As filed with the Securities and Exchange Commission on May 9 , 2014
Registration No. 333-193599
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
   
FORM S-1/A
AMENDMENT NO. 3
 
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
   
TEXAS JACK OIL & GAS CORPORATION
(Exact Name of Small Business Issuer in its Charter)
 
Nevada
1382
46-2316220
(State or other Jurisdiction of Incorporation)
(Primary Standard Classification Code)
(IRS Employer Identification No.)
 
TEXAS JACK OIL & GAS CORPORATION
15 Belfort, Newport Coast, CA 92657
Phone: (949) 706-3628
(Address and Telephone Number of Registrant’s Principal
Executive Offices and Principal Place of Business)
 
Paracorp Incorporated
318 North Carson Street, Suite 208
Carson City, Nevada 89032
Phone: (775) 883-0104
(Name, Address and Telephone Number of Agent for Service)
 
Copies of communications to:
Leo J. Moriarty, Esq.
LAW OFFICE OF LEO J. MORIARTY
3020 Old Ranch Parkway, Suite 300
Seal Beach, CA 90740
Phone: (714) 305-5783
Fax:  (714) 316-1306
E-Mail: ljmlegal@aol.com
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.        x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration Statement number of the earlier effective registration statement for the same offering.         o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.        o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.        o
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.       o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
 
 
 
 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Securities
to be Registered
 
Amount to be
Registered
   
Proposed Maximum
Aggregate Offering
Price per Security
   
Proposed Maximum
Aggregate
Offering Price
   
Amount of
Registration
Fee (3)
 
                         
Common Stock, $0.001 par value
   
8,400,000
 (5)
 
$
0.001
   
$
8,400
   
$
1.08
 
Common Stock, $0.001 par value
   
5,000,000
 (4)
 
$
0.10
   
$
500,000
         
TOTAL
   
13,400,000
                   
$
1.08
 
 
(1) In accordance with Rule 416(a), the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
 
(2) Estimated in accordance with Rule 457(o) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee. The offering price has been arbitrarily determined by Texas Jack Oil & Gas Corporation and bears no relationship to assets, earnings, or any other valuation criteria. No assurance can be given that the shares offered hereby will have a market value or that they may be sold at this, or at any price.
 
(3) The registration fee for securities to be offered to the public is based on an estimate of the Proposed Maximum Aggregate Offering Price of the securities, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(o).
 
(4) Represents shares of the registrant’s common stock (Primary Offering) 5,000,000 shares to be sold in the future.
 
(5) This amount covers the resale by our selling shareholders (Secondary Offering) of up to 8,400,000 shares of common stock previously issued to such selling shareholders.
 
EXPLANATORY NOTE
 
This registration statement covers two separate amounts of the company’s common shares.
 
Public Offering:  The primary offering by the registrant of up to 5,000,000 shares of common stock for an offering price of $0.10 per share, (Primary Offering)
 
Selling Stockholders: The registration by certain selling stockholders of up to an aggregate of 8,400,000 shares of the registrant’s common stock. (Selling Stockholders).
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT ALL 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
 
 
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 U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS
 
Subject to completion, dated ___________________
 
TEXAS JACK OIL & GAS CORPORATION
 
8,400,000 SHARES OF COMMON STOCK (Selling Stockholders) AT $0.001 AND
(Primary Offering) 5,000,000 SHARES OF COMMON STOCK AT $0.1 PER SHARE
 
Prior to this registration, there has been no public trading market for the common stock of Texas Jack Oil & Gas Corporation ("Texas Jack", the "Company", "us", "we", "our") and it is not presently traded on any market or securities exchange. We are offering in the (Primary Offering) up to 5,000,000 shares of common stock for sale by us to the public and also registering (Selling Stockholders) 8,400,000 shares of existing stock held by existing shareholders.
 
Primary Offering
 
We are offering for sale in the (Primary Offering) a minimum of 2,000,000 and a maximum of 5,000,000 shares of common stock at a price of $0.10 per share (the "Offering"). The Primary Offering is being conducted on a self-underwritten, best effort basis, which means our officer and director will attempt to sell the shares and we will not be able to spend any of the proceeds unless a minimum of 2,000,000 shares are sold. This Primary Offering will continue for the earlier of: (i) 180 days after this registration statement becomes effective with the Securities and Exchange Commission, or (ii) the date on which all 5,000,000 shares registered hereunder have been sold. We may at our discretion extend the Primary Offering for an additional 90 days. Proceeds from the sale of the Primary Offering shares will be used to fund the initial stages of our business development. There have been no arrangements to place the Primary Offering funds in escrow. We intend to open a standard, non-interest bearing, bank account to be used only for the deposit of funds received from the sale of the shares in this Primary Offering. When at least 2,000,000 shares of the Primary Offering are sold and the Primary Offering has expired the funds will be transferred to our business account for use in the implementation of our business plan. If the minimum number of shares are not sold by the expiration date of the Primary Offering, the funds will be promptly returned to the investors (within 3 business days), without interest or deduction. However; since the funds will not be placed into an escrow account, any third party creditor who may obtain a judgment or lien against us could satisfy the judgment or lien by executing on the bank account where the Primary Offering proceeds are being held, resulting in a loss of any investment you make in our securities.
 
There can be no assurance that all or any shares being offered in this Primary Offering  are going to be sold and that we will be able to raise any funds from this Offering.
 
Primary Offering
Shares Offered by Company
 
Price to Public
 
Selling Agent Commissions
 
Proceeds to the Company
 
Per Share
 
$
0.10
 
Not applicable
 
$
0.10
 
Minimum  (2,000,000 shares)
 
$
200,000
 
Not applicable
 
$
200,000
 
Maximum (5,000,000 shares)
 
$
500,000
 
Not applicable
 
$
500,000
 
 
Neither the Securities and Exchange Commission nor any state regulatory authority has approved or disapproved of these securities, endorsed the merits of this Primary Offering, or determined that this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Selling Security Holders
 
This prospectus also relates to the resale of an aggregate of an additional 8,400,000 shares of common stock, par value $0.001, sold to ten investors pursuant to a 506 commencing in May and ending in January 2014 , see “the Selling Security Holders” under this prospectus. These securities will be offered for sale by the Selling Security Holder identified in this prospectus in accordance with the methods and terms described in the section of this prospectus entitled “Plan of Distribution."
 
 
We will not receive any of the proceeds from the sale of these 8,400,000 shares. We will pay all expenses, except for the brokerage expenses, fees, discounts and commissions, which will all be paid by the Selling Security Holders, incurred in connection with the offering described in this prospectus. Our common stock is more fully described in the section of this prospectus entitled “Description of Securities."
 
Our common stock is presently not traded on any market or securities exchange. The Selling Security Holders have not engaged any underwriter in connection with the sale of their shares of common stock. The selling security holders may sell some or all of their shares at a fixed price of $0.001 per share until their shares are quoted on the OTCBB and thereafter at prevailing negotiated prices.  Prior to being quoted on the OTC Bulletin Board, shareholders may sell their shares in private transactions to other individuals.
 
We intend to apply to have our common stock quoted on the Over-the-Counter Bulletin Board (“OTCBB”). There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority ("FINRA") to facilitate such quotation, nor can there be any assurance that such an application for quotation will be approved. We have agreed to bear the expenses relating to the registration of the shares of the Selling Security Holder.
 
The President of the company Robert Schwarz is an “underwriter” within the meaning of the Securities Act of 1933, as amended with respect to all shares being offered hereby.
 
We are an “emerging growth company” under the Jumpstart Our Business Startups Act (“JOBS Act”) and are eligible for reduced public company reporting requirements.
 
We do not consider our-self a blank check company. We have no plans or intentions to be acquired by or to merge with an operating company, nor do we, nor any of our shareholders, have plans to enter into a change of control or similar transaction or to change our management.
 
Our management consisting of Robert Schwarz has never been previously involved in the management or ownership of a development stage company that has not implemented fully its business plan, engaged in a change of control or similar transaction, or generated no or minimal revenues to date.
 
Texas Jack Oil & Gas Corporation is a development stage company and has a limited history of development stage operations. We presently do not have the funding to execute our business plan.  As of the date of this prospectus, we have generated nominal revenues ($3,697)  from our development stage business operations.
 
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. See "Risk Factors” beginning on page 9 for risks of an investment in the securities offered by this prospectus, which you should consider before you purchase any shares.
 
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
The Date of This Prospectus is:  _____________, 2014
 
 
This prospectus is not an offer to sell any securities other than the shares of common stock offered hereby. This prospectus is not an offer to sell securities in any circumstances in which such an offer is unlawful.
 
We have not authorized anyone, including any salesperson or broker, to give oral or written information about this offering, the Company, or the shares of common stock offered hereby that is different from the information included in this prospectus. You should not assume that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated on the cover Schwarz of this prospectus or any supplement to it.
 
TABLE OF CONTENTS
 
6
9
11
13
13
17
20
22
23
23
25
25
26
31
31
31
44
45
47
48
48
49
50
51
51
51
51
F-1
II-1
 
 
PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “TEXAS JACK” “Company,” “we,” “us” and “our” refer to Texas Jack Oil & Gas Corporation.
 
Overview
 
We are an exploration stage company, as a for-profit company, and electing a fiscal year end of June 30.
 
We were incorporated in the State of Nevada on March 7, 2013, under the name of Texas Jack Oil & Gas Corporation.
 
Texas Jack Oil & Gas Corporation is a development stage company with a limited history of development stage operations.
 
Where You Can Find Us
 
Our principal executive office is located at Texas Jack Oil & Gas Corporation, 15 Belfort, Newport Coast, California 92657.
 
Our telephone number is 949-706-3628. We maintain our statutory registered agent's office at Paracorp, Incorporated 318 North Carson Street, Suite 208 Carson City, Nevada 89032.
 
GENERAL INTRODUCTION
 
Texas Jack Oil & Gas Corporation is engaged in the exploration and development of oil and gas properties.
 
The company presently owns a 3% percent working lease interest in one well located in the Jack County, Texas. The operator of the well is Southlake Operating, LLC (“Southlake”) who is currently drilling and completing additional horizontal and vertical oil and gas wells in the Marble Falls formation in Jack and Young Counties, Texas. Southlake has leased 1,067 acres in Jack and Young Counties located approximately 90 miles west of Fort Worth, Texas. Southlake expects to drill a total of nine or ten horizontal wells with lateral lines of approximately 2,000 feet will be drilled using a multi-stage completion technique to maximize production from the wells; an additional four or five vertical wells will be drilled to the Marble Falls formation in order to exploit acreage not accessible through horizontal drilling. Southlake procured the leases on 1,067 contiguous acres beginning in October of 2010. The one well that Texas Jack owns a 3% interest in carries a 79.00% Net Revenue Interest or NRI, meaning the Working Interest Owners will receive 79% of the revenue produced from the wells with the Royalty Interest owners receiving the other 21% of the revenue. This property is described in "Description of Property" further in this Prospectus. Texas Jack has no further commitments with Southlake at this time to purchase any additional working interest.
 
The Company is reviewing a purchase of a 5% percent working interest located in Archer and Jack Counties, Texas for $100,000. The operator of the wells is 3 Ten Resources, Inc. The 3Ten #1 well, the 3Ten #2 well and the 3Ten #3 well are all situated on the Operator’s approximate 1,311 acre oil and gas lease located in Archer and Jack Counties, Texas approximately 3 miles West of Antelope, Texas. Each well in this three well package will be drilled as vertical wells to the Mississippian Formation, at an estimated depth of approximately 6,000’. The company has not entered into any formal agreements with 3 Ten Resources at this time.
 
Since our inception on March 7, 2013 through December 31, 2013 we have incurred cumulative losses of $70,249.
 
 
We issued 15,000,000 shares of common stock valued at $165,000 being original cost to the founder for interest in mine property through the issuance of common stock to our sole officer and director, Robert Schwarz, at $0.011 per share in May of 2013. From inception until the date of this filing we have had limited operating activities. Our financial statements from inception (March 7, 2013) through December 31, 2013  report $3,697 in revenue and a net loss of $70,249. Our independent auditor has issued an audit opinion for Texas Jack Oil & Gas Corporation which includes a statement expressing substantial doubt as to our ability to continue as a going concern.
 
We were incorporated to engage in the exploration and development of oil and gas properties. Our first 3% working interest in one well the Bright 1H is located on 1,067 acres in Jack county located approximately 90 miles west of Fort Worth, Texas. There are currently three additional operating oil wells on the property.  Texas Jack Oil & Gas Corporation owns no interest in these three additional wells. This property is described in "Description of Property" further in this Prospectus.
 
We expect to continue to incur losses for at least the next 12 months. We do not expect to generate revenue that is sufficient to cover our expenses, and we do not have sufficient cash and cash equivalents to execute our plan of operations for at least the next twelve months. We will need to obtain additional financing, through equity security sales, debt instruments and private financing, to conduct our day-to-day operations, and to fully execute our business plan. We plan to raise the capital necessary to fund our business through the sale of equity securities, debt instruments or private financing. (See “Plan of Operation”)
 
Taking into account that our company is a new startup and is without an established income stream and/or profit & loss statement the estimated annual burn rate for the operating plan commencing April 1, 2013 is projected during the first fiscal year, without due consideration for adjustment is $50,000. This includes a three month burn, in cash, of $13,500 (at $4,500 per month) considering the Company encounters a bad quarter during its first year in business. In addition to the $50,000 needed for the operating plan the company will need approximately $10,000 for completing this registration.  Mr. Schwarz has agreed to fund the Company, through an oral agreement until such time as the Company raises $50,000 for the operating plan and $10,000 for registration expenses.  Mr. Schwarz, however, is under no legal obligation and/or duty to do so. Additionally, although there is an oral agreement between the Company and Mr. Schwarz to fund the Company until such time as the Company raises $50,000 for the operating plan and $10,000 for remaining registration expenses Mr. Schwarz has not agreed to fund any specific amount to the Company.
 
Our independent auditors have added an explanatory paragraph to their report of audited financial statements for the period from March 7, 2013 (inception) to June 30, 2013, lack of significant revenues and dependence on our ability to raise additional capital to continue our business, raise substantial doubt about our ability to continue as a going concern.
 
Our financial statements and their explanatory notes included as part of this prospectus do not include any adjustments that might result from the outcome of this uncertainty. There is no guarantee that we will be able to raise funds through equity security sales, debt instruments, and private financing. Currently, we have no agreements in place to raise money through debt instruments or private financing. If we fail to obtain additional financing, either through an offering of our securities or by obtaining loans, we may be forced to cease our planned business operations altogether. Presently, other than Mr. Schwarz, no other sources of financing have been identified and it is unknown if any other sources will be identified. There is no assurance that the Company will be able to obtain any bank loans or private financing.
 
BUSINESS DEVELOPMENT
 
Mr. Schwarz will continue to review potential exploration and developments of oil and gas properties.
 
We intend to derive income from the sale of the oil and gas produced and sold on our present working interest.
 
Subsequent Business Strategy
 
Texas Jack Oil & Gas Corporation will continue reviewing potential oil and gas properties. The Company has only received nominal returns on the sale of oil and gas from the one well that the company has a working interest in. Texas Jack Oil & Gas Corporation is considered a development stage company because it has not commenced its major operations and has only recognized nominal revenues ($3,697)  in connection with its business to date. As a result, we are a startup company, that is, we have no operating history or nominal revenue, and are at a competitive disadvantage.
 
 
We have no operating history and expect to incur losses for the foreseeable future. Should we continue to incur losses for a significant amount of time, the value of your investment in the common shares could be affected downward, and you could even lose your entire investment.
 
We have only received nominal returns from our development stage operations, nor have we otherwise engaged in any business operations. Texas Jack Oil & Gas Corporation is a development stage company and in the absence of revenues and operations as indicated in the Independent Auditor’s Report dated January 27, 2014 , cites a going concern issue. The going concern statement opinion issued by the independent auditors is the result of a lack of operations and working capital.
 
The Company will need to raise capital which concerned the independent auditors because there is insufficient cash for operations for the next twelve months. We will have to seek other sources of capital through equity security sales, debt instruments and private financing.
 
We established the minimum amount of estimated annual burn rate for the operating plan commencing April 1, 2014 of $50,000 and an additional $10,000 to complete this registration. The Company will need to raise these funds through debt instruments such as bank loans or private financing so that operations could start, in order to generate some type of revenue. Presently no other sources have been identified and it is unknown if any other sources will be identified. There is no assurance that the Company will be able to obtain any bank loans or private financing.
 
Over the next twelve months, Texas Jack Oil & Gas Corporation plans to build out and establish its reputation and network in the exploration and development of oil and gas properties in Texas. The Company aims to form long term working relationships with developers and operators to locate the right properties to invest in.
 
Mrs. Robert Schwarz is the Chief Executive Officer, President, (Principal Executive Officer) and Director. Currently the Company has one employee; Robert Schwarz however as it grows, it plans to employ additional employees as needed.
 
DESCRIPTION OF PROPERTY
 
Our corporate office is located at 15 Belfort, Newport Coast, CA 92657. We currently are provided 500 square feet of office space from our President Robert Schwarz at no cost. There are currently no proposed programs for renovation, improvement or development of the facility currently in use. 
 
PRINCIPAL OPERATIONS OF THE COMPANY
 
Texas Jack Oil & Gas Corporation also referred to as “Texas Jack” and the “Company”, was incorporated in the State of Nevada on March 7, 2013. Texas Jack Oil & Gas Corporation is engaged in the exploration and development of oil and gas properties in Jack County Texas area at this time.
 
Texas Jack Oil & Gas Corporation is a development stage company with a limited history of development stage operations. We presently do not have the funding to execute our business plan.
 
Achievement of our business objective is basically dependent upon the judgment, skill and knowledge of our management. Mr. Schwarz is currently our sole executive officer and director. There can be no assurance that a suitable replacement could be found for any of our officers upon their retirement, resignation, inability to act on our behalf, or death.
 
 
RISK FACTORS
 
The Company's financial condition, business, operation and prospects involve a high degree of risk. You are urged to carefully read and consider the risks and uncertainties beginning on page 9 of this prospectus entitled Risk Factors as well as the other information in this report before deciding to invest in our Company. All known materials risks are discussed in the Risk Factors section of this prospectus. If any of the risks beginning on page 9 of this Prospectus entitled “Risk Factors” are realized, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means that our stockholders could lose all or a part of their investment.
 
THE OFFERING
 
We have 23,400,000 shares of common stock issued and outstanding. Through this offering we will register 8,400,000 shares held by existing shareholders (Selling Stockholders) and up to 5,000,000 shares of common stock for sale by us to the public (Primary Offering). The Primary Offering shares represent additional common stock to be issued by us. We will endeavor to sell all 5,000,000 shares of common stock after this registration becomes effective. The price at which we offer these shares is fixed at $0.10 per share for the duration of the offering. We will receive all proceeds from the sale of the 5,000,000 common stock unless we are unable to sell the minimum of 2,000,000 shares.
 
We will not receive any of the proceeds from the 8,400,000 shares held by Selling Stockholders.
 
Selling Stockholders
 
Common stock offered by Selling Stockholders
 
8,400,000 shares of common stock. This number represents approximately 36% of our current outstanding common stock (1) .
     
Price paid by Selling Stockholders
 
$0.001
     
Common stock outstanding before the offering
 
23,400,000 shares of common stock as of May 9 , 2014.
     
Terms of the Offering
 
The present Selling Security Holders will determine when and how they will sell the common stock offered in this prospectus.
     
Use of proceeds, existing Security Holders
 
Texas Jack will not receive any of the proceeds of the offering from the existing Security Holders.  The Selling Security Holders will receive all of the proceeds.
     
Risk Factors
 
The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 9.
     
(1)
 
Based on 23,400,000 shares of common stock outstanding as of May 9 , 2014
 
 
This prospectus relates to the sale of up to 8,400,000 shares of our common stock by the selling shareholders identified in the section of this prospectus entitled "Selling Stockholders." The number of common shares offered by this prospectus represents up to approximately 36% of the total common stock outstanding before the offering.
 
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
 
The Company has no equity compensation plans and individual compensation arrangements and does not intend to enter into any equity compensation plans and individual compensation arrangements in the future.
 
Texas Jack Oil & Gas Corporation. Information regarding the Selling Stockholders (8,400,000 shares), the common shares being offered to sell under this prospectus, and the times and manner in which they may offer and sell those shares, is provided in the sections of this prospectus entitled "Selling Stockholders" and "Plan of Distribution." Texas Jack Oil & Gas Corporation will not receive any of the proceeds from the sale of the ten Security Stockholders 8,400,000 shares. The registration of common shares pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold by the Selling Stockholders.
 
Registrant
(Primary Offering)
 
Securities Being Offered for future sale.  Primary Offering
 
A minimum of 2,000,000 and a maximum 5,000,000 of shares of common stock.
     
Offering price
 
$0.10
     
Offering period
 
The shares are offered for a period not to exceed 180 days, unless extended by our board of directors for an additional 90 days.
     
Common stock outstanding before the offering
 
23,400,000 shares of common stock as of May 9 , 2014 .
     
Common stock outstanding after the offering (if all 5,000,000 shares are hold)
 
28,400,000 shares of common stock.
     
Terms of the Offering
 
Common stock being registered in this registration statement may be sold by the Company  at a fixed price of $0.10 per share.
     
Termination of the Offering
 
The offering will conclude upon the earliest of (i) such time as all of the common stock has been sold pursuant to the registration statement or (ii) such time as all of the common stock becomes eligible for resale without volume limitations pursuant to Rule 144 under the Securities Act, or any other rule of similar effect
     
Use of proceeds, Net Proceeds from sale of up to 5,000,000 shares
 
The proceeds will be used for Lease of additional Oil & Gas Property, Lease of additional working interest, administration and General Expenses, Legal and Accounting and working capital.  See USE of PROCEEDS for further information
     
Risk Factors
   
     
(1)
 
Based on 23,400,000 shares of common stock outstanding as of May 9 , 2014
 
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
 
The Company has no equity compensation plans and individual compensation arrangements and does not intend to enter into any equity compensation plans and individual compensation arrangements in the future.
 
 
SUMMARY OF FINANCIAL INFORMATION
 
The following table provides summary financial statement data as of the period from March 7, 2013 (Inception) through December 31, 2013. The financial statement data as of the period ended December 31, 2013 has been derived from our unaudited condensed financial statements. The results of operations for past accounting periods are not necessarily indicative of the results to be expected for any future accounting period. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and the related notes included in this prospectus, and the statements and related notes included in this prospectus.
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
 
    For the     For the    
For the Period
 
    Three Months     Six Months    
From March 7, 2013
 
   
 ended
   
ended
   
(inception) through
 
   
December 31,
   
December 31,
   
December 31,
 
   
2013
   
2013
   
2013
 
                   
Revenue
 
$
2,122
   
$
3,697
   
$
3,697
 
                         
Operating expenses:
                       
Selling, general and administrative expenses
   
3,178
     
34,298
     
68,717
 
                         
Total operating expenses
   
3,178
     
34,298
     
68,717
 
                         
Net Operating Loss
   
(1,056
)
   
(30,601
)
   
(65,020
)
                         
Other expense
                       
Interest expense
   
2,037
     
4,046
     
5,229
 
Total other expenses
   
2,037
     
4,046
     
5,229
 
                         
Loss before provision for income taxes
   
(3,093
)
   
(34,647
)
   
(70,249
)
                         
Provision for income taxes
   
-
     
-
     
-
 
                         
Net income (loss)
 
$
(3,093
)
 
$
(34,647
)
 
$
(70,249
)
                         
Net income (loss) per share - basic
 
$
(0.00
)
 
$
(0.00
)
       
                         
Net income (loss) per share - diluted
 
$
(0.00
)
 
$
(0.00
)
       
                         
Weighted average shares outstanding - basic
   
23,000,000
     
23,000,000
         
                         
Weighted average shares outstanding - diluted
   
23,000,000
     
23,000,000
         
 
The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
EMERGING GROWTH COMPANY
 
We are an Emerging Growth Company as defined in the Jumpstart Our Business Startups Act.
 
We shall continue to be deemed an emerging growth company until the earliest of:
 
a. the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more;
 
b. the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement under this title;
 
c. the date on which such issuer has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or
 
d. the date on which such issuer is deemed to be a `large accelerated filer', as defined in section 240.12b-2 of title 17, Code of Federal Regulations, or any successor thereto.
 
As an emerging growth company we are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires Issuers to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures.
 
Section 404(b) requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.
 
As an emerging growth company we are exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder approval of executive compensation and golden parachutes.
 
We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act.
 
SMALLER REPORTING COMPANY
 
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY - THE JOBS ACT
 
We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
 
* A requirement to have only two years of audited financial statements and only two years of related MD&A ;
 
* Exemption from the auditor attestation requirement in the assessment of the emerging growth company's internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002;
 
* Reduced disclosure about the emerging growth company's executive compensation arrangements; and
 
* No non-binding advisory votes on executive compensation or golden parachute arrangements.
 
We may take advantage of the reduced reporting requirements applicable to smaller reporting companies even if we no longer qualify as an "emerging growth company."
 
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the "Securities Act") for complying with new or revised accounting standards. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Act.
 
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
 
 
RISK FACTORS
 
The shares of our common stock being offered for resale in the Primary Offering and by the Selling Security Holder s are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, you May lose all or part of your investment. You should carefully consider the risks described below and the other information in this prospectus before investing in our common stock.
 
(A) RISKS RELATED TO OUR BUSINESS
 
WE HAVE RECEIVED AN OPINION OF GOING CONCERN FROM OUR AUDITORS. IF WE DO NOT RECEIVE ADDITIONAL FUNDING, WE WOULD HAVE TO CURTAIL OR CEASE DEVELOPMENT STAGE OPERATIONS. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT.
 
Our independent auditors noted in their report accompanying our financial statements for the period ended June 30, 2013 that we are a development stage company and has not commenced the planned operation, and incapable of generating sufficient cash flow which raises substantial doubt about our ability to continue as a going concern. As of December 31, 2013, we had a net loss of $70,249, and they further stated that the uncertainty related to these conditions raised substantial doubt about our ability to continue as a going concern. At December 31, 2013, our cash on hand was $1,380. We do not currently have sufficient capital resources to fund operations. To stay in business, we will need to raise additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a combination of the foregoing.  As of the date of this prospectus, we have commenced business operations but have not yet generated any revenues.
   
We will need additional capital to fully implement our business, operating and development plans. However, additional funding from an alternate source or sources may not be available to us on favorable terms, if at all. To the extent that money is raised through the sale of our securities, the issuance of those securities could result in dilution to our existing security holder. If we raise money through debt financing or bank loans, we May be required to secure the financing with some or all of our business assets, which could be sold or retained by the creditor should we default in our payment obligations. If we fail to raise sufficient funds, we would have to curtail or cease operations.
 
THE COMPANY HAS A LIMITED DEVELOPMENT STAGE OPERATING HISTORY UPON WHICH TO BASE AN EVALUATION OF ITS BUSINESS AND PROSPECTS. WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO GROW OUR BUSINESS AND TO EARN INCREASED REVENUES. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT .
 
We have a limited history from March 7, 2013 inception to March 24, 2014 of development stage operations and we may not be successful in our efforts to grow our business and to earn revenues. Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. As a result, management May be unable to adjust its spending in a timely manner to compensate for any unexpected revenue shortfall. An investment in our securities represents significant risk and you May lose all or part of your entire investment.
 
If we cannot generate sufficient revenues to operate profitably, we may suspend or cease operations.
 
Our ability to achieve and maintain profitability and positive cash flows is dependent upon:
 
·
Our ability to generate revenues
·
Our ability to locate additional profitable oil and gas properties
·
Attract, retain and motivate qualified personnel who can successfully assist us in implementing our business plan;
·
Maintain current strategic relationships and develop new strategic relationships;
·
Our ability to reduce operating costs
·
Our ability to update our website
 
Based upon current plans, we expect to incur operating losses in future periods until revenues are sufficient to fund operations. Failure to generate enough revenues for us to become profitable may cause us to suspend or cease activities.
 
WE HAVE A HISTORY OF LOSSES. FUTURE LOSSES AND NEGATIVE CASH FLOW MAY LIMIT OR DELAY OUR ABILITY TO BECOME PROFITABLE. IT IS POSSIBLE THAT WE MAY NEVER ACHIEVE PROFITABILITY. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT.
 
We have yet to establish profitable development stage operations or a history of profitable development stage operations. We anticipate that we will continue to incur substantial development stage operating losses for an indefinite period of time due to the significant costs associated with the development of our business.
 
 
Since incorporation, we have expended financial resources on the development of our business. As a result, losses have been incurred since incorporation. Management expects to experience development stage operating losses and negative cash flow for the foreseeable future. Management anticipates that losses will continue to increase from current levels because the Company expects to incur additional costs and expenses related to: marketing and promotional activities; the possible addition of new personnel; and the development of relationships with strategic business partners.
 
The Company’s ability to become profitable depends on its ability to acquire additional working interests in oil and gas. If the Company does achieve profitability, it cannot be certain that it would be able to sustain or increase profitability on a quarterly or annual basis in the future. An investment in our securities represents significant risk and you may lose all or part of your entire investment.
 
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS WILL FAIL.
 
We will need to obtain additional financing in order to complete our business plan because we currently do not have any income. We do not have any arrangements for outside financing, other than with Mr. Schwarz and this offering, we may not be able to find such financing if required.
 
Mr. Schwarz has agreed to fund the Company, through an oral agreement, until such time as the Company raises $50,000 for the operating plan and $10,000 for registration expenses. Mr. Schwarz, however, is under no legal obligation and/or duty to do so. Additionally, although there is an oral agreement between the Company and Mr. Schwarz to fund the Company until such time as the Company raises $50,000 for the operating plan and $10,000 for registration expenses, Mr. Schwarz has not agreed to fund any specific amount to the Company.
 
Obtaining additional financing would be subject to a number of factors, including investor acceptance. These factors may adversely affect the timing, amount, terms, or conditions of any financing that we may obtain or make any additional financing unavailable to us. If we do not obtain additional financing our business will fail.
 
BECAUSE WE ARE SMALL AND DO NOT HAVE MUCH CAPITAL, WE MAY HAVE TO LIMIT OUR ACQUISITION ACTIVITY WHICH MAY RESULT IN A LOSS OF YOUR INVESTMENT.
 
Because we are small and do not have much capital, we must limit our acquisition activity. As such we may not be able to lease as many properties as we would like. In that event, a profitable oil or gas reserve may go undiscovered. Without producing wells we cannot generate revenues and you will lose your investment.
 
However, it is estimated that the amount of additional costs and expenses associated with public company reporting requirements will be approximately $10,000. It is also estimated that the amount of additional costs and expenses associated with newly applicable corporate governance requirements will be approximately $5,000.  
 
BECAUSE OF LACK OF CAPITAL OUR EXPLORATION ACTIVITIES WILL BE LIMITED.
 
Due to the fact we are small and do not have much capital, we must limit our exploration activities to a relatively small area. We intend to generate revenue through the one existing working interest. Because we will be limiting the scope of our exploration activities, we may not be able to generate timely or sufficient sales to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations. The Company’s financing requirements for next twelve month are the following.
 
·
$10,000 toward marketing materials which include filers, broachers, direct marketing and mailing costs.
·
$10,000 towards costs associated with public company reporting requirements
·
$5,000 related to expenses associated with newly applicable corporate governance requirements.
·
$15,000 for software and hardware to develop an internet site,
·
$10,000 for program administration and working capital
 
 
In addition to the estimated annual burn rate for the operating plan commencing April 1, 2014 of $50,000 we will need additional amount of approximately $10,000 for completing this registration.  
 
Our future capital requirements depend on many factors, including the following:
 
·
the progress of our exploration,
·
The progress in getting our web site completed and operational.
 
Although we have from time to time reviewed opportunities provided to us by investment bankers or potential investors in regard to additional equity financings, there can be no assurance that additional financing will be available when needed, or if available, will be available on acceptable terms. The Company also does not have any agreement in place with any investment bankers or potential investors to provide the Company with any financing. Insufficient funds may prevent us from implementing our business strategy and will require us to further delay, scale back or eliminate our exploration program, or to scale back or eliminate our other operations.
 
In order to obtain working capital we will continue to seek capital through debt or equity financing which may include the issuance of convertible debentures or convertible preferred stock whose rights and preferences are superior to those of the common stockholders.
 
BECAUSE OUR SOLE OFFICER AND DIRECTOR WILL ONLY BE DEVOTING LIMITED TIME TO OUR COMPANY, OUR OPERATIONS MAY BE SPORADIC WHICH MAY RESULT IN PERIODIC INTERRUPTIONS OR SUSPENSIONS OF OPERATIONS. THIS ACTIVITY COULD PREVENT US FROM ATTRACTING NEW CUSTOMERS, AND OR BUSINESSES, AND RESULT IN A LACK OF REVENUES THAT MAY CAUSE US TO SUSPEND OR CEASE OPERATIONS.
 
At this time we have commenced business operations but have only generated nominal revenues. Our sole officer and director, Robert Schwarz, will only be devoting limited time to our operations. Mr. Schwarz will be devoting approximately 10 hours per week of his time to our operations. Because our sole officer and director will only be devoting limited time to our Company, our operations may be sporadic and occur at times which are convenient to her. As a result, operations may be periodically interrupted or suspended which could result in a lack of revenues and a possible cessation of operations.
 
OUR DEVELOPMENT STAGE OPERATING RESULTS WILL BE VOLATILE AND DIFFICULT TO PREDICT. IF THE COMPANY FAILS TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY.
 
Management expects both quarterly and annual development stage operating results to fluctuate significantly in the future. Because our development stage operating results will be volatile and difficult to predict, in some future quarter our development stage operating results may fall below the expectations of securities analysts and investors. If this occurs, the trading price of our common stock May decline significantly. At this time we do not have a trading symbol and the shares of Texas Jack Oil & Gas Corporation are not traded on any market.
 
A number of factors will cause gross margins to fluctuate in future periods. Factors that may harm our business or cause our development stage operating results to fluctuate include the following: the inability to obtain new customers at reasonable cost; the ability of competitors to offer new or enhanced products; price competition; the failure to develop marketing relationships with key business partners; increases in our marketing and advertising costs; the amount and timing of development stage operating costs and capital expenditures relating to expansion of operations; a change to or changes to government regulations; a general economic slowdown. Any change in one or more of these factors could reduce our ability to earn and grow revenue in future periods.
 
 
BECAUSE OUR MANAGEMENT DOES NOT HAVE PRIOR EXTENIVE EXPLORATION EXPERIENCE IN THE OIL AND GAS FIELD, WE MAY HAVE TO HIRE ADDITIONAL PERSONNEL.
 
Because our management does not have prior extensive experience in the oil and gas field, we may have to hire additional experienced personnel to assist us with our operations. If we need the additional experienced personnel and we cannot afford to hire them, we could fail in our plan of operations and have to suspend operations or cease operations entirely.
 
OUR CURRENT BUSINESS DEVELOPMENT STAGE OPERATIONS RELY HEAVILY UPON OUR KEY EMPLOYEE AND FOUNDER, MRS. ROBERT SCHWARZ.
 
We have been heavily dependent upon the expertise and management of Mrs. Robert Schwarz, our Chief Executive Officer and President, and our future performance will depend upon her continued services. The loss of the services of Mr. Schwarz’s services could seriously interrupt our business operations, and could have a very negative impact on our ability to fulfill our business plan and to carry out our existing development stage operations. The Company currently does not maintain key man life insurance on this individual. There can be no assurance that a suitable replacement could be found for her upon retirement, resignation, inability to act on our behalf, or death.
 
THE LIMITED PUBLIC COMPANY EXPERIENCE OF OUR SOLE OFFICER COULD ADVERSELY IMPACT OUR ABILITY TO COMPLY WITH THE REPORTING REQUIREMENTS OF U.S. SECURITIES LAWS.
 
Our sole officer has limited public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Our senior management has never had sole responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our sole officer management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including the establishing and maintaining internal controls over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our company.
 
NONE OF TEXAS JACK’S TECHNOLOGY OR BUSINESS MODEL PARTICULARS IS PROPRIETARY.
 
The hurdles to enter the exploration of oil and gas segment are low. The technology required to commence operations for any potential competitor are available from third party operators (providers) and the costs to support an exploration are not onerous. The business model, with few exceptions, is not new and can be readily adopted by those with a basic knowledge of the oil and gas industry and mid-level technology expertise.
 
THE OIL AND NATURAL GAS INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN ACQUIRING LEASES.
 
The oil and natural gas industry is intensely competitive. Although we do not compete with other oil and gas companies for the sale of any oil and gas that we may produce, as there is sufficient demand in the world market for these products, we compete with numerous individuals and companies, including many major oil and natural gas companies which have substantially greater technical, financial and operational resources and staff. Accordingly, there is a high degree of competition for desirable oil and natural gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed.
 
 
THERE CAN BE NO ASSURANCE THAT WE WILL DISCOVER OIL OR NATURAL GAS IN ANY COMMERCIAL QUANTITY ON OUR PROPERTIES.
 
Exploration for economic reserves of oil and natural gas is subject to a number of risks. There is competition for the acquisition of available oil and natural gas properties. Few properties that are explored are ultimately developed into producing oil and/or natural gas wells. If we cannot discover oil or natural gas in any commercial quantity thereon, our business will fail.
 
WE WILL BE RELIANT UPON AN OUTSIDE OPERATOR TO MONITOR THE DAY TO DAY OPERATION OF THE WELLS. IF THE OPERATOR FAILS TO CARRY OUT THE TERMS OF OUR AGREEMENT OR WE LOSE THE SERVICES OF THE OPERATOR OUR BUSINESS MAY FAIL.
 
The operating of our current well and monthly maintenance of the well will be carried out by an independent operator. We have an operating agreement in place, however; their failure to live up to the terms of the agreement or a cancellation of the agreement could have an adverse effect on production and future revenues, consequently our operations, earnings and ultimate financial success may suffer irreparable harm as a result.
 
(B) RISKS RELATED TO THE OFFERING AND OUR SECURITIES
 
WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.
 
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
 
The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
 
OUR CONTROLLING SECURITY HOLDER MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS.
 
Mrs. Robert Schwarz, our Chief Executive Officer and sole director owns 64% of our capital stock with voting rights. Even if the entire offering is sold, Mr. Schwarz will continue to control a large amount of the company because he will hold 52% of the Company’s issued and outstanding common stock. In this case, Mr. Schwarz will be able to exercise his 52% control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and he will have significant control over our management and policies. The directors elected by our controlling security holder will be able to significantly influence decisions affecting our capital structure. This control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other security holders to approve transactions that they may deem to be in their best interest. For example, our controlling security holder will be able to control the sale or other disposition of our operating businesses and subsidiaries to another entity. The interests of our Chief Executive Officer may differ from the interests of our other shareholders and thus may result in corporate decisions that are disadvantageous to our other shareholders.
 
OUR SOLE OFFICER AND DIRECTOR LIVES OUTSIDE OF JACK COUNTY, TEXAS, MAKING IT DIFFICULT TO OVERSEE THE WELLS.
 
Because our sole officer and director lives in Newport Coast, California, and our current wells are located in Jack County, Texas, there may be a higher risk that our business may fail.
 
 
The distance from where our sole officer and director lives and where the well operations are located, may create a detrimental situation due to lack of oversight. Though we have an operating agreement with an independent operator to monitor the well production, there is no assurance that it will be carried out properly without direct oversight by our officer and director. This could have an adverse effect on production and future revenues, consequently our operations, earnings and ultimate financial success may suffer irreparable harm as a result.
 
THE OFFERING PRICE OF THE (Primary Offering 5,000,000) COMMON STOCK WAS ARBITRARILY DETERMINED, AND THEREFORE SHOULD NOT BE USED AS AN INDICATOR OF THE FUTURE MARKET PRICE OF THE SECURITIES. THEREFORE, THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR ACTUAL VALUE AND MAY MAKE OUR SHARES DIFFICULT TO SELL.
 
The initial fixed offering price of $0.10 per share of common stock offered by us under to this Primary Offering Prospectus was determined by us arbitrarily. The price is not based on our financial condition and prospects, market prices of similar securities of comparable publicly traded companies, certain financial and operating information of companies engaged in similar activities to ours, or general conditions of the securities market. The price may not be indicative of the market price, if any, for the common stock that may develop in the trading market after this offering. The market price for our common stock, if any, may decline below the initial public price at which the shares are offered. Moreover, recently the stock markets have experienced extreme price and volume fluctuations which have had a negative impact on smaller companies. In the past, securities class action litigation has often been instituted against various companies following periods of volatility in the market price of their securities. If instituted against us, regardless of the outcome, such litigation would result in substantial costs and a diversion of management's attention and resources, which would increase our operating expenses and affect our financial condition and business operations.
 
The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value; assets or earnings of our Company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
 
YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
 
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 700,000,000 shares of capital stock consisting of 60,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.
 
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. Any such issuances will result in immediate dilution to our existing shareholder’s interests, which will negatively affect the value of your shares. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes.
 
 
OUR COMMON STOCK IS CONSIDERED PENNY STOCKS, WHICH MAY BE SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
 
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
 
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
 
CURRENTLY, THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK, AND THERE IS NO ASSURANCE THAT ANY PUBLIC MARKET WILL EVER DEVELOP OR THAT OUR COMMON STOCK WILL BE QUOTED FOR TRADING AND, EVEN IF QUOTED, THAT A VIABLE, LIQUID MARKET WITH LOW VOLATILITY WILL DEVELOP.
 
Currently, our common stock is not listed on any public market, exchange, or quotation system. Although we are taking steps to enable our common stock to be publicly traded, a market for our common stock may never develop. We currently plan to apply for quotation of our common stock on the OTCBB upon the effectiveness of the registration statement of which this Prospectus forms a part. However, our common stock may never be traded on the OTCBB or even if traded, a viable public market may not materialize. Even if we are successful in developing a public market, there may not be enough liquidity in such market to enable shareholders to sell their Shares. If our common stock is not quoted on the OTCBB or if a viable public market for our common stock does not develop, investors may not be able to re-sell the Shares, rendering the same effectively worthless and resulting in a complete loss of their investment.
 
We are planning to identify a market maker to file an application with the Financial Industry Regulatory Authority, Inc. ("FINRA") on our behalf so that we may quote our shares of common stock on the OTCBB commencing upon the effectiveness of our registration statement of which this Prospectus is a part. We cannot assure you that such market maker's application will be accepted by the FINRA. We are not permitted to file such application on our own behalf. If the application is accepted, there can be no assurances as to whether any market for our common stock will develop or of the price at which our common stock will trade. If the application is accepted, we cannot predict the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
 
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for the common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly.
 
The Primary Offering of 5,000,000 Common shares being registered in this registration statement may be sold  at a fixed price of $0.10 per share.

The Selling Shareholders 8,400,000 may sell some or all of their shares at a fixed price of $0.001 per share until our shares are quoted on the OTCBB and thereafter at prevailing market prices or privately negotiated prices.  Prior to being quoted on the OTC Bulletin Board, shareholders may sell their shares in private transactions to other individuals.
 
Shares of our company stock may never become tradable  on the OTCBB or another exchange. In addition, prices for our common stock may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of the Company, and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
 
 
(C) RISKS RELATED TO THE INDUSTRY
 
RISKS RELATING TO THE OIL AND NATURAL GAS INDUSTRY
 
THE MARKETABILITY OF NATURAL RESOURCES IS AFFECTED BY NUMEROUS FACTORS BEYOND OUR CONTROL WHICH MAY RESULT IN US NOT RECEIVING AN ADEQUATE RETURN ON INVESTED CAPITAL TO BE PROFITABLE OR VIABLE.
 
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and natural gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and natural gas and environmental protection regulations. The effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
 
OIL AND NATURAL GAS OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION WHICH MAY CAUSE SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS OF THOSE ANTICIPATED CAUSING AN ADVERSE EFFECT ON OUR COMPANY.
 
Oil and natural gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and natural gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages. To date, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability to expand or maintain our operations.
 
EXPLORATION AND PRODUCTION ACTIVITIES ARE SUBJECT TO CERTAIN ENVIRONMENTAL REGULATIONS WHICH MAY PREVENT OR DELAY THE COMMENCEMENT OR CONTINUATION OF OUR OPERATIONS.
 
In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuation of a given operation. Specifically, we may be subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.
 
ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A NEGATIVE IMPACT ON OUR ABILITY TO OPERATE AND OUR PROFITABILITY.
 
The business of oil and natural gas exploration and development is subject to substantial regulation under various countries laws relating to the exploration for, and the development, upgrading, marketing, pricing, taxation, and transportation of oil and natural gas and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil and natural gas exploration and development operations could have a material adverse impact on our business. In addition, there can be no assurance that income tax laws, royalty regulations and government incentive programs related to the properties subject to our farm-out agreements and the oil and natural gas industry generally will not be changed in a manner which may adversely affect our progress and cause delays, inability to explore and develop or abandonment of these interests.
 
 
Permits, leases, licenses, and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect of our activities or, if granted, will not be cancelled or will be renewed upon expiry. There is no assurance that such permits, leases, licenses, and approvals will not contain terms and provisions which May adversely affect our exploration and development activities.
 
IF OUR ASSESSMENT OF OUR LEASED PROPERTY, OR ANY FUTURE LEASED PROPERTIES, IS MATERIALLY INACCURATE, IT COULD HAVE SIGNIFICANT IMPACT ON FUTURE OPERATIONS AND EARNINGS.
 
The successful acquisition of producing properties requires assessments of many factors, which are inherently inexact and may be inaccurate, including the following:
 
 
·
the amount of recoverable reserves;
     
 
·
future oil and natural gas prices;
     
 
·
estimates of operating costs;
     
 
·
estimates of future development costs;
     
 
·
estimates of the costs and timing of plugging and abandonment; and
     
 
·
potential environmental and other liabilities.
 
Our assessment will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies.
 
IF OIL AND NATURAL GAS PRICES DECREASE, WE MAY BE REQUIRED TO TAKE WRITE-DOWNS OF THE CARRYING VALUE OF OUR OIL AND NATURAL GAS PROPERTY, POTENTIALLY NEGATIVELY IMPACTING THE TRADING VALUE OF OUR SECURITIES.
 
Accounting rules require that we review periodically the carrying value of our oil and natural gas property for possible impairment. Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our oil and natural gas property. A write-down could constitute a non-cash charge to earnings. It is likely the cumulative effect of a write-down could also negatively impact the trading price of our securities.
 
WE MAY INCUR SUBSTANTIAL LOSSES AND BE SUBJECT TO SUBSTANTIAL LIABILITY CLAIMS AS A RESULT OF OUR OIL AND NATURAL GAS OPERATIONS.
 
We do not currently have insurance for possible risks. Losses and liabilities arising from uninsured events could materially and adversely affect our business, financial condition or results of operations. The oil and natural gas production activities will be subject to all of the operating risks associated with the production of oil and natural gas, including the possibility of:
 
 
·
environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;
     
 
·
abnormally pressured formations;
     
 
·
mechanical difficulties;
     
 
·
fires and explosions;
     
 
·
personal injuries and death; and
     
 
·
natural disasters.
 
 
Any of these risks could adversely affect our ability to conduct operations or result in substantial losses to our company. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, then it could adversely affect us.
 
WE COULD NOT ACT AS THE "OPERATOR" ON OUR PROPERTY, AND SO WE ARE EXPOSED TO THE RISKS OF OUR THIRD-PARTY OPERATORS.
 
We will be relying on the expertise of contracted third-party oil and gas exploration and development operators and third-party consultants for their judgment, experience and advice. We can give no assurance that these third party operators or consultants will always act in our best interests, and we are exposed as a third party to their operations and actions and advice in those properties and activities in which we are contractually bound.
 
UNLESS WE REPLACE OUR OIL AND NATURAL GAS RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE, WHICH WOULD ADVERSELY AFFECT OUR CASH FLOWS AND INCOME.
 
Unless we conduct successful development and exploitation activities or acquire properties containing proved reserves, our reserves when we find them will decline as those reserves are produced. We currently have no proved reserves on our property. Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves and production, and, therefore our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. If we are unable to develop, exploit, find or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing property would be incapable of sustaining commercial production.
 
IF ACCESS TO MARKETS IS RESTRICTED, IT COULD NEGATIVELY IMPACT OUR PRODUCTION, OUR INCOME AND ULTIMATELY OUR ABILITY TO RETAIN OUR LEASE AND ANY FUTURE LEASES.
 
Market conditions or the unavailability of satisfactory oil and natural gas gathering arrangements may hinder access to oil and natural gas markets or delay production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities. The ability to market production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain such services on acceptable terms could materially harm our business.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
The information contained in this report, including in the documents incorporated by reference into this report, includes some statement that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our and their management's expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
 
The forward-looking statements contained in this report are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties' control) or other assumptions.
 
 
USE OF PROCEEDS
 
SELLING STOCKHOLDERS
 
We will not receive any proceeds from the sale of the 8,400,000 shares by the ten (10) Selling Security Holders. All proceeds from the sale of the shares offered hereby will be for the account of the ten (10) Selling Security Holders, as described below in the sections entitled "Selling Stockholders" and "Plan of Distribution."
 
With the exception of any brokerage fees and commission which are the obligation of the Selling Stockholders, we are responsible for the fees, costs and expenses of this offering which are estimated to be $35,000, inclusive of our legal and accounting fees, printing costs and filing and other miscellaneous fees and expenses, of which the Company has incurred approximately $25,620 as of December 31, 2013.
 
PRIMARY OFFERING
 
Assuming sale of all 5,000,000 of the shares offered herein, of which there is no assurance, the net proceeds from this Offering will be $500,000. The proceeds are expected to be disbursed, in the priority set forth below, during the first twelve (12) months after the successful completion of the Offering:
 
     
100%
     
70%
     
40%
 
Total Proceeds to the Company
 
$
500,000
   
$
350,000
   
$
200,000
 
                         
Lease of additional Oil & Gas Property
 
$
170,500
   
$
0
   
$
0
 
Lease of additional working interest
 
$
250,408
   
$
250,704
   
$
107,704
 
Administration and General Expense
 
$
5,000
   
$
5,000
   
$
5,000
 
Legal and Accounting
 
$
10,000
   
$
10,000
   
$
10,000
 
Working Capital
 
$
64,092
   
$
84,296
   
$
77,296
 
                         
Total Use of Net Proceeds
 
$
500,000
   
$
350,000
   
$
200,000
 
 
We will establish a separate bank account and all proceeds will be deposited into that account until the total amount of the Offering is received and all shares are sold, or the minimum of 2,000,000 shares are sold and the Offering expires, at which time the funds will be released to us for use in our operations. In the event we do not sell the minimum number of shares before the expiration date of the Offering, all funds will be returned promptly to the subscribers, without interest or deduction. If it becomes necessary our director has verbally agreed to loan the company funds to complete the registration process, but we will require full funding to implement our business plan.
 
DILUTION
 
The common stock sold by the ten (10) Selling shareholders are provided in Item 7 is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to those existing nine shareholders.
 
Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing stockholders.
 
 
As of December 31, 2013, the net tangible book value of our shares was $105,844 or approximately $.0044 per share, based upon 23,400,000 shares outstanding.
 
Upon 100% completion of this Offering, but without taking into account any change in the net tangible book value after completion of this Offering other than that resulting from the sale of all the shares and receipt of the total proceeds of $500,000, the net tangible book value of the 28,400,000 shares to be outstanding will be $605,844, or approximately $0.021 per Share. Accordingly, the net tangible book value of the shares held by our existing stockholders (23,400,000 shares) will be increased by $0.02 per share without any additional investment on their part. The purchasers of shares in this Offering will incur immediate dilution (a reduction in the net tangible book value per share from the offering price of $0.10 per Share) of $0.08 per share. As a result, after completion of the Offering, the net tangible book value of the shares held by purchasers in this Offering would be $0.02 per share, reflecting an immediate reduction in the $0.08 price per share they paid for their shares.
 
After 100% completion of the Offering, our sole officer and director, Robert Schwarz will own 52% of the total number of share then outstanding, for which he made an initial contribution of $165,000 as interest in mine property which was original cost to the founder, or an average of $0.011 per share. The existing stockholder will own 30% of the total number of shares then outstanding, for which they will have made a cash investment of $8,400, or an average of $0.001 per Share. Upon completion of the Offering, the purchasers of the shares offered hereby will own 18% of the total number of shares then outstanding, for which they will have made cash investment of $500,000, or $0.10 per share.
 
The following table illustrates the per share dilution to the new investors in the event only a percentage of the shares are sold, and if all the shares are sold, and does not give any effect to the results of any operations subsequent to December 31, 2013:
 
Percentage of Primary Offering
   
40%
     
70%
     
100%
 
                         
Proceeds to the Company
 
$
200,000
   
$
350,000
   
$
500,000
 
Number of Shares
   
2,000,000
     
3,500,000
     
5,000,000
 
                         
Price Paid by founder
 
$
0.011
   
$
0.011
   
$
0.011
 
Price Paid per Share by Existing 10 Shareholders
 
$
0.001
   
$
0.001
   
$
0.001
 
Public Offering Price per Share
 
$
0.10
   
$
0.10
   
$
0.10
 
Net Tangible Book Value Prior to this Offering
 
$
0.0044
   
$
0.0044
   
$
0.0044
 
Increase in Net Tangible Book Value per Share Attributable to cash payments from purchasers of the shares offered
 
$
0.012
   
$
0.0169
   
$
0.021
 
Value per Share Attributable to cash payments from purchasers of the shares offered
 
$
0.10
   
$
0.10
   
$
0.10
 
Immediate Dilution per Share to New Investors
 
$
0.08
   
$
0.08
   
$
0.08
 
 
The following table summarizes the number and percentage of shares purchased the amount and percentage of consideration paid and the average price per Share paid by our existing stockholder and by new investors in this offering if all 5,000,000 shares are sold:
 
   
Total Price Per Share
   
Number of shares Held
   
Percent of Ownership
   
Consideration Paid
 
Founder
 
$
0.011
     
15,000,000
     
52
%
 
$
165,000
(interest in Mine property)
 
Existing Shareholders
 
$
0.001
     
8,400,000
     
30
%
 
$
8,400
 
Investors in this offering
 
$
0.100
     
5,000,000
     
18
%
 
$
500,000
 
 
 
DETERMINATION OF OFFERING PRICE
 
Primary Offering
 
The price of the 5,000,000 common shares has been arbitrarily determined by our board of directors. We selected the $0.10 price for the sale of our shares of common stock. The prices at which the shares of common stock covered by the prospectus may actually be sold will be $0.10 per share. There is no assurance that our shares may ever be traded on the OTCBB or any other exchange.
 
In determining the initial public offering price of the shares we considered several factors including the following:
 
· our start up status;
· our new business structure and operations as well as lack of client base;
· prevailing market conditions, including the history and prospects for our industry;
· our future prospects and the experience of our management;
· our capital structure.
 
Therefore, the public offering price of the shares does not necessarily bear any relationship to established valuation criteria and may not be indicative of prices that may prevail at any time or from time to time in the public market for the common stock. You cannot be sure that a public market for any of our securities will develop and continue or that the securities will ever trade at a price at or higher than the offering price in this Offering.
 
SELLING STOCKHOLDERS
 
The common shares being offered for resale by the selling Stockholders consists of the 8,400,000 shares of our common stock held by 10 shareholders. Such shareholders include the holders of the 8,400,000 shares of its $0.001 par value common stock during June through January of 2014 in a private placement under Rule 506 of the Securities Act of 1933 for $8,400 in cash, or $0.001 per share there are a total of ten individual investors. Due to a lack of operations, management believes the purchase price of $0.001 per share is representative of fair value.  In May of 2013, the Company issued 15,000,000 shares to its founder at $0.011 for purchase of interest in mine property, the founder is not registering any of his shares, nor is he offering to sell any of his shares at this time.
 
The following table sets forth the name of the selling Stockholders, the number of shares of common stock beneficially owned by each of the selling stockholders as of April 21, 2014 and the number of shares of common stock being offered by the selling Stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the selling stockholders may offer all or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the selling stockholders.
 
   
Name
 
Shares
Beneficially
Owned
prior to
Offering
   
Shares to be
Offered
   
Shares
Beneficially
Owned
after
Offering
   
Percent
Beneficially
Owned
after
Offering
 
1  
Kent Donithan
    980,000       980,000       0       0 %
2  
Tamatha Donithan
    500,000       500,000       0       0 %
3  
Bobby Como
    980,000       980,000       0       0 %
4  
Damon Bottoms
    980,000       980,000       0       0 %
5  
Michael Maley
    980,000       980,000       0       0 %
6  
John Gauen
    980,000       980,000       0       0 %
7  
Joe Issacs
    980,000       980,000       0       0 %
8  
Terry Morrison
    960,000       960,000       0       0 %
9  
 Rodney Throgmorton
    660,000       660,000       0       0 %
10  
David Parker
    400,000       400,000       0       0 %
   
TOTAL:
    8,400,000       8,400,000                  
  
 
None of the selling shareholders:
 
 
·
has had a material relationship with us other than as a shareholder at any time within the past three years; or
 
·
has ever been one of our officers or directors or an officer or director of our predecessors or affiliates 
 
·
are broker-dealers or affiliated with broker-dealers. 
 
PLAN OF DISTRIBUTION
 
Primary Offering
 
We are offering the shares on a "self-underwritten" basis directly through Robert Schwarz, our officer. Mr. Schwarz will not receive any commissions or other remuneration of any kind in connection with his participation in this Offering based either directly or indirectly on transactions in securities.
 
This Offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the shares offered under this prospectus. This offering will terminate upon the earlier to occur of (i) 180 days after this registration statement becomes effective with the Securities and Exchange Commission, (ii) the date on which all 5,000,000 shares registered hereunder have been sold. We may, at our discretion, extend the offering for an additional 90 days.
 
When at least 2,000,000 shares of the Offering are sold and the Offering has expired the funds will be transferred to our business account for use in the implementation of our business plan. If the minimum number of shares are not sold by the expiration date of the Offering, the funds will be promptly returned to the investors (within 3 business days), without interest or deduction.
 
Mr. Schwarz will not register as a broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934, in reliance upon Rule 3a4-1, which sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer's securities and not be deemed to be a broker-dealer.
 
1. Mr. Schwarz is not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Act, at the time of his participation;
 
2. Mr. Schwarz will not be compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities;
 
3. Mr. Schwarz is not, nor will he be at the time of participation in the Offering, an associated person of a broker-dealer; and
 
4. Mr. Schwarz meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he (A) primarily performs, or is intended primarily to perform at the end of the Offering, substantial duties for or on behalf of our company, other than in connection with transactions in securities; and (B) is not a broker or dealer, or been an associated person of a broker or dealer, within the preceding twelve months; and (C) have not participated in selling and offering securities for any issuer more than once every twelve months other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
 
 
Mr. Schwarz does not intend to purchase any shares in this Offering.
 
If applicable, the shares may not be offered or sold in certain jurisdictions unless they are registered or otherwise comply with the applicable securities laws of such jurisdictions by exemption, qualification or otherwise. We intend to sell the shares only in the states in which this offering has been qualified or an exemption from the registration requirements is available, and purchases of shares may be made only in those states.
 
In addition and without limiting the foregoing, we will be subject to applicable provisions, rules and regulations under the Exchange Act with regard to security transactions during the period of time when this Registration Statement is effective.
 
We will not use public solicitation or general advertising in connection with the Primary Offering. This Primary Offering will continue for the longer of: (i) 180 days after this registration statement becomes effective with the Securities and Exchange Commission, or (ii) the date on which all 5,000,000 shares registered hereunder have been sold. We may at our discretion extend the offering for an additional 90 days.
 
DEPOSIT OF OFFERING PROCEEDS OF PRIMARY OFFERING
 
We are offering for sale a minimum of 2,000,000 and a maximum of 5,000,000 shares of common stock at a price of $0.10 per share. We will not be able to spend any of the proceeds unless the minimum number of shares is sold and the Offering expires. We intend to hold all funds collected in a standard bank account until the total amount of $500,000 has been received and the Offering is closed or the minimum shares are sold and the Offering expires. At that time, the funds will be transferred to our business account for use in the implementation of our business plan. In the event the minimum numbers of shares are not sold out prior to the Expiration Date, all money will be promptly returned to the investors, without interest or deduction within 3 business days.
 
We determined the use of the standard bank account was the most efficient use of our current limited funds. Please see the risk factor section to read the related risk to you as a purchaser of any shares.
 
PROCEDURES AND REQUIREMENTS FOR SUBSCRIPTION OF PRIMARY OFFERING
 
If you decide to subscribe for any of the 5,000,000 shares in this Primary Offering, you will be required to execute a Subscription Agreement and tender it, together with a check, bank draft or cashier's check payable to the company. Subscriptions, once received by the company, are irrevocable. All checks for subscriptions should be made payable to Texas Jack Oil & Gas Corporation.
 
SELLING STOCKHOLDERS
 
The ten (10) selling security holders may sell some or all of their shares at a fixed price of $0.001 per share until our shares are quoted on the OTCBB and thereafter at prevailing market prices or privately negotiated prices. Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the OTCBB concurrently with the filing of this prospectus. In order to be quoted on the OTC Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
 
Once a market has developed for our common stock, the shares may be sold or distributed from time to time by the selling stockholders, who may be deemed to be underwriters, directly to one or more purchasers or through brokers or dealers who act solely as agents, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices, which may be changed. The distribution of the shares may be effected in one or more of the following methods:
 
 
●
ordinary brokers transactions, which may include long or short sales,
 
●
transactions involving cross or block trades on any securities or market where our common stock is trading, market where our common stock is trading,
 
●
through direct sales to purchasers or sales effected through agents,
 
●
through transactions in options, swaps or other derivatives (whether exchange listed of otherwise), or exchange listed or otherwise), or
 
●
any combination of the foregoing.
 
In addition, the ten (10) selling stockholders may enter into hedging transactions with broker-dealers who may engage in short sales, if short sales were permitted, of shares in the course of hedging the positions they assume with the selling stockholders. The selling stockholders may also enter into option or other transactions with broker-dealers that require the delivery by such broker-dealers of the shares, which shares may be resold thereafter pursuant to this prospectus. To our best knowledge, none of the selling security holders are broker-dealers or affiliates of broker dealers.
 
We will advise the selling security holders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling security holders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling security holders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling security holders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
 
Brokers, dealers, or agents participating in the distribution of the shares may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). Neither the selling stockholders nor we can presently estimate the amount of such compensation. We know of no existing arrangements between the selling stockholders and any other stockholder, broker, dealer or agent relating to the sale or distribution of the shares. We will not receive any proceeds from the sale of the shares of the selling security holders pursuant to this prospectus. We have agreed to bear the expenses of the registration of the shares, including legal and accounting fees, and such expenses are estimated to be approximately $35,000. The majority of these expenses have already been paid and are included in the financial statement.
 
Notwithstanding anything set forth herein, no FINRA member will charge commissions that exceed 8% of the total proceeds of the offering pursuant to FINRA Rule 2710.
 
If our common stock becomes listed on the OTCBB it will have an effect on our liquidity. Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.
 
Additionally, our stock is a penny stock. Burdens are imposed upon broker-dealers by penny stock requirements that may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
 
 
SELLING STOCKHOLDERS
 
The ten (10) Selling Security Holders may also sell shares directly to market makers acting as principals or brokers or dealers, who may act as agent or acquire the common stock as a principal. Any broker or dealer participating as agent in such transactions may receive a commission from the Selling Security Holders or, if they act as agent for the purchaser of such common stock, a commission from the purchaser. The Selling Security Holders will likely pay the usual and customary brokerage fees for such services. Brokers or dealers who acquire shares as principals may thereafter resell such shares from time to time in transactions in a market or on an exchange, in negotiated transactions or otherwise, at market prices, and in connection with such re-sales may pay or receive commissions to or from the purchasers of such shares. These transactions may involve cross and block transactions that may involve sales to and through other brokers or dealers. We can provide no assurance that all or any of the common stock offered will be sold by the Selling Security Holder.
 
If, after the date of this prospectus, the Selling Security Holder enters into an agreement to sell their shares to a broker-dealer as principal and the broker-dealer is acting as an underwriter, we will need to file a post-effective amendment to the registration statement of which this prospectus is a part. We will need to identify the broker-dealer, provide required information on the plan of distribution, and revise the disclosures in that amendment, and file the agreement as an exhibit to the registration statement. Also, the broker-dealer would have to seek and obtain clearance of the underwriting compensation and arrangements from FINRA.
 
In order to comply with the applicable securities laws of certain states, the securities will be offered or sold in those states only if they have been registered or qualified for sale; there is an exemption from such registration or if there is a qualification requirement available and with which Texas Jack Oil & Gas Corporation has complied.
 
In addition and without limiting the foregoing, the Company will be subject to applicable provisions, rules and regulations under the Exchange Act with regard to security transactions during the period of time when this Registration Statement is effective.
 
We are paying the expenses of the offering because we seek to: (i) become a reporting company with the Commission under the Securities Exchange Act of 1934 (the "1934 Act"); and (ii) enable our common stock to be traded on the OTC Bulletin Board. We believe that the registration of the resale of shares on behalf of the existing security holder may facilitate the development of a public market in our common stock if our common stock is approved for trading on the OTC Bulletin Board.
 
We consider that the development of a public market for our common stock will make an investment in our common stock more attractive to future investors. We will at some point in the near future need to raise additional capital through private placement offerings. We believe that obtaining reporting company status under the 1934 Act and trading on the OTC Bulletin Board should increase our ability to raise these additional funds from investors.
 
The Selling Security Holder and any broker-dealers or agents must comply with the requirements of the Securities Act and the Securities Exchange Act in the offer and sale of the common stock. In particular, during such times as the Selling Security Holder is engaged in a distribution of the common stock, and therefore be considered to be an underwriter, she must comply with applicable law and may, among other things may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, she must comply with applicable law and may, among other things:
 
·
Not engage in any stabilization activities in connection with our common stock;
·
Furnish each broker or dealer through which common stock may be offered, such copies of this prospectus, as amended from time to time, as may be required by such broker or dealer; and,
·
Not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Securities Exchange Act.
 
There is no assurance that the Selling Security Holder will sell any or all of the shares offered by her. Under the securities laws of certain states, the shares may be sold in such states only through registered or licensed broker/dealers. In addition, in certain states the shares may not be sold unless they have been registered or qualified for sale in that state or an exemption from registration or qualification is available and is met. There are no pre-existing contractual agreements for any person to purchase the shares.
 
 
Of the 23,400,000 shares of common stock outstanding as of May 9 , 2014, 15,000,000 shares are owned by our sole officer and director Robert Schwarz. And the remaining 8,400,000 are held by 10 individuals (See selling shareholders listed above).
 
Dividends
 
We have not declared any cash dividends, nor do we intend to do so. We are not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render us insolvent. Dividend policy will be based on our cash resources and needs, and it is anticipated that all available cash will be needed for our operations, in the foreseeable future.
 
Section 15(g) of the Exchange Act
 
Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 and Rule 15g-9 promulgated thereunder. They impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). While Section 15(g) and Rules 15g-1 through 15g-6 apply to brokers-dealers, they do not apply to us.
 
Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules. Rule 15g-2 declares unlawful broker-dealer transactions in penny stocks unless the broker-dealer has first provided to the customer a standardized disclosure document.
 
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny stock transaction unless the broker-dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.
 
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
 
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales persons compensation.
 
Rule 15g-6 requires broker-dealers selling penny stocks to provide their customers with monthly account statements.
 
Rule 15g-9 requires broker-dealers to approved the transaction for the customer's account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the FINRA's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker-dealers and their associated persons. The application of the penny stock rules may affect your ability to resell your shares.
 
 
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
Our securities are not listed on any exchange or quotation service. We are not required to comply with the timely disclosure policies of any exchange or quotation service. The requirements to which we would be subject if our securities were so listed typically include the timely disclosure of a material change or fact with respect to our affairs and the making of required filings. Although we are not required to deliver an annual report to security holders, the Company intends to provide an annual report to our security holders, which will include audited financial statements.
 
When we become a reporting company with the Securities and Exchange Commission, the public may read and copy any materials filed with the Securities and Exchange Commission at the Security and Exchange Commission’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov .
 
There are no outstanding options or warrants to purchase, or securities convertible into, shares of our common stock.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
 
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
 
We are a development stage corporation and have not yet generated or realized any revenues from our business operations.
 
Our auditors have raised substantial doubt as to our ability to continue as an on-going business for the next 12 months. We have not generated any revenue and have only begun to develop our business plan, website and sales literature.
 
GENERAL OVERVIEW
 
DESCRIPTION OF BUSINESS
 
We are an exploration stage company with limited revenues and operating history. Our independent auditor has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. We currently own a 3% working interest in one well the Bright 1H, which was drilled in late summer of 2012 and was completed and placed into production in October 2012. The well has been drilled with lateral lines that are approximately 2,000 feet in length. There are a total of three producing wells on this property however Texas Jack only has an interest in one well the Bright 1H.
 
The Company is reviewing its next project where Texas Jack would purchase a 3% working interest in a lease operated by 3-Ten located in Jack County Texas. At this time Texas Jack has not purchased the working interest or entered into any contracts with operator.
 
Our focus for the current fiscal year will be on further locating and developing new working interests, while continuing to pursue acquisition of new leases and/or existing oil and gas wells which have potential for production, if revenues warrant.
 
 
GENERAL INFORMATION ABOUT OUR CURRENT WORKING INTEREST.
 
ACQUISITION OF THE 3% WORKING INTEREST.
 
On October 1, 2012, Texas Permian Partners Oil &  Gas, Inc., (“Texas Permian”) a Nevada Corporation, for whom Robert Schwarz, now President of Texas Jack was sole officer, director and shareholder, purchased the 3% working interest in the Bright 1H well from Southlake Energy for $165,000 with funds provided by Robert Schwarz. On May 1, 2013 the President of the Company executed an assignment agreement with Southlake Operating, LLC the operator of the well which transferred the 3% working interest in one well the 3 Bright1H well located in Jack County Texas to Texas Jack Oil & Gas Corporation. This assignment was authorized and approved by Texas Permian, which also authorized that any consideration for said assignment was to be given to Robert Schwarz as an individual for services rendered to Texas Permian. The 3% working interest in the Bright 1H well, was drilled in late summer of 2012 and was completed and placed into production in October 2012. The well has been drilled with lateral lines that are approximately 2,000 feet in length. The Bright 1H well is further described as being situated on 87.03 acres of land of situated within the S.R. Halley Survey, Abstract No. 1748, Jack County, Texas, said 87.03 acres being out of and part of a 325.45 acre tract of land described in a Deed to Edwin B. Bright et ux. Recorded in Volume 333, Schwarz 645 of the Official Public Records of Jack County, Texas. The well was drilled late summer of 2012 and put into production October 2012 and is currently producing approximately 100 barrels of oil per month.
 
The consideration for the assignment was $165,000 being original cost to the founder. The well was drilled late summer of 2012 and put into production October 2012 and is currently producing approximately 100 barrels of oil per month.
 
LOCATION, ACCESS, CLIMATE, LOCAL RESOURCES & INFRASTRUCTURE
 
General Area: The Bright 1H well is further described as being situated on 87.03 acres of land of situated within the S.R. Halley Survey, Abstract No. 1748, Jack County, Texas, said 87.03 acres being out of and part of a 325.45 acre tract of land described in a Deed to Edwin B. Bright et ux. Recorded in Volume 333, Schwarz 645 of the Official Public Records of Jack County, Texas. (see attached Plat below)
 
 
[MAP SHOWING Bright 1H in Jack County Texas]
 
Jack County, in north central Texas, is bordered by Clay, Archer, and Montague counties to the north, Young County to the west, Palo Pinto and Parker counties to the south, and Wise County to the east. Jacksboro, the county seat and the largest town in the county, is sixty miles southeast of Wichita Falls and seventy miles northwest of Fort Worth. The county's center is at 98°10' west longitude and 33°12' north latitude. As of the 2010 census its population was 9,044. Its county seat is Jacksboro. Jack County is named for Patrick Churchill Jack and his brother William Houston Jack, both soldiers of the Texas Revolution.
 
 
  GRAPHIC
 
The county's 920 square miles is forested mainly by mesquite, live oak, blackjack oak, and post oak, with pecan, elm, walnut, and cottonwood trees along the waterways. The altitude increases from east to west and ranges from 800 feet to 1,350 feet. The West Fork of the Trinity River cuts across Jack County diagonally from northwest to southeast and provides the main drainage for the county. Among other creeks are East Rock, Howard, Lost, Crooked, the North Fork of Crooked, Little Cleveland, the West Fork of Keechi, Two Bush, and Henderson. Lake Bridgeport and Lake Jacksboro are in the county. Mineral resources include petroleum, natural gas, and stone.
 
History: Before white settlement Jack County was a borderland between the Caddo Indians to the east and the Comanches to the west. The first Europeans to visit the area may have been Spaniards under Franciso Vasquez de Coronado in the sixteenth century, but they made no permanent settlements. Jack County was included in the Texan Emigration and Land Company, more commonly known as the Peters colony. Settlers began arriving in the future county by 1855, and by 1856 the first settlement, Keechi, was established. Early settlers entering Jack County came mainly from the middle South states, primarily Alabama, North Carolina, Arkansas, Missouri, and Kentucky, many by way of Smith County or other parts of Texas.
 
 
Cattle ranching dominated the county's economy during its early years. The first cattle drive north from Jack County was made in 1866, and by 1890 there were 68,756 cattle in the county. After large-scale farming was introduced in the late 1870s, the number of farms grew rapidly, increasing from 945 in 1880 to 1,888 in 1910. The dominant crop in the county's early years was corn, with 115,761 bushels harvested in 1880 and 663,490 bushels in 1900. During the late 1880s and 1890s oats and wheat were introduced, and by 1920 Jack County was a leading producer of grains; in that year county farmers grew 498,250 bushels of oats, 249,643 bushels of corn, and 351,819 bushels of wheat. Cotton was also grown in considerable quantities after 1890, and by the early 1920s the annual yield was 6,000 bales. Despite the growth of crop farming, livestock raising continued to play an important role in the county's economic life. Revenue from cattle remained an important source of income for many farmers and ranchers, and receipts from poultry and egg production grew throughout the early decades of the twentieth century.
 
Oil, discovered near Bryson in 1923, set off a small boom, as numerous oilfield workers and others attracted by the prospects of easy money moved in. Nevertheless the population of the county as a whole declined steadily after 1915, largely as the result of a series of agricultural busts. The population, which reached a peak of 11,817 in 1910, fell to 9,863 in 1920 and 9,046 in 1930. Income from oil helped some cash-poor farmers to settle debts and survive the lean years of the Great Depression, but many others were forced to sell their farms and equipment and try their hands at something else. The economy began to recover during World War II, but subsequently the population declined slowly. Between 1940 and 1990 the number of residents fell from 10,206 to 6,981. In the early 1990s cow and calf operations provided the largest source of agricultural receipts; the leading crop was wheat. The sale of firewood also provided important income. Leading industries included petroleum production and oil-well servicing. Oil production steadily increased to 1,800,000 barrels annually in the early 1990s. Production began to decline thereafter, however. A little over 706,000 barrels of oil and 12,131,871 cubic feet of gas-well gas were produced in the county in 2004; by the end of that year 203,811,409 barrels of oil had been taken from county lands since 1923.
 
BIBLIOGRAPHY: 
 
Thomas F. Horton, History of Jack County (Jacksboro, Texas: Gazette Print, 193-?).
 
Ida Lasater Huckabay, Ninety-Four Years in Jack County (Austin: Steck, 1949; centennial ed., Waco: Texian Press, 1974).
 
Jack County Scrapbook, Dolph Briscoe Center for American History, University of Texas at Austin.
 
Gilbert Webb, comp., Four Score Years in Jack County, 1860–1940 (Jacksboro, Texas, 1940).
 
MARKETS
 
The availability of a ready market and the prices obtained for produced oil depends on many factors, including the extent of domestic production and imports of oil, the proximity and capacity of pipelines and other transportation facilities, fluctuating demand, the marketing of competitive fuels, and the effects of governmental regulation on production and sales. A ready domestic market for oil exists because of the presence of pipelines for transport. The existence of an international market exists depends upon the presence of international delivery systems and political and pricing factors.
 
If we are successful in the continuing production of oil with the one well the Bright 1H and possible additional property, the operator of our one well the Bright 1H will continue to target refiners, remarketers and third party intermediaries, who either have, or have access to, consumer delivery systems. Southlake Operating LLC  the third –party operator will continue to sell the oil from our one well the Bright 1H under both short-term (less than one year) and long-term (one year or more) agreements at prices negotiated with third parties. Currently Spears Oil, a third party operator, picks up the oil from the Bright 1H and sells it to Shell Oil Company. The price is based upon a 20-day floating average. Typically either the entire contract (in the case of short-term contracts) or the price provisions of the contract (in the case of long-term contracts) are renegotiated at intervals ranging in frequency from daily to annually.
 
We have not yet adopted any specific sales and marketing plans. However, as we purchase future properties and or working interests, the need to hire marketing personnel will be addressed.
 
 
COMPETITION
 
We operate in a highly competitive environment for acquiring properties, modernizing existing wells and marketing oil that is produced. The majority of our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in the areas in which we plan to operate. Those companies may be able to pay more for productive properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial resources permit. Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and natural gas industry.
 
Current competitive factors in the domestic oil and gas industry are unique. The actual price range of crude oil is largely established by major international producers. Pricing for natural gas is more regional; however, more favorable prices can usually be negotiated for larger quantities of oil and/or gas product. In this respect, while we believe we have a price disadvantage when compared to larger producers, we view our primary pricing risk to be related to a potential decline in international prices to a level which could render our production uneconomical.
 
We will be committed to use the services of the existing gathering companies in our present area of production. This potentially gives such gathering companies certain short-term relative monopolistic powers to set gathering and transportation costs, because obtaining the services of an alternative gathering company may require substantial additional costs.
 
General competitive conditions may be substantially affected by various forms of energy legislation and/or regulation introduced from time to time by the governments of the United States and other countries, as well as factors beyond our control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.
 
In the face of competition, we may not be successful in acquiring, exploring or developing profitable oil and gas properties or interests, and we cannot give any assurance that suitable properties or interests will be available for our acquisition, exploration or development. Despite this, we hope to compete successfully in the industry by:
 
· keeping our costs low;
· relying on the strength of our President’s contacts; and
 
· using our size and experience to our advantage by adapting quickly to changing market conditions or responding swiftly to potential opportunities.
 
DISTRIBUTION METHODS
 
The oil that we produce is distributed through oil gathering companies. The contract operator, Southlake Operating, LLC , will make the arrangements with the gathering companies.
 
BANKRUPTCY OR SIMILAR PROCEEDINGS
 
There has been no bankruptcy, receivership or similar proceeding.
 
REORGANIZATIONS, PURCHASE OR SALE OF ASSETS
 
There have been no material reclassifications, mergers, consolidations, or purchase or sale of a significant amount of assets not in the ordinary course of business.
 
 
SOURCE AND AVAILABILITY OF RAW MATERIALS
 
We have no significant raw materials. However, if we are successful in our plan of operations we may make use of numerous oil field service companies. We currently only have 3% working interest in one well lease in Jack County Texas, there are numerous oil field service companies.
 
MAJOR CUSTOMERS
 
We will principally sell our oil through our operator to marketers and other purchasers that have access to nearby pipeline facilities. Generally, in areas where there is no practical access to pipelines, oil is trucked to storage facilities. We believe that the loss of any of these oil purchasers would not materially impact our business, because we could readily find other purchasers for our oil as produced.
 
PATENTS, TRADEMARKS, FRANCHISES, ROYALTY AGREEMENTS OR LABOR CONTRACTS
 
We have no patents, trademarks, licenses, concessions, or labor contracts.
 
COMPLIANCE WITH GOVERNMENT AND ENVIRONMENTAL REGULATIONS OF TRANSPORTATION OF OIL
 
The sales of crude oil are not currently regulated and are made at negotiated prices. Nevertheless, Congress could reenact price controls in the future.
 
Our sales of crude oil will be affected by the availability, terms and cost of transportation. The transportation of oil in common carrier pipelines is also subject to rate regulation. The Federal Energy Regulatory Commission, or the FERC, regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state.
 
Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any way that is of material difference from those of our competitors. Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is governed by pro-rationing provisions set forth in the pipelines' published tariffs. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our competitors.
 
REGULATION OF PRODUCTION
 
The production of oil is subject to regulation under a wide range of local, state and federal statutes, rules, orders and regulations. Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. All states, in which we may operate in the future, have regulations governing conservation matters, including provisions for the unitization or pooling of oil properties, the establishment of maximum allowable rates of production from oil wells, the regulation of well spacing, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil that can be produced from wells and to limit the number of wells or the locations, although companies can apply for exceptions to such regulations or to have reductions in well spacing. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil within its jurisdiction.
 
The failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil industry are subject to the same regulatory requirements and restrictions that affect our operations.
 
ENVIRONMENTAL REGULATION
 
Oil exploration, development and production operations are subject to stringent federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Historically, most of the environmental regulation of oil production has been left to state regulatory boards or agencies in those jurisdictions where there is significant oil production, with limited direct regulation by such federal agencies as the Environmental Protection Agency. However, while we believe this generally to be the case for our production activities in Texas, there are various regulations issued by the Environmental Protection Agency ("EPA") and other governmental agencies that would govern significant spills, blow-outs, or uncontrolled emissions.
 
 
At the federal level, among the more significant laws and regulations that may affect our business and the oil and gas industry are: The Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as "CERCLA" or Superfund; the Oil Pollution Act of 1990; the Resource Conservation and Recovery Act, also known as "RCRA"; the Clean Air Act; Federal Water Pollution Control Act of 1972, or the Clean Water Act; and the Safe Drinking Water Act of 1974.
 
Compliance with these regulations may constitute a significant cost and effort for us. No specific accounting for environmental compliance has been projected by us at this time. We are not presently aware of any environmental demands, claims, or adverse actions, litigation or administrative proceedings in which our acquired property is involved or subject to, or arising out of any predecessor operations.
 
In the event of a breach of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies which include: ordering a clean-up of any spills or waste material and restoration of the soil or water to conditions existing prior to the environmental violation; fines; or enjoining further drilling, completion or production activities. In certain egregious situations the agencies may also pursue criminal remedies against us or our principal officers.
 
RESEARCH AND DEVELOPMENT
 
Since our inception to the date of this Prospectus, we have not spent any money on research and development activities. President, through Texas Permian, paid $165,500 for the 3% working interest lease on the Bright 1H lease property which we obtained by assignment from Texas Permian.  The President of the Company, through Texas Permian, paid $165,000 for the 3% working interest in the year 2012 and said interest was assigned to Texas Jack in May of 2013 in exchange of 15,000,000 shares of the Company common stock being provided to Robert Schwarz.
 
EMPLOYEES AND EMPLOYMENT AGREEMENTS
 
Our only employee is our sole officer, Robert Schwarz. Mr. Schwarz currently devotes 5-10 hours per week to the Company matters and after receiving funding he plans to devote as much time as the board of directors determines is necessary to manage the affairs of the company. There are no formal employment agreements between the company and our current employee.
 
REPORTS TO SECURITY HOLDERS
 
Any member of the public may read and copy any materials filed by us with the Securities and Exchange Commission at the Securities and Exchange Commission's Public Reference Room at 100 F Street, N.E. Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-732-0330. The Securities and Exchange Commission maintains an internet website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission.
 
DESCRIPTION OF PROPERTY
 
We do not currently own any property. The Company utilizes space at the home of our officer and director at 15 Belfort, Newport Coast, California, 92657. The telephone number is 949-706-3628. The office space is provided at no charge to the Company. Management believes the current premises are sufficient for its needs at this time.
 
We currently have no investment policies as they pertain to real estate, real estate interests or real estate mortgages.
 
 
DESCRIPTION OF BRIGHT 1H WORKING INTEREST
 
On October 1, 2012 the President of Texas Jack, through Texas Permian, purchased the 3% working interest from Southlake Energy for $165,000. On May 1, 2013 the President of the Company executed an assignment agreement with Southlake Operating, LLC the third-party operator which transferred the 3% working interest in the 3 Bright 1H well located in Jack County Texas to Texas Jack Oil & Gas Corporation. The 3% working interest in the Bright 1H, which was drilled in late summer of 2012 and was completed and placed into production in October 2012. The well has been drilled with lateral lines that are approximately 2,000 feet in length. The Bright 1H well is further described as being situated on 87.03 acres of land of situated within the S.R. Halley Survey, Abstract No. 1748, Jack County, Texas, said 87.03 acres being out of and part of a 325.45 acre tract of land described in a Deed to Edwin B. Bright et ux. Recorded in Volume 333, Schwarz 645 of the Official Public Records of Jack County, Texas.
 
PLAN OF OPERATION
 
THIS SECTION OF THE PROSPECTUS INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. FORWARD-LOOKING STATEMENTS ARE OFTEN IDENTIFIED BY WORDS LIKE: BELIEVE, EXPECT, ESTIMATE, ANTICIPATE, INTEND, PROJECT AND SIMILAR EXPRESSIONS, OR WORDS WHICH, BY THEIR NATURE, REFER TO FUTURE EVENTS. YOU SHOULD NOT PLACE UNDUE CERTAINTY ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE FORWARD-LOOKING STATES ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUT PREDICTIONS.
 
RESULTS OF OPERATIONS
 
March 7, 2013 (inception) to December 31, 2013
 
During this period we incorporated the Company, hired an attorney, and an independent auditor for the preparation of this registration statement. We have prepared an internal business plan. Our net loss since inception is as a result of incurring expenses totaling $70,249 and relating to the filing of this registration statement.
 
At inception, we issued 15,000,000 shares of common stock to our sole officer and director, Mr. Robert Schwarz for approximately value of $165,000. From May 2013 through January of 2014 we sold 8,400,000 shares of common stock to 10 investors for a total of $8,400. All of these shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the "Act"). These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a "public offering" as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the foregoing investor had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
 
 
The following tables and narrative discussion set forth key components of our results of operations for the period indicated, in dollars, and key components of our revenue for the period indicated, in dollars.
 
    For the     For the    
For the Period
 
    Three Months     Six Months    
From March 7, 2013
 
   
 ended
   
 ended
   
(inception) through
 
   
December 31,
   
December 31,
   
December 31,
 
   
2013
   
2013
   
2013
 
                   
Revenue
 
$
2,122
   
$
3,697
   
$
3,697
 
                         
Operating expenses:
                       
Selling, general and administrative expenses
   
3,178
     
34,298
     
68,717
 
                         
Total operating expenses
   
3,178
     
34,298
     
68,717
 
                         
Net Operating Loss
   
(1,056
)
   
(30,601
)
   
(65,020
)
                         
Other expense
                       
Interest expense
   
2,037
     
4,046
     
5,229
 
Total other expenses
   
2,037
     
4,046
     
5,229
 
                         
Loss before provision for income taxes
   
(3,093
)
   
(34,647
)
   
(70,249
)
                         
Provision for income taxes
   
-
     
-
     
-
 
                         
Net income (loss)
 
$
(3,093
)
 
$
(34,647
)
 
$
(70,249
)
                         
Net income (loss) per share - basic
 
$
(0.00
)
 
$
(0.00
)
       
                         
Net income (loss) per share - diluted
 
$
(0.00
)
 
$
(0.00
)
       
                         
Weighted average shares outstanding - basic
   
23,000,000
     
23,000,000
         
                         
Weighted average shares outstanding - diluted
   
23,000,000
     
23,000,000
         
 
We are an exploration stage company and have generated $3,697 in revenues since inception (March 7, 2013) and have incurred 70,249 in expenses since inception (March 7, 2013) through December 31, 2013. We received interest in mine property valued at $165,000 through the issuance of common stock to Robert Schwarz, our officer and director, who accepted 15,000,000 shares of our common stock at $0.011 per share in May 2013, as a result of the assignment of the 3% working interest in the Bright 1 H Well from Texas Permian.  Texas Permian received the assignment form  Southlake Energy . From May 1, 2013 to January 2014 the Company sold additional 8,400,000 shares to 10 investors for consideration of $8,400 or $0.001 per share.
 
For the three and six months ended December 31, 2013 and for the period March 7, 2013 (date of inception) to December 31, 2013, we had $2,122, 3,697 and $3,697 in revenues, respectively and incurred $3,178, $34,298 and $68,717 in selling, general and administrative expenses respectively and $2,037, $4,046 and $5,229 in Interest expense, respectively.
 
 
The following table provides selected financial data about our Company from March 7, 2013 (date of inception) through December 31, 2013.
  
Balance Sheet Data:
 
As of June 30, 2013
   
As of December 31, 2013
 
             
Cash
 
$
42,681
   
$
1,380
 
                 
Total assets
 
$
254,581
   
$
223,980
 
Total liabilities
 
$
117,183
   
$
121,229
 
Shareholders' equity
 
$
137,398
   
$
102,751
 
 
Our cash balance at December 31, 2013 was $1,380. Our cash balance and revenues generated from the well lease may not be sufficient to cover the expenses we will incur during the next twelve months in a limited operations scenario. If we experience a shortage of funds we may utilize funds from our director, who has informally agreed to advance funds to allow us to pay for offering costs, filing fees, and professional fees, however he has no formal commitment, arrangement or legal obligation to advance or loan funds to the company. In order to achieve our business plan goals, we will need additional funding. We are an exploration stage company and have generated $3,697 in revenue to date. We have issued 15,000,000 shares of the Company common stock valued at $165,000 to our President against transfer of interest in mine property and $8,400 to ten investors in equity securities and borrowed $71,000 from a shareholder, borrowed $45,000 from an additional lender and borrowed $5,000 from a shareholder to pay for our minimum level of operations.
 
Our auditor has issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have only generated limited revenues from our oil sales.
 
Our plan of operation for the twelve months following the date of this prospectus is to continue selling the oil and gas from our present working interest, while also searching for other appropriate working interest and leases. We will be primarily seeking other leases with existing production however we will not limit ourselves to only those wells if another oil or gas opportunity presents itself that Management believes would be in the best interests of the shareholders.
 
Management feels the Company’s continuation as a going concern depends upon its ability to obtain additional sources of capital and financing. Specifically, management intends to raise additional permanent capital through debt instruments such as bank loans, or private financing. The goal of this effort is to provide working capital for the next year. Our twelve month operating plan is dependent on raising additional permanent capital through equity security sales, debt instruments, and private financing in the amount of $50,000. Presently we do not have any existing sources or plans for financing.
 
The specific steps that we intend to take to try to secure the required $50,000 are as follows:
 
(1)
We will first attempt to obtain a bank loan for the $50,000. In doing so, we will approach various banks to ascertain and compare various terms and conditions of such a loan, including interest rates, length of the loan, payment schedules, and the overall costs incurred for same. We will then choose the bank that we believe offers the best arrangements for us regarding said loan. We will then submit our application, which may also include the submittal of a business plan that we will prepare. In the event the initial bank does not approve and issue a loan, then we will move on to another bank and continue with such efforts until such time as it is determined by us that such an approach will not succeed. We anticipate that such an effort can be commenced and completed within the first 60 to 90 days. As of the date of filing we have not approached a bank at this time.
   
(2)
In the event we are not able to obtain a bank loan for $50,000 we will then attempt to obtain such funds through a private financing source. We will search for reliable sources for private financing, and research them by ascertaining their reputation in their field of business, the length of time being in business, and sources of their funding. We will then choose those private financing sources that we feel confidence in and approach then to ascertain and compare various terms and conditions of such a loan, including interest rates, length of the loan, payment schedules, and the overall costs incurred for same. We will then choose the private financing source that we believe offers the best arrangements for us regarding said loan. We will then submit our application, which may also include the submittal of a business plan that we will prepare. In the event the initial private financing source does not approve and issue a loan, then we will move on to another private financing source and continue with such efforts until such time as it is determined by us that such an approach will not succeed. We anticipate that such an effort can be commenced and completed within the first 60 days.
 
 
If we are able to obtain debt financing of $50,000 we plan to allocate the funds as stated below.
 
·
$10,000 toward marketing materials which include filers, broachers, direct marketing and mailing costs.
·
$10,000 towards costs associated with public company reporting requirements
·
$5,000 related to expenses associated with newly applicable corporate governance requirements.
·
$15,000 for software and hardware to develop an internet site,
·
$10,000 for program administration and working capital
 
In addition to the $50,000 need for the operating plan the company will need approximately $10,000 for completing this registration.  
 
If we are unable to raise the entire $50,000 from our Offering we would adjust our spending based on the amount of funds available. We may forgo the purchase of another lease until we are able to accumulate enough from revenue to allow us to purchase an additional working interest, assuring that we meet our corporate and disclosure obligations so that we remain in good standing with the State of Nevada and maintain our status as a reporting issuer with the SEC.
 
LIMITED OPERATING HISTORY; NEED FOR ADDITIONAL CAPITAL
 
There is no historical financial information about us upon which to base an evaluation of our performance. We are an exploration stage corporation and have generated limited revenues from operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services.
 
To become profitable and competitive, we must continue to receive revenues from our current working interest and find other profitable properties in which we will invest. We believe that our current cash balance and revenue will allow us to operate for one year based on our current limited operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
We believe that our existing sources of liquidity will not be sufficient to fund our operations, anticipated capital expenditures, working capital and other financing requirements for at least the next twelve months. In the event the Company is unable to achieve profitable operations in the near term, it may require additional equity and/or debt financing, or reduce expenses, to reduce such losses. However, we cannot assure that such financing will be available to us on favorable terms, or at all. We will continue to monitor our expenditures and cash flow position and however at sometime in the future we may need to obtain additional financing to complete our business plan. There is no assurance that we will be able to obtain such financing if needed and the failure to do so could negatively impact the viability of our company to continue with this business and the business may fail.
 
We are paying the expenses of the offering because we seek to (i) become a reporting company with the Commission under the Securities Exchange Act of 1934 (the "1934 Act"); and (ii) enable our common stock to be traded on the OTC Bulletin Board. We believe that the registration of the resale of shares on behalf of our existing security holders may facilitate the development of a public market in our common stock if our common stock is approved for trading on the OTC Bulletin Board.
 
 
To meet our need for cash we are attempting to raise additional permanent capital through debt instruments such as bank loans, or private financing. We cannot guarantee that we will be able to obtain debt financing. Our director has agreed to advance funds as needed until the Offering is completed or failed. While he has agreed to advance the funds, the agreement is verbal and is unenforceable as a matter of law.
 
We have issued 15,000,000 shares of the Company common stock valued at $165,000 to our President against transfer of interest in mine property and $8,400 to ten investors in equity securities.
   
From June 2013 through January of 2014 additional 8,400,000 shares were issued to 10 individuals for consideration of $8,400 or $0.001 per share.

On April 15, 2013, the Company received $71,000 on issuance of 8% unsecured promissory note from one of the shareholder, which is due on April 15, 2014. Total interest expenses for the three and six months ended December 31, 2013 on the above loan was $1,432 and $2,833, respectively; total accrued interest as of December 31, 2013 is $2,584.  The default rate of interest is 1.5% per month.
 
On June 7, 2013, the Company received $40,000 on issuance of 5% unsecured promissory note, which is due on November 30, 2014 and subsequently extended to June 1, 2014.  During the three and six months ended December 31, 2013, the Company recorded interest expense of $605 and $1,112, respectively, on this note; total accrued interest as of December 31, 2013 is $1,112.
 
During the three months and six months ended December 31, 2013, the Company received $5,000 on issuance of 8% unsecured promissory note, which is due on September 5, 2014 Default rate of interest is 1.5% per month. During the three and six months ended December 31, 2013, the Company recorded interest expense of $0 and $101, respectively, on this note; total accrued interest as of December 31, 2013 is $101.
 
The Company, as of December 31, 2013, had a working capital deficit of $119,849.   
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
SIGNIFICANT ACCOUNTING POLICIES
 
ACCOUNTING BASIS
 
The statements were prepared following generally accepted accounting principles of the United States of America consistently applied. The Company's fiscal year end is June 30.
 
The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and are presented in U.S. dollars. The Company is currently an exploration stage enterprise. An exploration stage enterprise is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from. All losses accumulated since the inception of the business have been considered as part of its exploration stage activities.
 
USE OF ESTIMATES
 
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.
 
CASH AND CASH EQUIVALENTS
 
Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition. The Company had $1,380 in cash at December 31, 2013.
 
INVESTMENTS IN OIL AND GAS PROPERTY
 
The Company is an exploration stage oil and gas company and expects to receive some revenue from its operations. In May 2013 the Company issued shares valued at $165,000 for 3% working interest in one well the Bright 1H  located in Jack County Texas.
 
 
The Company follows the successful efforts method of accounting for its oil and gas activities. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs, such as seismic costs and other geological and geophysical expenses, are expensed as incurred. Depletion of capitalized oil and gas well costs is provided using the units of production method based on estimated proved developed oil and gas reserves of the respective oil and gas properties.
 
To date, exploration costs have been expensed as incurred. To date the Company has not established any proven or probable reserves on its property.
 
REVENUE RECOGNITION
 
The Company is still in the exploration stage and has realized only limited revenues. The Company recognizes revenue when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is reasonably assured.
 
INCOME TAXES
 
The Company accounts for its income taxes in accordance with FASB Accounting Standards Codification ("ASC") No.740, "Income Taxes". Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.
 
FINANCIAL INSTRUMENTS
 
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. FASB ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:
 
 
· Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.
 
 
· Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
 
· Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.
 
The recorded amounts of financial instruments, including cash equivalents and accounts payable approximate their market values as of December 31, 2013.
 
NET LOSS PER SHARE
 
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
 
 
SHARE BASED EXPENSES
 
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
 
Expected Purchase or Sale of Significant Equipment
 
We do not anticipate the purchase or sale of any significant equipment; as such items are not required by us at this time or in the next twelve months.
 
Additional Disclosure of Outstanding Share Data
 
As of May 9 , 2014, we had 23,400,000 shares of common stock issued and outstanding.
 
LEGAL PROCEEDINGS
 
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which our director, officer, or affiliate, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
MARKET INFORMATION
 
Our common stock is not traded on any exchange. We intend to apply to have our common stock quoted on the OTC Bulletin Board once this Prospectus has been declared effective by the SEC; however, there is no guarantee that we will obtain a listing.
 
There is currently no trading market for our common stock and there is no assurance that a regular trading market will ever develop. OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers. OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
 
To have our common stock listed on any of the public trading markets, including the OTC Bulletin Board, we will require a market maker to sponsor our securities. We have not yet engaged any market maker to sponsor our securities, and there is no guarantee that our securities will meet the requirements for quotation or that our securities will be accepted for listing on the OTC Bulletin Board. This could prevent us from developing a trading market for our common stock.
 
 
HOLDERS
 
As of the date of this Prospectus there are eleven (11) holders of record of our common stock.
 
DIVIDENDS
 
To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.
 
EQUITY COMPENSATION PLANS
 
As of the date of this Prospectus we did not have any equity compensation plans.
 
REGULATION M
 
Our officer and director, who will offer and sell the shares, is aware that he is required to comply with the provisions of Regulation M, promulgated under the Securities Exchange Act of 1934, as amended. With certain exceptions, Regulation M precludes the officer and director, sales agent, any broker-dealer or other person who participate in the distribution of shares in this Offering from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete.
 
MANAGEMENT
 
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
 
The Company’s Chief Executive Officer, President, Chief Financial Officer, Secretary, sole Director Robert Schwarz is the "Promoter” within the meaning of Rule 405 of Regulation C. The following table sets forth the name and age of our officer and director as of May 9 , 2014.
 
Executive Officer and Director
 
NAME
 
AGE
 
POSITION/INITIAL ELECTION
 
APPOINTMENT
DATE
Robert Schwarz
  51  
Chief Executive Officer, President, Chief Financial Officer, Secretary and Director
 
March 7, 2013
 
The Directors will hold office until the next annual meeting of the security holders following their election and until their successors have been elected and qualified. The Board of Directors appoints Executive Officers.  Our Executive Officers hold their offices until they resign, are removed by the Board, or his/her successor is elected and qualified.
 
Set forth below is a description of the recent employment and business experience of our sole Director and Executive Officer:
 
Robert Schwarz, Chief Executive Officer, President, Chief Financial Officer, Secretary and Director
 
Robert Schwarz, aged 51, is the Chief Executive Officer, President, Secretary, Chief Financial Officer and Director (Principal Executive Officer) and (Principal Financial Officer) of the Company. He was appointed in March 7, 2013 and is responsible for overseeing all aspects of the Company.
 
Robert Schwarz attended St. Francis Xavier University  1979-1981  Simon Frasier University 1981-1983 Business degree. Worked in the financial services industry for the last 25 years. 2004-2012 Mr. Schwarz has worked at Bobby Black Enterprises which is a business development of growth companies including funding and managing markets where his duties consist of business consulting services.  Mr. Schwarz is also the sole director, officer and shareholder of Texas Permian Partners Oil & Gas, Inc., which was created on January 15, 2012 for the purpose of oil and gas lease purchases and exploration. Texas Permian is currently a dormant Nevada Corporation.
 
 
AUDIT COMMITTEE
 
The Company does not presently have an Audit Committee and the Board acts in such capacity for the immediate future due to the limited size of the Board. The Company intends to increase the size of its Board in the future, at which time it may appoint an Audit Committee.
 
The Audit Committee will be empowered to make such examinations as are necessary to monitor the corporate financial reporting and the external audits of the Company, to provide to the Board of Directors (the "Board") the results of its examinations and recommendations derived there from, to outline to the Board improvements made, or to be made, in internal control, to nominate independent auditors, and to provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters that require Board attention.
 
COMPENSATION COMMITTEE
 
The Company does not presently have a Compensation Committee and the Board acts in such capacity for the immediate future due to the limited size of the Board. The Company intends to increase the size of its Board in the future, at which time it may appoint a Compensation Committee.
 
The Compensation Committee will be authorized to review and make recommendations to the Board regarding all forms of compensation to be provided to the executive officers and directors of the Company, including stock compensation, and bonus compensation to all employees.
 
INDEPENDENT DIRECTOR/CORPORATE GOVERNANCE COMMITTEE
 
Our Board of Directors currently consists of only Robert Schwarz. We are not a “listed company” under SEC rules and therefore are not required to have separate committees comprised of independent directors. We do not have independent director(s) at this time.
 
The Company does not presently have a Corporate Governance Committee and the Board acts in such capacity for the immediate future due to the limited size of the Board. The Company intends to increase the size of its Board in the future, at which time it may appoint a Corporate Governance Committee.
 
The Corporate Governance Committee will be responsible for reviewing developments in corporate governance practices, evaluating the adequacy of our corporate governance practices and reporting and making recommendations to our Board of Directors concerning corporate governance matters.
 
NOMINATING COMMITTEE
 
The Company does not have a Nominating Committee and the full Board acts in such capacity.
 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's directors and executive officers and persons who beneficially own more than ten percent (10%) of a registered class of its equity securities, file with the SEC reports of ownership and changes in ownership of its common stock and other equity securities. Executive officers, directors, and greater than ten percent (10%) beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports that they file. Based solely upon a review of the copies of such reports furnished to us or written representations that no other reports were required, the Company believes that to date, all filing requirements applicable to its executive officers, directors, and greater than ten percent (10%) beneficial owners were met.
 
 
REMUNERATION OF DIRECTORS AND OFFICERS
 
Texas Jack Oil & Gas Corporation has made no provisions for paying cash or non-cash compensation to its officers and sole director. No salaries are being paid at the present time, and none will be paid unless, or until such time as, the Company is able to raise $50,000 for the operating plan and complete this registration statement.
 
EXECUTIVE COMPENSATION
 
The following table sets forth the compensation of our sole Executive Officer for the period from inception on March 7, 2013 through the period ending December 31, 2013.
 
Summary compensation table
 
Name And Principal position
 
Year
 
Salary($)
   
Bonus($)
   
Stock Awards($)
   
Option Awards($)
   
Non-Equity Incentive Plan Compensation($)
   
Nonqualified Deferred
Compensation Earnings($)
   
All Other Compensation($)
   
Total($)
 
                                                                     
Robert Schwarz, CEO
 
2013 (1)
 
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
 
 
(1) For the period March 7, 2013 (inception) to December 31, 2013.
 
On March 10, 2013, the Company issued 15,000,000 founder’s shares  to Robert Schwarz at the par value of $0.011 in exchange for the mine right on Bright 1 H worth $165,000.
 
Mr. Schwarz has not received directly or indirectly anything else of value from the Company (including money, property, contracts, options or rights of any kind, except for the $57,600 June 10, 2013 advance on future executive compensation.
 
Employment Agreement
 
To date, Texas Jack Oil & Gas Corporation has no written employment agreement in effect, with its Executive Officer and does not intend to enter into an employment agreement with Mr. Schwarz.
 
Stock option plan
 
We do not have a stock option plan and we have not issued any warrants, options or other rights to acquire our securities.
 
Employee Pension, Profit Sharing or other Retirement Plans
 
We do not have a defined benefit, pension plan, profit sharing or other retirement plan.
 
Director's compensation
 
At present we do not pay our directors compensation for attending meetings of our Board of Directors. We have no standard arrangement pursuant to which our directors are compensated for any services provided as a director or for committee participation or special assignments, but may reimburse Directors for reasonable expenses incurred in attending meetings.
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following tables set forth certain information regarding beneficial ownership of our securities as of May 9 , 2014 by (i) each person who is known by us to own beneficially more than five percent (5%) of the outstanding shares of each class of our voting securities, (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted:
 
As of May 9, 2014, 23,400,000 shares of common stock were issued and outstanding
 
   
Number of Shares
   
Percentage of Outstanding Shares
 
Name and Address (1)
 
Beneficially Owned
   
Prior to Offering
   
After Offering
 
                   
Robert Schwarz
   
15,000,000
     
64
%
   
52
% (2)
                         
Officers and Directors as a group (1 person)
   
15,000,000
     
64
%
   
52
% (2)
 
(2)       Assumes sale of 5,000,000 shares in the offering
 
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
 
As of the date of this prospectus, there are no material agreements or proposed transactions, whether direct or indirect, with any of the following:
 
*
Any of our Directors or Officers;
*
Any nominee for election as a director;
*
Any principal security holder identified in the “Security Ownership of Certain Beneficial Owners and Management" section above; or
*
Any relative or spouse, or relative of such spouse, of the above referenced persons.
 
TRANSFER AGENT AND REGISTRAR
 
Transfer Agent and Registrar: The Company acts as its own transfer agent at this time. When this registration statement becomes effective the Company will use for our common stock the services of ISLAND STOCK TRANSFER INC., 100 Second Avenue South, Suite 705S, St Petersburg, FL 33701, Telephone (727) 459-7378 Facsimile (727) 290-3961.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
PRIMARY OFFERING
Upon completion of  Primary Offering, we will have outstanding Twenty Eight Million, Four Hundred Thousand (28,400,000) shares of common stock. Of these shares, the Selling Stockholders own  Eight Million Four Hundred Thousand (8,400,000) shares will be registered to be sold freely tradable in the public market without restriction under the Securities Act, unless the shares are held by our "affiliates," as that term is defined in Rule 144 under the Securities Act.
 
The Primary Offering of  Five Million shares to be sold in the future will be registered to be sold freely tradable in the public market without restriction under the Securities Act, unless the shares are held by our "affiliates," as that term is defined in Rule 144 under the Securities Act.
 
The remaining shares of common stock outstanding upon completion of the offering will be "restricted securities," as that term is defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration, such as the exemption afforded by Rule 144.
 
 
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
 
We have adopted provisions in our certificate of incorporation that limit the liability of our Directors for monetary damages for breach of their fiduciary duty as directors, except for liability that cannot be eliminated under the Nevada General Corporation Law. Nevada law provides that directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as directors, except for liabilities:
 
*
For any breach of their duty of loyalty to us or our security holders;
*
For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
*
For unlawful payment of dividend or unlawful stock repurchase or redemption, as provided under Section 174 of the Nevada General Corporation Law; or,
*
For any transaction from which the director derived an improper personal benefit.
 
In addition, our bylaws provide for the indemnification of officers, directors and third parties acting on our behalf, to the fullest extent permitted by Nevada General Corporation Law, if our board of directors authorizes the proceeding for which such person is seeking indemnification (other than proceedings that are brought to enforce the indemnification provisions pursuant to the bylaws).
 
These indemnification provisions may be sufficiently broad to permit indemnification of the registrant's executive officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.
 
Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's written promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.
 
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”), and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
 
 
DESCRIPTION OF SECURITIES TO BE REGISTERED
 
General
 
We are authorized to issue an aggregate number of 70,000,000 shares of capital stock, of which 60,000,000 shares are common stock, $0.001 par value per share, and 10,000,000 shares are preferred stock, $0.001 par value per share.
 
The Company issued to the founder Fifteen Million (15,000,000) shares of common stock for the mine rights to the Bright 1 H worth $165,000 as original cost to the founder. The Company sold 8,400,000 common shares pursuant (Selling Stockholders) to a 506 starting in June 2013 through January of 2014 to ten (10) investors. As of April 21, 2014, there are Twenty Three Million four hundred thousand (23,400,000) shares issued and outstanding.
 
COMMON STOCK: The securities being offered by the Selling Stockholders are shares of our Common stock.  The securities to be offered in the Primary Offering in the future (5,000,000) are shares of our Common stock at a price of $0.10 per share.
 
Common Stock
 
We are authorized to issue 60,000,000 shares of common stock, $0.001 par value per share. Currently we have 23,400,000 shares of common stock issued and outstanding.
 
Each share of common stock shall have one (1) vote per share for all purposes. The holders of a majority of the shares entitled to vote, present in person or represented by proxy shall constitute a quorum at all meetings of our shareholders. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of the board of directors.
 
Holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefore as well as any distributions to the security holder. We have never paid cash dividends on our common stock, and do not expect to pay such dividends in the foreseeable future.
 
In the event of a liquidation, dissolution or winding up of our Company, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.
 
Preferred Stock
 
We are authorized to issue 10,000,000 shares of preferred stock, $0.001 par value per share. The preferred stock may be divided into any number of series as our directors may determine from time to time. Our directors are authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly issued series of preferred stock, and to fix the number of shares of any series of preferred stock and the designation of any such series of preferred stock. As of the date of this filing, we do not have any preferred shares issued and outstanding.
 
Dividends
 
We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
 
 
Warrants
 
There are no outstanding warrants to purchase our securities.
 
Options
 
There are no outstanding stock options to purchase our securities.
 
INTEREST OF NAMED EXPERTS AND COUNSEL
 
No expert or counsel named in this Prospectus as having prepared or certified any part thereof or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of our common stock was employed on a contingency basis or had or is to receive, in connection with the offering, a substantial interest, directly or indirectly, in us. Additionally, no such expert or counsel was connected with us as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.
 
Leo J. Moriarty, Esq, Attorney at Law, at 3020 Old Ranch Parkway, Suite 300, Seal Beach CA 90740 has passed upon certain legal matters in connection with the validity of the issuance of the shares of our common stock.
 
RBSM LLP, CPA has audited our financial Statements for the period from March 7, 2013 (date of inception) through June 30, 2013 and to the extent set forth in its report, which are included herein in reliance upon the authority of said firm as experts in accounting and auditing. There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure from date of appointment as our independent registered accountant through the period of audit (inception date March 7, 2013 through June 30, 2013).
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
 
There have been no disagreements regarding accounting and financial disclosure matters with our independent certified public accountants.
 
AVAILABLE INFORMATION
 
We have not previously been subject to the reporting requirements of the Securities and Exchange Commission. We have filed with the Commission a registration statement on Form S-1 under the Securities Act with respect to the shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our securities and us you should review the registration statement and the exhibits and schedules thereto.
 
You can inspect the registration statement and the exhibits and the schedules thereto filed with the commission, without charge, in our files in the Commission's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can also obtain copies of these materials from the public reference section of the commission at 100 F Street, N.E., Room 1580 Washington, D.C. 20549, at prescribed rates. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site on the Internet that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov
 
REPORTS TO SECURITY HOLDER
 
As a result of filing the registration statement, we are subject to the reporting requirements of the federal securities laws, and are required to file periodic reports and other information with the SEC. We will furnish our security holder with annual reports containing audited financial statements certified by independent public accountants following the end of each fiscal year and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year following the end of such fiscal quarter.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
 
 
 
F-2
     
 
F-3
     
 
F-4
     
 
F-5
     
 
F-6
     
 
F-7 to F-10
     
 
F-11
     
 
F-12
     
 
F-13
     
 
F-14
     
 
F-15 to F-19
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors
Texas Jack Oil & Gas Corporation,
 
We have audited the accompanying balance sheet of Texas Jack Oil & Gas Corporation (the “Company”), a development stage company as of June 30, 2013 and the related statements of operations, equity and cash flows for the period from March 7, 2013 (date of inception) through June 30, 2013. 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 the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to the above present fairly, in all material respects, the financial position of Texas jack Oil & Gas Corporation. as of June 30, 2013, and the results of operations, equity and cash flows for the period from March 7, 2013 (date of inception) through June 30, 2013 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying financial statements, the Company is a development stage company and has not commenced its planned principal operations, is incapable of generating sufficient cash flow to sustain its operations without securing additional financing, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ RBSM LLP
 
New York, New York
January 27, 2014
 
 
 
 
TEXAS JACK OIL & GAS CORPORATION.
(a development stage company)
BALANCE SHEET
JUNE 30, 2013
 
ASSETS
Current assets:
       
Cash
 
$
42,681
 
Total current assets
   
42,681
 
         
Loan receivable -officer
   
46,900
 
Rights on mine property
   
165,000
 
         
Total assets
 
$
254,581
 
         
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       
Accounts payable and accrued expenses
 
$
5,000
 
Promissory note - shareholder
   
71,000
 
Accrued interest- shareholder
   
1,183
 
Promissory note
   
40,000
 
Total current liabilities
   
117,183
 
         
Commitments and contingencies
   
–
 
         
Stockholders' equity:
       
Preferred stock, $0.001 par value; 10,000,000 shares authorized
       
Common stock, $0.001 par value; 60,000,000 shares authorized, 23,000,000 shares issued and outstanding
   
23,000
 
Additional paid in capital
   
150,000
 
Deficit accumulated during development stage
   
(35,602
)
Total stockholders' equity
   
137,398
 
         
Total liabilities and stockholders' equity
 
$
254,581
 
 
The accompanying notes are an integral part of these financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
STATEMENT OF OPERATIONS
For the Period from March 7, 2013 (date of inception) through June 30, 2013
 
OPERATING EXPENSES:
       
Selling, general and administrative expenses
 
$
34,419
 
Total operating expenses
   
(34,419
)
         
Loss from operations
   
(34,419
)
         
OTHER EXPENSE
       
Interest expense
   
1,183
 
Total other expenses
   
(1,183
)
         
Net loss before provision of income tax
   
(35,602
)
Income taxes
   
–
 
         
Net loss
 
$
(35,602
)
         
Net income (loss) per common share, basic
 
$
(0.00
)
         
Weighted average number of common shares outstanding, basic and diluted
   
16,000,522
 
 
The accompanying notes are an integral part of these financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from March 7, 2013 (date of inception) through June 30, 2013
 
   
Common stock
   
Additional Paid
in Capital
   
Deficit Accumulated
During Development
       
   
Shares
   
Amount
   
Amount
   
Stage
   
Total
 
Shares issued on sale in June 2013 at par value
   
8,000,000
   
$
8,000
   
$
–
   
$
–
   
$
8,000
 
Common shares issued for purchase of interest in mine property from the founder in May 2013 at $0.011 per share
   
15,000,000
     
15,000
     
150,000
     
–
     
165,000
 
Net loss
   
–
     
–
     
–
     
(35,602
)
   
(35,602
)
Balance, June 30, 2013
   
23,000,000
   
$
23,000
   
$
150,000
   
$
(35,602
)
 
$
137,398
 
 
The accompanying notes are an integral part of these financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
STATEMENT OF CASH FLOWS
For the Period from March 7, 2013 (date of inception) through June 30, 2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
       
Net loss
 
$
(35,602
)
Adjustments to reconcile net loss to net cash used in operating activities:
       
Changes in operating assets and liabilities:
       
Accounts payable and accrued expenses
   
6,183
 
Net cash used in operating activities
   
(29,419
)
         
CASH FLOWS FROM INVESTING ACTIVITIES:
   
–
 
         
CASH FLOWS FROM FINANCING ACTIVITIES:
       
Proceeds from sale of common stock
   
8,000
 
Payment for note receivable- officer
   
(46,900
)
Proceeds from issuance of promissory note
   
40,000
 
Proceeds from issuance of promissory note - shareholder
   
71,000
 
Net cash provided by financing activities
   
72,100
 
         
Net increase in cash
   
42,681
 
Cash, beginning of period
   
–
 
         
Cash, end of period
 
$
42,681
 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
       
         
Interest paid
 
$
–
 
Income taxes paid
 
$
–
 
         
Non cash investing and financing activities:
       
Common stock issued to acquire rights in mineral property
 
$
165,000
 
 
The accompanying notes are an integral part of these financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2013
 
NOTE 1 – BUSINESS
 
Texas Jack Oil & Gas Corporation (the “Company”), was incorporated on March 7, 2013 under the laws of the State of Nevada. The Company is headquartered in California and was organized for the purpose of exploration of Oil and Gas.
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation:
 
As the Company is devoting substantially all of its efforts to establishing a new business, and planned principal operations have not yet commenced, there has been no revenue generated from the oil well.
 
The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future.
 
The above factors raise substantial doubt as to the Company's ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.
 
Use of estimates
 
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
 
Income taxes
 
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.
 
Fair Value of Financial Instruments
 
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
 
Revenue Recognition
 
The Company will recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2013
 
The Company will account for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
 
Concentrations of Credit Risk
 
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. The Company does not have accounts receivable and allowance for doubtful accounts at June 30, 2013.
 
Net Income (loss) Per Common Share
 
The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.  Diluted net income (loss) per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. As of June 30, 2013, the Company has no common stock equivalent shares outstanding.
 
Recent Accounting Pronouncements
 
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
 
NOTE 3 – GOING CONCERN MATTERS
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during the period from March 7, 2013 (date of inception) through June 30, 2013, the Company incurred net losses attributable to common stockholders of $35,602, has negative working capital (current liabilities minus current assets) of $74,502 and used $29,419 in cash for operating activities for the period from March 7, 2013 (date of inception) through June 30, 2013. In addition, the Company is in a development stage, has yet commercialized its planned business and has not generated any revenues since inception. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
 
The Company's existence is dependent upon management's ability to develop profitable operations. Additional capital will be needed to continue developing its products and services and there can be no assurance that the Company's efforts will be successful. There is no assurance that can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
 
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
As of June 30, 2013 accounts payable and accrued liabilities for the period ending are comprised of accrued professional fees.
 
NOTE 5 – RELATED PARTY TRANSACTIONS
 
The Company’s officer and shareholder have borrowed $57,6000 since the Company’s inception in March 2013. These are interest free advances on future executive compensation.
 
In March 2013, the Company issued 15,000,000 of shares to the founder of the Company, for purchase of interest in mine property which was valued at $165,000 being original cost to the founder. The mine interest was assigned to the Company on May 1, 2013 through partial assignment agreement. The Company presently owns a 3% percent working lease interest in one well located in the Jack County, Texas.
 
NOTE 6 – PROMISSORY NOTE- SHAREHOLDER
 
On April 15, 2013, the Company received $71,000 on issuance of 8% unsecured promissory note from one of the shareholder, which is due on April 15, 2014. Total interest expenses for the period ended June 30, 2013 on the above loan was $1,813 which is also shown as accrued as of June 30, 2013. Default rate of interest is 1.5% per month.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2013
 
NOTE 7 – PROMISSORY NOTE
 
On June 7, 2013, the Company received $40,000 on issuance of 5% unsecured promissory note, which is due on November 30, 2013 and subsequently extended to June 1, 2014. Default rate of interest is 1.5% per month.
 
NOTE 8 – STOCKHOLDERS EQUITY
 
Preferred stock
The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.001 per share. As of June 30, 2013, the Company has -0- shares of preferred stock issued and outstanding.
 
Common stock
The Company has authorized 60,000,000 shares of common stock, with a par value of $0.001 per share. As of June 30, 2013, the Company has 23,000,000 shares of common stock issued and outstanding.
 
In June 2013, the Company issued 8,000,000 shares on sale of its common stock for $8,000 cash.
 
In March 2013, the Company issued 15,000,000 of shares to the founder for purchase of interest in mine property which was valued at $165,000 being original cost to the founder. This is shown under Common stock and additional paid in capital and corresponding assets is shown in fixed assets under Rights on Mines Property.
 
NOTE 9 – COMMITMENTS AND CONTINGENCIES
 
Leases Obligations
As of June 30, 2013, the Company does not lease space for offices or operations.
 
Consulting Agreement
On March 2013, the Company entered into one year investor relation service agreement ie till March 2014, for the yearly flat rate of $55,000 per annum.
  
NOTE 10 – INCOME TAXES
 
The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
 
For the period from March 7, 2013 (date of inception) through June 30, 2013, the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $35,000, which expiring through the year of 2033. The net operating loss carryovers may be subject to limitations under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefits will not be realized.
 
The income tax provision (benefit) for the period ended June 30, 2013 consist of the following:
 
Federal:
       
Current
 
$
–
 
Deferred
   
12,500
 
Total
   
12,500
 
         
State and local:
       
Current
   
–
 
Deferred
   
–
 
Total
   
–
 
         
Change in valuation allowance
   
(12,500
)
         
Income tax provision (benefit)
 
$
–
 
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2013
 
The provision for income taxes differ from the amount of income tax determined by applying the applicable U.S. statutory rate to losses before income tax expense for the period ended June 30, 2013 as follows:
 
Statutory federal income tax rate
   
(35.0
%)
Statutory state and local income tax rate, net of federal benefit
   
(0
%)
Change in valuation allowance
   
35.0
%
Effective tax rate
   
0.00
%
 
Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:
 
Deferred tax assets (liabilities):
       
Net operating loss carry forward
 
$
12,500
 
Less: valuation allowance
   
(12,500
)
Net deferred tax asset
 
$
–
 
  
The Company has not yet filed its tax returns for the period from March 7, 2013 (date of inception) through June 30, 2013.
 
The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.
 
Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.
 
All tax years for the Company remain subject to future examinations by the applicable taxing authorities.
 
NOTE 11 – SUBSEQUENT EVENT
 
Management has evaluated subsequent events from July 1, 2013 through January 27, 2014, which is the date the financial statements were available to be issued.
 
On January 15, 2014 the Company sold Four Hundred Thousand (400,000) shares of common stock to David Parker for $400.
 
On September 5, 2013, the Company received $5,000 on issuance of 8% unsecured promissory note, which is due on September 5, 2014. Default rate of interest is 1.5% per month. 
 
   
  TEXAS JACK OIL & GAS CORPORATION.
(a development stage company)
CONDENSED BALANCE SHEET
 
   
December 31,
   
June 30,
 
   
2013
   
2013
 
ASSETS
   (unaudited)        
Current assets
           
Cash
 
$
1,380
   
$
42,681
 
Total Current Assets
   
1,380
     
42,681
 
                 
Loan receivable - officer
   
57,600
     
46,900
 
Right on mine property
   
165,000
     
165,000
 
                 
Total Assets
 
$
223,980
   
$
254,581
 
                 
LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY
               
Current liabilities
               
Notes payable
  $
45,000
    $
40,000
 
Note payable - related party
   
71,000
     
71,000
 
Accounts payable and accrued expenses
   
1,213
     
5,000
 
Accrued interest - related party
   
4,016
     
1,183
 
Total current liabilities
   
121,229
     
117,183
 
                 
Commitments and contingencies
   
-
     
-
 
                 
Stockholders' equity (deficit)
               
                 
Preferred stock, $0.001 par value, 10,000,000 shares authorized
   
-
     
-
 
Common stock, $0.001 par value, 60,000,000 shares authorized, 23,000,000 shares issued and outstanding
   
23,000
     
23,000
 
Additional paid in capital
   
150,000
     
150,000
 
Deficit accumulated during the development stage
   
(70,249
)
   
(35,602
)
Total (deficiency in) stockholders' equity
   
102,751
     
137,398
 
                 
Total liabilities and (deficiency in) stockholders' equity
 
$
223,980
   
$
254,581
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
   
               
For the Period
 
   
For the
   
For the
   
From March 7, 2013
 
   
Three Months ended
   
Six Months ended
   
(inception) through
 
   
December 31,
   
December 31,
   
December 31,
 
   
2013
   
2013
   
2013
 
                   
Revenue
 
$
2,122
   
$
3,697
   
$
3,697
 
                         
Operating expenses:
                       
Selling, general and administrative expenses
   
3,178
     
34,298
     
68,717
 
                         
Total operating expenses
   
3,178
     
34,298
     
68,717
 
                         
Net Operating Loss
   
(1,056
)
   
(30,601
)
   
(65,020
)
                         
Other expense
                       
Interest expense
   
2,037
     
4,046
     
5,229
 
Total other expenses
   
2,037
     
4,046
     
5,229
 
                         
Loss before provision for income taxes
   
(3,093
)
   
(34,647
)
   
(70,249
)
                         
Provision for income taxes
   
-
     
-
     
-
 
                         
Net income (loss)
 
$
(3,093
)
 
$
(34,647
)
 
$
(70,249
)
                         
Net income (loss) per share - basic
 
$
(0.00
)
 
$
(0.00
)
       
                         
Net income (loss) per share - diluted
 
$
(0.00
)
 
$
(0.00
)
       
                         
Weighted average shares outstanding - basic
   
23,000,000
     
23,000,000
         
                         
Weighted average shares outstanding - diluted
   
23,000,000
     
23,000,000
         
 
The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from March 7, 2013 (date of inception) through December 31, 2013
 
                     
Deficit
       
                     
Accumulated
   
Total
 
               
Additional
   
During
   
(Deficiency in)
 
   
Common Stock
   
Paid-In
   
Development
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Stage
   
Equity
 
                               
Common stock issued on sale to founder in June, 2013 at par value
   
8,000,000
   
$
8,000
   
$
-
   
$
-
   
$
8,000
 
Common stock issued for purchase of interest in mine property from the founder in May, 2013 at $0.011 per share
   
15,000,000
     
15,000
     
150,000
     
-
     
165,000
 
Net loss for the period of Inception (March 7, 2013) through June 30, 2013
   
-
     
-
     
-
     
(35,602
)
   
(35,602
)
Balance, June 30, 2013
   
23,000,000
   
$
23,000
   
$
150,000
   
$
(35,602
)
 
$
137,398
 
Net loss for the six months ended December 31, 2013
   
-
     
-
     
-
     
(34,647
)
   
(34,647
)
Balance, December 31, 2013
   
23,000,000
   
$
23,000
   
$
150,000
   
$
(70,249
)
 
$
102,751
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
 
         
For the Period
 
   
For the
   
From March 7, 2013
 
   
Six Months ended
   
(inception) through
 
   
December 31,
   
December 31,
 
   
2013
   
2013
 
             
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(34,647
)
 
$
(70,249
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Changes in assets and liabilities:
               
Accrued interest - shareholder
   
(3,787
)
 
$
(3,787
)
Accounts payable and accrued expenses
   
2,833
     
9,016
 
                 
Net cash used in operating activities
   
(35,601
)
   
(65,020
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
   
-
     
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from sale of common stock
   
5,000
     
13,000
 
Payments to officer under note receivable
   
(10,700
)
   
(57,600
)
Proceeds from issuance of promissory note
   
-
     
40,000
 
Proceeds from issuance of promissory note - shareholder
   
-
     
71,000
 
                 
Net cash provided by (used in) financing activities
   
(5,700
)
   
66,400
 
                 
Net (decrease) increase in cash and cash equivalents
   
(41,301
)
   
1,380
 
                 
Cash and cash equivalents at beginning of period
   
42,681
     
-
 
                 
Cash and cash equivalents at end of period
 
$
1,380
   
$
1,380
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
                 
NON CASH TRANSACTIONS
               
Common stock issued to acquire rights in mineral properties
 
$
-
   
$
165,000
 
 
The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2013
 
NOTE 1 – BUSINESS
 
Texas Jack Oil & Gas Corporation (the “Company”), was incorporated on March 7, 2013 under the laws of the State of Nevada. The Company is headquartered in California and was organized for the purpose of exploration of Oil and Gas.
 
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation:
 
As the Company is devoting substantially all of its efforts to establishing a new business, and planned principal operations have not yet commenced, there has been no revenue generated from the oil well.
 
The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future.
 
The above factors raise substantial doubt as to the Company's ability to continue as a going concern. The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.
 
Use of estimates
 
The preparation of unaudited condensed financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
 
Income taxes
 
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.
 
Fair Value of Financial Instruments
 
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
 
Revenue Recognition
 
The Company will recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2013
 
The Company will account for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
 
Concentrations of Credit Risk
 
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. The Company does not have accounts receivable and allowance for doubtful accounts at December 31, 2013 and June 30, 2013.
 
Net Income (loss) Per Common Share
 
The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.  Diluted net income (loss) per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. As of December 31, 2013 and June 30, 2013, the Company has no common stock equivalent shares outstanding.
 
Recent Accounting Pronouncements
 
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's unaudited condensed financial position, results of operations or cash flows.
 
NOTE 3 – GOING CONCERN MATTERS
 
The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during the period from March 7, 2013 (date of inception) through December 31, 2013, the Company incurred net losses attributable to common stockholders of $70,249, has negative working capital (current liabilities minus current assets) of $119,849 as of December 31, 2013 and used $35,601 in cash for operating activities for the six months ended December 31, 2013. In addition, the Company is in a development stage, has yet commercialized its planned business and has generated very less revenues since inception. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop profitable operations. Additional capital will be needed to continue developing its products and services and there can be no assurance that the Company's efforts will be successful. There is no assurance that can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The accompanying unaudited condensed financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
 
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
As of December 31, 2013 accounts payable and accrued liabilities for the period ending are comprised of accrued professional fees and accrued interest.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2013
 
NOTE 5 – RELATED PARTY TRANSACTIONS
 
The Company’s officer and shareholder has  borrowed $57,600 since the Company’s inception in March 2013. These are interest free advances on future executive compensation.
 
In March 2013, the Company issued 15,000,000 of shares to the founder of the Company, for purchase of interest in mine property which was valued at $165,000 being original cost to the founder. The mine interest was assigned to the Company on May 1, 2013 through partial assignment agreement. The Company presently owns a 3% percent working lease interest in one well located in the Jack County, Texas
 
NOTE 6 – PROMISSORY NOTE- SHAREHOLDER
 
On April 15, 2013, the Company received $71,000 on issuance of 8% unsecured promissory note from one of the shareholder, which is due on April 15, 2014. Total interest expenses for the three and six months ended December 31, 2013 on the above loan was $1,432 and $2,833, respectively; total accrued interest as of December 31, 2013 is $2,584.  The default rate of interest is 1.5% per month
 
NOTE 7 – PROMISSORY NOTE
 
On June 7, 2013, the Company received $40,000 on issuance of 5% unsecured promissory note, which is due on November 30, 2014 and subsequently extended to June 1, 2014.  During the three and six months ended December 31, 2013, the Company recorded interest expense of $605 and $1,112, respectively, on this note; total accrued interest as of December 31, 2013 is $1,112.
 
During the three months and six months ended December 31, 2013, the Company received $5,000 on issuance of 8% unsecured promissory note, which is due on September 5, 2014 Default rate of interest is 1.5% per month. During the three and six months ended December 31, 2013, the Company recorded interest expense of $0 and $101, on this note; total accrued interest as of December 31, 2013 is $101.
 
NOTE 8 – STOCKHOLDERS EQUITY
 
Preferred stock
 
The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.001 per share. As of December 31, 2013 and June 30, 2013, the Company has 0 shares of preferred stock issued and outstanding.
 
Common stock
 
The Company has authorized 60,000,000 shares of common stock, with a par value of $0.001 per share. At of December 31, 2013 and June 30, 2013, the Company had 23,000,000 shares of common stock issued and outstanding.
 
In June 2013, the Company issued 8,000,000 shares on sale of its common stock for $8,000 cash.
 
In May 2013, the Company issued 15,000,000 of shares to the founder for purchase of interest in mine property which was valued at $165,000 being original cost to the founder. This is shown under Common stock and additional paid in capital and corresponding assets is shown in fixed assets under Rights on Mines Property.
 
NOTE 9 – COMMITMENTS AND CONTINGENCIES
 
Leases Obligations
 
As of December 31, 2013, the Company does not lease space for offices or operations.
 
Consulting Agreement
 
On March 2013, the Company entered into one year investor relation service agreement which expires  March 2014, for the an annual flat rate of $55,000.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2013
 
NOTE 10 – INCOME TAXES
 
The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
 
For the period from March 7, 2013 (date of inception) through December 31, 2013, the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $70,000, which expiring through the year of 2033. The net operating loss carryovers may be subject to limitations under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefits will not be realized.
 
The income tax provision (benefit) for the period ended December 31, 2013 consists of the following:
 
Federal:
       
Current
 
$
–
 
Deferred
   
11,000
 
Total
   
11000
 
State and local:
       
Current
   
–
 
Deferred
   
–
 
Total
   
–
 
         
Change in valuation allowance
   
(11,000
)
         
Income tax provision (benefit)
 
$
–
 
 
The provision for income taxes differ from the amount of income tax determined by applying the applicable U.S statutory rate to losses before income tax expense for the period ended December 31, 2013 as follows:
 
Statutory federal income tax rate
   
(35.0
%)
Statutory state and local income tax rate, net of federal benefit
   
(0
%)
Change in valuation allowance
   
35.0
%
Effective tax rate
   
0.00
%
 
Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:
  
Deferred tax assets (liabilities):
       
Net operating loss carry forward
 
$
23,500
 
Less: valuation allowance
   
(23,500
)
Net deferred tax asset
 
$
–
 
  
The Company has not yet filed its tax returns for the period from March 7, 2013 (date of inception) through December 31, 2013.
 
 
TEXAS JACK OIL & GAS CORPORATION
(a development stage company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2013
 
The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.
 
Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.
 
All tax years for the Company remain subject to future examinations by the applicable taxing authorities.
 
NOTE 11 – SUBSEQUENT EVENT
 
Management has evaluated subsequent events from January 1, 2014 through March 24, 2014, which is the date the financial statements were available to be issued.
 
On January 15, 2014 the Company sold Four Hundred Thousand (400,000) shares of common stock to David Parker for $400.
 
 
DEALER PROSPECTUS DELIVERY OBLIGATION
 
"UNTIL ______________, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS."
 
 
 
 
 
 
 
 
 
 
 
 
 
INFORMATION NOT REQUIRED IN THE PROSPECTUS
 
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
The estimated costs of the Offering are denoted below. Please note all amounts are estimates other than the Commission's registration fee.
 
Securities and Exchange Commission registration fee
 
$
65
 
Accounting fees and expenses
 
$
10,500
 
Legal fees
 
$
15,000
 
Preparation and EDGAR conversion fees
 
$
2,100
 
Printing
 
$
200
 
Total
 
$
27,865
 
 
INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
The By-Laws of Texas Jack Oil & Gas Corporation allow for the indemnification of the officers and directors in regard to their carrying out the duties of their offices. The board of directors will make determination regarding the indemnification of the director, officer or employee as is proper under the circumstances if he/she has met the applicable standard of conduct set forth in the Nevada General Corporation Law.
 
Section 78.751 of the Nevada Business Corporation Act provides that each corporation shall have the following powers:
 
"1. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of any fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a pleas of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had a reasonable cause to believe that his conduct was unlawful.
 
2. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys fees actually and reasonably incurred by him connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction, determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
 
 
3. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in sections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys fees, actually and reasonably incurred by him in connection with the defense.
 
4. Any indemnification under sections 1 and 2, unless ordered by a court or advanced pursuant to section 5, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:
 
a.
 
By the stockholders;
 
b.
 
By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding;
 
c.
 
If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel, in a written opinion; or
 
d.
 
If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.
 
5. The certificate of articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this section do not affect any rights to advancement of expenses to which corporate personnel other than director or officers may be entitled under any contract or otherwise by law.
 
6. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section:
 
a.
 
Does not include any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the certificate or articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to section 2 or for the advancement of expenses made pursuant to section 5, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or commission involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action.
 
b.
 
Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.
 
c.
 
The Articles of Incorporation provides that "the Corporation shall indemnify its officers, directors, employees and agents to the fullest extent permitted by the General Corporation Law of Nevada, as amended from time to time."
 
As to indemnification for liabilities arising under the Securities Act of 1933 for directors, officers or persons controlling Perkins Oil & Gas, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and unenforceable.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
Set forth below is information regarding the issuance and sales of securities without registration since inception. No such sales involved the use of an underwriter; no advertising or public solicitation was involved; the securities bear a restrictive legend; and no commissions were paid in connection with the sale of any securities.
 
In March 2013, a total of 15,000,000 shares of common stock were issued in exchange of rights in mine property valued at $165,000, or $0.011 per share.
 
In June of 2013 through January 2014, Texas Jack Oil & Gas Corporation pursuant to a private placement under Rule 506 of the Securities Act of 1933 sold 8,400,000 common shares for $8,400 in cash, or $0.001 per share to a total of ten investors.
 
 
EXHIBITS INDEX
 
Exhibit No.
Description
 
     
Exhibit 3.1*
Articles of Incorporation
 
Exhibit 3.2*
Bylaws
 
Exhibit 10.1*
Lease Assignment Agreement
 
Exhibit 10.2**
Loan Agreement between Texas Jack and Rodney Throgmorton
 
Exhibit 10.3**
Loan Agreement between Texas Jack and Jimmy Yanez
 
Exhibit 10.4**
Loan Agreement between Texas Jack and Joan Isaacs
 
Exhibit 10.5**
Loan Agreement between Texas Jack and Robert Schwarz
 
Exhibit 10.6**
Loan extension between Texas Jack and Jimmy Yanez
 
Exhibit 10.7
 
Exhibit 10.8 ***
Investor Relations Service Agreement
 
Exhibit 5.1, 23.1
 
Exhibit 23.2
 
 
* 
Previous filed on January 28, 2014
** 
Previous filed on March 24, 2014
*** 
Previous filed on April 23, 2014
 
 
UNDERTAKINGS
 
a. The undersigned registrant hereby undertakes:
 
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
 
i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
 
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth 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 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
 
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
 
2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the Offering.
 
4. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
 
i. If the registrant is relying on Rule 430B (230.430B of this chapter):
 
A. Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
 
B. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the Offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
 
 
ii. If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
 
5. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
 
i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
 
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
 
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
 
iv. Any other communication that is an offer in the Offering made by the undersigned registrant to the purchaser.
 
Insofar as indemnification for liabilities, arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
 
 
SIGNATURES
 
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in the city of Newport Beach California May 9 , 2014.
 
 
Texas Jack Oil & Gas Corporation
 
 
/s/ Robert Schwarz                                           
By: Robert Schwarz, Director
(Principal Executive Officer)
 
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following person in the capacities and date stated.
 
 
/s/ Robert Schwarz 
 
May 9 , 2014
Robert Schwarz, President & Director 
 
Date
(Principal Executive Officer, Principal
   
Financial Officer, Principal Accounting Officer)
   
 
 
 
 
II-6
 
Exhibit 5.1
 
 
LAW OFFICE OF LEO J. MORIARTY
3020 Old Ranch Parkway, Suite 300
Seal Beach, CA 90740
Phone:  (714) 305-5783
Fax:      (714) 316-1306
E-Mail:  ljmlegal@aol.com
 
     
     
     
 
May 9, 2014
 
Mr. Robert Schwarz
Texas Jack Oil & Gas Corporation.
15 Belfort
Newport Coast, Ca. 92657
 
     
 
Re:
Texas Jack Oil & Gas Corporation.
   
Registration Statement on Form S-1
 
Dear Mr. Schwarz:
 
We have acted as your counsel in connection with the Amendment No. 3 to Registration Statement on Form S-1/A   Registration Statement (the "Registration Statement") (File No. 333-193599 ) filed by Texas Jack Oil & Gas Corporation., a Nevada corporation (the "Company"), with the Securities and Exchange Commission (the “Commission”) on May 9, 2014 under the Securities Act of 1933, as amended (the "Act"), in connection with the (i) Primary registration of up to 5,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Primary Shares”) to be sold in the future and (ii) the secondary offering of 8,400,000 shares of the Company’s common stock, par value $0.001 per share (the “Secondary Shares”) to be sold by a certain Selling Stockholders.
 
You have requested our opinion as to the matters set forth below relating to the Registration Statement. In connection with the Primary Shares and the Secondary Shares therewith, we have examined and relied upon original, certified, conformed, photocopies or other copies of (a) the Articles of Incorporation and Bylaws of the Company; (b) resolutions of the Board of Directors of the Company; (c) the Registration Statement and the exhibits thereto; and (d) such corporate records of the Company, certificates of public officials, certificates of the officer of the Company and other documents, agreements and instruments as we have deemed necessary as to matters of fact and have made such examinations of laws as we have deemed relevant as a basis for the opinions herein contained. In all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to originals or certified documents of all copies submitted to us as conformed, photocopies or other copies.
 
Based on the foregoing, subject to the qualifications, assumptions and limitations stated herein, I am of the opinion that:
1.  The Company validly exists as a corporation under the laws of the State of Nevada.
2.  The Selling Stockholder Shares have been duly and validly authorized and are validly issued, fully paid and non-assessable.
3.  The shares being offered in the primary offering will, when sold, be legally (or validly) issued, fully paid, and non-assessable.
 
We are familiar with the applicable provisions of the Nevada Revised Statutes, the applicable provisions of the Nevada Constitution and reported judicial decisions interpreting those laws, and we have made such inquiries with respect thereto as we consider necessary to render this opinion with respect to a Nevada corporation. This opinion letter is opining upon and is limited to the current federal securities laws of the United States and, Nevada law, as such laws presently exist and to the facts as they presently exist. We express no opinion with respect to the effect or applicability of the laws of any other jurisdiction. .Based upon and subject to the foregoing, it is our opinion that the Shares to be sold by the Selling Shareholders have been duly authorized and are legally issued, fully paid and non-assessable.
 
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm in the related Prospectus under the caption “Legal Matters.” In giving this consent, we specifically do not allege to being an “expert” within the meaning of such term as used in the Securities Act of 1933, as amended, or the rules and regulations of the Commission issued thereunder, with respect to any part of the Registration Statement, including this opinion as an exhibit or otherwise.
 
Yours truly,
Law Office of Leo J. Moriarty
 
/s/ Leo J. Moriarty

 
Exhibit 10.7
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT
 
 
 
 
 

 
OPERATING AGREEMENT
 
DATED
 
July 16 , 2012,
year

OPERATOR    Southlake Operating, LLC

CONTRACT AREA    See Attached Exhibit A
 
 
 
 

COUNTY OR PARISH OF  Jack , STATE OF  Texas
 

 
COPYRIGHT 1989 - ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM. 
 
   
A.A.P.L. NO 610 – 1989
 
 
 
 
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
 
TABLE OF CONTENTS
 
Article
Title
Page
I.
1
II.
1
III.
2
 
2
 
2
 
2
IV.
2
 
2
 
3
 
3
 
3
 
3
 
3
V.
4
 
4
 
4
 
4
 
4
 
4
 
4
 
4
 
4
 
4
 
4
 
5
 
5
 
5
 
5
 
5
 
5
VI.
5
 
5
 
5
 
5
 
6
 
7
 
8
 
8
 
8
 
9
 
9
 
9
 
9
 
9
 
9
 
9
 
9
 
10
 
10
 
10
 
10
 
10
 
11
VII.
11
 
11
 
12
 
12
 
12
 
13
 
13
 
13
 
13
 
13
 
13
 
13
VIII.
14
 
14
 
14
 
14
 
 
i
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

TABLE OF CONTENTS

 
15
 
15
 
15
IX.
15
X.
15
XI.
16
XII.
16
XIII.
16
XIV.
16
 
16
 
16
 
16
XV.
17
 
17
 
17
 
17
 
17
XVI.
17

 
ii
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

OPERATING AGREEMENT

THIS AGREEMENT, entered into by and between Southlake Operating, LLC hereinafter designated and referred to as “Operator,” and the signatory party or parties other than Operator, sometimes hereinafter referred to individually as “Non-Operator,” and collectively as “Non-Operators.”

WITNESSETH:

WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests 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 “AFE” shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of estimating the costs to be incurred in conducting an operation hereunder.

B.       The term “Completion” or “Complete” shall mean a single operation intended to complete a well as a producer of Oil and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation and production testing conducted in such operation.

C.       The term “Contract Area” shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be developed and operated for Oil and Gas purposes under this agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests are described in Exhibit “A.”

D.       The term “Deepen” shall mean a single operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the lesser.

E.       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.

F.       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 unless fixed by express agreement of the Drilling Parties.
 
G.       The term “Drillsite” shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be located.

H.      The term “Initial Well” shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

I.        The term “Non-Consent Well” shall mean a well in which less than all parties have conducted an operation as provided in Article VI.B.2.

J.        The terms “Non-Drilling Party” and “Non-Consenting Party” shall mean a party who elects not to participate in a proposed operation.

K.      The term “Oil and Gas” shall mean oil, gas, casinghead gas, gas condensate, and/or 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.

L.       The term “Oil and Gas Interests” or “Interests” shall mean unleased fee and mineral interests in Oil and Gas in tracts of land lying within the Contract Area which are owned by parties to this agreement.

M.     The terms “Oil and Gas Lease,” “Lease” and “Leasehold” shall mean the oil and gas leases or interests therein covering tracts of land lying within the Contract Area which are owned by the parties to this agreement.

N.      The term “Plug Back” shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone.

O.      The term “Recompletion” or “Recomplete” shall mean an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore.

P.       The term “Rework” shall mean an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well.

Q.      The term “Sidetrack” shall mean the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or drill around junk in the hole to overcome other mechanical difficulties.

R.       The term “Zone” shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and Gas separately producible from any other common accumulation of Oil and Gas.

Unless the context otherwise clearly indicates, words used in the singular include the plural, the word “person” includes natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

ARTICLE II .
EXHIBITS

The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

ü
    A. Exhibit “A,” shall include the following information:
(1) Description of lands subject to this agreement.
(2) Restrictions, if any, as to depths, formations, or substances,
(3) Parties to agreement with addresses and telephone numbers for notice purposes,
(4) Percentages or fractional interests of parties to this agreement,
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement.
(6) Burdens on production.

ü
    B. Exhibit “B,” Form of Lease.
ü
    C. Exhibit “C,” Accounting Procedure.
ü
    D. Exhibit “D,” Insurance.
N/A
    E. Exhibit “E,” Gas Balancing Agreemen t.
N/A
    F. Exhibit “F,” Non-Discrimination and Certification of Non-Segregated facilities.
N/A
    G. Exhibit “G,” Tax Partnership.
N/A
    H. Other:______________________________________
 
 
- 1 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT – 1989

If any provision of any exhibit, except Exhibits “E,” “F” and “G,” is inconsistent with any provision contained in the body of this agreement, the provisions in the body of this agreement shall prevail.

ARTICLE III.
INTERESTS OF PARTIES

A. Oil and Gas Interests:

If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit “B,” and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

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, however, to the payment of royalties and other burdens on production as described hereafter.

Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other Operator burdens may be payable and except as otherwise expressly provided in this agreement, Operator shall pay or deliver, or cause to be paid or delivered, all Royalty and Overriding Royalty burdens on the production from the Contract Area up to, but not in excess of, Twenty One Percent (21%)  and shall indemnify, defend and hold the other parties free from any liability therefor. Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend and hold the other parties hereto harmless from any and all claims attributable to such excess burden. However, so long as the Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s) which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any liability therefor.

No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party’s lessor or royalty owner, and if 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 cross-assignment of interests covered hereby, and in the event two or more parties contribute to this agreement jointly owned Leases, the parties’ undivided interests in said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

C. Subsequently Created Interests:

If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production payment, net profits interest, assignment of production or other burden payable out of production attributable to its working interest hereunder, such burden shall be deemed a “Subsequently Created Interest.” Further, if any party has contributed hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interests, or other burden payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit “A,” such burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party’s Lease or Interest to exceed the amount stipulated in Article III.B. above.

The party whose interest is burdened with the Subsequently Created Interest (the “Burdened Party”) shall assume and alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other parties from and against any liability therefor. Further, 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 are enforceable against the working interest of the Burdened Party. 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, defend and hold harmless said other party, or parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.

ARTICLE IV.
TITLES

A. Title Examination:

Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and, if a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion will include the ownership of the working interest, minerals, royalty, overriding royalty and production payments under the applicable Leases. Each party contributing Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, 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 t i tle opinions shall be furnsihed to each Dri l ling Party. Costs incurred by Operator in procuring abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental, shut-in royalty opinions and division order title opinions) and other direct charges as provided in Exhibit “C” shall be borne by Operator  the Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above functions.

Each party 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 and communitization agreements as well as the conduct of hearings before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to the conduct of operations hereunder. This shall not prevent any party from appearing on its own behalf at such hearings. Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit “C”, unless any hearing, relates to title, drilling of the initial well, completing the well (which shall include the equipping of the well and site for Production) and then all costs associated with those hearing will be borne by the Operator. Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above functions.
 
 
- 2 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1989
 
No well s hall b e drill e d on the Contract Area - until after (1) th e title to the Drill s ite or Drilling Unit, if appropriate, ha s been examined as above provided, and (2) the title ha s been approved by the examining attorney or title ha s been accepted by all of the Drilling Parties in such well.

B. Loss or Failure of Title:

1. Failure of Title : Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a reduction of interest from that shown on Exhibit “A,” the Operator   shall have ninety (90) days from final determination of title failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject to Article VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas Leases and Interests; Any and all responsibility, liability and costs associated with a loss or failure of title shall be borne by the operator and,

a) The Operator shall bear alone the entire loss and it shall not be entitled to recover from the other parties any development or operating costs which it may have previously paid or incurred, but there shall be no additional liability on its part to the other parties hereto by reason of such title failure;

(b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the Lease or Interest which has failed, but the interests of the parties contained on Exhibit “A” shall be revised on an acreage basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;

(c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract Area is increased by reason of the title failure, the party who bore the costs incurred in connection with such well attributable to the Lease or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well attributable to such failed Lease or Interest;

(d) Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest which has failed, pay in any manner any part of the cost of operation, development, or equipment, such amount shall be paid to the party or parties who bore the costs which are so refunded;

(e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises by reason of title failure shall be borne severally by each party (including a predecessor to a current party) who received production for which such accounting is required based on the amount of such production received, and each such party shall severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;

(f) No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of the Lease or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title it shall bear all expenses in connection therewith; and

(g) If any party is given credit on Exhibit “A” to a Lease or Interest which is limited solely to ownership of an interest in the wellbore of any well or wells and the production therefrom, such party’s absence of interest in the remainder of the Contract Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest is reflected on Exhibit “A.”

2. Loss by Non-Payment or Erroneous Payment of Amount Due : If, through mistake or oversight, any rental, shut-in well payment, minimum royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas Lease or interest is not paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary liability against the party who failed to make such payment. Unless the party who failed to make the required payment secures a new Lease or Interest covering the same interest within ninety (90) days from the discovery of the failure to make proper payment, which acquisition will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit “A” shall be revised on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party who failed to make proper payment will no longer be credited with an interest in the Contract Area on account of ownership of the Lease or Interest which has terminated. If the party who failed to make the required payment shall not have been fully reimbursed, at the time of the loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest, calculated on an acreage basis, for the development and operating costs previously paid on account of such Lease or Interest, it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of any dry hole previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:

(a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or Interest, on an acreage basis, up to the amount of unrecovered costs;

(b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed to make payment up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and marketed (excluding production from any wells thereafter drilled) which, in the absence of such Lease or Interest termination, would be attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease or Interest termination is credited to other parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties in proportion to their respective interests reflected on Exhibit “A”; and.

(c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner of the Lease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.

3. Other Losses : All losses of Leases or Interests committed to this agreement, other than those set forth in Articles IV.B.l. and IV.B.2. above, shall be joint losses and shall be borne by all parties in proportion to their interests shown on Exhibit “A.” This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because express or implied covenants have not been performed (other than performance which requires only the payment of money), and the loss of any Lease by expiration at the end of its primary term if it is not renewed or extended. There shall be no readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

4. Curing Title : In the event of a Failure of Title under Article IV.B.l. or a loss of title under Article IV.B.2. above, any Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety (90) day period provided by Article IV.B.l. and Article IV.B.2. above covering all or a portion of the interest that has failed or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B. shall not apply to such acquisition.

 
- 3 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

ARTICLE V.
OPERATOR

A. Designation and Responsibilities of Operator:

Southlake Operating, LLC 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. In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third party. Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and regulation, but in no event shall it have any 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 only for good cause by the affirmative vote of Non-Operators owning a majority interest based on ownership as shown on Exhibit “A” remaining after excluding the voting interest of Operator; such vote shall not be deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice. For purposes hereof, “good cause” shall mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

Subject to Article VII.D.1., 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 under any provision of this agreement, 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 or is deemed to have resigned fails to vote or votes only to succeed itself, the successor Operator shall be selected by the affirmative vote of the party or 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 or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to the operations conducted by the former Operator to the extent such records and data are not already in the possession of the successor operator. Any cost of obtaining or copying the former Operator’s records and data shall be charged to the joint account.

3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have resigned without any action by Non-Operators, except the selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators, except the selection of a successor. During the period of time the operating committee controls operations, all actions shall require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit “A.” In the event there are only two (2) parties to this agreement, during the period of time the operating committee controls operations, a third party acceptable to Operator. Non-Operator and the federal bankruptcy court shall be selected as a member of the operating committee, and all actions shall require the approval of two (2) members of the operating committee without regard for their interest in the Contract Area based on Exhibit “A.”

C. Employees and Contractors:

The number of employees or contractors 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 or contractors shall be the employees or contractors of Operator.

D. Rights and Duties of Operator:

1. Competitive Rates and Use of Affiliates: 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. All work performed or materials supplied by affiliates or related parties of Operator shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and standards prevailing in the industry.

2. Discharge of Joint Account Obligations: 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.

3. Protection from Liens : Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or materials supplied.

 
- 4 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided. Nothing in this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the parties otherwise specifically agree.

5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator or its duly authorized representative, at the Non-Operator’s sole risk and cost, full and free access at all reasonable times to all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of operations conducted thereon or production therefrom, including Operator’s books and records relating thereto. Such access rights shall not be exercised in a manner interfering with Operator’s conduct of an operation hereunder and shall not obligate Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such interpretive data was charged to the joint account. Operator will furnish to each Non-Operator upon request copies of any and all reports and information obtained by Operator in connection with production and related items, including, without limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the information. Any audit of Operator’s records relating to amounts expended and the appropriateness of such expenditures shall be conducted in accordance with the audit protocol specified in Exhibit “C.”

6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder. Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.

7. Drilling and Testing Operations : The following provisions shall apply to each well drilled hereunder, including but not limited to the Initial Well:

(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which drilling operations are commenced.

(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted hereunder.

8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement. Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self- insurer for liability under said compensation laws in which event the only charge that shall be made to die 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 hereto and made a part hereof. Operator shall require all contractors engaged in work on or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted and to maintain such other insurance as Operator may require.

In the event automobile 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 VI.
DRILLING AND DEVELOPMENT

A. Initial Well:

On or before the 31st day of July, 2012, Operator shall commence the drilling of the Bright 1H (Initial Well) at the following location:

The Bright 1H well on the Bright Lease in Jack County, Texas is described as being situated on 87.03 acres of land situated within The S.R. Halley Survey, Abstract No, 1748, Jack County, Texas, said 87.03 acres being out of and part of a 325.45 acre tract of and Described in a deed to Edwin B. Bright et ux. recorded in Volume 333, Page 645 of the Official Records of Jack County, Texas.

(See Plat)

and shall thereafter continue the drilling of the well with due diligence to

The point of completion of the Birdwell 2H well or unless all parties agree to complete or abandon the well at a lesser depth. For the Purposes of this Agreement, the term “completion” means to the depth agreed by the parties, logged, and completed, including Setting the casing, perforating, artificial stimulation, production testing, equipping the well for production, and providing the Necessary production facilities including a tank battery and pipelines of sufficient design, size and construction to accommodate Production from the Initial well. The drilling and completion of the Initial well shall be performed by Operator on a turnkey basis.

i.e. Operator shall furnish at its sole risk, cost and expense any and all equipment, material and labor necessary for obtaining and preparing a drill site for drilling operation, and for drilling the initial well to completion. With respect to the subject matter of this paragraph, if any covenant or provision contained in the Agreement is inconsistent or in conflict with the foregoing, the parties inted that the foregoing shall govern and

The drilling of the Initial Well and the participation therein by the operator is obligatory, subject to Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.
 
B. Subsequent Operations:

1. Proposed Operations: If any parry hereto should desire to drill any well on the Contract Area other than the Initial Well, or if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be performed, the location, proposed depth, objective Zone and the estimated cost of the operation. The parties to whom such a notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing 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, Sidetrack, Recomplete, Plug Back or Deepen 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 to whom such notice is delivered 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 proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties within the time and in the manner provided in Article VI.B.6.
 
 
- 5 -
 

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
 
If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be contractually committed to participate therein provided such operations are commenced within the time period hereafter set forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as promptly as practicable 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 thereafter complete it with due diligence at the risk and expense of the parties participating therein; 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) additional 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. If the actual operation has not been commenced within the time provided (including any extension thereof as specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior proposal had been made.

2. Operations by Less Than All Parties:

(a) Determination of Participation. If any party to whom such notice is delivered as provided in Article VI.B.1. or VI.C.l. (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, no later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable 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: (i) request Operator to perform the work required by such proposed operation for the account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. The rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party designated as Operator for an operation in which the original Operator is a Non-Consenting Party. 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 all 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 delivery of such notice, shall advise the proposing party of its desire to (i) limit participation to such party’s interest as shown on Exhibit “A” or (ii) carry only its proportionate part (determined by dividing such party’s interest in the Contract Area by the interests of all Consenting Parties in the Contract Area) of Non-Consenting Parties’ interests, or (iii) carry its proportionate part (determined as provided in (ii)) of Non-Consenting Parties’ interests together with all or a portion of its proportionate part of any Non-Consenting Parties’ interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties that is not carried by a Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its proposal. Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a drilling rig is on location, notice may be given by telephone, and 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 less than 100% participation and shall notify all parties of such decision within ten (10) days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period. If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the period provided in Article VI.B.1., subject to the same extension right as provided therein.

(b) Relinquishment of Interest for Non-Participation, 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 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, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the well and restore the surface location at their sole cost, risk and expense; provided, however, that those Non-Consenting Parties that participated in the drilling. Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not increased by the subsequent operations of the Consenting Parties. If any well drilled, Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing 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 (if the Operator did not conduct the operation) 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, Sidetracking, Recomputing, 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 or, in the case of a Reworking, Sidetracking, Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.l. Option No. 2, all of such Non-Consenting Party’s interest in the production obtained from the operation in which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective 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 applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not excepted by Article III.C. 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:
 
 
- 6 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

(i) 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

(ii) 300 % of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C., and of (b) 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.

Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each Non-Consenting Party who submitted or voted for an alternative proposal under Article VIB.6. to drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such Non-Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party’s interest.

(c) Reworking, Recompleting or Plugging Back, An election not to participate in the drilling, Sidetracking or 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 amount. Similarly, an election not to participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking 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 amount. Any such Reworking, Recompleting 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 100 % of that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to such Non-Consenting Party had it participated therein. If such a Reworking, Recompleting 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.

(d) Recoupment Matters. 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 ad valorem, 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.C.

In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening 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, Sidetracking, Plugging Back, Recompleting or Deepening, 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.

Within ninety (90) 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, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, 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 as of 7:00 a.m. on the day following the day on which such recoupment occurs, 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, Sidetracking, Reworking, Deepening, Recompleting 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 Exhibit “C” attached hereto.
 
3. Stand-By Costs: 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, or when operations on the well have been otherwise terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party’s notice proposing a Reworking, Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required under Article V1.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening operation just completed. Stand-by 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 V1.B.2. (a), shall be charged to and borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by 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.

 
- 7 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
 
In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending the 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.

4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone of which the parties were given notice under Article VI.B.1. (“Initial Objective”). Such well shall not be Deepened beyond the Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate in the Deepening operation.

In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective, such party shall give notice thereof, complying with the requirements of Article VI.B.l., to all parties (including Non-Consenting Parties). Thereupon, Articles VI.B.l. and 2. shall apply and all parties receiving such notice shall have the right to participate or not participate in the Deepening of such well pursuant to said Articles VI.B.l. and 2. If a Deepening operation is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation, such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.

(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting Party’s share of the cost of Deepening and of participating in any further operations on the well in accordance with the other provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the sole account of Consenting Parties.

(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall also pay its proportionate share of all costs of re-entering said well. The Non-Consenting Parties’ proportionate part (based on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in connection with such well shall be determined in accordance with Exhibit “C.” If the Consenting Parties have recouped the cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the well for Deepening.

The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article VI.F.

5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore 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 such party’s proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party’s proportionate share of the cost of the well’s salvable materials and equipment down to the depth at which the Sidetracking operation is initiated shall be determined in accordance with the provisions of Exhibit “C.”

6. Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be conducted, to deliver to all parties entitled to participate in the proposed operation such party’s alternative proposal, such alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving such proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays, if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if a rig is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within such period shall be deemed an election not to participate in the prevailing proposal.
 
 
- 8 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be proposed to be drilled to or Completed in or produced from a Zone 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 Zone.

8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except with the consent of all parties that have not relinquished interests in the well at the time of such operation.

C. Completion of Wells; Reworking and Plugging Back:

1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling, Deepening or Sidetracking shall include:

 
þ
Option No, 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and equipping of the well, including necessary tankage and or surface facilities, subject to Article VI.A.

 
o
Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to participate in a Completion attempt whether or not Operator recommends attempting to Complete the well, together with Operator’s AFE for Completion costs if not previously provided. The parties receiving such notice shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an accompanying AFE. Operator shall deliver any such Completion proposal, or any Completion proposal conflicting with Operator’s proposal, to the other parties entitled to participate in such Completion in accordance with the procedures specified in Article VI.B.6. Election to participate in a Completion attempt shall include consent to all necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface facilities but excluding any stimulation operation not contained on the Completion AFE. 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; provided, that Article VI.B.6. shall control in the case of conflicting Completion proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the provision of Article VI.B.2. hereof (the phrase “Reworking, Sidetracking, Deepening, Recompleting 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; provided, however, that Article VI.B.2. shall apply separately to each separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier Completions or Recompletion have recouped their costs pursuant to Article VI.B.2.; provided further, that any recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in which the Completion attempt is made. Election by a previous Non-Consenting party to participate in a subsequent Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt, insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a Completion attempt.

2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked, Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the Reworking, Recompleting 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.

D. Other Operations:

Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Three Hundred Thousand Dollars ($ 300,000,00 ) except in connection with the drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that 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 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 three hundred thousand Dollars ($ 300,000.00 ). Any party who has not relinquished its interest in a well shall have the right to propose that Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under Articles VI.B.l. or VI.C.l. Option No. 2, which shall be governed exclusively be those Articles). Operator shall deliver such proposal to all parties entitled to participate therein. If within thirty (30) days thereof Operator secures the written consent of any party or parties owning at least 51 % of the interests of the parties entitled to participate in such operation, each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms of the proposal.
 
 
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 delivery 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 by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well. The party taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and restoring the surface, for which the abandoning parties shall remain proportionately liable.
 
 
- 9 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1989
 
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. Failure of a party to reply within sixty (60) days of delivery of notice of proposed abandonment shall be deemed an election to consent to the proposal. If, within sixty (60) days after delivery 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 Zone then open to production shall be obligated to take over the well as of the expiration of the applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against liability for any further operations on the well conducted by such parties. Failure of such party or parties to provide proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession of such well and plug and abandon the well.

Parties taking over a well as provided herein 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 and restoring the surface; provided, however, that in the event the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the value of the well’s salvable material and equipment, each of the abandoning parties shall tender to the parties continuing operations their proportionate shares of the estimated excess cost. Each abandoning party shall assign to 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 wellbore of the well and related equipment, together with its interest in the Leasehold including lessor’s consent, if applicable insofar and only insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production. If the interest of the abandoning party is or includes and 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 wellbore and the Zone then open to production, for a term of one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the form attached as Exhibit “B.” 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 portions 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 Zone 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 Zone 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.; and provided further, that Non-Consenting Parties who own an interest in a portion of the well shall pay their proportionate shares of abandonment and surface restoration cost for such well as provided in Article VI.B.2.(b).


Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing, Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without consent of parties bearing 65 % of the costs of such operation; provided, however, that in the event granite or other practically impenetrable substance or condition in the hole is encountered which renders further operations impractical, Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.l, and the provisions of Article VLB. or VI.E. shall thereafter apply to such operation, as appropriate.


o
Option No. 1 : Gas Balancing Agreement Attached

Each party shall 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 he 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.
 
 
- 10 -
 

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

If any party fails 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. Any such purchase or sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator 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.

Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator shall have no duty to share any existing market or to obtain a price equal to that received under any existing market. The sale or delivery by Operator of a non-taking party’s share of Oil under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said contract. No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days written notice of such intended purchase and the price to be paid or the pricing basis to be used.

All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements. Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable request.

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 proportion ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit “E” or is a separate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.

þ
Option No. 2 : No Gas Balancing Agreement:

Each party may 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 expenditures 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.

If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the Oil and/or Gas 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 and/or Gas or sell it to others at any time and from time to time, for the account of the non-taking party. Any such purchase or sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered to a purchaser; provided, however, that the effective date of any such revocation may be deferred at Operator’s election for a period not to exceed ninety (90) days if Operator has committed such production to a purchase contract having a term extending beyond such ten (10) -day period. Any purchase or sale by Operator of any other party’s share of Oil and/or Gas 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.

Any such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator shall have no duty to share any existing market or transportation arrangement or to obtain a price or transportation fee equal to that received under any existing market or transportation arrangement. The sale or delivery by Operator of a non-taking party’s share of production under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said contract. No purchase of Oil and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written notice of such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give notice to all parties of the first sale of Gas from any well under this Agreement.

All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements. Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable request.

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, and no party shall have any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or principals. In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have established a confidential relationship but rather shall be free to act on an arm’s-length basis in accordance with their own respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other with respect to activities hereunder.
 
 
- 11 -
 

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989


Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense, interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil and Gas Leases as required hereunder, and the proper performance of operations hereunder. Such lien and security interest granted by each party hereto shall include such party’s leasehold interests, working interests, operating rights, and royalty and overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead), contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.

To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate to perfect the security interest granted hereunder. Any party may file this agreement, the recording supplement executed herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a financing statement with the proper officer under the Uniform Commercial Code.

Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement, whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder whether or not such obligations arise before or after such interest is acquired.

To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the Contract Area is situated, they 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 a party 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 party in the payment of its share of expenses, interests or fees, or upon the improper use of funds by the Operator, the other parties shall have the right without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such defaulting party’s share of Oil and Gas until the amount owed by such party, plus interest as provided in “Exhibit C,” has been received, and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party’s share of Oil and Gas. All purchasers of production may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in this paragraph.

If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by Operator, the non-defaulting parties, including Operator, shall upon request by Operator, pay the unpaid amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each paying party may independently pursue any remedy available hereunder or otherwise.

If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party 10 foreclosure or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshaling of assets and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice.

Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder. Without limiting the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the mechanics’ or materialmen’s lien law of the state in which the Contract Area is situated in order to secure the payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.


Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other parties payment in advance of their respective shares of the estimated amount of the expense to be inclined 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.


If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the remedies specified below shall be applicable. For purposes of this Article VII.D., all notices and elections shall be delivered only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator, and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator. Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified below or otherwise available to a non-defaulting party.

 
- 12 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
 
1. Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default, specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one or more of the remedies provided in this Article. If the default is not cured within thirty (30) days of the delivery of such Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area after excluding the voting interest of Operator, to appoint a new Operator effective immediately. The rights of a defaulting party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right to receive information as to any operation conducted hereunder during the period of such default, the right to elect to participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being conducted under this agreement even if the party has previously elected to participate in such operation, and the right to receive proceeds of production from any well subject to this agreement.

2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default until the date of collection at the rate specified in Exhibit “C” attached hereto. Nothing herein shall prevent any party from suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party, notwithstanding any election to participate theretofore made. If election is made to proceed under this provision, then the non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit “C,” provided, however, such payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-defaulting parties as a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting party of such defaulting party’s anticipated share of any item of expense for which Operator, or Non-Operators, as the case may be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of the previous default. Such right includes, but is not limited to, the right to require advance payment for the estimated costs of drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made. If the defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided in the Article VII.D. or any other default remedy provided elsewhere in this agreement. Any excess of funds advanced remaining when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

5. Costs and Attorneys’ Fees: In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of collection, and a reasonable attorney’s fee, which the lien provided for herein shall also secure.


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 charged against the joint account in proportion to the parties ownership in the lease’s requiring such payments or minimum royalties. Any party may request, and shall be entitled to receive, 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-Operators of the anticipated completion of a shut-in well, or the shutting in or return to production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so. In the event of failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators 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.


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 Lease 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 Lease, 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.”

 
- 13 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

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.”

The Operator 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 Gas produced under the terms of this agreement except for taxes attributable to production that has been taken in kind.

ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST


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, such party shall give written notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto. Failure of a party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases described in the notice. If all 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. If the interest of the assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit “B.” 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 well’s salvable materials and equipment attributable to the assigned or leased acreage. The value of all salvable materials and equipment 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 and restoring the surface. If such value is less than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit. 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. If the interest of the parties to whom the assignment is to be made varies according to depth, then the interest assigned shall similarly reflect such variances.

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 this agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.


If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to this agreement, then all other parties shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease, promptly upon expiration of the existing Lease. The parties notified shall have the right for a period of thirty (30) days following delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost allocated to that part of such Lease within the Contract Area, which shall be in proportion to the interest held at that time by the parties in the Contract Area. Each party who participates in the purchase of a renewal or replacement Lease shall be given an assignment of its proportionate interest therein by the acquiring party.

If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement 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 or replacement Lease. The acquisition of a renewal or replacement Lease by any or all of the parties hereto shall not cause a readjustment of the interests of the parties stated in Exhibit “A,” but any renewal or replacement Lease in which less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating Agreement in the form of this agreement.

If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.

The provisions of this Article shall apply to renewal or replacement 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 or replacement Lease taken before the expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the existing Lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time the renewal or replacement Lease becomes effective; 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 or replacement 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.


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 earn acreage outside the Contract Area which are in support of well drilled inside Contract Area.
 
 
- 14 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

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.


For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells, equipment and production unless such disposition covers either:

1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or

2. an equal undivided percent of the party’s present interest in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production in the Contract Area.

Every 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, and any transferee of an ownership interest in any Oil and Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

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.


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.


o
(Optional; Check if applicable.)

Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase price, a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests, or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any company in which such party owns a majority of the stock.

INTERNAL REVENUE CODE ELECTION

If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the parties have not otherwise agreed to form a tax partnership pursuant to Exhibit “G” or other agreement between them, each party thereby 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 amended (“Code”), 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 Treasury Regulation §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 I, Subtitle “A,” of the Code, 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.

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 seventy five thousand Dollars ($ 75,000.00 ) 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 a 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.

 
- 15 -
 

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

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 indemnify or make money payments or furnish security, 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 suspended during, but no longer than, the continuance of the force majeure. 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, lightening, fire, storm, flood or other act of nature, 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.

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.

NOTICES

All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex, telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on Exhibit “A.” All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written notice. The originating notice given under any provision hereof shall be deemed delivered only when received by the party to whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date the originating notice is received. “Receipt” for purposes of this agreement with respect to written notice delivered hereunder shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or to the telecopy, facsimile or telex machine of such party. The second or any responsive notice shall be deemed delivered when deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or 48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. 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. If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall be deemed delivered in the same manner provided above for any responsive notice.

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.

 
þ
Option No. 1: So long as any 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.

 
o
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 the Completion of a well as a well capable of production of Oil and/or Gas in paying quantities, this agreement shall continue in force so long as any such well is capable of production, and for an additional period of _______ days thereafter; provided, however, if, prior to the expiration of such additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking, Plugging Back, testing or attempting to Complete or Re-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 V I. A., or any subsequent well drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re- completing, Plugging Back or Reworking operations are commenced within _________________ days from the date of abandonment of said well. “Abandonment” for such purposes shall mean either (i) a decision by all parties not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any operations on the well, whichever first occurs.

The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any remedy therefor which has accrued or attached prior to the date of such termination.

Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator’s interest, upon request of Operator, if Operator has satisfied all its financial obligations.

COMPLIANCE WITH LAWS AND REGULATIONS


This agreement shall be subject to the applicable 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.


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.


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.

 
- 16 -
 
 
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989

With respect to the 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 Federal Energy Regulatory Commission or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such Non-Operator’s share of production or any refund, fine, levy or other governmental sanction that Operator may be required to 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.

MISCELLANEOUS


This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit “A” as owning an interest in the Contract Area or which own, in fact, an interest in the Contract Area. Operator may, however, by written notice to all Non-Operators who have become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of drilling operations. In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease as of such termination. In the event any Non-Operator has advanced or prepaid any share of drilling or other costs hereunder, all sums so advanced shall be returned to such Non-Operator without interest. In the event Operator proceeds with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit “A” as having a current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the Initial Well which would have been charged to such person under this agreement if such person had executed the same and Operator shall receive all revenues which would have been received by such person under this agreement if such person had executed the same.


This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or Interests included within the Contract Area.


This instrument may be executed in any number of counterparts, each of which shall be considered an original for all purposes.


For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws, this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to this agreement to comply with all of its financial obligations provided herein shall be a material default.

OTHER PROVISIONS

Notwithstanding any provision contained in this Agreement to the contrary, the intent of the parties regarding this Agreement is that it cover and pertain only to the Bright 1H well, and any reworking, sidetracking, deepening, recompleting, and plugging back operation related to said well. Any and all covenants, conditions and provision in the agreement that are inconsistent with the foregoing or in conflict therewith shall be interpreted as if the offending covenant, condition or provision applies only to the Bright 1H well, and if any such covenant, condition or provision is not susceptible to such interpretation, that covenant condition or provision shall be considered surplusage and shall have no force or effect, and must be disregarded by the parties.
 
 
- 17 -
 
 
MODEL FORM OPERATING AGREEMENT BRIGHT 1H

EXHIBIT A


1)  
Description of Lands Subject to This Agreement. The terms of this Agreement apply to   the Bright 1H horizontal well to be drilled and completed on the Bright Lease in Jack County, Texas; operated by Southlake Operating, LLC. (see attached plat of well) The Bright 1H well is further described as being situated on 87.03 acres of land situated within the S.R. Halley Survey, Abstract No. 1748, Jack County, Texas, said 87.03 acres being out of an part of a 325.45 acre tract of land described in a Deed to Edwin B. Bright et ux. recorded in Volume 333, Page 645 of the Official Public Records of Jack County, Texas.

2)  
Restrictions, if Any, as to Depths, Formations or Substances. The Bright 1H horizontal   well is targeting the Marble Falls formation and expects to be completed in this zone; however there are no restrictions to depths, formations or substances that may exist within the well-bore of the Bright 1H horizontal well.

3)  
Parties to Agreement With Addresses, Telephone Numbers and Email Addresses for Notice Purposes.

Operator:                       Southlake Operating, LLC
777 Main Street, Suite 3100
Fort Worth, Texas 76102
(817) 820-7090
info@southlakeenergy.com

Non-Operator: ______________________________
______________________________
______________________________
phone: ________________________
email: _________________________
 
4)  
Percentages or Fractional Interests of Parties to This Agreement.
 
Non-Operator: ______________________________
__________ Percent Working Interest
 
5)  
Oil and Gas Leases and / or Oil and Gas Interests Subject to This Agreement. Same as   item one (1) above.

6)  
Burdens on Production. The Bright 1H horizontal well carries a total of 21% royalty and   overriding royalty burden. Other burdens on the production will be mandatory Texas state Production Tax and ordinary monthly lease operating expenses (LOE’s).
 
 
 
 
 
MODEL FORM OPERATING AGREEMENT BRIGHT 1H

EXHIBIT B


Form of Lease

The Bright 1H will be drilled under the Bright Lease owned by Southlake Energy, Inc. and operated by Southlake Operating, LLC. The lease will be held by production (HBP) in perpetuity for as long as the Bright 1H well or any subsequent well drilled on the Bright Lease continues to produce oil and or gas.

The Bright 1H well is further described as being situated on 87.03 acres of land situated within the S.R. Halley Survey, Abstract No. 1748, Jack County, Texas, said 87.03 acres being out of an part of a 325.45 acre tract of land described in a Deed to Edwin B. Bright et ux. recorded in Volume 333, Page 645 of the Official Public Records of Jack County, Texas.
 
 
 
 
 
 
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS
EXHIBIT " C "
ACCOUNTING PROCEDURE
JOINT OPERATIONS
 
Attached to and made part of   Sou t hlake   O perating   LLC   Model   Form   O per a t ing   Agree m e nt   (A .A . P.L.   F O RM   610 - 1989)   da te d  
July   16,   2012   re g arding   t he   Bright   1H   hori z on t al   w e ll,   loca t ed   in   Jack   Coun t y,   Texas.
 
 
 
I. GENERAL PROVISIONS
 
IF THE PARTIES FAIL TO SELECT EITHER ONE OF COMPETING “ALTERNATIVE” PROVISIONS, OR SELECT ALL THE COMPETING “ALTERNATIVE” PROVISIONS, ALTERNATIVE 1 IN EACH SUCH INSTANCE SHALL BE DEEMED TO HAVE BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY SUCH OMISSION OR DUPLICATE NOTATION.
 
IN THE EVENT THAT ANY “OPTIONAL” PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL NOT FORM A PART OF THIS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL BE MADE CONCERNING THE INTENT OF THE PARTIES IN SUCH EVENT.
 
1.     DEFINITIONS
 
All terms used in this Accounting Procedure shall have the following meaning, unless otherwise expressly defined in the Agreement:
 
“Affiliate”   means for a person, another person that controls, is controlled by, or is under common control with that person. In this definition, (a) control means the ownership by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities of a corporation or, for other persons, the equivalent ownership interest (such as partnership interests), and (b) “person” means an individual, corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.
 
“Agree m e n t ”   means the operating agreement, farmout agreement, or other contract between the Parties to which this Accounting Procedure is attached.
 
“Con tr ollable   M at erial”   means Material that, at the time of acquisition or disposition by the Joint Account, as applicable, is so classified in the Material Classification Manual most recently recommended by the Council of Petroleum Accountants Societies (COPAS).
 
“Equali z ed   Frei g ht”   means the procedure of charging transportation cost to the Joint Account based upon the distance from the nearest Railway Receiving Point to the property.
 
“Excluded   A m ou nt”   means a specified excluded trucking amount most recently recommended by COPAS.
 
“Field Office”   means a structure, or portion of a structure, whether a temporary or permanent installation, the primary function of which is to directly serve daily operation and maintenance activities of the Joint Property and which serves as a staging area for directly chargeable field personnel.
 
“First   Level   Su p ervision”   means those employees whose primary function in Joint Operations is the direct oversight of the Operator’s field employees and/or contract labor directly employed On-site in a field operating capacity. First Level Supervision functions may include, but are not limited to:
 
•  
Responsibility for field  employees  and  contract  labor  engaged  in  activities  that  can include  field  operations,  maintenance, construction, well remedial work, equipment movement and drilling
•  
Responsibility for day-to-day direct oversight of rig operations
•  
Responsibility for day-to-day direct oversight of construction operations
•  
Coordination of job priorities and approval of work procedures
•  
Responsibility for optimal resource utilization (equipment, Materials, personnel)
•  
Responsibility for meeting production and field operating expense targets
•  
Representation of the Parties in local matters involving community, vendors, regulatory agents and landowners, as an incidental part of the supervisor’s operating responsibilities
•  
Responsibility for all emergency responses with field staff
•  
Responsibility for implementing safety and environmental practices
•  
Responsibility for field adherence to company policy
•  
Responsibility for employment decisions and performance appraisals for field personnel
•  
Oversight of sub-groups for field functions such as electrical, safety, environmental, telecommunications, which may have group or team leaders.
 
“Joint   Accoun t ”   means the account showing the charges paid and credits received in the conduct of the Joint Operations that are to be shared by the Parties, but does not include proceeds attributable to hydrocarbons and by-products produced under the Agreement. *
Notwithstanding any other covenant, condition or provision contained in the Acconting procedure to the contrary, no cost, expense, or charge incurred or paid in connection with the drilling and construction work under Article VI.A of the agreement shall be for the Joint Account. All costs and expenses incurred for Material and Labor under said Article VI.A is on a “Turnkey basis” and is the responsibility of the Operator.
 
“Joint   O pera t ions”   means all operations necessary or proper for the exploration, appraisal, development, production, protection, maintenance, repair, abandonment, and restoration of the Joint Property.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
1
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS
 
“Joint   P roper t y”   means the real and personal property subject to the Agreement.
 
“L a w s”   means any laws, rules, regulations, decrees, and orders of the United States of America or any state thereof and all other governmental bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the transactions contemplated by the Agreement or the Parties and their operations, whether such laws now exist or are hereafter amended, enacted, promulgated or issued.
 
“Ma t erial”   means personal property, equipment, supplies, or consumables acquired or held for use by the Joint Property.
 
“Non-Operators”   means the Parties to the Agreement other than the Operator.
 
“Offshore   Facil i t i es”   means platforms, surface and subsea development and production systems, and other support systems such as oil and gas handling facilities, living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping, heliport, marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the conduct of offshore operations, all of which are located offshore.
 
“ Of f -site ”   means any location that is not considered On-site as defined in this Accounting Procedure.
 
“ O n - si te ”   means on the Joint Property when in direct conduct of Joint Operations. The term “On-site” shall also include that portion of Offshore Facilities, Shore Base Facilities, fabrication yards, and staging areas from which Joint Operations are conducted, or other facilities that directly control equipment on the Joint Property, regardless of whether such facilities are owned by the Joint Account.
 
“Operator”   means the Party designated pursuant to the Agreement to conduct the Joint Operations.
 
“ P ar t ies”   means legal entities signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as “Party.”
 
“Participating   I n terest”   means the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees, or is otherwise obligated, to pay and bear.
 
“ P ar t icipa t ing P ar t y”   means a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of the costs and risks of conducting an operation under the Agreement.
 
“ P ersonal   Expenses”   means reimbursed costs for travel and temporary living expenses.
 
“Rai l w ay   Receiv i ng   Point”   means the railhead nearest the Joint Property for which freight rates are published, even though an actual railhead may not exist.
 
“Shore   Base   Facilities”   means onshore support facilities that during Joint Operations provide such services to the Joint Property as a receiving and transshipment point for Materials; debarkation point for drilling and production personnel and services; communication, scheduling and dispatching center; and other associated functions serving the Joint Property.
 
“Supply   Store”   means a recognized source or common stock point for a given Material item.
 
“Technical   Services”   means services providing specific engineering, geoscience, or other professional skills, such as those performed by engineers, geologists, geophysicists, and technicians, required to handle specific operating conditions and problems for the benefit of Joint Operations; provided, however, Technical Services shall not include those functions specifically identified as overhead under the second paragraph of the introduction of Section III ( Overhead ). Technical Services may be provided by the Operator, Operator’s Affiliate, Non- Operator, Non-Operator Affiliates, and/or third parties.
 
2.    STATEMENTS AND BILLINGS
 
The Operator shall bill Non-Operators on or before the last day of the month for their proportionate share of the Joint Account for the preceding month. Such bills shall be accompanied by statements that identify the AFE (authority for expenditure), lease or facility, and all charges and credits summarized by appropriate categories of investment and expense. Controllable Material shall be separately identified and fully described in detail, or at the Operator’s option, Controllable Material may be summarized by major Material classifications. Intangible drilling costs, audit adjustments, and unusual charges and credits shall be separately and clearly identified.
 
The Operator may make available to Non-Operators any statements and bills required under Section I.2 and/or Section I.3.A ( Advances and P ayments by t he P arties ) via email, electronic data interchange, internet websites or other equivalent electronic media in lieu of paper copies. The Operator shall provide the Non-Operators instructions and any necessary information to access and receive the statements and bills within the timeframes specified herein. A statement or billing shall be deemed as delivered twenty-four (24) hours (exclusive of weekends and holidays) after the Operator notifies the Non-Operator that the statement or billing is available on the website and/or sent via email or electronic data interchange transmission. Each Non-Operator individually shall elect to receive statements and billings electronically, if available from the Operator, or request paper copies. Such election may be changed upon thirty (30) days prior written notice to the Operator.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
2
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
3.     ADVANCES AND PAYMENTS BY THE PARTIES
 
A.  
Unless otherwise provided for in the Agreement, the Operator may require the Non-Operators to advance their share of the estimated cash outlay for the succeeding month’s operations within fifteen (15) days after receipt of the advance request or by the first day of the month for which the advance is required, whichever is later. The Operator shall adjust each monthly billing to reflect advances received from  the Non-Operators for such month. If a refund is due, the Operator shall apply the amount to be refunded to the subsequent month’s billing or advance, unless the Non-Operator sends the Operator a written request for a cash refund. The Operator shall remit the refund to the Non-Operator within fifteen (15) days of receipt of such written request.
 
B.  
Except as provided below, each Party shall pay its proportionate share of all bills in full within fifteen (15) days of receipt date. If payment is not made within such time, the unpaid balance shall bear interest compounded monthly at the prime rate published by the W all   Street   Journal   on the first day of each month the payment is delinquent, plus three percent (3%), per annum, or the maximum contract rate permitted by the applicable usury Laws governing the Joint Property, whichever is the lesser, plus attorney’s fees, court costs, and other costs in connection with the collection of unpaid amounts. If the W all   Street   Journal   ceases to be published or discontinues publishing a prime rate, the unpaid balance shall bear interest compounded monthly at the prime rate published by the Federal Reserve plus three percent (3%), per annum. Interest shall begin accruing on the first day of the month in which the payment was due. Payment shall not be reduced or delayed as a result of inquiries or anticipated credits unless the Operator has agreed. Notwithstanding the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation and explanation to the Operator at the time payment is made, to the extent such reduction is caused by:
 
(1)  
being billed at an incorrect working interest or Participating Interest that is higher than such Non-Operator’s actual working interest or Participating Interest, as applicable; or
(2)  
being billed for a project or AFE requiring approval of the Parties under the Agreement that the Non-Operator has not approved or is not otherwise obligated to pay under the Agreement; or
(3)  
being billed for a property in which the Non-Operator no longer owns a working interest, provided the Non-Operator has furnished the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding the foregoing, the Non-Operator shall remain responsible for paying bills attributable to the interest it sold or transferred for any bills rendered during the thirty (30) day period following the Operator’s receipt of such written notice; or
(4)  
charges outside the adjustment period, as provided in Section I.4 ( A d j u stm e nts ).
 
4.     ADJUSTMENTS
 
A.  
Payment of any such bills shall not prejudice the right of any Party to protest or question the correctness thereof; however, all bills and statements, including payout statements, rendered during any calendar year shall conclusively be presumed to be true and correct, with respect only to expenditures, after twenty-four (24) months following the end of any such calendar year, unless within said period a Party takes specific detailed written exception thereto making a claim for adjustment. The Operator shall provide a response to all written exceptions, whether or not contained in an audit report, within the time periods prescribed in Section I.5 ( E xpenditure   Audits ).
 
B.  
All adjustments initiated by the Operator, except those described in items (1) through (4) of this Section I.4.B, are limited to the twenty-four (24) month period following the end of the calendar year in which the original charge appeared or should have appeared on the Operator’s Joint Account statement or payout statement. Adjustments that may be made beyond the twenty-four (24) month period are limited to adjustments resulting from the following:
 
(1)  
a physical inventory of Controllable Material as provided for in Section V ( I nventories   of   Controllable   Materi al ), or
(2)  
an offsetting entry (whether in whole or in part) that is the direct result of a specific joint interest audit exception granted by the Operator relating to another property, or
(3)  
a government/regulatory audit, or
(4)  
a working interest ownership or Participating Interest adjustment.
 
5.    EXPENDITURE AUDITS
 
A.  
A Non-Operator, upon written notice to the Operator and all other Non-Operators, shall have the right to audit the Operator’s accounts and records relating to the Joint Account within the twenty-four (24) month period following the end of such calendar year in which such bill was rendered; however, conducting an audit shall not extend the time for the taking of written exception to and the adjustment  of accounts as provided for in Section I.4 ( A d j u stme nts ). Any Party that is subject to payout accounting under the Agreement shall have the right to audit the accounts and records of the Party responsible for preparing the payout statements, or of the Party furnishing information to the Party responsible for preparing payout statements. Audits of payout accounts may include the volumes of hydrocarbons  produced and saved and proceeds received for such hydrocarbons as they pertain to payout accounting required under the Agreement. Unless otherwise provided in the Agreement, audits of a payout account shall be conducted within the twenty-four (24) month period following the end of the calendar year in which the payout statement was rendered.
 
Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a joint audit in a manner that will result in a minimum of inconvenience to the Operator. The 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 the Operator, except upon the resignation or removal of the Operator, and shall be made at the expense of those Non-Operators approving such audit.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
3
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
 
The Non-Operator leading the audit (hereinafter “lead audit company”) shall issue the audit report within ninety (90) days after completion of the audit testing and analysis; however, the ninety (90) day time period shall not extend the twenty-four (24) month requirement for taking specific detailed written exception as required in Section I.4.A ( A d j u stme nts ) above. All claims shall be supported with sufficient documentation.
 
A timely filed written exception or audit report containing written exceptions (hereinafter “written exceptions”) shall, with respect to the claims made therein, preclude the Operator from asserting a statute of limitations defense against such claims, and the Operator hereby waives its right to assert any statute of limitations defense against such claims for so long as any Non-Operator continues to comply with the deadlines for resolving exceptions provided in this Accounting Procedure. If the Non-Operators fail to comply with the additional deadlines in Section I.5.B or I.5.C, the Operator’s waiver of its rights to assert a statute of limitations defense against the claims brought by the Non-Operators shall lapse, and such claims shall then be subject to the applicable statute of limitations, provided that such waiver shall not lapse in the event that the Operator has failed to comply with the deadlines in Section I.5.B or I.5.C.
 
B.   
The Operator shall provide a written response to all exceptions in an audit report within one hundred eighty (180) days after Operator receives such report. Denied exceptions should be accompanied by a substantive response. If the Operator fails to provide substantive response to an exception within this one hundred eighty (180) day period, the Operator will owe interest on that exception or portion thereof, if ultimately granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B ( Advances   a nd   Payments   by   the   Partie s )
 
C.   
The lead audit company shall reply to the Operator’s response to an audit report within ninety (90) days of receipt, and the Operator shall reply to the lead audit company’s follow-up response within ninety (90) days of receipt; provided, however, each Non-Operator shall have the right to represent itself if it disagrees with the lead audit company’s position or believes the lead audit company is not adequately fulfilling its duties. Unless otherwise provided for in Section I.5.E, if the Operator fails to provide substantive response to an exception within this ninety (90) day period, the Operator will owe interest on that exception or portion thereof, if ultimately granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B ( A dvances   and   Payments   by   the   Partie s ).
 
D.   
If any Party fails to meet the deadlines in Sections I.5.B or I.5.C or if any audit issues are outstanding fifteen (15) months after Operator receives the audit report, the Operator or any Non-Operator participating in the audit has the right to call a resolution meeting, as set forth in this Section I.5.D or it may invoke the dispute resolution procedures included in the Agreement, if applicable. The meeting will require one month’s written notice to the Operator and all Non-Operators participating in the audit. The meeting shall be held at the Operator’s office or mutually agreed location, and shall be attended by representatives of the Parties with authority to resolve such outstanding issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution reached at the meeting. The lead audit company will make good faith efforts to coordinate the response and positions of the Non-Operator participants throughout the resolution process; however, each Non-Operator shall have the right to represent itself. Attendees will make good faith efforts to resolve outstanding issues, and each Party will be required to present substantive information supporting its position. A resolution meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may be discussed at subsequent meetings until each such issue is resolved.
 
If the Agreement contains no dispute resolution procedures and the audit issues cannot be resolved by negotiation, the dispute shall be submitted to mediation. In such event, promptly following one Party’s written request for mediation, the Parties to the dispute shall choose a mutually acceptable mediator and share the costs of mediation services equally. The Parties shall each have present at the mediation at least one individual who has the authority to settle the dispute. The Parties shall make reasonable efforts to ensure that the mediation commences within sixty (60) days of the date of the mediation request. Notwithstanding the above, any Party may file a lawsuit or complaint (1) if the Parties are unable after reasonable efforts, to commence mediation within sixty (60) days of the date of the mediation request, (2) for statute of limitations reasons, or (3) to seek a preliminary injunction or other provisional judicial relief, if in its sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage or to preserve the status quo. Despite such action, the Parties shall continue to try to resolve the dispute by mediation.
 
E.   
o (Optional   Provision   –   Forfeiture   Penalties)
If the Non-Operators fail to meet the deadline in Section I.5.C, any unresolved exceptions that were not addressed by the Non- Operators within one (1) year following receipt of the last substantive response of the Operator shall be deemed to have been withdrawn by the Non-Operators. If the Operator fails to meet the deadlines in Section I.5.B or I.5.C, any unresolved exceptions that were not addressed by the Operator within one (1) year following receipt of the audit report or receipt of the last substantive response of the Non-Operators, whichever is later, shall be deemed to have been granted by the Operator and adjustments shall be made, without interest, to the Joint Account.
 
6.     APPROVAL BY PARTIES
 
A.  
GENERAL MATTERS
 
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, the
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
4
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
  
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.
 
This Section I.6.A applies to specific situations of limited duration where a Party proposes to change the accounting for charges from that prescribed in this Accounting Procedure. This provision does not apply to amendments to this Accounting Procedure, which are covered by Section I.6.B.
 
B.   
AMENDMENTS
 
If the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting Procedure can be amended by an affirmative vote of         t w o        (      2      ) or more Parties, one of which is the Operator, having a combined working interest of at least      six t y f ive      percent (     65       %), which approval shall be binding on all Parties, provided, however, approval of at least one (1) Non-Operator shall be required.
 
C.   
AFFILIATES
 
For the purpose of administering the voting procedures of Sections I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each other, then such Affiliates shall be combined and treated as a single Party having the combined working interest or Participating Interest of such Affiliates.
 
For the purposes of administering the voting procedures in Section I.6.A, if a Non-Operator is an Affiliate of the Operator, votes under Section I.6.A shall require the majority in interest of the Non-Operator(s) after excluding the interest of the Operator’s Affiliate.
 
II. DIRECT CHARGES
 
The Operator, Except as otherwise provided in the Agreement,  shall charge the Joint Account with the following items:
 
1.     RENTALS AND ROYALTIES
 
Lease rentals and royalties paid by the Operator, on behalf of all Parties, for the Joint Operations.
 
2.     LABOR
 
A.  
Salaries and wages, including incentive compensation programs as set forth in COPAS MFI-37 (“Chargeability of Incentive Compensation Programs”), for:
 
(1)  
Operator’s field employees directly employed On-site in the conduct of Joint Operations,
 
(2)  
Operator’s employees directly employed on Shore Base Facilities, Offshore Facilities, or other facilities serving the Joint Property if such costs are not charged under Section II.6 ( Equipment   and   Facilities   F u rnished   by   Ope ra to r ) or are not a function covered under Section III ( Overhead ),
 
(3)  
Operator’s employees providing First Level Supervision,
 
(4)  
Operator’s employees providing On-site Technical Services for the Joint Property if such charges are excluded from the overhead rates in Section III ( Overhead ),
 
(5)  
Operator’s employees providing Off-site Technical Services for the Joint Property if such charges are excluded from the overhead rates in Section III ( Overhead ).
 
Charges for the Operator’s employees identified in Section II.2.A may be made based on the employee’s actual salaries and wages, or in lieu thereof, a day rate representing the Operator’s average salaries and wages of the employee’s specific job category.
 
Charges for personnel chargeable under this Section II.2.A who are foreign nationals shall not exceed comparable compensation paid to an equivalent U.S. employee pursuant to this Section  II.2, unless otherwise approved by the Parties pursuant to Section I.6.A ( General   M a tters ).
 
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 Section II.2.A, excluding severance payments or other termination allowances. Such costs under this Section II.2.B 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 Section II.2.A. 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 that are applicable to costs chargeable to the Joint Account under Sections II.2.A and B.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
5
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
D.   
Personal Expenses of personnel whose salaries and wages are chargeable to the Joint Account under Section II.2.A when the expenses are incurred in connection with directly chargeable activities.
 
E.   
Reasonable relocation costs incurred in transferring to the Joint Property personnel whose salaries and wages are chargeable to the Joint Account under Section II.2.A. Notwithstanding the foregoing, relocation costs that result from reorganization or merger of a Party, or  that are for the primary benefit of the Operator, shall not be chargeable to the Joint Account. Extraordinary relocation costs, such as those incurred as a result of transfers from remote locations, such as Alaska or overseas, shall not be charged to the Joint Account unless approved by the Parties pursuant to Section I.6.A ( G eneral   Matters ).
 
F.   
Training costs as specified in COPAS MFI-35 (“Charging of Training Costs to the Joint Account”) for personnel whose salaries and wages are chargeable under Section II.2.A. This training charge shall include the wages, salaries, training course cost, and Personal Expenses incurred during the training session. The training cost shall be charged or allocated to the property or properties directly benefiting from the training. The cost of the training course shall not exceed prevailing commercial rates, where such rates are available.
 
G.   
Operator’s current cost of established plans for employee benefits, as described in COPAS MFI-27 (“Employee Benefits Chargeable to Joint Operations and Subject to Percentage Limitation”), applicable to the Operator’s labor costs chargeable to the Joint Account under Sections II.2.A and B based on the Operator’s actual cost not to exceed the employee benefits limitation percentage most recently recommended by COPAS.
 
H.   
Award payments to employees, in accordance with COPAS MFI-49 (“Awards to Employees and Contractors”) for personnel whose salaries and wages are chargeable under Section II.2.A.
 
3.    MATERIAL
 
Material purchased or furnished by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section IV (Material Purchases,   Transfers,   and   Dis p osition s ). Only such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use or is reasonably practical and consistent with efficient and economical operations. The accumulation of surplus stocks shall be avoided.
 
4.     TRANSPORTATION
 
A.  
Transportation of the Operator’s, Operator’s Affiliate’s, or contractor’s personnel necessary for Joint Operations.
 
B.  
Transportation of Material between the Joint Property and another property, or from the Operator’s warehouse or other storage point to the Joint Property, shall be charged to the receiving property using one of the methods listed below. Transportation of Material from the Joint Property to the Operator’s warehouse or other storage point shall be paid for by the Joint Property using one of the methods listed below:
 
(1)  
If the actual trucking charge is less than or equal to the Excluded Amount the Operator may charge actual trucking cost or a theoretical charge from the Railway Receiving Point to the Joint Property. The basis for the theoretical charge is the per hundred weight charge plus fuel surcharges from the Railway Receiving Point to the Joint Property.. The Operator shall consistently apply the selected alternative.
 
(2)  
If the actual trucking charge is greater than the Excluded Amount, the Operator shall charge Equalized Freight. Accessorial charges such as loading and unloading costs, split pick-up costs, detention, call out charges, and permit fees shall be charged directly to the Joint Property and shall not be included when calculating the Equalized Freight.
 
5.     SERVICES
 
The cost of contract services, equipment, and utilities used in the conduct of Joint Operations, except for contract services, equipment, and utilities covered by Section III ( Overhead ), or Section II.7 ( A f filiates ), or excluded under Section II.9 ( Leg a l   E xpens e ). Awards paid to contractors shall be chargeable pursuant to COPAS MFI-49 (“Awards to Employees and Contractors”).
 
The costs of third party Technical Services are chargeable to the extent excluded from the overhead rates under Section III ( Overhead ).
 
6.    EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
 
In the absence of a separately negotiated agreement, except in connection with drilling (including completion) the Bright 1H well, equipment and facilities furnished by the Operator will be charged as follows:
 
A.  
The Operator shall charge the Joint Account for use of Operator-owned equipment and facilities, including but not limited to production facilities, Shore Base Facilities, Offshore Facilities, and Field Offices, at rates commensurate with the costs of ownership and operation. The cost of Field Offices shall be chargeable to the extent the Field Offices provide direct service to personnel who are  chargeable pursuant to Section II.2.A ( Labor ). Such rates may include labor, maintenance, repairs, other operating expense, insurance, taxes, depreciation using straight line depreciation method, and interest on gross investment less accumulated depreciation not to exceed     twenty              percent (   20          %) per annum; provided, however, depreciation shall not be charged when the
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
6
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.

 
 
 
equipment and facilities investment have been fully depreciated. The rate may include an element of the estimated cost for abandonment, reclamation, and dismantlement. Such rates shall not exceed the average commercial rates currently prevailing in the immediate area of the Joint Property.
 
B.  
In lieu of charges in Section II.6.A above, the Operator may elect to use average commercial rates prevailing in the immediate area of the Joint Property, less twenty percent (20%). If equipment and facilities are charged under this Section II.6.B, the Operator shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting documentation. For automotive  equipment,  the Operator may elect  to use  rates  published by the  Petroleum Motor  Transport Association (PMTA) or such other organization recognized by COPAS as the official source of rates.
 
 7.    AFFILIATES
 
A.  
Charges for an Affiliate’s goods and/or services used in operations requiring an AFE or other authorization from the Non-Operators may be made without the approval of the Parties provided (i) the Affiliate is identified and the Affiliate goods and services are specifically detailed in the approved AFE or other authorization, and (ii) the total costs for such Affiliate’s goods and services billed to such individual project do not exceed $      25,000.00      If the total costs for an Affiliate’s goods and services charged to such individual project are not specifically detailed in the approved AFE or authorization or exceed such amount, charges for such Affiliate shall require approval of the Parties, pursuant to Section I.6.A (General Matters).
 
B.  
For an Affiliate’s goods and/or services used in operations not requiring an AFE or other authorization from the Non-Operators, charges for such Affiliate’s goods and services shall require approval of the Parties, pursuant to Section I.6.A ( G eneral   Matters ), if the charges exceed $       25 , 000 .0 0        in a given calendar year.
 
C.  
The cost of the Affiliate’s goods or services shall not exceed average commercial rates prevailing in the area of the Joint Property, unless the Operator obtains the Non-Operators’ approval of such rates. The Operator shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting documentation; provided, however, documentation of commercial rates shall not be required if the Operator obtains Non-Operator approval of its Affiliate’s rates or charges prior to billing Non-Operators for such Affiliate’s goods and services. Notwithstanding the foregoing, direct charges for Affiliate-owned communication facilities or systems shall be made pursuant to Section II.12 ( Communication s ).
 
If the Parties fail to designate an amount in Sections II.7.A or II.7.B, in each instance the amount deemed adopted by the Parties as a result of such omission shall be the amount established as the Operator’s expenditure limitation in the Agreement. If the Agreement does not contain an Operator’s expenditure limitation, the amount deemed adopted by the Parties as a result of such omission shall be zero dollars ($ 0.00).
 
8.    DAMAGES AND LOSSES TO JOINT PROPERTY
 
All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred, except to the extent such damages or losses result from a Party’s or Parties’ gross negligence or willful misconduct, in which case such Party or Parties shall be solely liable.
 
The Operator shall furnish the Non-Operator written notice of damages or losses incurred as soon as practicable after a report has been received by the Operator.
 
9.    LEGAL EXPENSE
 
Recording fees and costs of handling, settling, or otherwise discharging litigation, claims, and liens incurred in or resulting  from operations under the Agreement, or necessary to protect or recover the Joint Property, to the extent permitted under the Agreement. Costs of the Operator’s or Affiliate’s legal staff or outside attorneys, including fees and expenses, are not chargeable unless approved by the Parties pursuant to Section I.6.A ( G e neral   Matters ) or otherwise provided for in the Agreement.
 
Notwithstanding the foregoing paragraph, costs for procuring abstracts, fees paid to outside attorneys for title examinations (including preliminary, supplemental, shut-in royalty opinions, division order title opinions), and curative work shall be chargeable to the extent permitted as a direct charge in the Agreement.
 
10.    TAXES AND PERMITS
 
All taxes and permitting fees of every kind and nature, assessed or levied upon or in connection with the Joint Property, or the production therefrom, and which have been paid by the Operator for the benefit of the Parties, including penalties and interest, except to the extent the penalties and interest result from the Operator’s gross negligence or willful misconduct.
 
If ad valorem taxes paid by the Operator are based in whole or in part upon separate valuations of each Party’s working interest, then notwithstanding any contrary provisions, the charges to the Parties will be made in accordance with the tax value generated by each Party’s working interest.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
7
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
Costs of tax consultants or advisors, the Operator’s employees, or Operator’s Affiliate employees in matters regarding ad valorem or other tax matters, are not permitted as direct charges unless approved by the Parties pursuant to Section I.6.A ( General   Matters ).
 
Charges to the Joint Account resulting from sales/use tax audits, including extrapolated amounts and penalties and interest, are permitted, provided the Non-Operator shall be allowed to review the invoices and other underlying source documents which served as the basis for tax charges and to determine that the correct amount of taxes were charged to the Joint Account. If the Non-Operator is not permitted to review such documentation, the sales/use tax amount shall not be directly charged unless the Operator can conclusively document the amount owed by the Joint Account.
 
11.     INSURANCE
 
Net premiums paid for insurance required to be carried for Joint Operations for the protection of the Parties. If Joint Operations are conducted at locations where the Operator acts as self-insurer in regard to its worker’s compensation and employer’s liability insurance obligation, the Operator shall charge the Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the jurisdiction governing the Joint Property. In the case of offshore operations in federal waters, the manual rates of the adjacent state shall be used for personnel performing work On-site, and such rates shall be adjusted for offshore operations by the U.S. Longshoreman and Harbor Workers (USL&H) or Jones Act surcharge, as appropriate.
 
12.     COMMUNICATIONS
 
Costs of acquiring, leasing, installing, operating, repairing, and maintaining communication facilities or systems, including satellite, radio and microwave facilities, between the Joint Property and the Operator’s office(s) directly responsible for field operations in accordance with the provisions of COPAS MFI-44 (“Field Computer and Communication Systems”). If the communications facilities or systems serving the Joint Property are Operator-owned, charges to the Joint Account shall be made as provided in Section II.6 ( E quipment   a n d   Facilities   Furnished   by   Operato r ). If the communication facilities or systems serving the Joint Property are owned by the Operator’s Affiliate, charges to the Joint Account shall not exceed average commercial rates prevailing in the area of the Joint Property. The Operator shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting documentation.
 
13.    ECOLOGICAL, ENVIRONMENTAL, AND SAFETY
 
Costs incurred for Technical Services and drafting to comply with ecological, environmental and safety Laws or standards recommended by Occupational Safety and Health Administration (OSHA) or other regulatory authorities. All other labor and functions incurred for ecological, environmental and safety matters, including management, administration, and permitting, shall be covered by Sections II.2 ( Labor ), II.5 ( Serv i ces ), or Section III ( Overhead ), as applicable.
 
Costs to provide or have available pollution containment and removal equipment plus actual costs of control and cleanup and resulting responsibilities of oil and other spills as well as discharges from permitted outfalls as required by applicable Laws, or other pollution containment and removal equipment deemed appropriate by the Operator for prudent operations, are directly chargeable.
 
14.    ABANDONMENT AND RECLAMATION
 
Costs incurred for abandonment and reclamation of the Joint Property, including costs required by lease agreements or by Laws.
 
15.    OTHER EXPENDITURES
 
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II ( Direct   Charges ), or in Section III ( Overhead ) 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. Charges made under this Section II.15 shall require approval of the Parties, pursuant to Section I.6.A ( General   Matters ).
 
III. OVERHEAD
 
As compensation for costs not specifically identified as chargeable to the Joint Account pursuant to Section II ( Direct   Charges ), the Operator shall charge the Joint Account in accordance with this Section III.
 
Functions included in the overhead rates regardless of whether performed by the Operator, Operator’s Affiliates or third parties and regardless of location, shall include, but not be limited to, costs and expenses of:
 
•  
warehousing, other than for warehouses that are jointly owned under this Agreement
•  
design and drafting (except when allowed as a direct charge under Sections II.13, III.1.A(ii), and III.2, Option B)
•  
inventory costs not chargeable under Section V ( I nventories   of   Controllab l e   Materia l )
•  
procurement
•  
administration
•  
accounting and auditing
•  
gas dispatching and gas chart integration
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
8
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
•  
human resources
•  
management
•   
supervision not directly charged under Section II.2 ( Labor )
•   
legal services not directly chargeable under Section II.9 ( Legal   E xpens e )
•  
taxation, other than those costs identified as directly chargeable under Section II.10 ( Taxes   a n d   Pe rmit s )
•   
preparation and monitoring of permits and certifications; preparing regulatory reports; appearances before or meetings with governmental agencies or other authorities having jurisdiction over the Joint Property, other than On-site inspections; reviewing, interpreting, or submitting comments on or lobbying with respect to Laws or proposed Laws.
 
Overhead charges shall include the salaries or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing overhead functions, as well as office and other related expenses of overhead functions.
 
1.    OVERHEAD—DRILLING AND PRODUCING OPERATIONS
 
As compensation for costs incurred but not chargeable under Section II ( Direct   Charges ) and not covered by Article VI.A of the Agreement, or   other provisions of this Section III, the Operator shall charge on either:
 
þ (Alte r n a ti ve   1)   Fixed Rate Basis, Section III.1.B.
o (Alte r n a ti ve   2)   Percentage Basis, Section III.1.C.
 
A.  
TECHNICAL SERVICES
 
(i)  
Except as otherwise provided in Section II.13 ( E cological   E nvironmental,   and   Safet y ) and Section III.2 ( Overhead   –   Major   Constructi o n   a n d   Catastr o ph e ), or by approval of the Parties pursuant to Section I.6.A ( G e neral   Matters ), the salaries, wages, related payroll burdens and benefits, and Personal Expenses for On- s i te   Technical Services, including third party Technical Services:
 
þ (Alte r native   1   –   D irect)   shall be charged direct   to the Joint Account.
 
o (Alte r native   2   – Overhead)   shall be covered by the overhead   rates.
 
 
(ii)  
Except as otherwise provided in Section II.13 ( Ecological,   E nvironmental,   and   Safet y ) and Section III.2 ( Overhead   –   Maj o r Constructi o n   a n d   Catastr o ph e ), or by approval of the Parties pursuant to Section I.6.A ( G e neral   Matters ), the salaries, wages, related payroll burdens and benefits, and Personal Expenses for Of f - si t e   Technical Services, including third party Technical Services:
 
o      (Alte r native   1   –   A ll   Overhea d )   shall be covered by the overhead   rates.
 
þ      (A l t erna t ive   2   –   All   Direc t )   shall be charged direct   to the Joint Account.
 
o      (Alte r native   3   –   Drilling   Direct)   shall be charged d i rect   to the Joint Account, only   to the extent such Technical Services are directly attributable to drilling, redrilling, deepening, or sidetracking operations, through completion, temporary abandonment, or abandonment if a dry hole. Off-site Technical Services for all other operations, including workover, recompletion, abandonment of producing wells, and the construction or expansion of fixed assets not covered by Section III.2 ( Overhead   -   Major   Const r ucti o n   and   Catas t ro p h e ) shall be covered by the overhead rates.
 
Notwithstanding anything to the contrary in this Section III, Technical Services provided by Operator’s Affiliates are subject to limitations set forth in Section II.7 ( Affiliates ). Charges for Technical personnel performing non-technical work shall not be governed by this Section III.1.A, but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed.
 
B.  
OVERHEAD—FIXED RATE BASIS
 
(1)  
The Operator shall charge the Joint Account at the following rates per well per month:
 
Drilling Well Rate per month $        N/A            (prorated for less than a full month)
 
Producing Well Rate per month $      500 . 00      
 
(2)  
Application of Overhead—Drilling Well Rate shall be as follows:
 
(a)  
Charges for onshore drilling wells shall begin on the spud date and terminate on the date the drilling and/or completion equipment used on the well is released, whichever occurs later. Charges for offshore and inland waters drilling wells shall begin on the date the drilling or completion equipment arrives on location and terminate on the date the drilling or completion equipment moves off location, or is released, whichever occurs first. No charge shall be made during suspension of drilling and/or completion operations for fifteen (15) or more consecutive calendar days.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
9
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
(b)  
Charges for any well undergoing any type of workover, recompletion, and/or abandonment for a period of five (5) or more consecutive work–days shall be made at the Drilling Well Rate. Such charges shall be applied for the period from date operations, with rig or other units used in operations, commence through date of rig or other unit release, except that no charges shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.
 
(3)   
Application of Overhead—Producing Well Rate shall be as follows:
 
(a)  
An active well that is produced, injected into for recovery or disposal, or used to obtain water supply to support operations for any portion of the month shall be considered as a one-well charge for the entire month.
 
(b)  
Each active completion in a multi-completed well shall be considered as a one-well charge provided each completion is considered a separate well by the governing regulatory authority.
 
(c)  
A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well, unless the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a) or (b). This one-well charge shall be made whether or not the well has produced.
 
(d)  
An active gas well shut in because of overproduction or failure of a purchaser, processor, or transporter to take production shall be considered as a one-well charge provided the gas well is directly connected to a permanent sales outlet.
 
(e)  
Any well not meeting the criteria set forth in Sections III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead charge.
 
(4)   
The well rates shall be adjusted on the first day of April each year following the effective date of the Agreement; provided, however, if this Accounting Procedure is attached to or otherwise governing the payout accounting under a farmout agreement, the rates shall be adjusted on the first day of April each year following the effective date of such farmout agreement. The adjustment shall be computed by applying the adjustment factor most recently published by COPAS. The adjusted rates shall be the initial or amended rates agreed to by the Parties increased or decreased by the adjustment factor described herein, for each year from the effective date of such rates, in accordance with COPAS MFI-47 (“Adjustment of Overhead Rates”).
 
C.  
OVERHEAD—PERCENTAGE BASIS
 
(1)  
Operator shall charge the Joint Account at the following rates:
 
(a)  
Development Rate     N/A           percent (              ) % of the cost of development of the Joint Property, exclusive of costs provided under Section II.9 ( Legal Expense ) and all Material salvage credits.
 
(b)  
Operating Rate      N/A          percent (                  % ) of the cost of operating the Joint Property, exclusive of costs provided under  Sections  II.1  (Rentals  and  Royalties)  and  II.9  (Legal  Expense);  all  Material  salvage  credits;  the  value of substances purchased for enhanced recovery; all property and ad valorem taxes, and any other taxes and assessments that are levied, assessed, and paid upon the mineral interest in and to the Joint Property.
 
(2)  
Application of Overhead—Percentage Basis shall be as follows:
 
(a)  
The Development Rate shall be applied to all costs in connection with:
 
 
[i]
[ii]
[iii]
[iv]
[v]
drilling, redrilling, sidetracking, or deepening of a well
a well undergoing plugback or workover operations for a period of five (5) or more consecutive work–days
preliminary expenditures necessary in preparation for drilling
expenditures incurred in abandoning when the well is not completed as a producer
construction or installation of fixed assets, the expansion of fixed assets and any other project clearly discernible as a fixed asset, other than Major Construction or Catastrophe as defined in Section III.2 ( Overhead - Major   Constructi o n   and   Catas t ro p h e).
 
(b)  
The Operating Rate shall be applied to all other costs in connection with Joint Operations, except those subject to Section III.2 ( Overhead - Major   Constructi o n   and   Catastr o ph e ).
 
2.    OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE
 
To compensate the Operator for overhead costs incurred in connection with a Major Construction project (except construction work as contemplated under Article VI.A of the Agreement)   or Catastrophe, the Operator shall either negotiate a rate prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following rates for any Major Construction project in excess of the Operator’s expenditure limit under the Agreement, or for any Catastrophe regardless of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major Construction Overhead shall be assessed for any single Major Construction project costing in excess of $100,000 gross.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
10
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
Major Construction shall mean 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, or in the dismantlement, abandonment, removal, and restoration of platforms, production equipment, and other operating facilities.
 
Catastrophe is defined as a sudden calamitous event bringing damage, loss, or destruction to property or the environment, such as an oil spill, blowout, explosion, fire, storm, hurricane, or other disaster. The overhead rate shall be applied to those costs necessary to restore the Joint Property to the equivalent condition that existed prior to the event.
 
A.   
If the Operator absorbs the engineering, design and drafting costs related to the project:
 
(1)  
       0            % of total costs if such costs are less than $100,000; plus
 
(2)  
       0            % of total costs in excess of $100,000 but less than $1,000,000; plus
 
(3)  
       0            % of total costs in excess of $1,000,000.
 
B.   
If the Operator charges engineering, design and drafting costs related to the project directly to the Joint Account:
 
(1)  
        0            % of total costs if such costs are less than $100,000; plus
 
(2)  
       0           % of total costs in excess of $100,000 but less than $1,000,000; plus
 
(3)  
      0           % of total 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 Major Construction project shall not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping units and downhole artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated with each single occurrence or event.
 
On each project, the Operator shall advise the Non-Operator(s) in advance which of the above options shall apply.
 
For the purposes of calculating Catastrophe Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations directly resulting from the catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or insurance recoveries. Expenditures that qualify for Major Construction or Catastrophe Overhead shall not qualify for overhead under any other overhead provisions.
 
In the event of any conflict between the provisions of this Section III.2 and the provisions of Sections II.2 ( Labor ), II.5 ( Services ), or II.7 ( Affiliates ), the provisions of this Section III.2 shall govern.
 
3.    AMENDMENT OF OVERHEAD RATES
 
The overhead rates provided for in this Section III may be amended from time to time if, in practice, the rates are found to be insufficient or excessive, in accordance with the provisions of Section I.6.B ( Amendments ).
 
IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS
 
The Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for direct purchases, transfers, and dispositions. The Operator shall provide all Material for use in the conduct of Joint Operations; however, Material may be supplied by the Non- Operators, at the Operator’s option. Material furnished by any Party shall be furnished without any express or implied warranties as to quality, fitness for use, or any other matter. Not w ithstanding   any   provision   contained   in   the   A c counting   Proc e d u re   to   the   contra r y,   no   Material relating to the drilling and construction work under Article VI.A of the Agreement shall be chargeable to the Joint Account .
 
1.    DIRECT PURCHASES
 
Direct purchases (Except as contemplated in Article VI.A of the Agreement) shall be charged to the Joint Account at the price paid by the Operator after deduction of all discounts received. The Operator shall make good faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to the extent such failure was the result of the Operator’s gross negligence or willful misconduct. A direct purchase shall be deemed to occur when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site or location. Material provided by the Operator under “vendor stocking programs,” where the initial use is for a Joint Property and title of the Material does not pass from the manufacturer, distributor, or agent until usage, is considered a direct purchase. If Material is found to be defective or is returned to the manufacturer, distributor, or agent for any other reason, credit shall be passed to the Joint Account within sixty (60) days after the Operator has received adjustment from the manufacturer, distributor, or agent.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
11
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
2.     TRANSFERS
 
A transfer is determined to occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has assumed liability for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material. Similarly, the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer; provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may remain charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section IV.3 ( Disposition   of   Surpl u s ) and the Agreement to which this Accounting Procedure is attached.
 
A.  
PRICING
 
The value of Material transferred to/from the Joint Property should generally reflect the market value on the date of physical transfer. Regardless of the pricing method used, the Operator shall make available to the Non-Operators sufficient documentation to verify the Material valuation. When higher than specification grade or size tubulars are used in the conduct of Joint Operations, the Operator shall charge the Joint Account at the equivalent price for well design specification tubulars, unless such higher specification grade or sized tubulars are approved by the Parties pursuant to Section I.6.A ( General   Matters ). Transfers of new Material will be priced using one of the following pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate between methods for the purpose of choosing the method most favorable to the Operator for a specific transfer:
 
(1)  
Using published prices in effect on date of movement as adjusted by the appropriate COPAS Historical Price Multiplier (HPM) or prices provided by the COPAS Computerized Equipment Pricing System (CEPS).
 
(a)  
For oil country tubulars and line pipe, the published price shall be based upon eastern mill carload base prices (Houston, Texas, for special end) adjusted as of date of movement, plus transportation cost as defined in Section IV.2.B ( F reigh t ).
 
(b)  
For other Material, the published price shall be the published list price in effect at date of movement, as listed by a Supply Store  nearest the Joint Property where like Material is normally available, or point of manufacture plus transportation costs as defined in Section IV.2.B ( F r eigh t ).
 
(2)  
Based on a price quotation from a vendor that reflects a current realistic acquisition cost.
 
(3)  
Based on the amount paid by the Operator for like Material in the vicinity of the Joint Property within the previous twelve (12) months from the date of physical transfer.
 
(4)  
As agreed to by the Participating Parties for Material being transferred to the Joint Property, and by the Parties owning the Material for Material being transferred from the Joint Property.
 
B.  
FREIGHT
 
Transportation costs shall be added to the Material transfer price using the  method prescribed by the  COPAS Computerized Equipment Pricing System (CEPS). If not using CEPS, transportation costs shall be calculated as follows:
 
(1)  
Transportation costs for oil country tubulars and line pipe shall be calculated using the distance from eastern mill to the Railway Receiving Point based on the carload weight basis as recommended by the COPAS MFI-38 (“Material Pricing Manual”) and other COPAS MFIs in effect at the time of the transfer.
 
(2)  
Transportation costs for special mill items shall be calculated from that mill's shipping point to the Railway Receiving Point. For transportation costs from other than eastern mills, the 30,000-pound interstate truck rate shall be used. Transportation costs for macaroni tubing shall be calculated based on the interstate truck rate per weight of tubing transferred to the Railway Receiving Point.
 
(3)  
Transportation costs for special end tubular goods shall be calculated using the interstate truck rate from Houston, Texas, to the Railway Receiving Point.
 
(4)  
Transportation costs for Material other than that described in Sections IV.2.B.(1) through (3), shall be calculated from the Supply Store or point of manufacture, whichever is appropriate, to the Railway Receiving Point
 
Regardless of whether using CEPS or manually calculating transportation costs, transportation costs from the Railway Receiving Point to the Joint Property are in addition to the foregoing, and may be charged to the Joint Account based on actual costs incurred. All transportation costs are subject to Equalized Freight as provided in Section II.4 ( Transporta t ion ) of this Accounting Procedure.
 
C.  
TAXES
 
Except as attributable to the costs and expenses incurred under Article VI.A of the Agreement,
Sales and use taxes shall be added to the Material transfer price using either the method contained in the COPAS Computerized Equipment Pricing System (CEPS) or the applicable tax rate in effect for the Joint Property at the time and place of transfer. In either case, the Joint Account shall be charged or credited at the rate that would have governed had the Material been a direct purchase.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
12
 

GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
D.   
CONDITION
 
(1)  
Condition “A” – New and unused Material in sound and serviceable condition shall be charged at one hundred percent (100%) of the price as determined in Sections IV.2.A ( Prici n g ), IV.2.B ( Freig h t ), and IV.2.C ( Taxes ). Material transferred from the Joint Property that was not placed in service shall be credited as charged without gain or loss; provided, however, any unused Material that was charged to the Joint Account through a direct purchase will be credited to the Joint Account at the original cost paid less restocking fees charged by the vendor. New and unused Material transferred from the Joint Property may be credited at a price other than the price originally charged to the Joint Account provided such price is approved by the Parties owning such Material, pursuant to Section I.6.A ( Gen e ral   Matters ). All refurbishing costs required or necessary to return the Material to original condition or to correct handling, transportation, or other damages will be borne by the divesting property. The Joint Account is responsible for Material preparation, handling, and transportation costs for new and unused Material charged to the Joint Property either through a direct purchase or transfer. Any preparation costs incurred, including any internal or external coating and wrapping, will be credited on new Material provided these services were not repeated for such Material for the receiving property.
 
(2)  
Condition “B” – Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced by multiplying the price determined in Sections IV.2.A ( Pricing ), IV.2.B ( F reigh t ), and IV.2.C ( Taxes ) by seventy-five percent (75%).
 
Except as provided in Section IV.2.D(3), all reconditioning costs required to return the Material to Condition “B” or to correct handling, transportation or other damages will be borne by the divesting property.
 
If the Material was originally charged to the Joint Account as used Material and placed in service for the Joint Property, the Material will be credited at the price determined in Sections IV.2.A ( Pric i ng ), IV.2.B ( Frei g h t ), and IV.2.C ( Taxes ) multiplied by sixty-five percent (65%).
 
Unless otherwise agreed to by the Parties that paid for such Material, used Material transferred from the Joint Property that was not placed in service on the property shall be credited as charged without gain or loss.
 
(3)  
Condition “C” – Material that is not in sound and serviceable condition and not suitable for its original function until after reconditioning shall be priced by multiplying the price determined in Sections IV.2.A ( Pri c ing ), IV.2.B ( F reigh t ), and IV.2.C ( Taxes ) by fifty percent (50%).
 
The cost of reconditioning may be charged to the receiving property to the extent Condition “C” value, plus cost of reconditioning, does not exceed Condition “B” value.
 
(4)  
Condition “D” – Material that (i) is no longer suitable for its original purpose but useable for some other purpose, (ii) is obsolete, or (iii) does not meet original specifications but still has value and can be used in other applications as a substitute for items with different specifications, is considered Condition “D” Material. 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. 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. For other items, the price used should result in the Joint Account being charged or credited with the value of the service rendered or use of the Material, or as agreed to by the Parties pursuant to Section 1.6.A ( General   Matters ).
 
(5)  
Condition “E” – Junk shall be priced at prevailing scrap value prices.
 
E.   
OTHER PRICING PROVISIONS
 
(1)  
Preparation Costs
 
Subject to Section II ( Direct   Charges ) and Section III ( Overhead ) of this Accounting Procedure, costs incurred by the Operator in making Material serviceable including inspection, third party surveillance services, and other similar services will be charged to the Joint Account at prices which reflect the Operator’s actual costs of the services. Documentation must be provided to the Non-Operators upon request to support the cost of service. New coating and/or wrapping shall be considered a component of the Materials and priced in accordance with Sections IV.1 ( Direct   Purchases ) or IV.2.A ( Pricing ), as applicable. No charges or credits shall be made for used coating or wrapping. Charges and credits for inspections shall be made in accordance with COPAS MFI-38 (“Material Pricing Manual”).
 
(2)  
Loading and Unloading Costs
 
Loading and unloading costs related to the movement of the Material to the Joint Property shall be charged in accordance with the methods specified in COPAS MFI-38 (“Material Pricing Manual”).
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
13
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.

3.    DISPOSITION OF SURPLUS
 
Surplus Material is that Material, whether new or used, that is no longer required for Joint Operations. The Operator may purchase, but shall be under no obligation to purchase, the interest of the Non-Operators in surplus Material.
 
Dispositions for the purpose of this procedure are considered to be the relinquishment of title of the Material from the Joint Property to either a third party, a Non-Operator, or to the Operator. To avoid the accumulation of surplus Material, the Operator should make good faith efforts to dispose of surplus within twelve (12) months through buy/sale agreements, trade, sale to a third party, division in kind, or other dispositions as agreed to by the Parties.
 
Disposal of surplus Materials shall be made in accordance with the terms of the Agreement to which this Accounting Procedure is attached. If the Agreement contains no provisions governing disposal of surplus Material, the following terms shall apply:
 
•  
The Operator may, through a sale to an unrelated third party or entity, dispose of surplus Material having a gross sale value that is less than or equal to the Operator’s expenditure limit as set forth in the Agreement to which this Accounting Procedure is attached without the prior approval of the Parties owning such Material.
 
•  
If the gross sale value exceeds the Agreement expenditure limit, the disposal must be agreed to by the Parties owning such Material.
 
•  
Operator may purchase surplus Condition “A” or “B” Material without approval of the Parties owning such Material, based on the pricing methods set forth in Section IV.2 ( Transfers ).
 
•  
Operator may purchase Condition “C” Material without prior approval of the Parties owning such Material if the value of the Materials, based on the pricing methods set forth in Section IV.2 ( Transfers ), is less than or equal to the Operator’s expenditure limitation set forth in the Agreement. The Operator shall provide documentation supporting the classification of the Material as Condition C.
 
•  
Operator may dispose of Condition “D” or “E” Material under procedures normally utilized by Operator without prior approval of the Parties owning such Material.
 
4.    SPECIAL PRICING PROVISIONS
 
A.   
PREMIUM PRICING
 
Whenever Material is available only at inflated prices due to national emergencies, strikes, government imposed foreign trade restrictions, or other unusual causes over which the Operator has no control, for direct purchase the Operator may charge the Joint Account for the required Material at the Operator’s actual cost incurred in providing such Material, making it suitable for use, and moving it to the Joint Property. Material transferred or disposed of during premium pricing situations shall be valued in accordance with Section IV.2 ( Transfers ) or Section IV.3 ( Disposition   of   Surp l u s ), as applicable.
 
B.   
SHOP-MADE ITEMS
 
Items fabricated by the Operator’s employees, or by contract laborers under the direction of the Operator, shall be priced using the value of the Material used to construct the item plus the cost of labor to fabricate the item. If the Material is from the Operator’s scrap or junk account, the Material shall be priced at either twenty-five percent (25%) of the current price as determined in Section IV.2.A ( Pr i cing ) or scrap value, whichever is higher. In no event shall the amount charged exceed the value of the item commensurate with its use.
 
C.   
MILL REJECTS
 
Mill rejects purchased as “limited service” casing or tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined in Section IV.2 ( Tr a nsfers ). Line pipe converted to casing or tubing with casing or tubing couplings attached shall be priced as K-55/J- 55 casing or tubing at the nearest size and weight.
 
V. INVENTORIES OF CONTROLLABLE MATERIAL
 
The Operator shall maintain records of Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.
 
Adjustments to the Joint Account by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve (12) months following the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for overages or shortages will be valued for the Joint Account in accordance with Section IV.2 ( Transfers ) and shall be based on the Condition “B” prices in effect on the date of physical inventory unless the inventorying Parties can provide sufficient evidence another Material condition applies.
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
14
 
 
GRAPHIC
 
COPAS 2005 Accounting Procedure
Recommended by COPAS, Inc.
 
1.    DIRECTED INVENTORIES
 
Physical inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators (hereinafter, “directed inventory”); provided, however, the Operator shall not be required to perform directed inventories more frequently than once every five (5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator receives written notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed by the results of any directed inventory.
 
Expenses of directed inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up work in settling the inventory will be absorbed by the Party incurring such costs. The Operator is expected to exercise judgment in keeping expenses within reasonable limits. Any anticipated disproportionate or extraordinary costs should be discussed and agreed upon prior to commencement of the inventory. Expenses of directed inventories may include the following:
 
A.  
A per diem rate for each inventory person, representative of actual salaries, wages, and payroll burdens and benefits of the personnel performing the inventory or a rate agreed to by the Parties pursuant to Section I.6.A ( Gene r al   Matters ). The per diem rate shall also be applied to a reasonable number of days for pre-inventory work and report preparation.
 
B.  
Actual transportation costs and Personal Expenses for the inventory team.
 
C.  
Reasonable charges for report preparation and distribution to the Non-Operators.
 
2.     NON-DIRECTED INVENTORIES
 
A.  
OPERATOR INVENTORIES
 
Physical inventories that are not requested by the Non-Operators may be performed by the Operator, at the Operator’s discretion. The expenses of conducting such Operator-initiated inventories shall not be charged to the Joint Account.
 
B.  
NON-OPERATOR INVENTORIES
 
Subject to the terms of the Agreement to which this Accounting Procedure is attached, the Non-Operators may conduct a physical inventory at reasonable times at their sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The Non-Operator inventory report shall be furnished to the Operator in writing within ninety (90) days of completing the inventory fieldwork.
 
C.  
SPECIAL INVENTORIES
 
The expense of conducting inventories other than those described in Sections V.1 ( Directed   Inventories ), V.2.A ( Op e rator   Inventories ), or V.2.B ( Non - Operator   I nventories ), shall be charged to the Party requesting such inventory; provided, however, inventories required due to a change of Operator shall be charged to the Joint Account in the same manner as described in Section V.1 ( Directed   Inventories ).
 
COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
 
 
15
 
 
MODEL FORM OPERATING AGREEMENT BRIGHT 1H

EXHIBIT D


Insurance

Southlake currently carries the following insurance effecting the Birdwell 1H.

 
Coverage
 
Limit
   
Retention
 
Notes
Drilling Wells
  $ 3,000,000     $ 100,000  
Control of Well
 
               
Redrill & Extra Expense
 
               
Pollution & Cleanup
Work-Over Wells
  $ 3,000,000     $ 100,000  
Control of Well
 
               
Redrill & Extra Expense
 
               
Pollution & Cleanup
Producing Wells
  $ 3,000,000     $ 100,000  
Control of Well
 
               
Redrill & Extra Expense
                 
Pollution & Cleanup
General Liability
  $ 2,000,000       N/A  
Aggregate
 
  $ 1,000,000       N/A  
Occurrence
 
  $ 100,000       N/A  
Premises Damage
    $ 5,000       N/A  
Medical Payments
Umbrella
  $ 4,000,000     $ 10,000  
(Self Insured Retention)
 
 
 
 
 
Exhibit 23.2
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the use of our report dated January 27, 2014 included herein and to the reference to our firm under the heading “Experts” in the prospectus.





/s/ RBSM LLP


New York, New York
May 9, 2014