AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 2001
REGISTRATION NUMBER 333-66638
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4/A
AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOUSTON AMERICAN ENERGY CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
76-0675953
(I.R.S. Employer Identification Number)
801 Travis Street, Suite 1425
Houston, Texas 77002
(713) 221-8838
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
John F. Terwilliger
801 Travis Street, Suite 1425
Houston, Texas 77002
(713) 221-8838
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
WITH COPIES TO:
Norman T. Reynolds, Esq.
Jackson Walker L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
(713) 752-4200
Approximate date of commencement of proposed sale of the securities to the public: as soon as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.
Subject To Completion. Dated October 1, 2001.
PROSPECTUS
HOUSTON AMERICAN ENERGY CORP.
Resale of 596,569 Shares of Common Stock, par value $0.001 Per Share Resale of 4,007,719 Shares of Common Stock, par value $0.001 Per Share
INFORMATION STATEMENT
TEXAS NEVADA OIL & GAS CO.
This prospectus/information statement is being furnished to the shareholders of Texas Nevada Oil & Gas Co., a Texas corporation, and the stockholders of Houston American Energy Corp., a Delaware corporation, in connection with the merger of TNOG with and into Houston American.
On July 31, 2001, Houston American and TNOG entered into a Plan and Agreement of Merger relating to the merger, which was amended and restated as of September 26, 2001. The completion of the merger was previously approved by a number of TNOG's shareholders holding in excess of two-thirds of the outstanding shares of TNOG common stock and by all of our current stockholders, subject to completion, filing and effectiveness of the registration statement of which this prospectus/information statement is a part.
TNOG was previously a wholly-owned subsidiary of Unicorp, Inc., a Nevada corporation. Unicorp spun off all the shares of TNOG to the shareholders of Unicorp in July 2001. Since 1992, TNOG has not undertaken any business operations.
The merger of TNOG with and into Houston American will be completed 20 days after the effectiveness of this registration statement and delivery of this prospectus/information statement to TNOG's shareholders and our stockholders. Immediately upon filing the required certificates related to the merger with the Secretary of State of Texas and the Secretary of State of Delaware, we will issue an aggregate of 596,569 shares of our common stock to TNOG's shareholders, in exchange for their shares of TNOG common stock. Our current stockholders will retain their current shares of our common stock, an aggregate of 11,403,414 shares, and they will not be required to take any further action with respect to the merger.
This prospectus/information statement provides TNOG's shareholders with detailed information about the merger, a description of which begins on page 17. Each TNOG shareholder should give all of this information his careful attention, as it describes his rights to either accept the consideration he is to receive in the merger or to exercise his appraisal rights. Each of TNOG's shareholders should also carefully read the section entitled "Risk Factors" beginning on page 7 for a discussion of specific risks that he should consider in connection with the merger.
In addition to registering the resale of the 596,569 shares of our common stock to be issued to TNOG's shareholders as a result of the merger, this prospectus/information statement also relates to the aggregate resale of 4,007,719 shares of our common stock held by certain of our current stockholders, all of which may be sold from time to time by the selling stockholders.
Neither the SEC nor any state securities regulator has approved the securities to be issued under this prospectus/information statement or determined if this prospectus/information statement is accurate or adequate. Any representation to the contrary is a criminal offense.
This prospectus/information statement is dated __________, 2001.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
Page
----
Questions and Answers About the Merger..................................... i
Prospectus/Information Statement Summary................................... 1
Houston American Energy Corp. Selected Historical and Unaudited Pro Forma
Combined Financial Information.......................................... 3
Texas Nevada Oil & Gas Co. Selected Historical Financial Information....... 5
Comparative Per Share Information.......................................... 6
Market Value of Securities and Future Dividends Policy..................... 6
Risk Factors............................................................... 7
Houston American Energy Corp Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 9
Business of Houston American Energy Corp................................... 9
Texas Nevada Oil & Gas Co. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 16
Management Of Houston American Energy Corp................................. 17
Management Of Texas Nevada Oil & Gas Co.................................... 17
The Merger................................................................. 18
Dissenters' Rights......................................................... 20
Principal Stockholders of Houston American Energy Corp..................... 22
Principal Shareholders of Texas Nevada Oil & Gas Co........................ 22
Certain Relationships and Related Transactions............................. 23
Description Of Houston American Energy Corp Securities..................... 23
Comparative Rights Of Houston American Energy Corp Stockholders and
Texas Nevada Oil & Gas Co. Shareholders................................. 24
Indemnification and Limitation of Liability................................ 29
Interested Director Transactions........................................... 29
Selling Stockholders....................................................... 31
Plan Of Distribution....................................................... 32
Legal Matters.............................................................. 32
Experts.................................................................... 32
Where You Can Find More Information........................................ 32
Financial Statements....................................................... F-1
Amended and Restated Plan and Agreement of Merger.......................... Appendix A
Texas Business Corporation Act, Sections 5.11-5.13......................... Appendix B
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No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under the circumstances and in the jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. What transaction is being proposed?
A. We are proposing to acquire all of the outstanding shares of TNOG common stock. The acquisition will be effected by the merger of TNOG with and into Houston American.
Q. Why are the two companies proposing to merge?
A. The merger provides TNOG's shareholders the opportunity to realize an increase in the value of their original investment in Unicorp, Inc. due to Houston American's ongoing oil and gas exploration and development activities. Our stockholders will benefit from the merger because we will obtain TNOG's relatively large shareholder base which could be useful in helping us develop a public market for our common stock by providing the necessary float of publicly held shares. Due to the recent downturn in the economy, it has become increasingly more difficult for companies without a public exit vehicle to raise additional capital in private placements. Therefore, developing a public market for our common stock is expected to provide Houston American with greater access to additional financing from public and private sources should it be necessary for us to raise additional outside capital in the future.
Q. What will I receive in the merger?
A. TNOG's shareholders will be entitled to receive one share of Houston American common stock in exchange for each share of TNOG common stock they own at the time of the merger. Our current stockholders will retain their current shares of Houston American common stock and will not receive any additional consideration as a result of the merger. As of the date of this prospectus/information statement, neither the TNOG common stock nor our common stock is publicly traded.
Q. As a TNOG shareholder, how will the merger affect me?
A. After the merger, you will own shares of Houston American common stock and you will have the same voting rights as our currently outstanding common stock. We explained the merger's effect on the rights of our current stockholders to each of them at the time they consented to the merger.
Q. Why is there no TNOG shareholder meeting about this transaction?
A. A TNOG shareholder meeting is not necessary because a number of TNOG shareholders owning a sufficient number of shares of TNOG common stock to approve the merger have already executed a written consent in favor of the merger.
Q. Why is there no meeting of our stockholders about this transaction?
A. A meeting of our stockholders is not necessary because all of our current stockholders have previously executed a written consent in favor of the merger.
Q. Do TNOG's shareholders have dissenters' rights?
A. Yes. Under Texas law, TNOG's shareholders are entitled to dissenters' rights.
Q. When do you expect the merger to be completed?
A. The merger will be completed 20 days after the date this prospectus/information statement is first mailed to TNOG's shareholders and our stockholders. TNOG set July 1, 2001 and we set September 26, 2001 as the record dates to determine TNOG's shareholders and our stockholders who are entitled to be sent a copy of this prospectus/information statement.
Q. Will the shares of Houston American common stock be listed on any stock exchange?
A. Following the merger, the shares of Houston American common stock will be listed on the OTC Bulletin Board.
Q. Will I be able to sell the shares that I receive in the merger?
A. Only TNOG's shareholders and our stockholders whose shares of Houston American common stock are being registered for resale pursuant to the registration statement of which this prospectus/information statement is a part will be able to resale their shares of Houston American common stock. However, if you are an affiliate of TNOG or Houston American, you will be subject to the securities laws restrictions placed on the selling of shares by affiliates.
Q. What are the tax consequences of the merger to me?
A. The merger will be a taxable event to the TNOG shareholders. The TNOG shareholders will recognize gain or loss equal to the difference between (i) the sum of the fair market value of the shares of our common stock they receive in the merger and any cash they may have received in connection with the merger, and (ii) their tax basis in their shares of TNOG common stock. The merger will not be a taxable event to the Houston American shareholders. We urge you to carefully read the complete explanation of the tax consequences of the merger on pages 18 through 20.
Q. What will my tax basis be in the shares I receive in the merger?
A. The tax basis in shares of our common stock TNOG shareholders receive in the merger will equal the fair market value of Houston American shares at the date you own the shares.
Q. Should TNOG's shareholders send in their stock certificates now?
A. No. After the merger is completed, we will appoint a transfer agent to coordinate the exchange of TNOG's shareholders' current stock certificates representing their shares of TNOG common stock. The transfer agent will send each TNOG shareholder a letter of transmittal and written instructions on how to exchange their stock certificates.
Q. Who can help answer my questions?
A. If you would like additional copies of this prospectus/information statement, or if you have questions about the merger, you should contact:
Mr. Louis Mehr Mr. John F. Terwilliger Texas Nevada Oil & Gas Co. Houston American Energy Corp. One Riverway, Suite 1700 or 801 Travis Street, Suite 1425 Houston, Texas 77056 Houston, Texas 77002 |
PROSPECTUS/INFORMATION STATEMENT SUMMARY
This brief summary highlights selected information from this prospectus/information statement. It does not contain all of the information that is important. Please carefully read the entire prospectus/information statement and the other documents to which this prospectus/information statement refers for a complete understanding of the proposed merger.
THE COMPANIES
Houston American Energy Corp.
Houston American Energy Corp. is an oil and gas exploration and production company. Currently, Houston American's business activities are primarily conducted in the Sate of Texas.
Principal Executive Offices of Houston American Energy Corp.
Our principal executive offices are located at 801 Travis Street, Suite 1425, Houston, Texas 77002. Our telephone number is (713) 221-8838.
Texas Nevada Oil & Gas Co.
Since 1992, TNOG has not conducted any material business activities. From 1981 to 1991, TNOG held and operated all of the mineral interests of its parent, Unicorp, Inc., in the State of Texas. TNOG has not had any revenues after 1991, when it ceased operations and began liquidating its operating assets. Beginning in 1992, TNOG's activities have consisted primarily of maintaining its corporate status through filing franchise tax returns and paying franchise taxes in the State of Texas.
Principal Executive Offices of Texas Nevada Oil & Gas Co.
The principal executive offices of TNOG are located at One Riverway, Suite 1700, Houston, Texas 77056. The telephone number for TNOG is (713) 961-2696.
THE MERGER
Dissenters' Rights (See page 20)
Under Texas law, TNOG's shareholders have the right to dissent from the merger and obtain an amount in cash equivalent to the appraised value of their current shares when the merger is completed. However, TNOG's shareholders may only receive the cash payment if they correctly dissent from the merger by following specified procedures. The relevant sections of the Texas Business Corporation Act are attached to this prospectus/information statement as Appendix B.
Reasons for the Merger
TNOG's management believes that the merger will enable TNOG's shareholders to realize an increase in the value of their original investment in Unicorp, Inc. due to Houston American's ongoing oil and gas exploration and production activities. Over the last several years, there has been very little business activity in Unicorp, Inc. and no business activity with respect to TNOG, despite attempts to generate significant opportunities for both companies. The management of both Unicorp and TNOG concluded that the proposed merger with Houston American provided the best prospect to establish value for their shareholders.
Our management believes that our stockholders will benefit from the merger because Houston American will obtain TNOG's relatively large shareholder base which could be useful in helping us develop a public market for our common stock by providing the necessary float of publicly held shares. Due to the recent downturn in the economy, it has become increasingly more difficult for companies without a public exit vehicle to raise additional capital in private placements. Therefore, developing a public market for our common stock is expected to provide Houston American with greater access to additional financing from public and private sources should it be necessary to obtain additional outside capital in the future. The registration of shares for resale of certain of our existing stockholders will also provide an exit strategy for them. Without the merger with TNOG and the acquisition of its shareholder base, there would be no meaningful market for the resale of our stock.
Governmental Approvals
We are not aware of any governmental approvals required to complete the merger other than compliance with the applicable corporate and securities laws of the States of Texas and Delaware.
Certain Tax Consequences (See page 19)
It is expected that, for United States federal income tax purposes, the merger will not qualify as a tax-free reorganization. Accordingly, the merger will be a taxable transaction for the TNOG shareholders. Our current stockholders will not recognize gain or loss as a result of the merger.
The actual tax consequences of the merger to you will depend on your specific situation. We strongly urge you to consult your own tax adviser for a full understanding of the merger's tax consequences.
Risk Factors (See page 7)
An investment in our common stock involves significant risks and should not be made without reference to the risk factors incorporated into this prospectus/information statement.
Registration of Shares
This prospectus/information statement relates to the aggregate resale of 596,569 shares of our common stock which are to be issued to TNOG's shareholders as a result of the merger, as well as the aggregate resale of 4,007,719 shares of our common stock held by certain of our current shareholders, all of which may be sold from time to time by the selling stockholders. We will not receive any proceeds from the resale of any of the common stock by the selling stockholders.
Forward-Looking Statements
There are forward-looking statements in this prospectus/information statement and in other documents to which you are referred that are subject to risks and uncertainties. These forward-looking statements include information about our possible or assumed future results of operations or our performance after the merger is completed. When any of the words "believes," "expects," "anticipates," "intends," "estimates" or similar expressions are used, forward- looking statements are being made. Many possible events or factors could affect the actual financial results and performance of each of the companies before the merger and of the combined company after the merger, and these events or factors could cause those results or performance to differ significantly from those expressed in these forward-looking statements. Many of these risks and uncertainties are not within our
control or TNOG's control and are set forth under "Risk Factors" beginning on page 7 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 9.
HOUSTON AMERICAN ENERGY CORP.
SELECTED HISTORICAL AND
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The selected historical financial data presented below under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of April 15, 2001 and for the period from April 2, 2001 (date of inception) to April 15, 2001 are derived from our audited financial statements. The selected unaudited pro forma combined financial data presented below under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of June 30, 2001 have been derived from our unaudited pro forma financial statements.
The selected historical financial data presented below under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of June 30, 2001 and for the period from April 2, 2001(date of inception) to June 30, 2001 are derived from our unaudited financial statements. Our unaudited financial statements include all adjustments, consisting only of normal accruals, that our management considers necessary for the fair presentation of financial position and results of operations for the unaudited interim periods. Operating results for the period from April 2, 2001 (dated of inception) to June 30, 2001 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2001.
The selected unaudited pro forma combined financial data presented below under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of June 30, 2001 and for the six-month period June 30, 2001 are derived from the unaudited pro forma combined financial statements of Houston American and TNOG. It is important that you also read "Houston American Energy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements for the period from April 2, 2001 (date of inception) to June 30, 2001 and for the period April 2, 2001 (date of inception) to April 15, 2001 and the related notes. You should also read the unaudited pro forma combined financial statements for the six-month period ended June 30, 2001.
INTENTIONALLY LEFT BLANK
Unaudited
Pro Forma For
Historical From April 2, 2001 The Six Month
(Date of Inception) to Period
----------------------------------------
April 15, June 30, June 30,
2001 2001 2001
--------------- --------------- ---------------
SELECTED OPERATING DATA:
Revenue $ - $ - $ -
--------------- --------------- ---------------
General and administrative expenses 12,555 19,517 19,517
--------------- --------------- ---------------
Net loss $ 12,555 $ 19,517 $ 19,517
=============== =============== ===============
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Unaudited
Historical as of Pro Forma as of
--------------------------------
April 15, June 30, June 30,
2001 2001 2001
------------- ------------- --------------
SELECTED BALANCE SHEET DATA:
Cash $ 1,000 $ 976 $ 976
Oil and gas properties 171,147 260,470 260,470
Deferred assets 63,871 108,840 108,840
------------- ------------- --------------
Total assets $ 236,018 $ 370,286 $ 370,286
============= ============= ==============
Accrued liabilities 30,592 - -
Payable to affiliated companies - 171,822 171,822
Notes payable 216,981 216,981 205,981
------------- ------------- --------------
Total liabilities 247,573 388,803 377,803
Shareholders' equity (11,555) (18,517) (7,517)
------------- ------------- --------------
Total liabilities and shareholder's equity $ 236,018 $ 370,286 $ 370,286
============= ============= ==============
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TEXAS NEVADA OIL & GAS CO.
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial data presented below under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of December 31, 2000, and 1999 and for each of the years ended December 31, 2000 and 1999 have been derived from TNOG's audited financial statements.
The selected historical financial data presented under the captions "Selected Operating Data" and "Selected Balance Sheet Data" as of June 30, 2000 and for the six months ended June 30, 2001 and 2000 are derived from TNOG's unaudited financial statements. TNOG's unaudited financial statements include all adjustments that TNOG's management considers necessary for a fair presentation of financial position and results of operations for the unaudited interim periods. Operating results for the six-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2001.
It is important that you also read "Texas Nevada Oil & Gas Co. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements for the six month period ended June 30, 2001 and June 30, 2000, and for the periods ended December 31, 2000 and 1999 and the related notes.
Historical From
-------------------------------------------------------------
December 31, June 30,
----------------------------- ----------------------------
1999 2000 2000 2001
------------ -------------- ------------- -------------
SELECTED OPERATING DATA:
Revenue $ - $ - $ - $ -
------------ -------------- ------------- -------------
General and administrative expenses 1,000 - - -
------------ -------------- ------------- -------------
Net loss $ 1,000 $ - $ - $ -
============ ============== ============= =============
Historical as of
---------------------------------
December 31, June 30,
2000 2001
---------------- ----------------
SELECTED BALANCE SHEET DATA:
Total assets $ - $ -
=============== ===============
Total liabilities - -
Shareholders' equity - -
--------------- ---------------
Total liabilities and shareholders' equity $ - $ -
=============== ===============
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COMPARATIVE PER SHARE INFORMATION
The table below contains historical and pro forma per share information about the net loss and book value of Houston American. and TNOG. The per share information has been derived from the audited, unaudited and unaudited pro forma financial statements referred to above in "Selected Historical and Unaudited Pro Forma Financial Information" for Houston American and in "Selection Historical Financial Information" for TNOG. You should read the information below together with "Houston American Energy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Texas Nevada Oil & Gas Co. Management's Discussion and Analysis of Financial Condition and Results of Operations."
The unaudited pro forma combined per share information does not necessarily indicate the operating results that would have been achieved had the merger of Houston American and TNOG actually occurred at the beginning of the periods presented nor does it indicate future results of operations of financial condition.
Historical From April 2, 2001
(Dated of Inception) to
-------------------------------------------------
April 15, 2001 June 30, 2001
------------------ -----------------
Historical:
Houston American Engery Corp
Basic loss per share $ 0.01 $ 0.02
Negative book balance per shares 0.01 0.02
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Historical
-------------------------------------------------
December 31, June 30,
----------------------- ---------------------
1999 2000 2000 2001
------ ------ ------ ------
Historical:
Texas Nevada Oil & Gas Co.
Basic loss per share $ 1.00 $ - $ - $ -
Book value per share - - - -
Unaudited
Pro Forma For
The Six Month
Period
June 30, 2001
-----------------------
Unaudited Pro Foma Combine
Basic Loss per share $ 0.00
Negative book value per share $ 0.00
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MARKET VALUE OF SECURITIES AND FUTURE DIVIDENDS POLICY
As of the date of this prospectus/information statement, neither the TNOG common stock nor our common stock is publicly traded, although the TNOG common stock has been registered under the Securities Exchange Act of 1934. We have applied to list our common stock on the OTC Bulletin Board under the symbol "___." As of _____________, 2001, there were approximately 995 shareholders of record of TNOG common stock and 30 stockholders of record of our common stock.
We presently anticipate that all of our future earnings will be retained for the development of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our board of directors and will be based on our future earnings, financial condition, capital requirements and other relevant factors.
RISK FACTORS
An investment in our common stock involves certain risks. Prospective investors should carefully review the following factors, together with the other information contained in this prospectus/information statement, prior to making a decision to invest in our common stock. The future trading price of shares of our common stock will be affected by the performance of our business relative to, among other things, competition, market conditions and general economic and industry conditions.
We may be unable to meet our capital requirements which may slow down or curtail our business plans
Since our inception on April 2, 2001 to June 30, 2001, we have suffered operational losses totaling $19,517 and we expect to continue to have substantial capital expenditure and working capital needs. If low natural gas and oil prices, operating difficulties or other factors, many of which are beyond our control, cause our revenues or cash flows from operations to decrease, we may be limited in our ability to obtain the capital necessary to complete our development, exploitation and exploration programs. We have not thoroughly investigated whether this capital would be available, who would provide it, and on what terms. If we are unable, on acceptable terms, to raise the required capital, our business may be seriously harmed or even terminated.
Our management owns a significant amount of our common stock, giving them influence or control in corporate transactions and other matters, and their interests could differ from those of other stockholders
Upon the effectiveness of the merger, John F. Terwilliger, our sole director and executive officer, will beneficially own approximately 61.6 percent of our outstanding common stock. As a result, he will continue to be in a position to significantly influence or control the outcome of matters requiring a stockholder vote, including the election of directors, the adoption of any amendment to our certificate of incorporation or bylaws, and the approval of mergers and other significant corporate transactions. His control of Houston American may delay or prevent a change of control on terms favorable to the other stockholders and may adversely affect the voting and other rights of other stockholders.
Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations
Our success will depend on our ability to retain John F. Terwilliger, our sole director and executive officer, and to attract other experienced management and non-management employees, including engineers, geoscientists and other technical and professional staff. We will depend, to a large extent, on the efforts, technical expertise and continued employment of such personnel and members of our management team. If members of our management team should resign or we are unable to attract the necessary personnel, our business operations could be adversely affected.
Our certificate of incorporation and bylaws and the Delaware General Corporation Law contain provisions that could discourage an acquisition or change of control of Houston American
Our certificate of incorporation authorizes our board of directors to issue preferred stock and common stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of our certificate of incorporation and bylaws could also make it more difficult for a third party to acquire control of us. These provisions include a denial of cumulative voting rights, limitations on stockholder proposals at meetings of stockholders, and restrictions on the ability of our stockholders to call special meetings. Our certificate of incorporation provides that our board of directors is divided into three classes, each elected for staggered three-year terms. Although we currently have only one director, we anticipate additional directors will be added to our board of directors shortly after the completion of the merger. Thus, control of our board of directors cannot be changed in one year; rather, at least two annual meetings must be held before a majority of the members of our board of directors could be changed. In addition, the Delaware
General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15 percent or more of our outstanding common stock.
These provisions of Delaware law and our certificate of incorporation and bylaws may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in his best interest, including attempts that might result in a premium over the market price for the common stock.
TNOG shareholders may succeed to a portion of the TNOG tax liability
The merger will be a taxable transaction for federal income tax purposes. It is likely that the Internal Revenue Service will consider the merger a taxable sale by TNOG of its assets and the subsequent liquidation of TNOG. If we do not pay the tax liability created by this deemed sale of assets, there is a risk that the Internal Revenue Service would assert that the TNOG shareholders are distributees of property of TNOG and that each TNOG shareholder is liable for the unpaid taxes to the extent of the value of property it received in the deemed liquidation.
TNOG's shareholders are entitled to dissenter's rights
TNOG's shareholders who do not consent to the merger may, under certain circumstances and by following procedures prescribed by the Texas Business Corporation Act exercise dissenter's rights and receive cash for the fair value of their shares. Dissenters must follow the appropriate procedures under Texas law or suffer the termination or waiver of such rights. In the event a TNOG shareholder relinquishes or loses his dissenter rights, he will receive the same number of shares of our common stock that he would have received in the merger had such dissenter not attempted to exercise his dissenter's rights.
Need for additional financing
Currently, our revenue is insufficient to cover our ongoing exploration and development expenses and our general operating costs. Therefore, our audited financial statements include an auditor's report containing a statement regarding an uncertainty about our ability to continue as a going concern. Our ability to continue our operations is dependent on the willingness and ability of Moose Oil & Gas Company and Moose Operating Co., Inc. (entities affiliated with John F. Terwilliger, our sole director executive officer) to continue funding our operations and our ability to obtain additional sources of financing as discussed below in "Houston American Energy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." As of the date of this prospectus/information statement, our relationships with Moose Oil & Gas Company and Moose Operating Co., Inc. are stable and we have no reason to doubt the willingness of those two entities to continue providing additional funding. However, if Moose Oil & Gas Company and Moose Operating Co., Inc. discontinue funding our operations and we are unable to obtain alternative financing when needed on acceptable terms, if at all, we may be unable to continue our operations.
Shares of our common stock may be "penny stocks"
If the market price per share of our common stock is less than $5.00, the shares of our common stock will be "penny stocks" as defined in the Exchange Act. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of our common stock being registered under this prospectus/information statement. In addition, the "penny stock" rules adopted by the SEC under the Exchange Act subject the sale of shares of our common stock to regulations which impose sales practice requirements on broker-dealers. For example, broker-dealers selling penny stocks must, prior to effecting the transaction, provide their customers with a document which discloses the risks of investing in penny stocks.
Furthermore, if the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in penny stocks. Accordingly, the SEC's rules may limit the number of potential purchasers of shares of our common stock. Moreover, various state securities laws impose
restrictions on transferring "penny stocks," and, as a result, investors in our common stock may have their ability to sell their shares impaired.
HOUSTON AMERICAN ENERGY CORP. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and actual results could differ materially from those forward-looking statements. The following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes.
General
Houston American Energy Corp. is an oil and gas exploration and production company. Currently, Houston American's business activities are conducted in the State of Texas.
Results of Operations
Since our inception on April 2, 2001 to June 30, 2001, we have incurred an operating loss of $19,517. Our revenues during that period were approximately $2,900 and our total exploration and development costs associated with the three wells we have drilled was $199,733.
Liquidity and Capital Resources
Our management anticipates that our current financing in place will meet our anticipated objectives and business operations for approximately the next 24 months. For that period, we anticipate that our committed share of the costs associated with completing, testing and connecting our third well, Sartwell No. 5, will be approximately $875,000. Additionally, we anticipate drilling expenses and costs of approximately $1,250,000 related to our interest in two deep wells which will be drilled in the next six to eight months, and an additional $1,250,000 for two other wells we anticipate drilling prior to the end of the year 2002.
In addition to the income we anticipate receiving from our three wells, Moose Oil & Gas Company and Moose Operating Co., Inc. are currently loaning us the funds needed to continue our operations. John F. Terwilliger, our sole director and executive officer, is also the sole director, chief executive officer and majority shareholder of Moose Oil & Gas Company, which is the parent of Moose Operating Co., Inc. To the extent our revenue shortfall exceeds the willingness and ability of Moose Oil & Gas Company and Moose Operating Co., to continue loaning us fund needed for our operations, we anticipate raising any additional capital needed from outside investors coupled with bank or mezzanine lenders. As of the date of this prospectus/information statement, we have not entered into any negotiations with any third parties to provide such capital.
BUSINESS OF HOUSTON AMERICAN ENERGY CORP.
Current Strategy
Our primary focus over the next 12 months is the exploration and production of two significant leasehold interests we own in Lavaca County, Texas. In addition to seeking out oil and gas property prospects using advanced seismic techniques, we will utilize our management's contacts to identify potential acquisition targets. In searching for potential acquisition targets, we will focus primarily in the Onshore Texas Gulf Coast Region of the State of Texas, where our management has been involved in oil and gas exploration and production activities since 1983.
In addition to our own drilling activities and acquisition strategy, we may encourage others in the oil and gas industry to enter into partnerships or joint ventures with us for purposes of acquiring properties and conducting drilling and exploration activities.
Exploration and Development Activities
Our exploration and development activities focus on the identification and drilling of new productive wells and the acquisition of existing producing wells from other producers.
Drilling Activities
As of the date of this prospectus/information statement, we have drilled and completed two gross wells (0.45 net wells), and we have drilled and are completing the last of our three test wells we are committed to drill on three of our four leaseholds in Lavaca County, Texas. Based on log analysis comparing the first two wells to other producing wells in the immediate area, we believe them to be capable of profitable production. Currently, those wells are producing a non-material amount of natural gas.
The log analysis conducted during the drilling of the third well causes us to believe that the third well is also capable of profitable production. As of the date of this prospectus/information statement, production casing has been run on the third well and it is awaiting a completion rig in order to attempt to complete the well. If the third well is successful, it will be immediately connected to the pipeline system.
Our goal in drilling our first two wells was to test the Frio and Miocene Formations at different depths above 3,500 feet. The third well was drilled in order to test the Lower Wilcox Formation at depths down to 16,500 feet.
The following table summarizes our development drilling activity for the period from our inception on April 2, 2001 through August 31, 2001. There is no correlation between the number of productive wells completed during any period and the aggregate reserves attributable to those wells. All of the wells we have drilled are natural gas wells.
Total Productive Dry ----- ---------- --- Drilled Net Drilled Net Drilled Net ------- ---- ------- ---- ------- --- 3 1.00 2 0.45 0 0 |
A "gross well" is a well in which we own a working interest. A "net well" is deemed to exist when the sum of the fractional working interests in gross wells equals one. The total of 1.00 net wells included in the foregoing chart includes our third well (0.55 net wells). Our original interest in that well (0.15 net wells) increased as a result of the election by several working interest owners to be treated as non-consenting parties on the well. Pursuant to the terms of the operating agreement related to the well, which is between Louis Dreyfus, Seisgen Exploration, Inc. and Moose Oil & Gas Company and is attached as an exhibit to the registration statement of which this prospectus/information statement is a part, we will continue to own our respective share of each non- consenting party's interest in the well (an additional 0.40 net wells) until the total proceeds from the sale of gas produced from the well attributable to each non-consenting party's interest in the well is equal to the total of:
. 100 percent of the costs of operating the well attributable to the applicable non-consenting party's original interest in the well; and
. 400 percent of the costs and expenses of drilling, testing and completing the well attributable to the applicable non-consenting party's original interest in the well.
Marketing
We anticipate marketing substantially all of the oil and gas to be produced from our properties to Kinder Morgan Pipeline, Inc., Pinnacle Natural Gas Co. and Texas Gas Plants, L.P. As of the date of this prospectus, we have entered into gas purchase agreements with Kinder Morgan and Pinnacle (as successor to Dominion Pipeline Company) with respect to the Kalmus No. 1 well and the Carl Klimitchek No. 2 well, respectively. Each of those agreements, which are attached as exhibits to the registration statement of which this prospectus/information
statement is a part, were entered into by Moose Operating Co., Inc. and we were assigned the rights to the agreements in connection with the purchase of our oil and gas interests from Moose Oil & Gas Company. Each agreement requires us to sell all of the gas we produce from the applicable well to the purchaser at fluctuating prices, which are based on the appropriate index and, in the case of the agreement with Pinnacle, the average gas liquids content of the gas we deliver.
Although we have not entered into an agreement with Texas Gas Plants, L.P. as of the date of this prospectus/information statement, we have held preliminary discussions with representatives of Texas Gas Plants regarding entering into a gas purchase agreement related to the Sartwelle No. 5 well. Due to the proximity of an available connection to Texas Gas Plants' pipeline to the location of the Sartwelle No. 5 well (less than a mile) and the prior contractual relationships between Moose Operating Co. and Shell Western E&P, Inc., an affiliate of Texas Gas Plants, we believe that entering into a gas purchase agreement with Texas Gas Plants will represent our best opportunity for marketing the gas we produce from the Sartwelle No. 5 well. Although we cannot be certain that our initial discussions will result in an actual agreement, the representatives of Texas Gas Plants have expressed an interest in entering into a gas purchase agreement if the testing of the Sartwelle No. 5 well establishes that it appears capable of profitable production.
Production
As of the date of this prospectus/information statement, we have not had any material production of oil or natural gas from our wells.
Reserves
Inasmuch as we have only recently completed the drilling of our first two test wells, our potential reserves have not been established as of the date of this prospectus/information statement. We anticipate that a reserve determination will be made for each of our wells by the end of 2001. However, if our third well, Sartwell No. 5, is completed and begins producing prior to that time, we will immediately contract for a reserve study.
Leaseholds
As of the date of this prospectus/information statement, we have leasehold interests in four oil and gas properties in Lavaca County, Texas, which represent a total of 943.8 gross and 157.55 net developed acres and 1,195 gross and 149.38 net undeveloped acres. A "gross acre" is an acre in which a working interest is owned. The number of gross acres represents the sum of acres in which a working interest is owned. A "net acre" is deemed to exist when the sum of the fractional working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests in gross acres expressed in whole numbers or fractions.
Operational Hazards and Insurance. Our development, exploitation and exploration activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties. Moreover, the successful drilling of a natural gas and oil well does not ensure a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only marginally profitable.
Our business involves a variety of operating risks which may adversely affect our profitability, including:
. fires;
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of oil, natural gas, and formation water;
. natural disasters, such as hurricanes and other adverse weather conditions;
. pipe, cement, or pipeline failures;
. casing collapses;
. embedded oil field drilling and service tools;
. abnormally pressured formations; and
. environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases.
If we experience any of these problems, it could affect well bores, gathering systems and processing facilities, which could adversely impact our ability to conduct operations. We could also incur substantial losses as a result of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
In accordance with industry practice, our insurance protects us against some, but not all, operational risks and we do not carry business interruption insurance at levels that would provide enough funds for us to continue operating without access to additional funds. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. Therefore, our insurance may be inadequate to cover any losses or exposure for liability. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect our operations and financial condition.
Reserves. Our business strategy requires us to develop reserves through acquisitions of proved natural gas and oil properties, further development of our existing properties, and exploration activities. Properties may not be available for acquisition in the future on terms we find attractive. A substantial decrease in the availability of proved natural gas and oil properties in our areas of operation, or a substantial increase in their cost, would adversely affect our ability to develop and continuously replace our reserves as they are depleted. In addition, our exploration and development activities may not be successful. If we fail to develop and continuously replace our reserves, our level of production and cash flows will be adversely affected.
We have undeveloped properties that will require substantial costs to develop. We expect to continue incurring costs to acquire, explore and develop oil and gas properties, and our management predicts that these costs, together with general and administrative expenses, will be in excess of funds available from revenues from properties owned by us. It is anticipated that the source of funds to carry out exploration and development will come from a combination of our production revenues, sales of our securities, and funds from other funding transactions in which we might engage.
We will periodically review the carrying value of our natural gas and oil properties under the full cost accounting rules of the SEC. Under these rules, capitalized costs of proved natural gas and oil properties may not exceed the present value of estimated future net revenues from proved reserves, discounted at an annual rate of 10 percent. Application of this "ceiling" test requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time. In the future, we may be required to write down the carrying value
of our natural gas and oil properties when natural gas and oil prices are depressed or unusually volatile, which would result in a charge against our earnings. Once incurred, a write-down of the carrying value of our natural gas and oil properties is not reversible at a later date.
Financing of Drilling Activities
Shortages or an increase in costs of drilling rigs, equipment, supplies or personnel could delay or adversely affect our operations, which could have a material adverse effect on our business, financial condition and results of operations. Recently, drilling activity in many geographic areas has increased, resulting in increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. We do not have any contracts with providers of drilling rigs and we may find that drilling rigs will not be readily available when we need them.
Volatility of Oil and Gas Prices
As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent upon the prevailing prices of, and demand for, natural gas, oil, and condensate. Our realized profits affect the amount of cash flow available for capital expenditures. Our ability to maintain or increase our borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent upon oil and gas prices. From time to time, oil and gas prices have been depressed. However, prices for oil and gas have recently increased materially, only to fall back to their current levels. It is impossible to predict future oil and natural gas price movements with any certainty. Any continued and extended decline in the price of oil or gas could have a material adverse effect on our financial position, cash flows and results of operations and may reduce the amount of our oil and natural gas that can be produced economically.
Prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of additional factors that are beyond our control. Among the factors that can cause the volatility of oil and gas prices are:
. worldwide or regional demand for energy, which is affected by economic conditions;
. the domestic and foreign supply of natural gas and oil;
. weather conditions;
. domestic and foreign governmental regulations;
. political conditions in natural gas and oil producing regions;
. the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels; and
. the price and availability of other fuels.
Competition
Competition in the oil and gas industry is intense and we compete with major and other independent oil and gas companies with respect to the acquisition of producing properties and proved undeveloped acreage. Our competitors actively bid for desirable oil and gas properties, as well as for the equipment and labor required to operate and develop the properties. Many of our competitors, however, have financial resources and exploration and development budgets that are substantially greater than ours and may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for natural gas and oil properties and may be able to define, evaluate, bid for and purchase a greater number of properties than we can. Our ability to acquire additional properties and develop new and existing properties in the future will depend on our capability to conduct operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.
Regulation
Our business and the oil and gas industry in general are subject to extensive laws and regulations, including environmental laws and regulations. We may be required to make large expenditures to comply with environmental and other governmental regulations. State and federal regulations, including those enforced by the Texas Railroad Commission as the primary regulator of the oil and gas industry in the State of Texas, are generally intended to prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir and control contamination of the environment. Matters subject to regulation in the State of Texas include:
. location and density of wells;
. the handling of drilling fluids and obtaining discharge permits for drilling operations;
. accounting for and payment of royalties on production from state, federal and Indian lands;
. bonds for ownership, development and production of natural gas and oil properties;
. transportation of natural gas and oil by pipelines;
. operation of wells and reports concerning operations; and
. taxation.
Under these laws and regulations, we could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations.
The availability of a ready market for oil and gas production depends on several factors beyond our control. These factors include regulation of oil and gas production, federal and state regulations governing environmental quality and pollution control, the amount of oil and gas available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels.
Pipelines are subject to the jurisdiction of various federal, state and local agencies. We take all necessary steps to comply with applicable regulations and we believe that we are in substantial compliance with applicable statutes, rules, regulations and governmental orders although we cannot be certain that this is or will remain the case. The following discussion of the regulation of the United States natural gas industry is not intended to constitute a complete discussion of the various statutes, rules, regulations and environmental orders to which our operations may be subject.
Regulation of Natural Gas Exploration and Production. Our natural gas operations are subject to various types of regulation at the federal, state and local levels. Prior to commencing drilling activities for a well, we are required to procure permits and/or approvals for the various stages of the drilling process from the applicable state and local agencies in the state in which the area to be drilled is located. Permits and approvals include those for the drilling of wells, and regulations include maintaining bonding requirements in order to drill or operate wells and the location of wells, the method of drilling and casing wells, the surface use and restoration of properties on which wells are drilled, the plugging and abandoning of wells, and the disposal of fluids used in connection with operations.
Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or portion units and the density of wells, which may be drilled and the unitization or pooling of natural gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely primarily or exclusively on voluntary pooling of lands and
leases. In areas where pooling is voluntary, it may be more difficult to form units, and therefore, more difficult to develop a project if the operator owns less than 100 percent of the leasehold.
In addition, some states have conservation laws that establish maximum rates of production from natural gas reservoirs and impose some requirements regarding the ratability of production. The effect of these regulations may limit the amount of natural gas we can produce from our wells and may limit the number of wells or the locations at which we can drill. The regulatory burden on the natural gas industry increases our cost of doing business and, consequently, affects our profitability. Inasmuch as laws and regulations are frequently expanded, amended, and reinterpreted, we are unable to predict the future cost or impact of complying with regulations.
Regulation of Sales and Transportation of Natural Gas. Historically, the transportation and resale of natural gas in interstate commerce have been regulated by the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978, and the regulations promulgated by the Federal Energy Regulatory Commission. Maximum selling prices of some categories of natural gas sold in "first sales," whether sold in interstate or intrastate commerce, were regulated under the NGPA. The Natural Gas Well Head Decontrol Act removed, as of January 1, 1993, all remaining federal price controls from natural gas sold in "first sales" on or after that date. FERC's jurisdiction over natural gas transportation was unaffected by the Decontrol Act. While sales by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at market prices, Congress could reenact price controls in the future.
Our sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive regulation. In recent years, FERC has undertaken various initiatives to increase competition within the natural gas industry. As a result of initiatives like FERC Order No. 636, issued in April 1992, the interstate natural gas transportation and marketing system has been substantially restructured to remove various barriers and practices that historically limited non-pipeline natural gas sellers, including producers, from effectively competing with interstate pipelines for sales to local distribution companies and large industrial and commercial customers. The most significant provisions of Order No. 636 require that interstate pipelines provide transportation separate or "unbundled" from their sales service, and require that pipelines make available firm and interruptible transportation service on an open access basis that is equal for all natural gas suppliers.
In many instances, the result of Order No. 636 and related initiatives has been to substantially reduce or eliminate the interstate pipelines' traditional role as wholesalers of natural gas in favor of providing only storage and transportation services. Another effect of regulatory restructuring is the greater transportation access available on interstate pipelines. In some cases, producers and marketers have benefited from this availability. However, competition among suppliers has greatly increased and traditional long-term producer pipeline contracts are rare. Furthermore, gathering facilities of interstate pipelines are no longer regulated by FERC, thus allowing gatherers to change higher gathering rates.
Additional proposals and proceedings that might affect the natural gas industry are nearly always pending before Congress, FERC, state commissions and the courts. The natural gas industry historically has been very heavily regulated; therefore, we cannot be certain that the less stringent regulatory approach recently pursued by FERC and Congress will continue. We cannot determine to what extent our future operations and earnings will be affected by new legislation, new regulations, or changes in existing regulations, at the federal, state or local levels.
Environmental Regulations. Our anticipated operations are subject to additional laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stricter environmental legislation and regulations could continue. To the extent laws are enacted or other governmental action is taken that restrict drilling or impose environmental protection requirements that result in increased costs to the natural gas industry in general, our business and prospects could be adversely affected.
We generate wastes that may be subject to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S. Environmental Protection Agency and various state agencies have limited the approved methods of disposal for some hazardous wastes. Furthermore, some wastes generated by our operations that are currently exempt from treatment as "hazardous wastes" may in the future be designated as "hazardous wastes," and therefore be subject to more rigorous and costly operating and disposal requirements.
We currently own or lease properties that for many years have been used for the exploration and production of oil and natural gas. Although we believe that we have utilized good operating and waste disposal practices, prior owners and operators of these properties may not have utilized similar practices, and hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by us or on or under locations where wastes have been taken for disposal. These properties and the wastes disposed on the properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), RCRA and analogous state laws as well as state laws governing the management of oil and natural gas wastes. Under those laws, we could be required to remove or remediate previously disposed wastes, including waste disposed of or released by prior owners or operators, or property contamination, including groundwater contamination, or to perform remedial plugging operations to prevent future contamination.
CERCLA and similar state laws impose liability, without regard to fault or the legality of the original conduct, on some classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed of or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for release of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
Our anticipated operations may be subject to the Clean Air Act and comparable state and local requirements. Amendments to the CAA were adopted in 1990, and contain provisions that may result in the gradual imposition of pollution control requirements with respect to air emissions from our operations. The EPA and the states have been developing regulations to implement these requirements. We may be required to incur capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining operating permits and approvals addressing other air emission related issues.
Employees
As of August 31, 2001, we had one full-time employee and no part time employees. Our employee is not covered by a collective bargaining agreement, nor do we anticipate that any of our future employees will be so covered. If our operations continue to grow as expected, we anticipate hiring as many as three additional employees over the next six to eight months.
Facilities
We currently share on a rent free basis approximately 3,400 square feet of office space provided by Moose Oil & Gas Company in Houston, Texas as our executive offices. As we add employees and expand our business over the next six to eight months, we anticipate that we will need to lease new space for our executive offices.
Legal Proceedings
As of the date of this prospectus/information statement, we are not involved in any legal proceedings.
TEXAS NEVADA OIL & GAS CO. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Since 1992, TNOG has not conducted any material business activities. From 1981 to 1991, TNOG held and operated all of the mineral interests of Unicorp, Inc. in the State of Texas. TNOG has not had any revenues after 1991, when it ceased operations and began liquidating its operating assets. Beginning in 1992, TNOG's activities have consisted primarily of maintaining its corporate status through filing franchise tax returns and paying franchise taxes in the State of Texas. TNOG currently has only nominal assets.
MANAGEMENT OF HOUSTON AMERICAN ENERGY CORP.
Our Directors and Executive Officers
John F. Terwilliger, age 54, is our sole director and executive officer. Mr. Terwilliger has been our president, secretary and treasurer since our inception in April 2001. Our board of directors is divided into three classes, each elected for staggered three-year terms. Mr. Terwilliger is a Class C director and his term is scheduled to expire at the third annual meeting following the end of our 2001 fiscal year. Although we currently have only one director, we anticipate that additional directors will be appointed by Mr. Terwilliger, in accordance with our bylaws, shortly after the completion of the merger. The prospective directors have not yet been identified. Our executive officers are elected by our board of directors and serve terms of one year or until their death, resignation or removal by our board of directors.
Beginning in 1988, Mr. Terwilliger has served as the chairman of the board and president of Moose Oil & Gas Company, a Houston, Texas based company. Before 1988, Mr. Terwilliger was the chairman of the board and president of Cambridge Oil Company, a Houston, Texas based oil exploration and production company. Mr. Terwilliger served in the United States Army, receiving his honorable discharge in 1969.
Executive Compensation
Mr. Terwilliger does not currently receive a salary or any other compensation for the services he provides to Houston American, although he may receive compensation in the future.
Compensation of Directors
We do not compensate our directors for serving in such capacity, although we may do so in the future.
Stock Options and Warrants
As of the date of this prospectus/information statement, we have not issued any options or warrants to purchase shares of our common stock.
MANAGEMENT OF TEXAS NEVADA OIL & GAS CO.
Directors and Executive Officers
TNOG's directors serve for a term of one year and until their successors are elected and qualified. Louis G. Mehr will serve as TNOG's sole director until the effective date of the merger. TNOG's executive officers are elected by TNOG's board of directors and serve terms of one year or until their earlier death, resignation or removal.
Louis G. Mehr, age 68, has served as TNOG's sole director and president since March 2000. Mr. Mehr received his L.L.B. from South Texas College of Law in 1962. In addition, Mr. Mehr is currently an officer and director of Texas Arizona Mining Company, Equitable Assets Incorporated, Unicorp, Inc. and LGM Capital, Inc.
John Marrou, age 61, has served as TNOG's secretary and chief financial officer since March 2000. Mr. Marrou has over 30 years experience in all phases of accounting. Mr. Marrou also serves as the chief financial officer to Centre Capital Corporation, a publicly held company subject to the periodic reporting requirements of the Exchange Act.
Compensation of TNOG's Directors and Executive Officers
TNOG does not currently compensate its directors or executive officers, nor does TNOG plan to do so prior to the effective date of the merger.
Stock Options and Warrants
As of the date of this prospectus/information statement, TNOG has not issued any options or warrants to purchase shares of TNOG's common stock.
THE MERGER
This section of the prospectus/information statement describes material aspects of the proposed merger, including the agreement between TNOG and Houston American relating to the merger. While we believe that the description covers the material terms of the merger, this summary may not contain all of the information that is important to you. You should read this entire document and the other documents we refer to carefully for a more complete understanding of the merger.
Background of the Merger
On March 23, 2001, Opportunity Acquisition Company, a Texas corporation which was wholly owned by John F. Terwilliger, our sole director and executive officer, entered into an agreement with Unicorp, Inc., a Nevada corporation, Equitable Assets Incorporated, a Belize corporation and the controlling shareholder of Unicorp, and TNOG, a wholly owned subsidiary of Unicorp, a public company, relating to merger of TNOG with and into Opportunity Acquisition Company following the spin-off of TNOG's common stock to the shareholders of Unicorp. Other than the relationships described in this paragraph, there is no affiliation between Houston American, Opportunity Acquisition Company and John F. Terwilliger and the other parties to the March Agreement, TNOG, Unicorp and Equitable Assets Incorporated.
As a result of the merger of Opportunity Acquisition Company with and into Houston American on April 12, 2001, which was solely completed in order to cause the surviving public company in the merger with TNOG to be a Delaware corporation, Houston American succeeded to the rights of Opportunity Acquisition Company under the March agreement. The terms of the March Agreement were the result of arms' length negotiations between John F. Terwilliger, in his capacity as the then president of Opportunity Acquisition Company, and Louis G. Mehr, the president of TNOG and Unicorp. Mr. Terwilliger approached Mr. Mehr about the possibility of the merger after he learned of the potential availability of TNOG.
Unicorp delivered shares of TNOG common stock as a dividend to Unicorp's stockholders in July 2001, and caused the TNOG common stock to be registered under the Exchange Act by filing a Form 10-SB which became effective on __________, 2001. Since the effective date of the Form 10-SB, TNOG has been a fully reporting company under the Exchange Act.
On July 31, 2001, we entered into an Plan and Agreement of Merger with TNOG, whereby the companies memorialized the terms of the merger of TNOG with and into Houston American as required by the March agreement. Due to the completion of the forward split of our common stock on an approximate 11.4 for one basis on September 25, 2001, the Plan and Agreement of Merger was amended and restated as of September 26, 2001. The Amended and Restated Plan and Agreement of Merger is attached to this prospectus/information statement as Appendix A and is incorporated herein by this reference.
Upon the effectiveness of the merger, we will be the surviving entity, the separate existence of TNOG will cease, and we will succeed to all of TNOG's rights and properties and shall be subject to all of TNOG's debts and liabilities. Additionally, as TNOG's successor, we will succeed to its status as a fully reporting public company under the Exchange Act. Prior to the delivery of this prospectus/information statement, the completion of the merger was approved by the consent of a majority of TNOG's shareholders and over two- thirds of our stockholders, subject to completion, filing and effectiveness of the registration statement of which this prospectus/information statement is a part.
Texas Nevada Oil & Gas Co.'s Reasons for the Merger
TNOG's management believes that the merger will enable TNOG's shareholders to realize an increase in the value of their original investment in Unicorp, Inc. due to Houston American's ongoing oil and gas exploration and production activities. Over the last several years, there has been very little business activity in Unicorp, Inc. and
no business activity with respect to TNOG, despite attempts to generate significant opportunities for both companies. The management of both Unicorp and TNOG concluded that the proposed merger with Houston American provided the best prospect to establish value for their shareholders.
Our Reasons for the Merger
Our management believes that our stockholders will benefit from the merger because Houston American will obtain TNOG's relatively large shareholder base which could be useful in helping us develop a public market for our common stock by providing the necessary float of publicly held shares. Due to the recent downturn in the economy, it has become increasingly more difficult for companies without a public exit vehicle to raise additional capital in private placements. Therefore, developing a public market for our common stock is expected to provide Houston American with greater access to additional financing from public and private sources should it be necessary to obtain additional outside capital in the future. The registration of shares for resale of certain of our existing stockholders will also provide an exit strategy for them. Without the merger with TNOG and the acquisition of its shareholder base, there would be no meaningful market for the resale of our stock. In the opinion of our management, the anticipated benefits of becoming a public company far outweigh the reporting and disclosure burdens associated with becoming a public company.
The foregoing discussion is not exhaustive of all of the factors considered by our board of directors and TNOG's board of directors in deciding to approve the merger. Each director may have considered different factors, and the boards evaluated these factors as a whole and did not qualify or otherwise assign relative weights to the factors considered.
Completion and Effectiveness of the Merger
The merger will be completed upon the filing of the necessary certificates with the Secretary of State of Texas and the Secretary of State of Delaware, which will not be prior to 20 days after the effectiveness of the registration statement of which this prospectus/information statement is a part and the notification of TNOG's shareholders.
Exchange of the TNOG Common Stock
Upon completion of the merger, each outstanding share of TNOG common stock will be exchanged for one share of our common stock. After the merger is complete, the certificates representing the shares of TNOG common stock currently own by TNOG's shareholders should be sent to the transfer agent, with any required documentation, in exchange for new certificates representing the shares of our common stock to be issued as a result of the merger.
Material United States Federal Income Tax Consequences of the Merger
The following are the material United States federal income tax consequences of the merger. The following discussion is based on and subject to the Internal Revenue Code of 1986, the regulations promulgated thereunder, existing administrative interpretations and court decisions and any related laws, all of which are subject to change, possibly with retroactive effect. The following discussion assumes you hold your current shares of TNOG common stock as capital assets within the meaning of Section 1221 of the Code. This discussion does not address all aspects of United States federal income taxation that may be important to you in light of your particular circumstances or if you are subject to special rules, such as rules relating to:
. shareholders who are not citizens or residents of the United States;
. financial institutions;
. tax exempt organizations;
. insurance companies; and
. dealers in securities.
Our tax counsel has concluded that the merger will not qualify as a tax- free reorganization and accordingly it will be a taxable transaction. It is likely that the Internal Revenue Service will characterize the transaction as if TNOG sold all of its assets to us in a taxable transaction in exchange for our stock, any cash paid to any shareholders of TNOG and the assumption of liabilities of TNOG, and that TNOG subsequently distributed such stock and cash to its shareholders in exchange for their TNOG shares. If the merger is considered this way, it will have the following federal income tax consequences:
. TNOG will recognize gain for federal income tax purposes equal to the difference between (i) the fair market value of our stock and any cash delivered to TNOG shareholders in connection with the merger, plus the liabilities of TNOG; and (ii) TNOG's adjusted basis of its assets.
. The TNOG shareholders will recognize gain or loss equal to the difference between (i) the fair market value of our common stock received by them and any cash received in connection with the merger, and (ii) their tax basis of their shares of TNOG.
. The tax basis of our common stock received by TNOG shareholders in the merger will equal the fair market value of the shares at the date the TNOG shareholders own the shares.
. The holding period for the shares of our common stock received by TNOG shareholders will not include the holding period of their TNOG shares.
. Houston American shareholders will not recognize gain or loss as a result of the merger.
The foregoing discussion is not based upon an advance ruling by the United States Treasury Department but upon an opinion of Jackson Walker LLP, counsel to Houston American, which is attached as an exhibit to the registration statement of which this prospectus/information statement is a part. The foregoing discussion is not intended to be a complete analysis or description of all potential United States federal income tax consequences or any other consequences of the merger. In addition, the discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, this discussion does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, we strongly urge you to consult with your tax adviser to determine the particular United States federal, state, local or foreign income or other tax consequences to you of the merger.
Regulatory Filings and Approvals Required to Complete the Merger
We are not aware of any material governmental or regulatory approval required for completion of the merger, other than compliance with the applicable corporate laws of the States of Texas and Delaware.
DISSENTERS' RIGHTS
Within 10 days after the effective date of the merger, we will deliver a written dissenters' notice to each of TNOG's shareholders of record. The dissenters' notice must:
. notify the shareholder of the effective date of the merger; and
. be accompanied by a copy of Articles 5.11, 5.12, and 5.13 of the Texas Business Corporation Act.
Any TNOG shareholder who did not consent to the merger can exercise his dissenters' rights by making written demand on us, within 20 days after the mailing of the dissenters' notice, for payment of the fair value of his shares of TNOG common stock. The shareholder's demand must state:
. the number of shares of TNOG common stock owned by the dissenting shareholder; and
. the fair value of the shares, as of the date of the consent approving the merger, as estimated by the shareholder.
Any shareholder failing to make demand within the 20-day period will be bound by the merger and will lose his right to be paid the fair value of his shares. Within 20 days after receipt of a demand for payment, we will deliver or mail to the shareholder a written notice that shall either:
. set out that we accept the amount claimed by the shareholder and agree to pay that amount within 90 days after the action was effected, provided the shareholder has surrendered the certificates representing the shareholder's shares of TNOG common stock; or
. contain our estimate of the fair value of the shares, together with an offer to pay our estimate within 90 days after the action was effected, upon receipt of notice within 60 days after that date from the shareholder that the shareholder agrees to accept our estimate, provided the shareholder has surrendered the certificates representing the shareholder's shares of TNOG common stock.
If we are unable to agree upon the fair value of any shareholder's shares of TNOG common stock within 60 days of the date the merger was effected, either party may, within 60 days of the expiration of such 60 day period, file a petition in any court of competent jurisdiction in Harris County, Texas asking for a finding and determination of the fair value of the shareholder's shares of TNOG common stock. Upon the filing of a petition by a TNOG shareholder, we are required to file, within 10 days of service, a list containing the names and addresses of all of TNOG's shareholders who have demanded payment and with whom agreements as to the value of their shares have not been reached. If we file a petition, we must file the applicable shareholder list at the same time as the petition. If necessary, we shall, within 90 days of the court's determination of fair value and upon surrender of the applicable certificates representing the TNOG common stock, pay the applicable shareholders the fair value of their respective shares.
INTENTIONALLY LEFT BLANK
PRINCIPAL STOCKHOLDERS OF HOUSTON AMERICAN ENERGY CORP.
The following table sets forth certain information regarding the beneficial ownership of our issued and outstanding common stock as of September 28, 2001 by each person or entity known to beneficially own more than five percent of our common stock and John F. Terwilliger, our sole director and executive officer.
Shares Beneficially
Name and Address of Beneficial Owner (1) Owned (2)
---------------------------------------- ----------------------------
Number Percent (3)
------ -----------
John F. Terwilliger..................................................... 7,395,695 64.9
Orrie Lee Tawes......................................................... 726,968 6.4
c/o O. Lee Tawes III
C.E. Unterberg Towbin
350 Madison Avenue, 10/th/ Floor
New York, New York 10017
John A. Morgan.......................................................... 570,171 5.0
c/o Morgan Lewis Githens & Ahn, Inc.
767 Fifth Avenue
New York, New York 10153
All directors and officers as a group (one person)..................... 7,395,695 64.9
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(3) Based on 11,403,414 shares of our common stock outstanding as of September 28, 2001.
PRINCIPAL SHAREHOLDERS OF TEXAS NEVADA OIL & GAS CO.
The following table sets forth certain information regarding the beneficial ownership of the TNOG common stock as of _______________, 2001 by each person or entity known to beneficially own more than five percent of the TNOG common stock, each of TNOG `s directors, each of TNOG's named executive officers and all of TNOG's executive officers and directors as a group.
Shares Beneficially
Name and Address of Beneficial Owner (1) Owned (2)
---------------------------------------- --------------------------------
Number Percent (3)
------ -------------
Louis G. Mehr........................................................... 0 0.0
John Marrou............................................................. 0 0.0
Equitable Assets Incorporated (4)....................................... 474,589 79.6
All directors and officers as a group (two persons)..................... 0 0.0
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(4) Equitable Assets Incorporated is owned by the First Madison Trust, a Belize personal trust. The settlor and beneficiary of the trust is John Avilez, a now deceased Belize citizen. Due to his death, it is now assumed that the trust is owned by Mr. Avilez's estate.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our oil and gas properties were purchased, at cost, from Moose Oil & Gas Company, a Texas corporation and an affiliate of John F. Terwilliger, our sole director and executive officer. As payment for the properties, we issued Moose Oil & Gas a promissory note in the amount of $216,981. The note bears interest at a rate of 10 percent per annum and is due on demand. Our payment of the note is secured by our interests in our oil and gas properties. Should we fail to make any required payment or otherwise default on the note, Moose Oil & Gas would have the right to foreclose on our interests in our oil and gas properties, which would have a materially adverse effect on our ability to conduct our business.
On April 6, 2001, we entered into an Operating Agreement with Moose Operating Co., Inc., a Texas corporation and a subsidiary of Moose Oil & Gas. The following summary of the material terms of the Operating Agreement is qualified in its entirety by reference to the Operating Agreement, which is attached as an exhibit to the registration statement of which this prospectus/information statement is a part.
Under the terms of the Operating Agreement, Moose Operating has full control over the drilling activities to be conducted on our current leaseholds in Lavaca County, Texas. The Operating Agreement initially obligated Moose Operating to commence drilling the first of our test wells prior to March 31, 2001, which Moose Operating completed timely. Although Moose Operating is initially responsible for the payment of all costs associated with development and operation, we, along with Moose Oil & Gas, are ultimately responsible for our proportionate share of the costs based on our respective working interests. Our respective share of the anticipated costs under the Operating Agreement are discussed above in "Houston American Energy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
In order to secure repayment of the costs, the Operating Agreement grants Moose Operating a security interest in our proportionate share of the oil or gas produced from any wells. In addition to being entitled to utilize and receive payment for the use of its own equipment and labor in conducting the operations, the Operating Agreement entitles Moose Operating to receive monthly fixed overhead payments of $4,500 per well being drilled and $500 per producing well.
DESCRIPTION OF HOUSTON AMERICAN ENERGY CORP. SECURITIES
Common Stock
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of our stockholders, including the election of directors, and do not have cumulative voting rights. Subject to preferences that may be applicable to any then outstanding series of our preferred stock, holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds. Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to our stockholders after the payment of all our debts and other liabilities, subject to the prior rights of any series of our preferred stock then outstanding. The holders of our common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to our common stock. All outstanding shares of our common stock are fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without further action by our stockholders, to provide for the issuance of our preferred stock in one or more series and to fix the number of shares, designations, preferences, powers and relative, participating, optional or other special rights and the qualifications or restrictions on such
rights. The preferences, powers, rights and restrictions of different series of our preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of a series of our preferred stock could decrease the amount of earnings and assets available for distribution to holders of our common stock or affect adversely the rights and powers, including voting rights, of the holders of our common stock, and may have the effect of delaying, deferring or preventing a change in control of us.
Transfer Agent
The transfer agent for our common stock is Atlas Stock Transfer Corporation, 5899 South State Street, Salt Lake City, Utah 84107.
COMPARATIVE RIGHTS OF HOUSTON AMERICAN ENERGY CORP. STOCKHOLDERS AND TEXAS NEVADA OIL & GAS CO. SHAREHOLDERS
We were incorporated under the laws of the State of Delaware. TNOG was incorporated under the laws of the State of Texas. TNOG's shareholder's rights are currently governed by Texas law, TNOG's restated articles of incorporation and amended and restated bylaws and, upon the exchange of their shares under the terms of the agreement relating to the merger, TNOG's shareholders will become holders of shares of our common stock. Their rights as our stockholders will be governed by Delaware law, our certificate of incorporation and our bylaws. A summary of the material similarities and differences between the current rights of TNOG's shareholders and the rights those shareholders will have as our stockholders upon completion of the merger is summarized below. The identification of specific differences is not meant to indicate that other equally or more significant differences do not exist. Copies of TNOG's restated articles of incorporation and amended and restated bylaws, and our certificate of incorporation and bylaws are incorporated by reference and will be sent to TNOG's shareholders and to our stockholders upon request.
Texas Law and Current Delaware Law and Current
Governing Documents of TNOG Governing Documents of Houston American
--------------------------- ---------------------------------------
Authorized Stock
TNOG's restated articles of incorporation provide Our certificate of incorporation provides for
for authorized stock consisting of 200,000,000 authorized stock consisting of 100,000,000 shares
shares of common stock, no par value per share, of common stock, par value $0.001 per share, and
and 50,000,000 shares of preferred stock, no par 10,000,000 shares of preferred stock, par value
value per share. $0.001 per share
Election and Size of Board of Directors
TNOG's restated articles of incorporation fix Our bylaws do not fix our number of directors.
TNOG's number of directors at no fewer than one Currently, our board is divided into three classes
nor more than nine. Currently, TNOG's board is and is composed of one director. Our bylaws
composed of one director. TNOG's amended and provide that the size of our board may be increased
restated bylaws provide that the number of by the vote of a majority of directors then in
directors may be increased or decreased by office, although less than a quorum.
resolution of TNOG's board. TNOG's bylaws do not
provide for classification of TNOG's board of
directors. Our bylaws provide that our directors are elected
by a plurality of votes at annual meetings and hold
office until the next annual meeting and until
TNOG's amended and restated bylaws provide that their successors are elected and qualify or until
its directors are elected by a plurality of votes their earlier resignation or removal. Our
at the annual meeting of shareholders and serve stockholders do not have cumulative voting rights.
until the next annual meeting and until their
successors shall have been elected and qualified.
TNOG's shareholders do not have cumulative voting
rights.
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Removal of Directors
As permitted by Texas law, TNOG's amended and Any of our directors may be removed, with or
restated bylaws provide generally that TNOG's without cause, by the holders of a majority of our
directors may be removed from office, with or outstanding shares entitled to vote in an election
without cause, only by the affirmative vote of of directors.
the holders of at least a majority of the
combined voting power of the then outstanding
shares of all classes of TNOG's stock entitled to
vote generally in the election of directors.
Vacancies on the Board of Directors
Under Texas law and TNOG's amended and restated Under Delaware law and our bylaws, our board of
bylaws, a vacancy occurring in TNOG's board of directors may fill any vacancy on our board,
directors may be filled by the affirmative vote including vacancies resulting from an increase in
of a majority of the remaining directors, though the number of directors.
less than a quorum of the board of directors.
Action by Written Consent
Under Texas law and TNOG's restated articles of Under Delaware law and our certificate of
incorporation, any action required to be taken at incorporation, any action that could be taken by
an annual or special meeting of TNOG's our stockholders at a meeting may be taken without
shareholders may be taken without a meeting if a a meeting if a consent in writing, setting forth
consent in writing, setting forth the action so the action so taken, is signed by the holders of
taken, is signed by the holders of record of record of outstanding stock having not less than
outstanding stock having not less than the the minimum number of votes that would be necessary
minimum number of votes that would be necessary to authorize or take that action at a meeting at
to authorize or take that action at a meeting at which all shares entitled to vote thereon were
which all shares entitled to vote thereon were present and voted.
present and voted.
Amendments to Charter
Under Texas law and TNOG's restated articles of Under Delaware law and our certificate of
incorporation, an amendment to TNOG's restated incorporation, an amendment to our certificate of
articles of incorporation generally would require incorporation must be approved by a majority of our
the approval of the holders of at least outstanding shares and a majority of our
two-thirds of TNOG's shares entitled to vote outstanding shares of each class entitled to vote
thereon. upon the proposed amendment.
Amendments to Bylaws
Under TNOG's amended and restated bylaws, the As permitted by Delaware law, our certificate of
power to alter, amend or repeal the bylaws or incorporation gives our directors the power to
adopt new bylaws is vested in TNOG's board of make, alter, amend, change, add to or repeal our
directors, subject to repeal or change by action bylaws. Our bylaws provide that they may be amended
of the affirmative vote of the holders of a or repealed, and new bylaws may be adopted, by the
majority of the then outstanding shares of all affirmative vote of a majority of the shares then
classes of TNOG's shares entitled to vote. entitled to vote.
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Special Meetings of Shareholders/Stockholders
TNOG's amended and restated bylaws provide that Our bylaws provide that special meetings of our
special meetings of TNOG's shareholders may be stockholders may be called by our board of
called by TNOG's president, its board of directors and by one or more of our stockholders
directors or by the holders of at least 50 who together own of record 10 percent or more of
percent of TNOG's shares entitled to vote at the the outstanding shares of each class of stock
meeting. entitled to vote at the meeting.
Vote on Extraordinary Corporate Transactions
Unless the board of directors requires a greater Under Delaware law, a sale or other disposition of
vote, Texas law, with limited exceptions, all or substantially all of a corporation's assets,
requires the affirmative vote of the a merger or consolidation of the corporation with
corporation's board of directors and the holders another corporation or a dissolution of the
of at least two-thirds of the outstanding shares corporation requires the affirmative vote of the
entitled to vote to approve a merger agreement, board of directors, except in limited
in addition to any required class vote. Similar circumstances, plus, with limited exceptions, the
voting requirements apply for statutory share affirmative vote of a majority of the outstanding
exchanges or conversions. stock entitled to vote thereon. Delaware law does
not provide for statutory share exchanges. Also,
Texas law generally requires the affirmative vote unlike the Texas corporate statute, the Delaware
of the corporation's board of directors and the corporate statute does not define what constitutes
holders of at least two-thirds of the shares a sale of substantially all of a corporation's
entitled to vote to approve the sale, lease, assets.
exchange or other disposition of all or
substantially all the corporation's assets if
other than in the usual and regular course of
business, and if any class of shares is entitled
to vote as a class on a transaction, in addition
to any required class vote. Texas law does not
require shareholder approval of a sale of assets
in the usual and regular course of business
unless otherwise specified in the articles of
incorporation. Under Texas law, a sale of assets
is deemed to be in the usual and regular course
of business if the corporation continues to
engage in one or more businesses or applies a
portion of the proceeds to the conduct of a
business in which it engages following the
transaction.
Inspection of Documents
Under Texas law, any person who has been a The Delaware General Corporation Law allows any
shareholder of a corporation for at least six shareholder the right to inspect, for any proper
months immediately preceding the shareholder's purpose, a corporation's stock ledger, a list of
demand, or is the holder of at least five percent its stockholders, and its other books and records,
of all the outstanding shares of a corporation, and to make copies or extracts therefrom. A proper
has the right to examine a corporation's relevant purpose means a purpose reasonably related to the
books and records of account, minutes and share person's interest as a stockholder
transfer records.
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Appraisal Rights
Shareholders of a Texas corporation generally have Delaware law provides for appraisal rights with
a dissenter's rights in connection with significant respect to mergers or consolidations. However,
business transactions requiring shareholder stockholders of a Delaware corporation generally
approval, including mergers. However, a have no appraisal rights in the event of a merger
shareholder of a Texas corporation has no or consolidation of a corporation if the stock of
appraisal rights with respect to any plan of the Delaware corporation is listed on a national
merger pursuant to which there is a single securities exchange or the NASDAQ National Market,
surviving or new domestic or foreign corporation, or such stock is held of record by more than 2,000
or with respect to any plan of exchange, if: stockholders, or in the case of a merger for which
stockholder approval is not required by statute, in
. the shares held by the shareholder are each such case, unless stockholders of the Delaware
part of a class of shares listed on a corporation are required to accept for their stock
national securities exchange, listed on the anything other than:
NASDAQ National Market or held of record by
not less than 2,000 shareholders; . shares of stock of the surviving corporation (or
depositary receipts in respect thereof), or shares
. the shareholder is not required to accept of stock or depositary receipts of any other
for his shares any consideration that is corporation whose share or depositary receipts will
different than the consideration to be satisfy the listing or ownership requirements
received by other holders of the same class described above; and
or series of shares held by such
shareholder; and . cash in lieu of fractional shares.
. the shareholder is not required to accept
any consideration other than shares of a
corporation which satisfy the requirements
of the first bullet point above and cash in
lieu of fractional shares.
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State Antitakeover Statutes
Texas law generally prohibits public corporations Delaware law generally prohibits public
from engaging in significant business corporations from engaging in significant business
transactions, including mergers, with a holder of transactions, including mergers, with a holder of
20 percent or more of the corporation's stock for 15 percent or more of the corporation's stock for a
a period of three years after such holder exceeds period of three years after such holder exceeds
such ownership level, unless: such ownership level, unless:
. the board approves either the transaction . the board approves either the transaction in
in question or the acquisition of shares by question or the acquisition of shares by the
the affiliated shareholder prior to the interested stockholder prior to the time the
affiliated shareholder's share acquisition stockholder becomes an interested stockholder based
date; or on its direct or indirect ownership of 15 percent
of the corporation's stock;
. the transaction is approved by the holders
of at least two-thirds of the corporation's
shares entitled to vote thereon, excluding . when the interested stockholder exceeds the 15
the shares held by the shareholder in percent threshold, it acquires at least 85 percent
question and its affiliates, at a meeting of of the outstanding shares not held by certain
shareholders not less than six months after affiliates, such as pursuant to a tender offer; or
the affiliated shareholder's share
acquisition date. . the transaction is approved by the board of
directors and the holders of at least two-thirds of
the corporation's shares entitled to vote thereon,
excluding the shares held by the interested
stockholder, at a meeting of stockholders. Delaware
law does not require that this vote occur at least
six months after the interested stockholder's share
acquisition date.
Our certificate of incorporation provides that this
section of the Delaware General Corporation Law
applies to us. However, John F. Terwilliger is
expressly excluded from the application of this
section.
Consistency Statute
Texas law expressly provides that in discharging a Delaware law does not have a similar provision in
director's fiduciary duties, a director, in its corporate statute.
considering the best interests of the
corporation, may consider the long-term as well
as the short-term interests of the corporation
and its shareholders, including the possibility
that those interests may be best served by the
continued independence of the corporation
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This summary of the material similarities and differences in the corporation laws of Texas and Delaware, TNOG's amended Articles of Incorporation and amended and restated Bylaws and our Certificate of Incorporation and Bylaws does not purport to be a complete listing of the differences in the rights and remedies of holders of shares of a Texas corporation as opposed to a Delaware corporation and TNOG's shareholders and our stockholders in particular. The differences can be determined in full by reference to Texas law, Delaware law, TNOG's amended Articles of Incorporation and amended and restated Bylaws and our Certificate of Incorporation and Bylaws.
INDEMNIFICATION AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, our certificate of incorporation includes, subject to the limitations described below, a provision that would limit or eliminate our directors' liability for monetary damages for breaches of their fiduciary duties. A director's liability cannot be limited or eliminated for:
. breaches of the duty of loyalty;
. acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
. the payment of unlawful dividends or expenditure of funds for unlawful stock purchases or redemptions; or
. transactions from which the director derived an improper personal benefit.
In addition, the limitation of liability provisions may not restrict a director's liability for violation of, or otherwise relieve the corporation or its directors from, the necessity of complying with federal or state securities laws or affect the availability of nonmonetary remedies such as injunctive relief or rescission.
Our certificate of incorporation provides that we shall, to the extent legally permissible, indemnify each of our former or present directors or officers against all liabilities and expenses imposed upon or incurred by any of them in connection with, or arising out of, the defense or disposition of any action, suit or other proceeding, civil or criminal, in which he may be threatened or involved, by reason of his having been a director or officer, if it is determined that he acted in good faith and reasonably believed:
. in the case of conduct in his official capacity on our behalf that his conduct was in our best interests;
. in all other cases, that his conduct was not opposed to our best interests; and
. with respect to any proceeding which is a criminal action, that he had no reasonable cause to believe his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself be determinative of whether the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to our best interests, and, with respect to any proceeding which is a criminal action, had no reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Houston American pursuant to the foregoing provisions, or otherwise, we are aware that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
INTERESTED DIRECTOR TRANSACTIONS
Under Delaware law, certain contracts or transactions between a corporation and one or more of its directors or officers, or between a Delaware corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, is
not void or voidable solely for that reason, or solely because the interested director or officer was present at or participates in the board or board committee meeting that authorizes the contract or transaction, or solely because the director's or officer's votes are counted for that purpose, if:
. the material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or known to the board of directors or committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum; or
. the material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or known to the stockholders entitled to vote on the contract or transaction, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
. the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a board committee or the stockholders.
INTENTIONALLY LEFT BLANK
SELLING STOCKHOLDERS
This prospectus/information statement relates to the aggregate resale of 596,569 shares of our common stock which are to be issued to TNOG's shareholders as a result of the merger, as well as the aggregate resale of 4,007,719 shares of our common stock held by certain of our current shareholders, all of which may be sold from time to time by the selling stockholders. We will not receive any proceeds from the resale of any of the common stock by the selling stockholders. The following tables sets forth certain information with respect to the resale of our common stock by certain our current stockholders and certain of the current TNOG shareholders, respectively, all of which consented to the registration of the resale of their respective shares:
Sales by Our Current Stockholders
Shares Shares
Beneficially Percentage Beneficially Percentage
Owned Before Amount Owned After
Stockholder Before Sale Sale (1) Offered After Sale Sale (1)
---------- ----------- -------- ------- ---------- --------
Orrie Lee Tawes 726,968 6.1 726,968 -0- *
Marsha Russell 114,034 * 114,034 -0- *
George Kandle 22,806 * 22,806 -0- *
Lizette LaMalfa 11,403 * 11,403 -0- *
Albert B. Alkek, Jr. 45,613 * 45,613 -0- *
Alkek 1998-1 L.P. 34,210 * 34,210 -0- *
Shirley V. Alkek 11,403 * 11,403 -0- *
E.C. Broun III 114,034 * 114,034 -0- *
John A. Hull 22,806 * 22,806 -0- *
Mark Hallenbeck 22,806 * 22,806 -0- *
David W. Barrell Trust REV U/A 3/25/95 30,789 * 30,789 -0- *
Steven Eisenberg 11,403 * 11,403 -0- *
John A. Morgan 570,171 4.8 570,171 -0- *
Peder Monsen 57,017 * 57,017 -0- *
Stephen P. Hartzell 28,508 * 28,508 -0- *
Ian Wright 11,403 * 11,403 -0- *
A. Steve Powell 11,403 * 11,403 -0- *
Robert L. Hodgkinson 142,542 1.2 142,542 -0- *
Arend Resources & Trading Company, S.A. 541,662 4.5 541,662 -0- *
Margaret Geer Walker 524,557 4.4 524,557 -0- *
David Harris Walker 22,806 * 22,806 -0- *
Edith A.K. Walker 22,806 * 22,806 -0- *
SENSUS LLC 228,068 1.9 228,068 -0- *
John R. Terwilliger 205,261 1.7 205,261 -0- *
Todd A. Terwilliger 142,542 1.2 142,542 -0- *
Courtney Terwilliger 114,034 * 114,034 -0- *
Irene B. Farrington 28,508 * 28,508 -0- *
Paul J. Terwilliger 17,105 * 17,105 -0- *
Peter J. Rawlings 171,051 1.4 171,051 -0- *
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(1) Based on 11,999,983 shares of our common stock to be outstanding as of the effective date of the merger.
Sales by the Current TNOG Shareholders
Shares Shares
Beneficially Percentage Beneficially Percentage
Owned Before Amount Owned After
Name Before Sale Sale (1) Offered After Sale Sale (1)
------- ------------ --------- ------- ---------- ---------
Equitable Assets Incorporated 474,589 4.0 474,589 -0- *
-0- *
-0- *
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PLAN OF DISTRIBUTION
All securities referenced above under "Selling Stockholders" may be offered by the identified stockholders from time to time on the OTC Bulletin Board in privately negotiated sales or on other markets. We believe that virtually all of such sales will occur in transactions at prevailing market rates. Any securities sold in brokerage transactions will involve customary brokers' commissions. No underwriters will participate in any such sales on behalf of the selling stockholders.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by Norman T. Reynolds, Esq. of Jackson Walker L.L.P., 1100 Louisiana, Suite 4200, Houston, Texas 77002.
EXPERTS
Our financial statements for the period from April 2, 2001 (date of inception) to April 15, 2001 included in this prospectus/information statement have been so included in reliance on the report of Thomas Leger & Co. L.L.P., certified public accountants, given on that firm's authority as experts in auditing and accounting.
The financial statements of TNOG for the period from January 1, 1999 to December 31, 2000 included in this prospectus/information statement have been so included in reliance on the report of Ham, Langston & Brezina, LLP, certified public accountants, given on that firm's authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
TNOG files reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by TNOG at the SEC's public reference rooms. TNOG's filings with the SEC are also available to the public from services and at the SEC web site identified above.
Houston American has not been previously subject to the reporting requirements of the Exchange Act, although we will become subject to the reporting requirements of the Exchange Act following the completion of the merger described in this prospectus/information statement. In accordance with the Exchange Act, we will file
reports, proxy statements, and other information with the SEC. In addition, we intend to furnish our stockholders with annual reports containing audited financial statements and interim reports as we deem appropriate. No person is authorized by us to give any information or to make any representations other than those contained in this prospectus, and, if given or made, you should not rely upon that information.
If you have any questions about the merger, please call us at
(713) 221-8838.
This prospectus/information statement does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this prospectus/ information statement in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer in such jurisdiction. Neither the delivery of this prospectus/information statement nor any distribution of securities pursuant to this prospectus/information statement shall, under any circumstances, create any implications that there has been no change in the information set forth or incorporated into this prospectus/information statement by reference or in our affairs since the date of this prospectus/information statement.
INDEX TO FINANCIAL STATEMENTS
HOUSTON AMERICAN ENERGY CORP.:
Audited Financial Statements
Independent Auditors Report.......................................................................................... F-3
Balance Sheet as of April 15, 2001................................................................................... F-4
Statement of Loss From April 2, 2001 (Date of Inception) to April 15, 2001........................................... F-5
Statement of Shareholders' Deficit Accumulated in Development Stage From
April 2, 2001 (Date of Inception) to April 15, 2001.............................................................. F-6
Statement of Cash Flows From April 2, 2001 (Date of Inception) to April 15, 2001..................................... F-7
Notes to The Financial Statements From April 2, 2001 (Date of Inception) to April 15, 2001........................... F-8
Unaudited Financial Statements
Balance Sheet as of June 30, 2001.................................................................................... F-13
Statement of Loss From April 2, 2001 (Date of Inception) to June 30, 2001............................................ F-14
Statement of Shareholders' Deficit Accumulated in Development Stage From
April 2, 2001 (Date of Inception) to June 30, 2001............................................................... F-15
Statement of Cash Flow From April 2, 2001 (Date of Inception) to June 30, 2001....................................... F-16
Notes to the Financial Statements From April 2, 1001 (Date of Inception) to June 30, 2001............................ F-17
Houston American Energy Corp. and Texas Nevada Oil & Gas Co.
Pro Forma Financial Statements
Pro Forma Combined Balance Sheet as of June 30, 2001................................................................. F-23
Pro Forma Combined Statement of Loss for the Six Month Period Ended June 30, 2001.................................... F-24
TEXAS NEVADA OIL & GAS CO.:
Audited Financial Statements
Report of Independent Accountants.................................................................................... F-26
Balance Sheet as of December 31, 2000................................................................................ F-27
Statements of Operations for the years ended December 31, 2000 and 1999, and for the
period from inception of the development stage, January 1, 1999, to December 31, 2000............................ F-28
Statements of Stockholders' Equity for the years ended December 31, 2000 and 1999,
and for the period from inception of the development stage, January 1, 1999,
to December 31, 2000............................................................................................. F-29
Statements of Cash Flows for the years ended December 31, 2000 and 1999, and for
the period from inception of the development stage, January 1, 1999, to
December 31, 2000................................................................................................ F-30
Notes to the Financial Statements.................................................................................... F-31
Unaudited Financial Statements
Unaudited Interim Balance Sheet as of June 30, 2001.................................................................. F-35
Unaudited Interim Statements of Operations for the six months ended June 30, 2001
and 2000, and for the period from inception of the development stage, January 1, 1999,
to June 30, 2001................................................................................................. F-36
Unaudited Interim Statements of Stockholder's Equity for the six months ended June 30, 2001
and 2000, and for the period from inception of the development stage, January 1, 1999,
to June 30, 2001................................................................................................. F-37
Unaudited Interim Statements of Cash Flows for the six months ended June 30, 2001
and 2000, and for the period from inception of the development stage, January 1, 1999,
to June 30, 2001................................................................................................. F-38
Notes to Unaudited Interim Financial Statements...................................................................... F-39
|
HOUSTON AMERICAN ENERGY CORP.
A Development Stage Company
AUDITED FINANCIAL STATEMENTS
for the period from inception April 2, 2001 to April 15, 2001
INDEPENDENT AUDITORS REPORT
Houston American Energy Corp.
Houston, Texas
We have audited the accompanying balance sheet of Houston American Energy Corp. (a development stage company) as of April 15, 2001, and the related statement of loss, stockholders' deficit, and cash flows for the period from April 2, 2001 (date of inception), to April 15, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over-all financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of Houston American Energy Corp. as of April 15, 2001, and the results of its operations and its cash flows from April 2, 2001 (date of inception), to April 15, 2001, in conformity with accounting principles generally accepted in the United States of America.
The Company is in the development stage as of April 15, 2001. As discussed in Note 2 to the financial statements, successful completion of the Company's fund raising activities and, ultimately, the attainment of profitable operations is dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of revenue adequate to support the Company's cost structure.
/s/ Thomas Leger & Co., L.L.P.
Thomas Leger & Co., L.L.P.
April 27, 2001
Houston, Texas
|
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
ASSETS
------
CURRENT ASSETS, Cash $ 1,000
-----------
OIL AND GAS PROPERTIES, Full cost method
Cost subject to amortization 15,417
Cost not being amortized 155,730
-----------
Oil and gas properties 171,147
-----------
DEFERRED ASSETS 63,871
-----------
TOTAL ASSETS $ 236,018
===========
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accrued liabilities $ 30,592
Notes payable, affiliated company 216,981
-----------
Total current liabilities 247,573
-----------
SHAREHOLDERS' DEFICIT
Common stock, par value $.001;
100,000,000 shares authorized, 1,000,000 shares outstanding 1,000
Deficit accumulated in development stage (12,555)
-----------
Total shareholders' deficit (11,555)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 236,018
===========
|
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
STATEMENT OF LOSS
Revenue $ -
----------
General and administrative expense 12,555
----------
Net loss $ 12,555
==========
Basic loss per share $ 0.01
==========
Basic weighted average share 1,000,000
==========
|
The accompanying notes are an integral part of these financial statements.
Deficit
Accumulated
in the
Common Stock Development
Shares Amount Stage Total
------ ------ ----------- --------
Balance at inception, April 2, 2001 - $ - $ - $ -
Stock issued for cash 1,000 1,000 - 1,000
Net loss - - (12,555) (12,555)
------ ------ ----------- --------
Balance at April 15, 2001 1,000 $1,000 $ (12,555) $(11,555)
====== ====== =========== ========
|
The accompanying notes are an integral part of these financial statements.
OPERATING ACTIVITIES
Loss from operations $ (12,555)
Adjustment to reconcile net loss to
net cash from operations
Increase in working capital:
Increase in accrued liabilities 30,592
---------
Net cash provided by operation 18,037
---------
CASH FLOW FROM INVESTING
Acquisition of oil and gas properties and deferred assets (18,037)
---------
CASH FLOW FROM FINANCING
Sale of common stock 1,000
---------
Net increase in cash and cash at end of year $ 1,000
=========
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Oil and gas properties acquired and deferred assets $ 216,981
Note payable for oil and gas properties and deferred assets 216,981
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
NOTE 1. - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Houston American Energy Corp. (a Delaware Corporation) ("the Company") was incorporated on April 2, 2001. The Company was organized to engage in the exploration, development and acquisition of domestic oil and gas properties principally in the State of Texas.
The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves are amortized on a unit-of- production method over the estimated productive life of the proved oil and gas reserves. Unevaluated oil and gas properties are excluded from this calculation. As of April 15, 2001, the Company has not had any oil and gas revenue, therefore, no amortization of the capitalized cost is necessary.
Capitalized oil and gas property costs, less accumulated amortization, are limited to an amount (the ceiling limitation) equal to the sum of: (a) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, calculated at prices in effect as of the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%; (b) the cost of unproved and unevaluated properties excluded from the costs being amortized; (c) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (d) related income tax effects. Excess costs are charged to proved properties impairment expense.
When leases are developed, expire or are abandoned, the related costs are transferred from unevaluated oil and gas properties to depletable oil and gas properties. Additionally, the Company reviews the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments, and prospective discounted future economic benefit attributable to the leases. The Company records an allowance for impairment based on the review with the corresponding charge being made to depletable oil and gas properties. There is no such allowance for impairment presented in the accompanying financial statements.
Unevaluated oil and gas properties not subject to amortization include the following:
NOTE 1. - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued...
The Company anticipates that approximately $31,000 representing the acquisition cost of an oil and gas property in Lavaca County, Texas will be moved to the cost subject to amortization within the next three months. The balance of approximately $125,000 is for another oil and gas property in Lavaca County, Texas. The Company is maintaining this property and anticipates a well will be drilled within the next twelve months.
NOTE 2. - DEVELOPMENT STAGE
The Company is in the development stage and does not have any revenue to support its operations. It is dependent on an affiliated entity to fund its operations and costs associated with the acquisition, exploration and development of oil and gas properties. Management intends to obtain funds through private and/or public securities offerings. In the event that the affiliated entities ceases to fund the Company's operations, the oil and gas properties would be used to reduce the amounts due the affiliates.
NOTE 3. - NOTES PAYABLE
Notes payable at April 15, 2001, in the amount of $216,981, is due to an affiliated company. The note bears interest at 10%, is due on demand for principal and interest and is secured by all the oil and gas properties owned by the Company.
NOTE 4. - RELATED PARTIES
The Company's oil and gas properties were purchased from an affiliate entity at their cost. Another affiliated entity will be the operator of the oil and gas properties and will be responsible for drilling certain wells in which the Company participates. All of the charges from this affiliate will be at cost.
NOTE 5 - INCOME TAXES
At April 15, 2001, the Company had an operating loss of $12,555 which provides a future tax benefit of $4,266, computed at the statutory rate. This future tax benefit has a valuation allowance of $4,266.
NOTE 6. - COMMITMENT
As of April 15, 2001, the Company has commitment to complete one well currently being drilled and to commence drilling two additional wells. The estimated commitment for the completing and drilling is $273,000 to $458,000.
NOTE 7. - SUBSEQUENT EVENTS
The Company has entered into an agreement with a public entity where by the public entity will spin off a wholly-owned subsidiary. A registration statement under the Securities Exchange Act of 1934, as amended, will be filed for the subsidiary and upon its effectiveness, the subsidiary will be a fully reporting company with no liabilities.
After the above registration statement is effective, the Company will merge with the reporting entity. The merged companies will be Houston American Energy Corp.
NOTE 8. - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
This footnote provides unaudited information required by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and gas Producing Activities."
Capitalized costs relating to the Company's oil and gas producing activities as of April 15, 2001, all of which are conducted within the continental United States, are summarized below:
Properties subject to amortization $ 15,417
Unevaluated properties 155,730
--------
Capitalized costs $171,147
========
|
NOTE 8. - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED) continued...
Costs incurred in oil and gas property acquisition, exploration and development activities are summarized below:
Property acquisition costs:
Proved $ -
Unproved 155,730
Exploration costs -
Development costs 15,417
--------
Total costs incurred $171,147
========
|
Reserves, standardized measures and changes in standardized measures are not presented because the Company has one well, which is in the process of being completed as of April 15, 2001. Sufficient information is not available to estimate the reserves and its cash flows as of April 15, 2001.
HOUSTON AMERICAN ENERGY CORP.
A Development Stage Company
INTERIM FINANCIAL STATEMENTS
for the period from inception April 2, 2001 to June 30, 2001
(Unaudited)
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
ASSETS
------
CURRENT ASSETS, Cash $ 976
--------
OIL AND GAS PROPERTIES, Full cost method
Cost subject to amortization 136,029
Cost not being amortized 124,441
--------
Oil and gas properties 260,470
--------
DEFERRED ASSETS 108,840
--------
TOTAL ASSETS $370,286
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Payable to affiliated companies $171,822
Notes payable, affiliated company 216,981
--------
Total current liabilities 388,803
--------
SHAREHOLDERS' DEFICIT
Common stock, par value $.001;
100,000,000 shares authorized, 1,000,000 shares outstanding 1,000
Deficit accumulated in development stage (19,517)
--------
Total shareholders' deficit (18,517)
--------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $370,286
========
|
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
STATEMENT OF LOSS
Revenue $ -
----------
General and administrative expense 19,517
----------
Net loss $ 19,517
==========
Basic loss per share $ 0.02
==========
Basic weighted average share 1,000,000
==========
|
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
Deficit
Accumulated
in the
Common Stock Development
Shares Amount Stage Total
------ ------ ----------- --------
Balance at inception, April 2, 2001 - $ - $ - $ -
Stock issued for cash 1,000 1,000 - 1,000
Net loss - - (19,517) (19,517)
----- ------ ----------- --------
Balance at June 30, 2001 1,000 $1,000 $ (19,517) $(18,517)
===== ====== =========== ========
|
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
OPERATING ACTIVITIES
Loss from operations $ (19,517)
Adjustment to reconcile net loss to
net cash from operations
Increase in working capital:
Increase in payables to affiliated companies 171,822
---------
Net cash used by operation 152,305
---------
CASH FLOW FROM INVESTING
Acquisition of oil and gas properties and deferred assets (152,329)
---------
CASH FLOW FROM FINANCING
Sale of common stock 1,000
---------
Net increase in cash and cash at end of year $ 976
=========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Oil and gas properties acquired and deferred assets $ 216,981
Note payable for oil and gas properties and deferred assets 216,981
|
The accompanying notes are an integral part of these financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
NOTE 1. - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Houston American Energy Corp. (a Delaware Corporation) ("the Company") was incorporated on April 2, 2001. The Company was organized to engage in the exploration, development and acquisition of domestic oil and gas properties principally in the State of Texas.
The Statement of Loss and Shareholders' Deficit Accumulated in Development Stage for the period from April 2, 2001 (Date of Inception) to June 30, 2001, the Statement of Cash Flows for the period April 2, 2001 (Date of Inception) to June 30, 2001, and the Balance Sheet as of June 30, 2001 include, in the opinion of management, all of the adjustments necessary, consisting only of normal recurring adjustments, for a fair presentation of the results for this period and the financial condition as of that date. Historical interim results are not necessarily indicative of results that may be expected for any future period.
The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves are amortized on a unit-of- production method over the estimated productive life of the proved oil and gas reserves. Unevaluated oil and gas properties are excluded from this calculation. As of June 30, 2001, the Company has not had any oil and gas revenue, therefore, no amortization of the capitalized cost is necessary.
Capitalized oil and gas property costs, less accumulated amortization, are limited to an amount (the ceiling limitation) equal to the sum of: (a) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, calculated at prices in effect as of the balance sheet date (with consideration of price changes only to the extent provided by contractual arrangements) and a discount factor of 10%; (b) the cost of unproved and unevaluated properties excluded from the costs being amortized, (c) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (d) related income tax effects. Excess costs are charged to proved properties impairment expense.
When leases are developed, expire or are abandoned, the related costs are transferred from unevaluated oil and gas properties to depletable oil and gas properties. Additionally, the Company reviews the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments, and prospective discounted future economic benefit attributable to the leases. The Company records an allowance for impairment based on the review with the corresponding charge being made to depletable oil and gas properties. There is no such allowance for impairment presented in the accompanying financial statements.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
NOTE 1. - NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued . . .
Unevaluated oil and gas properties not subject to amortization include the following:
The Company anticipates that approximately $31,000 representing the acquisition cost of an oil and gas property in Lavaca County, Texas will be moved to the cost subject to amortization within the next three months. The balance of approximately $125,000 is for another oil and gas property in Lavaca County, Texas. The Company is maintaining this property and anticipates a well will be drilled within the next twelve months.
NOTE 2. - DEVELOPMENT STAGE
The Company is in the development stage and does not have any revenue to support its operations. It is dependent on an affiliated entity to fund its operations and cost associated with the acquisition, exploration and development of oil and gas properties. Management intends to obtain funds through private and/or public securities offerings. In the event, that the affiliated entities ceases to fund the Company's operations, the oil and gas properties would be used to reduce the amounts due the affiliates.
NOTE 3. - NOTES PAYABLE
Notes payable at June 30, 2001, in the amount of $216,981, is due to an affiliated company. The note bears interest at 10%, is due on demand for principal and interest and is secured by all the oil and gas properties owned by the Company.
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FROM APRIL 2, 2001 (DATE OF INCEPTION) TO JUNE 30, 2001 (UNAUDITED)
NOTE 4. - RELATED PARTIES
The Company's oil and gas properties were purchased from an affiliate entity at their cost. Another affiliated entity will be the operator of the oil and gas properties and will be responsible for drilling certain wells in which the Company participates. All of the charges from this affiliate will be at cost. As of June 30, 2001, there is $171,822 due to affiliates for expenditure paid on behalf of the Company.
NOTE 5 - INCOME TAXES
At June 30, 2001, the Company had an operating loss of $19,517 which provides a future tax benefit of $6,636, computed at the statutory rate. This future tax benefit has a valuation allowance of $6,636.
NOTE 6. - COMMITMENT
As of June 30, 2001, the Company has completed two wells, Kalmus No. 1 and Carl Klimitchek No. 2 wells, and has commenced drilling one well, Sartwelle No. 5 well. The estimated commitment for drilling and completing the Sartwelle No. 5 well is $430,900 to $774,800.
NOTE 7. - SUBSEQUENT EVENTS
The Company has entered into an agreement with a public entity where by the public entity will spin off a wholly-owned subsidiary. A registration statement under the Securities Exchange Act of 1934, as amended, will be filed for the subsidiary and upon its effectiveness, the subsidiary will be a fully reporting company with no liabilities.
After the above registration statement is effective, the Company will merge with the reporting entity. The merged companies will be Houston American Energy Corp.
NOTE 8. - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
This footnote provides unaudited information required by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and gas Producing Activities."
Capitalized costs relating to the Company's oil and gas producing activities as of June 30, 2001, all of which are conducted within the continental United States, are summarized below:
Properties subject to amortization $136,029
Unevaluated properties 124,441
--------
Capitalized costs $260,470
========
|
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FROM APRIL 2, 2001 (DATE OF INCEPTION) TO JUNE 30, 2001 (UNAUDITED)
NOTE 8. - SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED) continued . . .
Costs incurred in oil and gas property acquisition, exploration and development activities are summarized below:
Property acquisition costs:
Proved $ 34,561
Unproved 124,441
Exploration costs -
Development costs 101,468
--------
Total costs incurred
$260,470
========
|
Reserves, standardized measures and changes in standardized measures are not presented because the Company has two wells, which are in the process of being completed as of June 30, 2001. Sufficient information is not available to estimate the reserves and their cash flows as of June 30, 2001.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
for the six months ended June 30, 2001
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect to the merger using the purchase method of accounting as prescribed by Statement of Financial Accounting Standards No. 141 "Business Combinations." The following unaudited pro forma combined financial statements and the accompanying notes should be read in conjunction with the historical financial statements and related notes of Houston American Energy Corp. and Texas Nevada Oil & Gas Company which are included in the prospectus/information statement.
The unaudited pro forma combined financial statements are provided for information purposes only and do not purport to represent what the combined financial position and results of operations would have been had the merger in fact occurred on the dates indicated. The following unaudited pro forma combined statement of loss and unaudited pro forma combined balance sheet illustrate the pro forma effects of the merger as if the merger had occurred on January 1, 2001, for the unaudited statement of loss and at June 30, 2001 for the unaudited balance sheet. The following unaudited pro forma information was derived using Houston American Energy Corp.'s and Texas Nevada Oil & Gas Inc.'s June 30, 2001 unaudited financial information.
HOUSTON AMERICAN ENERGY CORP
A DEVELOPMENT STAGE COMPANY
AND
TEXAS NEVADA OIL & GAS CO.
A DEVELOPMENT STAGE COMPANY
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2001
Texas Houston
Nevada American
Oil & Energy Pro Forma
Gas Co. Corp. Adjustments Pro Forma
--------- -------- ----------- ---------
ASSETS
------
CURRENT ASSETS
Cash $ - $ 976 $ - $ 976
--------- -------- ----------- ---------
Total Current Assets - 976 - 976
OIL AND GAS PROPERTIES - 260,470 - 260,470
DEFERRED ASSETS - 108,840 - 108,840
--------- -------- ----------- ---------
TOTAL ASSETS $ - $370,286 $ - $ 370,286
========= ======== =========== =========
LIABILITIES AND
SHAREHOLDERS' DEFICIT
------------------------
CURRENT LIABILITIES
Payables $ - $171,822 $ - $ 171,822
Notes payable - 216,981 (11,000)(1) 205,981
--------- -------- ---------- ---------
Total current liabilities - 388,803 - 377,803
SHAREHOLDERS' EQUITY
Common stock 1,000 1,000 (1,000)(3)
10,403 (2) 11,403
Additional paid-in capital - - 11,000 (1)
(10,403)(2) 597
Accumulated Deficit (1,000) (19,517) 1,000 (19,517)
--------- -------- ---------- ---------
TOTAL LIABILITIES AND $ - $370,286 $ - $ 370,286
SHAREHOLDERS' EQUITY ========= ======== ========== =========
|
For Notes to Pro Forma Financial Statements - See Pro Forma Combined Statement of Loss
HOUSTON AMERICAN ENERGY CORP.
A DEVELOPMENT STAGE COMPANY
AND
TEXAS NEVADA OIL & GAS CO.
A DEVELOPMENT STAGE COMPANY
PRO FORMA COMBINED STATEMENT OF LOSS
SIX MONTH PERIOD ENDED JUNE 30, 2001
Texas Houston
Nevada American
Oil & Energy Pro Forma
Gas Co. Corp. Adjustments Pro Forma
--------- ---------- ------------- -----------
Revenue $ - $ - $ - $ -
General and administrative
expense - 19,517 - 19,517
--------- ---------- ------------- -----------
Net loss $ - $ 19,517 $ - $ 19,517
========= ========== ============= ===========
Basic loss per share $ - $ 0.02 $ - $ 0.00
========= ========== ============= ===========
10,403,414 (2)
596,569 (3)
Basic weighted average shares 1,000 1,000,000 (1,000)(3) 11,999,983
========= ========== ============= ===========
|
Notes to Pro Forma Financial Statements
1. Contribution for additional paid-in capital from majority shareholder of Houston American Energy Corp.
2. Adjustment reflects the issuance of an additional 10,403,414 shares to the shareholders of Houston American Energy Corp. as a result of the split of the common stock on an approximate 11.4 for 1 basis subsequent to June 30, 2001.
3. Recapitalize Texas Nevada Oil & Gas Co. with capital structure of Houston American Energy Corp. and to issue 596,569 shares to the shareholders of Texas Nevada Oil & Gas Co. as a result of the merger.
4. All shares including the pro forma adjustment shares were considered outstanding as of January 1, 2001.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
for the year ended December 31, 2000 and 1999, and for the period from inception of the development stage, January 1, 1999, to December 31, 2000
Report of Independent Accountants
Board of Directors and Stockholder
Texas Nevada Oil & Gas Co.
We have audited the accompanying balance sheet of Texas Nevada Oil & Gas Co. (a corporation in the development stage) as of December 31, 2000 and the related statements of operations, stockholder's equity and cash flows for the two years in the period then ended and for the period from inception of the development stage, January 1, 1999, to December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas Nevada Oil & Gas Co. as of December 31, 2000, and the results of its operations and its cash flows for the two years in the period then ended and for the period from inception of the development stage, January 1, 1999, to December 31, 2000, in conformity with generally accepted accounting principles.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
July 17, 2001
|
ASSETS
------
Current Assets $ -
----------
Total Assets $ -
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities $ -
----------
Total liabilities -
----------
Stockholders' Equity
Preferred Stock: no par value; 50,000,000
shares authorized; no shares issued and outstanding -
Common Stock: no par value; 200,000,000 shares
authorized; 1,000 shares issued and outstanding 1,000
Losses accumulated during the development stage (1,000)
----------
Total stockholders' deficit -
----------
Total liabilities and stockholders' equity $ -
==========
|
The accompanying notes are an integral part of these financial statements.
Inception,
January 1,
Year Ended December 31, 1999, to
------------------------------------------
December 31,
2000 1999 2000
----------------- --------------- ------------------
General and administrative expense $ - $ 1,000 $ 1,000
----------------- --------------- ------------------
Net loss $ - $ (1,000) $ (1,000)
================= =============== ==================
Basic and dilutive net loss per common share $ - $ (1.00)
================= ===============
Weighted average common shares outstanding
(basic and dilutive) 1,000 1,000
================= ===============
|
The accompanying notes are an integral part of these financial statements.
Losses
Accumulated
During the
Common Stock Development
Shares Amount Stage Total
------ ------ ----------- ---------
Balance at inception, January 1, 1999 - $ - $ - $ -
Organizational services performed by
the Parent considered effective
January 1, 1999 1,000 1,000 - 1,000
Net loss - - (1,000) (1,000)
------ ------ ----------- ---------
Balance at December 31, 1999 1,000 1,000 (1,000) -
Net loss - - -
------ ------ ----------- ---------
Balance at December 31, 2000 1,000 $1,000 $ (1,000) $ -
====== ====== =========== =========
|
The accompanying notes are an integral part of these financial statements.
Inception,
Year Ended December 31, January 1,
-------------------------------- 1999, to
December 31,
2000 1999 2000
------------- ----------- ------------
Cash flows from operating activities
Net loss $ - $ (1,000) $ (1,000)
Adjusted to reconcile net loss to net cash
used in operating activities:
Common stock issued for services - 1,000 1,000
------------- ----------- ------------
Net cash provided by operating activities
and net increase in cash and cash
equivalents - - -
Cash and cash equivalents, beginning of year - - -
------------- ----------- ------------
Cash and cash equivalents, end of year $ - $ - $ -
============= =========== ============
|
The accompanying notes are an integral part of these financial statements.
Texas Nevada Oil & Gas Co. (the "Company") was incorporated on June 15, 1981 in the state of Texas. The Company is a wholly-owned subsidiary of Unicorp, Inc. (the "Parent") and was originally formed for the purpose of holding and operating the Parent's mineral interests in the State of Texas. The Company has not been engaged in any significant activities since 1991 when it ceased active operations and liquidated its operating assets. The Company is now considered a development stage enterprise because it has not yet commenced new commercial operations and because its current efforts are focused almost entirely on corporate structure and capital raising activities.
Cash and cash equivalents include all cash balances and any highly liquid short-term investments with an original maturity of three months or less.
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Basic and dilutive net loss per common share for the years ended December 31, 2000 and 1999 have been computed by dividing net loss by the weighted average number of shares of common stock outstanding during these periods.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company includes fair value information in the notes to the financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made.
The Company has adopted Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". Comprehensive income includes such items as unrealized gains or losses on certain investment securities and certain foreign currency translation adjustments. The Company's financial statements include none of the additional elements that affect comprehensive income. Accordingly, comprehensive income and net income are identical.
The Company has adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS 131 requires a company to disclose financial and other information, as defined by the statement, about its business segments, their products and services, geographic areas, major customers, revenues, profits, assets and other information. The Company currently operates in only one business segment and does not have geographically diversified business operations.
The tax effects of temporary differences that give rise to deferred tax assets at December 31, 2000 are as follows:
Net operating loss carryforward $ 150
--------
Total gross deferred tax assets 150
Less valuation allowance (150)
--------
Net deferred tax assets $ -
========
4. Subsequent Event
----------------
|
On March 23, 2001, the Company entered into an agreement with the Parent, the controlling stockholder of the Parent, and Opportunity Acquisition Company ("Opportunity") under which the Company agreed to merge with Opportunity in a transaction (the "Transaction") that will be treated as a recapitalization of Opportunity. Under the Transaction, the parties agreed to the following:
. The Parent will "spin-off" the Company to its stockholders and promptly thereafter the Parent and the Company will register the Company's common stock on Form 10-SB in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act").
. Following the completion of the spin-off and effective registration of the Company's common stock, Opportunity will merge (the "Merger") with the Company through the exchange of 5% of its common stock for 100% of the Company's common stock.
. The Company and the Parent will prepare and send to the stockholders of the Parent an information statement (the "Information Statement") required by the Exchange Act in connection with obtaining approval for the Merger.
. Opportunity, in connection with the Information Statement and as part of the merger, will prepare a registration statement on Form S-4 under the Securities Act of 1933 to register the Opportunity common stock received by the Company's stockholders.
. If the Company, the Parent and the controlling stockholder of the Parent comply with all requirements of the Transaction, Opportunity will pay up to $75,000 of the costs of the Transaction through cancellation of a $75,000 promissory note that was originated as part of the Transaction.
UNAUDITED INTERIM FINANCIAL STATEMENTS
for the six months ended June 30, 2001 and 2000, and for the period from inception of the development stage, January 1, 1999, to June 30, 2001
Current Assets $ -
---------
Total Assets $ -
=========
|
Current Liabilities $ -
--------
Total liabilities -
--------
Stockholders' Equity
Preferred Stock: no par value; 50,000,000
shares authorized; no shares issued and outstanding -
Common Stock: no par value; 200,000,000 shares
authorized; 1,000 shares issued and outstanding 1,000
Losses accumulated during the development stage (1,000)
--------
Total stockholders' deficit -
--------
Total Liabilities and Stockholders' Equity $ -
========
|
The accompanying notes are an integral part of these financial statements.
Inception,
January 1,
Six Months Ended June 30, 1999, to
----------------------------------------- June 30,
2001 2000 2001
----------------- --------------- ---------------
General and administrative expense $ - $ - $ 1,000
----------------- --------------- ---------------
Net loss $ - $ - $ (1,000)
================= =============== ===============
Basic and dilutive net loss per $ - $ -
common share ================= ===============
Weighted average common shares
outstanding 1,000 1,000
(basic and dilutive) ================= ===============
|
The accompanying notes are an integral part of these financial statements.
Losses
Accumulated
During the
Common Stock Development
Shares Amount Stage Total
------ ------ ----------- ---------
Balance at inception, January 1, 1999 - $ - $ - $ -
Organizational services performed by
the Parent considered effective
January 1, 1999 1,000 1,000 - 1,000
Net loss - - (1,000) (1,000)
------ ------ ----------- ---------
Balance at December 31, 1999 1,000 1,000 (1,000) -
Net loss - - - -
------ ------ ----------- ---------
Balance at December 31, 2000 1,000 1,000 (1,000) -
Net loss - - - -
------ ------ ----------- ---------
Balance at June 30, 2001 1,000 $1,000 $ (1,000) $ -
====== ====== =========== =========
|
The accompanying notes are an integral part of these financial statements.
Inception,
Six Months Ended June 30, January 1, 1999,
----------------------------- to June 30,
2001 2000 2001
------ ------ ----------------
Cash flows from operating activities:
Net loss $ - $ - $ (1,000)
Adjustment to reconcile net loss to net cash
used in operating activities:
Common stock issued for services - - 1,000
------ ------ ----------------
Net cash provided by operating activities
and net increase in cash and cash
equivalents - - -
Cash and cash equivalents, beginning of year - - -
------- ------ ----------------
Cash and cash equivalents, end of year $ - $ - $ -
======= ====== ================
|
The accompanying notes are an integral part of these financial statements.
Texas Nevada Oil & Gas Co. (the "Company") was incorporated on June 15, 1981 in the state of Texas. The Company is a wholly-owned subsidiary of Unicorp, Inc. (the "Parent") and was originally formed for the purpose of holding and operating the Parent's mineral interests in the State of Texas. The Company has not been engaged in any significant activities since 1991 when it ceased active operations and liquidated its operating assets. The Company is now considered a development stage enterprise because it has not yet commenced new commercial operations and because its current efforts are focused almost entirely on corporate structure and capital raising activities.
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-SB and Article 10 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2001 and 2000 are not necessarily indicative of the results that may be expected for the respective full years.
A summary of the Company's significant accounting policies and other information necessary to understand these financial statements is presented in the Company's audited financial statements for the years ended December 31, 2000 and 1999. Accordingly, the Company's audited financial statements should be read in connection with these financial statements.
On March 23, 2001, the Company entered into an agreement with the Parent, the controlling stockholder of the Parent, and Opportunity Acquisition Company ("Opportunity") under which the Company agreed to merge with Opportunity in a transaction (the "Transaction") that will be treated as a recapitalization of Opportunity. Under the Transaction, the parties agreed to the following:
. The Parent will "spin-off" the Company to its stockholders and promptly thereafter the Parent and the Company will register the Company's common stock on Form 10-SB in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act").
. Following the completion of the spin-off and effective registration of the Company's common stock, Opportunity will merge (the "Merger") with the Company through the exchange of 5% of its common stock for 100% of the Company's common stock.
. The Company and the Parent will prepare and send to the stockholders of the Parent an information statement (the "Information Statement") required by the Exchange Act in connection with obtaining approval for the Merger.
. Opportunity, in connection with the Information Statement and as part of the Merger, will prepare a registration statement on Form S-4 under the Securities Act of 1933 to register the Opportunity common stock received by the Company's stockholders.
. If the Company, the Parent and the controlling stockholder of the Parent comply with all requirements of the Transaction, Opportunity will pay up to $75,000 of the costs of the Transaction through cancellation of a promissory note that will be funded as part of the Transaction.
APPENDIX A
AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER
BETWEEN
TEXAS NEVADA OIL & GAS CO.
AND
HOUSTON AMERICAN ENERGY CORP.
This Amended and Restated Plan and Agreement of Merger is entered into as of September 26, 2001, between Texas Nevada Oil & Gas Co., a Texas corporation ("TNOG"), and Houston American Energy Corp., a Delaware corporation ("HAEC").
WHEREAS, on July 31, 2001, TNOG and HAEC entered into that certain Plan and Agreement of Merger (the "Original Plan") providing for the merger of TNOG with and into HAEC; and
WHEREAS, HAEC has completed the forward split of its outstanding common stock on an approximate 11.4 for one basis (the "Split"); and
WHEREAS, in order to correct certain provisions of the Original Plan to reflect the Split, TNOG and HAEC desire to amend and restate the Original Plan in its entirety as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual provisions contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, TNOG and HAEC hereby agree as follows:
(a) TNOG shall be merged with and into HAEC, to exist and be governed by the laws of the State of Delaware.
(b) The name of the Surviving Corporation shall be Houston American Energy Corp. (the "Surviving Corporation").
(c) When this Plan of Merger shall become effective, the separate existence of TNOG shall cease and the Surviving Corporation shall succeed, without other transfer, to all the rights and properties of TNOG and shall be subject to all the debts and liabilities of such corporation in the same manner as if the Surviving Corporation had itself incurred them. All rights of creditors and all liens upon the property of each constituent entity shall be preserved unimpaired, limited in lien to the property affected by such liens immediately prior to the merger (the "Merger").
(d) The Surviving Corporation will be responsible for the payment of all fees and franchise taxes of the constituent entities payable to the State of Delaware and the State of Texas, if any.
(e) The Surviving Corporation will carry on business with the assets of TNOG, as well as with the assets of HAEC.
(f) The Surviving Corporation will be responsible for the payment of
the fair value of shares, if any, required under Article 5.12 of the TBCA or
Section 262 of the DGCL.
(g) The shareholders of TNOG will surrender all of their shares in the manner hereinafter set forth.
(h) In exchange for the shares of TNOG surrendered by its shareholders, the Surviving Corporation will issue and transfer to such shareholders on the basis hereinafter set forth, shares of its common stock.
(i) The stockholders of HAEC will retain their shares of the Surviving Corporation.
(a) The present Board of Directors of HAEC shall continue to serve as the Board of Directors of the Surviving Corporation until the next annual meeting or until such time as their successors have been elected and qualified.
(b) If a vacancy shall exist on the Board of Directors of the Surviving Corporation on the Effective Date of the Merger, such vacancy may be filled by the Board of Directors as provided in the Bylaws of the Surviving Corporation.
(c) All persons who, on the Effective Date of the Merger, are executive or administrative officers of HAEC shall remain as officers of the Surviving Corporation until the Board of Directors of the Surviving Corporation shall otherwise determine. The Board of Directors of the Surviving Corporation may elect or appoint such additional officers as it may determine.
IN WITNESS WHEREOF, the parties have executed this Plan of Merger as of September 26, 2001.
TEXAS NEVADA OIL & GAS CO.
By /s/ Louis G. Mehr --------------------------------- Louis G. Mehr, President |
HOUSTON AMERICAN ENERGY CORP.
By /s/ John F. Terwilliger --------------------------------- John F. Terwilliger, President |
Exhibit A
CERTIFICATE OF INCORPORATION
OF
HOUSTON AMERICAN ENERGY CORP.
Pursuant to the Delaware General Corporation Law (the "DGCL"), the undersigned, being of the age of 18 years or more and acting as the incorporator of HOUSTON AMERICAN ENERGY CORP. (the "Company"), under the laws of the State of Delaware, hereby adopts this Certificate of Incorporation:
ARTICLE I
Name
The name of the Company is Houston American Energy Corp.
ARTICLE II
Registered Office and Agent
The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
Business
The purpose of the Company shall be to engage in any lawful act or activity for which corporations may be organized and incorporated under the DGCL.
ARTICLE IV
Capital Stock
(a) The designation of the series, which may be by distinguishing number, letter or title.
(b) The number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding).
(c) Whether dividends, if any, shall be cumulative or noncumulative and the dividend rate of the series.
(d) The dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares of the series.
(f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
(h) Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Company or any other corporation, and, if so, the specification of such other class or series of such other security, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible and all other terms and conditions upon which such conversion may be made.
(i) Restrictions on the issuance of shares of the same series or of any other class or series.
(j) The voting rights, if any, of the holders of shares of the series.
(k) Such other powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof as the Board of Directors shall determine.
ARTICLE V
Incorporator
The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Norman T. Reynolds 1100 Louisiana Street, Suite 4200
Houston, Texas 77002
|
ARTICLE VI
Election of Directors
Name Address
---- -------
John F. Terwilliger 801 Travis, Suite 1425
Houston, Texas 77002
|
The business and affairs of the Company shall be conducted and managed by, or under the direction of, the Board of Directors. The total number of directors constituting the entire Board of Directors shall be fixed and may be altered from time to time by or pursuant to a resolution passed by the Board of Directors.
ARTICLE VII
Powers of the Board of Directors
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:
(a) To authorize and cause to be executed mortgages and liens upon the real and personal property of the Company.
(b) To set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.
(c) The Board of Directors may, by resolution adopted by a majority of the whole Board, designate an Executive Committee, and one or more additional committees, to exercise, subject to applicable provisions of law, such powers of the Board of Directors in the management of the business and affairs of the Company as set forth in said resolution, but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required to be submitted to the stockholders for approval or, (ii) adopting, amending or repealing any Bylaw of the Company. The Executive Committee and each such other committee shall consist of two or more directors of the Company. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) When and as authorized by the stockholders in accordance with law, to sell, lease or exchange all or substantially all of the property and assets of the Company, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the Company.
ARTICLE VIII
Receivers and Trustees
Whenever a compromise or arrangement is proposed between the Company and its creditors or any class of them and/or between the Company and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Company or of any creditor or stockholder thereof, on the application of any receiver or receivers appointed for the Company under the provisions of Section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Company under the provisions of Section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Company, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Company, as the case may be, agree to any compromise or arrangement and to any reorganization of the Company as a consequence of such compromise or arrangement, the said compromise or arrangement and said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Company, as the case may be, and also on the Company.
ARTICLE IX
Bylaws
Bylaws of the Company may be adopted, amended or repealed by the Board of Directors or by the affirmative vote of the holders of a majority of the Company's stock, outstanding and entitled to vote at the meeting at which any Bylaw is adopted, amended or repealed. Such Bylaws may contain any provision for the regulation and management of the affairs of the Company and the rights or powers of its stockholders, directors, officers or employees not inconsistent with statute or this Certificate of Incorporation.
ARTICLE X
Amendment of Certificate of Incorporation
The Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XI
Existence
The Company is to have perpetual existence.
ARTICLE XII
Limitation of Liability
A director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of his fiduciary duty as a
director; provided, however, that this Article XII shall not eliminate or limit
the liability of a director: (a) for any breach of the director's duty of
loyalty to the Company or stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (d) for any transaction from which the
director derived an improper personal benefit.
If the DGCL is amended after the date of filing of this Certificate of Incorporation to authorize corporate action further limiting or eliminating the personal liability of a director, then the liability of the directors of the Company shall be limited or eliminated to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Article by the stockholders of the Company or otherwise shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification.
ARTICLE XIII
Business Combinations with Interested Stockholders
The Company shall be governed by Section 203 of the DGCL. Provided, however, notwithstanding anything herein contained to the contrary, the provisions of Section 203 of the DGCL shall not be applicable to John F. Terwilliger.
ARTICLE XIV
Indemnification
The Company shall indemnify each director and officer of the Company who may be indemnified, to the fullest extent permitted by Section 145 of the DGCL ("Section 145"), as it may be amended from time to time, in each and every situation where the Company is obligated to make such indemnification pursuant to Section 145. In addition, the Company shall indemnify each of the Company's directors and officers in each and every situation where, under Section 145, the Company is not obligated, but is permitted or empowered, to make such indemnification. The Company may, in the sole discretion of the Board of Directors, indemnify any other person who may be indemnified pursuant to Section 145 to the extent the Board of Directors deems advisable, as permitted by such section. The Company shall promptly make or cause to be made any determination which Section 145 requires.
ARTICLE XV
Transactions with Interested Parties
No contract or transaction between the Company and one or more of its directors or officers, or between the Company and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or (c) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board of Directors, a committee or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of April, 2001.
/s/ Norman T. Reynolds ----------------------------- NORMAN T. REYNOLDS |
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
HOUSTON AMERICAN ENERGY CORP.
Houston American Energy Corp., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify that:
FIRST: The name of the Company is Houston American Energy Corp.
SECOND: The Board of Directors of the Company, acting pursuant to Section 141(f) of the Delaware General Corporation Law ("DGCL"), duly adopted a resolution proposing the amendment to the Certificate of Incorporation of the Company described below, declaring said amendment to be advisable and recommending its approval to the stockholders of the Company for consideration thereof, and the Company's stockholders have duly adopted such amendment in accordance with Section 228 of the DGCL.
THIRD: The Certificate of Incorporation of the Company is hereby amended to effect an 11.403431 for one stock split of the Company's outstanding shares of common stock, par value $.001 per share, on the date hereof and immediately before the filing of this Certificate of Amendment, by adding the following language after the first paragraph of Article IV, Section 1:
"Simultaneously with the filing of this amendment (the "Effective Time"), each share of Common Stock issued and outstanding immediately before the Effective Time (such shares, the "Old Common Stock") shall automatically and without any action on the part of the holder thereof, be split, subdivided and changed into 11.403431 shares of Common Stock (such shares, the "Common Stock"). The number of shares of the Common Stock to be issued to each holder of Old Common Stock shall be rounded to the nearest whole share. In lieu of any fractional share to which any such holder would be entitled, the Company shall pay such holder an amount of cash equal to the fair value of such fractional share as of the Effective Time. Each holder of a certificate or certificates that immediately before the Effective Time represented outstanding shares of the Old Common Stock (the "Old Common Certificates") shall be entitled to receive, on surrender of the Old Common Certificates to the Company's secretary for cancellation, a certificate or certificates representing the number of shares of Common Stock (the "Common Certificates") into which and for which the shares of the Old Common Stock, formerly represented by the Old Common Certificates so surrendered, are being split and subdivided under the terms hereof. From and after the Effective Time, the Old Common Certificates shall represent only the right to receive the Common Certificates pursuant to the provisions hereof. If more than one Old Common Certificate shall be surrendered at one time for the account of the same stockholder, the number of full shares of Common Stock for which Common Certificates shall be issued shall be computed on the basis of the aggregate number of shares represented by the Old Common Certificates so surrendered."
FOURTH: The aforesaid amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by John F. Terwilliger, its President, this 24/th/ day of September, 2001.
HOUSTON AMERICAN ENERGY CORP.
By /s/ John F. Terwilliger ------------------------------- John F. Terwilliger, President |
THE STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
On this 24/th/ day of September, 2001, before me, the undersigned officer, personally appeared John F. Terwilliger, known personally to me to be the President of Houston American Energy Corp., and acknowledged that he, as an officer being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as an officer.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ Gina DeHoyos
-------------------------------------
Notary Public/Commissioner of Oaths
(SEAL) My Commission Expires: 09/28/2002
--------------
|
Exhibit B
BYLAWS
OF
HOUSTON AMERICAN ENERGY CORP.
ARTICLE I
Offices and Records
ARTICLE II
Stockholders
business. The chairman of the meeting or a majority of the shares of Voting Stock so represented may adjourn the meeting from time to time, whether or not there is such a quorum (or, in the case of specified business to be voted on by a class or series, the chairman or a majority of the shares of such class or series so represented may adjourn the meeting with respect to such specified business). No notice of the time and place of adjourned meetings need be given except as required by law. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
(1) Nominations of persons for election to the Board of Directors of the Company and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Company's notice of meeting delivered pursuant to Paragraph 2.4 of these Bylaws, (b) by or at the direction of the Board of Directors, or (c) by any stockholder of the Company who is entitled to vote at the meeting, who complied with the notice procedures set forth in clauses (2) and (3) of this Paragraph 2.7(A) and these Bylaws and who was a stockholder of record at the time such notice is delivered to the Secretary of the Company.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Paragraph 2.7(A)(1) of these Bylaws, the stockholder must have given timely notice thereof in writing to the Secretary of the Company and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal office of the Company not less than 70 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of an annual meeting is advanced by more than 30 days, or delayed by more than 70 days, from the first anniversary date of the previous year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 70th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the regulations promulgated thereunder, including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Company's books, and of such beneficial owner, and (ii) the class and number of shares of the Company which are owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of Paragraph 2.7(A)(2) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Company is increased and there is no public announcement by the Company naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Company at least 80 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by these Bylaws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal office of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company.
direction of the Board of Directors, or (b) by any stockholder of the Company who is entitled to vote at the meeting, who complies with the notice procedures set forth in these Bylaws and who is a stockholder of record at the time such notice is delivered to the Secretary of the Company. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice as required by Paragraph 2.7(A)(2) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the Company not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 70th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.
(1) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of these Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
A. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Company in other capacities, including, without limitation, as officers, employees, agents or representatives of the Company, to act at a meeting of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act, or if all inspectors or alternates who have been appointed are unable to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. The inspectors shall have the duties prescribed by the Delaware General Corporation Law (the "DGCL").
B. The secretary of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
ARTICLE III
Board of Directors
shall have been duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of authorized directors shall shorten the term of any incumbent director.
A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Paragraph 3.6 of these Bylaws. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board of Directors from appointing one or more committees consisting in whole or in part of persons who are not directors of the Company; provided, however, that no such committee shall have or may exercise any authority of the Board of Directors.
ARTICLE IV
Officers
convenient. Subject to Paragraph 4.9 of these Bylaws, each officer shall hold office until such officer's successor shall have been duly elected and shall have qualified or until such officer's death or until such officer shall resign.
ARTICLE V
Stock Certificates and Transfers
A. The interest of each stockholder of the Company shall be evidenced by certificates for shares of stock in such form as the appropriate officers of the Company may from time to time prescribe, unless it shall be determined by, or pursuant to, a resolution adopted by the Board of Directors that the shares representing such interest be uncertificated. The shares of the stock of the Company shall be transferred on the books of the Company by the holder thereof in person or by such person's attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Company or its agents may reasonably require.
B. The certificates of stock shall be signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
ARTICLE VI
Indemnification
6.2, or, if such quorum cannot be obtained and such committee cannot be established, by a majority vote of all directors (in which directors who are named defendants or respondents in the Proceeding may participate); or (D) by the stockholders of the Company in a vote that excludes the shares held by directors who are named defendants or respondents in the Proceeding.
ARTICLE VII
Miscellaneous Provisions
ARTICLE VIII
Amendments
Adopted April 2, 2001.
/s/ John F. Terwilliger ---------------------------------- JOHN F. TERWILLIGER, Secretary |
APPENDIX B
TEXAS BUSINESS CORPORATION ACT
Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain Corporate Actions
A. Any shareholder of a domestic corporation shall have the right to dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder approval is required by Article 5.03 or 5.16 of this Act and the shareholder holds shares of a class or series that was entitled to vote thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any pledge, mortgage, deed of trust or trust indenture unless otherwise provided in the articles of incorporation) of all, or substantially all, the property and assets, with or without good will, of a corporation if special authorization of the shareholders is required by this Act and the shareholders hold shares of a class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the shares of the corporation of the class or series held by the shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder shall not have the right to dissent from any plan of merger in which there is a single surviving or new domestic or foreign corporation, or from any plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series, shares of which are on the record date fixed to determine the shareholders entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation system) or designated as a national market security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger or plan of exchange to accept for the shareholder's shares any consideration that is different than the consideration (other than cash in lieu of fractional shares that the shareholder would otherwise be entitled to receive) to be provided to any other holder of shares of the same class or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger or the plan of exchange to accept for the shareholder's shares any consideration other than:
(a) shares of a domestic or foreign corporation that, immediately after the effective time of the merger or exchange, will be part of a class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be received; or
(c) any combination of the securities and cash described in Subdivisions (a) and (b) of this subsection.
Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to dissent from any of the corporate actions referred to in Article 5.11 of this Act may exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a vote of shareholders at a meeting, the shareholder shall file with the corporation, prior to the meeting, a written objection to the action, setting out that the shareholder's right to dissent will be exercised if the action is effective and giving the shareholder's address, to which notice thereof shall be delivered or mailed in that event. If the action is effected and the shareholder shall not have voted in favor of the action, the corporation, in the case of action other than a merger, or the surviving or new corporation (foreign or domestic) or other entity that is liable to discharge the shareholder's right of dissent, in the case of a merger, shall, within ten (10) days after the action is effected, deliver or mail to the shareholder written notice that the action has been effected, and the shareholder may, within ten (10) days from the delivery or mailing of the notice, make written demand on the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, for payment of the fair value of the shareholder's shares. The fair value of the shares shall be the value thereof as of the day immediately preceding the meeting, excluding any appreciation or depreciation in anticipation of the proposed action. The demand shall state the number and class of the shares owned by the shareholder and the fair value of the shares as estimated by the shareholder. Any shareholder failing to make demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to Section A of Article 9.10 of this Act, the corporation, in the case of action other than a merger, and the surviving or new corporation (foreign or domestic) or other entity that is liable to discharge the shareholder's right of dissent, in the case of a merger, shall, within ten (10) days after the date the action is effected, mail to each shareholder of record as of the effective date of the action notice of the fact and date of the action and that the shareholder may exercise the shareholder's right to dissent from the action. The notice shall be accompanied by a copy of this Article and any articles or documents filed by the corporation with the Secretary of State to effect the action. If the shareholder shall not have consented to the taking of the action, the shareholder may, within twenty (20) days after the mailing of the notice, make written demand on the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, for payment of the fair value of the shareholder's shares. The fair value of the shares shall be the value thereof as of the date the written consent authorizing the action was delivered to the corporation pursuant to Section A of Article 9.10 of this Act, excluding any appreciation or depreciation in anticipation of the action. The demand shall state the number and class of shares owned by the dissenting shareholder and the fair value of the shares as estimated by the shareholder. Any shareholder failing to make demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action was effected, the value of the shares is agreed upon between the shareholder and the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, payment for the shares shall be made within ninety (90) days after the date on which the action was effected and, in the case of shares represented by certificates, upon surrender of the certificates
duly endorsed. Upon payment of the agreed value, the shareholder shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the corporate action was effected, the shareholder and the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, do not so agree, then the shareholder or the corporation (foreign or domestic) or other entity may, within sixty (60) days after the expiration of the sixty (60) day period, file a petition in any court of competent jurisdiction in the county in which the principal office of the domestic corporation is located ` asking for a finding and determination of the fair value of the shareholder's shares. Upon the filing of any such petition by the shareholder, service of a copy thereof shall be made upon the corporation (foreign or domestic) or other entity, which shall, within ten (10) days after service, file in the office of the clerk of the court in which the petition was filed a list containing the names and addresses of all shareholders of the domestic corporation who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the corporation (foreign or domestic) or other entity. If the petition shall be filed by the corporation (foreign or domestic) or other entity, the petition shall be accompanied by such a list. The clerk of the court shall give notice of the time and place fixed for the hearing of the petition by registered mail to the corporation (foreign or domestic) or other entity and to the shareholders named on the list at the addresses therein stated. The forms of the notices by mail shall be approved by the court. All shareholders thus notified and the corporation (foreign or domestic) or other entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the shareholders who have complied with the provisions of this Article and have become entitled to the valuation of and payment for their shares, and shall appoint one or more qualified appraisers to determine that value. The appraisers shall have power to examine any of the books and records of the corporation the shares of which they are charged with the duty of valuing, and they shall make a determination of the fair value of the shares upon such investigation. The appraisers shall also afford a reasonable opportunity to the parties interested to submit to them pertinent evidence as to the value of the shares. The appraisers shall also have such power and authority as may be conferred on Masters in Chancery by the Rules of Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the shareholders adjudged by the court to be entitled to payment for their shares and shall file their report of that value in the office of the clerk of the court. Notice of the filing of the report shall be given by the clerk to the parties in interest. The report shall be subject to exceptions to be heard before the court both upon the law and the facts. The court shall by its judgment determine the fair value of the shares of the shareholders entitled to payment for their shares and shall direct the payment of that value by the existing, surviving, or new corporation (foreign or domestic) or other entity, together with interest thereon, beginning 91 days after the date on which the applicable corporate action from which the shareholder elected to dissent was effected to the date of such judgment, to the shareholders entitled to payment The judgment shall be payable to the holders of uncertificated shares immediately but to the holders of shares represented by certificates only upon, and simultaneously with, the surrender to the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, of duly endorsed certificates for those shares. Upon payment of the judgment, the dissenting shareholders shall cease to have any interest in those shares or in the corporation. The court shall allow the appraisers a reasonable fee as court costs, and all court costs shall be allotted between the parties in the manner that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, pursuant to the payment of the agreed value of the shares or pursuant to payment of the judgment entered for the value of the shares, as in this Article provided, shall, in the case of a merger, be treated as provided in the plan of merger and, in all other cases, may be held and disposed of by the corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the date of the filing of the articles of merger, the surviving corporation is the owner of all the outstanding shares of the other corporations, domestic or foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this Article to a shareholder objecting to any corporate action referred to in Article 5.11 of this Act is the exclusive remedy for the recovery of the value of his shares or money damages to the shareholder with respect to the action. If the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, complies with the requirements of this Article, any shareholder who fails to comply with the requirements of this Article shall not be entitled to bring suit for the recovery of the value of his shares or money damages to the shareholder with respect to the action.
Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote or exercise any other rights of a shareholder except the right to receive payment for his shares pursuant to the provisions of those articles and the right to maintain an appropriate action to obtain relief on the ground that the corporate action would be or was fraudulent, and the respective shares for which payment has been demanded shall not thereafter be considered outstanding for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the corporation shall make an appropriate notation thereof in its shareholder records. Within twenty (20) days after demanding payment for his shares in accordance with either Article 5.12 or 5.16 of this Act, each holder of certificates representing shares so demanding payment shall submit such certificates to the corporation for notation thereon that such demand has been made. The failure of holders of certificated shares to do so shall, at the option of the corporation, terminate such shareholder's rights under Articles 5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and sufficient cause shown shall otherwise direct. If uncertificated shares for which payment has been demanded or shares represented by a certificate on which notation has been so made shall be transferred, any new certificate issued therefor shall bear similar notation together with the name of the original dissenting holder of such shares and a transferee of such shares shall acquire by such transfer no rights in the corporation other than those which the original dissenting shareholder had after making demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with either Article 5.12 or 5.16 of this Act may withdraw such demand at any time before payment for his shares or before any petition has been filed pursuant to Article 5.12 or 5.16 of this Act asking for a finding and determination of the fair value of such shares, but no such demand may be withdrawn after such payment has been made or, unless the corporation shall consent thereto, after any such petition has been filed. If, however, such demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B of this Article the corporation shall terminate the shareholder's rights under Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking for a finding and determination of fair value of such shares by a court shall have been filed within the time provided in Article 5.12 or 5.16 of this Act, as the case may be, or if after the hearing of a petition filed pursuant to Article 5.12 or 5.16, the court shall determine that such shareholder is not entitled to the relief provided by those articles, then, in any such case, such shareholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the corporate action from which he dissented and shall be bound thereby, the right of such shareholder to be paid the fair value of his shares shall cease, and his status as a shareholder shall be restored without prejudice to any corporate proceedings which may have been taken during the interim, and such shareholder shall be entitled to receive any dividends or other distributions made to shareholders in the interim.
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the DGCL, our certificate of incorporation includes, subject to the limitations described below, a provision that would limit or eliminate our directors' liability for monetary damages for breaches of their fiduciary duties. A director's liability cannot be limited or eliminated for:
. breaches of the duty of loyalty;
. acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
. the payment of unlawful dividends or expenditure of funds for unlawful stock purchases or redemptions; or
. transactions from which the director derived an improper personal benefit.
In addition, the limitation of liability provisions may not restrict a director's liability for violation of, or otherwise relieve the corporation or its directors from, the necessity of complying with federal or state securities laws or affect the availability of nonmonetary remedies such as injunctive relief or rescission.
Our certificate of incorporation provides that we shall, to the extent legally permissible, indemnify each of our former or present directors or officers against all liabilities and expenses imposed upon or incurred by any of them in connection with, or arising out of, the defense or disposition of any action, suit or other proceeding, civil or criminal, in which he may be threatened or involved, by reason of his having been a director or officer, if it is determined that he acted in good faith and reasonably believed:
. in the case of conduct in his official capacity on our behalf that his conduct was in our best interests;
. in all other cases, that his conduct was not opposed to our best interests; and
. with respect to any proceeding which is a criminal action, that he had no reasonable cause to believe his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself be determinative of whether the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to our best interests, and, with respect to any proceeding which is a criminal action, had no reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Houston American pursuant to the foregoing provisions, or otherwise, we are aware that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable
EXHIBITS
The following exhibits are filed as part of this registration statement:
Exhibit No. Identification of Exhibit
----------- -------------------------
2.1* Amended and Restated Plan and Agreement of Merger dated
as of September 26, 2001, between Texas Nevada Oil & Gas
Co. and Houston American Energy Corp. (included as
Appendix A of this registration statement).
3.1** Certificate of Incorporation of Houston American Energy
Corp. filed April 2, 2001 (included as Exhibit A to
Appendix A of this registration statement).
3.2** Certificate of Merger Merging Opportunity Acquisition
Company with and into Houston American Energy Corp. filed
April 12, 2001.
3.3** Bylaws of Houston American Energy Corp. adopted April 2,
2001 (included as Exhibit B to Appendix A of this
registration statement).
3.4* Certificate of Amendment to the Certificate of
Incorporation of Houston American Energy Corp. filed
September 25, 2001 (included as Exhibit A to Appendix A
of this registration statement).
4.1** Text of Common Stock Certificate of Houston American
Energy Corp.
4.2** Text of Preferred Stock Certificate of Houston American
Energy Corp.
5.1* Opinion regarding legality.
8.1* Opinion regarding tax matters.
10.1** Model Form Operating Agreement dated April 6, 2001,
between Moose Operating Co., Inc. and Houston American
Energy Corp.
10.2** Agreement to Assign Interests in Oil and Gas Leases dated
as of April 6, 2001, between Moose Oil & Gas Company and
Houston American Energy Corp.
10.3** Assignment of Interests in Oil and Gas Leases and Bill of
Sale effective as of April 6, 2001, between Moose Oil &
Gas Company and Houston American Energy Corp.
10.4** Promissory Note of Houston American Energy Corp. in the
amount of $216,981.06 dated April 15, 2001, payable to
Moose Oil & Gas Company
10.5** Plan and Agreement of Merger dated as of April 12, 2001,
between Opportunity Acquisition Company and Houston
American Energy Corp.
10.6** Agreement dated as of March 23, 2001, between Unicorp,
Inc., Equitable Assets, Incorporated, Texas Nevada Oil &
Gas Co. and Opportunity Acquisition Company.
10.7** First Amendment of Agreement dated as of July 31, 2001,
between Unicorp, Inc., Equitable Assets, Incorporated,
Texas Nevada Oil & Gas Co. and Houston American Energy
Corp.
10.8* Gas Purchase Contract #36-1599 dated as of May 1, 2001,
between Kinder Morgan Texas Pipeline, L.P. and Moose
Operating Co., Inc.
10.9* Gas Purchase Agreement dated July 31, 1997, between
Dominion Pipeline Company (as predecessor-in-interest to
Pinnacle Natural Gas Co.) and Moose Operating Co., Inc.
10.10* Model Form Operating Agreement dated December 11, 1997,
between Louis Dreyfus Natural Gas Corp., Seisgen
Exploration, Inc. and Moose Operating Co., Inc.
23.1* Consent of Counsel (included in Exhibit 5.1 and Exhibit
8.1).
23.2* Consent of Thomas Leger & Co. L.L.P., C.P.A.
23.3** Consent of Ham, Langston & Brezina, LLP, C.P.A.
__________
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* Filed herewith. ** Previously filed.
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(5) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, Texas, on October 1, 2001.
HOUSTON AMERICAN ENERGY CORP.
By /s/ John F. Terwilliger
--------------------------------------
John F. Terwilliger, President
|
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
By /s/ John F. Terwilliger
------------------------------------
John F. Terwilliger, President
October 1, 2001
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EXHIBIT 5.1
JACKSON WALKER, L.L.P.
1100 LOUISIANA, SUITE 4200
HOUSTON, TEXAS 77002
TELEPHONE: (713) 752-4200
TELECOPIER: (713) 752-4221
October 1, 2001
Houston American Energy Corp.
801 Travis Street, Suite 1425
Houston, Texas 77002
Re: Form S-4 Registration Statement
Gentlemen:
As counsel for Houston American Energy Corp. (the "Company"), you have requested our firm to render this opinion in connection with the Registration Statement on Form S-4 registration no. 333-66638 (the "Registration Statement"), filed under the Securities Act of 1933, as amended, with the Securities and Exchange Commission relating to (i) the issuance of 596,569 shares (the "Merger Shares") of the common stock of the Company, par value $0.001 per share (the "Common Stock") to the shareholders of Texas Nevada Oil & Gas Co. ("TNOG") in the merger (the "Merger") of TNOG with and into the Company as described in the Registration Statement and the resale of the Merger Shares; and (ii) the resale of 4,007,719 shares of the Common Stock which may be resold by the holders thereof (the "Selling Stockholders").
In giving this opinion, we have reviewed the Registration Statement and such other documents and certificates of public officials and officers of the Company with respect to the accuracy of the factual matters contained therein as we have felt necessary or appropriate in order to render the opinions expressed herein. In making our examination, we have assumed the genuineness of all signatures, the authenticity of all documents presented to us as originals, the conformity to original documents of all documents presented to us as copies thereof, and the authenticity of the original documents from which any such copies were made, which assumptions we have not independently verified.
Based upon and subject to the foregoing, and upon such other matters as we have determined to be relevant, and subject to the assumptions, limitations and qualifications hereinafter set forth, we are of the opinion that:
1. The Company has been duly incorporated, and is validly existing in good standing under the laws of the State of Delaware.
2. Upon issuance of the Merger Shares upon consummation of the Merger, the Merger Shares will be duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to use in the prospectus/information statement forming a part of the Registration Statement of the reference to Jackson Walker L.L.P. under the heading "Legal Matters." We also consent to the filing of this opinion letter as an exhibit to the Registration Statement.
Very truly yours,
JACKSON WALKER L.L.P.
/s/ Jackson Walker L.L.P. |
EXHIBIT 8.1
JACKSON WALKER, L.L.P.
1100 LOUISIANA, SUITE 4200
HOUSTON, TEXAS 77002
TELEPHONE: (713) 752-4200
TELECOPIER: (713) 752-4221
September 28, 2001
Houston American Energy Corp.
801 Travis Street, Suite 1425
Houston, Texas 77002
Gentlemen:
We have acted as counsel to Houston American Energy Corp., a Delaware corporation ("HAEC") in connection with the proposed merger (the "Merger") of Texas Nevada Oil & Gas Co., a Texas corporation ("TNOG") into HAEC pursuant to the terms of that certain Plan and Agreement of Merger entered into between HAEC and TNOG dated July 31, 2001, as amended and restated on September 26, 2001. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Merger Agreement.
In rendering this opinion we have examined such documents as we have deemed relevant or necessary, including without limitation, the Merger Agreement. In our examination, we have assumed the genuineness of all signatures, the due execution and delivery of all documents, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or copies, and the authenticity of the originals of such copies.
As to factual matters, in rendering this opinion, we have relied solely on and have assumed the present and continuing truth and accuracy of the factual representations and warranties contained in the Merger Agreement and related documents and agreements. The initial and continuing truth and accuracy of all such factual matters constitutes an integral basis for, and a material condition to, this opinion.
Based upon our evaluation of the transaction, we do not believe that the
continuity of business enterprise requirement of Treas. Reg. 1.368-1(b) is met
in the Merger. Continuity of business enterprise is a regulatory requirement
for a reorganization under Section 368(a) of the Internal Revenue Code of 1986
(the "Code"). In order to meet the continuity of business enterprise
requirement, HAEC must either (i) continue TNOG's historic business; or (ii) use
a significant portion of TNOG's historic business assets in a business. See
Treas. Reg. (S)1.368-1(d)(1). Under the Treasury Regulations, TNOG's historic
business is the business it has conducted most recently. Treas. Reg. (S)1.368-
1(d)(2)(iii).
It is our understanding that HAEC is entering into the Merger in order to succeed to TNOG's status as a reporting company under the Securities and Exchange Act of 1934 and to succeed to the shareholder base of TNOG. While HAEC intends to derive benefits from the prior activities of TNOG, these benefits are not operating assets for purposes of the continuity of business enterprise requirements, nor do these benefits constitute a line of TNOG's historic business. The Treasury Regulations provide that business assets may include "intangible operating assets such as good will, patents, and trademarks . . ." See Treas. Reg. (S)1.368(d)(3)(ii).
Subject to the qualifications, assumptions and conditions stated above, and because the continuity of business enterprise requirement is not met, we are of the opinion that the Merger will not be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. It is likely that the Internal Revenue Service (the "Service") will assert that the Merger constitutes a taxable sale of the assets of TNOG in exchange for the shares of common stock delivered by HAEC under the Merger Agreement, any cash paid to any shareholder of TNOG in connection with the Merger (collectively referred to as the "Merger Property") and the amount of all liabilities of TNOG; followed by the liquidation of TNOG, with the Merger Property distributed to the
TNOG shareholders. Under this characterization of the transaction, TNOG would recognize taxable income to the extent that the sum of the fair market value of the Merger Property and the liabilities of TNOG, exceed TNOG's adjusted tax basis in its assets. Each TNOG shareholder would recognize taxable gain or loss to the extent that the fair market value of the Merger Property received by it exceeds its adjusted basis in its TNOG stock. The basis of each TNOG shareholder in its HAEC common stock received in the Merger will be the fair market value of the HAEC common stock at the date of distribution. The holding period for shares of HAEC received by TNOG shareholders in the Merger will not include the holding period of their TNOG shares. Houston American shareholders will not recognize gain or loss.
This opinion is based on the Code, the Income Tax Regulations promulgated thereunder, judicial decisions and administrative pronouncements of the Service, all as in effect on the date of this opinion and all of which are subject to change at any time, possibly retroactively. We undertake no obligation to you or any other person to give notice of any such change. This opinion is limited strictly to the matters expressly stated herein and no other opinion may be implied or inferred beyond such matters. This opinion represents only our best legal judgment and is not binding on the Service or the courts.
This opinion is provided to you solely for use in connection with a registration statement on Form S-4 to be filed by you with the Securities and Exchange Commission. We hereby consent to the filing of this opinion as an exhibit to such registration statement. This opinion shall not otherwise be quoted or referred to in whole or in part in any report or document nor furnished to any other person or entity other than your counsel or your employees, except with our prior written consent or in response to a valid subpoena or other lawful process.
Very truly yours,
/s/ Jackson Walker L.L.P. |
EXHIBIT 10.8
GAS PURCHASE CONTRACT #36-1599
THIS CONTRACT made and entered into as of May 1, 2001 by and between Kinder Morgan Texas Pipeline, L. P., hereinafter referred to as BUYER, and Moose Operating Co., Inc., hereinafter referred to as SELLER.
WHEREAS, BUYER desires to purchase from SELLER certain quantities of natural gas; and
WHEREAS, SELLER has a supply of gas available for sale to BUYER and desires to sell such gas to BUYER;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto covenant and agree to the sale and purchase of natural gas under this Contract in accordance with the terms set forth below and in the attached "TERMS AND CONDITIONS".
ARTICLE I
COMMITMENT AND QUANTITY
1.1 Each and every day during the Primary Term, SELLER agrees to dedicate to the performance of this Contract one hundred percent (100%) of the gas that SELLER owns or has the right to market that is available at the delivery point described on the attached LIST OF DELIVERY POINTS (Delivery Point).
1.2 Each month during the Primary Term, SELLER shall notify BUYER of the quantity of gas that SELLER expects to deliver at each Delivery Point described in the attached LIST OF DELIVERY POINTS each day during the next succeeding month (Daily Contract Quantity). The maximum quantity which SELLER can tender at each Delivery Point is shown on the LIST OF DELIVERY POINTS (Maximum Daily Quantity). Such notice shall be given to BUYER at least three (3) business days prior to the first day of the month. Subject to the other provisions hereof, on each day during the term hereof, SELLER shall deliver and sell, and BUYER shall receive and purchase, the Daily Contract Quantity on a firm basis.
1.3 On any day during the Primary Term, SELLER may have available for sale hereunder more than the Daily Contract Quantity (Excess Gas); however, the sum of Daily Contract Quantity and Excess Gas shall not exceed Maximum Daily Quantity. SELLER shall notify BUYER of the quantity of Excess Gas which SELLER expects to deliver at the Delivery Point described in the attached LIST OF DELIVERY POINTS. If for any Period of Delivery SELLER elects to sell Excess Gas to BUYER and BUYER elects to purchase Excess Gas from SELLER, SELLER shall deliver and sell Excess Gas and BUYER shall receive and purchase Excess Gas on a firm basis.
1.4 SELLER agrees to deliver 292,000 MMBtu (Commitment Quantity) to BUYER on or prior to the end of the Primary Term. If SELLER fails to deliver the Daily Contract Quantity on any day during the Primary Term for reasons excused by events of force majeure, the Primary Term shall be extended by the total number of such force majeure days to allow SELLER to deliver the Commitment Quantity. If at the end of the Primary Term a volume equal to the Commitment Quantity has not been delivered by SELLER, then SELLER shall pay an amount equal to $0.135 per MMBtu times the difference obtained by subtracting the volume actually delivered to BUYER from the Commitment Quantity (Reimbursement Amount). BUYER shall invoice SELLER for such amount and SELLER shall render BUYER payment within thirty (30) days from the date of BUYER's invoice.
1.5 If SELLER fails to deliver any volume of gas for any reason, including events of force majeure, for a period of ninety (90) days, BUYER shall invoice SELLER for the Reimbursement Amount, if any, as of the end of such ninety (90) day period and SELLER shall render BUYER payment within thirty (30) days from the date of BUYER's invoice.
ARTICLE II
PRICE
2.1 The total price, dry basis, payable for each MMBtu of gas delivered and received under this Contract during any month during the term of this Contract shall be ninety-three percent (93%) of the Index, with Index defined as the first price which can be determined by references to the reported prices in the following publications in descending order of priority.
2.1.1 First issue of Inside F.E.R.C.'s Gas Market Report published in
the month of production, DELIVERED SPOT-GAS PRICES - Houston
Ship Channel/Beaumont, Texas
2.1.1.1 index (large packages only); if not available, then
2.1.1.2 large packages (at least 3,500 Mcf/day); simple
average of range shown; if not available, then
2.1.1.3 small packages (less than 3,500 Mcf/day); simple
average of range shown; if not available, then
2.1.2 First issue of Natural Gas Intelligence Gas Price Index
published in the month of production under the heading
"California Border & Non-Utility End-User Citygate Tables"
for Eastern Texas, Houston Ship Channel, Bidweek Average.
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2.2 If SELLER makes available to BUYER the Commitment Quantity, in accordance with Article 1, prior to the end of the Primary Term of the Contract, or SELLER has paid BUYER the Reimbursement Amount, in accordance with Article 1, the total price, dry basis, payable for each MMBtu of gas delivered and received under this Contract during the remainder of the Primary Term and month to month thereafter shall be ninety-six percent (96%) of the Index, as defined above.
2.3 Notwithstanding the provisions of 2.1, if SELLER commences initial delivery of gas under this Contract on a day that is other than the first day of a calendar month, the total price, dry basis, payable for such month only for gas delivered and received under this Contract shall be a price equal to ninety- three percent (93%) of the price published in each days issue of Gas Daily for such month under the heading Daily Price Survey for "East-Houston-Katy" for "Houston Ship Channel" under the column "Midpoint" (Gas Daily Price). For gas delivered on a Saturday or Sunday, the Gas Daily Price for the following Monday shall be used.
2.4 The total price, dry basis, payable for each MMBtu of Excess Gas delivered and received under this Contract shall be a price equal to ninety- three percent (93%) of the Gas Daily Index.
ARTICLE III
NOTICE
3.1 Any notice required herein shall be deemed to have been properly served if deposited in U.S. Mail, postage paid, or sent by telephonic facsimile to the addresses stated as follows:
Name of SELLER: Moose Operating Co., Inc.
Address for notices: 801 Travis, Suite 1425
Houston, Texas 77002
Attn: John F. Terwilliger
Address for payments: 801 Travis, Suite 1425
Houston, Texas 77002
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Name of BUYER: Kinder Morgan Texas Pipeline, L.P.
Address for notices: P. O. Box 283
Houston, Texas 77001-0283
Attn: Contract Administration
Telefax No. 713/369-9395
Address for accounting P.O. Box 283
statements and Houston, Texas 77001-0283
invoices: Attn: Gas Accounting Department
Telefax No. 713/369-9395
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Should this information change, each party shall notify the other accordingly in writing.
ARTICLE IV
TERM
4.1 This Contract shall become effective on the date first hereinabove
written and remain in effect for a term of three (3) years from the first day of
the month following the month of initial delivery (Primary Term) and shall
continue month to month thereafter until terminated by either party upon thirty
(30) days' prior written notice. BUYER and SELLER recognize that the Primary
Term may be extended as provided in Article I of this Contract. BUYER and SELLER
also recognize that this Contract may be terminated as provided in Paragraph 4
of the TERMS AND CONDITIONS of this Contract.
ARTICLE V
FACILITIES
5.1 BUYER shall install, or cause to be installed, a two inch (2") side tap and valve assembly, a two inch (2") meter tube, electronic flow measurement equipment and other related equipment on BUYER's Index 50-30" pipeline to receive gas from SELLER. SELLER shall install, or cause to be installed, all necessary pipeline, pipeline rights-of-way and related facilities that are required to deliver gas to BUYER.
END OF CONTRACT
SIGNATURE PAGE FOR
GAS PURCHASE CONTRACT
BETWEEN
KINDER MORGAN TEXAS PIPELINE, L. P.
AND
MOOSE OPERATING CO., INC.
Kinder Morgan Texas Pipeline, L. P.
By: Kinder Morgan Texas Pipeline GP LLC
By: /s/ Bruce A. Boyd
-----------------------------------
Name: Bruce A. Boyd
---------------------------------
Title: President
--------------------------------
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BUYER
Moose Operating Co., Inc.
By: /s/ John F. Terwilliger
-----------------------------------
Name: John F. Terwilliger
---------------------------------
Title: President
--------------------------------
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SELLER
LIST OF DELIVERY POINTS
(BUYER Contract No. 36-1599)
MAXIMUM
POINT RECEIVING QUANTITY
DELIVERY POINT(S) DESCRIPTION ID PIPELINE MMBtu/D
--------------------------------------------------- ---------------- ------------------- --------------------
Kalmus #1 well/Lavaca County, Texas To be BUYER 2,500
determined
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LIST OF WELLS
(BUYER Contract No. 36-1599)
If yes, provide the following information:
DELIVERY POINT ON OR IS GAS COMMINGLED WELL
STATE OFF LEASE? PRIOR TO DELIVERIES? TYPE
WELL ID LEASE ID DELIVERY POINT [ON/OFF] [YES/NO] GAS WELL/OIL WELL
------------ ------------------ -------------- --------------------- -------------------- -----------------
Kalmus #1 API. #42-285-32849 Off No Gas
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The production from these wells is eligible for the following Tax Exemption Credits:
The following Marketing Cost Deductions are available in computation of Production Taxes:
TERMS AND CONDITIONS
FOR CONTRACT NO. 36-1599
1. TRANSPORTATION: SELLER shall arrange and pay for transport to the Delivery Point(s) and BUYER shall arrange and pay for transport subsequent to the Delivery Point(s).
2. DELIVERY POINT(S): Mutually agreeable point(s) which shall be identified in writing in an effective Purchase Order, Price Confirmation, Confirmation Letter or the attached LIST OF DELIVERY POINTS, as applicable, shall be the Delivery Point(s).
3. HEATING VALUE: The Btu content shall be determined on a 14.73 psia, 60(degrees)F, dry basis.
4. QUALITY AND PRESSURE: SELLER agrees that all gas delivered at the Delivery Point(s) hereunder shall be merchantable gas which meets all pressures required by BUYER and conforms to all quality specifications as listed below:
(1) The gas shall be free of water and other objectionable liquids at the temperature and pressure at which the gas is delivered to BUYER and the gas shall not contain any hydrocarbons which might condense to free liquids in the pipeline under normal pipeline conditions and shall in no event contain water vapor in excess of seven (7) pounds per one million (1,000,000) cubic feet, measured at fourteen and seventy-three hundredths pounds per square inch absolute (14.73 psia) at a standard temperature of sixty degrees Fahrenheit (60(degrees)F).
(2) The gas shall not contain more than one-quarter (1/4) grain of hydrogen sulphide per one hundred (100) cubic feet as determined by quantitative methods in general use within the natural gas industry.
(3) The gas shall not contain more than two (2) grains of total sulphur per one hundred (100) cubic feet as determined by quantitative methods in general use within the natural gas industry.
(4) The gas shall not contain more than one-quarter (1/4) grain of mercaptans per one hundred (100) cubic feet as determined by quantitative methods in general use within the natural gas industry.
(5) The gas shall not contain in excess of:
(a) two percent (2%) by volume of carbon dioxide (CO\\2\\);
(b) ten parts per million (10ppm) by volume of oxygen (O\\2\\);
(c) three percent (3%) by volume of nitrogen (N\\2\\);
(6) The gas shall contain no carbon monoxide, halogens or unsaturated hydrocarbons and not more than four hundred parts per million (400 ppm) of hydrogen.
(7) The gas shall have a temperature of not more than one hundred and twenty degrees Fahrenheit (120(degrees)F) and not less than forty degrees Fahrenheit (40(degrees)F).
(8) The gas shall contain a daily average heating content of not less than nine hundred seventy-five (975) Btu per cubic foot and not more than one thousand one hundred seventy-five (1,175) Btu per cubic foot at 14.73 psia, dry.
(9) The gas shall be commercially free from dust, gum, gum-forming constituents, or other objectionable liquid or solid matter which might become separated from the gas in the course of transmission through pipelines.
If the gas fails to meet the foregoing specifications, BUYER may suspend the receipt thereof immediately but shall provide notice to SELLER of such suspension as soon as practicable.
If at any time SELLER is unable to deliver gas at the required pressure, SELLER shall have the right, but not the obligation to compress the gas to make deliveries hereunder. If SELLER elects to compress, it is agreed that SELLER may discontinue compression at any time that it becomes, in SELLER's sole judgment, uneconomical by giving BUYER ninety (90) days prior written notice.
If SELLER shall have elected not to compress, or having elected to compress, shall elect to discontinue compression of gas hereunder, then BUYER shall have the right, but not the obligation to compress such gas at BUYER's sole cost and expense. If BUYER elects to compress, it is agreed that BUYER may discontinue compression at any time that it becomes, in BUYER's sole judgment, uneconomical by giving SELLER ninety (90) days prior written notice.
If neither party elects to compress then either party may terminate this Contract upon thirty (30) days prior written notice.
5. MEASUREMENT: Measurement of gas purchased hereunder shall be made at the Delivery Point(s) in accordance with procedures specified by BUYER.
6. BILLINGS AND PAYMENTS: If necessary, SELLER will furnish or designate a representative to furnish, on SELLER's behalf, to BUYER on or before the fifteenth (15th) day of each calendar month an allocation statement setting forth the respective volumes of the total quantity of gas received by BUYER at the Delivery Point(s) during the preceding calendar month which were delivered by SELLER and each of such other parties from whom BUYER received gas at said Delivery Point(s). BUYER shall, by the latest of (i) ten (10) days after receipt of such allocation statement or (ii) the twenty-fifth (25th) day of each month, render payment to SELLER by electronic funds transfer for the amount due SELLER for all gas purchased during the preceding calendar month.
7. REQUESTS: SELLER shall cooperate with BUYER in giving notice of changes in
gas deliveries at least twenty-four (24) hours prior to the nomination deadline
of the receiving pipeline (Transporter) at any Delivery Point. As between SELLER
and BUYER, BUYER shall be responsible for, and reimburse SELLER within thirty
(30) days of presentation of SELLER's invoice for, any scheduling, imbalance or
similar penalties, fees, forfeitures or charges imposed by any Transporter as a
result of BUYER's unexcused failure to purchase the quantity of gas properly
nominated. As between SELLER and BUYER, SELLER shall be responsible for, and
reimburse BUYER within thirty (30) days of presentation of BUYER's invoice for,
any scheduling, imbalance or similar penalties, fees, forfeitures or charges
imposed by any Transporter as a result of SELLER's unexcused failure to deliver
the quantity of gas properly nominated by SELLER for BUYER's account or SELLER's
over delivery of gas.
8. WARRANTIES: SELLER warrants that SELLER has good title to all gas so delivered, that SELLER has the right to sell such gas to BUYER, and that such gas shall be free from all royalties, liens, encumbrances, and that all applicable taxes that are imposed upon the production and/or removal of gas prior to passage of title have been or will be paid by SELLER. SELLER agrees to indemnify BUYER and save BUYER harmless from all suits, actions, debts, accounts, damages, costs, losses, and expenses arising from or out of adverse claims of any or all persons to said gas or to royalties, taxes, license fees, or charges thereof which are applicable before the title passes to BUYER or which may be levied or assessed upon the sale thereof to BUYER. SELLER further warrants that the gas to be sold hereunder has been transported to the Delivery Point in accordance with all applicable laws, rules, regulations, and orders of all local, state, and federal authorities. BUYER may withhold proceeds to SELLER to the extent of an adverse third-party claim to the gas or the proceeds until such claim is finally determined, unless SELLER provides a surety bond or other assurance satisfactory to BUYER providing for BUYER's protection. SELLER also warrants that all gas delivered and sold hereunder was produced in the State of Texas.
9. TITLE: Title to gas shall pass at the Delivery Point(s). SELLER shall pay or cause to be paid all royalties, taxes or other sums due on production and transportation of the gas to the Delivery Point(s). SELLER shall be in full control and possession of the gas and responsible for any damage or injuries caused thereby until the gas is delivered to BUYER or its designee at the Delivery Point(s) except for injuries and damage which shall be caused by the negligence or willful
misconduct of BUYER. BUYER shall be fully responsible after gas is delivered to the Delivery Point(s) except for injuries and damage caused by the negligence or willful misconduct of SELLER.
10. REGULATIONS: This sale is subject to all applicable governmental laws and regulations. SELLER warrants that the sale of its gas is in compliance with all applicable laws and regulations.
11. FORCE MAJEURE: If performance by either party of any of its obligations hereunder (other than BUYER's obligation to pay for gas delivered) is prevented or delayed by force majeure, it is agreed that such party will give notice and full particulars as soon as possible, and the obligations so affected shall be suspended during the continuance of the prevention or delay so caused, and the party affected shall not be liable to the other party in damages or otherwise by reason thereof. The term "force majeure" as herein used means and includes fire, explosion, storms or storm warnings, adverse action of the elements, strikes or other labor difficulties, restriction or restraint imposed by law or by regulation or order of duly constituted governmental authority, freezing of well(s) or lines of pipe, acts of the public enemy, breakdown of, or accident to facilities or equipment, inability to obtain necessary materials, equipment or rights-of-way on customary terms, discontinuance or non-performance under any firm third-party transportation arrangements or treating arrangements affecting the gas subject hereto (which the party arranging same shall use its reasonable efforts to remedy with all reasonable dispatch; provided however, nothing in this Contract shall require the arranging party to accept any terms and conditions for transportation or treating of gas which in its judgment are unacceptable; provided further, if such party has not remedied the lack of transportation or treating arrangements within sixty (60) days from the date transportation or treating ceases, the other party may, at its sole option and as its sole remedy, terminate this Contract) and any other cause that is reasonably beyond control of the party affected thereby, whether or not similar to any cause above enumerated. Upon the occurrence of an event constituting force majeure, the same shall, so far as possible, be remedied with all reasonable dispatch; provided, however, neither party shall be obligated to remedy such force majeure by replacement of well(s), lines, and pipeline or other related production or gathering facilities if, in its sole discretion, exercised in good faith, it is not economically feasible to replace such facilities. The settlement of strikes or other labor difficulties shall be entirely within the discretion of the party having the difficulty, and the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or other labor difficulties by acceding to the demands of any opposing party therein when such course is inadvisable in the discretion of the party having the difficulty.
12. ASSIGNMENT: This Contract shall be binding on the successors and assigns of
the parties in the manner set out below. BUYER may assign this Contract in whole
or in part so long as written notice is promptly given to SELLER, and BUYER
shall be relieved of any obligations under this Contract to the extent that
BUYER's assignee is thereafter responsible for their performance. If SELLER
assigns either in whole or in part its interests under this Contract, this
Contract shall extend to, and be binding upon, SELLER's successors and assigns
as follows: (i) Should SELLER assign one hundred percent of its interests to any
one party, that party shall succeed to the status of SELLER under the Contract
effective the first day of the production month in which written notice with a
copy of such assignment is given to BUYER by that party. By such notice, that
party assumes SELLER's obligations under the Contract on such first day and
indemnifies BUYER against claims resulting from payment to that party or any
agent designated by that party, and such party agrees to execute additional
documents requested by BUYER to recognize such assumption and indemnification;
(ii) Should SELLER assign its interest in part to more than one party, only one
party may succeed to the status of SELLER under the Contract. The parties
thereafter owning interests shall designate the entity to act as SELLER within
fifteen (15) days of giving notice to BUYER of such assignment. Such succession
to the status of SELLER hereunder will be effective the first day of the month
in which BUYER receives written notice of the assignment. If no agreement as to
the new SELLER is reached within fifteen (15) days of notice to BUYER of such
assignment, BUYER may, at its option, terminate this Contract. BUYER may
suspend payments for gas hereunder without interest until execution by such
other party of an agreement under which that party assumes SELLER's obligations
under the Contract and sets out instructions for payment and indemnifies BUYER
against claims resulting from payment to that party or any agent designated by
that party.
13. AUDIT: BUYER or SELLER shall have the right, at its sole expense and during normal working hours, to audit the accounts and records of the other party to the extent necessary to verify the volumes and charges pursuant hereto. Such rights to audit shall be in force during the term of this Contract and two (2) years thereafter. No change to any payment or to the volumes or heating value underlying such payment shall be made more than two (2) years after the making of such payment, nor shall any suit, action or proceeding be commenced with respect to any payment or the volumes or heating value underlying such payment more than two (2) years after the making of such payment.
14. WAIVER: The failure of either party to exercise any right granted hereunder shall not impair, nor be deemed to be a waiver of, such party's privilege of exercising such right at any subsequent time or times.
15. TAXES: The Contract Price is inclusive of all royalties, production taxes, severance taxes, ad valorem taxes, or other sums now or hereafter levied on the production or transportation of the gas prior to its delivery to or for the account of BUYER. All such taxes shall be borne and paid exclusively by SELLER and SELLER shall provide proof of same upon request; provided however, that if state law requires or if SELLER fails to timely pay such taxes, then BUYER shall remit such taxes to the collecting authority. SELLER shall timely provide BUYER with all necessary information for timely calculating such taxes. BUYER shall deduct from payments due hereunder the taxes so paid on behalf of SELLER, plus any interest and penalties paid as a result of SELLER's failure to timely pay such taxes. If BUYER cannot recover the full amount in the following month's invoice, BUYER may invoice SELLER up to the full amount and SELLER shall pay BUYER such amount within fifteen (15) days after receipt of such invoice. If at anytime during the term of this Contract, any governmental authority shall impose new, increased or subsequently applicable tax(es) on natural gas measured by its volume, Btu content, carbon content, value or sales price, that in the sole judgment of either party imposes an undue burden on it, then such affected party may cancel and terminate this Contract upon prior written notice to the other party without any liability hereunder, other than the liability to discharge obligations theretofore accrued hereunder.
16. TAX REPORTS: SELLER warrants that BUYER is not the first purchaser of the gas production hereunder; provided however that if BUYER is the first purchaser of the gas production hereunder, SELLER agrees to provide BUYER with the information requested on the attached LIST OF WELLS for each well from which gas is to be delivered hereunder at the time of execution of this Contract or within ten (10) days after any change which makes the information contained on such LIST OF WELLS inaccurate. SELLER warrants the accuracy of the information contained on such LIST OF WELLS. SELLER further agrees that BUYER shall be permitted to withhold payments hereunder without interest until all information requested on LIST OF WELLS has been supplied.
17. CONFIDENTIALITY: The terms of this Contract, including but not limited to the price paid for gas, the identified transporting pipelines (if any) and cost of transportation, the volumes of gas purchased or sold or to be purchased and sold, and all other material terms of this Contract shall be kept confidential by the parties hereto, except to the extent that any information must be disclosed to a non-signatory as required by law or for the purpose of effectuating transportation of the gas subject to this Contract.
18. ENTIRE CONTRACT: The Contract, Terms and Conditions and the Purchase Order(s), Price Confirmation(s) or Confirmation Letter(s) constitute the entire Contract between the parties. No promises, agreements or warranties in addition to the Contract shall be deemed a part thereof, nor shall any alteration or amendment of this Contract be effective, unless the Contract is amended in writing.
19. APPLICABLE LAW. The laws of the State of Texas shall govern the validity, construction, interpretation and effect of the Agreement, excluding, however, the laws thereof governing the conflicts of law.
20. NO THIRD PARTY BENEFICIARIES: It is the specific intention of the parties hereto that the provisions of this Contract shall not impart rights enforceable by any person, firm or organization not a party or not a successor or assignee of a party to this Contract and, therefore, that there be no third party beneficiaries to this Contract
21. LIQUIDS AND LIQUEFIABLES: SELLER shall have the right to retain any and all liquids and liquefiables extracted from the gas prior to its delivery at the Delivery Point, and BUYER shall have the right to retain all liquids and liquefiables which may be extracted downstream of the Delivery Point.
22. SPECIAL DAMAGES WAIVER: THE PARTIES WAIVE ALL PUNITIVE, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES FOR ANY BREACH OF THIS CONTRACT.
23. GRANT OF EASEMENT: BUYER, or BUYER's designee, shall, insofar as SELLER is able to convey such rights, have an easement and servitude on any leaseholds or premises of SELLER located at or in the immediate area of the Delivery Point(s) for installing, operating and maintaining equipment, with the right to remove the same before or within a reasonable time after the expiration of this Contract, and have the right to operate, inspect and test equipment,
and, at all times, have the right to free access to any part of SELLER's leaseholds or premises located at or in the immediate area of the Delivery Point(s) for any purpose connected with any matter or thing covered by this Contract.
END OF TERMS AND CONDITIONS
EXHIBIT 10.9
GAS PURCHASE AGREEMENT
DATED JULY 31, 1997
BY AND BETWEEN
DOMINION PIPELINE COMPANY, MANAGER
BBS-LEGS JOINT VENTURE
("BUYER")
AND
MOOSE OPERATING CO., INC.
("SELLER")
GAS PURCHASE AGREEMENT
THIS AGREEMENT; made and entered into as of this _____ day of July, 1997, by and between DOMINION PIPELINE COMPANY, a Texas corporation, as Manager of the BBS-LEGS Joint Venture, hereinafter referred to as "BUYER", and MOOSE OPERATING CO, INC., a Texas corporation, hereinafter referred to as "SELLER," whereby BUYER and SELLER have agreed, and in consideration of the premises hereof do hereby agree, to the sale by SELLER and purchase by BUYER of all gas owned or controlled by SELLER and attributable to the wells with receipt point(s) as described in Exhibit "A" and located on those lands and leases described in Exhibit "B" attached hereto and incorporated herein, using commercially reasonable efforts, subject to the general terms and conditions as follows:
I. DEFINITIONS
The following terms and expressions, when used in these general terms and conditions and in this Agreement have the following meanings:
1.1 Day - A period of twenty-four (24) consecutive hours commencing at seven (7:00) a.m., Central Time, or such other period as the parties may agree upon.
1.2 Month - A period commencing on the first day of each calendar month and ending on the first day of the next following calendar month.
1.3 Year - A period of three hundred sixty-five (365) consecutive days, provided that any such year which contains the date of February 29 shall consist of three hundred sixty-six (366) consecutive days.
1.4 British thermal unit ("Btu") - One (1) Btu shall mean the quantity of heat required to raise the temperature of one (1) pound of water from fifty-nine degrees Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60 degrees F) at a constant pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 psia). Total Btu's shall be determined by multiplying the total volume of natural gas delivered times the gas heating value expressed in Btu's per cubic foot of gas adjusted on a dry basis.
1.5 Heating value - The quantity of heat, measured in Btu's, produced by combustion in air on one (1) cubic foot of anhydrous gas at a temperature of sixty degrees Fahrenheit (60 degrees F) at a constant pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 psia), the air being at the same temperature and pressure as the gas, after the products of combustion are cooled to the initial temperature of the gas and air, and after condensation of the water formed by combustion.
1.6 Gas - Natural gas, including gas-well gas, casinghead gas, and/or residue gas resulting from processing both casinghead gas and gas-well gas, and shall include liquefied natural gas and synthetic gas in a vaporized state.
1.7 Mcf - The quantity of natural gas occupying a volume of one thousand
(1,000) cubic feet at a temperature of sixty degrees Fahrenheit (60 degrees F)
and at a pressure of fourteen and sixty-five hundredths pounds per square inch
absolute (14.65 psia).
1.8 BUYER's Transporter - A third-party natural gas transmission pipeline system which accepts deliveries of natural gas from BUYER at the first point downstream of BUYER's pipeline facilities; such third-party system may change from time to time at BUYER's election to make first deliveries to an alternate third-party pipeline.
1.9 GPM - the quantity of natural gas liquids, ethane and heaviers, which are contained in an Mcf of natural gas, measured as gallons.
1.10 High CO\\2\\ Gas - Gas otherwise of pipeline quality that is delivered by SELLER and received by BUYER pursuant to this contract which contains in excess of 5.5% CO\\2\\ by volume.
II. POINT(S) OF RECEIPT AND BUYER'S FACILITIES
2.1 The Point(s) of Receipt of all gas purchased hereunder shall be at a mutually agreeable point as described in Exhibit "A" attached hereto and incorporated herein and title to said gas shall pass from SELLER to BUYER at said Point(s) of Receipt.
2.2 SELLER, at its own expense, shall construct, maintain and operate all facilities reasonable and necessary to deliver SELLER's gas to BUYER at the Point(s) of Receipt.
2.3 BUYER, shall construct, or cause to be constructed, all facilities reasonable and necessary to accept SELLER's gas from SELLER at the Point(s) of Receipt.
2.4 SELLER shall be in control and possession of the gas sold and purchased hereunder and responsible for any damage or injury caused thereby until the same shall have been delivered to BUYER at the Point(s) of Receipt.
2.5 BUYER, or BUYER's agent, shall be in control and possession of the gas sold and purchased hereunder and responsible for any damage or injury caused thereby after the same shall have been delivered at the Point(s) of Receipt.
III. QUANTITY
Beginning on the date of initial delivery of gas hereunder, and for the term hereof, SELLER agrees to make available to BUYER 100% of all gas owned or controlled by SELLER and attributable to those certain leases and lands
described in Exhibit "B" attached hereto, and limited thereby. In the event such volumes available to BUYER from SELLER are less than 250 MCF per day for more than thirty (30) consecutive days, then BUYER may elect to terminate its gas purchase obligation hereunder upon giving thirty (30) days prior written notice to BUYER. During the primary term hereof, SELLER agrees to deliver to BUYER a total volume of gas covered by this agreement of not less than 800,000 MMBtu. In the event that SELLER fails to deliver said volume prior to the expiration of the primary term of this agreement, then SELLER and BUYER shall in good faith endeavor to negotiate a mutually agreeable solution to make up the volume commitment shortfall by SELLER, and in the event BUYER and SELLER are unable to mutually agree on a solution within thirty (30) days after the expiration of the primary term hereof, then SELLER shall pay to BUYER a volume commitment shortfall penalty of an amount equal to the difference between 800,000 MMBtu and the actual MMBtus delivered, multiplied by ten cents ($0.10).
IV. MEASUREMENT, QUALITY AND PRESSURE
4.1 BUYER is not obligated to take any gas unless such gas is economically merchantable gas which meets all specifications and pressures required by BUYER or BUYER's Transporter(s). SELLER also agrees that BUYER, at its option, (which BUYER may exercise at any time and from time to time in its sole discretion) may either (a) refuse to construct facilities to or accept delivery of any gas that is not merchantable gas which meets all of the quality specifications of BUYER or BUYER's Transporter, or (b) waive the provisions of this Article IV by accepting delivery of such gas. Any such waiver or waivers by BUYER from time to time shall not be deemed to establish a course of performance or otherwise be construed as obligating BUYER to continue such waiver or waivers in effect when, in BUYER's sole judgment, then existing business circumstances indicate to BUYER that BUYER's best interests would be served by not continuing such waiver or waivers.
4.2 Notwithstanding any of the foregoing provisions of Article II and Paragraph 4.1, SELLER may from time to time deliver gas volumes to BUYER at the Receipt Point(s) which contain carbon dioxide (CO\\2\\) in excess of two percent (2%) by volume, but with such CO\\2\\ content not to exceed five and one-half percent (5.5%) (High CO\\2\\ Gas) at any time. Should SELLER deliver gas volumes to BUYER that are High CO\\2\\ Gas volumes as defined herein and BUYER agrees to accept such volumes, then SELLER agrees to pay all reasonable direct charges incurred by BUYER for treating of such High CO\\2\\ Gas as may be charged by a third-party treater or the actual costs incurred by BUYER. Such direct charges shall include fees, fuel and shrinkage paid by BUYER on a dollar for dollar basis, and shall be deducted from the gross proceeds payable to SELLER under Articles V and IX hereof. Using standard oilfield operating
practices for corrosion control, Seller shall provide for the regular injection of chemical inhibitors at the wellhead or at SELLER's production facilities as a precaution to protect BUYER's pipeline and measurement facilities from the High CO\\2\\ Gas produced by SELLER.
4.3 Gas volumes measured by BUYER with the use of orifice meter(s) shall be determined in accordance with the provisions of the Gas Measurement Committee Report No. 3 of the American Gas Association, as revised in 1966, as amended and/or supplemented from time to time, and gas volumes measured by Buyer with the use of positive meter(s) shall be determined on the basis of Gas Measurement Committee Report No. 7 of the American Gas Association, as revised in 1981 and as may be amended and/or supplemented thereafter from time to time. For the purpose of measurement, a cubic foot of gas is defined as the volume of gas contained in one cubic foot of space at a standard pressure base of fourteen and sixty-five one-hundredths (14.65) pounds per square inch absolute and a standard temperature base of sixty degrees Fahrenheit (60 degrees F.). For the purposes of measurement, calculations and meter calibration the atmospheric pressure shall be assumed to be fourteen and seven-tenths (14.7) pounds per square inch absolute. Temperature shall be determined by a recording thermometer continuously used and installed by Buyer so as to record properly the temperature of the gas being metered, and specific gravity shall be determined by Buyer by use of a gravity balance of standard make, or, at the option of Buyer, by such other tests and instruments as may be standard for such purposes in the gas industry.
4.4 At quarterly intervals, or more often if required pursuant to paragraph 5.5; Article V hereof, the meters and instruments shall be calibrated and if in the aggregate they are found to be inaccurate by more than one percent (1%), the quantities of gas based on such registration shall be corrected at the rate of inaccuracy for any period which is known or agreed upon.
4.5 The gross heating value of the gas shall be determined by BUYER or BUYER's Transporter by taking gas samples and having the British Thermal Unit content per cubic foot determined in a mutually agreeable laboratory by means of chromatographic analysis or a calorimeter. The British Thermal Unit content per cubic foot shall be determined for a cubic foot of gas at a temperature of sixty degrees Fahrenheit (60 degrees F) at an absolute pressure of fourteen and sixty- five one hundredths (14.65) pounds per square inch, and corrected to the actual water vapor content of the gas being delivered.
4.6 SELLER shall deliver Gas hereunder, or cause Gas to be delivered at pressures sufficient to cause such Gas to enter BUYER's facilities, but not in excess of the applicable maximum allowable operating pressure specified in
the transportation agreement between Buyer and Buyer's Transporter, nor in excess of BUYER's maximum allowable operating pressure, nor more than 1,050 psig. SELLER shall inform BUYER as often as may be necessary of the delivery rate and pressure of the Gas delivered hereunder.
4.7 The foregoing notwithstanding, BUYER and BUYER's Transporter(s) shall have no obligation at any time to provide gas treating services including but not limited to compression, separation, dehydration, or processing.
V. PRICE
5.1 For all gas delivered to BUYER at the Point(s) of Receipt, subject to all applicable provisions of this Agreement and corrected to the measurement basis set forth herein, BUYER and SELLER agree that beginning on the date of initial delivery hereunder and continuing thereafter until redetermined as provided herein, the price per MMBtu (dry) paid to SELLER shall be as follows:
(i) if the commingled stream of SELLER'S gas volumes delivered to BUYER contains an average gas liquids content of greater than 4.5 GPM, as measured at the Point(s) of Receipt, BUYER shall pay SELLER a price equal to the TET Index plus seven (7) cents per MMBtu;
(ii) if the commingled stream of SELLER'S gas volumes delivered to BUYER contains an average gas liquids content of between 3.51 GPM and 4.5 GPM, as measured at the Point(s) of Receipt, BUYER shall pay SELLER a price equal to the TET Index plus four (4) cents per MMBtu;
(iii) if the commingled stream of SELLER'S gas volumes delivered to BUYER contains an average gas liquids content of between 2.51 and 3.5 GPM, as measured at the Point(s) of Receipt, BUYER shall pay SELLER a price equal to the TET Index plus two (2) cents per MMBtu;
(iv) if the commingled stream of SELLER'S gas volumes delivered to BUYER contains an average gas liquids content of between 2.00 and 2.5 GPM, as measured at the Point(s) of Receipt, BUYER shall pay SELLER a price equal to the TET Index less one (1) cents per MMBtu;
(v) if the commingled stream of SELLER'S gas volumes delivered to BUYER contains an average gas liquids content of less than 2.00 GPM, then SELLER has the right to market to a third party, provided, however, BUYER shall have the right to match such third party offers.
5.2 The TET Index as referred to hereinabove shall mean the Index Price as published in the first issue of each production month of Inside FERC's Gas Market Report under "Prices of Spot Gas Delivered to Pipelines", Texas Eastern Transmission Corporation (TET, South Texas). If the Inside FERC Price ceases to exist, the parties shall mutually agree upon a price to be paid hereunder.
5.3 The price paid hereunder shall be inclusive of and shall not be increased for all royalties, excess royalties, production or severance taxes, or any other taxes imposed upon the gas prior to delivery or otherwise borne by SELLER, and any other costs or charges for which SELLER is liable.
5.4 For purposes of accounting and determination of the price payable and total amounts due SELLER hereunder, BUYER and SELLER agree to accept the MCF volumes as measured at the Point(s) of Receipt and attributable to SELLER and the Btu and GPM values determined at this point.
5.5 Notwithstanding any of the foregoing provisions of this Article V, the price to be paid by BUYER to SELLER as provided herein shall be reduced by fees, fuel, and shrinkage incurred by BUYER for treating of High CO\\2\\ Gas pursuant to the foregoing paragraph 4.2 Article IV; the price paid by BUYER shall be further reduced by any pro rata losses and gas unaccounted for, if any, except in the case where losses exceed two percent (2%) of all volumes received from SELLER, as measured on a Btu basis. For purposes of determining pro rata MMBtu losses and gas unaccounted for if any, BUYER may allocate back to the Point(s) of Receipt all such losses based on BUYER's total MMBtu deliveries to BUYER's Transporter of SELLER's gas, as measured at the point of interconnect of BUYER with BUYER's Transporter. In the event that such losses exceed two percent (2%) and BUYER or BUYER's Transporter is unable to correct the cause of loss and BUYER continues to accept deliveries of Gas, then BUYER shall be liable for all continuing losses exceeding two percent (2%) of the total volumes received from SELLER. In the event losses of gas exceed one and one-half percent (1.5%) for two consecutive months, BUYER agrees to undertake audits of all measurement charts and conduct additional calibrating tests of the measurement facilities in an effort to identify and correct the causes of such losses. BUYER agrees to diligently maintain and regularly perform tests on its measurement facilities and to take all reasonable steps to ensure the accuracy and integrity of its measurement.
5.6 SELLER agrees that it shall pay all production and severance taxes and ad valorem taxes due and payable on the gas produced from the respective properties covered hereby and does hereby agree to indemnify and hold harmless BUYER from any liability or obligations pertaining thereto.
5.7 Other terms, conditions and provisions notwithstanding, it is agreed that BUYER and SELLER have entered into this exclusive restricted sales agreement in its entirety for the term hereof, whereby SELLER agrees to sell and BUYER agrees to buy the described gas from the respective leases and lands set forth on Exhibit "B" hereof. This shall be construed as a firm commitment to buy and sell hereunder the respective quantities of economically merchantable gas produced by SELLER from the respective properties. SELLER shall not market or commit the gas hereunder to any third parties in contradiction of BUYER's rights hereunder.
VI. TERM
6.1 This agreement shall continue in full force and effect for a primary term of eighteen (18) months, effective as of the date of initial deliveries received by BUYER from SELLER. Thereafter, this agreement will continue in full force and effect on a calendar month to month basis and may be terminated by either party giving not less than thirty days prior written notice. Notwithstanding the above, the primary term hereof will be extended for an amount of time equal to all periods of force majeure as described in Article XIII hereof.
6.2 Upon notice of termination of this agreement pursuant to Article 6.1 above, SELLER will convey to Buyer the "right to match" the terms and conditions of any third-party buyer's bona fide and verifiable offer to purchase the production covered under this agreement. Such third-party gas purchase offer shall have a primary term of at least six (6) months. SELLER shall provide BUYER with a complete and exact copy of such third party offer and BUYER shall have ten (10) business days from receipt of said offer from SELLER. If BUYER elects to match the third party offer, BUYER shall continue to gather and purchase SELLER's gas under such new terms and conditions which shall also incorporate this paragraph. Should BUYER elect not to match such proposal, or fail to respond within said ten (10) business day period, then this agreement and the right to match shall terminate; provided however, should SELLER fail to enter into a contract with the third party whose offer was basis for the match and under the terms of such offer, then BUYER's right to match shall be reinstated.
6.3 Notwithstanding the foregoing, at SELLER's election, BUYER's right to match shall be deemed terminated if one of the following events occurs:
a) the operatorship of SELLER's producing properties changes to a third- party operator owning 25% or more of the working interest in the properties; or
b) the sale of more than 50% of the working interests of SELLER's properties to a third party, or
c) a change of ownership control of Moose Oil & Gas Company.
VII. NOTICES
Any notice, request, demand or statement provided for in this Agreement shall be in writing and shall be deemed delivered when mailed to the address of each of the parties hereto as follows:
BUYER: DOMINION PIPELINE COMPANY
1300 Main Street, Suite 1840
Houston, TX 77002
FAX: 713/658-0539
Attn: Joel P. Sauer
SELLER: MOOSE OPERATING CO., INC.
1100 Louisiana, Suite 3420
Houston, TX 77002
FAX: 713/650-9358
Attn: John F. Terwilliger
|
or any such other address as SELLER or BUYER shall from time to time designate by letter properly addressed.
VIII. DEDICATION
8.1 SELLER hereby dedicates to the performance of this Agreement all gas owned or controlled by SELLER and attributable to lands covered by those leases and lands designated or described in Exhibit "B" attached hereto, to the depths described in Exhibit "B", including, without limitation, all additional lands subsequently pooled or unitized pursuant to the terms of such leases or unit agreements.
8.2 SELLER shall maintain its leases and units and shall conduct the operation of its leases and units as a reasonable, prudent operator and shall maintain production hereunder at such rates, volumes and pressures as SELLER deems advisable, subject to all engineering, geological and other factors affecting production of the field and so long as its leases and units are capable of producing in commercial quantities.
IX. PAYMENT
On or before the twentieth (20th) day of the month following production
BUYER shall provide to SELLER a statement setting forth the volumes and price
for gas received by BUYER during the preceding month. BUYER shall remit to
SELLER all amounts due for the volumes of gas delivered pursuant to this
Agreement no later than the first (1st) day of the second month following
production. SELLER shall earn interest at the lower rate of a) 8% per annum or
b) the highest rate permitted by applicable law on all undisputed dollar amounts
due SELLER from BUYER and not paid timely as provided hereinabove.
X. SALE AND PASSAGE OF MIX
Title to the gas shall pass and the sale shall be made from SELLER to BUYER at the applicable Point(s) of Receipt referred to in Paragraph 2.1 in Article II.
XI. WARRANTY OF TITLE
SELLER represents and warrants to BUYER that: (i) it has full and unqualified title and/or authority to sell all gas delivered hereunder, (ii) such gas is free from all liens and adverse claims attaching prior to its delivery to BUYER for BUYER's account at the Point(s) of Delivery, and (iii) SELLER shall, if notified thereof by BUYER, hold BUYER harmless from and against all claims, suits, actions, damages, losses, costs and expenses of every kind and character arising from each and every claim of any and all persons against such gas prior to its delivery for BUYER's account at the Point(s) of Delivery.
XII. FORCE MAJEURE
12.1 The term "force majeure," as employed herein, shall include, without limitation the following: acts of God and the public enemy, wars, blockades, civil unrest, rebellion, insurrections, riots, lockouts, strikes or any other industrial strife, interruption of civil or public service, hurricanes, freezing of wells or lines of pipe, breakage or failure of wells and equipment or pipelines, vandalism, inability to obtain, or interruption of, transportation or necessary gas treatment services, inability to obtain materials, contractors, supplies, permits or labor and any laws, orders, rules, regulations, acts or restraints of any governmental authority, whether or not lawfully made, and any other causes, whether of the kind herein enumerated or within the control of the party claiming suspension.
12.2 If either party is rendered unable, wholly or in part, by force majeure to perform or comply with any obligations or conditions of this Agreement, upon giving notice in writing and providing reasonably full particulars to the other party, such obligations or conditions, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused but for no longer period, and such party shall be relieved of liability and shall suffer no prejudice for failure to perform the same during the period; provided however, that BUYER's obligation to make payments for gas accepted shall not be suspended and further provided that the dedication of SELLER's leaseholds and/or wells shall not be waived or suspended. The force majeure condition shall be remedied so far as practicable with reasonable dispatch. Settlement of strikes and lockouts shall be wholly within the discretion of the party having the difficulty.
12.3 If at some future date there is change in any law, rule or regulation, and by such change, a governmental certificate or authorization is required, or SELLER is prevented, prohibited or frustrated from carrying out the terms of this Agreement in the manner contemplated hereunder, then this Agreement, at the sole discretion of SELLER, may be canceled.
XIII. GOVERNMENTAL AUTHORIZATIONS
13.1 This Agreement shall be subject to all valid and applicable laws of the United States and of the states wherein it is to be performed, and to the applicable valid rules, regulation or order of any regulatory agency or governmental authority having jurisdiction, and the parties shall be entitled to regard all applicable laws, rules and regulations (federal, state or local) as valid and may act in accordance therewith until such time as the same may be declared invalid by final judgment of a court of competent jurisdiction.
13.2 Promptly upon the execution of this Agreement, SELLER and BUYER shall proceed to obtain such governmental and other regulatory authorizations, if any, as required for the sale and purchase contemplated herein, provided that each party reserves the right to file and prosecute applications for such authorizations, any supplements or amendments thereof, and if necessary, any court review, in such manner as it deems to be in its best interest, including the right to withdraw its application.
13.3 Each party will cooperate, with the other and with any third party transporting the gas sold hereunder for either party, in obtaining and maintaining whatever authorizations may be required by such governmental authorities.
13.4 In no event shall the volumes of gas that SELLER shall be obligated to sell or that BUYER shall be obligated to purchase or that BUYER'S Transporter be obligated to transport under the terms of this Agreement ever exceed the volumes of gas which can be legally produced under applicable rules and regulations of the Railroad Commission of Texas in the course of reasonably prudent operations.
13.5 The performance of this Agreement is conditioned upon the continuing receipt, by SELLER, BUYER, and any third party providing transportation to SELLER or BUYER, of all regulatory or other governmental authorizations necessary for the transportation and sale and purchase hereunder, on terms acceptable to the party receiving such authorizations.
XIV. INDEMNIFICATION
14.1 BUYER and SELLER shall indemnify, defend and save harmless each other from and against any and all loss, damage, injury, liability, and claims for injury to or death of persons (including any employee of BUYER or
SELLER), or for loss or damage to property (including the property of BUYER or SELLER, resulting directly or indirectly from either party's performance of its respective obligations arising pursuant to this Agreement (including the installation, maintenance and operation of property, equipment and facilities) or any other operations under this Agreement.
14.2 Other provisions of this Agreement notwithstanding, neither BUYER or SELLER shall be liable for any indirect, special, incidental or consequential damages arising out of or related to this Agreement.
XV. ASSIGNMENTS
15.1 Any successor, representative or assignee which shall succeed by purchase, merger or consolidation to the properties, substantially as an entirety, of SELLER or BUYER, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this Agreement. Either party may assign or pledge this Agreement, in whole or in part effective the first day of the month in which written notice of assignment is given to the other party. This Agreement shall be binding on successors and assigns of the parties.
15.2 Should SELLER assign this Agreement to another (Assignee), BUYER may suspend payments for gas hereunder upon notice of such assignment until execution by Assignee of an agreement under which Assignee assumes SELLER'S obligations under the contract, and sets out instructions for payment and indemnifies BUYER against claims resulting from payment to Assignee or any agent designated by Assignee.
15.3 Except for the parties hereto, their successors and assigns, no person shall have the rights as a third party beneficiary or otherwise under this Agreement.
XVI. GOVERNING LAW
16.1 The interpretation and performance of this Agreement shall be in accordance with the laws of the State of Texas. Should any legal disputes arise hereunder, the parties do hereby agree and stipulate that this Agreement was made and entered into in Harris County, Texas, which shall be the situs of venue hereunder.
16.2 BUYER and SELLER hereby agree that any controversy arising between the
parties to this Agreement shall be submitted to non-binding arbitration. The
arbitrator shall be chosen by mutual consent of BUYER and SELLER. In the event
that the parties cannot timely agree upon the selection of an arbitrator, then
BUYER and SELLER shall each promptly select an arbitrator, who shall then
promptly select a third arbitrator. The decision of the majority of the three
(3) arbitrators shall not be binding upon BUYER or SELLER.
16.3 Each party hereto shall be responsible for and shall pay its own costs and expenses arising from arbitration, including attorneys fees, administrative fees, and arbitration fees.
XVII. MISCELLANEOUS
17.1 No waiver by either party of any one or more defaults by the other in the performance of any provisions of this Agreement shall operate or be construed as a waiver of any other default or defaults, whether of a like or of a different character.
17.2 This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof; supersedes all prior agreements and understandings, whether oral or written, which the parties may have in connection herewith and may not be modified except by written agreement of the parties. The parties and their legal counsel have cooperated in the drafting of this Agreement and it shall therefore be deemed their joint work product and shall not be construed against either party by reason of its preparation.
17.3 Each party shall do all necessary acts and make, execute and deliver such written instruments as shall from time to time be reasonably required to carry out the terms of this Agreement.
17.4 If any provision of this Agreement shall be held invalid, illegal or unenforceable to any extent and for any reason by a court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby and shall be enforceable to the full extent permitted by law.
17.5 BUYER and SELLER shall have the right, at its sole expenses and during normal working hours, to audit the accounts and records of the other party to the extent necessary to verify the volumes and charges pursuant hereto. Such rights to audit shall be in force during the term of this Agreement and one (1) year hereafter. No change to any payment or to the volumes or heating values underlying such payment shall be made more than one (1) years after the making of such payment, nor shall any suit, action or proceeding be commenced with respect to any payment of the volumes or heating value underlying such payment more than one (1) years after the making of such payment, provided that fraud by either party shall not be waived under any circumstances.
17.6 The terms of this Agreement, including, but not limited to the price paid for gas, the identified transporting pipelines (if any) and cost of transportation, the volumes of gas purchased or sold or to be purchased and sold, and all other material terms of this Agreement shall be kept confidential by the parties hereto, except to the extent that any information must be disclosed to a non-signatory as required by law or for the purpose of effectuating transportation of the gas subject to this Agreement.
17.7 This Agreement may be executed in multiple counterparts, each of which shall constitute an original but all of such counterparts taken together shall constitute only one Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above.
BUYER: SELLER: DOMINION PIPELINE COMPANY, MOOSE OPERATING CO., INC. MANAGER, BBS-LEGS JOINT VENTURE /s/ Joel P. Sauer /s/ John F. Terwilliger -------------------------------- ------------------------------ Joel P. Sauer John F. Terwilliger President President |
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared, John F. Terwilliger, President of MOOSE OPERATING CO., INC., a Texas corporation, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same as the act and deed of said corporation for the purposes and consideration therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 31st day of July, 1997.
/s/ Dana Pickich ------------------------- Notary Public in and for The State of Texas |
My Commission Expires: 10/9/2000
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared, JOEL
P. SAUER, President of DOMINION PIPELINE COMPANY, a Texas corporation, Manager,
BBS-LEGS Joint Venture, known to me to be the person whose name is subscribed to
the foregoing instrument and acknowledged to me that he executed the same as the
act and deed of said corporation for the purposes and consideration therein
expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, on this 31st day of July, 1997.
/s/ Dana Pickich
----------------------------
Notary Public in and for
The State of Texas
|
My Commission Expires:10/9/2000
EXHIBIT "A"
POINT(S) OF RECEIPT
Attached to and made part of that certain Natural Gas Purchase Agreement between DOMINION PIPELINE COMPANY (BUYER) and MOOSE OPERATING CO., INC., (SELLER), dated July __, 1997.
Each of the Point(s) of Receipt will be designated as mutually agreed upon by the parties hereto. Such Point(s) of Receipt will be at the production facilities of SELLER's wells.
EXHIBIT "B"
Lands and leases in Lavaca County, Texas, affected by and included within the provisions of the attached contract dated July __, 1997 by and between DOMINION PIPELINE COMPANY (BUYER) and MOOSE OPERATING CO., INC. (SELLER) and encompassing the Dedication as referred to in Article IX of this Agreement, and as described below:
Those lands and leases lying under the following existing wells owned and operated by SELLER.
i) Smothers #1
ii) Denney Gas Unit #1
iii) Renger Gas Unit #1
Plus
all wells subsequently drilled by SELLER during the term hereof and are drilled to a depth which reaches the lower Wilcox formations on lands within a radius of 2 miles of the Smothers #1;
Plus
any other wells which Moose elects to tie into BUYER's existing system servicing the above-referenced wells, including the Knebel #1 well.
EXHIBIT 10.10
A.A.P.L. FORM 610-1982
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
December 11, 1997
OPERATOR LOUIS DREYFUS NATURAL GAS CORP.
CONTRACT AREA SARTWELLE
COUNTY OR PARISH OF Lavaca STATE OF Texas
COPYRIGHT 1982 - ALL RIGHTS RESERVED AMERICAN ASSOCIATION OF PETROLEUM LANDMEN, 2408 CONTINENTAL LIFE BUILDING, FORT WORTH, TEXAS, 76112, APPROVED FORM A.A.P.L. NO. 610 - 1982 REVISED
OPERATING AGREEMENT
THIS AGREEMENT, entered into by and between Louis Dreyfus Natural Gas Corp., hereinafter designated and referred to as "Operator", and the signatory party or parties other than Operator, sometimes hereinafter referred to individually herein as "Non-Operator", and collectively as "Non-Operators".
W I T N E S S E T H:
WHEREAS, the parties to this agreement are owners of oil and gas leases and/or oil and gas leases in the land identified in Exhibit "A", and the parties hereto have reached an agreement to explore and develop these leases and/or oil and gas interests for the production of oil and gas to the extent and as hereinafter provided,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this agreement, the following words and terms shall have the meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas condensate, and all other liquid or gaseous hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is specifically stated.
B. The terms "oil and gas lease", "lease" and "leasehold" shall mean the oil and gas leases covering tracts of land lying within the Contract Area which are owned by the Parties to this agreement.
C. The term "oil and gas interests" shall mean unleased fee and mineral interests in tracts of land lying within the Contract Area which are owned by parties to this agreement.
D. The term "Contract Area" shall mean all of the lands, oil and gas leasehold interests and oil and gas interests intended to be developed and operated for oil and gas purposes under this agreement. Such lands, oil and gas leasehold interests and oil and gas interests are described in Exhibit "A".
E. The term "drilling unit" shall mean the area fixed for the drilling of one well by order or rule of any state or federal body having authority. If a drilling unit is not fixed by any such rule or order, a drilling unit shall be the drilling unit as established by the pattern of drilling in the Contract Area or as fixed by express agreement of the Drilling Parties.
F. The term "drillsite" shall mean the oil and gas lease or interest on which a proposed well is to be located.
G. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the cost of any operation conducted under the provisions of this agreement.
H. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the singular include the plural, the plural includes the singular, and the neuter gender includes the masculine and the feminine.
ARTICLE II.
EXHIBITS
The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:
[X] A. Exhibit "A" shall include the following information:
(1) Identification of lands subject to this agreement,
(2) Restrictions, if any, as to depths, formation, or substances,
(3) Percentages or fractional interests of parties to this agreement,
(4) Oil and gas leases and/or oil and gas interests subject to this
agreement,
(5) Addresses of parties for notice purposes.
[ ] B. Exhibit "B", Form of Lease.
[X] C. Exhibit "C", Accounting Procedure.
[X] D. Exhibit "D", Insurance.
[X] E. Exhibit "E", Gas Balancing Agreement.
[X] F. Exhibit "F", Non-Discrimination and Certification of Non- Segregated Facilities.
[ ] G. Exhibit "G", Tax Partnership.
ARTICLE III.
INTERESTS OF PARTIES
A. [INTENTIONALLY DELETED]
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION:
Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their interests are set forth in Exhibit "A". In the same manner, the parties shall also own all production of oil and gas from the Contract Area subject to the payment of royalties to the extent of their interests which shall be borne as hereinafter set forth.
Regardless of which party has contributed the lease(s) and/or oil and gas interest(s) hereto on which royalty is due and payable, each party entitled to receive a share of production of oil and gas from the Contract Area shall bear and shall pay or deliver, or cause to be paid or delivered, to the extent of its interest in such production, the royalty amount stipulated hereinabove and shall hold the other parties free from any liability therefor. No party shall ever be responsible, however, on a price basis higher than the price received by such party, to any other party's lessor or royalty owner, and if any such other party's lessor or royalty owner should demand and receive settlement on a higher price basis, the party contributing the affected lease shall bear the additional royalty burden attributable to such higher price.
Nothing contained in this Article III.B. shall be deemed an assignment or crossassignment of interests covered hereby.
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS:
Unless changed by other provisions, if the interest of any party in any lease covered hereby is subject to any royalty, overriding royalty, production payment or other burden on production in excess of the amount stipulated in Article III.B., such party so burdened shall assume and alone bear all such excess obligations and shall indemnify and hold the other parties hereto harmless from any and all claims and demands for payment asserted by owners of such excess burden.
D. SUBSEQUENTLY CREATED INTERESTS:
If any party should hereafter create an overriding royalty, production payment or other burden payable out of production attributable to its working interest hereunder, or if such a burden existed prior to this agreement and is not set forth in Exhibit "A", or was not disclosed in writing to all other parties prior to the execution of this agreement by all parties, or is not a jointly acknowledged and accepted obligation of all parties (any such interest being hereinafter referred to as "subsequently created interest" irrespective of the timing of its creation and the party out of whose working interest the subsequently created interest is derived being hereinafter referred to as "burdened party"), and:
1. If the burdened party is required under this agreement to assign or relinquish to any other party, or parties, all or a portion of its working interest and/or the production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of said subsequently created interest and the burdened party shall indemnify and save said other party, or parties, harmless from any and all claims and demands for payment asserted by owners of the subsequently created interest; and,
2. If the burdened party fails to pay, when due, its share of expenses chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the subsequently created interest in the same manner as they arc enforceable against the working interest of the burdened party.
ARTICLE IV.
TITLES
A. TITLE EXAMINATION:
Title examination shall be made on the drillsite of any proposed well prior to commencement of drilling operations or, if the Drilling Parties so request, title examination shall be made on the leases and/or oil and gas interests included, or planned to be included, in the drilling unit around such well. The opinion will include the ownership of the working interest, minerals, royalty, overriding royalty and production payments under the applicable leases. At the time a well is proposed, each party contributing leases and/or oil and gas interests to the drillsite, or to be included in such drilling unit, shall furnish to Operator all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of charge. All such information not in the possession of or made available to Operator by the parties, but necessary for the examination of the title, shall be obtained by Operator. Operator shall cause title to be examined by attorneys on its staff or by outside attorneys. Copies of all title opinions shall be furnished to each party hereto. The cost incurred by Operator in this title program shall be borne as follows:
[ ] Option No. 1: [INTENTIONALLY DELETED]
[X] Option No. 2: Costs incurred by Operator in procuring abstracts and fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in gas royalty opinions and division order title opinions) shall be borne by the Drilling Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties as such interests appear in Exhibit "A". Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above functions.
Each party, or Operator at its election, shall be responsible for securing curative matter and pooling amendments or agreements required in connection with leases or oil and gas interests contributed by such party. Operator shall be responsible for the preparation and recording of pooling designations or declarations as well as the conduct of hearings before governmental agencies for the securing of spacing or pooling orders. This shall not prevent any party from appearing on its own behalf at any such hearing.
No well shall be drilled on the Contract Area until after (1) the title to the drillsite or drilling unit has been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by all of the parties who are to participate in the drilling of the well.
B. LOSS OF TITLE:
1. [INTENTIONALLY DELETED]
2. [INTENTIONALLY DELETED]
3. Other Losses: All losses incurred shall be joint losses and shall be borne by all parties in proportion to their interests. There shall be no readjustment of interests in the remaining portion of the Contract Area.
ARTICLE V.
OPERATOR
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:
Louis Dreyfus Natural Gas Corp. shall be the Operator of the Contract Area, and shall conduct and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of this agreement. It shall conduct all such operations in a good and workmanlike manner, but it shall have no liability as Operator to the other parties for losses sustained or liabilities incurred, except such as may result from gross negligence or willful misconduct.
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators. If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a successor. Operator may be removed if it fails or refuses to carry out its duties hereunder, or becomes insolvent, bankrupt or is placed in receivership, by the affirmative vote of two (2) or more Non-Operators owning a majority interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator. Such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator or
action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a Non-Operator. A change of a corporate name or structure of Operator or transfer of Operator's interest to any single subsidiary, parent or successor corporation shall not be the basis for removal of Operator.
2. Selection of Successor Operator: Upon the resignation or removal of
Operator, a successor Operator shall be selected by the parties. The successor
Operator shall be selected from the parties owning an interest in the Contract
Area at the time such successor Operator is selected. The successor Operator
shall be selected by the affirmative vote of two (2) or more parties owning a
majority interest based on ownership as shown on Exhibit "A"; provided, however,
if an Operator which has been removed fails to vote or votes only to succeed
itself, the successor Operator shall be selected by the affirmative vote of two
(2) or more parties owning a majority interest based on ownership as shown on
Exhibit "A" remaining after excluding the voting interest of the Operator that
was removed.
C. EMPLOYEES:
The number of employees used by Operator in conducting operations hereunder, their selection, and the hours of labor and the compensation for services performed shall be determined by Operator, and all such employees shall be the employees of Operator.
D. DRILLING CONTRACTS:
All wells drilled on the Contract Area shall be drilled on a competitive contract basis at the usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors who are doing work of a similar nature.
ARTICLE VI.
DRILLING AND DEVELOPMENT
A. INITIAL WELL:
On or before the 1st day of February, 1998, Operator shall commence the drilling of a well for oil and gas at the following location:
ON THE SARTWELLE LEASE
and shall thereafter continue the drilling of the well with due diligence to test the Lower Wilcox Formation unless granite or other practically impenetrable substance or condition in the hole, which renders further drilling impractical, is encountered at a lesser depth, or unless all parties agree to complete or abandon the well at a lesser depth.
Operator shall make reasonable tests of all formations encountered during drilling which give indication of containing oil and gas in quantities sufficient to test, unless this agreement shall be limited in its application to a specific formation or formations, in which event Operator shall be required to test only the formation or formations to which this agreement may apply.
If, in Operator's judgment, the well will not produce oil or gas in paying quantities, and it wishes to plug and abandon the well as a dry hole, the provisions of Article VI.E.1 shall thereafter apply.
B. SUBSEQUENT OPERATIONS:
1. Proposed Operations: Should any party hereto desire to drill any well on the Contract Area other than the well provided for in Article VI.A., or to rework, deepen or plug back a dry hole drilled at the joint expense of all parties or a well jointly owned by all the parties and not then producing in paying quantities, the party desiring to drill, rework, deepen or plug back such a well shall give the other parties written notice of the proposed operation, specifying the work to be performed, the location, proposed depth, objective formation and the estimated cost of the operation. The parties receiving such a notice shall have thirty (30) days after receipt of the notice within which to notify the party wishing to do the work whether they elect to participate in the cost of the proposed operation. If a drilling rig is on location, notice of a proposal to rework, plug back or drill deeper may be given by telephone and the response period shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday, and legal holidays. Failure of a party receiving such notice to reply within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation. Any notice or response given by telephone shall be promptly confirmed in writing.
If all parties elect to participate in such a proposed operation, Operator
shall, within ninety (90) days after expiration of the notice period of thirty
(30) days (or as promptly as possible after the expiration of the forty-eight
(48) hour period when a drilling rig is on location, as the case may be),
actually commence the proposed operation and complete it with due diligence at
the risk and expense of all parties hereto; provided, however, said commencement
date may be extended upon written notice of same by Operator to the other
parties, for a period of up to thirty (30) addition days if, in the sole opinion
of Operator , such additional time is reasonably necessary to obtain permits
from governmental authorities, surface rights (including rights-of-way) or
appropriate drilling equipment, or to complete title examination or curative
matter required for title approval or acceptance. Notwithstanding the force
majeure provisions of Article XI, if the actual operation has not been commenced
within the time provided (including any extension thereof as specifically
permitted herein) and if any party hereto still desires to conduct said
operation, written notice proposing same must be resubmitted to the other
parties in accordance with the provisions hereof as if no prior proposal had
been made.
2. Operations by Less than all Parties: If any party receiving such notice as provided in Article VI.B.1. or VII.D.1. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, within ninety (90) days after the expiration of the notice period of thirty (30) days (or as possible after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the proposed operation and complete it with due diligence. Operator shall perform all work for the account of the Consenting Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party, the Consenting Parties shall either: (a) request Operator to perform the work required by such proposed operation for the account of the Consenting Parties, or (b) designate one (1) of the Consenting Parties as Operator to perform such work. Consenting Parties, when conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this agreement.
If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the applicable notice period, shall advise the Consenting Parties of the total interest of the parties approving such operation and its recommendation as to whether the Consenting Parties should proceed with the operation as proposed. Each Consenting Party, within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after receipt of such notice, shall advise the proposing party of its desire to (a) limit participation to such party's interest as shown on Exhibit "A" or (b) carry its proportionate part of Non-Consenting Parties' interests, and failure to advise the proposing party shall be deemed an election under (a). In the event a drilling rig is on location, the time permitted for such a response shall not exceed a total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). The proposing party, at its election, may withdraw such proposal if there is insufficient participation and shall promptly notify all parties of such decision.
The entire cost and risk of conducting such operations shall be borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding paragraph. Consenting Parties shall keep the leasehold estates and oil and gas interests involved in such operations free and clear of all liens and encumbrances of every kind created by or arising from the operations of the Consenting Parties. If such an operation results in a dry hole, the Consenting Parties shall plug and abandon the well and restore the surface location at their sole cost, risk and expense. If any well drilled, reworked, deepened or plugged back under the provisions of this Article results in a producer of oil and/or gas in paying quantities, the Consenting Parties shall complete and equip the well to produce at their sole cost and risk, and the well shall then be turned over to Operator and shall be operated by it at the expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, reworking, deepening or plugging back of any such well by Consenting Parties in accordance with the provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-Consenting Party's interest in the well and share of production therefrom until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold, (after deducting production taxes, excise taxes, royalty, overriding royalty and other interests not excepted by Article III.D. payable out of or measured by the production from such well accruing with respect to such interest until it reverts) shall equal the total of the following:
(a) 100% of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment beyond the wellhead connections (including, but not limited to, stock tanks, separators, treaters, pumping equipment and piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first production and continuing until each such Non- Consenting Party's relinquished interest shall revert to it under other provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning of the operations, and
(b) 400 % of that portion of the costs and expenses of drilling, reworking, deepening, plugging back, testing and completing, after deducting any cash contributions received under Article VIII.C., and 400 % of that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections), which would have been chargeable to such Non-Consenting Party if it had participated therein.
An election not to participate in the drilling or the deepening of a well shall be deemed an election not to participate in any reworking or plugging back operation proposed in such a well, or portion thereof, to which the initial Non- Consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment account. Any such reworking or plugging back operation conducted during the recoupment period shall be deemed part of the cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties one hundred percent (100%) of that portion of the costs of the reworking or plugging back operation which would have been chargeable to such Non-Consenting Party had it participated therein. If such a reworking or plugging back operation is proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting Parties in said well.
During the period of time Consenting Parties are entitled to receive Non- Consenting Party's share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to Non-Consenting Party's share of production not excepted by Article III.D.
In the case of any reworking, plugging back or deeper drilling operation, the Consenting Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon abandonment of a well after such reworking, plugging back or deeper drilling, the Consenting Parties shall account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value, less cost of salvage and less the proportionate share of plugging and abandoning which each party would have paid if the well had been plugged at the time each party last participated in Operations on the well.
Within sixty (60) days after the completion of any operation under this Article, the party conducting the operations for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to the well, and an itemized statement of the cost of drilling, deepening, plugging back, testing, completing, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly billings. Each month thereafter, during the time the Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of the well, together with a statement of the quantity of oil and gas produced from it and the amount of proceeds realized from the sale of the well's working interest production during the preceding month. In determining the quantity of oil and gas produced during any month, Consenting Parties shall use industry accepted methods such as, but not limited to, metering or periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any such operation which would have been owned by a Non- Consenting Party had it participated therein shall be credited against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non- Consenting Party.
If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it, and, from and after such reversion, such Non-Consenting Party shall own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as such Non-Consenting Party would have been entitled to had it participated in the drilling, reworking, deepening or plugging back of said well. Thereafter, such Non-Consenting Party shall be charged with and shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this agreement and the Accounting Procedure attached hereto.
Notwithstanding the provisions of this Article VI.B.2., it is agreed that without the mutual consent of all parties, no wells shall be completed in or produced from a source of supply from which a well located elsewhere on the Contract Area is producing, unless such well conforms to the then existing well spacing pattern for such source of supply.
The provisions of this Article shall have no application whatsoever to the
drilling of the initial well described in Article VI.A. except (a) as to Article
VII.D.1. (Option No. 2), if selected, or (b) as to the reworking, deepening and
plugging back of such initial well after if has been drilled to the depth
specified in Article VI.A. if it shall thereafter prove to be a dry hole or, if
initially completed for production, ceases to produce in paying quantities.
3. Stand-By Time: When a well which has been drilled or deepened has reached its authorized depth and all tests have been completed, and the results thereof furnished to the parties, standby costs incurred pending response to
a party's notice proposing a reworking, deepening, plugging back or completing operation in such a well shall be charged and borne as part of the drilling or deepening operation just completed. Standby costs subsequent to all parties responding, or expiration of the response time permitted, whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms of the second grammatical paragraph of Article VI.B.2., shall be charged to and borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of insufficient participation, such standby costs shall be allocated between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all Consenting Parties.
4. Sidetracking: Except as hereinafter provided, those provisions of this agreement applicable to a "deepening" operation shall also be applicable to any proposal to directionally control and intentionally deviate a well from vertical so as to change the bottom hole location (herein call "sidetracking"), unless done to straighten the hole or to drill around junk in the hole or because of other mechanical difficulties. Any party having the right to participate in a proposed sidetracking operation that does not own an interest in the affected well bore at the time of the notice shall, upon electing to participate, tender to the well bore owners its proportionate share (equal to its interest in the sidetracking operation) of the value of that portion of the existing well bore to be utilized as follows:
(a) If the proposal is for sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs incurred in the initial drilling of the well down to the depth at which the sidetracking operation is initiated.
(b) If the proposal is for sidetracking a well which has previously produced, reimbursement shall be on the basis of the well's salvable materials and equipment down to the depth at which the sidetracking operation is initiated, determined in accordance with the provisions of Exhibit "C", less the estimated cost of salvaging and the estimated cost of plugging and abandoning.
In the event that notice for a sidetracking operation is given while the drilling rig to be utilized is on location, the response period shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays; provided, however, any party may request and receive up to eight (8) additional days after expiration of the forty-eight (48) hours within which to respond by paying for all standby time incurred during such extended response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties. In all other instances the response period to a proposal for sidetracking shall be limited to thirty (30) days. Failure to timely respond shall be deemed an election not to participate in the proposed operation.
C. TAKING PRODUCTION IN KIND:
Each party shall have the right to take in kind or separately dispose of its proportionate share of all oil and gas produced from the Contract Area, exclusive of production which may be used in development and producing operations and in preparing and treating oil and gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party. Any party taking its share of production in kind shall be required to pay for only its proportionate share of such part of Operator's surface facilities which it uses.
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment directly from the purchaser thereof for its share of all production.
In the event any party shall fail to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by the party owning it, but not the obligation, to purchase such oil or sell it to others at any time and from time to time, for the account of the non-taking party at the best price obtainable in the area for such production. Any such purchase or sale by Operator shall be subject always to the right of the owner of the production to exercise at any time its right to take in kind, or separately dispose of, its share of all oil not previously delivered to a purchaser. Any purchase or sale by Operator of any other party's share of oil shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1) year.
In the event one or more parties' separate disposition of its share of the gas causes split-stream deliveries to separate pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportionate share of total gas sales to be allocated to it, the balancing or accounting between the respective accounts of the parties shall be in accordance with the gas balancing agreement attached hereto as Exhibit "E".
D. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable times, at its sole cost and risk to inspect or observe operations, and shall have access at reasonable times to information pertaining to the development or operation thereof, including Operator's books and records relating thereto. Operator, upon request, shall furnish each of the other parties with copies of all forms or reports filed with governmental agencies, daily drilling reports, well logs, tank tables, daily gauge and run tickets and reports of stock on hand at the first of each month, and shall make available samples of any cores or cuttings taken from any well drilled on the Contract Area. The cost of gathering and furnishing information to Non-Operator, other than that specified above, shall be charged to the Non-Operator that requests the Information.
E. ABANDONMENT OF WELLS:
1. Abandonment of Dry Holes: Except for any well drilled or deepened pursuant to Article VI.B.2., any well which has been drilled or deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be plugged and abandoned without the consent of all parties. Should Operator, after diligent effort, be unable to contact any party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after receipt of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the proposed abandonment. All such wells shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of the parties who participated in the cost of drilling or deepening such well. Any party who objects to plugging and abandoning such well shall have the right to take over the well and conduct further operations in search of oil and/or gas subject to the provisions of Article VI.B.
2. Abandonment of Wells that have Produced: Except for any well in which a Non-Consent operation has been conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has been completed as a producer shall not be plugged and abandoned without the consent of all parties. If all parties consent to such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of all the parties hereto. If, within thirty (30) days after receipt of notice of the proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its operation from the interval(s) of the formation(s) then open to production shall tender to each of the other parties its proportionate share of the value of the well's salvable material and equipment determined in accordance with the provisions of Exhibit "C", less the estimated cost of salvaging and the estimated cost of plugging and abandoning (should operator be unable to contact any party or should any party fail to reply, such party shall be deemed to have consented to the proposed abandonment. All such wells approved for abandonment shall be P & A in accordance with applicable regulations and at sole cost, risk, and expense of the parties who participated in the cost of drilling or deepening such well). Each abandoning party shall assign the non-abandoning parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all of its interest in the well and related equipment, together with its interest in the leasehold estate as to, but only as to, the interval or intervals of the formation or formations then open to production. If the interest of the abandoning party is or includes an oil and gas interest, such party shall execute and deliver to the non-abandoning party or parties an oil and gas lease, limited to the interval or intervals of the formation then open to production, for a term of one (1) year and so long thereafter as oil and/or gas is produced from the interval or intervals of the formation or formations covered thereby. The assignments or leases so limited shall encompass the "drilling unit" upon which the well is located. The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract Area of all assignees. There shall be no readjustment of interests in the remaining portion of the Contract Area.
Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production from the well in the interval or intervals then open other than the royalties retained in any lease made under the terms of this Article. Upon request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate ownership of the assigned well. Upon proposed abandonment of the producing interval(s) assigned or leased, the assignor or lessor shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in further operations therein subject to the provisions hereof.
3. Abandonment of Non-Consent Operations: The provisions of Article
VI.E.1. or VI.E.2 above shall be applicable as between Consenting Parties in the
event of the proposed abandonment of any well excepted from said Articles;
provided, however, no well shall be permanently plugged and abandoned unless and
until all parties having the right to conduct further operations therein have
been notified of the proposed abandonment and afforded the opportunity to elect
to take over the well in accordance with the provisions of this Article VI.E.
Any response to a notice of proposal to plug and abandon a well other than
notice to take over the well herein provided shall be deemed to be a consent by
such responding party to the proposed abandonment.
ARTICLE VII.
EXPENDITURES AND LIABILITY OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the parties in Article
VII.B. are given to secure only the debts of each severally. It is not the
intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other partnership or association, or to render the parties
liable as partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator a lien upon its oil and gas rights in the Contract Area, and a security interest in its share of oil and/or gas when extracted and its interest in all equipment, to secure payment of its share of expense, together with interest thereon at the rate provided in Exhibit "C". To the extent that Operator has a security interest under the Uniform Commercial Code of the state, Operator shall be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by Operator for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon default by any Non-Operator in the payment of its share of expense, Operator shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such Non-Operator's share of oil and/or gas until the amount owed by such Non-Operator, plus interest, has been paid. Each purchaser shall be entitled to rely upon Operator's written statement concerning the amount of any default. Operator grants a like lien and security interest to the Non-Operators to secure payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C". Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits made and received.
Operator, at its election, shall have the right from time to time to demand and receive from the other parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month. Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as provided in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances and actual expense to the end that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.
D. LIMITATION OF EXPENDITURES:
1. Drill or Deepen: Without the consent of all parties, no well shall be drilled or deepened, except any well drilled or deepened pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling or deepening shall include:
[ ] Option No. 1: [INTENTIONALLY DELETED]
[X] Option No. 2: All necessary expenditures for the drilling or deepening and testing of the well. When such well has reached its authorized depth, and all tests have been completed, and the results thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators who have the right to participate in the completion costs. The parties receiving such notice shall have forty-eight (48) hours (exclusive) of Saturday, Sunday and legal holidays) in which to elect to participate in the setting of casing and the completion attempt. Such election, when made, shall include consent to all necessary expenditures for the completing and equipping of such well, including necessary tankage and/or surface facilities. Failure of any party receiving such notice to reply within the period above fixed shall constitute an election by that party not to participate in the cost of the completion attempt. If one or more, but less than all of the parties, elect to set pipe and to attempt a completion, the provisions of Article VI.B.2. hereof (the phrase "reworking, deepening or plugging back" as contained in Article VI.B.2. shall be deemed to include "completing") shall apply to the operations thereafter conducted by less than all parties.
2. Rework or Plug Back: Without the consent of all parties, no well shall be reworked or plugged back except a well reworked or plugged back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the reworking or plugging back of a well shall include all necessary expenditures in conducting such operations and completing and equipping of said well, including necessary tankage and/or surface facilities.
3. Other Operations: Without the consent of all parties, Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Fifteen Thousand Dollars ($15,000) except in connection with a well, the drilling, reworking, deepening, completing, recompleting, or plugging back of which has been previously authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the emergency to the other parties. If Operator prepares an authority for expenditure (AFE) for its own use, Operator shall furnish any Non- Operator so requesting an information copy thereof for any single project costing in excess of Ten Thousand Dollars ($10,000) but less than the amount first set forth above in this paragraph.
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid by the Operator and billed to the Joint Account. In the event two or more parties own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to make said payments for and on behalf of all such parties. Any party may request and shall be entitled to receive, 15 days prior to due date, proper evidence of all such payments. In the event of failure to make proper payment of any rental, shut-in well payment or minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which results from such non-payment shall be borne in accordance with the provisions of Article IV.B.3.
Operator shall notify Non-Operator of the anticipated completion of a shutting gas well, or the shutting in or return to production of a producing gas well, at least five (5) days (excluding Saturday, Sunday and legal holidays), or at the earliest opportunity permitted by circumstances, prior to taking such action, but assumes no liability for failure to do so. In the event of failure by Operator to so notify Non-Operator, the loss of any lease contributed hereto by Non-Operator for failure to make timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article IV.B.3.
F. TAXES:
Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed thereon before they become delinquent. Prior to the rendition date, each Non-Operator shall furnish Operator information as to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on leases and oil and gas interests contributed by such Non-Operator. If the assessed valuation of any leasehold estate is reduced by reason of its being subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes resulting therefrom shall inure to the benefit of the owner or owners of such leasehold estate, and Operator shall adjust the charge to such owner or owners so as to reflect the benefit of such reduction. If the ad valorem taxes are based in whole or in part upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in the manner provided in Exhibit "C".
If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final determination. During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes and any interest and penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be paid by them, as provided in Exhibit "C".
Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect to the production or handling of such party's share of oil and/or gas produced under the terms of this agreement.
G. INSURANCE:
At all times while operations are conducted hereunder, Operator shall comply with the workmen's compensation law of the state where the operations are being conducted; provided, however, that Operator may be self-insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account
shall be as provided in Exhibit "C". Operator shall also carry or provide insurance for the benefit of the joint account of the parties as outlined in Exhibit "D", attached to and made a part hereof. Operator shall require all contractors engaged in work on or for the Contract Area to comply with the workmen's compensation law of the state where the operations are being conducted and to maintain such other insurance Operator may require.
In the event automobile public liability insurance is specified in said Exhibit "D", or subsequently receives the approval of the parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive equipment.
ARTICLE VIII.
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. SURRENDER OF LEASES:
The leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole or in part unless all parties consent thereto.
However, should any party desire to surrender its interest in any lease or in any portion thereof, and the other parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or implied warranty of title, all of its interest in such lease, or portion thereof, and any well, material and equipment which may be located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender. Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the reasonable salvage value of the latter's interest in any wells and equipment attributable to the assigned or leased acreage. The value of all material shall be determined in accordance with the provisions of Exhibit "C", less the estimated cost of salvaging and the estimated cost of plugging and abandoning. If the assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the interest of each bears to the total interest of all such parties.
Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of an agreement, identical to this Agreement.
B. RENEWAL OR EXTENSION OF LEASES:
If any party secures a renewal of any oil and gas lease subject to this agreement, all other parties shall be notified promptly, and shall have the right for a period of thirty (30) days following receipt of such notice in which to elect to participate in the ownership of the renewal lease, insofar as such lease affects lands within the Contract Area, by paying to the party who acquired it their several proper proportionate shares of the acquisition cost allocated to that part of such lease within the Contract Area, which shall be in proportion to the interests held at that time by the parties in the Contract Area.
If some, but less than all, of the parties elect to participate in the purchase of a renewal lease, it shall be owned by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the purchase of such renewal lease. Any renewal lease in which less than all parties elect to participate shall not be subject to this agreement.
Each party who participates in the purchase of a renewal lease shall be given an assignment of its proportionate interest therein by the acquiring party.
The provisions of this Article shall apply to renewal leases whether they are for the entire interest covered by the expiring lease or cover only a portion of its area or an interest therein. Any renewal lease taken before the expiration of its predecessor lease, or taken or contracted for within six (6) months after the expiration of the existing lease shall be subject to this provision, but any lease taken or contracted for more than six (6) months after the expiration of an existing lease shall not be deemed a renewal lease and shall not be subject to the provisions of this agreement.
The provisions in this Article shall also be applicable to extensions of oil and gas leases.
C. ACREAGE OR CASH CONTRIBUTIONS:
While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall be applied by it against the cost of such drilling or other operation. If the contribution be in the form of acreage, the party to whom the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the extent possible, be governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above provisions shall also be applicable to optional rights to cam acreage outside the Contract Area which are in support of a well drilled inside the Contract Area.
If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder, such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.
D. MAINTENANCE OF UNIFORM INTERESTS:
Every such sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement and shall be made without prejudice to the right of the other parties.
If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion, may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures, receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of the oil and gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale proceeds thereof.
E. WAIVER OF RIGHTS TO PARTITION:
If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its undivided interest therein.
F. [INTENTIONALLY DELETED]
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
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. Notwithstanding any provision herein that the rights
and liabilities hereunder are several and not joint or collective, or that this
agreement and operations hereunder shall not constitute a partnership, 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 1986, as permitted and authorized by
Section 761 of the Code and the regulations promulgated thereunder. Operator is
authorized and directed to execute on behalf of each party hereby affected such
evidence of this election as may be required by the Secretary of the Treasury of
the United States or the Federal Internal Revenue Service, including
specifically, but not by way of limitation, all of the returns, statements, and
the data required by Federal Regulations 1.761. Should there be any requirement
that each party hereby affected give further evidence of this election, each
such party shall execute such documents and furnish such other evidence as may
be required by the Federal Internal Revenue Service or as may be necessary to
evidence this election. No such party shall give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax laws of the state or states in which the Contract Area is located or
any future income tax laws of the United States contain provisions similar to
those in Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code
of 1986, under which an election similar to that provided by Section 761 of the
Code is permitted, each party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each such
party states that the income derived by such party from operations hereunder can
be adequately determined without the computation of partnership taxable income.
ARTICLE X.
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure does not exceed Twenty-Five Thousand Dollars ($25,000) and if the payment is in complete settlement of such claim or suit. If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is delegated to Operator. All costs and expenses of handling, settling, or otherwise discharging such claim or suit shall be at the joint expense of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if any party is sued on account of any matter arising from operations hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder.
ARTICLE XI.
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than the obligation to make money payments, that party shall give to all other parties prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected by the force majeure, shall be suspending during, but no longer than, the continuance of the force majeure. The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable.
The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by the party involved, contrary to its wishes, how all such difficulties shall be handled shall be entirely within the discretion of the party concerned.
The term "force majeure", as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension.
ARTICLE XII.
NOTICES
All notices authorized or required between the parties and required by any of the provisions of this agreement, unless otherwise specifically provided, shall be given in writing by mail or telegram, postage or charges prepaid, or by telex or telecopier and addressed to the parties to whom the notice is given at the addresses listed on Exhibit "A". The originating notice given under any provision hereof shall be deemed given only when received by the party to whom such notice is directed, and the time for such party to give any notice in response thereto shall run from the date the originating notice is received. The second or any responsive notice shall be deemed given when deposited in the mail or with the telegraph company, with postage or charges prepaid, or sent by telex or telecopier. Each party shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other parties.
ARTICLE XIII.
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the oil and gas leases and/or oil and gas interests subject hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title or interest in or to any lease or oil and gas interest contributed by any other party beyond the term of this agreement.
[X] Option No. 1: So long as that portion of the oil and gas leases subject to this agreement remain or are continued in force as to any part of the Contract Area, whether by production, extension, renewal, or otherwise.
[ ] Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision of this agreement, results in production of oil and/or gas in paying quantities, this agreement shall continue in force so long as any such well or wells produce, or are capable of production, and for an additional period of _____ days from cessation of all production; provided, however, if, prior to the expiration of such additional period, one or more of the parties hereto are engaged in drilling, reworking, deepening, plugging back, testing or attempting to complete a well or wells hereunder, this agreement shall continue in force until such operations have been completed and if production
results therefrom, this agreement shall continue in force as provided herein. In the event the well described in Article VI.A., or any subsequent well drilled hereunder, results in a dry hole, and no other well is producing, or capable of producing oil and/or gas from the Contract Area, this agreement shall terminate unless drilling, deepening, plugging back or reworking operations are commenced within ___ days from the date of abandonment of said well.
It is agreed, however, that the termination of this agreement shall not relieve any party hereto from any liability which has accrued or attached prior to the date of such termination.
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. LAWS, REGULATIONS AND ORDERS:
This agreement shall be subject to the conservation laws of the state in which the Contract Area is located, to the valid rules, regulations, and orders of any duly constituted regulatory body of said state, and to all other applicable federal, state, and local laws, ordinances, rules, regulations, and orders.
B. GOVERNING LAW:
This agreement and all matters pertaining hereto, including, but not limited to, matters of performance, non-performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and determined by the law of the state in which the Contract Area is located. If the Contract Area is in two or more states, the law of the state of Texas shall govern.
C. REGULATORY AGENCIES:
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or production of wells, on tracts offsetting or adjacent to the Contract Area.
With respect to operations hereunder, Non-Operators agree to release Operator from any and all losses, damages, injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation or application of rules, rulings, regulations or orders of the Department of Energy or predecessor or successor agencies to the extent such interpretation or application was made in good faith. Each Non-Operator further agrees to reimburse Operator for any amounts applicable to such Non-Operator's share of production that Operator may be required to refund, rebate or pay as a result of such an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such incorrect interpretation or application.
Non-Operators authorize Operator to prepare and submit such documents as may be required to be submitted to the purchaser of any crude oil sold hereunder or to any other person or entity pursuant to the requirements of the "Crude Oil Windfall Profit Tax Act of 1980", as same may be amended from time to time ("Act"), and any valid regulations or rules which may be issued by the Treasury Department from time to time pursuant to said Act. Each party hereto agrees to furnish any and all certifications or other information which is required to be furnished by said Act in a timely manner and in sufficient detail to permit compliance with said Act.
ARTICLE XV.
OTHER PROVISIONS
A. EQUAL EMPLOYMENT OPPORTUNITY AND NON-DISCRIMINATION:
In connection with the performance of work under this agreement, the Operator agrees to comply with all of the provisions of Section 202 (10 to (7) inclusive, of Executive Order 11246 (30 F.R. 12319), as amended.
B. PRIORITY OF OPERATIONS:
If at any time there is more than one operation proposed in connection with any well subject to this agreement, THEN UNLESS ALL PARTICIPATING PARTIES AGREE ON THE SEQUENCE OF SUCH OPERATIONS, such operations shall have the following order of priority:
1. Additional testing, coring or logging;
2. Attempt completions, in ascending order;
3. Plug back and attempt completions, in ascending order;
4. Sidetrack the well to reach any zones not below original authorized objectives; and
5. Deepen the well, in descending order;
so that the operations having the highest priority will be performed unless parties owning two-thirds or more of the working interest agree that such operation will not be performed. In this event, the operation having the next priority will be performed unless eliminated in like manner.
C. WELL PROPOSALS:
It is hereby further agreed that no party hereto can propose the drilling of a subsequent well under Paragraph VI.B.1 above while a well is being drilled within the Contract Area unless the drilling of such subsequent well is necessary to prevent the termination of a lease. However, if all parties hereto should agree then a subsequent well may be commenced at any time. Ho party will be required to consent to the drilling of more than one well at a time, except as provided for above.
D. SIDETRACKING NOT A NECESSARY EXPENSE:
"Necessary expenditures" as used in Article VII D.1, of this Operating Agreement shall not include sidetracking operations unless covered specifically in an AFE approved by the participating parties.
ARTICLE XVI.
MISCELLANEOUS
This agreement shall be binding upon and shall inure to the benefit of the parties hereto and to their respective heirs, devisees, legal representatives, successors and assigns.
This instrument may be executed in any number of counterparts, each of which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement shall be effective as of the 16th day of December, 1997.
O P E R A T O R
Louis Dreyfus Natural Gas Corp.
/s/ J. C. Welch
----------------------------- --------------------------------
J. C. Welch
Vice-President-Land
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N O N - O P E R A T O R S
Seisgen Exploration, Inc.
MOOSE OIL & GAS
/s/ John F. Terwilliger
----------------------------- --------------------------------
John F. Terwilliger
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EXHIBIT "A"
ATTACHED TO AND MADE A PART OF THAT CERTAIN JOINT OPERATING AGREEMENT DATED
DECEMBER 11, 1997, BETWEEN LOUIS DREYFUS NATURAL GAS CORP. (LDNGC), AS OPERATOR, AND SEISGEN EXPLORATION, INC., ET AL, (SEISGEN) AS NON-OPERATOR
SARTWELLE PROSPECT, LAVACA COUNTY, TEXAS
1. Land and Leases subject to Agreement:
The lands and leases described and set forth in that certain Working Interest Unit Agreement dated December 11, 1997, between LDNGC and Seisgen.
2. Restrictions as to Depth, Formation or Substances:
As set forth in said Letter Agreement.
3. Percentage of working interest:
Louis Dreyfus Natural Gas Corp. 63.4375%
Seisgen Exploration, Inc. 9.0625%
Moose Oil and Gas 27.5000%
4. Addresses of Parties:
Louis Dreyfus Natural Gas Corp.
1331 Lamar Street, Suite 900
Houston, Texas 77010-3088
Attention: Ronnie C. Van Winkle
District Landman
Telephone: (713) 756-6325
Facsimile: (713) 756-6002
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Seisgen Exploration, Inc.
1010 Lamar, Suite 1250
Houston, Texas 77002
Telephone: (713) 654-1205
Facsimile: (713) 654-7070
Moose Oil and Gas
1100 Louisiana, Suite 3420
Houston, Texas 77002
Telephone: (713) 650-0633
Facsimile: (713) 650-9358
THERE IS NO EXHIBIT "B" TO THIS AGREEMENT
EXHIBIT "C"
Attached to and made a part of that certain Joint Operating Agreement dated December 11, 1997, between Louis Dreyfus Natural Gas Corp. (LDNGC), as Operator, and Seisgen Exploration, Inc., et al (Seisgen), as Non-Operator Sartwelle Prospect, Lavaca County, Texas
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal property subject to the agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits received in the conduct of the Joint Operations and which are to be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties to this agreement other than the Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function in Joint Operations is the direct supervision of other employees and/or contract labor directly employed on the Joint Property in a field operating capacity.
"Technical Employees" shall mean those employees having special and specific engineering, geological or other professional skills, and whose primary function in Joint Operations is the handling of specific operating conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so classified in the Material Classification Manual as most recently recommended by the Council or Petroleum Accountants Societies.
2. STATEMENT AND BILLINGS
Operator shall bill Non-Operators on or before the last day of each month for their proportionate share of the Joint Account for the preceding month. Such bills will be accompanied by statements which identify the authority for expenditure, lease or facility, and all charges and credits summarized by appropriate classifications of investment and expense except that items of Controllable Material and unusual charges and credits shall be separately identified and fully described in detail.
3. ADVANCES AND PAYMENTS BY NON-OPERATORS
A. Unless otherwise provided for in the agreement, the Operator may require the Non-Operators to advance their share of estimated cash outlay for the succeeding month's operation within fifteen (15) days after receipt of the billing or by the first day of the month for which the advance is required, whichever is later. Operator shall adjust each monthly billing to reflect advances received from the Non- Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at ___________________________ on the first day of the month in which
delinquency occurs plus 1% or the maximum contract rate permitted by
the applicable usury laws in the state in which the Joint Property is
located, whichever is the lesser, plus attorney's fees, court costs,
and other costs in connection with the collection of unpaid amounts.
4. ADJUSTMENTS
Payment of any such bills shall not prejudice the right of any Non-Operator to protest or question the correctness thereof; provided, however, all bills and statements rendered to Non-Operators by Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any such calendar year, unless within the said twenty-four (24) month period a Non-Operator takes written exception thereto and makes claim on Operator for adjustment. No adjustment favorable to Operator shall be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent adjustments resulting from a physical inventory of Controllable Material as provided for in Section V.
5. AUDITS
A. A Non-Operator, upon notice in writing to Operator and all other Non- Operators, shall have the right to audit Operator's accounts and records relating to the Joint Account for any calendar year within the twenty-four (24) month period following the end of such calendar year; provided, however, the making of an audit shall not extend the time for the taking of written exception to and the adjustments of accounts as provided for in Paragraph 4 of this Section I. Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a joint audit in a manner which will result in a minimum of inconvenience to the Operator. Operator shall bear no portion of the Non-Operators' audit cost incurred under this paragraph unless agreed to by the Operator. The audits shall not be conducted more than once each year without prior approval of Operator, except upon the resignation or removal of the Operator, and shall be made at the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days after receipt of such report.
6. APPROVAL BY NON-OPERATORS
Where an approval or other agreement of the Parties or Non-Operators is expressly required under other sections of this Accounting Procedure and if the agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, Operator shall notify all Non- Operators of the Operator's proposal, and the agreement or approval of a majority in interest of the Non-Operators shall be controlling on all Non- Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. ECOLOGICAL AND ENVIRONMENTAL
Costs incurred for the benefit of the Joint Property as a result of governmental or regulatory requirements to satisfy environmental considerations applicable to the Joint Operations. Such costs may include surveys of an ecological or archaeological nature and pollution control procedures as required by applicable laws and regulations
2. RENTALS AND ROYALTIES
Lease rentals and royalties paid by Operator for the Joint Operations
3. LABOR
A. (1) Salaries and wages of Operator's field employees directly employed on the Joint Property in the conduct of Joint Operations
(2) Salaries of First Level Supervisors in the field,
(3) Salaries and wages of Technical Employees directly employed on the Joint Property if such charges are excluded from the overhead rates
(4) Salaries and wages of Technical Employees either temporarily or permanently assigned to and directly employed in the operation of the Joint Property if such charges are excluded from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 3A of this
Section II. Such costs under this Paragraph 3B may be charged on a
"when and as paid basis"
or by "percentage assessment" on the amount of salaries and wages chargeable to the Joint Account under Paragraph 3A of this Section II. If percentage assessment is used, the rate shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 3A and 3B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraphs 3A and 3B of this
Section II.
4. EMPLOYEE BENEFITS
Operator's current costs or established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase. thrift, bonus, and other benefit plans of a like nature, applicable to Operator's labor cost chargeable to the Joint Account under Paragraphs 3A and 3B of this Section II shall be Operator's actual cost not to exceed the percent most recently recommended by the Council of Petroleum Accountants Societies.
5. MATERIAL
Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV. Only such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use and is reasonably practical and consistent with efficient and economical operations. The accumulation of surplus stocks shall be avoided.
6. TRANSPORTATION
Transportation of employees and Material necessary for the Joint Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's warehouse or other properties, no charge shall be made to the Joint Account for a distance greater than the distance from the nearest reliable supply store where like material is normally available or railway receiving point nearest the Joint Property unless agreed to by the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage point, no charge shall be made to the Joint Account for a distance greater than the distance to the nearest reliable supply store where like material is normally available, or railway receiving point nearest the Joint Property unless agreed to by the Parties. No charge shall be made to the Joint Account for moving Material to other properties belonging to Operator, unless agreed to by the Parties.
C. In the application of subparagraphs A and B above, the option to equalize or charge actual trucking cost is available when the actual charge is $400 or less excluding accessorial charges. The $400 will be adjusted to the amount most recently recommended by the Council of Petroleum Accountants Societies.
7. SERVICES
The cost of contract services, equipment and utilities provided by outside sources, except services excluded by Paragraph 10 of Section II and Paragraph i, ii, and iii, of Section III. The cost of professional consultant services and contract services of technical personnel directly engaged on the Joint Property if such charges are excluded from the overhead rates. The cost of professional consultant services or contract services of technical personnel not directly engaged on the Joint Property shall not be charged to the Joint Account unless previously agreed to by the Parties.
8. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
A. Operator shall charge the Joint Account for use of Operator owned equipment and facilities at rates commensurate with costs of ownership and operation. Such rates shall include costs of maintenance, repairs, other operating expense, insurance, taxes, depreciation, and interest on gross investment less accumulated depreciation not to exceed the Prime Rate of interest in effect at Chase Manhattan Bank of New York on the first day of the month in which usage occurs, plus 2% per annum. Such rates shall not exceed average commercial rates currently prevailing in the immediate area of the Joint Property.
B. In lieu of charges in Paragraph 8A above, Operator may elect to use average commercial rates prevailing in the immediate area of the Joint Property less 20%. For automotive equipment, Operator may elect to use rates published by the Petroleum Motor Transport Association.
9. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator's gross negligence or willful misconduct. Operator shall furnish Non-Operator written notice of damages or losses incurred as soon as practicable after a report thereof has been received by Operator.
10. LEGAL EXPENSE
Expense of handling, investigating and settling litigation or claims, discharging of liens, payment of judgments and amounts paid for settlement of claims incurred in or resulting from operations under the agreement or necessary to protect or recover the Joint Property, except that no charge for services of Operator's legal staff or fees or expense of outside attorneys shall be made unless previously agreed to by the Parties. All other legal expense is considered to be covered by the overhead provisions of Section III unless otherwise agreed to by the Parties, except as provided in Section I, Paragraph 3. No legal expense shall be incurred in excess of $50,000 unless previously agreed to in writing by the parties.
11. TAXES
All taxes of every kind and nature assessed or levied upon or in connection with the Joint Property, the operation thereof, or the production therefrom, and which taxes have been paid by the Operator for the benefit of the Parties. If the ad valorem taxes are based in whole or in part upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to the Joint Account shall be made and paid by the Parties hereto in accordance with the tax value generated by each party's working interest.
12. INSURANCE
Net premiums paid for insurance required to be carried for the Joint Operations for the protection of the Parties. In the event Joint Operations are conducted in a state in which Operator may act as self-insurer for Worker's Compensation and/or Employers Liability under the respective state's laws, Operator may, at its election, include the risk under its self-insurance program and in that event, Operator shall include a charge at Operator's cost not to exceed manual rates.
13. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment of the Joint Property, including costs required by governmental or other regulatory authority.
14. COMMUNICATIONS
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave facilities
directly serving the Joint Property. In the event communication
facilities/systems serving the Joint Property are Operator owned, charges
to the Joint Account shall be made as provided in Paragraph 8 of this
Section II.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II, or in Section III and which is of direct benefit to the Joint Property and is incurred by the Operator in the necessary and proper conduct of the Joint Operations.
III. OVERHEAD
1. OVERHEAD-DRILLING AND PRODUCING OPERATIONS
i. As compensation for administrative, supervision, office services and warehousing costs, Operator shall charge drilling and producing operations on either:
(X) Fixed Rate Basis, Paragraph 1A, or
( ) [INTENTIONALLY DELETED]
Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs and expenses of all offices and salaries or wages plus applicable burdens and expenses of all personnel, except those directly chargeable under Paragraph 3A, Section II. The cost and expense of services from outside sources in connection with matters of taxation, traffic, accounting or matters before or involving governmental agencies shall be considered as included in the overhead rates provided for in the above selected Paragraph of this Section III unless such cost and expense are agreed to by the Parties as a direct charge to the Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees and/or the cost of professional consultant services and contract services of technical personnel directly employed on the Joint Property:
( ) INTENTIONALLY DELETED]
(X) shall not be covered by the overhead rates.
iii. The salaries, wages and Personal Expenses of Technical Employees and/or costs of professional consultant services and contract services of technical personnel either temporarily or permanently assigned to and directly employed in the operation of the Joint Property:
( ) [INTENTIONALLY DELETED]
(X) shall not be covered by the overhead rates.
A. Overhead-Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates per well per month:
Drilling Well Rate $7,200 ($4,500 if 6,000' or less)
(Prorated for less than a full month)
Producing Well Rate $720 ($450 if 6,000' or less)
(2) Application of Overhead-Fixed Rate Basis shall be as follows:
(a) Drilling Well Rate
(1) Charges for drilling wells shall begin on the date the well is spudded and terminate on the date the drilling rig, completion rig, or other units used in completion of the well is released, whichever is later, except that no charge shall be made during suspension of drilling or completion operations for fifteen (15) or more consecutive calendar days.
(2) Charges for wells undergoing any type of workover or recompletion for a period of five (5) consecutive work days or more shall be made at the drilling well rate. Such charges shall be applied for the period from date workover operations, with rig or other units used in workover, commence through date of rig or other unit release, except that no charge shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.
(b) Producing Well Rates
(1) An active well either produced or injected into for any portion of the month shall be considered as a one-well charge for the entire month.
(2) Each active completion in a multi-completed well in which production is not commingled down hole shall be considered as a one-well charge providing each completion is considered a separate well by the governing regulatory authority.
(3) An inactive gas well shut in because of overproduction or failure of purchaser to take the production shall be considered as a one-well charge providing the gas well is directly connected to a permanent sales outlet.
(4) A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well. This one-well charge
shall be made whether or not the well has produced except when drilling well rate applies.
(5) All other inactive wells (including but not limited to inactive wells covered by unit allowable, lease allowable, transferred allowable, etc.) shall not qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April each year following the effective date of the agreement to which this Accounting Procedure is attached. The adjustment shall be computed by multiplying the rate currently in use by the percentage increase or decrease in the average weekly earnings of Crude Petroleum and Gas Production Workers for the last calendar year compared to the calendar year preceding as shown by the index of average weekly earnings of Crude Petroleum and Gas Production Workers as published by the United States Department of Labor, Bureau or Labor Statistics, or the equivalent Canadian index as published by Statistics Canada, as applicable. The adjusted rates shall be the rates currently in use, plus or minus the computed adjustment.
B. [INTENTIONALLY DELETED]
2. OVERHEAD - MAJOR CONSTRUCTION
To compensate Operator for overhead costs incurred in the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly discernible as a fixed asset required for the development and operation of the Joint Property, Operator shall either negotiate a rate prior to the beginning of construction, or shall charge the Joint Account for overhead based on the following rates for any Major Construction project in excess of $25,000:
A. 5% of first $100,000 or total cost if less, plus
B. 3% of costs in excess of $100,000 but less than $1,000,000, plus
C. 2% of costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single project shall not be treated separately and the cost of drilling and workover wells and artificial lift equipment shall be excluded.
3. CATASTROPHE OVERHEAD
To compensate Operator for overhead costs incurred in the event of expenditures resulting from a single occurrence due to oil spill, blowout. explosion, fire, storm, hurricane, or other catastrophes as agreed to by the Parties, which are necessary to restore the Joint Property to the equivalent condition that existed prior to the event causing the expenditures, Operator shall either negotiate a rate prior to charging the Joint Account or shall charge the Joint Account for overhead based on the following rates:
A. 5% of total costs through $100,000; plus
B. 3% of total costs in excess of $100,000 but less than $1,000,000, plus
C. 2% of costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by insurance recoveries, and no other overhead provisions of this Section III shall apply.
4. AMENDMENT OF RATES
The overhead rates provided for in this Section III may be amended from time to time only by mutual agreement between the Parties hereto if, in practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for all Material movements affecting the Joint Property. Operator shall provide all Material for use on the Joint Property; however, at Operator's option, such Material may be supplied by the Non- Operator. Operator shall make timely disposition of idle and/or surplus Material, such disposal being made either through sale to Operator or Non- Operator, division in kind, or sale to outsiders. Operator may purchase, but shall be under no obligation to purchase, interest of Non-Operators in
surplus condition A or B Material. The disposal of surplus Controllable Material not purchased by the Operator shall be agreed to by the Parties.
1. PURCHASES
Material purchased shall be charged at the price paid by Operator after deduction of all discounts received. In case of Material found to be defective or returned to vendor for any other reasons, credit shall be passed to the Joint Account when adjustment has been received by the Operator.
2. TRANSFERS AND DISPOSITIONS
Material furnished to the Joint Property and Material transferred from the Joint Property or disposed of by the Operator, unless otherwise agreed to by the Parties, shall be priced on the following basis exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2-3/8 inches OD and larger, except line pipe, shall be priced at Eastern mill published carload base prices effective as of date of movement plus transportation cost using the 80,000 pound carload weight basis to the railway receiving point nearest the Joint Property for which published rail rates for tubular goods exist. If the 80,000 pound rail rate is not offered, the 70,000 pound or 90,000 pound rail rate may be used. Freight charges for tubing will be calculated from Lorain, Ohio and casing from Youngstown, Ohio.
(b) For grades which are special to one mill only, prices shall be computed at the mill base of that mill plus transportation cost from that mill to the railway receiving point nearest the Joint Property as provided above in Paragraph 2.A.(1)(a). For transportation cost from points other than Eastern mills, the 30,000 pound Oil Field Haulers Association interstate truck rate shall be used.
(c) Special end finish tubular goods shall be priced at the lowest published out-of-stock price, f.o.b. Houston, Texas, plus transportation cost, using Oil Field Haulers Association interstate 30,000 pound truck rate, to the railway receiving point nearest the Joint Property.
(d) Macaroni tubing (size less than 2-3/8 inch OD) shall be priced at the lowest published out-of-stock prices f.o.b. the supplier plus transportation costs, using the Oil Field Haulers Association interstate truck rate per weight of tubing transferred, to the railway receiving point nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with walls 3/4 inch and over) 30,000 pounds or more shall be priced under provisions of tubular goods pricing in Paragraph A.(1)(a) as provided above. Freight charges shall be calculated from Lorain, Ohio.
(b) Line Pipe movements (except size 24 inch OD) and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be
priced at Eastern mill published carload base prices
effective as of date of shipment, plus 20 percent, plus
transportation costs based on freight rates as set forth
under provisions of tubular goods pricing in Paragraph
A.(l)(a) as provided above. Freight charges shall be
calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger shall be priced f.o.b. the point of manufacture at current new published prices plus transportation cost to the railway receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and conduit not listed on published price lists shall be priced at quoted prices plus freight to the railway receiving point nearest the Joint Property or at prices agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in effect at date of movement, as listed by a reliable supply store nearest the Joint Property, or point of manufacture, plus transportation costs, if applicable, to the railway receiving point nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint Property shall be priced at the current new price, in effect on date of movement, as listed by a reliable supply store nearest the Joint Property, or point of manufacture, plus transportation costs, if applicable, to the railway receiving point nearest the Joint Property. Unused new tubulars will be priced as provided above in Paragraph 2.A.(l) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by Paragraph A, if Material was originally charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as determined by Paragraph A, if Material was originally charged to the Joint Account as used Material
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not suitable for its original function until after reconditioning shall be priced at fifty percent (50%) of current new price as determined by Paragraph A. The cost of reconditioning shall be charged to the receiving property, provided Condition C value plus cost of reconditioning does not exceed Condition B value.
(2) Condition D
Material, excluding junk, no longer suitable for its original purpose, but usable for some other purpose shall be priced on a basis commensurate with its use. Operator may dispose of Condition D Material under procedures normally used by Operator without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be priced as Grade A and B seamless line pipe of comparable size and weight. Used casing, tubing or drill pipe utilized as line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service lines than standard line pipe, e.g. power oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe. Upset tubular goods shall be priced on a non upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose of Condition E Material under procedures normally utilized by Operator without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but condition and/or value of such Material is not equivalent to that which would justify a price as provided above may be specially priced as agreed to by the Parties. Such price should result in the Joint Account being charged with the value of the service rendered by such Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at the rate of twenty-five cents (25c) per hundred weight on all tubular goods movements, in lieu of actual loading or unloading costs sustained at the stocking point. The above rate shall be adjusted as of the first day of April each year following January 1, 1985 by the same percentage increase or decrease used to adjust overhead rates in Section III, Paragraph 1.A.(3). Each year, the rate calculated shall be rounded to the nearest cent and shall be the rate in effect until the first day of April next year. Such rate shall be published each year by the Council of Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable percentage of the current knocked-down price of new Material.
3. PREMIUM PRICES
Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the required Material at the Operator's actual cost incurred in providing such Material, in making it suitable for use, and in moving it to the Joint Property; provided notice in writing is furnished to Non-Operators of the proposed charge prior to billing Non-Operators for such Material. Each Non- Operator shall have the right, by so electing and notifying Operator within ten days after receiving notice from Operator, to furnish in kind all or part of his share of such Material suitable for use and acceptable to Operator.
4. WARRANTY OR MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the Joint Account until adjustment has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
Operator shall maintain detailed records of Controllable Material.
1. PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
At reasonable intervals, inventories shall be taken by Operator of the Joint Account Controllable Material. Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inventory is to begin so that Non-Operators may be represented when any inventory is taken. Failure of Non-Operators to be represented at an inventory shall bind Non-Operators to accept the inventory taken by Operator.
2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Adjustments to the Joint Account resulting from the reconciliation of a physical inventory shall be made within six months following the taking of the inventory. Inventory adjustments shall be made by Operator to the Joint Account for overages and shortages, but, Operator shall be held accountable only for shortages due to lack of reasonable diligence.
3. SPECIAL INVENTORIES
Special inventories may be taken whenever there is any sale, change of interest, or change of Operator in the Joint Property. It shall be the duty of the party selling to notify all other Parties as quickly as possible after the transfer of interest takes place. In such cases, both the seller and the purchaser shall be governed by such inventory. In cases involving a change of Operator, all Parties shall be governed by such inventory.
4. EXPENSE OF CONDUCTING INVENTORIES
A. The expense of conducting periodic inventories shall not be charged to the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the Parties requesting such inventories, except inventories required due to change of Operator shall be charged to the Joint Account.
EXHIBIT "D"
INSURANCE
As to all operations hereunder, Operator shall obtain and carry for the benefit and protection of the parties hereto, insurance, if same is obtainable, as follows:
A. Workman's Compensation Insurance in an amount as required by the appropriate state law;
B. Employer's Liability Insurance in an amount of not less than $100,000 for all damages from one or more claims arising from each accident;
C. Comprehensive General Liability Insurance with minimum limits of $500,000 bodily injury and property damage each occurrence/$5,000,000 aggregate, and $100,000 property damage each occurrence/$100,000 aggregate;
D. Umbrella Excess Liability Insurance with minimum limits of $5,000,000 bodily injury and property damage each occurrence/$5,000,000 aggregate;
E. Comprehensive Automobile Liability Insurance covering owned, non-owned and hired automobiles and automotive equipment with minimum limits of $300,000 bodily injury or death each person/$300,000 each accident, and $100,000 property damage each accident;
F. Operator's Extra Expense Insurance covering well control and pollution liability with minimum limits of $10,000,000 each occurrence above 15,000'; $20,000,000 each occurrence below 15,000'; and
G. Care, Custody and Control Insurance covering rented equipment, other than rig itself, within minimum limits of $500,000 each occurrence.
NON OPERATOR ELECTION
We do [X] do no ___ elect to participate in the Operators Insurance as to the drilling of the wells under the terms of this Agreement. (Non-electing party to supply proof of insurance.)
I/We do [X] do no ___ elect to participate in the Operators Insurance at such time as a well is producing under the terms of this Agreement.
Name:
Title:
Company: Seisgen Exploration, Inc.
Name: /s/ John F. Terwilliger Title: President Company: Moose Oil and Gas |
EXHIBIT "E"
GAS BALANCE AGREEMENT
I. DEFINITIONS
For the purposes of this Agreement, the terms set forth below shall be defined as follows:
a. "Operator" is the Operator so designated under the terms of the Operating Agreement.
b. "Party" or "Parties" are the entities which have executed this Agreement and have a working interest ownership in the Gas rights underlying the area covered by the Operating Agreement.
c. "Gas" includes casinghead Gas (which is all Gas produced with crude oil) and natural Gas from Gas wells, but shall not include liquid hydrocarbons recovered by lease equipment.
d. "Balance" is the condition occurring when a Party has utilized or sold the same percentage of the cumulative Gas production from a particular Well (exclusive of gas used in lease operations, vented or lost) as such Party's Percentage Ownership (as described in Paragraph II below).
e. "Overproduced" is the condition occurring when a Party has utilized or sold a greater volume of Gas from a particular Well at any given time (individually or through its Gas purchaser) than if such Party were in Balance.
f. "Underproduced" is the condition occurring when a Party has utilized or sold a lesser volume of Gas from a particular Well at any given time (individually or through its Gas purchaser) than if such Party were in Balance.
g. "Well" is defined as each Well subject to the Operating Agreement that also produces Gas or is allocated a share of Gas production. If a single Well is completed in two or more reservoirs, such Well will be considered a separate Well with respect to, but only to, each reservoir from which the Gas production is not commingled in the wellbore. If this Agreement covers a fieldwide unit, "Well" for the purposes of this Agreement shall refer to gas production from the unit separately accounted for by NGPA category. If this Agreement covers a property (other than a fieldwide unit) having casinghead Gas production that is not taken or marketed by each Party in volumes proportionate to each Party's percentage ownership in the property, and if the property is in a State where the applicable State regulatory body does not require reporting of casinghead Gas production on an individual well level, "Well" for the purposes of this Agreement shall refer to the smallest area from which production is required to be reported by Operator to said regulatory authority.
II. PERCENTAGE OWNERSHIP OF PARTIES
The Parties to the Operating Agreement own the working interest in the Gas rights underlying the area covered by the Operating Agreement in accordance with the percentages or shares of participation ("Percentage Ownership") as set forth in the Operating Agreement.
III. RIGHT TO PRODUCE AND MARKET GAS; EFFECTIVE DATE OF THIS AGREEMENT
In accordance with the terms of the Operating Agreement, each Party thereto has specific rights relating to the taking and disposition of Gas produced, including the right to take in kind its share of Gas produced from the applicable area and to market or otherwise dispose of same. In the event any Party is not at any time taking or marketing its share of Gas, or has contracted to sell its share thereof to a purchaser which does not at any time while said Operating Agreement is in effect take the full share of Gas attributable to the Percentage Ownership of such contracting Party, then the terms of this Agreement shall automatically become effective. If an Operating Agreement is already in place, the effective date shall be the date of first Gas sale(s) by any Party from any Well(s) in the applicable area.
IV. OVERPRODUCTION
During any period when any Party hereto is not marketing or otherwise disposing of or utilizing its Percentage Ownership of Gas produced from any Well within the applicable area, the other Parties hereto shall be entitled to produce, in addition to their own Percentage Ownership of production, that portion of such other Party's Percentage Ownership of production which said Party is not marketing or otherwise disposing of, and shall be entitled to take such Gas production and deliver same to its or their purchaser(s) in accordance with Paragraph VI below; however, if one or
more Underproduced Parties has/have a Gas market and upon concurrence of the Underproduced Party's Percentage Ownership of the recoverable reserves of the Well. All the Parties shall share in and own the liquid hydrocarbons recovered from such Gas by lease equipment in accordance with their respective Percentage Ownership and subject to the Operating Agreement to which this Agreement is attached, but the Party or Parties taking such Gas shall own all of the Gas delivered to its or their Gas purchaser(s) or taken for their own use subject to the terms of this Agreement.
V. ACCOUNTING FOR OVERPRODUCTION AND UNDERPRODUCTION
Each Party taking Gas shall furnish or cause to be furnished to the Operator a monthly statement of all Gas volumes taken from each Well or NGPA category as applicable and the disposition of those volumes (contract purchases, spot sales, own use, other). The Operator under said Operating Agreement will establish and maintain a current Gas account to show the Gas balance which exists between/among all the Parties and will furnish each of these Parties a monthly statement showing the total quantity of Gas produced, vented or lost, the quantity taken by any Party for its own use, the quantity of gas delivered by any Party to market and the monthly and cumulative over and under account of each Party. The monthly statement shall clearly and accurately specify the monthly and cumulative quantity of Gas each Party is Underproduced or Overproduced, or shall clearly and accurately specify if any Party is in Balance.
VI. RIGHT OF UNDERPRODUCED PARTY TO MAKE UP PRODUCTION
After reasonable notice to the Operator, any Party at any time may begin marketing or otherwise disposing of its full Percentage Ownership of the Gas produced from a Well with respect to which it is Underproduced. In addition to such Percentage Ownership, said Party, until it has balanced the Gas account as to its Percentage Ownership, shall be entitled to take additional quantities of Gas provided that the right to take such greater amount shall be in the proportion that its Percentage Ownership bears to the total Percentage Ownership of all Underproduced Parties desiring to take more than their proportionate share of Gas produced from the Well. Each Overproduced Party shall reduced its respective share of production in the proportion that such Party's Percentage Ownership bears to the total Percentage Ownership of all Overproduced Parties, but in no event shall any Overproduced Party be required to reduced its share to less than fifty percent (50%) of such Overproduced Party's proportionate share of the well's current production (unless the terms of Paragraph IV regarding cumulative production by an Overproduced Party are applicable). Notwithstanding the foregoing provisions of this paragraph, an underproduced party shall not be entitled to make up underproduction during the winter months of November, December, January and February unless such party has elected to make up its underproduction on a continuous basis until such underproduced party is in balance.
VII. SETTLEMENT WHEN PRODUCTION IS PERMANENTLY DISCONTINUED
When production from a Well is permanently discontinued, the Operator will furnish to all the Parties: (1) notice that production from the Well is permanently discontinued, and (2) a final statement showing the Gas balance which exists between/among all the Parties, and there shall be a cash settlement between/among the Parties hereto for the volume of Gas, if any, remaining in imbalance. In making such cash settlement, each Overproduced Party shall remit to the Operator, within ninety (90) days after the receipt from Operator of: (1) notice that production from a Well is permanently discontinued and (2) the final Gas balance statement for the well, a sum of money attributable to the amount actually or constructively received by such Overproduced Party from the sale or utilization of overproduction which remains accrued to such Party, less applicable taxes and other payments in fact paid on the overproduced volume on behalf of the Underproduced Parties by such Overproduced Party. The Operator shall distribute within thirty (30) days after the end of above referenced ninety (90) day remittance period the total of such amounts so collected during said remittance period among Underproduced Parties in the proportion of such latter Parties' underproduction. Furthermore, the Operator shall distribute any additional remittance collected from Overproduced Parties subsequent to the end of the ninety (90) day remittance period among Underproduced Parties in the proportion of such latter Parties' underproduction within thirty (30) days after receipt by Operator of such remittance. Operator shall not be liable for non payment by any overproduced party. If remittance by an Overproduced Party or distribution of amounts collected by the Operator in conjunction with a cash settlement for the volume of Gas, if any, remaining in imbalance is not made within the time limits specified in this paragraph, the unpaid or undistributed balance will bear interest monthly at the prime rate in effect at The Chase Manhattan Bank on the first day of the month in which delinquency occurs plus 1%, or the maximum contract rate permitted by the applicable usury laws in the state in which the Well is located, whichever is the lesser, plus attorney's fees, court costs, and other costs in connection with the collection of unpaid or undistributed amounts. It is recognized that there may have been some changes in the price received by Overproduced Party shall be applied against such Party's overproduction on a first in - first out basis and valued at the price in effect at the time such overproduction occurred. If a portion of a Party's Gas is taken for its own use and a portion thereof is sold from the Well. During periods I which a Party is taking Gas for its own use and making no sales, Gas so taken will be valued at the maximum
price which such Party could have received for such Gas if actually delivered under such Party's contract, or, if none, the weighted average price received simultaneously by all other Parties for Gas sold from all wells. In either such instance the value so determined for Gas so used will be deemed to have been constructively received by such using Party. In the event refunds are later required by any governmental authority, each party shall be accountable for such refunds on the basis of its share of Gas produced and finally balanced hereunder.
VIII. AUDITS
Notwithstanding any provision to the contrary in this or any other Agreement, any Underproduced Party shall have the right for a period of two (2) years after the date that Gas accounts are settled, to audit any Underproduced Party's records as to volumes.
IX. PAYMENT OF ROYALTIES; INDEMNITY FOR ROYALTY SETTLEMENTS
Unless otherwise provided in the Operating Agreement (or otherwise required in lease agreements), each Party will make settlement or cause settlement to be made with respective royalty owners to whom said Party is accountable, based upon the volume of gas it is actually taking for its own use or selling for its account. Each Party agrees to indemnify and hold each and every other Party harmless from any and all claims for royalty payments asserted by royalty owners to whom each indemnifying Party is accountable. The term "royalty owner" shall include owners of standard royalties, excess royalties, overriding royalties, production payments and similar interests.
X. PAYMENT OF PRODUCTION TAXES
Unless otherwise provided in the Operating Agreement (or otherwise required in lease agreements), each Party producing and taking, delivering to its Gas purchaser or otherwise disposing of Gas, shall pay or cause to be paid any and all production taxes due on such Gas.
XI. DELIVERABILITY TESTS
Nothing herein contained shall be construed as denying any Party the right, from time to time, and with at least twenty (20) days written notice to Operator, subject to the concurrence of all Gas purchasers, to take or deliver to its purchasers its full share of the allowable Gas production to meet the deliverability tests required by its Gas Purchaser.
XII. EFFECT ON OPERATING AGREEMENT
Nothing herein contained shall, among other things, change or affect the obligations of each Party to bear and pay its proportionate share of all costs, expenses, and liabilities incurred as provided in the Operating Agreement.
XIII. NEGOTIATED CASH BALANCE
Nothing herein contained shall be construed as precluding cash balancing at any time as negotiated among Parties.
XIV. SCOPE AND TERM OF AGREEMENT
This Agreement shall constitute a separate agreement as to each Well within the applicable area of the Operating Agreement. It shall inure to the benefit of and be binding upon the Parties hereto, their successors, legal representatives and assigns. It shall become effective in accordance with its terms and shall remain in force and effect as long as the Operating Agreement to which it is attached remains in effect or until all Gas imbalances within the Operating Agreement's contract are settled, whichever date is later. This Agreement shall be binding on all Parties who approve it, regardless of whether it is approved by any of the other Parties.
EXHIBIT "F"
NON-DISTRIMINATION AND CERTIFICATION
ON NON-SEGREGATED FACILITIES
During the performance of this Agreement, the Operator shall be bound by and comply with all terms and provisions of Section 202 of Executive Order 11246 of September 24, 1965, all of which are incorporated herein by reference to the same regulations and relevant orders adopted pursuant to such Executed Order.
Operator assures Non-Operator that it does not and will not maintain or provide for its employees any segregated facilities at any of its establishments, and that it does not and will not permit its employees to perform their services at any location, under its control, where segregated facilities are maintained. For this purpose, it is understood that the phrase "segregated facilities" includes facilities which are in fact segregated on the basis of color, religion, or national origin, because of habit, local custom or otherwise. It is further understood and agreed that maintaining or providing segregated facilities for its employees or permitting its employees to perform their services at any location under its control where segregated facilities are maintained is a violation of the equal opportunity clause required by Executive Order 11246 of September 24, 1965. Operator further understands and agrees that a breach of the assurance herein contained subjects it to the provisions of the Order at 41 CFR Chapter 60 of the Secretary of Labor dated May 21, 1968, and the provisions of the equal opportunity clause enumerated in contracts between the United States of America and Non-Operator.
THERE IS NO EXHIBIT "G" TO THIS AGREEMENT
EXHIBIT 23.2
CONSENT OF THOMAS LEGER & CO. L.L.P.
We hereby consent to the use in the Prospectus constituting part of the Registration Statement on Form S-4 of Houston American Energy Corp. ("HAEC") of our report dated April 27, 2001 relating to the financial statements of HAEC. We also consent to all references to us in such Prospectus including references to us as an expert.
THOMAS LEGER & CO. L.L.P.
/s/ Thomas Leger & Co. L.L.P.
Houston, Texas
September 25, 2001
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