated March 24, 2006, by and between	 	 
	 

	 	Razorback II, LP and Parallel, L.P.	 	 





FRAC JOBS TO BE PERFORMED ON EXISTING WELLS




Bell # 1




Riverbend A #1-H




Riverbend B #1-H




Brentwood B #1-H




Carter B #1-H




Bell # 2 H