In January 2012, Torchlight entered into a farm-in agreement with La Sal Energy, LLC which owns a 100% working interest and a 75% net revenue interest in certain oil, gas and mineral leases in Waller County, Texas, where the well known as “John Coulter #1-R” is located. Pursuant to the agreement, Torchlight acquired a 34% working interest and a 34% net revenue interest in La Sal’s interest in the John Coulter #1-R for the purchase price of $350k, which is expected to be sufficient to fund the fracing of the well. Once the well reaches production, The Company will receive 80% of the net revenue (with La Sal getting the remaining 20%) until the net revenue is an accumulated $437,500. During this period, any incremental expenses will be split according to actual percentage interests in the well. After the well generates over $437,500 in net revenue, it will be split according to the actual percentage interests in the well.
In addition, the agreement provides Torchlight with multiple options to acquire additional interests in La Sal’s interest in the well up to a total of 45%. Torchlight exercised the first option and purchased an additional 6% for $50k and still has the second option to purchase the remaining 5% for another $50k out of production.