Item 2.01 Completion of Acquisition or Disposition of
Assets.
Hunter Oil Purchase and Sale Agreement and Stock Purchase
Agreement
As previously disclosed in the Current Report on
Form 8-K filed by the Company with the Securities and Exchange
Commission on August 1, 2018 (the “
Form
8-K
”), on August 1, 2018,
PEDCO (defined below) entered into a Purchase and Sale Agreement
with Milnesand Minerals Inc., a Delaware corporation, Chaveroo
Minerals Inc., a Delaware corporation, Ridgeway Arizona Oil Corp.,
an Arizona corporation (“
RAOC
”),
and EOR Operating Company, a Texas corporation
(“
EOR
”)(collectively “
Seller
”)(the
“
Purchase
Agreement
”). Pursuant to
the Purchase Agreement, we (through our wholly-owned
subsidiary
Pacific Energy Development Corp.
(“
PEDCO
”)
) agreed to acquire certain oil and gas assets
described in greater detail below (the “
Assets
”)
from the Seller in consideration for $18,500,000 (of which $500,000
is to be held back to provide for potential indemnification of
PEDCO under the Purchase Agreement and Stock Purchase Agreement
(described below), with one-half ($250,000) to be released to
Seller 90 days after closing and the balance ($250,000) to be
released 180 days after closing (provided that if a court of
competent jurisdiction determines that any part of the amount
withheld by PEDCO subsequent to 180 days after closing was in fact
due to the Seller, PEDCO is required to pay Seller 200%, instead of
100%, of the amount so retained)).
On
August 31, 2018, we closed the transactions contemplated by the
Purchase Agreement and acquired the Assets for an aggregate of
$18,500,000. The effective date of the acquisition was September 1,
2018.
The Purchase Agreement contains customary
representations and warranties of the parties, and indemnification
requirements (subject to a $25,000 aggregate minimum threshold and
a $1,000,000 cap as to each of us and Seller).
The Purchase Agreement allows PEDCO to
audit the revenues and expenses of the Seller attributable to the
Assets for the period of three years prior to the closing, among
other things, and requires the Seller to provide assistance to
PEDCO in connection with such audit for the first 180 days
following closing (with such Seller’s reasonable costs
associated with such audit being reimbursed by PEDCO at the rate of
150% of such costs).
The
Assets represent approximately 23,000 net leasehold acres, current
operated production, and all of Seller’s leases and related
rights, oil and gas and other wells, equipment, easements, contract
rights, and production (effective as of the effective date) as
described in the Purchase Agreement. The Assets are located in the
San Andres play in the Permian Basin situated in west Texas and
eastern New Mexico, with all acreage and production 100% operated
and substantially all acreage held by production.
Also on August 31, 2018, PEDCO closed the
transactions contemplated by the August 1, 2018 Stock Purchase
Agreement with Hunter Oil Production Corp.
(“
Hunter
Oil
”), as described in
greater detail in the Form 8-K. Pursuant to the Stock Purchase
Agreement, PEDCO acquired all of the stock of RAOC and EOR (the
“
Acquired
Companies
”) for a net of
$500,000 (an aggregate purchase price of $2,815,636, less
$2,315,636 in restricted cash which the Acquired Companies are
required to maintain as of the closing date). The Stock Purchase
Agreement contains customary representations and warranties of the
parties, post-closing adjustments, and indemnification requirements
requiring Hunter Oil to indemnify us for certain items (subject to
the $25,000 aggregate minimum threshold and $1,000,000 cap provided
for in the Purchase Agreement) and us to indemnify Hunter Oil for
certain items (which requirement does not include a threshold or
cap).
* * * *
* * * * *
The
foregoing description of the Purchase Agreement and Stock Purchase
Agreement does not purport to be complete and is qualified in its
entirety by reference to the Purchase Agreement and Stock Purchase
Agreement, copies of which are incorporated by reference herein
as
Exhibits
2.1
and
10.3
, respectively, to this
Current Report on Form 8-K and incorporated herein by
reference.