Document:

ex1015.htm

EXHIBIT 10.15

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO US NATURAL GAS CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase 500,000 shares of Common Stock of US NATURAL GAS CORP. (subject to adjustment as provided herein)

 

COMMON STOCK PURCHASE WARRANT

 

	
No. _________________

	
Issue Date: August 6, 2010

 

US Natural Gas Corp., a corporation organized under the laws of the State of Florida hereby certifies that, for value received, ARRG Corp., or its assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) at any time commencing Six (6) months after the Issue Date of this Warrant until February 6, 2014, but subject to Section 1.5 below, up Five Hundred Thousand (500,000) fully paid and non-assessable shares of Common Stock (as hereinafter defined), $0.001 par value per share, at the applicable Exercise Price per share (as defined below).  The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein.

 

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

 

(a) The term “Common Stock” includes (i) the Company’s common stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in the preceding clause (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

(b) The term “Company” shall include US Natural Gas Corp., a Florida corporation, and any person or entity which shall succeed, or assume the obligations of, US Natural Gas Corp., hereunder.

 

(c) The “Exercise Price” applicable under this Warrant shall be $0.05.

 

(d) The term “Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise.

 

  

1

  

 

1. Exercise of Warrant.

 

1.1. Number of Shares Issuable upon Exercise.  From and after the date hereof, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.

 

1.2. Fair Market Value.  For purposes hereof, the “Fair Market Value” of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:

 

(a) If the Company’s Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or Capital Market of The Nasdaq Stock Market, Inc. (“Nasdaq”), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date.

 

(b) If the Company’s Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD Over the Counter Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date.

 

(c) Except as provided in clause (d) below, if the Company’s Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided.

 

(d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date.

 

1.3. Company Acknowledgment.  The Company will, at the time of the exercise of this Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant.  If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights.

 

1.4. Trustee for Warrant Holders.  In the event that a bank or trust company shall have been appointed as trustee for the holders of this Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1.

 

  

2

  

 

1.5. Termination of Warrant.  In the event the Warrants are not exercised within Three (3) years from February 6, 2011, the right to exercise shall terminate.

 

2. Procedure for Exercise.

 

2.1. Delivery of Stock Certificates, Etc., on Exercise.  The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith.  As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter (“Warrant Share Delivery Date”), the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non-assessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share of Common Stock, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. .  The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder.  Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant.

 

2.2. Exercise.

 

(a) Payment may be made at the option of the Holder by either: (i) cash by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by “cashless exercise” method by delivery of this Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of this Warrant in accordance with the formula set forth in subsection (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.

 

(b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

 

	
X=

	
Y(A-B)

	  
	  	
A

	  

 

	
Where X =

	
the number of shares of Common Stock to be issued to the Holder

	 	 
	
Y =

	
the number of shares of Common Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date of such calculation)

	 	 
	
A =

	
the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)

	 	 
	
B =

	
the Exercise Price per share (as adjusted to the date of such calculation)

 

For purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Subscription Agreement, regardless of whether subsequent changes or modifications have been made to this Warrant or the exercise price.

 

  

3

  

 

3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1. Reorganization, Consolidation, Merger, Etc.  If there occurs any capital reorganization or any reclassification of the Common Stock of the Company, the consolidation or merger of the Company with or into another person (other than a merger or consolidation of the Company in which the Company is the continuing entity and which does not result in any reorganization or reclassification of its outstanding Common Stock) or the sale or conveyance of all or substantially all of the assets of the Company to another person, then, as a condition precedent to any such reorganization, reclassification, consolidation, merger, sale or conveyance, the Holder will be entitled to receive upon surrender of the Warrant to the Company (a) to the extent there are cash proceeds resulting from the consummation of such reorganization, reclassification, consolidation, merger, sale or conveyance, in exchange for such Warrant, cash in an amount equal to the cash proceeds that would have been payable to the Holder had the Holder exercised such Warrant immediately prior to the consummation of such reorganization, reclassification, consolidation, merger, sale or conveyance, less the aggregate Exercise Price payable upon exercise of the Warrant, and (b) to the extent that the Holder would be entitled to receive Common stock (or Other Securities) (in addition to or in lieu of cash in connection with any such reorganization, reclassification, consolidation, merger, sale or conveyance), the same kind and amounts of securities or other assets, or both, that are issuable or distributable to the holders of outstanding Common Stock (or Other Securities) of the Company with respect to their Common Stock (or Other Securities) upon such reorganization, reclassification, consolidation, merger, sale or conveyance, as would have been deliverable to the Holder had the Holder exercised such Warrant immediately prior to the consummation of such reorganization, reclassification, consolidation, merger, sale or conveyance less an amount of such securities having a value equal to the aggregate Exercise Price payable upon exercise of the Warrant.

 

3.2. Dissolution.  In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder  (the “Trustee”).

 

3.3. Continuation of Terms.  Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4.  In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company’s securities and property (including cash, where applicable) receivable by the Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

 

  

4

  

 

4. Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock or any preferred stock issued by the Company (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4.  The number of shares of Common Stock that the Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise (taking into account the provisions of this Section 4).  Notwithstanding the foregoing, in no event shall the Exercise Price be less than the par value of the Common Stock.

 

5. Certificate as to Adjustments.  In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant.  The Company will forthwith mail a copy of each such certificate to the Holder and any warrant agent of the Company (appointed pursuant to Section 11 hereof).

 

6. Reservation of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant.

 

7. Assignment; Exchange of Warrant.  Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”) in whole or in part.  On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, the provision of a legal opinion from the Transferor’s counsel (at the Company’s expense) that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense (but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

 

8. Replacement of Warrant.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

 

  

5

  

 

9. Registration Rights. If at any time while this Warrant is issued and outstanding (the “Piggy-Back Period”) the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its securities (other than a Registration Statement on Form S-4 or Form S-8 (or their equivalents at such time) relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall include the shares of Common Stock underlying the Warrant on such registration statement.

 

10. Maximum Exercise.  Notwithstanding anything herein to the contrary, in no event shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of this Warrant upon exercise of which the sum of (a) the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and (b) the number of shares of Common Stock issuable upon the exercise of the portion of this Warrant with respect to which the determination of this limitation is being made, would result in beneficial ownership by the Holder and its Affiliates of any amount greater than 4.99% of the then outstanding shares of Common Stock.  As used herein, the term “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act.   For purposes of the second preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13(d)-(g) thereunder.  The limitations set forth herein may be waived in whole or in part, upon sixty-one (61) days prior written notice from the Holder to the Company.

 

11. Warrant Agent.  The Company may, by written notice to the Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

 

12. Transfer on the Company’s Books.  Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

 

13. Notices, Etc.  All notices and other communications from the Company to the Holder shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder who has so furnished an address to the Company.

 

  

6

  

 

14. Miscellaneous.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK.  The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorneys’ fees and costs.  In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant.  The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.  The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof.  The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party.

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

 

	 	 	US NATURAL GAS CORP.	 
	 	 	 	 
	 	
 

	/s/ 	 
	 	 	By: Wayne Anderson	 
	 	 	President	 
	 	 	 	 

	 Witness:	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By: 	 	 	 	
 

	 
	Title: 	 	 	 	 	 

  

7

  

 

EXHIBIT A

 

FORM OF SUBSCRIPTION

 

(To Be Signed Only On Exercise Of Warrant)

TO:           US Natural Gas Corp.

______________________________

______________________________

Attention:                      Chief Financial Officer

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

	  	
________ shares of the Common Stock covered by such Warrant; or

	  	
the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

 

The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________.  Such payment takes the form of (check applicable box or boxes):

	  	
$__________ in lawful money of the United States; and/or

	  	
the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or

	  	
the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.

 

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ______________________________________________ whose address is ___________________________________________________________________________.

 

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from registration under the Securities Act.

 

	
Dated:

	 	  	  
	  	 	  	
(Signature must conform to name of holder as specified on the face of the Warrant)

	  	 	  	Address: 	
  

	 	 	 	 	 
	 	 	 	 	 

 

  

8

  

 

EXHIBIT B

 

FORM OF TRANSFEROR ENDORSEMENT

 

(To Be Signed Only On Transfer Of Warrant)

 

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of US Natural Gas Corp., into which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of US Natural Gas Corp. with full power of substitution in the premises.

 

 

	
Transferees

	 	
Address

	 	
Percentage Transferred

	 	
Number

Transferred

	  	 	  	 	  	 	  
	  	 	  	 	  	 	  
	  	 	  	 	  	 	  
	  	 	  	 	  	 	  

 

 

	
Dated:

	  	 	  
	  	  	 	
(Signature must conform to name of holder as specified on the face of the Warrant)

	  	  	 	Address: 	 	
                                                            

	 	 	 	 	 	 
	  	  	 	
SIGNED IN THE PRESENCE OF:

 

 

	  	  	 	  
	  	  	 	
(Name)

	
ACCEPTED AND AGREED:

[TRANSFEREE]

 

 

	 	  
	  	 	  
	
(Name)

	  

 

9ex1016.htm

EXHIBIT 10.16

 

 

 

 

 

 

	
Office of Oil and Gas

601 57th Street SE

Charleston, WV  25304

Telephone:  (304) 926-0450

Fax:  (304) 926-0452

	
Joe Manchin III, Governor

Randy C. Huffman, Cabinet Secretary

www.dep.wv.gov

CONSENT ORDER

ISSUED UNDER

WEST VIRGINIA CODE, CHAPTER 22, ARTICLE 6

 

	TO:  	E3 Petroleum Corp. 	DATE: May 5, 2010
	 	33 6th Street South, Suite 600	 
	 	St. Petersburg, FL 33701  	ORDER NO.:  2010-8

 

INTRODUCTION

          This Consent Order is issued by the Chief of the Office of Oil and Gas (hereinafter “Chief”), under the authority of West Virginia Code, Chapter 22, Article 6, Section 1 et seq. to E3 Petroleum Corp. (hereinafter “E3”).

FINDINGS OF FACT

In support of this Order, the Chief hereby finds the following:

	
1.  

	
In May 2004, B.T.U. Pipeline (hereinafter “BTU”) entered into an Abandoned Well Initiative Compliance Agreement with the Office of Oil and Gas to bring seventy-one (71) wells into compliance.  Only twenty-nine (29) of those wells were abated per that Order.

	
2.  

	
 BTU failed to meet its obligations under the Compliance Agreement.

	
3.  

	
BTU and E3 Petroleum Corp. are both owned by the same parent corporation, US Natural Gas Corp.  E3 has posted a new bond and expressed its intent to transfer the 115 wells currently listed under BTU’s bond.

 

	
4.  

	
E3 has submitted a compliance plan to the Office of Oil and Gas, which is hereafter incorporated as attached appendix A.  This proposed compliance plan designates the schedule, order and manner in which BTU’s abandoned wells are to be either brought into production or plugged. 

 

Promoting a healthy enviornment.

  

  

  

E3 Petroleum Corp. Consent Order

Page 2

 

	
5.  

	
Several BTU wells have outstanding violations as referenced in attached appendix B.  E3’s submitted compliance plan addresses some of these violations, as well as other issues, including but not limited to Orders to Cease Operations for Failure to Abate and outstanding Notices of Violation for missing WR-34(s), WR-35(s) and/or WR-38(s).

ORDER FOR COMPLIANCE

           Now, therefore, in accordance with Chapter 22, Article 6, Section 1 et seq. of the West Virginia Code, it is hereby agreed between the parties, and ORDERED by the Chief:

	
1.  

	
E3 shall immediately take all steps necessary to follow the reporting requirements within West Virginia Code §22-6-7(d) and General Water Pollution Control Permit GP-WV-1-88.  Under Section E of the General Water Pollution Control Permit GP-WV-1-88, an operator must submit a DMR (WR-34) no later than thirty (30) days following the discharge of fluids.

	
2.  

	
E3 shall immediately take all steps necessary to follow the reporting requirements within 35 CSR § 12.2.  Under 35 CSR § 12.2 requires Completion Reports (WR-35) to be submitted ninety (90) days following the completion of permitted well work.

	
3.  

	
E3 shall submit all delinquent WR-34(s), WR-35(s) and/or WR-38(s) specified in the incorporated attachment (Appendix B) within sixty (60) days from the execution of this Order.  Delinquent WR-34(s), WR-35(s) and/or WR-38(s) are those which have not been submitted during the time allowed under applicable law, rule or permit condition at the time this Order is executed.  The Chief agrees to forego enforcement action against any delinquent WR-34(s), WR-35(s) and/or WR-38(s) which are delinquent at the time this Order is executed and which are submitted during the allowed sixty day period.  If for any reason E3 fails to submit any delinquent WR-34(s), WR-35(s) and/or WR-38(s) within the sixty (60) day period described above because the information necessary was unavailable, E3 agrees to pay a stipulated penalty of $500 per document.  Furthermore, E3 agrees to submit an affidavit to the Office of Oil and Gas attesting that E3 made a good faith effort to obtain the information necessary to complete the WR-34(s), WR-35(s) and/or WR-38(s), and such information was unavailable.  The affidavit shall be submitted within sixty (60) days from the execution of this Order.  This $500 stipulated penalty shall be in lieu of the any other agreed to stipulated penalty.

	
4.  

	
E3 shall adhere to its proposed compliance plan, and complete all scheduled activities in the time specified, and in an appropriate method and manner according to West Virginia law and regulation.  Furthermore, E3 shall provide quarterly progress updates to the Chief.

	
5.  

	
E3 agrees to pay a civil administrative penalty of $25,000 as a consequence of the violations described in this Order.  An initial payment of $5,000 shall be made within 30 days of the effective date of the Order, with subsequent payments of $5,000 to be made on July 1, 2010, October 1, 2010, January 1, 2011 and April 1, 2010.  Payment shall be mailed and payable to:

 

  

  

  

E3 Petroleum Corp. Consent Order

Page 3

Office of Oil and Gas

601 57th Street, SE

Charleston, WV  25304

	
6.  

	
If for any reason E3 fails to make any of the scheduled $5,000 payments within seven (7) days of their due date, the remainder of the civil administrative penalty shall become immediately due and payable.  If E3 fails to pay the remainder of the civil administrative penalty, E3 agrees to pay a stipulated penalty of $2,500 per day that the civil administrative penalty remains unpaid.

	
7.  

	
If E3 fails to meet the requirements of the proposed compliance plan, E3 agrees to pay a stipulated penalty of $10,000 per month for each month that E3 remains out of compliance.  The Chief shall make a finding that E3 failed to meet its requirements under the proposed compliance plan on the last day of any month which the Chief determines that E3 failed to meet the proposed compliance plan’s requirements, and the $10,000 stipulated penalty for that month shall become immediately due and payable.

OTHER PROVISIONS

	
1.  

	
E3 agrees to accept responsibility for complying with, and intends to be bound by, the terms and conditions of this Order as part of this ongoing agreement.   E3 and the Chief understand that the terms and conditions of this Order are part of an ongoing agreement which sets forth certain requirements that E3 agrees to meet at a future time.

	
2.  

	
Unless duly executed, the terms and conditions of this agreement shall expire in seven (7) consecutive days from the date of this Order.  Only the Chief shall have the right to extend the terms and conditions of the offer to enter into this Order beyond seven days.

	
3.  

	
In order for any stipulated penalty to become payable, the Chief shall first notify E3 in writing that it is in violation of the terms and conditions of the Order, and the stipulated penalty shall then become due and payable ten (10) days from E3’s receipt of notification that it is in violation.  Payments made under this agreement are not tax-deductible expenditures for purposes of State or federal law.

	
4.  

	
E3 hereby waives its right to appeal this Order under the provisions of Chapter 22, Article 6, of the Code of West Virginia.  E3 agrees to take all actions required by the terms and conditions of this Order and consents to and will not contest the Chief’s jurisdiction regarding this Order.  However, E3 does not admit to any factual and legal determinations made by the Chief and reserves all rights and defenses available regarding liability or responsibility in any proceedings regarding E3 other than proceedings, administrative or civil, to enforce this Order.

	
5.  

	
The Chief reserves the right to take further action if compliance with the terms and conditions of this Order does not adequately address the violations noted herein and reserves all rights and defenses which he may have pursuant to any legal authority, as well as the right to raise, as a basis for supporting such legal authority or defenses, facts other than those contained in the Findings of Fact.

 

  

  

  

E3 Petroleum Corp. Consent Order

Page 4

 

	
6.  

	
If any event occurs which causes delay in the achievement of the requirements of this Order, E3 shall have the burden of proving that the delay was caused by circumstances beyond its reasonable control which could not have been overcome by due diligence (i.e., force majeure).  Force majeure shall not include delays caused or contributed to by the lack of sufficient funding.  Within three (3) working days after E3 becomes aware of such a delay, notification shall be provided to the Chief, and E3 shall within ten (10) working days after initial notification, submit a detailed written explanation of the anticipated length and cause of the delay, the measures taken and/or to be taken to prevent or minimize the delay, and a timetable by which E3 intends to implement these measures.  If the Chief agrees that the delay has been or will be caused by circumstances beyond the reasonable control of E3 (i.e., force majeure), the time for performance hereunder shall be extended for a period of time equal to the delay resulting from such circumstances.  A force majeure amendment granted by the Chief shall be considered a binding extension of this Order and of the requirements herein.  The determination of the Chief shall be final and not subject to appeal.

	
7.  

	
Compliance with the terms and conditions of this Order shall not in any way be construed as relieving E3 of the obligation to comply with any applicable law, permit, other order, or any other requirement otherwise applicable.  Violations of the terms and conditions of this Order may subject E3 to additional penalties and injunctive relief in accordance with the applicable law.

	
8.  

	
This agreement is intended to address only the violations specified in the Findings of Fact, and in no way is to be construed as applicable to any other ongoing enforcement action(s).

	
9.  

	
The provisions of this Order are severable and should a court or board of competent jurisdiction declares any provisions to be invalid or unenforceable, all other provisions shall remain in full force and effect.

	
10.  

	
This Order is binding on E3, its successors and assigns.

This Order shall terminate upon E3’s full compliance with this Order and verification by the Chief of that compliance

 

	 	 	 	 	 
	 	 	 	 	 
	
E3 Petroleum Corp.    

	 	 	
Date

	 
	
 

	 	 	
 

	 
	 	 	 	 	 
	 	 	 	 	 
	James Martin, Chief  	 	 	Date	 
	Office of Oil and Gas

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