Item
8.01 Other Events
The
Company is the operator of certain wells located in the Slick Unit Dutcher Sand oil and gas unit in Creek County, Oklahoma (the “SUDS
Unit”).
On
May 8, 2019, the Company was sued in the District Court in and for Creek County, Oklahoma (Sapulpa Division) (the “District
Court”) by LazyDRanch, which owns certain land consisting of approximately 160 acres located within the SUDS Unit (the
“LazyDRanch Property”). In the Lawsuit, LazyDRanch alleged that the Company had allowed the release of deleterious
substances from its wells onto, and failed to remove abandoned oil field equipment from, the LazyDRanch Property, and demanded that the
Company plug certain wells, remove pipelines, flowlines, and other oilfield related equipment, and perform surface restoration and remediation
of the LazyDRanch Property. LazyDRanch also sought damages in excess of $75,000 under several equitable and legal theories of recovery,
plus statutory interest and an award of its attorneys’ fees and court costs. See Exhibit 10.2 hereto.
On
July 22, 2019, the District Court entered a default judgment in favor of LazyDRanch and ordered the Company to begin conducting soil
and groundwater sampling and testing on the LazyDRanch Property and removing and properly disposing of all deleterious substances that
had been allowed to discharge from the Company’s abandoned wellbores onto the LazyDRanch Property within thirty days of the entry
of judgment. The District Court also ordered the Company to perform certain remediation work at the LazyDRanch Property and remove all
of its oilfield equipment (including properly plugging and abandoning all oil and gas wellbores owned or operated by the Company on the
LazyDRanch Property) within thirty days after completing such removal and disposal. In addition, the District Court authorized LazyDRanch
to commence abatement and remediation work in the event that the Company failed to comply with the District Court’s orders and
provided that any costs and expenses reasonably incurred by LazyDRanch in so doing would be awarded as additional damages against the
Company.
On
January 21, 2020, LazyDRanch filed an application for a hearing on damages with the District Court, in which LazyDRanch alleged that
the Company had failed to comply with the District Court’s judgment and demanded that the Company pay $1,988,372 for nuisance abatement,
remediation, and restoration of the LazyDRanch Property in accordance with a bid estimate obtained by LazyDRanch.
On
February 10, 2020, the District Court entered judgment against the Company for damages in the amount of $1,988,372 plus post-judgment
interest at a rate of 6.75% and reserved a determination on the final amount of LazyDRanch’s damages, interest, attorney’s
fees and costs. See Exhibit 10.3 hereto.
Pursuant
to the Settlement Agreement (discussed in Item 1.01, above), the Company agreed to (i) make payments totaling $75,000 to
LazyDRanch in three installments, with $30,000 payable upon settlement of the lawsuit, $30,000 payable within 45 days of the dismissal
of the Lawsuit, and the last of which was payable within 180 days of dismissal of the Lawsuit; (ii) use its best efforts to remove
the LazyDRanch Property from the SUDS Field by obtaining a final, non-appealable order from the Oklahoma Corporation Commission (“OCC”) as
to such removal (or enter into a mutually acceptable Surface Non-Use Agreement with LazyDRanch in the event such removal application
was denied); and (iii) engage in specified remediation work at the LazyDRanch Property (the “Remediation Work”) at
a maximum cost to the Company of up to $200,000, excluding the cost of plugging the four wells located on the LazyDRanch Property. The
Remediation Work included (a) plugging and abandoning the above-mentioned four wells at a rate of at least one (1) well per
quarter; (b) testing/remediating/re-seeding soils; (c) landfarming any additional remediation related to well location; (d) removing
all oilfield related surface equipment; (e) performing surface restoration and remediation at locations with hydrocarbon and brine
soil impacts; and (f) flushing, pickling and capping all preexisting transportation flow lines, all of which was to be completed
in accordance with OCC rules and regulations within 24 months from the date of execution of the Settlement Agreement. Pursuant to
the Settlement Agreement, LazyDRanch agreed to release all judgments obtained in the Lawsuit and to dismiss the Lawsuit with prejudice
within 5 business days from the execution thereof.
On
August 21, 2020, LazyDRanch released its judgment and dismissed the Lawsuit with prejudice by filing a Release and Satisfaction of Judgment
and Dismissal of Case with Prejudice in the District Court.
To
date the Company has paid a total of $75,000 to LazyDRanch pursuant to the terms of the Settlement Agreement and further completed the
following Remediation Work: removed power lines and transformers, steel posts, flowlines and oilfield surface equipment.