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Wind River was to receive 12 percent of the capital invested
in Stonehurst as an “Initial Management Fee”, and an overriding
production royalty of 6.9 percent of gross revenues from Craig
Natural Resources, Inc. (Craig), the sublessor of the land and
named obligee of the minimum annual royalties, described infra
pp. 6-8. Craig also was to receive 8 percent of the initial
capital invested in Stonehurst as a “consulting fee”.
a. The Stonehurst Private Placement Memorandum
The Stonehurst Energy Partners Private Placement Memorandum
(the Memorandum) represented that the partnership “intends to
engage in acquiring, drilling and possibly completing twenty-five
(25) or more shallow Developmental Oil Wells in northeastern
Oklahoma.” The Memorandum characterized these wells as having
more limited prospects of discovering and exploiting “significant
reserves of oil and gas in relation to the capital committed
* * * although bearing less risk” than the drilling of
exploratory wells in a relatively unproven area or formation.
The Memorandum stated that the partnership “does not presently
intend to engage in the drilling of any Exploratory Wells”, while
on another page, it emphasized the “high degree of risk of loss”
involved in “exploration” for oil and gas, and offered no
assurances that investors would recover their capital
contributions. The Memorandum stated that the offering would be
restricted to individuals who had annual income sufficient to
incur Federal income tax liability at the rate of 50 percent.
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Last modified: May 25, 2011